Chapter Two-Environment and Development

2.1. The Environment and Emerging Development Issues

Environment includes the physical factors of the surrounding of human beings including land,
water, atmosphere, climate, sound, odor, taste, the biological factors of living things, and the
social factors of aesthetics, and includes both the natural and the built environment. On the other
hand, development refers to a qualitative change or well-being improvement.

Development has different dimensions;

 Economic: more production and income

 Social: equity, justice, less poverty
 Human: education, health, gender equality
 Cultural: indigenous cultural values versus foreign culture
 Political: participation of various socio-economic groups in political decision making at
different levels.
 Technological: environmental sustainability of development.

NB: All dimensions need to be seen as part of development, and must be aware of trade-offs and
synergies between these dimensions.

The protection of the environment is an essential part of development. Without adequate

environmental protection development is undermined. On the other hand, without development
resources will be inadequate for needed investments, and environmental protection will fail. That
means, under development implies poverty which in turn leads to over exploitation of natural
resources.
In the environment development relationship environmental quality (such as water that is safe
and plentiful and air that is healthy) is itself part of the improvement in welfare that development
attempts to bring. If the benefits from rising incomes (economic growth) are offset by the costs
imposed on health and the quality of life by pollution, this cannot be called development. Again
environmental damage can undermine future productivity. Soils that are degraded, deforestation,
destruction of ecosystems, etc. in the name of raising incomes today can jeopardize the prospects
for earning income tomorrow. The ultimate outcome will be the vicious circle of poverty.
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The fact that environmental damage hurts people provides additional grounds for rethinking our
measurement of development (progress). The limitations of conventional measures of economic
activity, such as national income (GNP), as indicators of social welfare have been well known
for decades. Recently, the perception has grown that these measures do not accurately reflect
environmental degradation and the consumption of natural resources. So, like depreciation of
capital (machinery), depletion of environmental capital (assets) should be included in the
calculation of national income of a country. Include also costs of avoiding environmental
degradation. Thus this method of measuring national income provides information to policy
makers about the impact of economic activity on the environment in its role both as a “sink” for
wastes and as “source” of inputs. Ignoring these services (of the environment) and their effects
makes the national income accounts misleading for formulating policies, particularly in
economies that are heavily dependent on natural resources. So, rising incomes combined with
sound environmental policies and institutions can form the basis for tackling both environmental
and development problems.
The primary task of development is to eliminate poverty. Alleviating poverty is both a moral
imperative and a prerequisite for environmental sustainability. The poor are both victims and
agents of environmental damage. About half of the world’s poor (about 70-85% in developing
countries) live in rural areas and they rely on natural resources over which they have little legal
control. Land hungry farmers resort to cultivating unsuitable areas-steeply sloped, erosion-prone
hillsides, semiarid land where soil degradation is rapid; use extensive farming which results in
deforestation. The poor often lack the resources to avoid degrading their environment. They are
preoccupied with day-to-day survival. Their fragile and limited resources, their often poorly
defined property rights, and their limited access to credit and insurance markets prevent them
from investing as much as they should in environmental protection (like soil conservation,
afforestation, terracing, fallowing, etc.).
2.2. Population Growth and the Environment
Human population and economic activity have remained fairly stable during much of recorded
history. Prior to the Industrial Revolution of the nineteenth century, Europe’s population grew
slowly and standards of living changed little. The advent of the market economy and rapid
technological progress altered this pattern dramatically; populations in Europe entered a period
of rapid growth. As Thomas Malthus theorizes that population would outgrow food supplies,

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keeping the mass of people perpetually at a subsistence standard of living. Malthus’s Essay on
the Principle of Population as It Affects the Future Improvement of Society, published in 1798,
and initiated a long and continuing debate on the impact of population growth. History has
proved the simple Malthusian hypothesis is wrong: both population and living standards in
Europe rose rapidly throughout the two centuries following Malthus’s Essay. But if we consider
a more sophisticated argument, that a growing human population and economic system will
eventually outrun its bio-physical support systems, the debate turns out to have strong current
relevance. The controversy over population growth is intimately intertwined with resource and
environmental issues. In the twenty-first century these issues, rather than the simple race
between population and food supply, will strongly affect the course of economic development. It
is unlikely that we will see major shortfalls in food supply on a global scale. But it is highly
likely that the environmental stresses associated with a growing population and rising resource
demands will require sweeping changes in the nature of economic systems.

