Development and Environment Trade-off

Introduction:

The link between the economy and the environment are manifold. The environment provides resources to the economy and acts as a sink for emissions and waste. Natural resources are essential inputs for production in many sectors, while production and consumption also lead to pollution and other pressures on the environment. Poor environmental quality in turn affects economic growth and development and well-being by lowering the quantity and quality of resources or due to health impact, etc. In this context, environmental policies can curb the negative impacts from the economy on the environment and vice versa.

A trade-off is when we choose one option in favour of another and the opportunity cost is what is sacrificed in order to get something. The economy and the environment are inextricably linked. Since resources are scarce, choices have to be made about how to use them. The decision about how to allocate resources relating to the environment has an impact on all sectors of the economy, primarily because of the complex relationship between utilizing natural resources and economic output. Many times, the cost of utilizing these resources and services include direct costs as well as opportunity and external costs, which are not traded in markets or assessed directly in monetary terms.  

One of the tools we can use to analyze the tradeoff between economic output and environmental protection is a production possibility frontier, or (PPF). The PPF shows the opportunity cost of choosing either more environmental protection or more economic development or output. Countries with low per capita gross domestic product or GDP tend to place a greater emphasis on economic output, which in turn helps to produce nutrition, shelter, health, education, and desirable consumer goods. Countries with higher income levels, where a greater share of people have access to the basic necessities of life, maybe willing to place a relatively greater emphasis on environmental protection.

Figure 1

All choices represented by points on the PPF are productively efficient, i.e., they just represent different balances of environmental protection and economic development. A choice that is inside the PPF, for example, point M, however, is productively inefficient. If a country is choosing point P, it would be selecting a high level of economic output but very little environmental protection. On the other hand, if a country chooses point T, it would be selecting a high level of environmental protection but little economic output.

Depending on their income levels and political preferences, different countries are likely to make different choices about how to balance economic output and environmental protection. All countries benefit from making a choice that is productively efficient, that is, a choice somewhere on the production possibility frontier rather than inside it. Unfortunately, it is not possible for a country to maximize both its environmental protection and its economic output.  At every point and every level of development, countries need to make choices between often conflicting goals. Many developed countries having high income are able to spend some portion of their national income towards the protection of the environment. . Developed countries have achieved substantial economic growth and development and can afford to focus on environmental goals because basic living necessities have been achieved. However, it is difficult for developing and underdeveloped countries that are struggling to achieve stable and high growth of national income through industrialisation involving increased use of natural resources resulting in pollution of the environment.  Developing countries desire to achieve high economic growth and ensure energy for all at a competitive price to achieve and sustain economic development and poverty reduction.

Conclusion:

Making decisions about how best to conserve natural resources and environmental quality is not a simple task, particularly since many environmental problems are not easy to mitigate and the solutions may be expensive and could pose other risks. Because the environment provides both direct value and the raw material intended for economic activity, the environment and the economy are interdependent. For that reason, the way the economy is managed can have an impact on the environment that, in turn, may affect both welfare and the performance of the economy.