Topic 1: The economy and why it matters to the environment

For our unit “Ecological and Environmental Economics for Sustainable Development” we have to do a few assessable short answers to explain our understanding in the weekly topic. I am hoping to share my answers with you each week, technology allowing. Please leave a comment if you found any of it interesting or of any use

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1A Write a summary of 100 words on what you understand of the theme ‘The economy and why it matters’, and a summary of 100 words on what you understand of the theme ‘The economy and the environment’

The economy and why it matters

Economy is a term used to describe the system society uses to place a value on goods and services (Sullivan, 2012) and regulate their voluntary exchange in the market place for money (McTaggart et al., 2003). Traditional models (diagram 1) comprise of producers, consumers and the marketplace (Asafu-Adjaye, 2009; Sullivan, 2012).  People are employed by firms to produce goods and services in exchange for an income (Farmer, 2010). The goods and services are then sold in the market place to consumers for money (A. Smith, 1776).

Diagram 1: The traditional model of the economy has two players (consumers and firms) with two avenues of monetary movement (spending and income) via the market place. Consumers spend money to buy the goods and services produced by Firms. The firms employ labourers to produce the goods and services in exchange for an income (Asafu-Adjaye, 2009; Sullivan, 2012).

As individuals, we are not self sustaining and rely on market exchange to access and fulfil fundamental needs. The economy attempts to maximise the benefits of resource allocation, and influences how accessible they are (Sullivan, 2012).

The economy and the environment

The economy and environment systems are interdependent (Figure 1). The environment is a self-sustaining ecosystem (Asafu-Adjaye, 2009) however the state of it is reliant on various economic drivers (Australian Bureau of Statistics, unknown). The traditional economic model (above) fails to account for the flow of natural resources (Asafu-Adjaye, 2009). For example, underpriced grain lowers the general market price and perusing competition results in the waste of grain that can not be sold at cost price. The traditional model does not account for the environmental cost of the grains production. Water, oxygen, and soil nutrients, for example, attributed to its growth. These environmental resources are difficult to value and their exclusion from the model may have a negative impact on the environment (Asafu-Adjaye, 2009; Sullivan, 2012).

Figure 1 Economy is a system developed by society that governs the goods and services used to fulfil needs. The goods and services required are sourced from the environment in which society lives. This figure demonstrates that society and the economy that governs it are both smaller subsets of the environment which supports both. The interaction between these systems is evident; economy. (Image source: Wikipedia, 2012a)

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1B(i) What do you think is the most important economic issue the government has to deal with, and why? 80 words

Ideally, government policies regulate the economy while protecting the environment (McTaggart et al., 2003). Regulatory changes to address environment degradation are inevitable (Rockström et al., 2009; United Nations Development Programme, 2010), however, the pace at which these changes are introduced may have consequences on both economy and environment. Today’s political decisions may influence tomorrows voting outcome (McTaggart et al., 2003) (Figure 2), and this pressure stalls the rate of political policy adaptation to environmental change. Planning for an uncertain future has also proved challenging (Australian Bureau of Statistics, unknown; United Nations Development Programme, 2010) and these pressures result in a slower adaptation to the demands of a changed environment.

 

Figure 2 As a well known long term environmental activist, expectations ran high when Peter Garrett was appointed Minister for the Environment, Heritage and Arts in 2007, however, his choices did not always prove popular with the voting public. Garrett was often criticised for taking a soft approach to environmental protection while others accused him of being “a turn coat”, allowing controversial developments such as a pulp mill inTasmaniaand the dredging ofMelbourne’sPort Phillip Bay. Economic decisions such as the insulation and solar panel rebates were often publicly criticised. Just 3 years later, after winning his seat by a reduced majority, his portfolio changed and he was appointed Minister of School Education, Early Childhood and Youth. (Wikipedia, 2012b)

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1B(ii) What is the relationship between the economy and the environment? Why do we have to consider the environment when we think about the economy, and society? 80 words

While the environment does not require economy for its existence and functionality, its state and well being is driven by economy pressures (Australian Bureau of Statistics, unknown). The basic materials for all goods and services originate from the environment and we can not expect ongoing economic prosperity unless we have clean, adequate supplies of air, water and biodiversity (Asafu-Adjaye, 2009; G. Smith et al., 2008). Exploitation of finite environmental resources results in their enviable scarcity (Asafu-Adjaye, 2009; Australian Bureau of Statistics, unknown), influencing market prices and society in general (Figure 3).

