ECB 603 

Environmental Economics 

Semester – VI 

Q1. Economic growth and Environmental Balance. 

The man-made changes and natural exploitation for economic growth are the major contributors to climate change and its effects. This is due to the underlying thought that development policies promote economic well being, while environmental policies have been seen to be restricting it. 

Thus, for sake of sustainable development, there is a need to balance economic development with environmental protection. 

Economic Factors Affecting Environmental Sustainability 

  • Lack of Environmental Compliance: Neglect of environmental principles is a key reason why natural hazards end up causing a significant number of avoidable casualties. 
     
    • Any exercise to scientifically ascertain the risk from natural hazards to a region are barely implemented in the right spirit. 
    • Unregulated quarrying and the unscientific cutting of slopes into hills aggravates the risk of soil erosion and subsequently increases the risk of landslides. 
  • Ill-effects of Subsidies: In pursuit of providing welfare to vulnerable sections of society, the government has provided a bulk of subsidies. 
     
    • However, subsidised nature of services like energy and electricity leads to their overuse and undermines environmental sustainability. 
    • Further, subsidies also undermine the revenue base and limit the government’s capacity to invest in new, cleaner technologies. 
  • No Cost to Environmental Resources: Access to natural resources is entirely open and no individual user bears the full cost of environmental degradation and resources are consequently overused. 
  • Complexity of Population Dynamics: Increasing population tends to exacerbate the linkages between underdevelopment and environmental degradation. 
     
    • Further, poverty generates significant incentives to raise large families and stimulate migrations, which makes urban areas environmentally unsustainable. 
    • Both outcomes increase pressure on resources and consequently worsen environmental quality, diminish productivity and reinforce poverty. 

Way Forward 

Agenda 21 – UNCED’s blueprint for sustainable development – gives high priority to the implementation of”win-win” policies that exploit the complementarity between poverty reduction, economic efficiency and sound environmental management. Following interventions can be taken to implement this vision. 

  • Feminization of Development: Wide range of investments like expanding educational opportunities for women and, improving water supply and sanitation services, may lead to the highest returns for development and the environment. 
     
    • It will also increase synergies between poverty alleviation and environmental protection. 
  • Prudent Economic Policies: Economic policies such as rationalization of price subsidies, the clarification of property rights, facilitation of technology transfer may help in achieving environmental sustainability. 
     
    • Rationalising subsidies will save money, improves efficiency and can significantly lower pollution. 
    • Also, open access to environmental resources needs to be replaced with some ordered system of use or ownership rights. Community ownership of resources can result in sound environmental stewardship, particularly where it is based on customary social practices. 
  • Incorporating Indigenous Knowledge: Regions and countries can benefit from the knowledge of indigenous people and their understanding of large ecosystems. 
     
    • Thus, Governance, including customary institutions and management systems should involve indigenous peoples and local communities to safeguard nature and understand climate change. 
  • Conserving Biodiversity: The linkage of biodiversity and environmental sustainability highlights the critical need to integrate biodiversity considerations in global decision-making. 

Q2. Atmosphere and Biosphere. 

    Atmosphere            Biosphere  
(a) Air which surrounds the Earth is called the Atmosphere. It is the narrow zone of the earth where lithosphere, hydrosphere, atmosphere interacts. 
(b) It is composed of gases such as Oxygen  , Nitrogen, Carbon dioxide and water vapour. (b) It consists of both biotic and abiotic factors of earth which are responsible for existence of life. 
(c) It is the one component of biosphere and is essential for the existence of life on earth. (c) The existence of life is confined to the biosphere only. 

Q3. Ecology. 

Ecology is the study of organisms and how they interact with the environment around them. An ecologist studies the relationship between living things and their habitats. In order to learn about the natural world, ecologists must study multiple aspects of life ranging from the moss that grows on rocks to the wolf population in the United States’ Yellowstone National Park. In order to research the environment, scientists ask questions, such as: How do organisms interact with the living and nonliving factors around them? What do organisms need to survive and thrive in their current environments? To find the answers to these questions, ecologists must study and observe all forms of life and their ecosystems throughout our world. 

Q4. Eco-system. 

An ecosystem is a geographic area where plants, animals, and other organisms, as well as weather and landscape, work together to form a bubble of life. Ecosystems contain biotic or living, parts, as well as abiotic factors, or nonliving parts. Biotic factors include plants, animals, and other organisms. 

Q5. Conservation of Resources. 

Conservation is the practice of caring for these resources so all living things can benefit from them now and in the future. All the things we need to survive, such as food, water, air, and shelter, come from natural resources. Some of these resources, like small plants, can be replaced quickly after they are used. 

Q6. Functions of Environment. 

Environment functions 

(1) Provides the supply of resources 

  •       The environment offers resources for production. 
  •       It includes both renewable and non-renewable resources. 
  •       Examples: Wood for furniture, soil, land, etc. 

(2) Sustains life 

  •       The environment includes the sun, soil, water, and air, which are essential for human life. 
  •       It sustains life by providing genetic and biodiversity. 

(3) Assimilates waste 

  •       Production and consumption activities generate waste. 
  •       This occurs mostly in the form of garbage. 
  •       The environment helps in getting rid of the garbage. 

(4) Enhances the quality of life 

  •       The environment enhances the quality of life. 
  •       Human beings enjoy the beauty of nature that includes rivers, mountains, deserts, etc. 
  •       These add to the quality of life. 

Q7. Natural Resources. 

Natural resources are materials from the Earth that are used to support life and meet people’s needs. Any natural substance that humans use can be considered a natural resource. Oil, coal, natural gas, metals, stone and sand are natural resources. Other natural resources are air, sunlight, soil and water. 

Q8. What are the Types of Resources? 

Types of Resources

Q9. Indirect Use Value. 

Indirect use value is defined as the utility that an individual might derive from the use of a good, without actually ‘using’ the good themselves di- rectly or even being in close proximity to the good. 

Q10. Command and Control. 

Command and Control’ is the exercise of authority and direction by a properly designated commander over assigned and attached forces in the accomplishment of the mission. 

A 1988 NATO definition is that command and control is the exercise of authority and direction by a properly designated individual over assigned resources in the accomplishment of a common goal. An Australian Defence Force definition, similar to that of NATO, emphasises that C2 is the system empowering designated personnel to exercise lawful authority and direction over assigned forces for the accomplishment of missions and tasks. 

Q11. U.N.E.P. 

The United Nations Environment Programme is responsible for coordinating responses to environmental issues within the United Nations system. It was established by Maurice Strong, its first director, after the United Nations Conference on the Human Environment in Stockholm in June 1972. 

Q12. Environmental cost. 

Environmental costs are costs connected with the actual or potential deterioration of natural assets due to economic activities. 

Q13. What do you mean by Environmental Economics? 

Environmental economics is an economic subdiscipline that deals with the economic and financial implications of environmental policies. It is an evolving and widely studies disciplinary area of economics. The study of the macro-economic impacts of environmental policies helps governments make the best decisions for the larger good of society. 

The concept of environmental economics focuses on sustainable development, market failure and externalities, valuation of the environment, and strategies for environmental issues. It involves theoretical and empirical approaches to study these areas. Thus, it gives due emphasis to both environment and economy and their correlation with each other. 

Environmental Economics Explained 

Environmental economics originated in the 1950s and 60s in the West. It became popular due to the increased concerns and awareness about environmental pollution which resulted from the nineteenth-century industrial revolution. 

Its key objective was to understand the correlation between environment and economy. This would help make better decisions that are beneficial to the economy and have a minimal negative environmental impact. 

For example, consider the example of highway construction. It will help the logistics and supply chain in the region but leads to habitat loss, pollution, etc. However, if the government could provide another habitat for the wildlife which resembles the existing one, it would cause little damage. Also, the government can plan to lay the roads using plastic waste collected around the country. 

