Costing the Earth: Equity, Sustainable Development and Environmental Economics

Sharon Beder


Citation: Sharon Beder, 'Costing the Earth: Equity, Sustainable Development and Environmental Economics', New Zealand Journal of Environmental Law, 4, 2000, pp. 227-243.

This is a final version submitted for publication.
Minor editorial changes may have subsequently been made.

Sharon Beder's Other Publications


Abstract

The ethical principle of equity, particularly intergenerational equity, is central to the concept of sustainable development. Yet governments all over the world are adopting sustainable development policies that reinforce existing inequities and create new ones. These policies have been strongly influenced by environmental economists of the neoclassical school. They involve monetary valuation of the environment and the use of financial incentives aimed at using market mechanisms to allocate scarce environmental resources. However these policies tend to remove decision-making power from the community and cause some sections of the community to bear more than their fair share of environmental burdens


Introduction

There is a clear inconsistency between the central ethic of sustainable development, as espoused in many government policy statements and intergovernmental agreements, and the means proposed by environmental economists to achieve sustainable development–valuation of the environment and the use of economic instruments.[1]

The central ethical principle behind sustainable development is equity and particularly intergenerational equity. The Brundtland Commission, which played such a prominent part in popularising the notion of sustainable development defined it in equity terms as: "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."[2] Subsequently the Commission’s 1987 report, Our Common Future, was endorsed by the United Nations and its definition was adopted by nations all over the world. Since then the rhetoric of equity has been incorporated into numerous sustainable development strategies and policies.[3] The Earth Summit in Rio in 1992 reaffirmed the centrality of equity in its Agenda 21 and the Rio Declaration.

Equity is about fairness:

Equity derives from a concept of social justice. It represents a belief that there are some things which people should have, that there are basic needs that should be fulfilled, that burdens and rewards should not be spread too divergently across the community, and that policy should be directed with impartiality, fairness and justice towards these ends.[4]

Equity means that there should be a minimum level of income and environmental quality below which nobody falls. Within a community it usually also means that everyone should have equal access to community resources and opportunities, and that no individuals or groups of people should be asked to carry a greater environmental burden than the rest of the community as a result of government actions. It is generally agreed that equity implies a need for fairness (not necessarily equality) in the distribution of gains and losses, and the entitlement of everyone to an acceptable quality and standard of living.

Environmental inequities already exist in all societies. Poorer people tend to suffer the burden of environmental problems more than others do. This is because more affluent people have more choices about where they live: they can afford to pay more to live in areas that have not had their environment degraded. Also, more affluent people are better able to fight the imposition of a polluting facility in their neighbourhood because they have better access to financial resources, education, skills and the decision-making structures. Similarly workers in certain industries are often exposed to higher health risks than the rest of the community–as, for example, are workers in mining or mineral processing and the chemical industry. Often, the work-forces in very hazardous industries are made up of large numbers of migrants or ethnic minorities.

The concept of equity is well entrenched in international law. The Universal Declaration of Human Rights states that the ‘recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world’.[5]

Intergenerational Equity

The idea behind not reducing the ability of future generations to meet their needs is that, although future generations might gain from economic progress, those gains might be more than offset by environmental deterioration. Most people would acknowledge a moral obligation to future generations, particularly as people who are not yet born can have no say in decisions taken today that may affect them.

There are two different ways of looking at the need to ensure that future generations can supply their needs. One is to view the environment in terms of the natural resources or natural capital that is available for wealth creation, and to say that future generations should have the same ability to create wealth as we have. Therefore, future generations will be adequately compensated for any loss of environmental amenity by having alternative sources of wealth creation. This is referred to as ‘weak sustainability’. The other way is to view the environment as offering more than just economic potential that cannot be replaced by human-made wealth and to argue that future generations should not inherit a degraded environment, no matter how many extra sources of wealth are available to them. This is referred to as ‘strong sustainability’.

There are various reasons why strong sustainability may be preferable to weak sustainability. Closely related reasons are ‘non-substitutability’, ‘uncertainty’ and ‘irreversibility’.[6] There are many types of environmental assets for which there are no substitutes: for example, the ozone layer, the climate-regulating functions of ocean phytoplankton, the watershed protection functions of tropical forests, the pollution-cleaning and nutrient-trap functions of wetlands. For those people who believe that animals and plants have an intrinsic value, there can be no substitute. We cannot be certain whether or not we will be able to substitute for other environmental assets in the future.