 

Figure 3 Oil is used in all aspects of our lives. We use it for transportation, for food production, preparation and consumption and for heating and building. Rapid exploitation of this natural resource has seen it become scarce of recent times, influencing the price dramatically in the world market. Wars have been waged over the right to access the oil and it has been the source of much political debate. What is evident is the need for a more accessible alternative (Chefurka, 2008).

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1B(iii) What kind of change in behaviour is needed to ensure human survival?

Swift action is needed to adjust outdated practices in a changed environment (Australian Bureau of Statistics, unknown; Food and Agriculture Organization of the United Nations, 2006). Every aspect of our existence must be analysed; we must protect the environment which sustains us by adopting more environmentally friendly practices (Figure 4) (Food and Agriculture Organization of the United Nations, 2006; United Nations, 2011). A change in farming practices may reduce our environmental footprint. For example, sheep and goats production is less damaging to the environment than beef and utilising genetically modified crops which promise higher yields with no additional environmental costs may allow the soils to recover.

 

Figure 4 Livestock’s long shadow is a report produced in 2006 by the Food and Agriculture Organisation of the United Nations and addresses issues the issues of our food productions demands on the environment and suggests mitigative strategies to help avoid further degradation. Similar papers were produced in 2010

Reference

Asafu-Adjaye, J. (2009). Environmental economics for non economists: techniques and policies for sustainable development. (2nd ed.).Singapore: World Scientific Publishing Co. Pty. Ltd.

Australian Bureau of Statistics. (unknown). Towards an integrated environmental-economic account for Australia Canberra, ACT: Australian Government.

Chefurka, P. (2008). Population; The elephant in the room.  Retrieved22 February, 2012, from http://www.paulchefurka.ca/Population.html

Farmer, R. (Producer). (2010,21 February 2012). How Economy Works. [Video Lecture] Retrieved21 February 2012http://www.youtube.com/watch?v=mXxp4WO4cTw

Food and Agriculture Organization of the United Nations. (2006). Livestock’s Long Shadow. In Food and Agriculture Organization of the United Nations (Ed.).Rome,Italy.

McTaggart, D., Findlay, C., & Parkin, M. (2003). Economics (4th ed.).Sydney,New South Wales: Pearson Education Australia Pty Ltd.

Rockström, J., Steffen, W., Noone, K., Persson, A., Chapin, I., F.S., Lambin, E., . . . Foley, J. (2009). Planetary boundaries:exploring the safe operating space for humanity. Ecology and Society, 14(2), 32.

Smith, A. (1776). The Weath of Nations: Random House, Inc.

Smith, G., & Scott, J. (2008). Living Cities: An Urban Myth? Government and Sustainability in Australiaby Journal of Urban Affairs, 30(2), 223-225.

Sullivan, C. A. (2012). [Week One Lecture: How Economy Works].

United Nations (Producer). (2011,21 February 2012). Branching out for a Green Economy. [Short Animaged Film] Retrieved21 February 2012http://www.youtube.com/watch?v=aIknTqWNy9Y

United Nations Development Programme. (2010). The Real Wealth of Nations: Pathways to Human Development.

Wikipedia (2012a). Environmental Economics  Retrieved21 February, 2012, from http://en.wikipedia.org/wiki/Environmental_economics

Wikipedia (2012b). Peter Garrett  Retrieved22 February, 2012, from http://en.wikipedia.org/wiki/Peter_Garrett

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• Topic 1: The economy and why it matters to the environment (envirorhi.wordpress.com)
• Topic 2: Environmental vs Ecological Economics (envirorhi.wordpress.com)
• Topic 3: Valuing the Environment: Why it is important.  (envirorhi.wordpress.com)
• Topic 4: Market Systems: Supply and Demand (envirorhi.wordpress.com)
• Topic 5: Decision Making for Environmental Management (envirorhi.wordpress.com)
• Topic 6: Economic instruments for environmental management (envirorhi.wordpress.com)
• Topic 7: Ecosystem good and services (envirorhi.wordpress.com)
• Topic 8: Environmental Growth and Sustainable Development  (envirorhi.wordpress.com)
• Topic 9: Managing Natural Resource Based Industries  (envirorhi.wordpress.com)
• Topic 10: The Economics of Water Management  (envirorhi.wordpress.com)

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