An Analytical Framework of Environmental Issues
  • 1 0000000404811396 Monetary Fund

Environmental effects which were insignificant in the past, when the fewer concentrations of population or products of modern technology allowed the vast absorptive capacity of nature to act as a sink, are quite evident today--in the pollution of air or water, the overuse of potentially renewable fishing or forestry resources, or the wasteful extraction of nonrenewable, mineral, resources. To contribute to an overall understanding of environmental issues, this paper sets out a general analytical framework encompassing the physical character of environmental problems, the behavioral factors that contribute to them, and the principal approaches to their prevention and correction.


Environmental effects which were insignificant in the past, when the fewer concentrations of population or products of modern technology allowed the vast absorptive capacity of nature to act as a sink, are quite evident today--in the pollution of air or water, the overuse of potentially renewable fishing or forestry resources, or the wasteful extraction of nonrenewable, mineral, resources. To contribute to an overall understanding of environmental issues, this paper sets out a general analytical framework encompassing the physical character of environmental problems, the behavioral factors that contribute to them, and the principal approaches to their prevention and correction.

I. Introduction

Nature upstream of human activity provides resources, nature downstream receives waste.1/ But one’s downstream can be someone else’s upstream, and what is downstream from one today can be upstream from one tomorrow.2/ In the past, with fewer concentrations of population or products of modern technology, the vast absorptive capacity of nature acted as a sink, reducing to insignificance many downstream effects. And wasteful practices caused little concern for the seemingly inexhaustible stock of natural resources.

In the changed physical circumstances of today, however, downstream environmental problems are quite evident--in the pollution of air or water, the overuse of potentially renewable fishing or forestry resources, or the wasteful extraction of non-renewable, mineral, resources. The analysis and solution of each such problem are undertaken by various disciplines. It is important, however, to gain an overall understanding of these frictions arising in the human interaction with the environment. To contribute to such an overall understanding, this paper sets out a general analytical framework of environmental issues, outlining the physical character of environmental problems, the behavioral factors that contribute to them, and the principal approaches to their prevention or, failing this, to their correction.

II. Physical Aspects

Downstream environmental problems are the result of physical actions, and are most readily classified by the medium initially impacted, that is, either soil, air, or water. Imprudent cultivation causes loss of soil through erosion3/ and loss of soil fertility through non-replenishment of soil nutrients4/ or deposit of mineral salts from improper irrigation. Water quality--the principal health problem in most developing areas--is threatened by the runoff and leaching of excess fertilizers and pesticides and by inadequate treatment of household sewage, industrial effluents, and mine waste. Fossil fuel combustion in cars, factories, and homes, returning to the atmosphere in decades carbon dioxide absorbed by plants and animals over thousands or millions of years, affects local air quality and is implicated as a “greenhouse gas,” trapping heat in the atmosphere and causing possible global warming.

Actions initially impacting soil, air, or water frequently affect other media as well, however. Deforestation, for example, besides reducing the absorption of carbon dioxide from the atmosphere by trees and adding carbon dioxide to the atmosphere if the trees burn or rot, leads to soil erosion, and the siltation of waterways, dams and irrigation works.5/ The disposal of solid waste containing chemical or heavy metal pollutants can contaminate ground waters through leaching from landfills, sea life through disposal at sea, and air through gas products of incineration.6/ Combustion of high sulfur content fuels can affect air quality locally and lead to acidification of lakes and forests hundreds of miles away.7/

The extension of downstream effects beyond their original media reflects the mobility of the disturbing or polluting elements and their interaction with other parts of the environment. The severity of downstream effects reflects also the volume of such elements, their toxicity, their bioaccumulative potential, and their persistence through space and time.

III. Behavioral Aspects

Affecting the physical actions which impact the environment have been several behavioral aspects of human interaction with the environment, some with roots lying far in the past. The modern belief in progress through the application of rationality to the task of manipulating nature is traceable to the “scientific revolution” which occurred in the West over the century and a half between the publications by Copernicus in 1543 and Isaac Newton in 1702. The theological or magical medieval cosmology, which held that “there is nothing in visible and corporeal things that does not signify something incorporated and invisible,” was replaced by the view of nature as a machine whose only true reality lay in what could be objectively measured and represented in verifiable human knowledge.8/ The previously intimate spiritual or magical relationship between man and nature was broken, and with it any earlier inhibition against human manipulation of nature.

