Environmental economics

The environmental economics is the branch of the economy which deals with theoretical point of view of the relations between the human society and the Environnement, in particular within the framework of the environmental economic policies .

Context and economic approach

the men always represented the Earth as a giantess on the skin of which they were agitated, busy transitory living of it but unable to affect its life. For the first time of the history of humanity, the Earth appears small to us. And not only small, but fragile.
Bertrand de Jouvenel (1959) quoted in

The emergence of the concept

Greenhouse effect with the retreat of the biodiversity while passing by pollution of the grounds, the environmental question completely invested the field of the economic discipline today. This Cultural revolution begins in the years 1970 with the awakening ecological which follows the mediatization of first great pollution.

The Western economies gradually take the environmental measurement of the cost of the growth: it is about a major change of the vision of the environment hitherto considered as an unlimited tank for the inputs and the extrants. On the contrary, the environment shows limits in provisioning so much (overexploitation of the natural resources like the Pétrole or the reserves halieutics) that in outlets (Pollution of the ground water, for example). The economic growth, as a consequence of the human activity, obviously has an negative impact on our environment.

As strange as that can appear, this awakening is recent. The etymology of the term economy (of oikos , the house and of nomos , the rule) testify to an effective will of management of the house , i.e. the environment, and return to that of ecology (of oikos , the house and of logos , the study). If the thought of the physiocrats or traditional bound without ambiguity the economy to the scarcity of the natural resources, the neo-classic theory retained scarcity only its financial dimension and occulted its possible exhaustion. Thus the first true meeting of the economy and ecology (made up in science) probably intervenes in 1972 within the report/ratio of the Cercle of Rome, entitled “ Limits of the croissance ”. This alarmist text on the limits of the energy reserves marks the redécouverte concept environment by the neo-classic theory.

This integration of the environmental component within the economic corpus did not make it possible to reverse the situation and the totality of the modern economies, that they are those of the developed countries or those of the developing countries, which remain polluting (in a broad direction).

The man, nature and technique

Without entering a thorough and certainly philosophical study of the relationship between the man and nature, one can note the evolution which passes from a total dependence of the man to nature, by the fruits and the fear of the climatic risks for the tribes of Chasseur-cueilleur, with the apparent independence of the modern man. the EC-last a long time believed to completely be able to free itself from its medium by transforming it and by domesticating it, even by controlling it. thanks to the technique or with technology.

From this point of view, the environment becomes what is external with the man, which is foreign for him and by a shift in meaning it on what the man cannot act. As we saw, it is false to believe that the human activity does not interact with its environment: source and outlet of the economic activity, nature lives with the man and not in spite of the man. While being excluded from nature, the man distorted his analysis of the situation and disturbed nature deeply.

the objective of the environmental economics

It is from this particular point of view which this expression forged that some even qualify oxymore of nonsense: environmental economics. Its objective is to reinstate the environment within the particular framework of the economy and more precisely of the economic scene. What the neo-classic economists had rejected out of their field of view, probably unconsciously, the environmental economics seeks to include it.

The environmental economics is the research of a new effectiveness which integrates the interactions between agents but also between the agents and the environment (in the broad sense). This new vision is not exclusive old economic vision: it acts contrary to building around the traditional economy a building which takes account of the environmental variable.

This evolution is not neutral: it supposes a certain number of basic assumptions and especially it requires to redefine a central notion of the economy: wellbeing of the individuals. In the neo-classic economy, the wellbeing takes account of the consumption of commercial goods. In environmental economics, he is necessary to add to it the value which the individuals confer on their environment within a framework of leisure, and finally its value often impossible symbolic system with monétiser.

Economic theory and environment

Pareto's optimum and externalities

The economy, at least its neo-classic version, is interested in the optimum (or optima), i.e. the greatest possible effectiveness on a given economic question. For example, the Pareto's optimum is certainly one of the most used tools economic scene: it consists in being in a situation such as any improvement of the wellbeing of an individual (or a category of individuals) can be done only with the detriment of an other individual (or of another category of individuals). Known as differently, the Pareto's optimum is a situation where all the initial allowance was shared. For this reason, it is a situation of reference of the economic theory.

