Along with ceramics production, sedentism, and herding, agriculture is a major component of the Neolithic as it is defined in Europe. Therefore, the agricultural system of the first Neolithic societies and the dispersal of exogenous cultivated plants to Europe are the subject of many scientific studies. To work on these issues, archaeobotanists rely on residual plant remains—crop seeds, weeds, and wild plants—from archaeological structures like detritic pits, and, less often, storage contexts. To date, no plant with an economic value has been identified as domesticated in Western Europe except possibly opium poppy. The earliest seeds identified at archaeological sites dated to about 5500–5200
The Neolithic pioneers settled in an area that had experienced a long tradition of hunting and gathering. The Neolithization of Europe followed a colonization model. The Mesolithic groups, although exploiting plant resources such as hazelnut more or less intensively, did not significantly change the landscape. The impact of their settlements and their activities are hardly noticeable through palynology, for example. The control of the mode of reproduction of plants has certainly increased the prevalence of Homo sapiens, involving, among others, a demographic increase and the ability to settle down in areas that were not well adapted to year-round occupation up to that point. The characterization of past agricultural systems, such as crop plants, technical processes, and the impact of anthropogenic activities on the landscape, is essential for understanding the interrelation of human societies and the plant environment. This interrelation has undoubtedly changed deeply with the Neolithic Revolution.
Worldwide, governments subsidize agriculture at the rate of approximately 1 billion dollars per day. This figure rises to about twice that when export and biofuels production subsidies and state financing for dams and river basin engineering are included. These policies guide land use in numerous ways, including growers’ choices of crop and buyers’ demand for commodities. The three types of state subsidies that shape land use and the environment are land settlement programs, price and income supports, and energy and emissions initiatives. Together these subsidies have created perennial surpluses in global stores of cereal grains, cotton, and dairy, with production increases outstripping population growth. Subsidies to land settlement, to crop prices, and to processing and refining of cereals and fiber, therefore, can be shown to have independent and largely deleterious effect on soil fertility, fresh water supplies, biodiversity, and atmospheric carbon.
Kevin J. Boyle and Christopher F. Parmeter
Benefit transfer is the projection of benefits from one place and time to another time at the same place or to a new place. Thus, benefit transfer includes the adaptation of an original study to a new policy application at the same location or the adaptation to a different location. The appeal of a benefit transfer is that it can be cost effective, both monetarily and in time. Using previous studies, analysts can select existing results to construct a transferred value for the desired amenity influenced by the policy change. Benefit transfer practices are not unique to valuing ecosystem service and are generally applicable to a variety of changes in ecosystem services. An ideal benefit transfer will scale value estimates to both the ecosystem services and the preferences of those who hold values. The article outlines the steps in a benefit transfer, types of transfers, accuracy of transferred values, and challenges when conducting ecosystem transfers and ends with recommendations for the implementation of benefit transfers to support decision-making.
Bartosz Bartkowski and Nele Lienhoop
While economic values of nonmarket ecosystem goods and services are in high demand to inform decision-making processes, economic valuation has also attracted significant criticism. Particularly, its implicit rationality assumptions and value monism gave rise to alternative approaches to economic nonmarket valuation. Deliberative monetary valuation (DMV) originated in the early 2000s and gained particular prominence after 2010, especially in the context of the United Kingdom National Ecosystem Assessment (UK NEA). It constitutes a major methodological development to overcome the limitations of conventional nonmarket valuation methods by incorporating deliberative group elements (information provision, discussion, time to reflect in a group setting) in the valuation process.
DMV approaches range from those that focus on facilitating individual preference formation for complex and unfamiliar environmental changes and stay close to neoclassical economic theory to those that try to go beyond methodological individualism and monetary valuation to include a plurality of different values. The theoretical foundation of DMV comprises a mix of economic welfare theory, on the one hand, and various strands of deliberative democratic theory and discourse ethics, on the other. DMV formats are mostly inspired by deliberative institutions such as citizens’ juries and combine those with stated preference methods such as choice experiments. While the diversity of approaches within this field is large, it has been demonstrated that deliberation can lead to more well-informed and stable preferences as well as facilitate the inclusion of considerations going beyond self-interest. Future research challenges surrounding DMV include the exploration of intergroup power relations and group dynamics as well as the theoretical status and the validity of DMV results.
