Environment and Economics
Date: April 21, 2005
Source: "Rescuing Environmentalism." Economist (US). 375, no. 8423 (April 21, 2005): 11. Available online at 〈http://www.economist.com/opinion/displayStory.cfm?story_id=3888006〉
About the Author: This article was written by a staff writer. The Economist does not usually attach an author to articles it publishes.
The effectiveness of the environmental movement to influence government policy, public opinion, and the decisions made in the business world is being questioned by environmentalists themselves. There is fear that the methods used to protect the environment and create a green society are outdated. The latest thinking suggests the environmental movement needs to fully embrace the use of economic incentives and market-based approaches to be successful in tackling environmental challenges, and sparking public interest to get involved.
Market-based approaches provide economic incentives for companies, government, and individuals to prevent and reduce their polluting ways and find alternatives to degrading the environment. The traditional approach requires protecting the environment by creating laws that mandate pollution abatement. By including economic incentives, it is hoped that firms will be encouraged to implement pollution prevention strategies that consider the value of important ecosystem services.
There are many parts of the world where natural environmental services are considered to have a large economic impact. One example is in the operation of the Panama Canal, which requires 52 million gallons of freshwater for each of the forty-five ships that cross daily between the Pacific and Atlantic Oceans. With deforestation of the surrounding Panama Canal watershed, there is clear evidence that this water supply is diminishing. The disappearance of the trees has also removed a natural filtration system, accelerating the rate at which sediment reaches and clogs the canal. These problems raise the cost of operating the canal, and threaten to limit its operation. Many of the large companies that ship their goods through the Panama Canal have insurance policies to offset the enormous costs of shipping goods all the way around South America, which would be the alternative if the Canal was not operational. Reforesting is occurring in the area because of the clear economic incentives for both insurance companies and the government of Panama, as well as the local communities who rely on wood from the forests.
The carbon dioxide (CO2) trading markets that have taken off in Europe, as well as sulfur dioxide trading schemes in the United States, use economic incentives to reduce pollution. The CO2 markets allow companies and individuals to buy the legal right to emit CO2, typically in units of metric tons. The number of permits available equate to the total limit of CO2 emissions set by a particular country's government. The market price of these permits fluctuates, depending on the demand from buyers. A company may realize money can be saved by reducing CO2 emissions instead of paying for one of the permits. Proponents say this reduces pollution that is easy to control and provides the proper incentives for companies to develop innovative ways to reduce pollution that is more difficult to eliminate.
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Market-based approaches also call for further economic valuation of ecosystem services such as water filtration by wetlands, hurricane buffering by coastal forests, and biodiversity in coral reefs. The valuation approach translates the beneficial services of nature into dollar amounts. Valuation quantifies the costs to governments, businesses, and people, if the ecosystems are disturbed or damaged in a way that affects the services they provide. These quantifications provide information useful for policy makers and business leaders who may recognize the economic sense in protecting the environment.
Advances in environmental science are making valuation studies more accurate and useful. There is a need for further observation of ecosystems, something that has become easier with the use of satellite technology. In order for society to stop regarding the environment as a free good, it is thought that there needs to be a realization of the benefits the environment provides to society.
The valuation of ecosystem services is one of the key components of The Millennium Ecosystem Assessment (MA), an international effort to provide ecological impact data to the general public, government, and business leaders. The MA evolved from the assessment needs of several international treaties, including the Convention on Biological Diversity and Ramsar Convention on Wetlands. It is a unique synthesis of scientific literature, datasets, and scientific models, including knowledge from the private sector, practitioners, local communities, and indigenous people. According to the World Bank, this source of ecological data is a key step in carrying out accurate environmental valuation studies.
Some environmentalists have voiced concern that the intrinsic value of nature is not fully captured when doing a cost benefit analysis of ecological services. Proponents who have accepted the mixing of economics and environmental protection suggest that a monetary approach will convince more people to make the effort to protect nature.
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"Rescuing Environmentalism." Environmental Issues: Essential Primary Sources. . Encyclopedia.com. (September 23, 2018). http://www.encyclopedia.com/environment/energy-government-and-defense-magazines/rescuing-environmentalism
"Rescuing Environmentalism." Environmental Issues: Essential Primary Sources. . Retrieved September 23, 2018 from Encyclopedia.com: http://www.encyclopedia.com/environment/energy-government-and-defense-magazines/rescuing-environmentalism
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