It sounds like an attractive proposition. But, of course, some would claim that an artificial habitat for the wildlife would not really compensate for the original one. Yet, it would be better than just claiming the land and letting the animals wander. Hence, it is a strategy that generates minimal impact in the long run. 

However, many of the strategies used currently to compensate for the adverse global environmental impacts are considered ineffective by most. These strategies include carbon offsetting, cap and trade, and carbon tax. Let’s look at these in detail: 

Current strategies 

1 – Carbon offsetting – The goal here is to offset or compensate for the carbon emissions. Most factories and consumers offset their carbon footprint by planting trees or taking up small-scale farming. A carbon offset credit helps us to measure the magnitude and effectiveness of this trade. 

2 – Cap and trade – In this method, the companies have permission to emit carbon up to a certain limit, after which they need to pay tax for the same. For example, in some countries, companies have permission to emit a maximum of one-ton carbon. However, it does not provide certainty in controlling carbon emissions, and some even worry that it allows big companies to keep polluting the environment. 

3 – Carbon tax – The government taxes the companies based on the amount of carbon produced, in an effort to protect the environment. But unfortunately, the additional price passes on to the consumers, who end up paying for it. Thus, the companies do not usually take the burden. 

These measures are mere compensation methods, and the harm is still done. Producing tons of carbon and planting saplings elsewhere or paying an insignificant amount is not the solution. The key is to reduce the production of harmful substances. 

Using alternative sources of renewable energy, proper waste management, efficient resource allocation, and conservation of energy and other resources are the need of the hour. As a result, natural resource and environmental economics is an area gaining momentum today. 

Example 

Here is the latest news on the Cheniere LNG plant in Texas, the largest exporter of Liquified Natural Gas (LNG) in the United States. It was established in 2018 and has exceeded the permitted emission limits many times. Reuters has recently reported that the Texas Commission on Environmental Quality (TCEQ) has granted extensions in the permissible limit. Reportedly, the plant now emits 353 tons of volatile organic compounds per year, double its original limit. Also, the TCEQ has raised limits on other pollutants by more than 40%. 

Scope of Environmental Economics 

Environmental economics extends not just domestically but also internationally because issues like global warming, climate change, etc., are not just the problem of a few but affect the world population as a whole. Therefore, attention to these five areas is essential to deal with the issue: 

Scope of Environmental Economics: 

  1. Sustainable development – It is the development strategy that meets the needs of the present without compromising the needs of the future. Thus, growth is important, but so is the sustainability of the environment. 
  1. Externalities – It refers to the benefits and costs arising from commercial activities for which the price is unknown. Hence, they go unnoticed in society but have huge impacts. For example, the natural resources we use for free and the pollution we cause to the environment have no association with a market price. 
  1. Market failure – Externalities lead to market failure, which arises when the market doesn’t represent the true cost of a good or resource. This happens because, more often, people take environment and its resources for granted. 
  1. Valuation of the environment – The valuation helps assess the worth of natural resources and many aspects of environmental policies before implementing them. This will help in making better decisions in the best interests of all. 
  1. Strategies – By considering all the relevant factors, environmental economists try to find solutions for the bigger problem – environmental protection. Some strategies include taxing parties responsible for the pollution, offsetting, etc. But still, there’s a long way to go. 

Importance 

The relevance and importance of environmental economics are obvious today. As technology is fast-moving, the footprint left behind is massive. As the famous principle goes, “We do not inherit the Earth from our ancestors; we borrow it from our descendants” we should not exploit the resources at our disposal. 

The significance of environmental economics corresponds to the conservation and preservation of nature and its resources. To ensure the continued existence of life on earth and to guarantee the health and safety of living beings, we need to measure the consequences of our actions. 

It is no news that the number of species becoming extinct is increasing at an alarming rate. However, it is important to remember that we are all part of the same system, and it is not until late that there will be no life on earth one day- just poor air, water, and barren land. Realizing this hard truth, the concept of environmental economics is more important than ever. It is a subject of extensive study and research in the present world. 

Q14. Explain relation between Environmental Economics and Natural Resource Economics. 

Natural resources represent anything taken from the earthen environment and used to create goods or services used by individuals. Environmental economics is a subfield that deals specifically with the use of natural resources in an economy. The relationship between natural resource and environmental economics is quite clear as you cannot have one without the other. For example, an environmental economic study might look at alternative fuels using ethanol or wind, land use for waste placement, or the improvement of land where natural resources were taken for use by individuals or businesses. This relationship between natural resource and environmental economics tends to grow with economies as the demand for resources increases in a market. 

One particular study found within environmental economics is the concept of market failure. This failure often represents the inability for a market — whether free or command — to improperly allocate natural resources among users. Market failure can occur in a given economy due to limited or scarce resources, that is, a situation where there is not enough material to go around for all users. Studies on natural resource and environmental economics look to define what internal or external factors caused the situation to occur as many different reasons can result in scarce resources. These studies are quite common in markets or countries with limited natural resources that must effectively and efficiently distribute these items. 

Another connection between natural resource and environmental economics is the study of environmental regulations on a given market. For example, limited resources — especially items such as clean water, fresh air, and scarce land — make it important for all individuals to have access to these items. Letting one or a few individuals use these resources or damage them so others cannot use them can have grave consequences in a market. Many users believe an external agency, such as a government body, should regulate the use of natural resources in order to limit negative issues that arise. The study of regulations and their impact on a market are of importance, so individuals can still operate in the best manner possible in the economy. 

In some cases, one country may choose to not engage in business with another country that does not respect the environment. Natural resource and environmental economics may attempt to create a morally or socially justifiable society with regards to the economic use of goods. Failure for one country to abide by these guidelines may result in a shunning of that country. Again, the study of this impact is often necessary to determine the impact of such regulations or restrictions. 

Q15. Environmental Problems arises due to market failure. Explain it. 

In the real world, there is non-attainment of Pareto optimality due to a number of constraints in the working of perfect competition. An important cause of environmental degradation is market failure. It means poor functioning of markets for environmental goods and services. It reflects failure of government policy in removing market distortions created by price controls and subsidies. 

1. Incomplete markets: 

Markets for certain things are incomplete or missing under perfect competition. The absence of markets for such things as public goods and common property resources is a cause of market failure. There is no way to equate their social and private benefits and costs either in the present or in the future because their markets are incomplete or missing. 

2. Indivisibilities: 

The Paretian optimality is based on the assumption of complete divisibility of products and factors used in consumption and production. In reality, goods and factors are not infinitely divisible. Rather, they are indivisible. The problem of divisibility arises in the production of those goods and services that are used jointly by more than one person. 

An important example is of road in a locality. It is used by a number of persons in the locality. But the problem is how to share the costs of repairs and maintenance of the road. In fact, very few persons will be interested in its maintenance. Thus marginal social costs and marginal social benefits will diverge from each other and Pareto optimality will not be achieved. 

3. Common Property Resources: 

Another cause of market failure is a common property resource. Common ownership when coupled with open access, would also lead to wasteful exploitation in which a user ignores the effects of his action on others. Open access to the commonly owned resources is a crucial ingredient of waste and inefficiency. 

Its most common example is fish in a lake. Anyone can catch and eat it but no one has an exclusive property right over it. It means that a common property resource is non-excludable (anyone can use it) and non-rivalrous (no one has an exclusive right over it). The lake is a common property for all fishermen. 

When a fisherman catches more fish, he reduces the catch of other fishermen. But he does count this as a cost, yet it is a cost to society. Because the lake is a common property resource where there is no mechanism to restrict entry and to catch fish. The fisherman who catches more fish imposes a negative externality on other fishermen so that the lake is overexploited. 

This is called the tragedy of the commons which leads to the elimination of social gains due to the overuse of common property. Thus when property rights are common, indefinite or non-existent, social costs will be more than private costs and there will not be Pareto Optimality. 

4. Imperfect Markets: 

Pareto efficiency increases under perfect competition. But it declines under market distortions or imperfections. Let us consider a case of monopoly. Initially, monopoly equilibrium is at point E where the private marginal cost curve, PMC, cuts the marginal revenue curve, MR, from below. 