Scientific knowledge about the functions of natural ecosystems and the possible consequences of depleting and degrading them is at best uncertain. The depletion of natural capital can lead to irreversible losses such as species and habitats, which cannot be recreated using man-made capital. Other losses are not irreversible but repair may take centuries–for example, the ozone layer and soil degradation. Losses of species and ecosystem types also reduces diversity. Diverse ecological and economic systems are more resilient to shocks and stress.

Weiss argues that not only can resource consumption increase the real prices of those resources for future generations, but that resources may be depleted before they are identified as useful or before their best use is discovered. She gives the example of helium-bearing natural gas. Developing substitutes may well be more expensive than conserving existing supplies.[7] When resources are depleted and species extinct, the options available to future generations are narrowed. Weiss points out that ‘conservation of options’ is a principal criterion for intergenerational equity. Current generations should not try to second-guess what future generations will need, but rather should let future generations choose their own goals by allowing them the flexibility through keeping options open and maintaining diversity.[8]

The exchange of environmental assets for human-made assets also involves another equity issue; that is the substitution of shared environmental amenity with private capital. Weak sustainability involves the replacement of natural resources and environmental assets–assets that may be currently freely available to everyone–with human-made resources that have to be bought and may only be accessible to some people in the future. This redistribution of access is inequitable. Weiss points out that the principle of ‘conservation of access’ implies that not only should current generations ensure equitable access to that which they have inherited from previous generations, but they should also ensure that future generations can also enjoy this access.

All these considerations suggest that future generations may not be better off with wealth rather than a rich environment; that environmental quality is not something that can be swapped for other goods without a loss of welfare[9] and that natural and human-made capital are not perfect substitutes for one another.[10] Clearly intergenerational equity is not compatible with the concept of weak sustainability, a concept that assumes that future generations will not suffer from environmental losses as long as it is compensated for this loss by wealth creation.

Intragenerational Equity

Equity can also be applied across communities and nations within one generation. The reason that intragenerational equity is a key principle of sustainable development is that inequities are a cause of environmental degradation. Poverty deprives people of the choice about whether or not to be environmentally sound in their activities. The Brundtland Commission stated:

Those who are poor and hungry will often destroy their immediate environment in order to survive: They will cut down forests; their livestock will overgraze grasslands; they will overuse marginal land; and in growing numbers they will crowd into congested cities. The cumulative effect of these changes is so far-reaching as to make poverty itself a major global scourge.[11]

High levels of affluence are perhaps even more damaging to the environment as they are accompanied by high levels of consumption, which lead to resource depletion and waste accumulation. Many environmental problems–such as global warming and chemical contamination–are the result of affluence rather than poverty. Inequities can also affect the environment in other ways. For example, the inadequate access to public transport and local services that often occurs in the outer suburbs of Australia’s larger cities can result in greater use of cars, with their attendant environmental drawbacks including noise and air pollution, congestion and accidents.

Other equity concerns relevant to sustainable development policies include inequities in the impacts of environmental policies and inequities in decision-making processes. Measures to improve environmental problems may impact more on some sectors of the community than others through imposing additional costs on industries that then find they cannot compete internationally or by imposing additional costs on individual companies who may have to cease business or reduce their workforce as a result. Environmental policies can also impose burdens on individuals by increasing the prices of certain goods and by shifting the environmental problems.

Inequities in power lead to inequities in people’s ability to influence decisions affecting their environment. Robert Bullard argues that environmental racism in the USA involves excluding coloured people from decision-making bodies, such as boards and city councils and industrial commissions.[12] Valerie Brown and Margaret Switzer have argued that the debate on sustainable development in Australia has left women out by ignoring women’s industries, paying scant attention to the household sector and having very few women on the ESD working groups.[13] Additionally, some decision-making processes give more power and influence to certain sectors of society and this a theme that will be returned to in this paper.