However the search for such an optimum is not necessarily right from a social or environmental point of view. The research of the optimum proceeding within the strict framework of the commercial exchanges, certain effects which are not affected of a value, are completely isolated search for effectiveness. It is precisely the case when one occults the dimension particulère which the environment constitutes: they are external effects , implied with the commercial exchange, also called Externalité S .

Let us take an example: a company produces electricity starting from coal. It provides its electricity at a certain price with its consumers. If it can be provided out of coal at a low price, it will be able to reflect this fall on its selling price. However this coal is less expensive because it is of less good quality: it contains in considerable proportion of sulfur. The combustion of this coal of bad quality, if it allows an improvement of the wellbeing of the consumers by the reduction of the price, it results in a fall of the environmental quality (acid rains, in fact): this fall is not naturally integrated into the commercial exchange. It should be reinstated i.e. internaliser the external effects , the latter creating of inefficiencies. By simplifying the formulation, it is necessary to include in the prices environmental degradations (pollution, overexploitation) which, if not, would be ignored.

Let us note as of now that the environmental economics makes the good share with a particular balance: optimum of pollution. Indeed, that “ means; internaliser the environnementaux effects; ”, if is not to find a balance such, that by taking account of the environmental variable, one obtains a balance of Pareto. Known as differently, by enlarging the feature, I cannot improve the wellbeing any more of the individuals sensitive to the environmental variable without injuring another group of individuals. This optimum of pollution (which will emerge, one will further see it, on the markets of rights to pollute) is often the most important criticism formulated by the ecologists against the environmental economics.

Principles founders

The concept even of optima depends on the possibility of a choice: who do I have to integrate in my search for optimum? who do I have to defend and against what? As we underlined in introduction, the environmental economics is closely related on the economic policies and the choice which result from this. These choices must be formulated in the most objective possible way and must, for this reason, be based on undeniable principles.

Principle pollutant-payer

The Principe pollutant-payer was born in Germany and was adopted by OECD in 1972 like principle founder of the economy. Its goal is to determine with which to charge the cost of a pollution. Its formulation, under covers of a naive obviousness, should not make forget that it is at the same time difficult to set up and seldom applied.

Let us take again the example of the electrical production starting from coal. If the company uses coal of bad quality, it will contribute to the deterioration of the quality of the air: it is with it that will return to pay the cost of pollution (we will see in the next parts, the forms of this payment). However, it can réimpacter this cost on the level of the consumers, which amounts making them carry the load of pollution.

Let us return to the principle in itself: does the principle not-pollutant-payer have a direction? The answer is unfortunately “ oui ”. Indeed, beyond the slip that we saw in the preceding example, the principle not-pollutant-payer amounts saying that which does not want that its environment is polluted must pay so that the pollutant does not pollute it any more. That appears a very cynical formulation, but let us not forget that it is precisely the role, in France, of the Agences of Water: the ultimate consumer pays a tax on water to allow polluting industries to modernize their installations. Behind this principle apparently pain-killer and self-explanatory, takes shape an extremely complex reality.

Precaution principle

The Precaution principle largely did the one of the media through three cases where he was called upon, sometimes wrongly: the Business of blood contaminated (it would have been necessary to show precaution), the business of the mad cow and GMO (it is necessary to be extremely careful and to show precaution). Without entering in detail of the mechanisms to work behind this principle, let us observe its consequences in environmental economics.

This principle aims before very eliminating any risk of irreversible damage to the environment. If I release from the GMO in nature and that those are hybrident with bad natural grasses, how could I get rid of these bad resistant grasses? The economic model will be able to take the problem in all the directions, if such a possibility occurs, the evil will be made.

Time and sustainable development

See also Sustainable development for a more complete outline on this question

The sustainable development is, to some extent, the result of the step of the environmental economics: it aims at finding a solution at the same time economically and ecologically viable. Without looking further into this concept too much, let us note that it gives a important role to the concept of duration, i.e. to time. Because the optimum which must be required within the framework presented until now should not be effective at a given moment, but in the duration.