The technological and industrial revolution of the following centuries made remarkable progress through the application of scientific and technological knowledge to the taming or manipulation of nature. Francis Bacon (1561-1626) pointed out, however, that science was progressive in two senses, both in progressively improving the material circumstances of humanity and in advancing on the secure basis of facts toward greater and greater truth; in his words, “truth is the daughter of time.”9/ Some progress in the manipulation of nature, as a result, has later proven to be based on incomplete, and therefore mistaken, knowledge, with adverse consequences for the environment. A number of recent examples may be cited.

Freon, a chlorofluorocarbon (CFC), hailed only decades ago as a major technological achievement permitting air conditioning and facilitating refrigeration, has since been found to damage the ozone layer protecting the earth from dangerous ultraviolet radiation and is being phased out and banned by international treaty.

Wetlands, drained and filled to fight mosquito-borne diseases and permit agricultural development, have been found important for flood control, water purification, and the habitat of various life forms, so that wetland preservation has been legislated in the United States and dikes protecting previously filled-in lands opened in The Netherlands.

Toxicity, heretofore measured by dose-response relationships in animal studies, is now being subjected to some contrary findings in molecular studies of the biomechanism by which damage is done. The toxicity of dioxin has been the subject of considerable controversy following a 1976 chemical factory explosion releasing a dioxin cloud in Seveso, Italy, where rats and rabbits were “practically crawling out in the street and dying” while humans were subjected only to a skin disorder and no subsequent carcinogenic effects. Since the early-1970s discovery that dioxin binds to a protein (Ah receptor) in mouse livers, some 8,000 papers or abstracts have been published on Ah receptors. Molecular analysis is now shifting some chemicals into higher risk status, one possible example being the chemicals contained in plastic soda bottles and plastic medical containers--phthalates, which “everyone” has in their body these days.10/

Another example involves the efforts of well-meaning conservationists who until the mid-1980s sought to save endangered sea turtles from predators and poachers by digging eggs out of remote underground nests and moving them to styrofoam containers where the young hatched. It turned out, however, that in certain reptiles sex is determined by hormonal changes brought on by the temperature of the egg during incubation, rather than at conception as in mammals. As a result, the eggs moved to styrofoam containers produced primarily male turtles, and may have inadvertently hastened the decline of sea turtle populations by skewing toward males.11/

Other adverse effects of human interaction with the environment result not from incomplete scientific information but from conscious choice. Some are the result of strong time preferences, personal, corporate, or political. Thus individuals with pressing survival or consumption needs may not wait for fallow periods necessary to restore soil fertility between nutrient-depleting crops. Corporations, pressed for shareholder returns and uncertain of the stability of contracting governments, may not wait the 30 or 40 years for tree plantings to mature even if granted long-term lease or property rights. And politicians faced with the need for difficult environmental decisions may prefer to delay, adhering to the principle of NIMT (Not In My Term).

Formulation of time preferences for interaction with the biological environment in terms of optimal discount rates has been the subject of some criticism. It is pointed out that discount rates by their nature favor the short run over the long run, that any discount rate can lead to the extinction of species, and that the belief that future generations are entitled to an environment equal to ours implies a zero discount rate on the value of the environment. This calls to mind the contrast between the maxim “A bird in the hand is worth two in the bush”--implying a 50 percent discount rate for the time period necessary to catch a bird--with the variation proposed by a Baltimore schoolchild: “A bird in the hand is dead.”12/

Adverse environmental effects can result not only from incomplete knowledge or the discounting of future effects but also from assigning low or no priority to avoiding damage to others, referred to as externalities. When intentional action or lack of care to avoid foreseeable risks is the proximate cause of demonstrable injury to persons or property, individuals or groups may recover damages by recourse to tort law in civil proceedings in some countries.13/ In many cases, however, damage is to public health or to open-access common property of the wider community,14/--that is, the public good--so that the prospect of judicial damage awards is not a credible obstacle to causing environmental damage. The prevention of such environmental damage is therefore the province of public policy, which must weigh the costs and benefits of particular activities.