Benjamin S. Arbuckle
The domestication of livestock animals has long been recognized as one of the most important and influential events in human prehistory and has been the subject of scholarly inquiry for centuries. Modern understandings of this important transition place it within the context of the origins of food production in the so-called Neolithic Revolution, where it is particularly well documented in southwest Asia. Here, a combination of archaeofaunal, isotopic, and DNA evidence suggests that sheep, goat, cattle, and pigs were first domesticated over a period of several millennia within sedentary communities practicing intensive cultivation beginning at the Pleistocene–Holocene transition. Resulting from more than a century of data collection, our understanding of the chronological and geographic features of the transition from hunting to herding indicate that the 9th millennium
Mark Eiswerth, Chad Lawley, and Michael H. Taylor
Introductions of non-native invasive species can harm ecosystems, heighten the risk of native species extinctions and population reductions, and lead to substantial economic damages on a worldwide scale. Increasingly, economists have made contributions that help other researchers, policymakers, and society better understand the economic implications of invasive species as well as the most economically efficient approaches for managing them. The complexity of invasive species management problems has pushed economists to ask novel economic questions and to develop new analytical approaches in order to address specific policy questions. There are three areas, in particular, where the economic analysis of invasive species management has led to significant innovations. First, there are substantial challenges to quantifying economic damages from invasive species for application in benefit−cost analysis. The challenges relate to defining the counterfactual state of an invaded ecosystem with and without management/policy and to the fact that, in a given ecosystem, estimates of economic damages are available for only a subset of the species and for only a subset of damages for any one species. Recent economic research has proposed innovative approaches to systematically dealing with these two issues in the context of invasive species that have implications for applied benefit−cost analysis more broadly. Second, unique among natural resource management problems, invasive species have the feature that their current and future extents are directly tied to a country’s participation in international trade. This feature has led to innovative research into the design of efficient measures to prevent or delay invasive species introductions along national borders, and into the trade-offs between these measures and the use of border controls as protectionist tools. The issues of optimal inspection policy and the use of nontariff barriers as a form of covert protectionism both have implications beyond invasive species management. Third, researchers have developed bioeconomic models that integrate economic and biological factors in order to analyze strategies to more cost-effectively reduce the damages caused by invasive species. These modeling efforts have dealt with issues related to temporal and spatial dynamics of the biological invasions, imperfect information regarding the extent of the invasion and the effectiveness of management, linkages between management applied at different stages of an invasion, and complications arising from ecosystems’ crossing over ecological thresholds due to invasions. In the face of increasingly rapid ecosystem change due to global climate change, increases in extreme weather, urban encroachment into wild lands, and other factors, many of these features of invasive species management problems are likely to become features of ecosystem management more broadly in the near future if they are not so already.
Dominic Moran and Jorie Knook
Climate change is already having a significant impact on agriculture through greater weather variability and the increasing frequency of extreme events. International policy is rightly focused on adapting and transforming agricultural and food production systems to reduce vulnerability. But agriculture also has a role in terms of climate change mitigation. The agricultural sector accounts for approximately a third of global anthropogenic greenhouse gas emissions, including related emissions from land-use change and deforestation. Farmers and land managers have a significant role to play because emissions reduction measures can be taken to increase soil carbon sequestration, manage fertilizer application, and improve ruminant nutrition and waste. There is also potential to improve overall productivity in some systems, thereby reducing emissions per unit of product. The global significance of such actions should not be underestimated. Existing research shows that some of these measures are low cost relative to the costs of reducing emissions in other sectors such as energy or heavy industry. Some measures are apparently cost-negative or win–win, in that they have the potential to reduce emissions and save production costs. However, the mitigation potential is also hindered by the biophysical complexity of agricultural systems and institutional and behavioral barriers limiting the adoption of these measures in developed and developing countries. This includes formal agreement on how agricultural mitigation should be treated in national obligations, commitments or targets, and the nature of policy incentives that can be deployed in different farming systems and along food chains beyond the farm gate. These challenges also overlap growing concern about global food security, which highlights additional stressors, including demographic change, natural resource scarcity, and economic convergence in consumption preferences, particularly for livestock products. The focus on reducing emissions through modified food consumption and reduced waste is a recent agenda that is proving more controversial than dealing with emissions related to production.