Certainly a focus on productive capacity alone is insufficient. Resource and environmental

factors, as well as issues of equity, will be central in responding to the challenge of feeding much
larger populations with limited resources. As a consequence of rapid population growth the
demand for land to a larger extent increases, pressure on land increases and the productivity
of land will be unquestionably decreased.

In addition to agricultural land requirements, expanding populations require more space for
urban, residential, and industrial development. These needs will tend to encroach on farmland,
forests, and natural ecosystems. The population pressure on land is acute in countries such as
India (794 people per square mile) or Bangladesh (2,320 people per square mile). In less densely
populated areas such as the United States (74 people per square mile), land use remains a central
environmental issue, with ever-increasing pressure from suburban developments on farmland and
natural areas, and continual conflict between large scale agriculture or forestry and wilderness
preservation.

Much of the concern over environmental issue steams from the perception that we may reach a
limit to the number of people whose needs can be met by the earth’s finite resources. Rapidly

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growing population has led to among others land degradation, water and Air pollution,
deforestation, lack of sanitation and clean water.

Population growth affects the environment in two ways:

1. It increases the demand for resources. The demand for resources is functionally related to
population size and per capita resource consumption as:

C=CPXP P = Population size

CP = per capita resource consumption (use)

C = Consumption of resource (total resource use)

Environmental damage caused by rapidly increasing population can thus be given by:
Environmental damage = (pollution per person x population) – assimilation –Pollution control
(total):

Where assimilation is the natural capacity of the environment to decompose residuals/ wastes to
the environment either chemically or biologically and pollution control is effort made by the
public and public authorities to abate damage (abatement).

Alternatively, ED = damage per resource use x total resource us – assimilation – pollution

control

2. Population growth intensifies environmental problems. That is;

Population human activity  Production and consumption resources consumption

 depletion and waste accumulation.

Policy to control population pressure

1. Access to family planning should be encouraged
2. Educate people to benefit from having low households
3. Legal law that specifies the minimum age for marriage
4. Economic incentive and disincentive

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 2.3. Economic Growth and the Environment
Can we have both economic growth and quality environment at a time?

Economic growth can be achieved in either of two ways: Through technological advancement
and the improvement in quality and /or quantity of resources.

There are different views on how economic growth affects the environment.

A). Pessimists view

Exponential economic growth on a global scale will continue unabated till the physical limits are
reached. At that time, the global economy will over shoot its resource base and collapse. In the
long run, growth in the labor force will slow down, the cost of energy and raw materials will be
rising which results a cut in production leading to diminishing growth process. In addition, in the
long term substitution possibilities will also be limited.

To summarize, this limits to growth approach asserts that there is fixed supply of resources,
limited assimilative capacity of the environment, long term substitution of natural and
environmental resources is significantly impossible and technological progress is not potent to
eliminate the natural and environmental limits. Accordingly, economic growth is the problem.
So, environmental quality and economic growth are alternate.

B) Optimists view

Economic growth provides the vehicle for improving the welfare of future generations.
Technological progress and substitution possibilities will counteract the growth rate effect.
Therefore, economic growth cannot be a problem to the environment rather they are
complementary.

C) General view

There is clear evidence that although economic growth usually lead to environmental
degradation in the early stages of the process, in the end (long – run) the best probably the only
way to attain a descent environment in most countries is to become rich.

At low level of development (initially), people might have more income elasticity to their basic
needs than the quality of the environment. This makes the relationship between the two
objectives of a society alternative. Once takeover and hence high level of development is

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reached, people will have more income elasticity to the quality of the environment so that
economic growth and quality environment becomes complementary. This more general view can
be explained by the help of the Environmental Kuznets’s curve hypotheses.

The Environmental Kuznets’s curve hypothesis’ proposes that there is an ‘inverted-U’ shaped
relationship between various indicators of environmental degradation and income per capita,
implying that economic growth will eventually reduce the environmental impacts to its early
stage. Accordingly, economic growth will lead to further improvement in the developed
economies far from being a threat to the environment in the long-run as argued in the limits to
growth model.

