UNIT – 2

Environmental Degradation: Economic significance and causes of environmental

degradation

Environmental degradation is the deterioration of the environment caused by human activities. It

can include the depletion of natural resources, the pollution of air and water, and the destruction of
ecosystems.

Environmental degradation has a number of economic significances, including:

• Reduced productivity: Environmental degradation can reduce the productivity of natural

resources, such as land, water, and forests. This can lead to lower agricultural yields,
increased energy costs, and decreased tourism revenue. For example, the depletion of fish
stocks can lead to higher food prices and reduced incomes for fishing communities.
• Increased health costs: Environmental degradation can lead to health problems, such as
respiratory diseases, heart disease, and cancer. This can increase healthcare costs and lost
productivity. For example, air pollution can lead to respiratory problems, such as asthma and
bronchitis.
• Damage to infrastructure: Environmental degradation can damage infrastructure, such as
roads, bridges, and buildings. This can increase the cost of repairs and maintenance. For
example, flooding can damage roads and bridges, which can disrupt transportation and
commerce.
• Loss of biodiversity: Environmental degradation can lead to the loss of biodiversity, which
can disrupt ecosystems and reduce the availability of ecosystem services. Ecosystem
services are the benefits that humans obtain from ecosystems, such as clean air and water,
pollination, and pest control. For example, the loss of forests can lead to a decrease in rainfall
and an increase in soil erosion.
• Reduced property values: Environmental degradation can reduce the property values of
homes and businesses located in areas that are affected by pollution or other forms of
environmental degradation. For example, the presence of a polluting factory can reduce the
value of homes in the surrounding area.

The causes of environmental degradation are complex and vary depending on the specific
circumstances. However, some of the main causes include:

• Population growth: Population growth puts a strain on natural resources and can lead to
increased pollution. For example, the increasing demand for food and water can lead to
deforestation and overfishing.
• Economic development: Economic development can lead to increased pollution and
resource depletion, especially if it is not sustainable. For example, the construction of new
factories and power plants can lead to air and water pollution.
• Technological change: Technological change can lead to new forms of pollution and
resource depletion. For example, the development of new chemicals and pesticides can
pollute the environment.
• Government policies: Government policies can either promote or discourage environmental
protection. For example, government subsidies for fossil fuels can encourage their use and
lead to increased pollution.
 • Individual behavior: Individual behavior, such as the way we consume goods and services,
can also contribute to environmental degradation. For example, the overconsumption of
resources can lead to their depletion.

Addressing environmental degradation is a challenge, but it is one that we must meet if we want to
ensure a sustainable future for our planet. There are a number of things that can be done to address
environmental degradation, including:

• Sustainable development: Sustainable development is development that meets the needs

of the present without compromising the ability of future generations to meet their own needs.
It can be achieved by using resources more efficiently, reducing pollution, and investing in
renewable energy sources.
• Government policies: Governments can play a role in addressing environmental
degradation by passing laws and regulations that protect the environment, investing in
environmental protection, and providing incentives for businesses and individuals to adopt
sustainable practices.
• Individual behavior: Individuals can also play a role in addressing environmental
degradation by making choices that are more sustainable, such as buying less stuff, driving
less, and recycling.

By understanding the economic significance and causes of environmental degradation, we can

develop policies and take actions to address this problem and protect our planet for future
generations.

The concepts of policy failure,

In the context of environmental economics, policy failure refers to the situation where government
policies do not achieve their intended environmental objectives. There are a number of different
types of policy failure, including:

• Market failure: Market failure occurs when the market does not allocate resources efficiently.
This can happen when there are externalities, public goods, or imperfect information. For
example, the market may not take into account the negative externalities of pollution, leading
to too much pollution being produced.
• Government failure: Government failure occurs when government policies are not effective
or efficient. This can happen when the government lacks the resources or expertise to
implement policies effectively, or when the policies are designed in a way that creates
perverse incentives. For example, a government subsidy for fossil fuels may encourage their
use and lead to increased pollution.
• Institutional failure: Institutional failure occurs when the institutions that are responsible for
implementing environmental policies are not effective or efficient. This can happen when the
institutions are corrupt or when they lack the capacity to implement policies effectively. For
example, a government agency that is responsible for enforcing environmental regulations
may be corrupt or may not have the resources to enforce the regulations effectively.
• Behavioral failure: Behavioral failure occurs when individuals or businesses do not respond
to environmental policies in the way that was intended. This can happen because individuals
or businesses do not have the information they need to make informed decisions, or because
they do not have the incentives to change their behavior. For example, individuals may not
be aware of the environmental impacts of their consumption choices, or they may not be
willing to pay the price of reducing their environmental impact.

Policy failure can have a number of negative consequences, including:

 • Environmental degradation: Policy failure can lead to environmental degradation, such as
pollution, resource depletion, and climate change.
• Economic inefficiency: Policy failure can lead to economic inefficiency, such as higher
prices, lower output, and lost jobs.
• Inequity: Policy failure can lead to inequity, such as when the costs of environmental
degradation are borne by the poor and vulnerable.
• Public distrust: Policy failure can lead to public distrust of government and environmental
organizations.

Addressing policy failure is a challenge, but it is one that we must meet if we want to achieve
environmental sustainability. There are a number of things that can be done to address policy failure,
including:

• Improving the design of environmental policies: Environmental policies can be designed

to be more effective and efficient by taking into account market failures, government failures,
institutional failures, and behavioral failures.
• Strengthening institutions: Institutions that are responsible for implementing
environmental policies can be strengthened by providing them with the resources and
expertise they need, and by making them more transparent and accountable.
• Changing individual and business behavior: Individuals and businesses can be
encouraged to change their behavior by providing them with information about the
environmental impacts of their choices, and by creating incentives for them to reduce their
environmental impact.