Environmental Valuation

A central theme of sustainable development is the integration of economic, social and environmental concerns. Like equity this principle is at the heart of the Brundtland Commission report[14], the Earth Summit agreements[15] and various national policies and strategies. Achieving this integration has been largely turned over to economists in countries where the influence of neoclassical economics is strong: termed ‘economic rationalism’ in Australia and ‘economic liberalism’ in Britain. Elsewhere environmental economists, whose roots are in neoclassicism, are also having some success in framing sustainable development policies to suit their own perspective.

For environmental economists, integrating environment and economy means incorporating the environment into the economic system.[16] Environmental economists argue that environmental degradation has resulted from the failure of the market system to put any value on the environment, even though the environment does serve economic functions and provides economic and other benefits. They argue that because environmental ‘assets’ are free or underpriced they tend to be overused or abused, resulting in environmental damage. Because they are not owned and do not have price tags then there is no incentive to protect them. The solution to this perceived problem involves putting a price on the environment and charging people to use it.

The reasoning of environmental economists is found clearly in Agenda 21, the Action Plan for Sustainable Development, signed by over 100 nations at the Earth Summit. In its chapter on integrating environment and development in decision-making it posits three fundamental objectives:

(a) To incorporate environmental costs in the decisions of producers and consumers, to reverse the tendency to treat the environment as a ‘free good’ and to pass these costs on to other parts of society, other countries, or to future generations;

(b) To move more fully towards integration of social and environmental costs into economic activities, so that prices will appropriately reflect the relative scarcity and total value of resources and contribute towards the prevention of environmental degradation;

(c) To include, wherever appropriate, the use of market principles in the framing of economic instruments and policies to pursue sustainable development.[17]

Agenda 21 goes on, in the following paragraph, to the need to integrate environmental and economic accounting in national accounting procedures.

A first step towards the integration of sustainability into economic management is the establishment of better measurements of the crucial role of environment as a source of natural capital and as a sink for by-products generated during the production of man-made capital and other human activities.[18]

Environmental economists and environmentalists have called for national accounts to be adjusted to take account of environmental resources lost in the process of generating wealth. In this way measures such as GNP and GDP are supposed to provide a better indication of the true wealth of a nation. Nevertheless an adjusted GNP figure is merely a way of measuring weak sustainability. It assumes that as long as total capital, human plus natural, is increasing then welfare is increasing and this allows for the gradual deterioration of the environment as long as the total capital stocks are increasing.

Leading environmental economist David Pearce, who agrees that there are strong reasons for strong sustainability in particular circumstances, nevertheless argues that if we are to ensure intergenerational equity then future generations need to be compensated for any environmental damage done by current generations and that this is best done by ensuring that damage is made up for by increased wealth and human-made assets.[19] In order to compensate future generations we need to value of the environment in the same way as we value human-made assets; that is we need to give it a monetary price.[20]

The views and policies discussed above, which are so very much a part of the sustainable development arsenal, require putting a price on the environment. However the whole process of pricing the environment to ensure that decisions take account of environmental degradation works against intergenerational and intragenerational equity.

Market Values and Ability to Pay

Most methods economists use to value the environment try to assess or extrapolate market values. They treat the environment as a commodity whose market value can be assessed by finding out the public's willingness to pay to preserve the environment.[21] This is done directly through surveys (contingent valuation) where a selection of people are asked what they would pay to protect, for example, a particular area of forest. The responses are averaged and extrapolated to the whole community so that a final dollar total for the forest is arrived at.

A way to get around the tendency for people not to give truthful answers in such surveys is to ask more indirect questions and therefore infer what people are willing to pay from indirect evidence concerning their behaviour. For example, by asking people in a park how far they have travelled to get to the park and how often they come each year, economists hope to find out what the park is worth to them. This is the travel cost method.

Alternatively willingness to pay is inferred from their behaviour in the market such as the extra price they are willing to pay for real estate in non-polluted areas (hedonic pricing). Or a lake that is used for fishing, boating and swimming might be valued by calculating what people spend on private fishing, boating and swimming facilities. Another market substitute commonly used is property values.

