ASA Sector Advisory Committee Terms of Reference V1 21 ...
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ASA Sector Advisory Committee Terms of Reference V1 21 ...


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ASA Sector Advisory Committee Terms of Reference V1 21 December 2011 Page 1 of 6
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Sustainability Consumption and production that meets the needs of the present without compromising the ability of future generations to meet their needs This idea can be applied to just about every type of activity The questions that is often asked is whether or not an activity can continue with an unlimited time horizon Apply this question to fishery issues, energy use, pollution, etc… o
Sustainability criteria The definition of sustainability depends critically on the degree of substitutability that is deemed acceptable for an activity to be considered sustainable ƒThe basic assumption is that wellbeing is nondeclining ƒAs a proxy economists use consumption and production To take that proxy one step further – assume nondeclining capital o ƒThe substitutability hinges on how man made capital substitutes for natural resources In class activity – writing assignment #10 To cover the breadth of sustainability I will enlist the help of the class 1.break into groups of 4 or 5 2.define the terms weak sustainability and strong sustainability 3.discuss activities you engage in that are sustainable and ones that are not 4.each person in the group should come up with a unique example of something that is weakly sustainable, there should be at least one example for each person in the group (you may not use common recycling as one of your examples) the same for examples of strong sustainability (again, you may not use common recycling as one of your examples) 6.discuss whether or not the market encourages people to engage in the sustainable activity examples you suggest 7.write all of your names on a piece of paper with a list of the weak and strong sustainable activities and be prepared to discuss them As an example: I ride my bike to work several days a week and am looking to purchase a vehicle that gets better gas mileage than my current vehicle. Which is weak and which is strong? To what degree does the market encourage these activities? Weak sustainability– physical and natural capital are substitutes ƒTry to maintain total capital stock ƒDecreases in natural capital over time will not be problematic It is ok to decrease natural capital – substitutes will arise o ƒAssume it will be ok to continue consuming at the current rate Physical capital will increase to generate future generations welfare o
Strong sustainability –must maintain the level of natural capital ƒNatural and physical capital are NOT substitutesDecreases in natural capital will cause problemso ƒShould sacrifice current consumption to insure the welfare of future generations Current rates of consumption may cause irreversible damage and a loss of o welfare in the long run ƒThis does NOT stipulate that the sustainability of specific elements of natural capital – the aggregate level must be the same i.e. fossil fuels can be used if they are replaced by a renewable resource o The difficulty is that there is a significant amount of uncertainty over what damage current consumption and production will cause ƒAre we acting unsustainably? ƒThere have been many forecasts of eminent doom from over population Thomas Malthus claimed the collapse of civilization o ƒInAn Essay on the Principle of Population(1798, rev. ed. 1803), he contended that poverty and distress are unavoidable, since population increases by geometrical ratio and the means of subsistence by arithmetical ratio.Paul Ehrlich,The Population Bomb– population growth is limiting the o earth’s ability to sustain life ƒIf we are acting unsustainably, how severe will the impacts be? What will be the impact of global warming or depletion of the ozone? o Should we sacrifice since there is a chance we are jeopardizing future generations? ƒMaybe the question iswhatshould we be willing to sacrifice Fossil fuels, species, environmental quality – what is the substitutability o
Sustainability and efficiency Sustainability requires a specification of equity to arrive at an efficient allocation ƒLets define sustainability as welfare equity over time ƒNote that sustainability does not imply efficiency or vise versa Economic efficiency requires that marginal benefit be equal in all periods ƒTake a two period model – present and future Graph current and future consumption of a fixed amount of resources o Assume that people in each period have the same preferences o MB are equal when an equal amount is received in each period o Note that to carry this to more periods less is consumed in each period o ƒRun out of the resource at the end of time ƒBut this does not account for the rate of time preferences Must discount future benefits to get dynamic efficiency o This implies it is efficient to consume more now than in the future o The discount rate is the equity decision!! ƒIf want to treat resources differently than must use different discount rates ƒAny nonzero discount rate puts equity and efficiency at odds This is the basis why people argue over the discount rate o Makes sense within a generation, but not across generations o
Recycling Recycling takes many forms ƒInformal recycling – many communities have informal recycling – Lopez Island Value Village, Goodwill, baby clothes exchange, dumpster divers… o ƒ“Market recycling” – ebay, garage sales, etc… ƒCommercial recycling – curb side residential or business Only certain materials are driven by the market – varies over time o ƒCardboard and aluminum are viable in the private market ƒOthers vary dramatically ƒAvoided cost of landfills is an important component Who knows where Seattle’s garbage goes? In Washington recycling is driven by the Waste Not Washington Act 1989 o ƒPolicy mandated recycling to reduce solid waste to landfills The key is that it does not end up or stay in the landfill Is recycling efficient? From an economic standpoint, the MB of recycling must out weigh the MC ƒWhat is critical is what the MB and MC include and how they are calculated ƒMarket prices provide inadequate incentives for most types of recycling Prices for recycled goods do not include external benefits o ƒResources preserved, pollution avoided, energy use saved (if recycling does not take too much energy) Cost of garbage does not include external costs o ƒOnly the cost of transport – not shadow value of preserved land ƒPotential environmental damage ƒImperfect information also leads people to throw more away and recycle less
Articles on sustainability Three articles that get at different issues and dimensions of sustainability Environmental Protection and Economic WellBeing” by Stavins ƒWhat role should the government play? This article serves a bit as a review of what we have seen ƒMy hope is that this article was easy to understand ƒIt champions the use of economics so objectives can be reached more efficiently Table 1 indicates a large degree of inefficiency o Note that EPA regulations are environmental o Efficiency is not the primary goal – environmental quality is o ƒBut why not work toward both to make best use of funding ƒThough marketbased approaches are not easy, at least paying attention to the basic principles can provide guidelines to improve policy
The Future of Sustainable Development” by Anderson and Morgenstern ƒDiscussion of the U.N. Johannesburg Conference on sustainable development ƒPoints to the difficulty of accomplishing real changes in achieving development Countries have their own agendas o Makes it difficult to accomplish unified progress o ƒThese types of conferences communicate information But are not likely to lead to actual implemented policy o Even on basic needs like clean water and sanitation o ƒWhich are seen as basic needs and environmental improvements ƒImplies that real changes are not driven by consensus groups Takes “focused group” effort o Clean Technology Change in DevelopingCountry Industry Clusters” by Blackman and Kildegaard ƒExamine adoption of environmentally friendly technologies in less developed countries (LDC) Though clean technologies have existed for years, not yet used in LDC o ƒTwo problems: Lack of willingness or ability of the government to regulate and enforce o ƒNot want to stifle the local economy ƒInsufficient power to overcome powerful interest groups Lack of information on clean technologies to firms o ƒImperfect information ƒConcern about cost and operation of new technologies ƒTo examine this the authors build a model, gather data, and estimate results Why do economists build models? o ƒTo test hypothesis about relationships between variables ƒInsure correct use of statistical methods ƒFound several things Most important determinants of adoption were: o ƒOwner’s knowledge of the technology – i.e. reduce imperfect info ƒHuman capital of work force – education Big problem with nonadopters is lack of knowledge of technologies that o have existed for decades Sustainability touches all forms of resource use in all locations of the world ƒEach resource and each location has its own unique issues to consider ƒIncorporating marketbased mechanisms may improve the efficiency of policy However, economics is NOT the core issue – it is only a method o Solving the issues is the core issue o