The monopolist produces OQ1 output at OP1 price. But the production process generates smoke in the air. Therefore, the pollution board levies a tax equal to ТЕ on the monopoly firm. The imposition of a pollution tax is, in fact, a fixed cost to the monopoly firm. Now the social marginal cost curve cuts the marginal revenue curve at point e. 

The monopolist increases the price of his product from OP1 to OP2 and restricts output to OQ2 and thereby reduces consumers’ surplus to Q2 MLQ1 (= OQ1 LP1 – OQ2 MP2). In fact, Q2 MLQ1 is the social cost of OQ2 output. But the net loss to society is Q2 MLQ1 – TE= eMLT, the shaded area in the figure. 

5. Asymmetric Information: 

Pareto optimality assumes that producers and consumers have perfect information regarding market behaviour. But according to Joseph Stiglitz, “In the real world, there is asymmetric (incomplete) information due to ignorance and uncertainty on the part of buyers and sellers. Thus they are unable to equate social and private benefits and costs.” 

Suppose a producer introduces a new antipollution device in the market. But it is very difficult for him to predict the current demand of his product. On the other hand, consumers may be ignorant about quality and utility of this anti-pollution device. In some cases, information about market behaviour in the future may be available but that may be insufficient or incomplete. Thus market asymmetries, fail to allocate efficiently.

 

6. Externalities: 

The presence of externalities in consumption and production also lead to market failure. Externalities are market imperfections where the market offers no price for service or disservice. These externalities lead to malallocation of resources and cause consumption or production to fall short of Pareto optimality. 

Externalities, lead to the divergence of social costs from private costs, and of social benefits from private benefits. When social and private costs and social and private benefits diverge, perfect competition will not achieve Pareto optimality. 

Because under perfect competition private marginal cost (PMC) is equated to private marginal benefit (i.e. the price of the product). We discuss below how external economies and diseconomies of consumption and production affect adversely the allocation of resources and prevent the attainment of Pareto optimality. 

Positive Externalities of Production: 

According to Pigou, when some firm renders a benefit or cost of a service to other firms without appropriating to itself all the benefits or costs of his service, it is an external economy of production. External economies of production accrue to one or more firms in the form of reduced average costs as a result of the activities of another firm. 

In other words, these economies accrue to other firms in the industry with the expansion of a firm. They may be the result of reduced input costs which lead to pecuniary external economies. Whenever external economies exist, social marginal benefit will exceed private marginal benefit and private marginal cost will exceed social marginal cost. 

This is illustrated in Figure 18.2 where PMC is the private marginal cost curve or supply curve of firms. The demand curve D intersects the PMC curve at point E and determines the competitive market price OP and output OQ. 

SMC is the social marginal cost curve which intersects the demand curve D at point E1 and determines the social optimum output level OQ1 at price OP1. Since for every unit of output between OQ and OQ1 social marginal cost (ОР1) is less than the competitive market price OP, its production involves a net social gain equal to QQ1. 

Negative Externalities of Production: 

When the production of a commodity or service by a firm affects adversely other firms in the industry, social marginal cost is higher than social marginal benefit. Suppose, a factory situated in a residential area emits smoke which affects adversely health and household articles of the residents. 

In this case, the factory benefits at the expense of residents who have to incur extra expenses to keep themselves healthy and their households clean. These are social marginal costs because of harmful externalities which are higher than private marginal cost and also social marginal benefit. 

This is illustrated in Fig. 18.3 where the PMC curve which intersects the D curve at point E and determines the competitive price OP and output OQ. But the socially optimum output is OQ1 and price is OP1, as determined by the intersection of SMC and D curve at point E1. 

Thus the firms are producing Q1 Q more than the social optimal output OQ1. In this case, for every unit between Q1 and Q, social marginal cost (SMC) is more than the competitive market price OP. Thus its production involves a social loss i.e.. OQ – OQ1 – QQ1. 

Positive Externalities in Consumption: 

Externalities in Consumption lead to non-attainment of Pareto optimality. External economies of consumption arise from non-market interdependences of the satisfactions enjoyed by different consumers. An increase in the consumption of a good or service which affects favourably the consumption patterns and desires of other consumers is an external economy of consumption. 

When an individual installs a TV set, the satisfaction of his neighbours increases because they can watch TV programmes free at his place. Here social benefit is larger and social cost is lower than the private benefit and cost. But the TV owner is likely to use his TV set to a smaller extent than the interests of society require because of the inconvenience and nuisance caused by his neighbours to him. 

Negative Externalities in Consumption: 

Negative externalities in consumption arise when the consumption of a good or service by one consumer leads to reduced utility (dissatisfaction or loss of welfare) of other consumers. Negative externalities in consumption arise in the case of fashions and articles of conspicuous consumption which reduce their utility to some consumers. For example, smokers cause disutility to non-smokers, and noise nuisance from stereo systems to neighbours etc. Such diseconomies of consumption prevent the attainment of Pareto optimality. 

Suppose there are two room-mates A and B. Individual A likes to smoke while individual В likes clean air. Further, B’s utility of consuming clean air is affected by individual A’s smoking. This is explained in terms of Figure 18.4 (A) & (B). Initially, individual A’s utility from smoking gives him 50 utilis at point A while individual B’s consumption of clean air gives him 80 utilis at point B. When there are no externalities in consumption, the tangent at point A and point В are parallel to each other. 

If individual A smokes at his leisure then his utility increases to 60 utilis and he moves to point E. The effect of individual A’s smoking reduces the utility of clean air to individual В who moves from point В to point F on the same utility curve. 

Individual A has moved on a higher utility curve from 50 to utility curve 60, but the non-smoker is on the same utility curve 80. Thus Pareto optimality is not attained because the utility of one consumer (smoker) A has increased whereas the utility level of the other consumer (non-smoker) В has been reduced. 

7. Public Goods: 

Another cause of market failure is the existence of public goods. A public good is one whose consumption or use by one individual does not reduce the amount available for others. An example of a public good is water which is available to one person and is also available to others without any additional cost. Its consumption is always joint and equal. 

It is non-excludable if it can be consumed by anyone. It is non-rivalrous if no one has an exclusive rights over its consumption. Its benefits can be provided to an additional consumer at zero marginal cost. Thus public goods are both non-excludable and non- rivalrous. Moreover, environmental quality is generally considered as a public good and when it is valued at market price, it leads to market failure. 

The Paretian condition for a public good is that its marginal social benefit (MSB) should equal its marginal social cost (MSC). But the characteristics of a public good are such that the economy will not reach a point of Pareto optimality in a perfectly competitive market. Public goods create externalities. 

The externality starts when the marginal cost of consuming or producing an additional unit of a public good is zero but a price above zero is being charged. This violates the Paretian welfare maximization criterion of equating marginal social cost and marginal social benefit. This is because the benefits of a public good must be provided at a zero marginal social cost. 

Suppose potable water is supplied by the municipal corporation. There are two individuals A and В who use it. Both consume the same quantity of water. But they differ in how much they are willing to pay for any given quantity. 

This is illustrated in Figure 18.5. where Da and Db are the demand curves of two individuals A and В respectively. Therefore, demand prices are OPa and OPb corresponding to a given quantity OW of water. The curve ΣD is the vertical summation of Da and Db curves. 

The Lindhal equilibrium for a public good exists where the sum of the individual prices equal marginal cost. Therefore, 

OP = OPa + OPb = MCW 

But each consumer is being charged a different price. This is a case of price discrimination because price OPa is greater than price OPb for the same quantity of water OW. Hence there is market failure. 

8. Public Bads: 

There are also public bads in which one person experiencing some disutility does not diminish the disutility of another, such as air and water pollution. Public goods and public bads cannot be handled by the institution of private property. K.E. Boulding has explained public bads with the following example: “If someone drives his car into my living room and pollutes it, I can sue him for damages. This is a private bad. But if someone congests the roads or pollutes the air, however, there is not much I can do about it as an individual. This is public bad.” 

