The document discusses the role of economics in environmental management and policy. It begins by explaining how economic models like the circular flow model and materials balance model can be used to understand the link between economic activity and the environment. It then provides definitions and concepts in environmental economics, such as different types of pollution and their sources/impacts. The document also discusses environmental policy approaches like command-and-control regulation and market incentives. It notes that economics can help evaluate policies using criteria like cost-effectiveness and environmental justice.

1. THE ROLE OF ECONOMICS IN ENVIRONMENTAL
MANAGEMENT
Economics and the Environment
Economic theory explains what we observe in reality, including
environmental problems.
Recognize the link between economic activity and the
environment using these models
Circular Flow Model
Vs.
Materials Balance Model
Circular Flow Model
Shows the real and monetary flows of economic activity through
the output and factor markets
Forms the basis for modeling the relationship between economic
activity and the environment

2. But does not explicitly show the linkage between economic
activity and the environment
Materials Balance Model
Places the circular flow within a larger schematic to show links
between economic activity and the natural environment via two
sets of flows
Natural Resource Economics
Environmental Economics
Residuals are pollution remaining in the environment after some
process has occurred. Residuals can be delayed, but not
prevented, through recovery, recycling, and reuse.
Circular Flow Model
Materials Balance Model
The Interdependence of Economic Activity and Nature

3. Source: Based on Kneese, Ayres, and D'Arge (1970).
Science and the Materials Balance Model
The flow of resources and residuals are balanced according to
laws of science
First Law of Thermodynamics
Matter and energy can neither be created nor destroyed.
Total energy of an isolated system is constant; energy can be
transformed from one form to another, but can be neither
created nor destroyed.
Second Law of Thermodynamics
Nature’s capacity to convert matter and energy is not without
bound. This law is concerned with the direction of natural
processes. It asserts that a natural process runs only in one
sense, and is not reversible. For example, heat always flows
spontaneously from hotter to colder bodies, and never the
reverse, unless external work is performed on the system.
What is the essence of these laws?

4. Fundamental Concepts in Environmental Economics
Terms and Definitions
1. Causes of Environmental Damage
Natural Pollutants arise from nonartificial processes in nature.
e.g., ocean salt spray, pollen, etc.
Anthropogenic Pollutants are human induced and include all
residuals associated with consumption and production. e.g.,
chemical wastes, gases from combustion. These are of greater
concern to environmental economists.
2. Sources of Pollution
Sources grouped by mobility
Stationary Sources: fixed-site
Mobile Source: any nonstationary source
Sources grouped by identifiability
Point source: single identifiable source
Nonpoint Source: a source that cannot be accurately identified,

5. degrading in a diffuse way
3. Scope of Environmental Damage
Local Pollution
Damage not far from the source
e.g., urban smog
Regional Pollution
Damage extends well beyond the source
e.g., acidic deposition
Global Pollution
Involving widespread environmental effects with global
implications
e.g., global warming, ozone depletion
4. Environmental Objectives
Environmental Quality – reduction in anthropogenic
contamination to socially acceptable levels
Sustainable Development – management of resources to ensure
long-term quality and abundance
Biodiversity – assuring the variety of distinct species, genetic
variability, and variety of inhabitable ecosystems

6. Environmental Policy Planning
EPA headquarters are in Washington, D.C., and there are 10
regional offices across the nation.
Source: Based on Vaupel (1978), Figure 5-3, p. 75.
National Environmental Policy Act (NEPA) of 1969
Directs the integration of effort across agencies, executive
departments, and branches of government in the U.S.
Guides U.S. federal environmental policy
Requires that environmental impact of public policy proposals
be addressed
Calls for an Environmental Impact Statement (EIS) on proposals
or major federal actions

7. Risk Analysis
Chief Tool Guiding Policy Planning
Two decision-making procedures
Risk Assessment – qualitative and quantitative evaluation of
risk posed by an environmental hazard
Risk Management – decision-making process of choosing from
alternative responses to environmental risk. More…
Risk Management
Policy Evaluation Criteria
Economic Criteria
Allocative Efficiency – requires resources to be appropriated
such that additional benefits equal additional costs
Cost-effectiveness – requires that the least amount of resources
be used to achieve an objective
Equity Criterion
Environmental Justice – concerned with the fairness of the
environmental risk burden across segments of society or
geographic region
Government Policy Approach

