Integrating the Envionment

into Development Poll

JOHN A. DIXON AND SERGIO MARGULIS

e tradtional ap- (and,insomecases,exploitation ofthe Wenowrealize thatthelinksbetween

proaib, wiereby envi- resourcesofcolonies)ledto rapideconomic economic growthandtheenvironment are
development. Noattemptwasmade to complex, andaneffortmustbemadeto
ronmenalco erns undestand theconnectionsbetween growth understand anduntangle theseconnections.
are addessedAs add-onsJto andtheenvironment. Analytically,
a 'black Ratherthanassuming abladcbo" that
box"modelwasassumed whereby economic hidestheconnection between economic
developmentpoUqaking, growth inevitablyproducedenvironmental changes andenvironmental outcomes,poli-
needs to be replaced byone in damage. Infact,a hundredyearsagothe cymakers nowexplicidyidentify
connections
common pictorial
representation
ofmoderni- between economic policyandtheenvimn-
which the costs of e evwlonmen- tyandeconomic progress
wms factory smoke- ment.Thisknowledge cancreatemorefavor-
tat and social damage are sacksemitting cloudsofblacksmoke. ableenvimnmental outcomes aswellasper-
Envimrnmental concerns-polution ofthe mitstionalassessment oftheremaining
embedded in the decionmadng airandwaterornaturalresource degada- trade-ofsbetween growth andenvironmen-
prcessfrom the beginning, don-weretreatedas"add-ons," ifthey ere talobjeccives. Figure
1iDustratessomeof
consideredatall.Whenenvironmental prob- theselinks.Environmentalimpactsaredeter-
lemsbecame severeenough toreceive atn- minedbythescaleandstructure oftheecon-
Inthetwoyearsfollowing theRioEth idon,
theapproach usedwasto setanend4of- omy,aswelasbythetechnologyand effi-
Summit,countries aroundtheworldincreas- pipeemissions ortechnology standard. At ciencywith whichresourcesareused.Some
inglyagreethataddressingenvironmental thefirmleve,thisplacedtheemphasis on ofthefeedback loopsarepositive;
forean-
andsoialconcerns isanimporant priority treatmentratherthanproducing lesswaste. ple,increasing inresource
efficiency use
forgovernments andcitzensalike.Butuntil
recently-and inmanysituations
even Figure1
today-these problems havebeenaddressed activityandtheenvironmrent
Economic
as"add-ons,"afterthecoreofeconomic deci-
hasbeenmade.Evidence
sionmaldng is 9 ncores
Rb ng Incns
mountingthat isinefficient-
thisapproach wIllIngness
and abiItyto Invest
andofteninefective.Anewapproach is emironn_I / in prolcn
highydesirableinwhichthecos ofenvi-- /hanes c a Ef7i1er tScy
ronmentalandsocil damageareemIen w
wed a c
fromthebeginning,
inallcalculations and
therebytakenintoaccountmuchearlierin sce of out" gyn eWcle
thedecisiornmadng process.
Astartisbeing (pou'nX X ofthe X n X iloint r
madeinthisdirection. i
caplb) ~~~~~~Pollution
anr
Openingthe -black box" lng costs
wehada simplistic
Tmditionall, viewthat e
growdt butbadfortheenvi-
wasunavoidable u=nem
ronment.Take,forexample,
theindustrialoth
revolutionintheWestinwhichheavyindus-
try,fieledbynatul resource
extraction Suw SrwSndThom, fmmuglD amwtTharLa Fordng.

