The Environment and Sustainable Development in Asia

1
Chapter 12

• The Environment and Sustainable
  Development in Asia

2
Introduction

• Environmental problems in Asia include the
  deterioration of natural treasures at a dramatic
  rate
• Other problems include air pollution,
  contaminated rivers and reckless disposal of
  hazardous wastes
• Economic implications of these problems include a
  reduction in the pace of economic development
  through
• Reduced productivity of resources
• Health related expenses

3
Introduction
4
Environmental Degradation A Source of Market
Failure
5
The Market of an Environmental Good

• Q is the most efficient level of output since
• Marginal benefit (MB) Marginal cost (MC) of
  providing the good,
• Producers and consumers gains are maximized from
  the exchange.
• Coase Theorem

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• Coase theorem says that a market for a public
  good can be created.
• The market will determine the price of a public
  good based on the marginal social cost and the
  marginal social benefit.
• By incorporating the environmental damage into
  the pricing structure of public goods markets can
  determine a social optimum.
• Government intervention is not needed.
• The Coase theorem can work in many cases but not
  in others.

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What is Market Failure?

• Market failure is
• In the environmental sense, when the market
  determined price and output levels of
  environmental goods are not efficient
• In other words, there is a disparity between MSC
  and MPC or MSB and MPB for a market at Q level
  of production

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Market Failure
An Example of Market Failure
S, (MSC)
Costs/Benefits
S, (MPC)
D, MB
Q (units of resource)
Q
Q1
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Externalities

• Externalities is one of the major sources of
  market failure
• It refers to costs incurred or benefits gained by
  a third party from an exchange of good or service
• It brings about a disparity between MSC and MPC
  from production activity
• For e.g. river pollution by industrial producer
  induces MSC gt MPC
• It brings about a disparity between MSB and MPB
  from consumption activity
• For e.g. immunization induces MSB gt MPB

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Externalities Property Rights

• Property rights defines owners rights to use a
  resource
• It can be vested with individuals or a state
• Externalities often arise because of improperly
  designed or inadequate property rights systems
• Thus adequate property rights are essential to
  the societys efficient use of natural resources

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Externalities Property Rights

• Efficient resource allocation in a market economy
  depends on 4 basic characteristics of property
  rights
• Privately owned resources
• Exclusivity prevents non-owners from gettingany
  benefits from the resource
• Transferability property rights can be
  transferred from one part to another
• Enforceability the resource cant be seized by
  someone else.

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Externalities Property Rights

• Property rights cannot be easily implemented for
• Open-access resources -resource
• For e.g. air, rivers and seas.
• Public goods goods that, once provided, can not
  exclude users
• For e.g. community parks, defense, roads, light
  house
• They have indivisible and non-exclusive nature,
  and this results in the free rider problem

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Approaches to Correct Externalities

• Three broad approaches taken by the government to
  correct externalities
• Public Education
• Command and Control Regulations
• Economic Incentives

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Approaches to Correct Externalities (Public
Education)

• True costs of environmental degradation are
  unknown due to imperfect information failures
• Public education to influence public behavior via
  moral suasion and direct mitigation of
  environmental market

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Approaches to Correct Externalities (Regulations)

• Direct controls
• Restrict behaviours of individuals
• Include specific laws and rules and regulations
• Penalties apply if these are violated.
• Command and control regulations
• Restrictions on inputs and output
• Effective if the polluters are easily identified

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Approaches to Correct Externalities (Economic
Incentives)

• Economic incentives
• Matches individual self-interest with the
  interest of the wider society via pollution
  taxes, pollution subsidies, market permits,
  deposit-refund system, bonding and liability
  systems
• Taxation forces firms and households to
  internalize the external cost and reduce cost
• Tax revenue earned can be used to fund
  environmental programs and compensate the
  affected party
• Effective if polluters are highly responsive to
  taxes

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Approaches to Correct Externalities (Economic
Incentives)

• Marketable permits
• Allows holders to harvest resources up to a
  limit or
• Grants license to pollute the environment to a
  certain specific amount
• It provides firms incentives to make their
  production process more environmentally friendly
• Provide buyers and sellers a choice, unlike
  regulations

