Environmental Problems And Their Solutions


By
Amaresh Mishra
PGP 2003-2005
Xavier Institute of Management
Bhubaneswar
 


It is difficult to identify the single greatest threat to the environment, mainly because experts have different opinions on the subject and new scientific information is always coming to light.   There are some problems that rank high on any list of environmental issues among these are global warming, over development and exploitation of natural resources. Today, the challenge that lies before us is to make the state alongwith businesses proactively contribute towards eliminating the above-mentioned problems (rather than striving to reduce its impact), through a regulatory mechanism keeping with the prevailing market structure.

In the age of globalisation and liberalisation, economic benefits drive organisations. In otherwords, anticipation of potential economic benefits makes organisations across the world proactively change their policies and strategies of doing business. Hence, if organisations are made to see that the age-old concept of inverse relation between economics and environmental benefits is obsolete, they will proactively move towards environmental friendly practices. Thus, economics will not only force the change but also sustain the change.

Herein, lies the use of "economic instruments" which aim to prevent pollution by harnessing the power of market incentives. To understand the underlying logic of economic instruments, one must understand why pollution arises in the first place. Economists perceive pollution as a 'market failure', which arises because 'polluters'- are not faced with the full consequences of their production, consumption or disposal choices. The underlying premise for economic instruments is to correct this market failure by placing a cost on the release of pollutants. This will internalise the 'externalities' into the decision making process. Placing a charge, on every unit of effluent released, transforms the manufacturer's decisions regarding how much and how he will produce. Now the manufacturer must minimize total production costs that consist not only of labor, material, machinery and energy inputs, but also of the effluent generated. The potential benefits of economic instruments can be understood through the concept of  'carbon-tax'.

The rationale behind 'carbon tax' is to reduce the carbon dioxide emissions that come from fossil fuels. *A carbon tax would essentially be a product charge placed on fossil fuels in proportion to their carbon content. Coal which has a higher carbon content than oil and natural gas would thus be taxed relatively more. The rising prices of these fossil fuels would induce companies to use oil and gas in favor of coal; to use more renewables instead of fossil fuels; and to be more efficient in their use of energy generally. Hence, a carbon tax not only reduces the impact of environmental damages through fossil fuels but also creates the potential required to eliminate it in the future through adoption of renewables. Also, as the scale of fossil fuel use in the economy is high, any carbon tax could raise significant amounts of tax revenue, which could be used to make a significant reduction in existing corporate taxes for relatively greener companies, thereby contributing to an increase in the bottom line.

In consequence, the key benefit of economic instruments is that they would allow a given pollution target to be met for lower overall cost than traditional regulations - a considerable advantage given the perceived high financial burden of regulatory compliance. In addition, they provide potential revenue sources for state or federal governments. Hence, the solution lies in internalising the externalities of businesses by viewing environmental problems as not as problems but opportunities for further growth.
 


Reference:
* Economic instruments for pollution control and prevention -- A brief overview, Duncan Austin, World Resources Institute, September 1999 (www.wri.org)
 


Amaresh Mishra
PGP 2003-2005
Xavier Institute of Management
Bhubaneswar
 

Source : E-mail September 22, 2004

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