Natural Resources and their Importance in Sustaining Life
Discuss about the cost of pollution in specific the emission of GHGs and its roll to the environment and the economics.
Expansion of the environmental problems is vast and widespread owing to its complexity, which makes it one of the key problems during the 21st century and thus, it is hard to grasp around the world ( Lang and Heasman 2015). There is no doubt that environmental assets are the most valuable resources that enhance the wellbeing of the humans and adhere with the future prospective of economic growth. For instance, natural resources like fossil fuels and minerals directly influence the production of goods and services; moreover, it aids the economic activity of an economy. On the other hand, excessive economic activities post industrialisation had caused pollution around the world leading to fall in natural resource (Victor 2017). Thus, it is highly important to study the importance of environment and find out its relation with the growth of economy. This report is aimed to discuss the effect of the pollution on the economic performance of world economy and it will put light on the fact that how economic parameters like utility, supply and demand, preference is related to the environmental factor.
Natural resources are the primary source that helps the earth to sustain life in it (Tietenberg, Thomas and Lewis 2016). It not only provides oxygen to breath, moreover produces resources using which various goods and services are originated. Thus, it is highly important to discuss the relation between environment and economy.
Pollution is one of the key elements that cause damage to the environment. Thus, the objective function of this report would focus on the facts that how the damage caused by the pollution can be reduced.
Damage function:
D = D (M), F.O.C of maximisation D’ (M)>0 and S.O.C of maximisation D’’ (M) > 0
Benefit function:
B = B (M), F.O.C of maximisation B’ (M)>0 and S.O.C of maximisation B’’ (M) <0
Aggregate level of pollution:
M = ? mi [i = o, 1, 2 … n] [i is total number of firms]
Max NB = {B (M) – D (M)}
Assuming that two firms are producing 20 and 40 pounds of affluent respectively, then the optimum level of damage would be the point where MC cuts the D (M) curve. When it comes to benefit function, then optimum level of benefit that can be gained from reducing the pollution would be where the MC cuts the B (M).
Carbon emission is one of the main reasons that lead to the degradation of the environment, thus it would be the primary requirement for every organisation to take steps to reduce the carbon footprint (Panayotou 2016). As mentioned above, damage function of the environment is dependable upon the aggregate level of pollution depicted by M. First order condition of maximisation leads to the fact that the damage function need to be greater than zero and second order condition states the curve will positively slopping and convex to the origin. From the benefit function, it can be stated that level of benefit is also dependable upon the aggregate level of pollution owing to the fact that higher level of pollution will tend to higher level of exploitation of natural resource and it will inherently lead the economy to have greater amount of pollution. First order condition of profit maximisation also states the same relation between the environment and economy by showing that first order derivation need to be greater than zero and the curve is negatively sloped and it will be concave to the origin as B” (M) <0.
The Impact of Pollution on the Environment
This framework is possible in a perfectly competitive market and externality is singular in nature. Considering a ceteris paribus situation, the framework only assumes that pollution is the only factor that alters the production and world economy.
Environment has great amount of effect on the economic parameters. Utility, demand and supply, preference for goods and consumer behaviour is highly affected by the alteration in the economic parameters (Schaltegger, Stefan and Marcus 2017).
Utility is such a thing that cannot be measured cardinally owing to the fact that it is an abstract measurement (Schultz, Carelli and Wightman 2015). With higher level of pollution, utility from consuming goods and services will be reduced and according to the OECD analysis if the pollution level becomes higher than the natural level of pollution, then it will reduce the quality of the good and services leading to fall in utility (Botta and Kozluk 2014).
Demand and supply are the key elements that influence the economy and it can be altered by the influence of pollution. For instance, if there is rise in pollution, then government can take necessary measurement that will reduce the production of coal and gases. This reduction will cause inflation leading to slower growth of economy (Myrdal 2017).
Preferences of goods and services can highly be altered by the influence of pollution. For instance, people will prefer to choose those goods that come from the less polluted economy (Spiegel et al. 2016). Moreover, industries like tourism; manufacturing would be hampered owing to the fact that higher pollution will reduce the demand of goods and services from those places.
