Environmental economics

"It is one thing to advocate doing the 'right' thing; it is another thing to advocate doing the 'right' thing regardless of the cost of doing so." 

Michael Harris of University of Melbourne in 

"Environmental Economics"(1996) The Australian Economic Review. 29 (4): 449- 465. 

The quote above helped frame the discussion of environmental economics for me. Most people want to do the right thing by the earth. In fact, here's some statistics to back that up. (Thanks Statista!)

Over half of the people surveyed in every age group said they agreed that yes, they felt a little guilty when they did something unfriendly to the environment. When you look at how that translates into consumer preferences, it appears that globally, the percent of consumers who are willing to pay extra for environmentally friendly products has increased and is now over 60%.

But not everyone can do the right thing at all costs.

Example: I'd love to be able to purchase meat and eggs from a farm that practices sustainable, humane animal husbandry. But alas, I must go to Aldi (if I link to you from my blog and talk about how much I like you, will you give me free food, Aldi?) and buy what I can afford.

And a lot of people might say, well, that's all good, since that's free market economics for you! Producers who can maximize their output and minimize their costs (by raising animals CAFO-style) capture more of the market share because they can price their goods lower, and more consumers can afford those products and more people can have food to put on the table. A chicken in every pot! Benefits all around! If we were to require CAFOs to do more to minimize their water pollution, their costs would increase and their supply would necessarily decrease, causing the price of meat products to rise. People wouldn't buy meat as often, shifting demand from meat to other protein sources like beans. The meat producers would suffer, people in vulnerable rural communities would lose jobs, and the economy would suffer! All of these are definitely costs of requiring more pollution control on CAFOs. Which brings me to my final graph of the results of a survey of "affluent" Americans (read- filthy rich by teacher and librarian standards).

When these folks were asked if economy was more important than the environment, they were more or less evenly split. What this says to me is that a lot of respondents in this survey feel that both the economy and the environment have some importance. Of course, they're right! Is a business subjected to new environmental regulation-related costs going to increase their revenues, profits, dividends, salaries, hiring rates? Probably not. The economy will suffer and people will suffer as a result. That's a big deal. Those with a perspective favoring the environment, however, will counter that the human costs of pollution are at least as worrying as the economic costs of controlling that pollution - contamination of water supply, insect and disease outbreaks, collapse of fisheries, loss of recreation opportunities near polluted streams, soil erosion.

So what environmental economics tries to do is to quantify costs and benefits - both economic and environmental, in order to better inform our decision-making process. Is controlling pollution worth the cost?

Problem is, while something like a manure lagoon to control animal waste release has a price and therefore its costs can easily be quantified, the cost to the environment is not easily priced. This means to get an accurate picture of the environmental costs, the value of a clean stream or of a unmarred vista must somehow be quantified, "commodified" as it were. Some people aren't all that comfortable with this approach, because some natural things seem as if they should be "beyond price." Think about the majesty of the synchronous fireflies sparkling through the night in the Great Smoky Mountains. No price gun could ever touch it, so what's the point?

But, here Harris helps me to understand again: "...if we treat any part of nature as being 'beyond price', then we have implicitly assigned an infinite value to it. If infinite values are assigned to all of nature, none of it could ever be changed in any way."

So, we have to give that natural bounty some kind of value, somehow, if we are ever to accurately weigh the balance of costs and benefits of any proposed change. How do environmental economists do this difficult task? How about another post on that?