In addition to the high level of income elasticity to the quality of the environment, at high level
of development structural change towards information intensive industries and services, increase
in environmental awareness; enforcement of environmental regulations; better technology and
higher environmental expenditure are identified as factors that result a declining environmental
damage in the Kuznets’s environmental curve hypothesis.

In general, there are three patterns of relationship between economic growth and environmental
degradation. They illustrate how rising economic activity can cause environmental problems but
can also, with right policies and institutions, help to address them.

I) Some environmental problems improve as PCI rises ( growth)

Environment

Degradation

II) Some indicators of Environmental stress worsen as PCI rises.

Environmental

Degradation

E.G. pollution –emission of carbon oxide

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 III) Some other environmental problems initially worsen but then improve as PCI rises.

Environmental

Degradation Environmental Kuznets Curve

Q* per capita income

Till Q* environmental damage and PCI have positive relationship; at low level of development
people have more income elasticity to basic necessity items than environmental quality. To the
right of Q*, environmental damage and PCI have negative relationship. At last, we can add that
the relationship between economic growth and declining environmental quality depends partly
on the effectiveness of policies in each country. Here, two broad sets of policies are needed to
attack the underlying causes of environmental damage.

1. Policies that seek to attack the positive links between development and the environmental
damage by correcting policy failure. Improving access to resource and technology, and
promoting equitable income- growth.
2. Policies targeted at specific environmental problems; regulations and incentives that are
required to force the recognition of environmental values in decision making.

2.4. Sustainable Development and Economic Policies

2.4.1. Definition and Reason for Concern about Sustainability

Definition:

 Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.
 In other words sustainable development is development that lasts. It is not plausible to
argue that all natural resources should be preserved.

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Successful development will inevitably involve some amount of depletion of natural resources,
but natural capital should be preserved in some aggregate sense, with losses in one area
replenished elsewhere. Those who enjoy the fruits of economic development today must not be
making future generations worse off by excessively degrading the earth’s resources and polluting
the earth’s environment.

The goal of sustainable development is principally equity, rather than efficiency, issue. This is
not to say that economic efficiency is irrelevant to sustainable development, as reducing the
quantity of natural resources used up per unit of human satisfaction will clearly help reduce
demands on the environment. However, economic efficiency is not a sufficient condition for
sustainable development. Achieving sustainable development involves achieving equity both
within generations (intra-generational equity) and across generations (intergenerational equity).

2.4.2. Possible sustainability rules

1) the Hartwick –solow approach ( weak sustainability)

It proposes a rule for ensuring non –declining consumption through time in the case of
renewable resources. According to this approach, so long as the stock of capital did not
decline over time, non –declining consumption is also possible, implying that the stock of
capital could be held constant by reinvesting all Hoteling rents (the net return from the sale
of natural resource) from non – renewable resource extraction in man –made capital (K m).
These rents are those resulting from the inter-temporal efficient extraction program for the
non –renewable resource although prices must be ‘sustainable prices’ obtained from
optimization.

Here, man-made capital (Km) and natural capital (Kn) are assumed to be perfect substitutes;
one elasticity of substitution.

Resource use by previous or current generations should not exceed a level that would prevent
subsequent generations from achieving a level of wellbeing. At least the value of the total
capital stock (man-made capital + natural capital) should not decline. The possibility of a

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 decline in one component should be compensated by an increase in the other component
(normally through investment), so that total capital stock remains unchanged.

Limitation:

 Environmental resources cannot be viewed as merely as input for production; they are
also the source of amenity-directly provide utility. So, non – declining consumption is
not equivalent to non –declining welfare over time as welfare is affected by amenity.
 Natural capital and manmade capital are complements rather than substitutes as
natural capital cannot be created by man but are exploited by man

2) Non –declining natural capital stock approach ( Strong sustainability); )

This approach which is proposed by the London School places especial emphasis on preserving
natural capital under the assumption that natural and physical capital offer limited substitution
possibilities (Non- declining value of natural capital stock). Thus, if it is possible to maintain
some amount of natural capital constant as against to total capital, this holding constant of K n
becomes a rule for sustainable development.

However, to prevent reduction in the level of K n below some constant value might appear to be a
heavy restriction on development as we cannot use as much of Kn as we want. The alternative to
this involves the use of ‘shadow projects’ which are designed to produce environmental benefits
in terms of addition to natural capital ( Kn) to exactly offset reduction in it resulting from
specified collection ‘portfolio’ of projects/policies.

