5. Environmental Goods as Public Goods

The basic theory under environmental economics is that environmental amenities have economic value and contribute to economic growth that is not accounted for in the traditional model. All these environmental amenities (access to clean water, clean air, the wildlife ecosystem, and the general climate) are termed as ‘environmental goods’. Though all environmental goods are perceived to be public goods, both are slightly different from each other.
Public goods refer to goods that are accessible to all individuals in the society or community.
They have two unique characteristics:

• Non-excludability: Individuals can’t be excluded from the use of these resources.
• Non-rivalrous: The use of resources by one does not reduce its availability for others.

Simply put, everyone can use public goods, and doing so does not reduce their availability for use in the future.^[4]

Environmental goods on the other hand can be excludable or non-excludable and rivalrous or non-rivalrous. For instance, environmental goods like clean air exhibit non-excludable and non-rivalrous characteristics. While environmental goods like fisheries and timber show excludability and rivalrous characteristics. Although putting a price tag on these resources may be difficult, losing them will not only affect the global economy but also will disturb the balance of the planet. Since environmental goods are accessible to everyone, they experience a negative impact. This in turn influences its users equally. For instance, air (a public good) which is accessed by all and therefore is negatively impacted, which results in pollution.

There are two major concerns faced with respect to the utilisation of the goods:

1. Tragedy of the Commons

Tragedy of the commons is an economic problem in which individuals with access to public resources or environmental goods can consume a resource but in doing so, they deplete the resources. When individuals, out of greed exploit shared resources, it results in the depletion of resources even for others.
Example

• Air quality is affected by the release of effluents from certain industries, which results in bad air quality for society.
• Fisheries, where the addition of products beneficial to fish affects other organisms and also impacts the quality of the water and common-grazing lands which face the problem of overgrazing due to the increase in number of cattle by the individual herders, are few other examples showcasing the problem of the tragedy of commons.

2. Free Rider Problem

It is one of the major concerns in terms of environmental goods usage. In this problem, individuals who don’t contribute to the provision or maintenance of environmental/ public goods benefit from the process or programs related to the same.
Example
A community experiencing water scarcity decided to plan and build a rainwater harvesting system in the community. After the successful implementation of the plan, the individuals who didn’t participate in any of the steps during its implementation or contributed financially also benefitted from the plan.

Thus, there must be a balance between the consumption of natural resources and its availability and rejuvenation capacity. Therefore, everyone must use their resources wisely and judiciously.

It is the responsibility of every individual to make sure that the resources must be used as per the need and not their greed.

Books to read:

• Environmental Economics (Charles D. Kolstad)
• Natural resource and Environmental Economics ( Perman et al)