Other proxies might include differences in water rates where higher rates are levied to cover better waste water treatment of effluent going into a river. The extra cost to ratepayers is a proxy for the value of a cleaner river. The value of the time environmentalists spend fighting to protect an area can also be used as a proxy for what they think it is worth. However, this can be problematic; if one bushwalker earns more money in his or her job than a fellow bushwalker, does that mean one person’s spare time is worth more than another’s?

Naturally, people’s willingness to pay, whether measured directly or inferred, will be intimately linked with their ability to pay or their incomes. It will also be shaped by their perceptions of monetary value; for example, $1000 is a lot to someone trying to survive on welfare benefits but not much to someone with an income of $3000 per week. People’s willingness to pay may be dependent on their incomes, and this may distort the outcomes in favour of the choices of rich people. (One could argue that this is the way a market always works, because the wealthy by definition have greater purchasing power.)

Although affluent people are willing to pay more to protect their local environment, they do not necessarily value their local environment more than poorer people value theirs. Clearly methods which depend on willingness to pay underrate the values of people with low incomes. This was most evident recently when environmental economist David Pearce and his colleagues used this method to value lives and found that the lives of people living in affluent countries were worth up to 15 times the lives of those living in poor countries because people in poorer countries were less willing to pay large amounts of money to avoid risk of death.[22]

The market is a system which advantages those most able to pay. Using the market, whether an actual market or a contrived one, to value the environment tends to produce values that reflect the prevailing distribution of income and denies people an equitable influence over their environment.

Cost-Benefit Analysis (CBA)

CBA is an obvious way to integrate environmental costs into development decisions. It has traditionally been used by governments as part of their decision-making processes for development projects. Environmental economists argue that cost—benefit analysis should be applied to all private and public projects, because they have environmental effects that are not priced in the market place–‘externalities’. Indeed, cost-benefit analyses are now a formal requirement of many large-scale projects undertaken by private enterprises, such as those in the mining sector and the building industry.

In the past environmental costs and benefits have usually not been quantified and incorporated into the analyses but the sustainable development requirement for integration of environmental and economic goals has meant that the new approach is to integrate these environmental costs and benefits by pricing them and incorporating them into the calculations.

Cost—benefit analysis is therefore promoted as a primary method for integrating economic and environmental considerations and can be applied to other matters requiring decisions, such as the rate of exploitation of scarce natural resources and the management of wilderness areas, and to government policies such as regulation (as proposed by the US Republican-dominated Congress in 1995[23]). Economists and business people are now arguing that it should be used more often as a way of deciding which way to proceed towards sustainable development.

Distribution of Costs and Benefits

CBA is about aggregated costs and benefits and does not deal with the issue of how they are distributed yet distribution of costs and benefits is of prime concern when considering equity. For example, a chemical plant may provide many benefits, such as profits to shareholders, taxes to governments and wages to workers whilst causing a deterioration of air quality in the neighbourhood. As long as the sum of benefits outweighs the sum of the costs, even if a small group of people get the benefits and many people suffer the costs, the society as a whole is assumed to be better off.

It is sometimes argued by economists that, if the total benefits outweigh the total costs, the winners could compensate the losers and still be better off; but this is only theoretical reasoning and seldom happens. It is also sometimes argued that, although the distribution of benefits and costs may be unfair in particular instances, it will all balance out in the end. However, the tendency in our society is more often for winners to win and losers to continually lose–so that poor people are the ones who tend to suffer the costs of hazardous, dirty or unwelcome developments.

Robert Bullard, professor of sociology at the University of California, claims "people of color (African Americans, Latino Americans, Asian Americans, and Native Americans) are disproportionately affected by industrial toxins, dirty air and drinking water, and the location of noxious facilities".[24] Studies by the US General Accounting Office and by the United Church’s Commission for Racial Justice provide statistical support for Bullard’s assertions. For example communities with one or more hazardous waste facilities have higher proportions of minorities than those without such facilities.[25]

Whilst environmental racism is less evident in Australia and New Zealand, the siting of polluting facilities in working class areas rather than affluent areas is apparent. Moreover the logic of cost-benefit analysis tends to exacerbate this tendency. Siting a dirty industry in an already dirty area will be less costly than siting it in a low-pollution area–because the costs of pollution, if measured in terms of decline in property values, will be lower.