In some circumstances consideration of environmental effects has been far outweighed by other public policy goals: national security in the production of nuclear weapons,15/ production targets in centrally planned economies,16/ and national economic development in some developing countries.17/ Where environmental considerations are given weight, several issues arise. The first is what value to place on human life and health. In the United States, the banning of products found to be carcinogens has been criticized as assigning an absolute value to human life in comparison to other benefits, and the devotion of large sums to the scrupulous clean-up of toxic wastes has been criticized as neglecting other, comparable risks, which cost-benefit analysis might reveal.18/

The second issue is what weight to give to the environment itself, as distinct from its economic uses or effects on human health. It is argued on the one hand that the economic parts of nature cannot function without the uneconomic parts,19/ that survival of the human species requires the survival of other species,20/ and that knowledge of potential economic or medicinal uses of the environment is necessarily incomplete, whereas extinction is forever. On the other hand it is argued that human welfare can require economic activities that must also be weighed in the balance against the loss of particular species of plants or animals or biospheres. Individuals, communities, or nations may be dependent upon activities with adverse environmental effects.

The search for a compatible combination of economic activity and environmental survival is encompassed in what has come to be called sustainable development.

IV. Prevention

In addition to the direct provision of government services, such as sewage treatment plants, and the promotion of voluntary efforts through education, a number of approaches have been advocated to prevent the environmental effects which have become public policy concerns. One approach favors the augmentation of private property rights to strengthen the holders’ stake in their environmental asset and its future returns. For farmers, the success of this approach depends also upon the effects of other structural constraints, such as the new owners’ access to credit, inputs, and markets, and upon an appropriate scale of operation.21/ There must also be some correspondence between the new property and the income needs of the new owners. Individuals whose pressing survival needs could not be met from new forest holdings, for example, could not be expected to maintain such holdings intact.

Another aspect of private property which is sometimes expected to prevent environmental damage is the ability of owners to enter tort law claims against those causing damage to their property or to negotiate with them under threat of such proceedings, thus “internalizing externalities by compensating victims.”22/ The advantages of such private settlement, without the need for government regulation, are identified with the work of R. Coase.23/ Tort law procedures turn out to be a poor means of preventing environmental damage, however, both because of the high transaction cost and consequent inaccessibility to some individuals and because establishing proximate cause of injury is extremely difficult given the scientific uncertainty regarding causation and the numerous potentially responsible parties24/ for what has been referred to as a “toxic soup” of pollutants present in many instances.25/

Criticism of focusing too narrowly on private property as protection against environmental damage comes also from those demonstrating the numerous instances of sustainable development by groups sharing controlled access to property, for example, in fishing communities and in traditional settings.26/

The predominant approach to preventing environmental damage is mandatory government regulation--the command and control approach. Direct regulation has been preferred over economic incentives such as charges, with which it has sometimes been supplemented, because its effects are perceived as more certain and because charges might be additional to compliance costs, might operate as price increases adding to inflation, and might have negative distributional effects impacting low income groups.27/

Flexibility is sometimes added to regulation through negotiation with the affected industries, in some cases taking the form of industry agreements or self-regulation, depending on the strength of the vested interests involved.

Regulation faces many difficulties, however. In some countries, environmental regulations have served as ideals, intended for education rather than enforcement. Effective enforcement may require technical and legal resources, personnel, monitoring, and good governance beyond the capacity of some jurisdictions, which may therefore have to depend on voluntarism. Legislation in many instances is enacted only in crisis, leading to piecemeal, fragmented, even contradictory, provisions for air, water, waste, etc. Regulations may also need to be coordinated with other, non-environmental, regulations affecting the same activities. The compliance costs of regulations can be high, though not readily determined when they involve changes in production methods or product mix. Administration can bog down in paper work, rather than focusing on environmental goals, and, whether applied to ends or processes, can fall behind advances in scientific knowledge. Enforcing regulations on government agencies, which may be major polluters, can be particularly difficult.

