Environmental Economics

ECON 260
Ch. 02
Linkages between the
Economy and the
Environment: A Taxonomy

Introduction
The interaction between nature (natural resources) and economy (economic
activities) can be divided into two areas of study.
The first area of study, referred to as natural resource economics,
examines the role of the nature in providing resources ( raw materials,
energy, and so on) for economic activities. The second area of study,
referred to as environmental economics, examines the impact of
economic activity on the quality of natural environment.
You will find basic description of natural resource economics in the first few
pages of the chapter. Read it once on your own.
We will now study a circular flow diagram to link nature and economy. It
focuses on management of waste products or residuals from our economic
activities.

Fig 2-1: A Circular Flow Relationship for

the Environment and the Economy

The Fundamental Balance

,
,
,

Our understanding of mass and matter tells us that materials and

energy (M) extracted from the natural environment must be equal
R
Rand consumption (
to the residuals from production
and
),
which are discharged back into the environment. That is,
d
p

d
c

M R dp R cd

When we consider what producers use for production and what they
produce, we expect ( by a similar reasoning)
R dp Rcd M G R p R rp Rcr

These equations are useful in understanding how we might be able to

R
R R can do
reduce our use of natural environment.
To be precise, we
so by reducing consumption (G), reducing residuals from
production (
) and increasing recycling (
).
p

r
p

r
c

Terminology
Here are some common terms used throughout the textbook.
Ambient quality: Ambient refers to the surrounding environment, so
ambient quality refers to the quantity of pollutants in the environment;
for example, the concentration of SO 2 in the air over a city or the
concentration of a particular chemical in the waters of a lake.
Environmental quality: A term used to refer broadly to the state of
natural environment. This includes the notion of ambient quality, and
also such things as the visual and aesthetic quality of the environment.
Residuals: Materials left over after production or consumption. A plant
takes in a variety of raw materials and coverts these into some product:
materials and energy left after the product has been produced are
production residuals. Consumption residuals are what is left over after
consumers have finished using the productions that contained or
otherwise used these materials.
Emissions: The portion of production or consumption residuals that are
placed in the environment, sometimes directly, sometimes after
treatment.

Terminology
Recycling: The process of returning some or all of the production or
consumption residuals to be used again in production or consumption.
Pollutant: A substance, energy form, or action that, when introduced into
the natural environment, results in a lowering of the ambient quality
level. We want to think of pollutants as including not only the traditional
things, like oil spilled into oceans or chemical placed in the air, but also
activities, like certain building developments, that result in visual
pollution.
Effluent: Sometimes the term effluent is used to describe water
pollutants, and emissions to refer to air pollutants, but in this book
these two words will be used interchangeably.
Pollution: Pollution is actually a tricky word to define. Some people
might say that pollution results when any amount, no matter how small,
of a residual has been introduced into the environment. Others hold that
pollution is something that happens only when the ambient quality of the
environment has been degraded enough or its absorptive capacity
exceeded enough to cause some damage.

Terminology
Damages: The negative impacts produced by environmental
pollution on people in the form of health effects, visual
degradation, and so on, and on the elements of the ecosystem
through things like the disruption of ecological linkages or species
extinctions.
Environmental medium: Broad dimensions of the natural world
that collectively constitute the environment, usually classified as
land, water, and air.
Source: The location at which emissions occur, such as a factory, an
automobile, or a leaking landfill.

Types of Pollutants
Here are some of the broad ways to categorize emissions. Effectiveness of
an environment policy or programs may depend strongly on types of
emissions.
Accumulative vs. Non-accumulative Pollutants:
Accumulative pollutant builds up in the environment over time because it
does not degrade or only does so very slowly. Examples include
radioactive wastes, plastics, and metals such as arsenic and mercury.
Non-accumulative pollutant can be assimilated or buffered by the natural
environment and hence does not build up over time. An example is
noise.
It should be noted however that many types of wastes between these two
ends of the spectrum. For example, organic matters emitted into water
bodies. If carbon dioxide emissions get too high over time, it can become
accumulative pollutant from non-accumulative one because the emission
will exceed assimilation rate. Determining environmental damages of an
accumulative pollutant and costs of reducing it is more complicated
than that for a non-accumulative one. This is because the level of
accumulative pollutant depends on present as well as past emissions.

Types of Pollutants
Local vs. Regional and Global Pollutants:
Local pollutants are those pollutants whose emissions have an impact
only in restricted localized regions. Noise pollution and the
degradation of the visual environment are local in their impacts.
Only the group of people near the emission source are affected.
Regional and Global Pollutants are those pollutants whose impacts
are widespread, affecting people and environment over a large
region or globally. Acid rain is a regional problem. The ozonedepleting effects of chlorofluorocarbon emissions from various
countries work through chemical changes in the earths
stratosphere, which means that the impacts are truly global.
Other things equal, local environmental problems ought to be easier
to deal with than regional or national problems.

Types of Pollutants
Point Source vs. Nonpoint Source Pollutants:
Pollutant with an easily identifiable point of discharge or emission is
called point source pollutant. The points at which sulphur dioxide
emissions leave a large power plant are easy to identify; they come
out the tops of smokestacks associated with each plant. Municipal
waste treatment plants normally have a single outfall from which all
the wastewater is discharged.
Nonpoint source pollutants are those for which there are no welldefined points of discharge or emissions. Agricultural chemicals, for
example, usually run off the land in a dispersed or diffused pattern,
and even though they may pollute specific streams or underground
aquifers, there is no single pipe or stack from which these chemicals
are emitted.
Generally, point source pollutants are easier to monitor and control than
nonpoint source pollutants.

Types of Pollutants
Continuous vs. Episodic Emissions
Emissions discharged in a predictable and regular manner is
described as continuous emissions. Emissions from coal-fired
electric power plants or municipal waste treatment plants are
more or less continuous.
Emissions that are unpredictable in frequencies and levels are called
episodic emissions. Accidental oil or chemical spills are examples
of episodic emissions.

Major Pollutants