f : = , ...... . . . . .~~~~~~~~~~~~~~~~~~~~~~~~
bothconservesnaturalresourcesand addressenvironmental problems.Threepat- dioxidelevelsintheair,initially
worsenbut
producesfewernegadve environmental ternsemerge: thenimprove asincomes riseandmitigating
impactsperunitofoutput.Otherlinksare a Someenvironmental problems,suchas stepsaretaken.Mostformsofairandwater
negative-suchasthegrowth-reducing inadequatepotablewaterorpoorsanitatdon, pollutionfitintothiscategory,asdosome
impactsofmajorpollutioncontrolexpendi- declineasincomes increase.Inceasing typesofdeforestation andencroachmernt on
tures.Figure
1illustrates
thenumerous incomes providetheresources forpublicser- naturalhabitats.Tomakeimprovements,
pointsatwhichpolicyintervendonscan vicessuchasexpanded sanitation,
improved countriesmustdeliberately introducepoli-
reduceenvironmental impacts. watersupply,andruralelectrificadon.
In destoensurethatadditional resourcesare
Inaddidon,wenowrealizethatalthough addition,
whenindividuals nolongerhaveto devoted to dealingwiththeseenvironmental
economic growthoftenresultsinincreased worryaboutsunival, theycandevotetheir problems.
pollution
andconsumption ofresources, resourcesto profitable
investmentsin * Sonicindicators ofenvironmental stress
growthalsowillfacilitate
solutions.
Figure2 inproved environmental services
andcon- worsen asincomes inaease.Exampies
fromtheWorldDevelopment Report1992: stivation;
thesepositive synergies
between includeemissions ofcarbonandnitrogen
Deueopment andtheEnvironment illus- economic growthandenvironmental quality oxidesandmunicipal solidwaste.Abatement
tateshowrisingeconomic audvity
can,with mustnotbe underestimated. isrelatively
expensive,andthepublicpercep-
therightpolicies
andinstitutions,
help * Someproblems, likeparticulate
andsulfur tionisthatthecostsofinaction arelow-
oftenbecause theyarebornebysomeone
Figure
2 else.Thekey,onceagan,ispolicy. Usualy
Environmental indicators at different country income levels therearefewincentives tocutbackonemis-
sionsorwaste, anduntilsuchincendves are
Urban populatlon without put intoplace-throughreguladon,
charges,
Population without safe water adequate saniltaon orothermeans-d gewillcontinue
to
Perent Percent inease.
100 70 mrae
so ~~~~~~~~60
So) Malnstraming the cvvmn
60 40 in naloi policy pL n
40 3 Openingthe"black
boe andseekdinggreater
20 ~~~~~~~1
0 transparency
betweeneconomicpolicymak-
o 0 ingandenvonmentalimpactscreatethe
100 1.tDOO 10000 100.000 100 1t000 10,000 100t000 possibiEtyforincorporaigenvomnental
Percapita
Income
(dollams.
logscale) PercapitaIncome
(dollars.
logscal)w;; oricroaig niomna
concernsinalllevelsofeconomic decision-
Urbanconcentlrations Urbanconcentraions making.Todothis,poirymakers arecon-
of particulatematter of sulfur dioidde frontedbytwoimportant tasks.Initially,
gov-
Mkirogramsper cubicmneter
of air Microgramsper cubicmeterof air ernmentsneedtOcorrectyidentifynational
6D ~ ~ ~ ~~.1-priorities, ttaris,dcddewhatneedstobe
1,500 60 pdone nd inwhat order, second, they mtist
1,000 ~~~~~~~~~~~~~~~~~~~~~modify
national
ecnonomic
policy(seefigure
2D ~~~~~~~~~~~1)
to promote positive
synergies
andmini-
- ~~mize
adverse environmenital
impacts(the
t,O 'how" of improved environmental manage-
100 1,000 10,000 100,000 100 1,000 10.000 100.000 ment).
Per capitaIncome (dollars. logscale) Per capita income (dollars, logscale) Set The costs ofnot tak-