Regulation can become the instrument of rent-seeking interests, such as established firms raising obstacles to new entrants or regions discouraging the growth of competing industries elsewhere in the country, or of those opposed to development.28/

Regulations also raise important inter-jurisdictional questions. Foremost among them is the spatial extent of environmental effects and the appropriate level of government--local, regional, national, or international--at which regulations should be set. Local governments, for example, can have difficulty paying for the mandated upgrading of dumps or water treatment facilities.29/ Regional and local governments have tried with mixed success to subject polluting national government agencies to local or regional environmental standards.

Internationally, other issues arise. Disparities in national environmental regulations affect national competitiveness. The application of national environmental standards to imports has raised questions of conformity with international obligations, particularly affecting imports from developing countries where fewer regulations may be applied. When environmental effects are transnational or global, as in the case of ozone layer depletion or global warming, regulation has come through international treaty, with the principal issue being burden-sharing between countries which have developed with the emission of carbon dioxide, for example, and countries which see their development ahead of them.

The economic incentive approach to preventing adverse environmental effects seeks to incorporate in the economic calculus of polluters the social costs of their actions which they would otherwise not consider, that is, to internalize externalities. When externalities are present, market forces in competitive equilibrium do not achieve optimum welfare. One means of overcoming this difficulty is by adding to polluters’ costs a tax equal to the external, social costs of their actions, a pigouvian tax, proposed by A. C. Pigou. The principle of such taxation is embodied in the Polluter Pays Principle (PPP), set out in OECD recommendations since 1972. This holds that “the polluter should bear the cost of measures to reduce pollution decided upon by public authorities to ensure that the environment is in an ‘acceptable state’.”30/

A 1989 OECD study judging adherence to the PPP by the share of full control costs borne by the polluter and the proportionality between the amount of pollution discharge and payment, found little conformity in the practices of the countries examined. Many countries applied financial assistance in realizing their environmental policy objectives, PPP-compatibility was not of overriding concern, and the revenue motive took precedence over the regulatory motive.31/ Though practice may lag, the PPP remains the preferred principle, primarily because it causes prices--and the economic activities they determine--to reflect social costs and leaves to the individual polluter the task of determining the most economical way of reducing his pollutants and charges. Like regulation, environmental taxes require monitoring. This may be substantially simplified in some cases, however, through application of the environmental tax to appropriate proxies, which may be inputs or outputs. The distributional effects of environmental taxes can be offset by changes in other taxes or by targeted payments. The effects of environmental taxes on the international competitiveness of traded goods, however, remain a concern in the absence of coordination with other countries.

Several types of charges are delineated in the OECD study: effluent charges, user charges for treatment facilities, product charges based on product characteristics (e.g., sulfur content) or the product itself (oil), administrative charges for registration or authorization, and tax differentiation based on environmental impact. Other economic incentives derive from subsidies, either as direct grants, soft loans, or tax allowances such as accelerated depreciation, deposit-refund systems, and the creation of markets for tradeable “pollution rights.”32/

The system of tradeable pollution rights combines regulation with economic incentives. It sets the goals for emission reduction but allows plants to meet their goals by purchasing excess reductions achieved by other plants. The overall reduction goal is thus reached by the most economical, efficient means, and plants have an incentive to reduce their emissions below the level required so long as a market for rights exists among plants which have not met their requirements. Criticism has arisen from the perception that plants purchasing the tradeable permits are purchasing the right to pollute. Reservations are also raised regarding the appropriate extent of the market, that is, the effect on areas whose plants fail to meet pollution reduction requirements but purchase tradeable permits from plants in other regions.33/

V. Clean-Up

When prevention fails, the daunting task of cleaning-up past pollution must: be faced. This poses a number of issues: priority, degree of cleanliness, cost effectiveness, financial responsibility, and eventual deposit site. Immediate action is required in the case of accidental oil spills, whereas the choice among more stable hazardous waste sites can be based on present and future risk. Cleaning up toxic dumps, removing hazardous waste, or decontaminating former military sites are given no priority, for example, in an internationally prepared Environmental Action Program for Central and Eastern Europe which stresses preventing air pollution from lead, sulfur and soot, protecting drinking water, and stopping irreversible damage to nature.34/