Maria L. Loureiro and Maria Alló
Vessel oil spills are very serious natural hazards that have affected coasts worldwide for many decades. Although oil spills from tankers are highly publicized, very little is known about the role played by the incentives and regulatory instruments in place to prevent them. In order to shed some light on these issues, data were collected worldwide on large oil spills from multiple databases, starting in the 1970s, and merged with other socioeconomic records. A crucial concern is that that large oil spills have been undercompensated over time with respect to the damages caused. A meta-analysis was estimated in order to assess relevant factors affecting the damage claimed in oil spills and the compensations received by the affected parties. Meta-regression results show that the legislation applied (strict unlimited liability versus limited liability) played a crucial role in both the amount claimed and the final compensation received. Also, time-trend variables are shown as determining factors for both the damages and claims that are finally paid. To correct the large gap between damage claimed and compensation scenarios, it is recommended to strengthen compensation funds, while carrying out more comprehensive assessment studies which apply valuation methods comparable with those proposed by green capital initiatives for marine ecosystem services, and which could be used successfully during the litigation process.
Reforestation is the natural or intentional restocking of existing forests and woodlands that have been harvested or depleted, and afforestation is the establishing of a forest in an area where there were no trees. For economic and practical purposes, reforestation and afforestation have similar goals and processes and thus can be treated as identical activities. Although reforestation and afforestation have a long history, large-scale reforestation and afforestation activities started with industrialization, which caused scarcity in timber and forest-based ecosystem services. In a unified economic model of reforestation and afforestation, factors influencing investments in reforestation and in afforestation on private and public lands include timber prices, unit reforestation cost, interest rate, the responsiveness of tree growth to silviculture, and the value of nontimber benefits, such as ecosystem services. Market and public policies may facilitate, enhance, or hinder reforestation and afforestation activities, and nontimber benefits are an increasingly important motive for reforestation and, especially, afforestation efforts around the world.
Brent M. Haddad
Watersheds are physical regions from which all arriving water flows to a single exit point. The shared hydrology means that other biophysical systems are linked, typically with upper-gradient regions influencing lower-gradient ones. This situation frames the challenge of managing economic and other uses of watersheds both in terms of individual activities and their influence on other connected processes and activities. Economics provides concepts and methods that help managers with decision making in the complex physical, biological, and institutional environment of a watershed. Among the important concepts and methods that help characterize watershed processes are externalities, impacts of economic activity that fall upon individuals not party to the activity, and third parties, individuals impacted without consent. Public goods and common pool resources describe categories of things or processes that by their nature are not amenable to regular market transactions. Their regulation requires special consideration and alternative approaches to markets. Benefit-cost analysis and valuation are related methods that provide a means to compare alternative uses of the same system. Each is based on the normative argument that the best use provides the greatest net benefits to society. And intergenerational equity is a value orientation that argues for preservation of watershed processes for the benefit of future generations. The need for effective watershed management methods pushed 20th-century economists to adapt their discipline to the complexity of watersheds, from which emerged subdisciplines of natural resource economics, environmental economics, and ecological economics. The field is still evolving with a growing interest in data gathering through land-based low-cost data collection systems and remote sensing, and in emerging data analysis techniques to improve management decisions.
Marisol Rivera-Planter, Carlos Muñoz-Piña, and Mariza Montes de Oca
This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Environmental Science. Please check back later for the full article.
While most attention on the use of economic instruments for environmental protection has centered on their applications in industrialized countries, middle-income countries have made important inroads as well. Among them, Mexico stands out for its application to the agenda of a wide array of green and brown issues. Starting in 2001, with the introduction of fees to access natural protected areas, followed in 2003, with the establishment of the Payment for Ecosystems Services program for forests, and then in 2014, the introduction of the environmental tax on pesticides, the use of complementary price signals through the fiscal system has sought to influence, in a decentralized manner, the decisions of both consumers and resource owners towards protecting key elements of Mexico’s natural capital. As the central promise from economic instruments is to reduce compliance costs of reaching a certain goal by providing flexibility on how to meet individual obligations, the use of market-based mechanisms in regulations has also been explored with some success in Mexico. Partial incorporation of such a mechanism was applied to the design of its national Federal Fuel Efficiency standards for automobiles, by redefining compliance as meeting a corporate average standard starting from 2006 onwards. More recently, full use of market mechanisms was introduced, in 2016, into the strategy to reach Mexico’s Clean Energy requirement goals. The demonstration by utilities of compliance with the milestone of the national 2024 goal of 35% share of clean energy in power generation can be done either by holding or purchasing Clean Energy Certificates in their secondary market. This allows utilities to separate the decision to purchase energy at the lowest cost, and to meet environmental requirements, also at their lowest cost.
