HSC questions:

Discuss the role of government in attempting to achieve environmental sustainability in Australia. (2014)
Discuss the economic concerns that the Australian Government takes into account when formulating
policies to manage the environment. (stimulus, 2010)

Rationale for government intervention

Market failure occurs when the free market fails to allocate resources
efficiently, leading to socially undesirable outcomes. Producers only pay the private cost
of production (e.g. labour, rent) and dont take into account any social costs or benefits.
When the Marginal Social Cost is greater than the Marginal Private Cost, goods are
overproduced and negative externalities arise.

For example, generation of electricity by burning fossil fuels has social

costs (pollution, climate change) which private producers do not have to pay for. Thus,
the quantity of fossil fuels burned (Qe) is greater than the socially optimal level (Qo).
The negative externality, which is also known as the social cost, are
health problems associated with pollution, and climate change. On the diagram it is
represented as the area A1.
The social costs of climate change are predicted to be a reduction in
Australias GDP of 4.8% by 2100 (Intergovernmental Panel on Climate Change)
Therefore the government needs to intervene in order to reduce the
divergence between social and private costs.
Example: Market based policies include taxes, subsidies and incentives
to influence the behaviour of private producers.

 Carbon tax (in effect from 2012-2014) of around $24 per tonne. This forced the 500
largest polluting producers to pay tax in addition to their private costs of production.
Therefore the tax causes the MPC curve to shift left, causing the quantity
produced (Qt) to be lower, and closer to the socially optimal level.
The negative externality is internalised.
Emissions from firms affected by the tax were cut by 8.6% in first 6
months of implementation.
However, it raised the cost of electricity which is an important factor of
production. (increased by 9.5%) A higher price of electricity reduces the real incomes
and living standards of households.

Other taxes include taxes on petrol (38c per litre) and tobacco (70c per cigarette), which
reduce the negative externality (smoke pollution) caused by the consumption of these goods.
Regulations are a more direct way to remove negative externalities. Examples: Fuel
Quality Standards Act 2000 (banning lead fuel). Ban of incandescent light bulb sales in 2009
(estimated by the government to reduce greenhouse gas pollution by 800,000 tonnes per year)

A clean and sustainable environment is a public good

Environmental resources such as the air and water are non excludable
(any person can consume this good even if they dont pay) and non rival (one persons
consumption does not reduce the quantity available for others).
Therefore, private agents can benefit from public goods without paying.
E.g. A fishing company benefits from clean oceans without paying for cleaning.
Therefore, private firms have no way to charge others who benefit from a
clean environment. That is, people can be free-riders because they benefit from a
clean environment without paying for it. Therefore, the government needs to provide this
public good.
Preserving natural environments ensures human health is not damaged
through air and water pollution. This is important for quality of life, an indicator of
economic development.
Clean air and water is directly linked to life expectancy, a
part of the Human Development Index
Australias HDI: 0.94, has been maintained by having
strong environmental regulations.

The government aims for Ecologically Sustainable Development

To ensure that economic development meets the needs of the present
without compromising the ability of future generations to meet their own needs.
Founded on the principle of intergenerational equity.
The preservation of renewable and nonrenewable resources maintains a
greater production possibility frontier in the future.

To preserve the environment: targets

The Reef 2050 Long-term sustainability plan, funded by $40m from the
government, aims to protect species such as turtles and dugongs, and deal with key
threats like poor water quality...to be a natural wonder for each successive generation to
come.
2030 Climate Change target: Australia will reduce per capita carbon
emissions by 27% per cent of 2005 levels by 2030.
Set after the Paris Climate Conference 2015. International agreements
are necessary because effects of climate change affect every country.
However, no incentive to follow this through.
Kyoto Protocol (international agreement, 1997) Australia ratified in 2007.
Goal: Australia only increase emissions of 4 major greenhouse gases by
8% (2008-2012) Successful as emissions reduced by 5%.
However, although this target was binding, there is no enforcement
protocol and no incentive to meet it.
Aligns with goal of ESD.

Subsidies are also used to generate positive externalities

Energy efficient homes package (2009)
$700m subsidies for insulation, hot water rebates
These goods have a positive externality of consumption, because there
are additional social benefits (e.g. reducing climate change) which are not factored into
private consumption patterns.

 Subsidies shift the Marginal Private Benefit (demand) curve right, making
it closer to the Marginal Social Benefit, increasing the quantity from Qe to Qs produced
and creating a positive externality (A).
However, not all savings were passed on by these firms and benefited
consumers.
Direct Action (2014) provides subsidies for firms, farmers to reduce
emissions. E.g. $200m provided to landfill companies to generate electricity from landfill,
reduces methane emissions. Direct action is now the governments main climate change
policy.
However due to lack of enforceability and soft targets, not effective,
emissions set to rise by 5% (2015-2020)

Preservation of non-renewable resources maintains future sources of growth.

Australia has the worlds largest reserves of zinc, lead, bauxite, nickel
and the 3rd largest reserves of iron ore. Mining sector 7% of GDP, 50% of exports.
Net exports crucial to future economic growth because it is a component
of aggregate demand.
Renewable resources like fish stocks also need to be protected, because
excess use can lead to them becoming a non-renewable resource (e.g. extinction of fish
species).
Fisheries policies are used for both recreational and commercial fishers:
catch limits (number of fish per person per day) and regulations (must be a certain
minimum length, not during mating season).
Water Management Act of 2000: farmers can only store 10% of runoff on
their property. Thus preventing depletion of rivers (e.g. Murray darling basin). Important
because water is an input in the agriculture industry (10% of economy).