Balancing The Scales – Environmental Protection and Sustainable Economic Growth
– Palash Singhal
Introduction
Environmental law is a branch of law that particularly deals with matters pertaining to the preservation, protection and management of the environment. These laws are intended to control actions that can be detrimental to the environment or the public’s health. Initiatives in China to build a Green Great Wall—a shelter belt of trees—to protect Beijing from sandstorms, Regulatory Standards for emissions from coal-fired power plants in Germany, and International Treaties for the protection of the ozone layer and biological diversity are just a few examples of the broad range of topics covered by this vast field. Although these regulations and checks are in place, there still exist many other activities that have led to many problems in the economic sphere. Therefore, the purpose of this article is to analyze the economic implications of environmental law through exploring environmental law from the perspective of economics, the use of Cost Benefit Analysis in assessing environmental impact, and how Market Failures influence environmental law.
Analysis of Environmental law from the Perspective of the Economics
Ever since the phenomenon of Industrial Revolution has taken place, there has been a tremendous impact on the Environment due to corporations increasingly trying to maximize their profits at the cost of environmental degradation. This has led to several problems, including poor quality of living (for rural people in particular) and exploitation of natural resources for the benefit of few, while being detrimental for many. Since there has been so much disparity amongst the masses with regard to the treatment being meted out to different sections of the society, the role of environmental Law, in producing Externalities, plays an important function.
Externalities are those costs or benefits that affect groups or individuals who are not otherwise involved directly in the production or consumption of a particular good or service. Externalities can be beneficial or detrimental. Something that benefits the society as a whole can be termed as Positive Externalities. On the other hand, the externalities that harm the society as a whole can be termed as Negative Externalities. The major role of environmental Law is to help mitigate negative Externalities and promote positive Externalities by ensuring that those who create positive externalities, like regulation of pollution and protection of forests for instance, are rewarded for their work while the creators of negative externalities are punished by ways of imposing costs and being penalized for their misdeeds.
Countering Negative Externalities
The widening socio-economic disparity among individuals is often cited as an adverse effect of the Industrial Revolution. For instance, the industries in urban settings discharge their chemical pollutants into water bodies, posing severe health hazards to communities and ecosystems. Similarly, the exploitation of scarce natural resources, such as deforestation for timber, destructive mining practices that devastate landscapes, and excessive extraction of groundwater for commercial purposes, highlights the urgent need to reconsider the policies in place so as to avoid such misuse.
In order to counter such adversities, there have been instances of several laws and regulations being enacted by various authorities from time to time. In the case of Vellore Citizens Welfare Forum v. Union of India, the Supreme Court had admitted that though certain tanneries and other industries in the State of Tamil Nadu are major foreign exchange earners and provides employment to several thousand people, the fact that they destroy the environment and possess a health hazard to everyone by way of discharging untreated effluents into River Palar violates the right to a clean, healthy, and sustainable environment as a human right, as envisaged under Article 21 of the Indian Constitution, The Stockholm Conference,1972 and The Rio de Janeiro Earth Summit, 1992.
Similarly, in the case of M. C. Mehta v. Union of India, famously known as “The Oleum Gas Leak case,” a gas leak from a company based in Delhi had resulted in death of one person, while leading to hospitalization of several others. The court in this case had evolved a new concept of “Absolute Liability” as against the “Strict Liability” that was envisaged in the earlier case of Rylands v. Fletcher. It was held that the industry was absolutely liable for any harm caused as Right to Life under Article 21 also includes the right to a dignified life and to breathe in a clean environment.
However, it is also important to note the Supreme Court’s ruling in Goa Foundation v. Konkan Railway Corporation. Here, the court observed that in order for developmental projects of great public utility to take place, some adverse effect on environment and ecology cannot be avoided. Hence, there arises a need to strike a balance between the maintenance of the environment and the public interest at large.
These 3 judgements are considered as significant rulings in the field of environmental law of India, analyzing how negative externalities can be countered and a more holistic environment can be achieved where the interest of everyone is taken into account.
Use of Cost Benefit Analysis in Ascertaining Environmental Impact
Cost Benefit Analysis (CBA) has been used as a core tool in public policy for a long duration. It is a tool that helps us in comparing the costs and benefits of a certain regulation and helps in determining as to whether the said policy is worth implementing or not.
