Environmental Externalities

1. “The traditional view of environmental economics is that environmental problems arise as a result of the presence of externalities”.

The term environmental externalities refers to the chemical and biological wastes that are created as by-products of otherwise purposeful human activities, as opposed to effects or processes that occur in the natural environment. For example, power plants contribute heavily to emissions but while there is demand for their products and services they will carry on supplying.

Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. When negative production externalities exist, marginal social cost is higher than private marginal cost.

Anthropogenic is the term that is used to describe the impacts that human activities have on the natural environment. Anthropogenic sources include agriculture, construction, habitations, industry, mining and transportation.

The extra gases created from anthropogenic sources escalate the greenhouse effect making the temperature of the earth rise. Greenhouse gases are released by the burning of fossil fuels, vehicle air pollution, land clearing and agriculture activities.

Everyday activities we make at home, in work, whilst traveling, and the things we purchase have an influence on our personal emissions of greenhouse gases. We can help reduce personal emissions by reducing electric power use, decreasing car usage, recycling and re-use of household products.

Aviation and the destroying of tropical forests throw hundreds of millions of tons of carbon dioxide into the atmosphere each year. The transport and electricity sector are other potent emission emitters.

Increasing global temperatures have a knock-on effects including rising sea levels and changes in the amount of precipitation. This is turn can lead to flooding, a decline in crops yields, severe hurricanes and tropical storms, species extinctions and increases in the spread of diseases.

A report produced by Sir Nicholas Stern for the UK government says that if no action is taken on emissions, there is over 75% chance of global temperatures rising between two and three degrees Celsius over the next 50 years.

As well as the environmental impacts there will also be economic consequences. The Stern review also states that a 5 degrees c rise in temperature could reduce global economic output by 10%.

Some economists might argue that a warmer climate could benefit certain crops and farming communities but I feel these benefits are minimal compared to the long-term negative effects.

The Kyoto Protocol was established in 1997 by the United Nations Framework Convention on Climate Change (UNFCCC). The treaty didn’t become international law until February 2005 when it was ratified by 165 countries. The UK is committed to cutting its carbon emissions by 12.5% from 1990 levels by 2012 under the Kyoto treaty, although they have set themselves a 20% target.

2 What policies and measure could the UK government use to meet it’s commitments under the Kyoto agreement? Discuss:

(a) with reference to the transport sector of the UK