Carbondioxideemissions ingthe enMvronment

intoaccountareohfn
MunlcWwastes percapita percasp veryhighForexample, inHungary,airpolu-
Kilograms Kiograms tionandaddrainresultin US$100million
600o 15 eyearly in agriculturallosses,and another
Soo 1s US$50Omiffion
indamage
toforest.
400 Individuals
arealsoaffected
byairpollution
300 ~
200 10__ _1 =iEa1iN
~ ~ ~ ~ 5'and degradedlandscapesarecentWorld
100 Bankcstudy
foundthatrtheannualicosts
in
0 0 Mexcolry ofheath-related effecrsofa
100 1,000 10,000 100.000 100 1,000 10,000 100,000
Per capitaIncome(dollars.logscale) Per capitaincome(dollarslog scale) pollutionmightbe on the order ofUS$1bil-
lion.Inothercasesamenity andreaeational
an Estmite2ra bsdn OCYel1ta hl valueswerealsoimporant. InSantiago,
Si: Wadd WDeveWfapnnIn!
B.s nfW lfDewsWarsdi YmtcOxMdU*er,f*n,
*=Msn(NeOW
Ere Chie, airpollutionis recognizedas creatinga
Prss. 1992,11. doubleloss:it isresponsilefornumerous

22 DixonandMardfs
 tosetpriorities
(seeboxbelow).Estimaes
It
t
'c~~~~~~~~~~~~ - ~~~~~were
madeof the grossannualcostsofa
'tj numberofenvironmental
problems,
andsoil
Frequntlyhe@muradve
dmarco dutaWnefcbsraefiis5 erosion
wasidenified
as thelargest
environ-
Ih 4eD ecbelE66i3 ;Dms, mentaldamage
cost.
.?rerb1 hiaskenfledtde:
hazgcta4daoutrunlngenvzmnUmsenuepobl&&'tr
a.. .aa. I ~ inmanycases
rOtFounatCy, goodeoDnomic
'| D' -'NNPecto(c ii tat 4 poicyalso
Policies careduce
that begood fartheenvironment
or ehnuinare
subsidies
health
unpac( Cmcluding
both prenre eve~A4tA~tr,O
mot eioa pas ooo naycncan producedirec sings tothenation
ass,whenfit tw economyaswells enironmental imprve-
_ ___ ~~~~~~~~~~~~~~~~~~~ments.
Thesearecalled"whvwin" solutions
because theybenefitboththeenvironent
_nponat fitsad have
helpedhepoliti-
Evenwheand theeconomyandareeom
-. mplesofthe
calillto *auirL . ontesi wwt6itbich
a EAP fte41e doesnotiden- positive linksinusrnted infigure1.
addased
RalngthtEmte
at nc. god supleoftheus o gaittfve it- Subsidies
formnergy
andwater
areexamples
-aoui -shavetobeusdcarefillly polic naoftworof
themostrpronising
candidates
for
wi-wit policyreforma
Foreammple
many
healthimpactsaCduding
both premature ever,mostntional pas do notanale countr- subsid energy,therebypromot-
deahandsiknmess) andcausesa psychic environmental problem
and ivestment ingirefficient
energy useandinpreasing
loss,whenrcsidentsoDmplaintat they opinsthin aneconomrc famework, and eone probleisassociatedwit fuel
"ne't seetheAdesea Bothimnpactsar therebyignorethetrde-offs betee bene- poductionand combusionwhlebeang
important andhavehelpedcreatethepoti- firsandcosts.Evenwhena country setspri- r econormic costsfromthesubsidie.
calwilltotakeatfiorL critmeina NEAP, itfrequently
doesnotiden- Energysubsidies developing
hin coDuntries
Notallenvironm e canbe ntalproblems
tythe aitreaused.TheNigema NAPisone amounttosome$230bilonannuallr, a-
addressed atonce.Reain thatlimted goodenmpleoftheuseofqual ite- rcty pricing
m lecd tytnag ffsto refa real
resourcshavetobe usedcaey, policy- ra to setenviromental prorities;
thecrite- costsoFproductionwotud save an estimated
makers mustsetpriorities
fr environmental
yin areevaluatedboihquantifajin4and $125bilonperye2a r Although subsdiesar
intevntonsandthenselc thecorrect qualitatvely
(sceb above). Equity con- a problemwatcountries, te inmpactsof
response fromtheir Rpey tcolsrc cerns,forexmple,aremeasured bytne subsides,botheconomic andemiromen-
Recently,
nmny ountreshavebeeninvolved number ofpeopleaffectdbydiffe forms tl areparticay severeinthepoorer
in theprocessof prepa,lgnationalenviran- ofenironentl degradion. countries,inwhichgrowthi energy
mentalstrategies,
paty asa resultofAgnd Back-of-theenelope
esimatesfroma deand isemely high..
21,adoptedat the1992RioEarthSuninio numberofcountriessuggesttt Thecs of Waterisalo commonly subsdied, ain
Theseplaningercse takemanydfferent environmental
problems canbe ashighas5 leadngto inefficient
use,environment
forms.TheBankhascontributed
s tot pect ofacountysgrs domestic prod- problems,andshortages;
inmanyareas For
effortbysupporting
preparation
ofNational uct(GDP).Consideration
ofeconomiC COStS exmnple,inCyprus, Morocco,
anda nLumber
Environmental
ActoioPa (NEAPs) by isthuseetial inidentif~ing
prortiesand ofotherwater-sarce counies,prces
Interational
DevelopmentAgenicy
(IDA) selecting
efficient
andeffective
policies.
In chargedforwiaterreflect
orlyasmallpropor-
countries.
TheBankisalsoencouraging theGhana NEA,eoDnomic anaysisws used tionoftheactualcostofsupplyigwate
International
BankflorReconstruction
and
Development(IBRD) countriesto prepa -