Both tax and market mechanisms are converging with Mexico’s Climate Change policy. The Fiscal Reform of 2014 introduced Mexico’s first explicit carbon tax in the form of an excise tax applied to fossil fuels, just as its G20 commitments to phase-out negative carbon pricing (i.e., fossil fuel subsidies) were being fulfilled. With price signals pushing towards more energy efficiency and a lower carbon footprint for the economy, Mexico is on the right track for carbon pricing and is showing leadership at a global scale. It will be interesting to observe how this will mix with a proposed cap-and-trade carbon mechanism, obviously touted as a complementary instrument. The establishment of such a mechanism to meet the emission reduction goals of Mexico’s Climate Change legislation and international commitments is the subject of intense debate and analysis. It represents an interesting decision point for a middle-income country such as Mexico, where all costs are local in nature, the emissions per capita are at the world’s average, and indirect benefits of the energy transition are only partial. In the political economy debate, the linkage to international markets, such as California and Quebec, is not only an option but a central motivation to launch the market, as gains from trade are the driving force.
V. Kerry Smith
Geologists’ reframing of the global changes arising from human impacts can be used to consider how the insights from environmental economics inform policy under this new perspective. They ask a rhetorical question. How would a future generation looking back at the records in the sediments and ice cores from today’s activities judge mankind’s impact? They conclude that the globe has entered a new epoch, the Anthropocene. Now mankind is the driving force altering the Earth’s natural systems. This conclusion, linking a physical record to a temporal one, represents an assessment of the extent of current human impact on global systems in a way that provides a warning that all policy design and evaluation must acknowledge that the impacts of human activity are taking place on a planetary scale. As a result, it is argued that national and international environmental policies need to be reconsidered. Environmental economics considers the interaction between people and natural systems. So it comes squarely into conflict with conventional practices in both economics and ecology. Each discipline marginalizes the role of the other in the outcomes it describes. Market and natural systems are not separate. This conclusion is important to the evaluation of how (a) economic analysis avoided recognition of natural systems, (b) the separation of these systems affects past assessments of natural resource adequacy, and (c) policy needs to be redesigned in ways that help direct technological innovation that is responsive to the importance of nonmarket environmental services to the global economy and to sustaining the Earth’s living systems.
David I. Stern
The environmental Kuznets curve (EKC) is a hypothesized relationship between environmental degradation and GDP per capita. In the early stages of economic growth, pollution emissions and other human impacts on the environment increase, but beyond some level of GDP per capita (which varies for different indicators), the trend reverses, so that at high income levels, economic growth leads to environmental improvement. This implies that environmental impacts or emissions per capita are an inverted U-shaped function of GDP per capita. The EKC has been the dominant approach among economists to modeling ambient pollution concentrations and aggregate emissions since Grossman and Krueger introduced it in 1991 and is even found in introductory economics textbooks. Despite this, the EKC was criticized almost from the start on statistical and policy grounds, and debate continues. While concentrations and also emissions of some local pollutants, such as sulfur dioxide, have clearly declined in developed countries in recent decades, evidence for other pollutants, such as carbon dioxide, is much weaker. Initially, many understood the EKC to imply that environmental problems might be due to a lack of sufficient economic development, rather than the reverse, as was conventionally thought. This alarmed others because a simplistic policy prescription based on this idea, while perhaps addressing some issues like deforestation or local air pollution, could exacerbate environmental problems like climate change. Additionally, many of the econometric studies that supported the EKC were found to be statistically fragile. Some more recent research integrates the EKC with alternative approaches and finds that the relation between environmental impacts and development is subtler than the simple picture painted by the EKC. This research shows that usually, growth in the scale of the economy increases environmental impacts, all else held constant. However, the impact of growth might decline as countries get richer, and richer countries are likely to make more rapid progress in reducing environmental impacts. Finally, there is often convergence among countries, so that countries that have relatively high levels of impacts reduce them more quickly or increase them more slowly, all else held constant.