By understanding the concepts of policy failure, we can develop policies that are more likely to
achieve their intended environmental objectives.

Externality and market failure - Economic analysis of environmental degradation

Externalities and market failure are two important concepts in environmental economics that are
closely related. An externality is a cost or benefit that is borne by someone other than the person or
organization that causes it. A market failure is a situation where the market does not allocate
resources efficiently. Externalities can lead to market failure because they create a divergence
between the private costs and benefits of an economic activity.

To illustrate, consider the example of a factory that pollutes the air. The private costs of operating
the factory include the costs of labor, materials, and energy. The social costs of operating the factory
also include the costs of pollution, which are borne by people who live nearby. When the factory
does not pay for the costs of pollution, it is producing too much pollution from an economic
standpoint. This is because the market does not take into account the social costs of pollution.

There are a number of ways to address externalities, including government regulation, market-
based mechanisms, and sustainable development. Government regulation can be used to control
the production of goods and services that cause externalities. For example, governments can
impose emissions standards on factories to reduce pollution. Market-based mechanisms create
incentives for businesses to reduce the externalities they cause. For example, a carbon tax would
put a price on carbon emissions, which would encourage businesses to reduce their emissions.
Sustainable development is development that meets the needs of the present without compromising
the ability of future generations to meet their own needs. It can be achieved by using resources
more efficiently, reducing pollution, and investing in renewable energy sources.
By understanding the concepts of externalities and market failure, we can develop policies that can
help to address environmental degradation and promote sustainable development.

Here are some additional things to consider about externalities and market failure:

• Externalities can be positive or negative. For example, the pollination of crops by bees is
a positive externality.
• Externalities can be difficult to measure. This is because it can be difficult to quantify the
costs and benefits of externalities.
• There is no single solution to the problem of externalities. The best policy response to
externalities will vary depending on the specific circumstances.
• Externalities and market failure are complex concepts, but they are important to
understand if we want to address environmental degradation and promote sustainable
development.

There are a number of ways to address externalities, including:

• Government regulation: Governments can regulate the production of goods and services
that cause externalities. For example, governments can impose emissions standards on
factories to reduce pollution.
• Market-based mechanisms: Market-based mechanisms create incentives for businesses to
reduce the externalities they cause. For example, a carbon tax would put a price on carbon
emissions, which would encourage businesses to reduce their emissions.
• Sustainable development: Sustainable development is development that meets the needs
of the present without compromising the ability of future generations to meet their own needs.
It can be achieved by using resources more efficiently, reducing pollution, and investing in
renewable energy sources.

By understanding the concepts of externalities and market failure, we can develop policies that can
help to address environmental degradation and promote sustainable development.

Here are some additional things to consider about externalities and market failure:

• Externalities can be positive or negative.

• Externalities can be difficult to measure.
• There is no single solution to the problem of externalities.
• The best policy response to externalities will vary depending on the specific circumstances.

Externalities and market failure are complex concepts, but they are important to understand if we
want to address environmental degradation and promote sustainable development.
 Equi –marginal principle.

The equimarginal principle in environmental economics is a cost-benefit analysis tool to determine

how to allocate resources to reduce pollution. It states that the marginal costs of pollution control
should be equalized across all sources of pollution. This means that the cost of reducing pollution
from one source should be the same as the cost of reducing pollution from another source.

The equimarginal principle can be used to design policies to reduce pollution, such as emission
trading permits. This is a system where the government allocates pollution permits to different
sources of pollution. The permits can then be traded between polluters, and the price of the permits
reflects the marginal cost of reducing pollution.

The equimarginal principle is based on the idea that polluters should not be penalized for reducing
pollution more than is necessary. By equalizing the marginal costs of pollution control, the
equimarginal principle ensures that polluters are only required to reduce pollution to the point where
the marginal benefits of pollution control equal the marginal costs.

The equimarginal principle is a simple and elegant concept, but it is not always easy to apply in
practice. This is because it can be difficult to measure the marginal costs of pollution control.
Additionally, the equimarginal principle may not be the most efficient way to reduce pollution in all
cases.

For example, if the marginal cost of reducing pollution from one source is much higher than the
marginal cost of reducing pollution from another source, then the equimarginal principle would
suggest that pollution should be reduced from the first source even though it would be more
expensive to do so. In this case, it may be more efficient to focus on reducing pollution from the
second source, even though the marginal cost of doing so is lower.

Despite these challenges, the equimarginal principle is a useful tool for thinking about how to reduce
pollution. It can help us to design policies that are fair and efficient, and that achieve the desired
level of pollution reduction.

Here are some additional things to consider about the equimarginal principle:

• The equimarginal principle is based on the assumption that the marginal costs of pollution
control are constant. However, this assumption may not always be valid. For example, the
marginal cost of pollution control may increase as the level of pollution control increases.
• The equimarginal principle is also based on the assumption that the benefits of pollution
control are constant. However, this assumption may not always be valid. For example, the
benefits of pollution control may increase as the level of pollution control increases.
• The equimarginal principle is a static principle. This means that it does not take into account
the dynamic effects of pollution control. For example, pollution control may lead to
technological innovation, which could reduce the marginal cost of pollution control in the
future.

The equimarginal principle is a useful tool for thinking about how to reduce pollution, but it is
important to be aware of its limitations. By understanding these limitations, we can use the
equimarginal principle to design policies that are more likely to be effective and efficient.