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Economics plays an important role in making decisions about environmental issues. The values that we place on competing options often include price tags. It is therefore necessary to understand how economic models operate. In the classical view, the prices of goods and services in capitalistic systems are strongly influenced by supply and demand. Products that are in low supply command a high price, while those that are in high supply are cheap. Ideally, the system reaches an equilibrium at which it is not economical for a manufacturer to increase production. Learn more:
The neoclassical view of the economy focuses on the flow of goods and services from producers (business) to consumers and the flow of capital and labor back to the producers. Continued economic growth is viewed as necessary and desirable. The neoclassical view does not factor in the value of the environment.
Natural resource economics expands the neoclassical view to incorporate the role of natural ecosystems as a source of materials and energy and as a place where wastes are recycled. Ecosystems are viewed to have fairly abundant natural resources and have a good ability to absorb wastes. Thus while the natural environment is valued, what it has to offer is viewed as inexpensive to obtain.
An alternative view called ecological economics places greater value on what natural ecosystems have to offer. Rather than have the environment recycle discarded human products, it sees this as a human responsibility. Ecological economics is also concerned with equitable distribution of resources and the rights of all members of the current generation as well as members of future generations. It advocates a steady-state that is stable and sustainable rather than an economy that requires continued growth.
Economic perspectives influence a decision-making approach known as cost-benefit analysis, in which compromises are made between different desired goals. The method works best when the monetary value of the different resources can be shown in the same terms, such as dollars. There can be problems when a dollar value is hard to assign, such as having a safe neighborhood to live in, hearing birds sing in the spring, fishing a lake with many species, or seeing wild animals in a wildlife park. People will differ in how much they would pay to experience these things.
As the human population grows, pressure on our limited physical and biological resources increases and conflicts develops among people. Environmental scientists and economists play roles in settling these conflicts by providing factual information about our resources and by developing models to assist us in managing our decision.
One example of a physical resource provided by the environment to humans is fossil fuel. Though most coal and oil deposits were formed slowly over a period of 200-300 million years, humans have been extracting them very quickly (mainly in the past several hundred years). Petroleum geologist M.K. Hubbert predicted that even though our oil resources were large, and that increases in technology might extend the "age of petroleum" somewhat, we will eventually run out. This is because geologic conditions on earth have changed and oil deposits are not being replenished in any significant way. Most geologists think that we have already found nearly all of the giant oil fields. Learn more:
Hubbert drew a curve, or a graph, sometimes called "Hubbert's Bubble," that summarized the inevitability of running out of oil or any other finite resource. When the oil runs out, we may choose to switch to other more available fuels, but these will be governed by similar curves. "Hubbert's Bubble", and the laws of thermodynamics tell us that there are limits to energy and matter available to human populations on planet earth.
A surging human population also makes demands on biological resources. These can be replenished on shorter time scales than oil deposits, and are sometimes called "renewable resources." A fishery, grassland, or a forest can be an example of renewable resources if there are enough organisms left to re-populate the area and if time is allowed for the system to recover from human exploitation. Generally, smaller exploited patches within a larger untouched matrix recover faster, but some industrialized approaches to fishing, grazing, and logging take place on huge spatial scales and very short time scales.
Environmental scientists wonder if some biological resources will ever recover from human use. In the U.S., we have destroyed over a large percentage of wetlands, tall-grass prairies, and our old growth forests in less than 200 years. Environmental scientists are part of teams that try to protect what remains and restore our ecosystems.
Replanting forest is an excellent example. There is more to managing a forest than replanting trees. A regenerated forest managed for paper production with a natural old-growth forest. The old forest is protected and new trees are planted for resources.
Resources that are open to many uses with little regulation, like public lands or the earth's atmosphere, are known to suffer from what Garrett Hardin popularized in 1968 as the "Tragedy of the Commons". Self-interest encourages people to take advantage of a common resource, such as putting more grazing animals out on a rangeland, removing grass so it "doesn't go to waste." If each person acted this way, very quickly there would be no common resource left for anyone. Our atmosphere is an example of a commons where humans put unwanted materials into the system.
These actions, Hardin argued, are rational, but must be curbed for overall social benefit. State or federal regulation can offer broad protection of commons, but it can make local people feel oppressed. Some have suggested that all commons should be privatized, so that users will have more of an incentive to protect the resource because they are direct beneficiaries of conservative long-term use. However, private owners could decide to exploit resources all at one time, and there is no monitoring system in place, future generations would be deprived of the resources.
In between is an idea called cooperative management where broad cross sections of people who care about the resource try to regulate it at the local or regional level. In the Pacific Northwest, "For the Sake Of the Salmon" is an organization that seeks to build consensus among Native Americans, commercial fishing companies, the tourist industry, wildlife biologists, conservation groups, and hydroelectric dam operators in how to manage watersheds and conserve native salmon stocks.
Substitutes for those resources may be invented and new technology may exploit previously untapped reserves or increase efficiencies of use. Technology cannot always save us, so a cautious approach would be to conserve resources as much as possible in case a substitute is either not found quickly or not at all.
Traditional ways of measuring a country's productivity, such as gross national product (GNP), do not take into account the environmental costs of production. But how can these costs be measured and translated into dollars? The Index of Sustainable Economic Welfare (ISW) attempts to do this. It includes such things as natural resource depletion and how equitably resources are distributed among people.
Sustainable use of natural resources means use of resources in such a way that one can continue to use them in the future. Sustainable development is a concept that attempts to find a way to have economic growth and maintain a healthy environment. It recognizes the interrelationship of ecosystem health, human needs, and sustainable growth. Policymakers are now working on defining ways in which sustainable development can be accomplished.