Haitao Yin, Xuemei Zhang, and Feng Wang
China’s environmental challenges are unprecedented in terms of their size and severity. The country’s constantly evolving regulatory systems are a blend of lessons learned from Western market- and information-based regulations, China’s own unique political and administrative context as an authoritarian country, the complex relationship between its central and local governments, and the balance between the needs for environmental protection and economic growth. A close look at China’s environmental regulatory system may offer useful insights to those working toward a more sustainable future.
In the 21st century, the environmental regulatory system in China is entering a new era. Over the last three decades, efforts have focused on developing regulatory standards for air, water, and solid waste, among many other pollutants. This regulatory system primarily follows a command-and-control approach and is often criticized for its failure to curb China’s increasingly severe environmental degradation.
In the future, the Chinese government may pursue two routes. The first is to increase the use of market mechanisms and information tools to enable and incentivize more stakeholders, such as consumers, nongovernmental organizations, and communities, to engage in the development and enforcement of environmental regulations, for instance, through cap-and-trade systems, information-disclosure programs, and environmental insurance. However, existing evidence shows that the usefulness of these new instruments is limited.
Another route is to develop new mechanisms to strengthen the enforcement of traditional command-and-control regulations. Examples include making environmental performance a key performance indicator (KPI) in the performance appraisals of government officials or leveraging the power of financial sectors. These approaches are a footnote to the new argument in favor of environmental authoritarianism, which suggests that authoritarian regimes, setting authoritarian rules, may be more capable of handling complex environmental pressures. More studies need to be conducted on the effectiveness of these new approaches and the mechanisms by which they may achieve success.
María E. Ibarrarán and Jerónimo Chavarría
In Mexico, the laws and norms that regulate the environment emerged at the end of the 19th century to standardize infrastructure construction and preserve nature. However, it was not until the early 1970s that the first formal government entity dedicated to promote environmental protection, the Vice-Ministry for Environmental Improvement, under the Ministry of Health, was founded, mostly responding to a government initiative rather than social pressure. Other laws were then issued and applied by the Secretariat of Urban Development and Ecology. However, in the 1980s, civil society pressed for more regulations aimed at protecting the environment.
In the 1990s, the Ministry of the Environment, Natural Resources and Fisheries (SEMARNAP) was created, focusing on natural resources, biodiversity, hazardous waste, and urban-industrial environmental problems. Its objective was to reduce the trends of environmental deterioration and to promote economic and social development under criteria of sustainability. This and other institutions have evolved since then, covering a larger set of topics and media. Nevertheless, degradation has not been stopped and is far from being reverted, because even though there is a toolbox of policies and instruments, many of them economic, they have not been fully implemented in some cases or enforced in others because of economic and political factors.
With the changes in institutions, legislation was also modified. Mexico became part of international environmental agreements and included the rights to a safe environment in the constitution. However, this legislation has not been enough to modify behavior because often the incentives either for regulators or for polluters themselves are not enough.
Environmental degradation is a market failure. It can be shaped as an externality that markets alone cannot solve either because of overproduction, abuse of open access resources, or underprovision of public goods. In any of these cases, resolution comes only through government intervention. Regulations must include consideration of the benefits and costs they impose to change behavior. However, regardless of formal regulation, there are still a host of environmental problems that affect both urban and rural communities and Indigenous and non-Indigenous populations, and there is a regulatory vacuum integrating environmental aspects with economic and social development issues. Examples of this are the Energy Reform of 2013 and the Law of Waters, as well as the Law of Biodiversity, where impacts on communities are often left aside, because of a de facto prevalence of economic activity over human rights. On the other hand, legal loopholes prevent adequate management of wildlife resources and sufficient treatment of hazardous waste discarded by industries, even if they are regulated. Furthermore, environmental regulations are based on corrective regulations, such as obligations, restrictions, and sanctions, but these have not strengthened their preventive character. It is still less expensive to pollute or degrade the environment than take measures not to. A shift in the paradigm toward policies that create incentives to protect the environment, both for polluters and regulators, may foster much better environmental quality.
Anil Markandya, Elena Paglialunga, Valeria Costantini, and Giorgia Sforna
Economic damage from climate change includes several aspects that need to be considered at the global and regional levels to achieve an equitable common solution to global warming. The economic literature reviewed here analyzes this issue under three general perspectives.