NEAP-or equivalent
docume. ByMa-ch
1994,33countrieshadcompleted NEAPs;an
equalnumber shouldbecDmpledbythe
endof1995.
Ideally,
environmentalpriorities
shouldbe-
identifiedon
thebasisof osrsandbencfits
Thecostsofdifflerent
environme- I prob--0
lemsgiveonemeasurofthebenefits society
receives
frompreventing thesameproblems-
fromoccurring.
Prevention is notcostless,
however,andtheenvironmental benefits
havetobecmnpared to theexpenses associ-
atedwithnewpolicisorinvestments How-

23
uigtra&wtbefrme-wwwtMfDwdopmenttyuwkbng
Thiskadsto inefficient wateruse,whichis percapiuinmcme levelwassimilarto days tortionspersistaroundtheworld?The
particularly nlarming ina country acedwith heavilypolluted,middle-income countiies answeristhatbvignonngenvirnmental
severewatershoragesandsharplyrising likeMexico orTaiwan. Japannowenjoysthe concens,individuals andfirmsreceivedi
costsof newsuppliesInMorocco, forexam- bent ofa muchdear andhealthier financialbenefitsfromusingtheair and
ple,a recentanalysis foundthatirrigation environment, andannualpolutioncontrol waterasa dumpinggroundforwastes,orby
chargescoveredlessthan10percentof the costsarereducedto a moreafordableleveL over-hanrsting forestsor fishstcks. These
costofnewsupplies, andurbanconsumers Howmuchenvironmental controlis bath indhidual gainscomeatthe expenseoflrg-
paidonlyhalfthe newwatercosLReducing desirableandaffordable? Thechallenge is to ersodalcosts.
thesubsidyandincreasing waterprices balanceoverlystringent standards thatmay Implementing improvedpolicies willnor
woulddecreasewaterdemandbyabouta retardgrowthandbe tooexpensive forthe happenwithoutimproved information,pub-
dird andreducethe ugovnentsfiscalsub- benefitscreated,withlaxstandards that licparicipation, andthecreationof political
sidy.Thereis an ecnomicimpact,however, mposemajorhealth andresourcecoss on wilLSometimes ittakesadisasertocreate
reducingthe subsidy wouldalsoleadto a the population andleadto highdean-up thewillto act-theMinamatdiseaseepisode
smalldecline(about0.65percent)in GDP. costsin the futr Aneseim forthe injapan,whichcreaedawareness of the
Although each'in-wine policyisgoodfor UnitedStatesindicates thatemvironmentl dangersofunregulated disposaloftoxicsin
economic efficiencyandthe environent reaiadonwasresponsible foradropinGNP the enviroment,or the Bhopalchemical dis-
andcangenerally payforitseLE it maybe growthof0.191 percentagepointsoverthe aser, whichfocusedaention onthe loca-
politicallydifficult
to implemenL Many period1973-85.Sometimes the investmnts tionof industralfacilities
andneedforaddi-
reformsofteninvolve losems (r emmple, in newtechnology arequiddyrecoverd.In tionalsaguards.Dorestation inthe
the finmerwhoreceivedfreeirrigationaer, Japan,forexample, thesteelindustry Brailin Amazon has focused wordwide
orthe consumerofheailysubsidized fue), switchedfrompolluting openheah fur- attentiononthe problemsoftropical forest
andtheirressancecanslowpoliqrchange. a-Csto the basicoxygenfinace. This managment,pmtectionofbiodversity, and
