Presentation Review: Economic Policy For Sustainable Development

ECONOMIC POLICY FOR SUSTAINABLE DEVELOPMENT PRESENTATION LEARNING Introduction (1) • Today, sustainable development continues to be at the top of international and national policy agendas. • Population growth, growing inequality, climate change, and new zoonotic diseases are challenges to development, requiring appropriate solutions. • Sustainable development is essentially about reducing inequality over time and across generations without affecting the well-being of the current generation. Introduction (1) • Recall .... The most commonly used definition of sustainable development is that of Brundtland (World Commission on Environment and Development 1987): Sustainable development is about meeting the needs of future generations without compromising the ability of current generations to meet their own needs. • This also means that environmental preservation is also an important aspect in sustainable development. • Environmental degradation is also influenced by many factors, including urbanization, fossil fuel consumption, trade and investment levels. • Therefore, the unique economic, political, institutional, social, cultural and environmental characteristics of each country and region should be taken into consideration when designing national policies for sustainable development. Conceptual Model of the environment and (1) Economy • How do environmental and economic interactions impact social welfare (macroeconomically). • A healthy environment, economy and (human) population as well as social justice have an impact. on social welfare 🡺 both independently and in interaction with each other. • There are two perspectives on the interaction of economy and environment on welfare Social: ♫ economy and environment are naturally separate systems 🡺 Figure 1 ♫ the economy is part of the environment 🡺 Figure 2 Conceptual Model of the environment and (2) Economy • Figure 1: Economic and environmental interactions (as separate systems) influence social welfare. • People benefit from improved environmental quality when: it is beneficial to their health (indicated by arrow F), increases social equity (H), improves the economy (G). • In other words 🡺 quality of human life increase as quality improves environment. Conceptual Model of the environment and (3) Economy • Figure 2: shows the economy as part of the environmental system. • This perspective is important because the properties contained in the economic system are fundamentally constrained by properties of the larger environmental system Economic and Sustainable Development INSTRUMENTS (1) • The demand for sustainable development and the need to address global pollution issues necessitates the establishment of a new and effective development policy, in which economic instruments play an important role. • An economic instrument is a policy or measure for the environment that is based on market mechanisms through internalization of environmental values (full cost pricing mechanism), with the aim of changing the behavior of parties that damage the environment. Economic and Sustainable Development INSTRUMENTS (2) • The importance of economic instruments for environmental policies that will support sustainable development is emphasized in the Rio Declaration and Agenda 21, where economic instruments are used as tools for national authorities to promote the internalization of environmental costs and implement the polluter-pays principle in the most efficient way. • Environmental economic instruments are important in providing incentives to those who respond to them for sustainable development and can assist in increasing funding for the conservation of natural resources and the environment. Economic and Sustainable Development INSTRUMENTS (3) • In a country or region, environmental policy and management is often separated from economic and development policy. • This of course has the potential to cause a variety of impacts, such as water and air pollution, hazardous waste, and global climate change. • In this context, environmental management, which is not separated from economic policy, is seen as an important regulation and restriction for economic activity to contain environmental degradation and support sustainable development. Why Economic INSTRUMENTS are Important in Sustainable Development? (1) WHY is economic instrument important? • The combination of institutional, market and policy failures leads to low prices for environmental assets and scarce natural resources, which in turn leads to low prices for environmental and resource goods and services. a. institutional failure 🡺 lack of secure property rights b. market failure 🡺 environmental externalities. c. policy failure 🡺 subsidy irregularities. • Failure to do so will lead to an imbalance between private and public costs. social activities of production and consumption. Why Economic INSTRUMENTS are Important in Sustainable Development? (2) • The direct impact of these problems is that producers and consumers do not get the right signals about the scarce resources they are reducing or the environmental costs they are incurring. • These problems will lead to over-production and over-consumption of commodities that are resource depleted and environmentally polluted. • It will also lead to under-production and under-consumption for resources that are still plentiful and the environment is not polluted. Why Economic INSTRUMENTS are Important in Sustainable Development? (3) • Economic instruments aim to bridge the gap between private and social costs by internalizing the full external costs (abatement and pollution costs) of depleted resources and polluted commodities for both producers and consumers. • Economic instruments aim to establish full cost through the payment of scarcity costs for resource depletion as well as the payment of damage costs for environmental degradation. • The equation for full cost pricing is: P = MPC + MUC +MEC Where, P MPC MUC MEC = Price = marginal cost of production (incremental) = marginal user cost (reduction) = marginal environmental cost (damage) Why Economic INSTRUMENTS are Important in Sustainable Development? (4) • • • • • • Image 1. Social cost that not underpricing and overproduction internalization of external costs, full cost pricing and optimal production (P* ,Q* ), The role of economic instruments in internalizing external costs (MUC) internalization of external costs (MUC* +MEC* ). At point A (Figure 1): P* = MSOC = MPC + MUC + MEC P = optimum price MSOC = marginal social opportunistic cost Q = optimal output ✓ MPC* is irregularities ✓ MUC* internalized internalized through elimination of subsidy via guaranteeing rights Cover (1) • Economic instruments for environmental management, such as abolishing subsidy irregularities, guaranteeing property rights, pollution taxes, user fees, tradeable emission permits, and deposit refunds aim to correct existing wrongs, full refunds, and other measures. cost pricing, and reorganizing resource allocation 🡺 these are essential conditions for sustainable development. • The importance of internalizing environmental costs in sustainable development as well as the critical role of economic instruments was stated at the UN Environment and Development Conference in Rio de Jeneiro in June 1992. Cover (2) • Principle 16 of the Rio Declaration states that "National authorities should seek to promote the internalization of environmental costs as well as the use of economic instruments, taking into account the approach that the polluter should in principle bear the costs of pollution with due regard to the public interest and without distortion of investment and international trade." • Economic instruments should ideally be used to integrate environmental aspects with development needs, and bring together economic and environmental policies based on: a) market improvement, b) efficiency or cost minimization, c) flexibility, and d) adaptability to changing circumstances. Cover (3) • Another advantage of using economic instruments is the separation of the question of who controls pollution or who implements conservation, from the question of who should pay. • This allows for a balanced distribution of benefits and costs without compromising efficiency and cost effectiveness for optimal and sustainable development. • To minimize costs in order to achieve cost-effectiveness, pollution control and resource conservation should be implemented by those who can do so at the lowest cost. Thank You!