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Economic Incentives

• Marketable permits use markets to regulate
  pollution by raising the price of products that
  pollute to equate marginal social cost with
  marginal social benefit.
• They also presume that there is a level of
  pollution that is acceptable.
• Marketable permits then can be sold by one
  polluter to another to reflect the costs of
  pollution.
• A high polluter can buy permits from a low
  polluter, thereby raising his costs and lowering
  the costs of the low polluter.
• This provides an incentive in the long run for
  best practice firms low polluting firms to
  prevail over polluting firms

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Developing Countries Natural Resources

• 2 important factors contributing to environmental
  degradation in developing countries are
• High incidence of poverty and
• Population growth

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Developing Countries Natural Resources Asia

• Rich endowment of resources
• 2nd largest rain forest
• More than 50 of worlds coral reefs
• 17 of important wetlands
• Rapid development in the region puts these at risk

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Fresh Water Resources in Asia

• Fresh water resources in Asia have been worst hit
  by rapid economic and population growth
• It has the highest rate of fresh water
  withdrawals in the world
• This results in an inadequate supply of clean
  water

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Fresh Water Resources in Asia

• Asia has the lowest per capita availability of
  freshwater
• This adversely affects peoples health conditions
  and lower productivity levels
• Irrigation problems are also experienced
• There is severe shortage of safe water
  particularly in South and Southeast Asia

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Air Quality in Asia

• Air quality in Asia is ranked among the worlds
  most polluted
• Rapid and unplanned urbanization has increased
  air pollution
• Transportation is the major source of air
  pollution in most Asian cities
• E.g. Bangkok, Beijing, Delhi, Tokyo etc

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Air Quality in Asia

• Other causes of air pollution include the burning
  of fossil fuels in
• Domestic heating
• Power generation
• Industrial processes
• Asia has a heavy dependence on carbon-intensive
  fuels and is a big consumer of wood fuels as well
  as coal

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Carbon and global warming

• When burned coal is the biggest source of carbon
  dioxide and also a source of methane which is 10
  times as damaging to the environment in terms of
  raising air temperatures (global warming)
• China and India are the worlds largest consumers
  of coal.
• China recently surpassed the US as the biggest
  emitter of carbon dioxide.
• Scientists are working on how to reduce the CO2
  emissions from coal by sequestering the carbon
  dioxide underground.
• They are also working on using other fuels.
• Oil is the second biggest polluter after coal

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Global warming

• China produces twice as much coal as the US and
  consumes about twice as much as the US.
• There are hundreds of new power plants being
  commissioned in China every year.
• Most of them are not using most modern equipment
  to get rid of sulphur and fly ash byproducts.
• As a result pollution levels are high and also
  respiratory illness.

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Land and Forest in Asia

• Asia has lost 72 of over 15 million sq. km of
  original forest
• Main losses are due to
• Commercial logging
• Agriculture
• Settlement demand by the rapid growing population

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Land and Forest in Asia

• Most severely hit countries include
• Bangladesh
• India
• Philippines
• Sri Lanka
• Vietnam
• Only a mere 6 of the remaining forests are
  frontier forests, found in islands of Borneo,
  Sumatra, Sulawesi and Irian Jaya

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Protecting the Environment (Policy Implications)

• Owing to the presence of market failure,
  government intervention is necessary to stop
  environmental degradation
• Policy instruments available include
• Command and Control Policies
• Economic Incentives
• Clarity of Property Rights
• Phasing out Subsidies
• Improving Institutional Capacity

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Protecting the Environment (Policy Implications)

• Command and control policies are popular
  approaches especially in cases where
• Monitoring costs are high e.g littering, toxic
  waste
• Zero level emissions is best
• During emergencies
• Economic incentives are generally preferable to
  command and control policies

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Protecting the Environment (Policy Implications)

• Other policy instruments such as clarity of
  property rights are not easily implemented for
  open access resources
• It is also more relevant for countries where
  tenanted farming is still in place

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Protecting the Environment (Policy Implications)

• Phasing out subsidies reduces overuse of natural
  resources and improve the allocation of
  resources. This includes reduced subsidies to
  energy production, logging, fishing and water.
• Improving institutional capacity involves taking
  a decentralized approach to environmental policy
  implementation
• It also stresses partnership with the private
  sector, NGOs and local communities

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Water Availability in Asia

• Water stress is getting worse in Asia
• Water stress is encountered when the amount of
  fresh water per capita falls below 1700 cubic
  meters per year.
• South Asia is sometimes coming close to that
  level.
• Pricing needs to reflect the costs of water.
• Irrigation water should be better regulated and
  priced.
• Urban water systems recover only about 35 percent
  of costs.
• Less than half of Asias population has access to
  sanitation and clean water.