Measuring environmental costs in terms of lost wages due to health impacts also tends to ensure that the costs of siting a facility in a low income area provides a better cost benefit analysis. In 1991, the chief economist of the World Bank suggested ironically in a well publicised memo, that dirty industries should be encouraged to move to less developed countries. He claimed that it was economically logical to dump toxic waste in countries where wages were lowest because the "measurement of the cost of health-impairing pollution depends on the foregone earnings from increased morbidity and mortality."[26]

Discounting Future Costs and Benefits

In a CBA, the value of future consequences is discounted (reduced). The further the costs are into the future, the less they will be worth in today’s values; yet future generations will still have to put up with them. An extreme example is that of the storage of radioactive waste, which can last hundreds of thousands of years into the future. A large cost arising from this waste hundreds of years hence would be worth almost nothing in today’s values. A more commonplace example is the case of reafforestation. ‘Except at very low discount rates, a tree that takes 40 years to grow would have a very low value today to show against its costs.’[27] Because costs that are more than thirty years away become almost valueless using discounting at normal rates, long-term environmental costs such as resource depletion may be effectively ignored. Discounting therefore discriminates against future generations by saying that future costs are worth less than present costs.

Discounting occurs because it is assumed that costs and benefits in the future are not worth as much to people today. This is a direct result of using money as a measure. The logic behind discounting derives from the logic of money–that a person would prefer to receive money now than the same amount in the future. Pearce, Markandya and Barbier put forward the following reasons for this:[28]

  • Money obtained now can be invested and earn interest.
  • People tend to be impatient.
  • The person might die before he or she gets the money.
  • One cannot be sure of getting the money in the future.
  • People in the future will probably be better off; money will not be worth as much then.

The idea that someone would like to consume now rather than in the future is not applicable to public goods which can be enjoyed now and in the future. Also society gets the benefits of environmental preservation, and therefore the risk of one person dying before he or she gets the benefits is meaningless. Any positive discount rate devalues future environmental losses and this disadvantages future generations with respect to today’s decisions.

Substitution of Private Wealth for Nature

CBA also rests on the assumption, inherent in weak sustainability, that environmental assets can be substituted by human-made assets that can be bought on the market and all that matters in the end is that the aggregate gains outweigh the aggregated losses. If a project generates more wealth than the calculated monetary costs of environmental damage, then the project should go ahead. The loss of environmental amenity is made up for by the wealth that is generated.

The idea of passing on an equivalent stock of goods to future generations that may contain fewer environmental goods and more human-created sources of wealth is embodied in the use of cost—benefit analysis. Pearce argues that the requirement to keep the total amount of capital constant ‘is consistent with "running down" natural capital–i.e. with environmental degradation’ as long as human-made capital can be substituted for natural capital. He says that this means that the Amazon forest can be removed so long as the proceeds from removing it ‘are reinvested to build up some other form of capital.’[29]

Economic Instruments

Another increasingly popular way of incorporating environmental values into decision-making is through the use of economic instruments. The idea is that prices of resources should reflect the true cost, including environmental costs, involved in their extraction and manufacture. If this were the case then, the economists argue, people would use environmental resources more wisely.[30]

Laws can also force the polluter to take notice of these external costs by prescribing limits to what can be discharged or emitted but economists tend to be ideologically opposed to the use of laws for this purpose, preferring the market to perform this function. They argue that the market is better able to find the optimal level of damage, the one that is most economically efficient. The idea of an optimal level of pollution is strange, and even repugnant, to many people. But it is a central assumption in the economic theory behind internalisation of costs using economic instruments.

Distribution of Costs and Benefits

The optimal level of pollution is supposed to be the level at which the additional costs to the company of cleaning up the pollution further equal the cost of environmental damage caused by that extra pollution. If the pollution charge is equivalent to the cost of environmental damage then the theory says that the company will clean up its pollution until any further incremental reduction in pollution would cost more than the remaining charge, that is until it is cheaper to pay the charge than reduce the pollution. This is said to be economically efficient because if the polluter spends any more than this the costs (to the firm) of extra pollution control will outweigh the benefits (to those suffering the adverse affects of the pollution).