The degree of cleanliness to be attained depends on the comparative risks of ill effects and on future uses of the site. One influence on cost effectiveness can be the urgency of the clean-up. In the clean-up of the 10 million gallon Exxon Valdez oil spill of March 1989, for example, capture and rehabilitation of about 222 sea otters cost more than $80,000 per animal.35/ Costs may be reduced, however, by the benefits of technological progress. Favorable tests later in the Exxon Valdez clean-up demonstrated the capacity of particular bacterial strains to digest the oil, with their only wastes water, carbon dioxide and fatty acids that are in turn eaten by plankton and other organisms. Other bacteria have been found to digest toxic residues leaching from landfills, nuclear wastes, and soil contaminants.36/ Bioremediation has not worked for metal contamination, however, since microbes that eat metals are very hard to remove from the soil once they are done. For this purpose scientists are working with naturally occurring plants with spectacular metal uptake--thus far hemp dogbane and ragweed--which are said to hold promise of “revolutionizing the remediation of soils contaminated with heavy metals.”37/ This would replace the present methods of digging up the contaminated soil to mix it with cement and bury it elsewhere, vitrifying the soil by pouring in compounds that trap the metals to keep them from spreading, or “washing” the soil with an acidic compound, which leaves metal-contaminated acid and soil with impaired abilities to support growth.38/

Liability for clean-up has posed perhaps the most nettlesome issue, as the Polluter Pays Principle has been confronted with the inability of polluters to pay. Assigning retroactive liability to past property owners, waste contributors, waste transporters, insurers, and foreclosing mortgage holders, particularly for the results of activities which were not illegal when they were performed, has resulted in massive litigation. Some governments have assumed the full burden of clean-up costs so as to avoid inaction or an unsustainable charge on the enterprises involved.

There remains after hazardous waste site clean-up the question of where any residual wastes are to be deposited. This is a most difficult issue in the case of nuclear wastes, with their 10,000 year prospect of continuing radioactivity. Abandoned mines, underground geological formations, and the ocean floor39/ have been utilized in some cases, and the principle of NIMBY (Not In My Back Yard) has been much in evidence.


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A Greenpeace report on toxic chemicals in the Mississippi River entitled “We All Live Downstream” is cited in “Downstream on the Mississippi” by Michael Parfit. Parfit (1993) 47.


The U.S. Department of Agriculture (USDA) measures erosion in relation to a field’s soil loss tolerance level (T), the rate at which soil can erode and yet maintain continued productivity, which is roughly the rate at which soil regenerates. Though it depends on soil type, slope, water and wind conditions, and other factors, the T value for many soils is about five tons per acre (equivalent to 11.2 metric tons per hectare) per year but can be as low as one ton per acre per year. For the purposes of several USDA programs, highly erodible lands are defined as those that have the potential to erode at least eight times the soil loss tolerance level. Haugrud (1993) 496, 519. Soil erosion in Mexico has been estimated at a national average of 27.54 tons per hectare, van Tongeren (1991) 6.


Depletion of soil nutrients reflects the nutrient content of crops. An acre of wheat, for example, yielding 80 bushels of grain and 3 tons of straw, contains 180 pounds of nitrogen, 55 of phosphorus pentoxide, 24 of phosphorus, 178 of potassium oxide, 132 of potassium, 6 of calcium, 24 of magnesium, and 20 of sulfur. Bishop (1983) 38. In addition to carbon dioxide and oxygen from the air and water from rainfall and the ground, plant growth requires some 13 essential minerals from the soil, including macronutrients, such as nitrogen, phosphorus, potassium, calcium, and magnesium, which are required in relatively large amounts, and micronutrients, such as boron, cobalt, molybdenum, and others, which are required in trace amounts. Terborgh (1992) 32.