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Aquatic Resources

• Over fishing is widespread.
• Subsidies to fishermen to build and maintain
  bigger boats is counterproductive.
• Destruction of natural habitats on sea coast such
  as mangrove raises risks of flooding and high
  tides as well as Tsunamis.
• Pollution also increases the risk of red time
  algae that poisons shellfish.
• Coral reefs also bleached by warmer water
  associated with global warming.

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Air Quality

• Coal has already been mentioned.
• Wood burning by the poor for cooking also
  contributes.
• Fires from burning straw after harvest a policy
  followed in Malaysia and Indonesia has caused a
  sharp deterioration in air quality and an
  increase in respiratory disease.
• Mercury concentrations as well as lead (in leaded
  gasoline) , cadmium are spread to fish through
  air pollution.
• Sulfur dioxide levels are also high.

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Damage from water pollution

• Arsenic poisoning responsible for many deaths in
  Asia Bangladesh in particular.
• Water borne diseases like malaria, intestinal
  problems affect billions of people (4 billion
  cases of diarrhea, 2 billion people at risk from
  malaria)
• Disability Adjusted Life Years (DALY) is a way of
  measuring economic loss from illness caused by
  environment.
• 42 of DALY is due to water pollution and
  inadequate sanitation.
• Environmental clean up has secondary benefits for
  the poor who are more likely to be affected by
  water pollution.

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Costs of global warming

• Cost of global warming so far is modest.
• Ultimate cost will depend on sea level rise.
• A one meter rise would flood parts of China,
  Bangladesh and India as well as low lying areas
  of Thailand.
• Science is still not clear how much sea will rise
  and when.
• Extreme weather patterns are predicted to
  increase.
• Earth is in a warming cycle now and will be for
  the foreseeable future.

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Energy

• Asia will account for the bulk of increase in
  energy use over the next two decades.
• Need more public transport in India and China
• More fuel efficient and less polluting cars in
  Asia.
• Replace coal burning into coal gasification
  (Integrated gasification combined combusion or
  IGCC)
• IGCC allows separation of mercury and sulfur and
  easy disposal.
• So far India and China not adopting this
  approach.
• There are still energy subsidies in China.

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Energy

• Alternative energy sources are not going to help
  much.
• Ethanol raises prices of food and causes
  substitution of production from ethanol producers
  to other countries that may be more polluting.
• Nuclear, tidal power, solar, geothermal cant
  supply much.
• Long run hope is fusion.
• Even with new technology OECD projects fossil
  fuels will supply 77 percent of global primary
  energy needs by 2030 down from 81 percent with no
  change in technology.

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Technology

• Is there a magic bullet in the long run to
  substitute for coal, oil and natural gas?
• Genetically modified crops can save on water and
  artificial fertilizers.
• Nuclear power can provide some help but capacity
  in India and China is very low.
• It will increase a lot in next twenty years but
  so will demand (see Table 6.5 in book)
• Solar power not a major source in Asia outside of
  Japan.

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Technology and Global Warming

• Table 6.3 shows the pattern of climate change
  historically and shows we are still in a very
  cold phase of earths climate experience.
• There are also nonlinear changes that could make
  climate change accelerate.
• Amount of carbon dioxide released by
  invertebrates and microbes is 10 times higher
  than the level of carbon emission from fossil
  fuels.
• Soil hold more carbon than trees and atmosphere
  combined.
• Disruptions in the carbon cycle in soil could
  result in greater acceleration in global warming.
  

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Technology and Global Warming

• Adopt policies that
• encourage super externalities
• such as

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Gore Socolow Pacala

• More efficient use of electricity in heating,
  cooling, lighting, running of appliances
• Better building design
• More efficient automobiles
• More efficient trucks, mass transit.
• Wind and biofuels
• Capture and storage of carbon.