First, the analytical estimation of the linkages between damages in monetary terms and climate variables, as projections of temperature, precipitation, and frequency of extreme events, is rapidly evolving. Damage functions are included in complex economic models in order to calculate the economic impact of the climate change on economic output and growth, thus informing the debate on the amount of resources that should be devoted to reducing greenhouse gas (GHG) emissions and limiting climate damages. The choice of the geographical aggregation in this respect is a crucial aspect to be considered if policy advice is to be formulated on the basis of model results. The higher the level of regional detail, the more reliable the results are in terms of geographical distribution of economic damages.
Second, the precise estimation of the costs associated with different damages caused by climate change is attracting growing interest. Climate costs present a wide range of heterogeneity for several reasons, such as the different formulation of the damage function adopted, the modeling design of the economic impact, the temporal horizon considered, and the differentiation across sectors. Two broad categories of analysis are relevant. The first refers to the choice of the sectoral dimension under investigation, where some studies cover multiple sectors and their interactions, while others analyze specific sectors in depth. The second classification criterion refers to the choice of the economic aspects estimated, where a strand of literature analyzes only market-based costs, while other analyses also include non-market (or intangible) damages. The most common sectors investigated are agriculture, forestry, health, energy, coastal zones and sea level rise, extreme events, tourism, ecosystem, industry, air quality, and catastrophic damages. Most studies consider market-based costs, while non-market impacts need to be better detailed in economic models.
Third, the computation of a single number through the analytical framework of the social costs of carbon (SCC) represents a key aspect of the process of adapting complex results in order to properly inform the political debate. SCC represents the marginal global damage cost of carbon emissions and can also be interpreted as the economic value of damages avoided for unitary GHG emission reduction. Several uncertainties still influence the robustness of the SCC analytical framework, such as the choice of the discount rate, which strongly influences the role of SCC in supporting or not mitigation action in the short term.
Although the debate on the economic damages arising from climate change is flourishing, several aspects still need to be investigated in order to build a common consensus within the scientific community as a necessary condition to properly inform the political debate and to facilitate the achievement of a long-term equitable global climate agreement.
Edward B. Barbier
Globally, around 1.5 billion people in developing countries, or approximately 35% of the rural population, can be found on less-favored agricultural land (LFAL), which is susceptible to low productivity and degradation because the agricultural potential is constrained biophysically by terrain, poor soil quality, or limited rainfall. Around 323 million people in such areas also live in locations that are highly remote, and thus have limited access to infrastructure and markets. The households in such locations often face a vicious cycle of declining livelihoods, increased ecological degradation and loss of resource commons, and declining ecosystem services on which they depend. In short, these poor households are prone to a poverty-environment trap. Policies to eradicate poverty, therefore, need to be targeted to improve the economic livelihood, productivity, and income of the households located on remote LFAL. The specific elements of such a strategy include involving the poor in paying for ecosystem service schemes and other measures that enhance the environments on which the poor depend; targeting investments directly to improving the livelihoods of the rural poor, thus reducing their dependence on exploiting environmental resources; and tackling the lack of access by the rural poor in less-favored areas to well-functioning and affordable markets for credit, insurance, and land, as well as the high transportation and transaction costs that prohibit the poorest households in remote areas to engage in off-farm employment and limit smallholder participation in national and global markets.
The economic tool of individual transferable quotas (ITQs) gives their owners exclusive and transferable rights to catch a given portion of the total allowable catch (TAC) of a given fish stock. Authorities establish TACs and then divide them among individual fishers or firms in the form of individual catch quotas, usually a percentage of the TAC. ITQs are transferable through selling and buying in an open market. The main arguments by proponents of ITQs is that they eliminate the need to “race for the fish” and thus increase economic returns while eliminating overcapacity and overfishing. In general, fisheries’ management objectives consist of ecological (sustainable use of fish stocks), economic (no economic waste), and social (mainly the equitable distribution of fisheries benefits) issues. There is evidence to show that ITQs do indeed reduce economic waste and increase profits for those remaining in fisheries. However, they do not perform well in terms of sustainability or socially. A proposal that integrates ITQs in a comprehensive and effective ecosystem-based fisheries management system that is more likely to perform much better than ITQs with respect to ecological, economic, and social objectives is presented in this article.