One sees taking shape here the concept of a principle intergénérationnel: the decisions today should not threaten the environment of tomorrow. The concept of sustainable development thus goes well beyond the simple precaution principle. The difficulties related to sustainable development, in particular on the blur surrounding its definition, are evoked in the article to him being devoted.

Monetary evaluation: the value of the environment

The concept of Valeur is central in economy. To assign a value to the environment is thus essential for its perfect taking into account in the equations. For as much this assignment is not easy: which money value to give to a species of beetle threatened of disappearance by the construction of a highway? This value could be is:

infinite : in this case, it is necessary to stop the construction of the highway,
null : here, it is necessary to continue, costs that costs, the construction of the highway,
intermediate : will the final choice be determined by confrontation between the value given to this highway and that given to this particular species of beetle?

Will the attribution of one value to the construction of the highway is relatively easy (how much people borrow it? which is the time which will be saved?) ; one can include an environmental component even there (how much CO₂ it will be saved by removing the stoppers along the Trunk road in the vicinity?). It is imagined easily that the economic value of the species of beetle is not less easy to determine. Who would be ready to pay to save this species? And, especially how much? With such a reasoning, one expensive does not give skin of these beetles vis-a-vis the concerned sums… It is thus necessary to move the interrogation on a symbolic system plan: are we ready to reduce the Biodiversité for the construction of a highway? Formulated this manner, the beetles have all their chances to threaten the project of highway.

As we have just seen it, the attribution of a value to the environmental components is fundamental but complex. Several methods are used to do it: ; method of the displacement or costs of transport: which distance are ready to traverse the individuals to benefit from a landscape, or an object (beetles, for example)? One measures the cost of transport really spent by individuals to come to such or such place. ; method of the prices hedonists: one observes the sums which the individuals to obtain such or such environmental advantage devote; this method applies especially to the real goods where it amounts calculating the overcost which represents a beautiful landscape or an air “ pur ” ; method evaluation of the expenditure of protection: how much is ready to pay the individuals not to undergo one environmental attack more (example: cost of a removal not to undergo one pollution more, a noise for example)? ; method of Valuation fixes quotas for: with the difference, preceding methods, the evaluation consists in questioning more than to observe. In the three preceding methods, one observes the cost of transport, the environmental overcost or the expenditure of protection: they are money sums which the individuals spend indeed. The contingent evaluation consists in questioning the individuals within the framework of investigation.

Pour the anecdote, the beetle which is used as illustration with this part is the Spade-Plum and the highway in question is the French Autoroute A28. -->

Green GDP

For already a few years, the economists have thought of a green GDP . By this last, one understands a measurement which withdraws conventional GDP the fall of the stock of natural resources. Such a method of accounting would make it possible to better know if an economic activity increases or cause a drop in the national wealth when it uses natural resources. However, the economists estimate that it would be difficult, undoubtedly, to set up this new indicator.

Tools of the environmental economics

The example of the protocol of Kyoto

The Protocole of Kyoto is an illustration characteristic of the role of the environmental economics: it is indeed a question of reconciling the Economic development with the environmental constraints. The drafting of the protocol utilized a whole of specialists in various disciplinary fields: Meteorologist S, industrialists, Lawyer S, etc And it was necessary to reconcile the whole of the visions. Starting from the Given S scientists (the impact of a ton of CO₂ slackens in the Air) and of the economic situation (impact on the growth), in a given legal framework (an international agreement), the environmental economics seeks to define an optimal situation (optimum of Pollution) to reach and build a certain number of tools which will make it possible to achieve this goal.

The optimum of pollution thus defined will be, by definition, distant from two other positions: of that of the partisans of a ecology lasts (or deep according to the literal translation of deep ecology ) who will aim at cancelling the carbon emissions, and of that of the ultra-liberal which think that nothing must block the growth and that the environment will be incluera naturally in the prices. The position of the environmental economics is by nature a compromise.

Thus, the objective to return in 2012 on a level of emission of CO₂ lower by 5,2% in lower part of that of 1990, will be translated differently according to the countries. Certain developing countries as the Brésil will be able to increase their emission of CO₂, the majority of the Pays developed in front of reducing it. The case of the France is particular since this country must maintain its level of production and not to lower it.