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A Solar energy alternative

• Install solar panels in deserts throughout the
  world. These include Southwest of US, Gobi and
  Sahara deserts, Argentina, Chile and Peru.
• The energy generated during the day can be stored
  as compressed air and then released on demand.
• Storage in salt an alternative but seems more
  risky because of corrusion.
• Energy sent from the solar cells through
  high-voltage DC lines to storage facilities
  throughout each individual country.

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A Solar Energy Alternative

• These facilities would be similar to existing
  storage facilities for natural gas.
• Such a system has been described for the United
  States in January 2008 Scientific American.
• System would require some natural gas to help
  power the turbines that generate electricity.

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Thermostats to control use

• Economists suggest thermostats that give a better
  picture of energy usage.
• Book that details this is called Nudge, by
  Richard Thaler and Cass Sunstein.
• These would include red lights that indicate high
  usage and comparisons with others in the
  neighborhood.
• High users would follow more efficient use of
  energy.
• Also will show trade offs in life style choices
  car emissions not offset by recycling, postponing
  long air flights could save more than
  substituting a Prius for a Hummer.

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Global agreements

• Kyoto Protocol agrees to cut greenhouse gases by
  5.2 percent by 2012 from 1990 levels.
• Signed by 141 countries not including US and
  Australia, who didnt ratify the treaty.
• India and China are exempt although they did
  sign.
• Pollution rights can be purchased through a
  trading system.
• Industrial countries buy rights from poorer
  countries.
• Unclear whether the transfer of resources to poor
  countries will do anything for global compliance.

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Time delays and environmental management

• Ecological changes take time to manifest and to
  understand.
• Mercury poisoning is an example working up
  through the food chain.
• Nonlinear and irreversible changes possible
  great barrier reef, crown of thorns starfish and
  Giant Briton shellfish.
• Aging of the global population could reduce human
  impact on environment.
• Older people live in smaller more dense spaces,
  consume less, drive less etc

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Ecological footprint

• Ecological footprint is a measure of total area
  required to produce food and other products plus
  area required to dispose of waste and construct
  infrastructure.
• Footprint compared with biocapacity, which is
  drawn down by consuming resources.
• Keep global biocapacity by reducing toxic
  chemicals, soil erosion, protecting wetlands,
  watersheds, forests and fisheries.
• Increase technology investment to improve
  efficiency of resource use.

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Ecological footprint

• Reduce consumption of luxury goods.
• Reduce rate of population growth.
• Good to reduce footprint and raise human
  development index.
• US footprint is huge, more than twice that of
  nearest country, Japan see Table 6.11 in textbook
  and on next page

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Who Cares?

• The answer to who thinks global warming is a big
  problem is as follows (see chart at right)
• So why should we do anything?
• Set example for others -start a garden, plant
  trees.
• Install solar water heater.
• Find more efficient utilities.
• Stop eating meat.
• Bike or walk.

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Final Thoughts

• Concerted and wide ranging efforts needed to
  conserve and maintain environmental quality in
  Asia.
• Table 6.12 lists a wide variety of areas from
  population to water availability, air quality,
  land and forest resources, solid and waste
  management, energy, bildiversity, global warming
  hazards.
• Asia will be the biggest source of most pollution
  particularly CO2
• Loss of biodiversity is also happening in Asia.
• Half of global consumption of energy will come
  from Asia over next 15 years.

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Final Thoughts

• Electronic waste rising dramatically with use of
  personal computers. 4 million are discarded each
  year.
• 60 percent of remaining frontier forests in Asia
  are under threat. Forest cover declining at 1
  percent per year.
• Asia has most polluted air in the world. 13 of 15
  dirtiest cities are in Asia.
• Water stress likely in India by 2025 and also in
  China a little later.
• Most of global population growth will come from
  China and India as well as rest of South Asia.
  Global population could peak at less than 10
  billion if population growth is controlled in
  these countries

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Summary of what we have learned

• Introduction to environmental problems in Asia
  and its causes
• Understanding of externalities and property
  rights
• Policy implications for protecting the environment