Ann E. Ferris, Richard Garbaccio, Alex Marten, and Ann Wolverton
Concern regarding the economic impacts of environmental regulations has been part of the public dialogue since the beginning of the U.S. EPA. Even as large improvements in environmental quality occurred, government and academia began to examine the potential consequences of regulation for economic growth and productivity. In general, early studies found measurable but not severe effects on the overall national economy. Although price increases due to regulatory requirements outweighed the stimulative effect of investments in pollution abatement, they nearly offset one another. However, these studies also highlighted potentially substantial effects on local labor markets due to the regional and industry concentration of plant closures.
More recently, a substantial body of work examined industry-specific effects of environmental regulation on the productivity of pollution-intensive firms most likely to face pollution control costs, as well as on plant location and employment decisions within firms. Most econometric-based studies found relatively small or no effect on sector-specific productivity and employment, though firms were less likely to open plants in locations subject to more stringent regulation compared to other U.S. locations. In contrast, studies that used economy-wide models to explicitly account for sectoral linkages and intertemporal effects found substantial sector-specific effects due to environmental regulation, including in sectors that were not directly regulated.
It is also possible to think about the overall impacts of environmental regulation on the economy through the lens of benefit-cost analysis. While this type of approach does not speak to how the costs of regulation are distributed across sectors, it has the advantage of explicitly weighing the benefits of environmental improvements against their costs. If benefits are greater than costs, then overall social welfare is improved. When conducting such exercises, it is important to anticipate the ways in which improvements in environmental quality may either directly improve the productivity of economic factors—such as through the increased productivity of outdoor workers—or change the composition of the economy as firms and households change their behavior. If individuals are healthier, for example, they may choose to reallocate their time between work and leisure. Although introducing a role for pollution in production and household behavior can be challenging, studies that have partially accounted for this interconnection have found substantial impacts of improvements in environmental quality on the overall economy.
This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Environmental Science. Please check back later for the full article.
Input-Output (I-O) models were originally conceived by the Nobel Prize winner Wassily Leontief in the 1930s as a tool that can be used by economists and economic policy makers to help in their decision process. The I-O models provide a “picture” of the how the economy works, that is, what are the necessities to produce goods and services; how this production generates income, profits and taxes; and how this income is spent. In a simplified way the I-O models can be seen as the model implementation of the economy’s circular flow diagrams usually show in the introductory courses of economics.
Taking, for example, the production of computer screens:
• On the production side, the I-O models have information for the following: (a) how much is spent on the inputs, goods and services, necessary to produce the screens; (b) if these inputs have their origin from the domestic market or were imported; (c) how much was paid in tax to the government; (d) what was the total amount paid in wages and salaries; (e) what were the profits of the producing firms; (f) how many computer screens are sold in the domestic market or in the international market (exported); and (g) if they are sold directly to the final consumer or if they are used as a production input, being incorporated in other goods, for example, like a refrigerator with a computer screen.
• On the demand side, the I-O models, taking into consideration the total income received by the different players in the economy, that is, households, firms, and government, have information about the following: (a) how the income of these players is spent on goods and services, and if they are used for consumption or investment; (b) if these goods and services were produced domestically or abroad (imported); and (c) how much consumer tax was paid.
From the above structure of the I-O models, and using economic mathematical models, it is possible to measure the direct and indirect inputs needed to produce goods and services in the economy, for example, to produce a car, one does not see the need for agricultural goods as a direct input for production, but the fabric used in the car seats or on the car carpets could have come from cotton, which is an agricultural good; as so, cotton is an indirect input used in car production.
The I-O models, by their capability to show a complete picture of the economic system, and of tracing the origin of direct and indirect inputs used in the production process, can be used in environmental studies by linking economic and environmental variables, on the production and consumption sides. From the production side, it is possible to measure, by considering the direct and indirect inputs used, how many natural resources were used and how much pollution was generated on the production of goods and services. On the demand side, it is possible to measure the environmental variables, natural resource, and pollution embodied in the goods and services consumed in the economy. Expanding the I-O models to a global scale, that is, using Inter-Country I-O models, it is possible to measure the environment impacts and contents of the goods and services by countries of the origin of production and by countries of consumption.