Market failure is a necessary but not a sufficient condition for intervention. To be truly worthwhile, a government intervention must outperform the market or improve its functions. Second, the benefits from such intervention must exceed the costs of planning, implementation, and enforcement, as well as any indirect and unintended costs of distortions introduced to other sectors of the economy by such intervention. 

Q16. Explain Environmental Valuation with meaning, need. Also explain the concept of Total Economic Value (TEV) with its components. 

Meaning: 

A measure used in survey-based valuation techniques, known as contingent valuation method, indicates an individual’s willingness to pay money to obtain some derived level of a good or service for an improved environment. 

Value can be broadly categorized as either instrumental or intrinsic. Instrumental value refers to the capacity of something when used, to satisfy a want or preference. Intrinsic value is regarded by ecological economists as being inherent in something. 

Instrumental or use value, can be defined as “accruing from those benefits which are attributed to present consumption of the resources”. A distinction is made between direct and indirect use values. Direct use value may emerge from exchange or outside of exchange through self-consumption of resources to which individuals have access. On the other hand, indirect use value is the main consequence of the ecological functions that the natural resources perform. 

There is also option value and existence value. Option value refers to willingness of the people to keep the option of postponding the decision on the use of the resources. Existence value represents the value which an individual is willing to pay for the environmental amenity, even though that person receives no direct value. The existence value is often termed as non-use value. 

Conceptually, the total economic value (TEV) of a resource consists of its use value (UV) and non-use value (NUV) 

TEV = UV + NUV 

Further, use value may be divided into direct use value (DUV), the indirect use value (IUV) and the option value (OV). Therefore, equation (1) can be rewritten as 

TEV = [DUV + TUV + OV] + [NUV] 

In the context of uncertainty, quasi option value is said to define the value of preserving options for future use in the expectation that knowledge about the potential benefits or costs is associated with the option. The basic concept of economic valuation underlying all these techniques is the Willingness to Pay (WTP) of individuals for an environmental service or resource. 

A measure used in survey-based valuation techniques, known as contingent valuation method, indicates an individual’s willingness to pay money to obtain some derived level of a good or service for an improved environment. The WTP measure is used when market prices do not exist. 

Another concept of economic valuation is Willingness to Accept (WTA). It is a measure of what an individual would have to be given to cause him/her to accept a loss in welfare caused by, for example, a decline in the level of resources or environmental quality. The WTA measure indicates the monetary equivalent that would be necessary to compensate for the welfare loss from the change. 

Need for Environmental Valuation: 

The need for environmental valuation arises for the following: 

(i) Environmental Litigation: 

Non-market demand valuation have traditionally been used by government to assess the damage compensation and need for further changes in environmental policy. 

(ii) Environmental Dispute Resolution: 

Environmental disputes frequently arise with respect to logging, new water storage, new mines, power stations and resort development etc. Estimates of environmental values potentially has a role to play in supporting more informed decision making in these cases, and in making decisions more transparent to stakeholders. 

(iii) Guiding Environmental Regulations: 

Policy makers have to take decisions regarding environmental regulations. They will be better informed if environmental damage cost considerations are taken into account. 

(iv) Evaluating Proposed Environment Programmes: 

A public cost- benefit framework is appropriate to assess the desirability of government initiative, such as green house gas reduction programmes and health programmes. These usually involve various social and environmental impacts of these programmes which the policy makers want to assess. 

Total Economic Valuation: – 

Total economic value (TEV) is a concept in cost–benefit analysis that refers to the value derived by people from a natural resource, a man-made heritage resource or an infrastructure system, compared to not having it. It appears in environmental economics as an aggregation of the (main function based) values provided by a given ecosystem. 

Value classification 

The value of an ecosystem can be distinguished as: 

  1. Use value — Can be split into Direct and Indirect use values: 
  • Direct use value: Obtained through a removable product in nature (i.e., timber, fish, water). 
  • Indirect use value: Obtained through a non-removable product in nature (i.e., sunset, waterfall). 
  1. Non-use value — Values for existence of the natural resource. For example, knowing that tigers are in the wild, even though you may never see them. 
  1. Option value: Placed on the potential future ability to use a resource even though it is not currently used and the likelihood of future use is very low. This reflects the willingness to preserve an option for potential future use. 
  1. Bequest value or existence value: Placed on a resource that will never be used by current individuals, derived from the value of satisfaction from preserving a natural environment or a historic environment (i.e., natural heritage or cultural heritage) for future generations. 

Total economic value is the price of the customer’s best alternative (the reference value) plus the economic value of whatever differentiates the offering from the alternative (the differentiation value). 

Q17. What do you understand by Natural Resources? Explain its classification with continual utility and according to origin. 

Natural resources are the resources that exist without any actions or intervention of human beings in nature. This includes all of the valued characteristics like gravitational, magnetic, electrical properties and forces, etc. While talking about Earth, it consists of water, sunlight, atmosphere, land including all minerals along with all the vegetation, crops, and animal life that naturally subsists on or within these known and identified substances and characteristics. 

What are Natural Resources?  

Natural resources are the ones that come from nature. People cannot make natural resources, however, they can collect them. Some of the examples of natural resources include water, coal, wood, and iron. Some of the resources, for example, hydroelectric energy are not considered to be natural since they are made by people. 

Classifications of Natural Resources 

Let us now look at how natural resources are classified. 

Natural resources are mainly classified into 2 different categories: 

  1. Renewable natural resources and 
  1. Non-renewable natural resources 
     

Renewable natural resources are the resources that can be generated again once they are used. Some of the examples of renewable natural resources include sunlight, water, and wood. 
 

Non-renewable natural resources are the ones that exhaust after their frequent usage and sometimes it takes a really long time for them to regenerate. An example of this includes natural gas. Another example of a non-renewable natural resource is coal. Just as coal, there are many such natural resources that are limited which means that they cannot be recycled again. Most of these non-renewable natural resources cannot be recycled and hence it is important to conserve these natural resources. There are several natural resources that have a very high demand but have a lesser availability.  

Difference Between Renewable and Non-Renewable Resources 

The main differences between renewable energy resources and non-renewable energy resources are given below. 

S.No. Renewable Resources Non- Renewable Resources 
1 These resources can be reused or renewed. These resources can not be renewed once used. 
2 These resources have components such as air, water, sunlight, wind etc. These have components like LPG gases, fossil fuels etc. 
3 The rate of renewable energy is greater than the rate of getting exhausted. The rate of renewal of such resources is slower than the rate of getting exhausted. 
4 Most of the renewable resources are environmentally friendly and do not cause pollution. They cause pollution. 
5 They are non-conventional resources. They are the conventional resources. 

Examples of the Non – Renewable Natural Resources 

Examples of Non- Renewable natural resources are as follows. 

  1. Air: The existence of all living beings requires clean air. However, due to several reasons, the air gets polluted and it indirectly affects the health of living beings. 
  1. Water: A very small amount of freshwater is available on Earth. Out of this amount, some amount is portable which means that it can be used for drinking. Since there is a constant change in the climate, there is a change in the rainfall pattern as well. The melting of ice is dropped in winter as well. All these factors result in lowering the amount of this natural resource which is crucial to life on Earth. 
  1. Fossil Fuels: Natural resources like natural gas, coal, and petroleum would be over someday which means that they are exhaustible. It takes several millions of years for one dead organism to get converted into fuels. They are consumed at a faster rate than the rate that it is formed. The excess burning of these fossil fuels leads to air pollution since it gives out carbon dioxide which is a type of greenhouse gas. 

Natural Resources and their Conservation 

It is highly important that we conserve these natural resources since they are getting exhausted at an alarming rate. Apart from that, it has an adverse effect on the environment that is indirectly causing harm to living beings. However, if we follow some tips in our day to day lives, we can conserve these natural resources. 