A case study of the Cote d’Ivoire lists external impacts of deforestation, in addition to increased runoff, flooding and soil erosion, as loss of plant and animal habitat, loss of species diversity and extinction, disturbance of hydrological cycles, affecting ground and surface water supply, and changes in local or global climate. London (1992) 58.


Controversy regarding the safety of hazardous waste incinerators center on arguments that although U.S. law, for example, requires such incinerators to destroy the principal organic hazardous constituents (POHCs) to 99.99% of their starting concentration, or 99.9999% in the case of dioxin, other, new products of incomplete combustion (PICs) can be a source of plant emissions. Hanson (1993) 11-12.


More than 80 percent of air-borne sulfur dioxide depositions in Norway come from abroad. Alfsen (1987) 61.


Pepper (1990) 42-54. In his Sacred Theory of the Earth. Seventeenth Century theologian Thomas Burnet argued that mountains, representing imperfections in nature, resulted from original sin. Cited in Rosten (1965) 115.


Pepper (1990) 54-55.


Marshall (1993) 1394, 1396.


A patent was recently issued for female estrogen hormones to be spotted on eggs in order to cause reptilian embryos to develop as females. Riordan (1993) D2. See also Brooke (1991) C4.


Quoted from the response of Rhonda Boozer, a Baltimore elementary school student, when her teacher gave students the first half of an old adage and asked them to supply the second half. Dickson (1978) 16.


Bromley stresses the distinction between open-access property and controlled-access common property, for which the group of co-owners is well defined and for which the co-owners have established a management regime for determining use rates. Bromley (1991) 93.


A 1993 article entitled “Siberian Oil: A Dream in Ruins,” reports regarding earlier oil extraction “the oil was pumped out of the ground far too quickly and a new generation of Russians must now pay the price of the misplaced heroism of its predecessor.” A supervisor is quoted as saying “The bosses in Moscow kept shouting ‘More, more.’ They had no interest in conservation.” Dobbs (1993) 1.


“In the developmentalist euphoria of the 1950s, the great factories and infrastructural projects were set up without a thought to their impact on the environment.” Sikkink (1991) 68.


Niles Eldridge writes: “The bottom line here is that the species that we must conserve is our own; we can only do it by realizing that, though the rules have changed, we will never escape intimate relations with the rest of the biosphere. We merely interact more nearly on a global than on a local scale these days. We preserve that global ecosystem by preserving its component parts.” Eldridge (1991) 228.


Peter Menell writes: “The principal theoretical advantage of liability rules--internalizing externalities by compensating victims--is lost in the real world of unobservable pathways between industrial activity and harm. As a result, the toxic tort system produces highly unsystematic levels of compensation, distorted incentives, and high transaction costs…. The object of efficient deterrence of environmental harms and equitable compensation of disease victims can be furthered by reducing the role of legal institutions and appropriately increasing the roles of administrative and market institutions.” Menell (1991) 111.


OECD (1989) 24.


Schneider (January 1992) Al, B8. An official in the relatively pristine state of New Hampshire, for example, is quoted as saying that “people are fed up with over-regulation and unfunded mandates.” Baker (1993) 8.


OECD (1989) 27.


OECD (1989) 30.


OECD (1989) 14-15.


New York state officials, for example, were concerned that excess reductions by their Long Island Lighting Company, whose emissions normally blow out to sea, would be traded to midwestern power plants whose sulfur dioxide emissions could contribute to acid rain over upstate New York lakes and forests. The purchaser planned to sell the allowances as a package with its relatively high sulfur content coal to simplify compliance for utilities. Wald (March 14, 1993) 35; Wald (March 18, 1993) Bl, B2.


“Plants take up the metals in their roots and translocate them to their shoots, which are harvested, burned in a kiln, and the metals recovered and recycled.” Brennan (1993) 35


Russian government reports have described previous extensive dumping of nuclear waste at sea and the disposal on the ocean floor of 18 reactors in violation of rules. Tyler (1992) Al; Broad (1993) Al, C8.

An Analytical Framework of Environmental Issues
Author: Mr. Jonathan Levin