Pakistan Institute of Development Economics


Economics and environment

Publication Year : 2015
Explore More : PIDE in Press

The major issue with theories of social sciences is their rather broad generalisations. They have been developed by looking at the general behaviour rather than how individuals behave. These theories have been either rejected or modified in history.For example, the growth models in the past included labour and capital as a factor of production but in the 19th century it was recognised that natural capital also matters much and therefore the biosphere was included in the circular flow of income.Economists focused on the depreciation of manufactured capital while estimating the net domestic product but environmental economists further take into account the depreciation of natural capital. This is the reason that green accounting gained popularity in recent years.In green accounting various alternative concepts for GDP are used such as environmentally adjusted net domestic product, satellite accounts, genuine saving, index of sustainable economic welfare and the Genuine Progress Indicator. The common in these methods is that these take into account the environmental damage in theircalculation.Similarly, economists focus on the production function irrespective of the nature of the inputs used. For example, the pesticides used in mango production have not only health implications but also restrict exports by not following the standards set internationally. According to the annual details of the EU Rapid Alert System, the total consignments of Pakistan entering the EU rejected were seven in 2002, 12 in 2003, and 16 in 2004. Pakistan rated 32nd due to the rejection of consignments in the year 2004.Increasing the production of a certain good is not the only end; we also need to look at how much the environment has been degraded. For example, the timber collected from forests generates revenue for the economy but will also destroy the forest ecosystem services – such as pollution absorption, soil erosion, biodiversity protection etc. This is alsoevident from the fact that Pakistan’s loss in the field of environment is Rs400 billion annually. This ratio varies across countries.Similarly, to maximise utility, the concept of consumption of goods has also been criticised in economics. With improvement in the standard of living, the consumption net has not only increased over time but also created some environmental problems in the form of increasing CO2 emissions, solid wastes etc. These externalities further have severe implications for health in society. Global temperature has also increased with the passage of time; its main cause is the accumulation of CO2 emissions in the atmosphere.It is also a fact that the consumption of energy has increased with time. Globally, the consumption of fossil fuels (oil, coal, and natural gas) in the year 1950 was two billion tons of oil-equivalent which has increased to eight billion tons in the year 2000. Further, fossil fuel consumption is 85 percent of the total commercial energy use. Vehicle use has also increased overtime. In 2000, there were three vehicles for every four people in the US. This ratio was 1:2 for both Japan and western Europe, 1:10 for Brazil followed by China and India less than one for every 100 people.These facts are not covered by conventional economic theories. However, macro-environmental economists focus on these issues and ask for the reconciliation of economic growth by taking into account the environment.