Taxes, premiums and markets of rights to pollute

The State can intervene while regulating by the fixing of a standard or a tax. Both must lead to the same result in term of pollution if the costs of depollution of the firm are known. In the case of the tax, the pollutant pays a tax which will aim at compensating for the damage undergoes by polluted. Apparently, the tax respects the principle pollutant payer. Let us note that in France, a tax not being able to be affected with a precise aim, the environmental taxes (except for TIPP) are lost in the ocean which the budget of the State constitutes.

The second instrument is the premium: either a premium with the modernization of the apparatus of production, or a premium with the not-pollutant. In the first case, polluted is invited to pay a premium which must help the pollutant to improve its installations and thus with less polluting: it is the operation of PMPOA in France. In the second case, one congratulates the companies which do not pollute, or less than the others, in their slope a premium. When the mechanism of the premium is coupled with that of the tax, the principle pollutant-payer is respected overall: those which pollute pay a tax which is transferred to them in the form of a premium which will allow the public authority to direct modernization. On the other hand, if it is the taxpayer who pays, the principle polleur-payer absoluement is absoluement not respected; it is however this device which one frequently finds.

The last solution of this type is the installation of a market of rights to pollute or more generally of a gone of externalities . This solution rests on the Théorème of Coase: for Coase, the externalities do not mark the failure of the economic theory, but only the absence of a property right on the environment: nature does not belong to anybody and it is the problem well there. A first solution consists in reintroducing a property right on the environment itself: that can be the case of an identifiable material resource like a river. The property can be allotted either to polluted, or with the pollutant. The second solution is truly the market of right to pollute or, more moderately, the market of negotiable licenses. The companies are exchanged, i.e. are sold and bought, of the licenses which their give right to emit for example sulfur (cf our example of electrical production). Years by years, the public authorities reduce the number of licenses: their scarcity involves a rise of the prices, incentive more and more of companies to modernize their installation. The notable advantage of this solution compared to the preceding ones is that the taxation, and thus the taxpayers do not intervene. Nevertheless, the theorem of Coase has as a fundamental assumption the absence of costs of transaction (assumption which does not hold when there is a great number of involved parts). The analysis of these situations exceeding the framework of this article we return the reader on that relating to the Théorème of Coase and on that on the Marchés of negotiable license (see also Bourse of carbon).

Lawful instruments

The second main category of instruments is the lawful way. It is a question for the legislator of enacting Loi S which prohibit such or such type of Pollution or at least, into fixed a maximum standard of emission.

This way is apparently easier to implement, since it is enough to promulgate laws. This appearance of facility can meet several shelves: will the laws be relevant (question of Legal security)? Will one be able to control the application of it? In certain cases, the State is not able to support these costs of control. The tax is for this reason easier to implement. The lawful intervention meets the disapproval of the liberals who refuse the presence of the hand of the State.

The means of defining good laws and of controlling of it the application is to provide Donnée S environmental for the development of the public policies.

The European Union borrows this way mainly, since the Traité of Amsterdam includes in its objectives the environmental effectiveness and the Research and development. In the same way, the Strategy of Lisbon, re-examined with the European Council of Gothenburg in 2001 according to objectives of Sustainable development, pushes with regulations increased as regards environment, through the White papers, the European directives (parent directive on water, energy, other directives on the sectoral policies…).

The lawful way supposes that the States obtain the tools which provide the Bench-mark datum necessary to the public policies. Thus the European Agency of the environment, located at Copenhagen, holds a register of environmental data in support of the Décision S. the directive 2003/98/CE provides a framework so that the Member States place at the disposal the Donnée S of the Public services, insofar as the national legislations allow it. The Denmark and the the United Kingdom initiated the project MIReG aiming at providing the Bench-mark datum in electronic form for the development of a comprehensive policy.

Today, two thirds of the new legislative texts in Europe come from the payments and the European directives, which are elaborate according to criteria of Sustainable development.

Evaluation of the public policies

See too

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