This is not an equitable solution for the community. Economists argue that the polluter is better off than if it had paid to eliminate the pollution altogether and the community is no worse off because it is being compensated by the firm for the damage through the payments to the government. In theory the payments made by firms in the form of charges can be used to correct the environmental damage they cause. This is where theory and reality diverge because there is considerable doubt about whether money payments can correct environmental damage in many circumstances; and more importantly, money collected from pollution charges is seldom used to correct environmental damage. Economists argue that if the money is spent on something equally worthwhile then the community is still no worse off–a view that those who suffer from the pollution might find hard to accept. The people who suffer the environmental damage, the local residents and the other users of the environment (for example the users of a polluted river including fishing people and downstream industries) are seldom the ones that benefit from the charges paid by the company.

Emissions trading also raises equity issues in terms of distributions of costs and benefits. Tradeable pollution rights create rights to pollute the environment, up to a pre-determined limit, and then allow these rights to be traded.[31] Richard Ayres, chair of the US National Clean Air Coalition, argues that trading in emission rights "takes a public resource and turns it into something that can be traded as if it were property".[32] Greenpeace campaigner Lisa Bunin points out that this involves privatising a shared resource:

This approach appears like a thinly veiled scheme to privatise air using ‘marketable permits.’ Industry simply does not have the right, nor should it ever be given the right, to make money off our air. Air is a part of nature that is priceless–it is essential to all life on earth. It must never be allowed to be quantified or traded by industry over the heads of communities, nor should industry be allowed to bribe communities into consenting to allow them to do so.[33]

The trading of pollution rights also raises the question of how localised pollution will be prevented, since some firms–those that buy up the pollution rights–will be putting above- standards emissions into the environment. What is to stop some neighbourhoods getting more pollution while others get less? Bunin suggests that such trading is likely to disadvantage poor communities who will find the air quality in their neighbourhood goes down as wealthy people negotiate and buy high air quality above their own heads.[34]

Unfair Burden on those with Low Incomes

Economic instruments can be inequitable if charges or taxes are imposed on a certain section of the society whose members may not be able to afford them. For example, a tax imposed on polluting behaviour is only useful environmentally if alternative action is available or possible. Otherwise, the environment does not benefit and the tax-paying individual is simply worse off financially. For example, raising energy costs–with the aim of encouraging people to buy more energy-efficient models of common and widely used consumer products such as fridges, cars and electric globes–may impact hardest on those who cannot afford to replace or upgrade their consumer goods. Also, if prices are to rise to reflect the real environmental costs of producing goods, those who can barely afford such goods now will suffer from the price rises unless they are compensated in some way–for example, by ensuring they have a guaranteed minimum income and tax cuts.

Another example would be a petrol tax imposed on someone who has to travel a long distance to get to work and who does not have access to alternative means of getting there, such as public transport. The person would be forced to pay the tax–and would suffer the double disadvantage of having to travel a long distance each day and having to pay extra to do so. Since it is often the poor who are forced to live in the outer suburbs, because that is where the cheapest housing can be found, such a measure would impose its greatest burden on those least able to pay.

Substitution of Private Wealth for Nature

The rationale behind economic instruments, like that of cost-benefit analysis, is that of weak sustainability–that the benefits that arise from the environment can be substituted for other benefits that can be bought on the market. In fact, the assumption in internalising the costs is that environmental damage can be paid for and that this is as good as, or even preferable, to avoiding the damage in the first place.

Another inherent assumption behind economic instruments is that the environment can take a certain amount of pollution and that charges or tradeable pollution rights can ensure efficient allocation of that capacity to firms that need to utilise it. In other words, they assume that the environment has an assimilative capacity. This idea is based on the fact that some wastes, such as organic wastes that occur naturally, will decompose and break down in the environment if there are not too many of them in the one place at the one time. Other materials, such as some metals, may exist naturally in the environment at very low concentrations.