  1. Use an alternative source of power like solar and wind energy 
  1. Plant more trees for preventing the soil erosion 
  1. Use pipelines for transporting oil 
  1. Treat the industrial sewage and wastage even before they get released into the water bodies 
  1. Include the rainwater harvesting system in the house 
  1. Use biogas in the house 
  1. Use biofuels instead of the conventional petroleum-based fuels 
  1. Ensure that the wastes are being recycled 
  1. Use electronic mails 
  1. Make use of the energy-saving tube lights and bulbs 
  1. Practice the method of crop rotation 
  1. Construct reservoirs 

Natural Resources and Associated Problems 

There are several problems that are attached to natural resources. Let us take a look at them. 

  1. The irrational consumption and overuse of these natural resources have led to several socio-economic and environmental problems. 
  1. Natural resources are available in a fixed quantity and are non-renewable. 
  1. There is an increasing scarcity of these natural resources as the population is increasing day by day. 
  1. Non-renewable natural resources take millions of years to form. 

Conclusion 

Hence natural resources are useful and helpful for humans under economical, technological, or social circumstances or supplies drawn from the earth, supplies such as metals, geothermal power water, fertilizers, food, building and clothing materials etc. The article covers all the important basic aspects of natural resources such as their classification, conservation, and associated problems. 

Q18. Explain Sustainable Development with its basic objectives.  

What is Sustainable Development? 

Sustainable development is an organizing principle to fulfill human development goals without limiting capability of fulfilling needs of future generations. Since many natural resources are depletable in nature, it is our social responsibility to use them wisely. For this purpose, society is now actively adopting sustainable products and technologies. The aim of sustainable development is to allow usage of resources without disrupting balance and stability of the natural system. 

As per the 1987 Brundtland report, sustainable development is defined as: 

With more research, experts have concluded that economic, social, and environmental protection is crucial for sustainable development.  

Objectives 

Sustainable Development has the objective to reduce inequality, end severe poverty and protect the planet. For this purpose, c 

  • Eliminating Poverty: This goal aims at eradicating extreme poverty from across the world and reducing it by at least half the proportion of men, women, and children. 
  • Zero hunger: The aim is to create a world free of hunger and prevent diseases and deaths caused by malnutrition. 
  • Good health and well-being: This objective in sustainable living promotes efficient healthcare, a healthy lifestyle, and preventive measures for everyone. 
  • Quality education: To ensure that students have access to free primary and secondary education and affordable higher and technical education. 
  • Gender Equality: The aim is to give equal political, economic, and social equality for women so that more opportunities can be created for them. 
  • Clean water and sanitization: To provide clean water to populations across the globe so that they can have better sanitary conditions. 
  • Affordable and clean energy: It helps in energy efficiency and increases in the use of renewables for climate change mitigation and disaster risk reduction. 
  • Decent Work and Economic Growth: According to the national circumstances sustain per capita economic growth. At least 7% gross domestic product growth per annum should be there in the least developed countries. 
  • Industry, innovation and infrastructure: Developing reliable, sustainable, and resilient infrastructure to support economic development and social well-being.  
  • Reduce inequality: The aim is to reduce inequalities so that everyone gets an equal chance and collectively achieves sustainable development goals. 
  • Sustainable Cities and Communities: Ensuring everyone has access to affordable housing conditions and transportation. The aim is to allow sustainable human settlement planning across the world. 
  • Sustainable consumption and production: It involves decoupling economic growth from environmental degradation, promoting sustainable lifestyles, and increasing resource efficiency. 
  • Climate change: The aim is to combat climate change and its impacts on saving lives. The aim is to reduce global greenhouse gas emissions by 43% by 2030 and net zero by 2050. 
  • Life Below Water: The aim is to create an understanding of the oceans and the resources that it offers. It also focuses on learning methodologies to keep our seas clean. 
  • Life on land: The aim is to protect, restore and promote the sustainable use of terrestrial ecosystems, combat desertification and reverse land degradation. It is important to take care of the ecosystem since these provide raw materials and ecosystem services.  
  • Peace, justice and strong institutions: Since conflict, weak institutions, and limited access pose a threat to sustainable development. It is, therefore, important to promote peace and facilitate inclusive societies. 
  • Partnerships for the goals: Government, society, private sectors, UN, and civil society must act as global partners to achieve each goal of sustainable development. 

Importance of Sustainable Development 

The following points highlight the importance of sustainable development: 

  • Sustainable development is important for ensuring that our society does not run out of resources that are vital for our survival. By undertaking processes that promote sustainable development, human civilization can survive for many years while utilizing resources. 
  • By choosing sustainable development, many issues can be resolved. Economic issues such as poverty, climatic issues such as changes in climate, disruption of aquatic life, and emission of greenhouse gases can be resolved. 
  • With the adoption of sustainable development, we will be able to observe balance within the ecosystem as nature takes its natural call. 

Relation Between Sustainability and Sustainable Development 

Sustainable development is interlinked with the normative concept of sustainability which is a long-term goal. The sustainable development refers to a way of life to achieve sustainability. Following are the different types of sustainability 

  • Environmental sustainability: It is responsible for conserving natural resources and protecting global ecosystems. The aim of this type of sustainability is to improve the quality of human life without harming ecosystems. This involves analyzing the energy and resource in our day-to-day lives. Experts also identify factors such as deforestation that are detrimental to the environment. The aim is to adopt environmental practices that improve and cleanse our ecosystem. 
  • Social sustainability: This is another pillar of sustainability that identifies the negative and positive impact of business processes on people. Businesses need to take initiatives for social sustainability since they, directly and indirectly, impact the community. Corporate Social Responsibility (CSR) is one of the crucial aspects of business operation so that organizations can contribute to our community and environmental well-being. While businesses leave a positive impact on society, they also bring innovations with their initiatives. This allows them the opportunity to explore new market niches. 
  • Economic sustainability: This is another crucial aspect of sustainability that supports long-term economic growth. The aim is to do so without leaving any negative impact on the environmental and social aspects of the community. Economic sustainability creates the long-term sustainable present and future value of natural resources through their optimal use, recycling and recovery. 

Q19. Explain Ayres-Kneese’s Material Balance Model. 

Ayres-Kneese’s Material Balance Model and Its Implication on Environmental Economics! 

Economy, Ecology and Environment Interaction: 

In the words of Ayres and Kneese, “If waste assimilative capacity of the environment is scarce, the decentralized voluntary exchange process cannot be free of uncompensated technological external diseconomies unless all inputs are fully converted into outputs, with no unwanted material residuals along the way and all final outputs are utterly destroyed in the process of consumption.” 

The functions of an economy are related to production, consumption and distribution activities. These activities have a direct relation with nature. Nature provides raw materials to the economy for its production and consumption activities. Residuals from both the production and consumption processes usually remain and they usually render disservices like killing fish, reducing public health, soiling and deteriorating buildings due to industrial pollution. 

Some wastes (residuals) from production and consumption activities are ultimately returned to nature. Remaining wastages are recycled. Further, all emission of residuals do not cause pollution damage because of assimilative capacity of the environment. 

Further, energy that is taken out of the environment must reappear somewhere else in the economic system. Its form may, however, be changed so that it appears as waste products and gases. Moreover, waste energy cannot be recycled but waste materials can be used up to a point. It means that economic activity always affects environment in a direct or indirect manner. 

Thus the law of conservation of matter and energy holds that matter can be transformed to other matter or into energy but can never vanish. All inputs (fuels, raw materials, water and so forth) used in the economy’s production processes will ultimately result in an equivalent residual or waste. The model is explained in the Material Flow Diagram.The material flow diagram implies that mass inputs must equal mass outputs for every process. Moreover, all resources extracted from the environment must eventually become unwanted wastes and pollutants. This means, among other things, externalities (market failures) associated with production and consumption of materials are actually pervasive and they tend to grow in importance as the economy itself grows. Materials recycled can help but recycling is energy intensive and imperfect, so it cannot fully compensate. 

