An introductory note on the environmental economics of the circular economy

This paper provides an introduction to some of the fundamental principles and approaches in environmental economics which are of significance to achieving an integrated sustainability science. The concept of a circular economy, introduced by the late David Pearce in 1990, addresses the interlinkages of the four economic functions of the environment. The environment not only provides amenity values, in addition to being a resource base and a sink for economic activities, it is also a fundamental life-support system. Environmental economists have suggested that, taking these four functions as an analytical starting point, unpriced or underpriced services should be internalised in the economy. In Europe significant advances have been achieved in the pricing of externalities by means of truly interdisciplinary analysis which accounts in detail for the environmental consequences. The monetary estimates reached as a result of such interdisciplinary research are gradually being applied to the economic analysis of environmental policy priorities. Although such figures provide only a partial and incomplete picture of the environmental costs at stake, they support and inform the analysis of the virtues of a circular economy for individual resources as well as for sustainability as a future trajectory.     

Thoughts concerning the economic valuation of landscapes

The incorporation of economic thinking into the valuation of landscapes is still relatively new. It is an approach that yields valuable new insights and can help with prioritizing the use of scarce resources to improve and/or preserve landscapes. This paper explores and discusses the uses and limitations of economic valuation of landscapes from market failure, policy process, and theoretical and philosophical perspectives.     

Fiscal incentives for Australian bushland

The clearing of over 80% of the native vegetation from Australian agricultural areas has contributed significantly to the degradation classification applied to more than half this land. Soil erosion, siltation, and salinity damage continue to increase yearly. This situation not only threatens the productivity of the farm sector but has contributed to the estimated loss of 78 species of native flora, endangerment of an additional 2206 species, and the loss of 20 species of Australia's marsupials.Private returns diverge from social returns because the action (or inaction) of farmers has an impact upon others, both now and in the future. There is justification, therefore, for the public sector to intervene on behalf of society in an attempt to influence private decision making for the social good. This article argues for increased incentives from the public sector in Australia to encourage the voluntary cooperation of farmers to improve the balance between development and conservation. In contrast to the essentially temporary nature of man-made measures such as flood-mitigating capital works, increasing the area set aside to native bushland offers scope for the permanent stewardship of the resource—land.     

Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax

This paper extends the Mirrlees (1971) model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities. Using general utility structures and exploring both linear and non-linear taxes, it is demonstrated that the optimal second-best tax on an externality-generating good should not be corrected for the marginal cost of public funds, since it equals one in the optimal tax system. In the optimum, distortions of income taxes are equal to marginal redistributional gains. If the government does not have access to a non-distortionary marginal source of finance, the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution. The optimal second-best corrective tax is then either higher or lower than the Pigouvian level. The findings in this paper generalize and amend prior results based on representative-agent models, shedding new light on the weak double-dividend hypothesis, and on the welfare gains of recycling revenue from environmental taxes.     

Exploring full cost accounting approach to evaluate cost of MSW services in India

Municipal solid waste (MSW) services of developing countries often suffer due to the lack of financial and operational autonomy, scientific approach, and adequate levels of resources. The solid waste management (SWM) practices of developed countries are benefited in cost and efficiency due to the participation of private players and sound financial management. However, developing economies depend on local municipalities to own and operate SWM services amidst structural and financial inefficiency. With the demands of augmenting efficient and cost-effective SWM services to the expanding population of cities and towns of newly industrialized nations on the rise, the municipalities in these countries are under pressure to adopt ways and means that can support efficient utilization of resources and improved decision-making capabilities. This research article reflects the current state of the MSW services in India and explores full cost accounting (FCA) framework in its ability to generate information on cost-related aspects and sustainable deployment of resources. Lastly, the extensibility of FCA is tested by integrating externalities of MSW services.     

The idea of sustainable development

In this lecture, I demonstrate how very different macroeconomic history begins to look if Nature is included as a capital asset in production activities. The tentative conclusions I draw from the evidence are: (1) high population growth in the world’s poorest regions (South Asia and sub-Saharan Africa) has been an obstacle to the achievement of sustainable economic development there; relatedly, (2) when population growth is taken into account, the accumulation of manufactured capital, knowledge, and human capital (health and education) has not compensated for the degradation of natural capital in South Asia and sub-Saharan Africa and, in all probability, even in the UK and the US; (3) China is possibly an exception to (1) and (2). This article is based on the Keynote Lecture delivered at the international symposium on “Sustainability in an Unequal World”, held in Tokyo on November 24, 2006. The exposition relies on my book, Economics: A Very Short Introduction, Oxford University Press, Oxford, 2007. The author is the Frank Ramsey Professor of Economics at the University of Cambridge and a Fellow of St. John’s College, Cambridge.     

Time delay,complexity and support for taxation

People often experience the benefits of taxation over time. We design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes. We find that when negative externalities occur immediately, people learn to adopt Pigouvian taxes, which are aimed at reducing negative externalities and restoring market efficiency. By contrast, when negative externalities are delayed, people are less receptive to taxation. This effect persists over time. Our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment, rather than by time discounting per-se. We argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation.     

Watershed development in India. 1. Biophysical and societal impacts

This paper recommends a revision of watershed development policy in India in relation to the planning of development interventions involving agricultural intensification and rainwater harvesting following biophysical and societal impact studies carried out on two watershed development projects in Karnataka. A need for changes in policy has arisen in response to progressive catchments closure at the basin level and declining volumes of water flowing into village level reservoirs (known locally as tanks). Flow reductions have occurred largely as a result of increased agricultural intensification over the past 10–15 years. Field levelling, field bund construction, soil water conservation measures, farm ponds, the increase in areas under horticulture and forestry and the increased abstraction and use of groundwater for irrigation are all contributing factors to reduced flows. Planning methodologies and approaches, which may have been appropriate 20 years ago for planning water harvesting within watershed development projects, are no longer appropriate today. New planning approaches are required which (1) take account of these changed flow conditions and (2) are also able to take account of externalities, which occur when actions of some affect the livelihoods of others who have no control or influence over such activities and which (3) contribute to the maintenance of agreed minimum downstream flows for environmental and other purposes.

The hidden costs of relocating sand and gravel mines

Mining of construction aggregate is often unwelcome near communities because of its disamenities or because it can destroy prime farmland and displace other desirable land uses. Such conflicts have led to prohibitions against mining near cities or on high-value farmland, causing these operations to be relocated to more distant locations. The cost of this relocation may go unnoticed if they are indirect, diffused and rise gradually over time, but they may be significant due to the high transportation cost of moving these materials long distances.     

Shifting cultivation, forest fallow, and externalities in ecosystem services: Evidence from the Eastern Amazon

This study examines the value of fallow ecosystem services in shifting cultivation, including hydrological externalities that may affect other farms. Using farm-level survey data from the Brazilian Amazon, I estimate a production function to assess the value of forest fallow and test whether it provides local externalities to agricultural production. Soil quality controls, instrumental variables, and spatial econometric approaches help address endogeneity issues. I use GIS data on external forest cover at the farm level and model the hydrological externality as an upstream-to-downstream process. The estimated parameters indicate that fallow contributes significantly to productivity both on farm and downstream. In addition, most farms allocate sufficient land to fallow, accounting for both the value of hydrological spillovers and the opportunity cost of land left out of cultivation. These results suggest that farming communities may have some self-interest in preserving forest cover locally—a finding that may bolster policy efforts aimed at conserving tropical forests for their global public goods.