Higher amount of pollution will cause lower amount of consumer surplus because industries have to use better equipment that reduces carbon footprint. The extra cost incurred by the industries will be levied on the consumers leading to fall in consumer surplus (Freeman et al. 2014). Moreover, there will be dead weight loss owing to the fact of government’s plan to curb the pollution effects.
Pollution cannot be mitigated from the environment; however, it can be contained to a great extent that the world economy can have a sustainable growth.
Efficient level of pollution can be represented as the – D’ (M*) = B’ (M*)
If the damage function equates with the benefit function, then it can be perceived that net benefit of emission can be optimized.
Figure 1: Efficient level of emission
Source: (Created by Author)
From the figure 1, it can be stated that the maximum level of benefit from efficient level of emission can be achieved from the place where the difference between damage function and benefit function is highest. For instance, if it is assumed that two firms are operating and they are producing 20 and 40 pounds of pollution at a rate of $13 and $8 respectively, then optimum cost will be $13 and optimum level of pollutant would be 34 pound. It will provide optimum amount of M* leading to better economic growth.
It is quite impossible to attain zero emission from the industries; however, it can be reduced to a certain extent that it can aid the economy to foster in a steady rate (Antle 2015). As a recommendation, below mentioned points can be considered to reduce the environmental pollution and have a sustainable growth.
- Bringing in a concise regulatory framework for the consumers and the producers
- Policy cost need to be reduced to give rise in disposable income so that firms can introduce more econ friendly technologies
- Cost effective smart policies need to be introduced that will reduce the trade off between the short and long terms
- Rationing of the usage of public property can be introduced to reduce the over exploitation
Effective environmental policies along with proper execution are the key element that can reduce the effect of pollution on the economy (Blarkie 2016). However, it is easy to recommend practices for reducing pollution but in reality, the situation is more complex that leads to the failure of the government practices.
Conclusion:
Above discussion clearly shows that economy is highly dependable upon the environmental factors. With better environment, economy not only grows at a faster rate, moreover, influence the productivity, employment and the growth rate of economy. Though attaining zero emission is not possible, but reducing it to a certain level is possible which can be beneficial to lead the economy towards a sustainable growth. Though it has been cleared from the above discussion, that real scenario of the environmental effects on the economy is more complex, but government should bring in constructive practices and regulations with proper implication that can reduce the short and long term trade off between economy and environment
References:
Antle, John M. Pesticide policy, production risk, and producer welfare: an econometric approach to applied welfare economics. Routledge, 2015.
Blaikie, Piers. The political economy of soil erosion in developing countries. Routledge, 2016.
Botta, E. and Kozluk, T., 2014. Measuring environmental policy stringency in OECD countries: A composite index approach. OECD Economic Department Working Papers, (1177), p.0_1.
Freeman III, A. Myrick, Joseph A. Herriges, and Catherine L. Kling. The measurement of environmental and resource values: theory and methods. Routledge, 2014.
Lang, Tim, and Michael Heasman. Food wars: The global battle for mouths, minds and markets. Routledge, 2015.
Myrdal, Gunnar. The political element in the development of economic theory. Routledge, 2017.
Panayotou, Theodore. “Economic growth and the environment.” The environment in anthropology (2016): 140-148.
Schaltegger, Stefan, and Marcus Wagner, eds. Managing the business case for sustainability: The integration of social, environmental and economic performance. Routledge, 2017.
Schultz, W., Carelli, R.M. and Wightman, R.M., 2015. Phasic dopamine signals: from subjective reward value to formal economic utility. Current opinion in behavioral sciences, 5, pp.147-154.
Spiegel, Orr, Stephan T. Leu, Andrew Sih, and C. Michael Bull. “Socially interacting or indifferent neighbours? Randomization of movement paths to tease apart social preference and spatial constraints.” Methods in Ecology and Evolution 7, no. 8 (2016): 971-979.
Tietenberg, Thomas H., and Lynne Lewis. Environmental and natural resource economics. Routledge, 2016.
Victor, Peter A. Pollution: Economy and environment. Routledge, 2017.
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