According to John H. Baldwin, the conventional model of production and consumption omits important considerations. This omission results in emphasizing and managing only those sectors of production and consumption that are monetized. 

Most real production and consumption of goods and services in the world, especially in developing countries, occur even outside the formal monetized economy. Hence, the materials balance model provides a useful framework for analyzing alternative methods of resource and residuals management. 

Thus, economics of the environment may be defined as a study which concerns allocation of resources among alternative uses in such a way that there is an efficient reduction of the waste or residuals in the environment, which lead to an increase in social welfare. 

Its implications: 

The material balance model has important implications: 

1. Disposal activities may affect both consumers and producers. The environment can act as a conduit for carrying the disposal activities. Business firms generally smoke into the air and this may affect the consumer’s welfare. The consumers may also litter the landscape; produce vast quantities of trash and sewage. 

Each of these activities may affect each other. Because there are no markets regulating the flow of goods through disposal, there is also a possibility that too much of these activities will be carried on. Each will regard his disposal costs as zero and will use the environment so long as this use permits him to improve his own welfare. 

2. The environment has a large waste assimilation capacity, but this is not infinite. Too much waste entering the environment rather than being recycled or reused will put too much stress on the assimilative capacity of the environment to handle such waste safety. The result will be a range of pollution and resources degradation impacts, and consequent economic damage cost. 

3. With the application of the laws of thermodynamics, economic production and consumption activities always generate some pollution and waste. It requires proper disposal. Moreover, it is not always possible to have 100 percent recycling. Nevertheless, society does not have a choice over the total quantity of waste that its economic system produces. 

4. In a general sense, policy makers can weigh up the social benefits of various productive activities and compare them with the social costs (including disposal) imposed by these activities. Policy makers may then decide to intervene in the economic process in order to change or modify production processes. 

5. If a balance can be reached between acceptable levels of materials flows, there will be an increase in output and improvement in environmental quality. 

6. From the policy point of view, this approach emphasizes recycle process and less residual-generating production process. It is only possible by modifying an environmental medium through investment in control facilities so as to improve its assimilative capacity. Investments involving public goods such as transportation systems, sewage disposal and river flow regulation are intimately related to the amounts and effects of residuals and must be planned in the light of them. 

7. It is important to develop not only measures for the external costs resulting from different concentrations and duration of residuals in the environment but more systematic methods for forecasting emissions of external cost-producing residuals, technical and economic trade-offs between them, and the effects of recycle on environmental quality. 

8. The application of the law of thermodynamics to the problem of waste is an important event in integrated residuals management. Residuals are generated by all production and consumption activities. This pervasive nature of the residuals problem, along with the inter-relationships of residuals, economic activities and recycling provides a physical system basis for environmental quality management. 

In other words it demonstrates that waste generation is pervasive to the economy. In turn, if the capacity of the environment to assimilate and degrade the waste into harmless form is limited, the externalities arising from the waste will be pervasive. This is in marked contract to the view that externalities are occasional deviations from market perfection. 

9. The importance of the materials balance principle lies in the fact that it provides a coherent framework in which an economic analysis of resources use and its implications for the environment can be placed. It draws one’s attention to the long-term implications of economic activity, by focusing on the stock-flow relationships implied by that behaviour and its importance in this relationships. 

Conclusion: 

As suggested by S. Baker, to improve the analysis of environmental economy interactions, the empirically relevant and up-to-date knowledge of ecological and natural sciences needs to be used and integrated into environmental economics in a more systematic way. 

Q20. Briefly discuss the historical development of environmental economics. 

The origins of environmental economics date back to the 1960s, when industrialization was experiencing a boom, particularly in the western world, and pollution from industrial activity became an increasing concern. Environmental activism also started to increase due to the perceived negative consequences of environmental degradation. The world became aware of rapid economic growth and its consequences to the environment. 

Environmental economists see the environment as a form of natural capital that provides amenities and life support functions to the earth’s inhabitants. Environmental economics was premised on the neoclassical approach dealing with issues such as inefficient natural resource allocation, market failure, negative externalities, and management of public goods. 

As the movement developed over time, other intricate details on the relationship between the environment and the economy became apparent. The study brought about powerful environmental arguments and propositions, which gave rise to contemporary environmental policies and regulations around the world. It led to the establishment of new environmental bodies – chief among them, the United Nations Environment Programme (UNEP) in 1972. 

Scope of Environmental Economics 

The role of environmental economics in the design of environmental policies and their implementation is the major concern of the discipline. Three important questions arise in environmental economics: 

  • What causes environmental challenges in terms of economic and institutional affairs? The question explores the concept of market failure, which is premised on the fact that there are either non-existence or incomplete markets for environmental goods, such as unpolluted air, clean environment, scenic nature views, etc.; hence, there is likely to be no efficient allocation of environmental resources. 
  • What is the monetary value of environmental degradation through pollution and other agents, as well as the value of developments in the prevention and eradication of environmental harm? The methods of measurement and estimation of the variables are an important aspect of environmental economics. 
  • How can economic incentives and environmental policies be effectively designed to improve environmental quality and deter environmental damage? Critical evaluation of economic incentives and environmental policies and regulations is crucial to find out if they are yielding the intended objectives. 

Environmental economics encompasses the following concepts: 

1. Sustainable Development 

Sustainable development is defined by UNEP as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” The concept analyzes the role of economic development in supporting sustainable development. 

The four basic components of sustainable development are economic growth, environmental protection, social equity, and institutional capacity. 

2. Market Failure 

Market failure occurs if the functioning of a perfect market is compromised; hence, it is unable to efficiently allocate scarce resources at a given price as conditions for laws of demand and supply are not met. 

An example can be an environmental good such as clean oceans. It is difficult to price the value of clean seas and oceans, and there exist no markets for clean water bodies where it is traded depending on the degree of cleanliness. It is a standard case of market failure. 

3. Externalities 

Externalities are inadvertent consequences of economic activity that affect people over and above those directly involved in it. Externalities are also another form of market failure. They can either be negative or positive. 

A negative externality creates unplanned outcomes that are harmful to the environment or directly to the general public. An example can be pollution through industrial production, which results in unclean air and water and other health risks. The polluting entities may not incur any costs to address the pollution, even though their activities harm the environment and negatively affect the surrounding community. 

A positive externality is a benefit to other people not directly involved in its generation. A community nature park can benefit people outside the community who visit family and friends in the area and would not have contributed to its development. People who benefit from an economic resource without contributing to its establishment are called “free riders.” 

4. Valuation 

Valuation is an important aspect of environmental economics, as it helps to evaluate a variety of options in managing challenges with the use of environmental and natural resources. The valuation of ecological resources is a complex process, as it is difficult to assign value to intangible benefits, such as clean air and an unpolluted environment. 

Resources that offer multiple benefits are difficult to value – for example, mountains may prevent flooding, provide scenic beauty, direct river flow patterns, and provide fertile soils for agriculture. 

Environmental resources can be assigned values depending on use and non-use methods. It’s easier to assign value to a product in use by observing what consumers are willing to pay. 

Opportunity cost pricing, replacement cost, and hedonic pricing techniques can be employed in the “use” method. The contingent valuation technique is used for the “non-use” method by measuring what consumers are willing to pay for a product they do not use or enjoy. 

5. Cost-Benefit Analysis 

Cost-benefit analysis (CBA) involves weighing the benefits arising from a policy against the perceived benefits. Hence, the best policy is one in which there is the greatest surplus of benefits over costs. 

CBA starts with a base policy where no changes are made to the status quo. A time horizon is selected where the perceived costs and benefits are expected to be realized. Benefits are instances where human well-being is improved, and costs decrease human well-being. 

Costs and benefits to be realized in the future are discounted using a discount factor to cater to the time value of money. Benefits include extra income, improved quality of life, clean water, and beaches, and costs include opportunity costs, internal and external costs, and externalities. 