The unspoken assumption behind all such models is that the capacity of the environment to tolerate a certain number of renegades is something that we ought, collectively, take advantage of. We ought to make sure that all those slots are taken, we ought allow just as many renegades as nature itself will tolerate.[35]

This approach is highly dependent on the ability of scientists to assess the impact of pollutants on the environment and to determine a safe level that will not irreversibly or severely damage the environment. The alternative approach is to adopt the precautionary principle. Instead of purposely making economic use of what is thought to be the assimilative capacity of the environment, a precautionary approach would be to continually seek to reduce emissions that may harm the environment, by constantly reducing allowable discharges over time.

The assimilative capacity approach inevitably leads to the degradation of pristine and unpolluted parts of the environment. As the World Bank’s chief economist suggested, it leads to the idea of "underpolluted countries" such as the "underpopulated countries in Africa" which have air quality that is "inefficient" because its capacity to assimilate pollution is underutilised.[36]

Of course putting a monetary value on environmental costs suffers the same problems involved in cost-benefit analysis. All this supposes that the charges are in some way equivalent to the damage done but this cannot be so easily assumed. As Daly and Cobb point out, "even when the physical consequences are not in dispute the evaluation of the economic loss is subject to wide disagreement and uncertainty."[37]

Decision-making Equity

In practice governments and regulatory agencies do not attempt to relate charges or taxes to ‘external costs’. Rather, in the case of rights-based measures the price of emissions are generally determined by the market and in the case of price-based measures such as pollution charges, an extra amount is charged, chosen somewhat arbitrarily by the government, that is supposed to provide an incentive to change environmentally damaging behaviour.

Schelling maintains that "the essence of a pricing system is that it leaves the decision to pay or not to pay to whoever confronts the price."[38] Firms decide whether to reduce their emissions or to go on polluting and pay the fee required to do so. He argues that under a charge system individual firms are the ones that make the decisions rather than the regulator.

Industry would prefer to retain the choice of discharging wastes into the environment, even if it has to pay for the privilege. This means that the decisions about when and how to stop pollution are taken out of the hands of the community and their elected representatives. And this is the attraction to many business people, bureaucrats and politicians. They have been attracted to the idea of economic instruments by the economists’ promise that they will remove decision-making from the public arena thereby depoliticising environmental debates. Chant et al. argue that market-based instruments transform environmental conflicts from political problems to economic transactions:

A major advantage of the market as an allocational device is that it provides a non-political solution to the social conflict raised by resource scarcity. Individuals obtain title to scarce resources through voluntary exchange and such exchange represents a solution to what would otherwise be a political issue.[39]

The outcomes of environmental conflicts have been traditionally determined in a relatively open political process. Communities can influence governments to protect the environment by campaigning and demonstrating as well as by voting. In a system where the optimum level of environmental protection is decided by firms and consumers responding to prices that 'internalise' environmental costs, influence is far more difficult. The power of the consumer is not evenly distributed (the wealthy, businesses and bureaucracies have far greater consumer clout), and alternatives are often not available. This means that decision-making is inequitable since those who are affected by the pollution may have little say in whether the pollution continues or not.

Conclusion

In a myriad of ways the approaches to sustainable development advocated by environmental economists, and taken up by governments in many countries, either reinforce or exacerbate inequities in those countries. Yet equity is supposed to be a central ethical principle of sustainable development. This suggests that either equity is merely part of the rhetoric of sustainable development and is not really a central concern of those governments, or those governments have not understood the equity consequences of policies being promoted by those who have other agendas and priorities.

If equity is to be taken seriously then new ways of decision-making must be found that enable the multifaceted values associated with the environment to be fully considered and heeded. Clearly, merely extending market values to incorporate the environment into existing economic systems will not achieve this.


