THEORY EXAMINATION (SEM–VI) 2016-17 ENVIRONMENTAL ECONOMICS

ENVIRONMENTAL ECONOMICS – EEV013

B.Tech (SEM VI) | Section-wise Solved Answers

SECTION – A

(10 × 2 = 20 Marks)

(a) Environmental economics

Environmental economics is a branch of economics that studies how economic activities affect the environment and how economic tools can be used to protect natural resources and control pollution.

(b) Environmental externalities

Environmental externalities are costs or benefits caused by economic activities that are not reflected in market prices.
Example: Factory pollution causing health problems to nearby residents.

(c) Environmental pollution

Environmental pollution refers to the introduction of harmful substances into air, water, or soil, resulting in adverse effects on human health, ecosystems, and natural resources.

(d) Role of natural environment in economic process

The natural environment provides raw materials, energy, and life-support systems. It also absorbs waste generated by economic activities, making it essential for sustainable economic development.

(e) Polluter Pays Principle

The polluter pays principle states that the party responsible for pollution should bear the cost of managing and controlling environmental damage caused by them.

(f) Cap and trade system

Cap and trade is an environmental policy where a limit (cap) is set on pollution levels, and firms can trade pollution permits among themselves to meet emission targets efficiently.

(g) Tradable pollution permits

Tradable pollution permits allow firms to buy and sell emission rights. Firms that reduce pollution can sell excess permits, encouraging cost-effective pollution control.

(h) Elements of market-oriented economy

Key elements include private ownership, freedom of choice, price mechanism, competition, profit motive, and limited government intervention.

(i) Advantages of landfill taxes

Landfill taxes discourage waste disposal, promote recycling, reduce environmental damage, and generate revenue for waste management and environmental protection.

(j) International organization for environmental protection

Examples include UNEP (United Nations Environment Programme), WHO, UNESCO, and IPCC.

SECTION – B

(Attempt any five – 5 × 10 = 50 Marks)

(a) Invisible Hand Theorem

Proposed by Adam Smith, the invisible hand theorem states that individuals pursuing self-interest unintentionally promote social welfare through efficient allocation of resources via market mechanisms.

(b) Pollution tax and its types

A pollution tax is imposed on activities that generate pollution.
Types include:

Emission taxes

Effluent charges

Carbon tax

Product taxes
These taxes internalize environmental costs and reduce pollution.

(c) Measuring effectiveness of tradable pollution permits

Effectiveness is measured by reduction in emissions, compliance cost, market efficiency, price stability of permits, and environmental improvement.

(d) Transboundary pollution and its economic effects

Transboundary pollution crosses national borders, causing conflicts, increased health costs, environmental damage, and the need for international cooperation and agreements.

(e) Ecological economics

Ecological economics studies the relationship between ecosystems and economic systems. It emphasizes sustainability, limits to growth, and conservation of natural capital.

(f) Price rationing and regulation

Price rationing controls demand by increasing prices or imposing charges. Examples include congestion pricing, water pricing, and peak-hour electricity tariffs.

(g) Short notes

(i) Economic operation and environmental issues
Industrial and economic activities cause pollution, resource depletion, and environmental degradation if not regulated properly.

(ii) Conditions for economic incentives
Clear property rights, effective enforcement, monitoring systems, and public acceptance are required for economic incentives to work.

(h) Tradable pollution permits – advantages & limitations

Advantages: Cost-effective, flexible, encourages innovation.
Limitations: Monitoring difficulty, market manipulation, initial allocation issues.

SECTION – C

(Attempt any two – 2 × 15 = 30 Marks)

(3)

(i) Coase Theorem

The Coase theorem states that if property rights are clearly defined and transaction costs are zero, parties can negotiate to resolve environmental externalities efficiently without government intervention.

(ii) Waste removal fees

Waste removal fees charge users based on the quantity of waste generated. This encourages waste reduction, recycling, and efficient disposal.

(4)

(i) Measuring economic activities

Economic activities are measured using GDP, GNP, national income, per-capita income, and green accounting methods that include environmental costs.

(ii) Pollution taxes and implementation problems

Problems include difficulty in measuring pollution, political resistance, administrative costs, and potential impact on competitiveness.

(5) Economic incentives & environmental protection

(i) Liability rates – Charges imposed for environmental damage.
(ii) Non-convexities – Market imperfections affecting efficiency of incentives.
(iii) Evaluation criteria – Cost efficiency, environmental effectiveness, equity, and administrative feasibility.