Q21. Environment and development are complements to each other. Justify. 

“There is enough for every one’s need, but not for every one’s greed” – – Mahatma Gandhi. 
 
The ‘environment’ is where we live; and development is what we all do in attempting to improve our lot within that abode. The two are inseparable. Environmental crises not only involve social, political & economic aspects but also pose a philosophical problem. It is 20 years since the report of the World Commission on Environment and Development (WCED), emphasized the need for a sustainable way of life which not only addresses current environmental challenges but also ensures a secure society well into the future. 
 
Human activities motivated by the attitude of rampant consumerism and unsustainable patterns of production and consumption have never been so inhumane and callous towards environment as in the modern era of scientific and technological innovations. Man’s greed attacks nature environment and ecology and wounded nature backlashes on the human future.Environment has clearly emerged as one of the big issues, perhaps the biggest contemporary issue we face. An unprecedented rise in human population has overburdened ecological and social systems. The foundations of global security are threatened. The most vital task is to build an environmental ethics that constructs an adequate theory of intrinsic values of nature. The global concern for environment has been aptly echoed in the preambular assertion made at the Earth Summit in the year 1992. 
 
We are in the midst of the sixth era of extinction. This problem can be solved only by proper guidance, awareness, education, transfer of advance technology, research, conservation and sustainable use of biological diversity. In order to highlight the importance of biodiversity, 2010 has been selected as the International Year of Biodiversity in an attempt to educate people on biodiversity and how biodiversity supports everyday life. 
 
Environmental protection was perceived by many as an obstacle to development. However, Our Common Future recognized “environment or development” as a false dichotomy. Focus shifted to “environment and development,” and then to “environment for development.” Principle 1 of Agenda 21 states: “Human beings are at the centre of concerns for sustainable development. They are entitled to a healthy and productive life in harmony with nature.” 
 
A sense of environmental Protection in Ancient India 
A good environmental sense has been one of the fundamental features of India’s ancient philosophy. The civilisation of India has grown up in close association with the nature. There has always been a compassionate concern for every form of life in the Indian mind. This concern is projected through the doctrine of Dharma. The Hindu rishis of vedic era perceived the value of maintaining a harmonious relationship between the needs of man and spectacular diversity of the Universe. To them, nature was not only the mother that sustained their life; it was the abode of divinity. The people were ordained in the ancient Indian culture not to harm any entity of Nature so as not to disturb the ecological balance. They were taught to maintain harmony in Nature. The cosmic vision of earth is based on the concept of ‘vasudev Kutumbakam’. The way forward will require a turn towards restoration and renewal. An analogous interpretation of holistic perception is given in the traditional system of Advaita Vedanta in India, as acme of spiritual realisation in which the entire physical world appears identical with oneself and Brahman.The people were ordained in the ancient Indian culture not to harm any entity of nature so as not to disturb the ecological balance. 
 
However, during the last few decades global circumstances have forced our country into a situation where it is becoming increasingly difficult to practice a life style that does not push this planet towards doom. During the last ten years, there has been a gratifying resurgence of this good environmental sense in this country. It is imperative that environmental consciousness becomes a pre-occupation with our people as no amount of government intervention can reverse ecological collapse. 
 
Environment as the foundation for development 
Development is the process of furthering people’s well-being. Good development entails: 
 
§ increasing the asset base and its productivity; 
 
§ empowering poor people and marginalized communities; 
 
§ reducing and managing risks; and 
 
§ taking a long-term perspective with regard to intra- and intergenerational equity. 
 
The environment is central to all four of these requirements. Long-term development can only be achieved through sustainable management of various assets: financial, material, human, social and natural. Natural assets, including water, soils, plants and animals, underpin the livelihoods of all people. At the national level, natural assets account for 26 per cent of the wealth of low-income countries. Sectors such as agriculture, fishery, forestry, tourism and minerals provide important economic and social benefits to people. The challenge lies in the proper management of these resources. Sustainable development provides a framework for managing human and economic development, while ensuring a proper and optimal functioning over time of the natural environment. 
 
While a healthy environment can support development, the relationship is not always reciprocal. Many alternative views exist on the benefits and disadvantages of modern development. It has been argued that development is destructive, even violent, to nature. As GEO-4 illustrates, past development practices have often not been beneficial to the environment. However, opportunities exist to make development sustainable. 
 
Sustainable Development 
Sustainable development, according to the Brundtland Report of 1987, is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Put in the new globalised order, sustainable development is the integration of economic, social and environmental development considered as the inter-dependent and mutually reinforcing pillars which operate at the local, national, regional and global levels. This sets out two fundamental principles of intergenerational and intragenerational equity. 
 
The principle of Intergenerational equity means need to preserve natural resource for the benefit of future generations. The principle of Intragenerational equity means equitable use of natural resources which implies that use by one state must take in to account of the needs of other states. We have to recognise our own limits in claiming the fruits of the earth and in managing and manipulating nature. 
 
Development is a process that enables people to better their well-being. Long-term development can only be achieved through sustainable management of various assets: financial, material, human, social and natural. Non-sustainable use of natural resources, including land, water, forests and fisheries, can threaten individual livelihoods as well as local, national and international economies. For sustainable development to be achieved, links between the environment and development must be examined. It is also important to consider the end point of development: human well-being. The evolution of ideas on development has made the concept of human well-being central to the policy debate. This paper analyses the global trends in relation to environment and socioeconomic development, the challenges society faces today and provides signposts towards sustainable development. 
 
Poverty eradication, the change in unsustainable patterns of production and consumption and the protection and management of natural resources, economic and social development are constantly cited as the over-arching objectives and essential requirements for sustainable development. 
 
Barriers to sustainable development 
Despite changes in environmental governance and greater understanding of the links between environment and development, real progress towards sustainable development has been slow. Many governments continue to create policies concerned with environmental, economic and social matters as single issues. There is a continued failure to link environment and development in decision making. As a result, development strategies often ignore the need to maintain the very ecosystem services on which long-term development goals depend. 
 
It is useful and indeed necessary to remind ourselves that a healthy human environment depends entirely on biodiversity. Everything we eat, wear and produce on this planet Earth is ultimately dependent on its biodiversity. Indeed, there is little awareness in most urbanized societies that the food on the table is a product stemming from biological diversity. This lack of awareness compounds the problem that ever-increasing demands on the world’s resources to satisfy the needs of modern life are leading to overuse of biological diversity. Arguably, then, the greatest challenge facing humanity is to either curb unrealistic expectations and bring over-used resources back to sustainable limits, or find alternatives for these resources. Failure to conserve and use biological diversity in a sustainable manner would result in degrading environments, new and more rampant illnesses, deepening poverty and a continued pattern of inequitable and untenable growth. 
 
Existing Policy Responses 
Presently we have number of policy initiatives for the conservation of bio-diversity and ensure sustainable developments. Some of them are mentioned below. 
 
The Convention on Biological Diversity 
The Convention on Biological Diversity (CBD) is a landmark in the environment and development field, as it takes for the first time a comprehensive rather than a sectoral approach to the conservation of Earth’s biodiversity and sustainable use of biological resources. It was in the year 1984 that the need to have in place a global convention on biological diversity started gaining momentum. In response, the United Nations Environment Programme (UNEP) in the year 1987 recognised the need to streamline international efforts to protect biodiversity.The Convention on Biological Diversity (CBD) was negotiated and signed by nations at the UNCED Earth Summit at Rio de Janeiro in Brazil in June 1992. The 
 
Convention came into force on December 29,1993. India became a Party to the Convention in 1994. At present, there are 175 Parties to this Convention. The CBD acknowledges sustainable resource management as a basic means of addressing conservation and economic issues, within the context of the full spectrum of biological resources: fisheries, forests, agriculture, wild plants and animals as well as the genetic material derived from them. 
 
