Environmental Problems, Their Causes, and Sustainability 1

onment, their flow rates through the economy, and theoutputs of pollution, waste, and heat into the environment(Figure 3-18, p. 53). This approach would give usdetailed information on how conditions are changing,what problems are more serious than others, and whatsolutions work the best. However, it is difficult andcostly to get such information, especially for nonmarkettransactions, as discussed below.The GPI and other environmental and social indicatorsare far from perfect and include many crude estimates.But without such indicators, we do not knowmuch about what is happening to people, the environment,and the planet’s natural resource base, and wehave no effective way to measure what policies work.In effect, according to ecological and environmentaleconomists, we are trying to guide national and globaleconomies through treacherous economic and environmentalwaters at ever-increasing speeds without agood radar system.The good news is that several of these indicators areavailable. The bad news is that they are not widely usedand reported. Proponents call for us to get to the pointthat every time a change in GDP is reported we alsoget information on a change in one or more environmentaland social indicators.How Can We Assign Monetary Valuesto Resources Not Traded in the Marketplace?Ways to Represent NatureEconomists have developed several ways toestimate the nonmarket values of the earth’secological services.Environmental and ecological economists have developedvarious tools for estimating the values of theearth’s ecological services, as discussed earlier onp. 204.This involves estimating nonuse values not representedin market transactions. One is an existence valuebased on knowing that an old-growth forest or endangeredspecies exists, even though we may never seethem or use them. Another is aesthetic value based onputting a monetary value on a forest, species, or partof nature because of its beauty. A third type, called abequest or option value, is based on the willingness ofpeople to pay to protect some forms of natural capitalfor use by future generations.Economists have developed several ways to estimatethe monetary value of resources that cannot bepriced by conventional means. One approach is to estimatea mitigation cost of how much it would take to offsetan environmental damage. For example, howmuch would it cost to protect a forest from cutting,move an endangered species to a new habitat, or restorea statue damaged by air pollution?1996 Dollars per person35,00030,00025,00020,00015,00010,0005,00001950Per capita gross domestic product (GDP)Per capita genuine progress indicator (GPI)1960 1970 1980 1990 2000YearFigure 26-8 Comparison of the per capita gross domesticproduct (GDP) and per capita genuine progress indicator (GPI)in the United States between 1950 and 2000. (Data fromRedefining Progress, 2002)Another method is to estimate a willingness to pay byusing a survey to determine how much people would bewilling to pay to keep a particular species from becomingextinct, a particular forest from being cut down, or aspecific river or beach from being polluted. This approachis controversial because people may inflate theirestimates and not indicate the prices they would reallypay to preserve various nonuse values.How Can We Estimate the Future Valueof a Resource? Assigning Discount RatesEconomists use discount rates to estimate the futurevalue of a resource.The discount rate is an estimate of a resource’s futureeconomic value compared to its present value. It isbased on the idea that having something today may beworth more than it will be in the future. The size of thediscount rate (usually given as a percentage) is a primaryfactor affecting how a resource such as a forest orfishery is used or managed.At a zero discount rate, for example, a stand ofredwood trees worth $1 million today will still beworth $1 million 50 years from now. However, mostbusinesses, the U.S. Office of Management and Budget,and the World Bank typically use a 10% annual discountrate to evaluate how resources should be used.At this rate, the stand of redwood trees will be worthonly $10,000 in 50 years. With this discount rate, itmakes sense from an economic standpoint for anowner to cut these trees down as quickly as possibleand invest the money in something else.http://biology.brookscole.com/miller14591