8. Command-and-Control Approach – regulates polluters through
the use of rules
Market Approach – incentive-based policy that encourages
conservation or pollution reduction
Can follow the “polluter-pays principle” whereby the polluter
pays for the damage caused
Setting the Time Horizon
Management Strategies – short-term strategies intended to
manage an existing problem
An ameliorative intent
Pollution Prevention (P2) – a long-term strategy aimed at
reducing the amount of toxicity of residuals released to nature
A preventive intent
Resources
Resources for the Future: http://www.rff.org/
NBER:
http://www.nber.org/themes/energy/energysummary.shtml
EPA: https://www.epa.gov/environmental-economics

9. EPA EE Research Inventory:
https://www.epa.gov/environmental-economics/environmental-
economics-research-inventory-ncee-eeri-series
NEWS
https://www.nytimes.com/section/climate
https://www.democracynow.org/topics/climate_change
https://www.washingtonpost.com/news/energy-
environment/?utm_term=.411f49e7f9e2
https://e360.yale.edu/
Utilizing this image, we are going to analyze the principles of
design that the Renaissance artist Raphael used in
his composition:
Write a short essay on all of the principles of design that
Raphael uses in image 5.13A The School of Athens (1510-
1511). Try to identify as many as you can. A good minimum
number to strive for would be 5, but there are more. Note that
in reading about this image, Raphael places himself in the midst
of a particular group of people. Given that he associates
himself - an artist! - with that group, can you also identify his
usage of one of the compositional formulas (Golden Mean,
Golden Rectangle, Root Five Rectangle, and/or Perspective
described in pages 103-105)? Identify one formula and explain
how you know it is present in the image.
Text Book: Fichner-Rathus – Understanding Art, 11th Edition
ISBN: 9781285859293
http://www.gdrc.org/sustbiz/ceres-principles.html

10. Case 1.1: Coalition for Environmentally Responsible
Economies (CERES)
In 1989, the Coalition for Environmentally Responsible
Economies (CERES) was formed. Its purpose is to encourage
the corporate sector to assume full responsibility for the
environmental consequences of its actions. The coalition is
composed of environmental and social interest groups, such as
Friends of the Earth, Union of Concerned Scientists, and the
Natural Resources Defense Council, and investment groups like
the Social Investment Forum (SIF), which is a nonprofit
association concerned with socially responsible investing, and
Winslow Management Company, which is dedicated to green
investing. To accomplish its goal, CERES embarked on a plan
to draft a pledge document through which private firms would
commit to environmental objectives. The membership
collaborated to define specific standards to which signatories of
the compact would be held accountable. Biodiversity,
sustainable development, and pollution prevention were among
the issues considered for the final document. Ultimately, the
group settled on a set of 10 guidelines, originally called the
"ValdezPrinciples," after the infamous March 1989 Alaskan oil
spill, and now known simply as the CERES Principles.
The next step was critical. The CERES membership invited
thousands of corporations to sign the environmental pledge.
Working with institutional investors and firms that collectively
control trillions of dollars in assets, one might expect that
CERES’ financial clout would be effective in garnering
corporate participation. Despite a strong effort, however, the
corporate response has been limited. As of 2011, just over 80
companies have formally joined the ranks of CERES companies.
1. ( 5 points) Visit the CERES Web site at www.ceres.org,
and review the CERES Principles. Identify at least one principle
with which compliance may be difficult to measure. Discuss
briefly.
2. ( 5 points) At the CERES Web site, find and review the

11. current list of CERES Network Companies. Identify any three
that are Fortune 500 firms. Using economic theory, discuss the
incentives that likely prompted these large companies to
endorse the CERES principles.
3. ( 10 points) Based on your careful assessment of the ten
CERES principles and other relevant information at the CERES
Web site, discuss possible reasons why the corporate sector
response to this effort has not been greater based on the limited
number of endorsing firms worldwide. If you were employed by
CERES or by one of its members, how might you create
incentives to gain a larger number of corporate endorsers?
Sources: Coalition for Environmentally Responsible Economies
(CERES) (2011a, 2011b); CERES (1989), as reported in the
Canadian Institute of Chartered Accountants (1992), Table 2.1,
pp. 7-8; Parrish (February 4, 1994); Ohnuma (March/April
1990).