The application of CBA to policies or projects aimed directly at environmental improvement, or to activities that indirectly affect the environment, is known as Environmental Cost-Benefit Analysis (ECBA). In order for the implementation of a policy, let’s say establishing a power generation plant for instance, the policy-makers should analyze the social costs and benefits accordingly so as to pursue initiatives that benefit the society as a whole instead of a few individuals. The government must make way for installing the plant in a way that the social benefits outweigh the social costs. A power plant that uses renewable sources, such as Wind turbines, Geothermal and Solar panels, shall have an optimum level of benefit to the society as a whole. Such sources must be encouraged in the production of energy over non-renewable sources like oil, petroleum, natural gas and coal powered plants.
Social Cost of Carbon
The key idea behind the inclusion of environmental impacts in the CBAs of public policy and investments is the social cost of carbon (SCC). SCC measures the damages caused by an extra tonne of carbon (or any other greenhouse gas) that is put into the atmosphere in terms of their current value in money. For projects that lead to an increase in carbon emissions, the SCC can be included as a cost item, whereas for projects that result in a net decrease in carbon emissions, it can be counted as a benefit item.
The majority of government initiatives have an impact on carbon emissions, but three important issues where the SCC must be taken into account are energy, transportation, and agriculture. This is so because the main component while calculating SCC is the impact on climate and how these changes affect economic outcomes, including impact on energy supply and demand, changes in transportation infrastructure, and agricultural productivity,
The SCC informs the ideal carbon price and the ideal degree of emissions reduction in environmental policy. Implementing an explicit carbon price (for example, through an emission trading scheme [ETS] where a central authority allocates or sells permits, allowing discharge of a specific quantity of a specific pollutant over a set period of time) will encourage decreased carbon emissions across all economic sectors. Now that many nations are aware of the SCC’s significance, they each have their own methods for estimating the SCC.
Therefore, the use of SCC in measuring Cost Benefit Analysis for policy initiatives becomes useful.
Market Failure with Regard to Environmental Problems
Market failure is a phenomenon where the quantity demanded by the consumer is not equal to quantity supplied. Here, the quantity supplied is not enough in meeting the demand of the market optimally. There is an inefficient distribution of goods and services in the free market.
Environmental degradation plays an important role in this phenomenon. For instance, climate change is influencing lower yield that is being produced by farmers and crop production is a natural phenomenon and cannot be altered by human intervention up to a certain level. Similarly, problems like Pollution and Habitat Destruction creates problems related to health and property damage amongst other things.
Here, the 7th principle of Economics, i.e. “Governments Can Sometimes Improve Economic Outcomes,” can play an important role. The government, by devising certain policies and regulations with matters pertaining to pollution management, environmental protection, providing subsidies and tax benefits for people using eco-friendly measures, amongst other things, can ensure that the environmental degradation can be as minimum as possible, and that the resources are optimally utilized up to their maximum potential. This phenomenon can be further explained with the help of optimal utilization of scarce resources.
Optimal Utilization of Scarce Resources
At the end of the day, every economic problem arises due to scarcity of resources. Since resources are scarce, optimal utilization of them is important as we cannot expect the available natural resources to be abundant in nature.
As wants of human beings are unlimited and resources are scarce, an efficient utilization of them is necessary so as to ensure welfare for individuals and the society at large. Economics is a science of choice making and in order to achieve the optimal potential of economizing these resources, economists use various tools like opportunity cost and production possibility curve so as to determine in what way the resources can be utilized in their best efficient manner. The goal is to maximize social growth and efficiency, while minimizing inefficiency and waste. If the resources are not utilized in a proper manner, there can arise a situation where there is
suboptimal outcome as envisaged otherwise, leading to problems like environmental degradation amongst other things. For instance, effective implementation and execution of the National Building Code of India, 2016 can help us in utilizing the finite resources much more efficiently. Initiatives such as requiring higher energy efficiency standards, use of alternative building materials like agricultural and industrial waste, and installing solid waste management systems can not only lower utility costs, but can also contribute to a more sustainable environment.
Therefore, optimal utilization of scarce resources becomes imperative.
Conclusion
Environmental Law, by its virtue of dealing with problems like scarcity of resources and devising principles like polluter pays principle and absolute liability, is an important discipline in construing it together with the subject of economics. The Supreme Court’s ruling on putting the environment on a pedestal over the company’s motive of earning profit is also crucial in interpreting the importance of environmental Law at large. Tools like Cost Benefit Analysis (CBAs) and interventionist policies by the government in preventing market failure due to overexploitation of resources plays a crucial rule in achieving an equilibrium that is economically efficient. The use Social Cost of Carbon (SCC) is an important tool in ascertaining the actual CBAs for the government in particular. The scarcity of resources being the root cause of almost all economic problems asks for the proper utilization of these resources in a well efficient manner so as to maximize the overall satisfaction of consumers.
The author is the student of National Law University, Jodhpur.