The main objectives of the Convention are : 
· Conservation of biological diversity; 
 
· Sustainable use of the components of biodiversity; 
 
· Fair and equitable sharing of benefits arising out of the utilisation of genetic resources. 
 
Ten years have passed since the CBD entered into force. Ten years of intense negotiations and hard work by Parties, Secretariat and civil society have translated the text of the CBD into more concrete and ‘workable’ instruments such as work programmes and the Cartagena Protocol. Nevertheless, biodiversity, the very basis of life, is today still being lost at high speed and the implementation of the CBD remains difficult. The broad scope and overarching nature of the CBD as well as limited political support for its implementation, make existing instruments neither enough known nor used. 
 
Wild Life Protection Act 
Wild Life Protection Act is in the final stage of revision and provisions have been made for conservation reserves and community reserves to allow restrictive use to make it more people oriented. Presently Biodiversity Act which is in the final stage, has got the component of National Biodiversity Authority to control access to genetic resources form international community. There will also be State Biodiversity Boards to control access to domestic consumers. 
 
Biological Diversity Act, 2002 
After an extensive and intensive consultation process involving the stakeholders, the Central Government has brought Biological Diversity Act,2002 with the following salient features:- 
 
i. to regulate access to biological resources of the country with the purpose of securing equitable share in benefits arising out of the use of biological resources; and associated knowledge relating to biological resources; 
 
ii. to conserve and sustainably use biological diversity; 
 
iii. to respect and protect knowledge of local communities related to biodiversity; 
 
iv. to secure sharing of benefits with local people as conservers of biological resources and holders of knowledge and information relating to the use of biological resources; 
 
v. conservation and development of areas of importance from the standpoint of biological diversity by declaring them as biological diversity heritage sites; 
 
vi. protection and rehabilitation of threatened species; 
 
vii. involvement of institutions of state governments in the broad scheme of the implementation of the Biological Diversity Act through constitution of committees. 
 
Constitutional provisions 
The Indian Constitution is among few in the world that contains specific provisions on environmental protection .The Directive Principles of State Policy and fundamental duties chapters expressly enunciate the national commitment to protect and improve the environment. Judicial interpretation has strengthened the constitutional mandate. Though part III of the Constitution does not contain any provision to provide right to pollution free environment as a fundamental right, but in view of the liberal interpretation given to article 21 coupled with articles 48-A and 51-A(g), the Supreme Court interpreted the right life and personal liberty to include the right to wholesome environment. 
 
Policy Gaps 
§ Lack of policies for protection of wetlands, grasslands, sacred grooves and other areas significant from the point of view of biodiversity. 
 
§ Lacunae in economic policy, institutional and governance system. 
 
§ Inadequate enforcement of existing laws. 
 
§ Poor implementation of wildlife protection act 1972 as amended in 1991 
 
§ Inadequate implementation of eco-development programmes. 
 
§ Need for enhanced role of NGOs and other institutions. 
 
§ Need for political commitment and good will. 
 
§ Need for providing Institutional Structure. 
 
§ Need for more sectoral financial outlay. 
 
§ Human resource development – limited local community participation. 
 
Policy Recommendations 
§ Most of the legal provisions pertain mainly to use/exploitation of biological resources, rather than their conservation. Even Wild Life Protection Act 1972, focuses on protection rather than conservation. Protection under Wild Life Protection Act is largely directed towards large animal species (charismatic terrestrial species) rather than the large spectrum of fauna and flora also found in the marine realm. 
 
§ Hence the existing laws relating to biodiversity shall be examined in order to bring them in tune with the provisions of convention to reflect current understanding of biodiversity conservation. There is a need for comprehensive legislation on biodiversity conservation and use especially fisheries policies, which is generally ignored. 
 
§ Formulation of policies for protection of wetlands, grasslands, sacred groves, marine flora and fauna and other areas is significant from the point of view of biodiversity. 
 
§ Documentation of biodiversity. 
 
§ Increase allocation of financial resources for conservation of biodiversity. 
 
§ Integrating conservation with development. 
 
§ There should be continuous monitoring of biodiversity use for review of results of implementation of policies and programmes. 

Q22. Discuss natural resources. Discuss important types of natural resources as per natural resources economics. 

Natural resources can be defined as the resources that exist (on the planet) independent of human actions. 

These are the resources that are found in the environment and are developed without the intervention of humans. Common examples of natural resources include air, sunlight, water, soil, stone, plants, animals and fossil fuels. 

Natural resources are naturally occurring materials that are useful to man or could be useful under conceivable technological, economic or social circumstances or supplies drawn from the earth, supplies such as food, building and clothing materials, fertilizers, metals, water and geothermal power. For a long time, natural resources were the domain of the natural sciences. 

Natural Resource Economics: – 

Natural resource economics focuses on the supply, demand, and allocation of the Earth’s natural resources. It’s goal is to gain a better understanding of the role of natural resources in the economy. Learning about the role of natural resources allows for the development of more sustainable methods to manage resources and make sure that they are maintained for future generations.The goal of natural resource economics is to develop an efficient economy that is sustainable in the long-run. 
 
 

Importance of the Environment: This diagram illustrates how society and the economy are subsets of the environment. It is not possible for societal and economic systems to exist independently from the environment. For this reason, natural resource economics focuses on understanding the role of natural resources in the economy in order to develop a sufficient and sustainable economy that protects natural resources. 

Types of Natural Resources 

Natural resources are derived from the environment. Some of the resources are essential to survival, while others merely satisfy societal wants. Every man-made product in an economy is composed of natural resources to some degree. 
 
There are numerous ways to classify the types of natural resources, they include the source of origin, the state of development, and the renewability of the resources. 
 
In terms of the source of origin, natural resources can be divided into the following types: 
 
 

  • Biotic: these resources come from living and organic material, such as forests and animals, and include the materials that can be obtained them. Biotic natural resources also include fossil fuels such as coal and petroleum which are formed from organic matter that has decayed. 
  • Abiotic: these resources come from non-living and non-organic material. Examples of these resources include land, fresh water, air, and heavy metals (gold, iron, copper, silver, etc.). 

 
 
Natural resources can also be categorized based on their stage of development including: 
 
 

  • Potential resources: these are resources that exist in a region and may be used in the future. For example, if a country has petroleum in sedimentary rocks, it is a potential resource until it is actually drilled out of the rock and put to use. 
  • Actual resources: these are resources that have been surveyed, their quantity and quality has been determined, and they are currently being used. The development of actual resources is dependent on technology. 
  • Reserve resources: this is the part of an actual resource that can be developed profitably in the future. 
  • Stock resources: these are resources that have been surveyed, but cannot be used due a lack of technology. An example of a stock resource is hydrogen. 

 
 
Natural resources are also classified based on their renewability: 
 
 

  • Renewable natural resources: these are resources that can be replenished. Examples of renewable resources include sunlight, air, and wind. They are available continuously and their quantity is not noticeably affected by human consumption. However, renewable resources do not have a rapid recovery rate and are susceptible to depletion if they are overused. 
  • Non-renewable natural resources: these resources form extremely slow and do not naturally form in the environment. A resource is considered to be non-renewable when their rate of consumption exceeds the rate of recovery. Examples of non-renewable natural resources are minerals and fossil fuels. 

 
 
There is constant worldwide debate regarding the allocation of natural resources. The discussions are centered around the issues of increased scarcity (resource depletion) and the exportation of natural resources as a basis for many economies (especially developed nations). The vast majority of natural resources are exhaustible which means they are available in a limited quantity and can be used up if they are not managed correctly. Natural resource economics aims to study resources in order to prevent depletion. 
 
Natural resource utilization is regulated through the use of taxes and permits. The government and individual states determine how resources must be used and they monitor the availability and status of the resources. An example of natural resource protection is the Clean Air Act. The act was designed in 1963 to control air pollution on a national level. Regulations were established to protect the public from airborne contaminants that are hazardous to human health. The act has been revised over the years to continue to protect the quality of the air and health of the public in the United States.