3) The safe minimum standard approach (SMS) (Environmental sustainability)

Under this approach the physical flows of individual resources should be maintained, not merely
the value of the aggregate. For example, for a fishery this definition would emphasis assuring
that fish catch levels didn’t exceed the growth of the bio-mass for the fishery. As such, this rule
prevent reductions in the natural capital stock (Kn) below the safe minimum standard identified
for each component of this stock unless the social opportunity costs of doing so are unacceptably
large.

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This will be done by setting a minimum viable population level for a certain resource (especially
for flora and fauna so that the unacceptable large opportunity cost of preservation can be
identified by social consensus and the democratic process (public referenda).

4) Daly’s ‘operational principles’ for sustainable development.

Operational principle –one (OP1): the case of renewable resources such as fish, forest…

Set all harvest levels (h) at less/equal to the population growth rate (g) for some predetermined
population size (density dependent growth). That is, set h≤g for all renewable resources.

Operational principle –two (OP2):- the case of non –renewable resources.

Receipts from these resources should be divided in to an income stream and an investment
stream. The investment stream should be invested in renewable substitutes ( e.g. biomass for
oil ) while the income stream can be consumed.

Operational principle –three (OP3) : the case for pollution

For fund pollutants, establish assimilative capacities for receiving ecosystems and maintain
waste discharges below these levels. For cumulative pollutants, their discharge should be close to
zero.

Operational principle – four (OP4):- minimize matter and energy throughput (consumption in
the economy).

National Income accounting practices and macro –economic performance

Recall that national income is the total output/ the amount of goods and services produced in a
country and it is measured by the national income accounts such as GNP (citizenship), GDP
(territorial), NNI and NI.

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Limitations

 National accounting statistics figures such as GDP/GNP do have a number of limitations as

a measure of economic performance and social welfare. Current systems of national
accounts understate economic performance of a country due to the presence of underground
economy (illegal economic activity; such as drug trade), difficulty in measuring non –
marketed goods and services.
 GDP/GNP doesn’t show how the national income is distributed in the society ( Ethiopia)
 The value of leisure is not taken into account
 Services provided by the environment are not included in to the measurement.
 The social cost of environmental degradation is not included in GDP. Soil erosion can be
one example.
 National accounts record only man made capital and non-natural capital in measuring GDP/
GNP. Forest can be one example.

Selected example of natural resource accounting (NRA) application and contribution for
integrated environmental and economic management and policy are presented as follows.

i. Physical resource accounting approach

This method attempts to account for the extraction and use of natural resources and generation of
waste and environmental externalities in physical terms. The most important application is the
compilation of those accounts in separate inter-industry input-output which are then linked to the
economic activities of the systems of national accounting (SNA) through fixed coefficients of
resource use and waste generation. Example barrels of oil, tones of CO2 emission…

ii. Monetary resource accounting approach

The principle here is that stocks of natural resources such as oil and gas reserves, stocks of fish
and so on should be treated in the same way as stocks of man –made capital and that a deduction
should be made to allow for the depletion of theses natural resources. For example, a country
exploiting a non –renewable resource includes the receipt from the sale of the resource , while no

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allowance will be made for the depletion of the stock in calculating the conventional NNP, that
is,

NNP =GNP –Dm (depreciation of Km) while actually the depletion of Kn must be deducted, which
can be obtained either following the depreciation approach / the user cost approach, for
considering sustainability.

2.5.2 Adjustments to national accounts to reflect effects on the environment (Plus and
minus adjustments)

 To assign negative weights to the side effects of producing and consuming the national
output, we need to consider the allowance for natural capital consumption. Thus,
environmentally adjusted net national product becomes:

ENNP =GNP- Dmc –Dnc

Where: Dmc =allowance for physical capital

Dnc = allowance for natural capital

 Expenditure made on environmental protection should be deducted from GNP (cost).

 The social cost of environmental degradation should be deducted from GNP.
 The value of leisure and other environmental services should be incorporated in to GDP
figure.
 Genuine saving: Previously (what is done): net saving = Gross saving –Dmc. But, if genuine
saving:NS = Gross saving – Dmc- Dnc, and hence shows what happen to natural resources.

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