Footnotes
  1. See for example, the Rio Declaration, principle 16.
  2. World Commission on Environment and Development 1990, Our Common Future, Australian edn, Oxford University Press, Melbourne, p.85.
  3. See for example, Ecologically Sustainable Development Working Groups 1991a, Final Report—Executive Summaries, AGPS, Canberra, p. vi.
  4. Falk, Jim, Hampton, Greg, Hodgkinson, Ann, Parker, Kevin and Rorris, Arthur, 1993, Social Equity and the Urban Environment, Report to the Commonwealth Environment Protection Agency, AGPS, Canberra, p.2.
  5. Weiss, Edith Brown 1990, ‘In fairness to future generations’, Environment, vol. 32, no. 3, Apr., p. 9
  6. Pearce, David, Markandya, Anil & Barbier, Edward 1989, Blueprint for a Green Economy, Earthscan, London, chapter 2.
  7. Weiss, op.cit., p. 8
  8. Ibid.
  9. Goodin, Robert 1992, 'The ethics of selling environmental indulgences', Paper presented to Australasian Philosophical Association Annual Conference, University of Queensland, July.
  10. Costanza, R and Folke, C., 1994. 'Ecological economics and sustainable development'. Paper prepared for the International Experts Meeting for the Operationalization of the Economics of Sustainability, Manila, Philippines, July 28-30 (unpubl.).
  11. World Commission on Environment and Development, op.cit., p.72.
  12. Bullard, Robert 1992, ‘The politics of race and pollution: An interview with Robert Bullard’, Multinational Monitor, June, pp. 21–25.
  13. Brown, Valerie & Switzer, Margaret 1991, 'Engendering the Debate: A Discussion Paper for Consideration by the ESD Working Groups', Office of the Status of Women, Canberra, June.
  14. World Commission on Environment and Development, op.cit.
  15. See for example, Agenda 21, chapter 8.
  16. Beder, Sharon 1996, The Nature of Sustainable Development, 2nd ed., Scribe, Melbourne, chapter 2.
  17. Agenda 21, Section 8.2.
  18. Agenda 21, Section 8.41.
  19. Pearce admits that there are some environmental assets that cannot be replaced by human-made capital.
  20. Pearce, David, (Ed.) 1991, Blueprint 2: Greening the World Economy, Earthscan, London.
  21. For a fuller discussion of how the environment is valued and problems associated with it, see Beder, The Nature of Sustainable Development, part 2.
  22. Pearce, Fred 1995, 'Global row over value of human life', New Scientist, 19 August, p. 7.
  23. Beder, Sharon 1996, ‘Contract with America: Costing the Earth’, Technology and Society, Spring.
  24. Bullard, R. 1993, "Anatomy of Environmental Racism", in Toxic Struggles: The Theory and Practice of Environmental Justice, ed. R. Hofrichter, New Society Publishers, Philadelphia, PA, p.25.
  25. Hofrichter, R. 1993, "Introduction" in ibid., p. 2.
  26. Pearce, Fred 1992, ‘Why its Cheaper to Poison the Poor’, New Scientist 1st February.
  27. Ecologically Sustainable Development Working Group Chairs 1992, Intersectoral Issues Report, AGPS, Canberra., p. 14.
  28. Pearce et al, op.cit.
  29. Pearce, 1991, op.cit., pp. 2–3.
  30. For a fuller discussion of the rationale and ideology behind economic instruments see, Beder, Sharon 1996, ‘Charging the Earth: The Promotion of Economic Instruments for Pollution Control’, Ecological Economics 16, pp. 51-63.
  31. Commonwealth Government of Australia 1990, Ecologically Sustainable Development: A Commonwealth Discussion Paper, AGPS., Canberra, p. 14.
  32. Thompson, Dick 1990, ‘Giving greed a chance’, Time, 12 Feb., p. 51.
  33. Bunin, Lisa 1991, memorandum to Roger Wilson, Greenpeace, 1 July, p. 3.
  34. Ibid.
  35. Goodin, op.cit., p. 16.
  36. Pearce, ‘Why its Cheaper to Pollute the Poor’.
  37. Daly, Herman E. & and Cobb, John B. Jr 1989, For the Common Good: Redirecting the Economy toward the Community, the Environment, and a Sustainable Future, Beacon Press, Boston, p. 141.
  38. Schelling, T. (Ed.), 1983. Incentives for Environmental Protection. MIT Press, Cambridge, Mass., p. 7.
  39. Chant, J., McFetridge, D., and Smith, D., 1990.' The economics of the conserver society'. In: W. Block (Ed.), Economics and the Environment: A Reconciliation. Fraser Institute, Canada, p. 20.

Professor Sharon Beder is a visiting professorial fellow at the University of Wollongong.
Sharon Beder's Publications can be found at http://www.uow.edu.au/~sharonb