Baking the negte inksFor changereducedairpolutionandproduced greehousegasemissionsIn othercases
eysiamion withamactivewiwin" majorenergysving,suchtia, forthe localnongovenmental onizations (NGOs)
opporunmes,however, thereare many NipponSteelCompanyalone, its initial$100 or-tizen-led"greer'movements prssure
more uations inwhichpolicyreformn is millioninvestment wasrepaidin twot three politiciansto makeneededchanges.
necessary to breaka negative lInk,the'win- yers. Whatever thecause,inframation on environ-
lose"situaon. Thesepoliciesborceindividu- Economicanalysis canhelpidenty the mentaldegadationanditsimpactsis esen-
alsandfimsto interlie extnalities, nd environmenldamngeassociated withdiF- tialto createthe nationalwil forpolicy
takeintoaccounttheevironmentalcmme fkrentlevelsoFpoflution.hisinfonnation is reformanda willingness byindividtmls and
quencesofdteiractions. Todothis,onehas usedin the"polluterpays"prindple-the firmsto acceptperonalfinanialcos to
t gobeyondthe blck bo anddearly "Pigouvian tax-in whichthe msts ofspecif- obtainlrersocial benefits.Onlythenwillit
acethe links,andresponsibiities, between icenvironmental damageareesimatedand becomepossibleto implenentpolicesto
economic av-1vities
andenvinrmentalprob imposedonpolluters. Withthisnew makemeaning change.
lems.Whereasinthe pastindusiesuteated approach, eachindustryor economic actity
the airandwa as Losdesssinksfortheir candecidewhedtertocontinueto pollute, Note
polution,theynowincreasingly realizethat andpaythe appropriate chawge,or reduceitsL Thepoldion"bubble"san eminirn-
theyhavean obligation to takeenvironmen- outputofpolution.Innovae policiesare ment manqgement conceptin wbicban
taldamagecostsintoaccounL beingdeveloped tO expandthe ability ofimagnay bubbleispzedrowa cityand
Settingemission standardsornambietev- fims to respond.TheuseofTrnsfrole a retambient airpollrdion lkre in that
elsis a fist sep towardfouingfirmsto inter- PollutionPermitsandthedevelopment of
spaest Rathber thante rgion or con-
nalizepars ofthecoss ofenvironmental the pollution"bubbW"' allowfirmstowork r of eac po&berindividuaIa,tefocas
damageThesestepsarenotcosdess,howev- togetherto reducepolutionmoreefficiendy is on thepollution
ke! in thebroaderair-
er. Sizableexpensesareasswatedwithregu- andcosteffectily. shedand efftcienrwys to reachthe twget
latorymeas andassoiatedinvestments leveLPollutersca belpreacbthee-
to reducepolution.in developedcountries Creating the wiR for action Ibed leveibyworkig withoneanotber,jbr
theseinvestnents typically aveage2 to3 Ifwecannowopenthe backbox dace ecaamp!k byewrcbw%ngndablepennia
percentofannualGNP,althoughthe costs the linkswherebyimproved development Tbisapproach giueseih ( inf-,rdig tbe
maybehigherinthe earlyyears.Japan, for policymangyieldsbotheconomic andenvi- mostcost4lcemtwayto rwlce overaltpol-
example, mademajorinvestnents inair and ronmental benefits,whyis fasterprogress ltion.
waer polutioncontrolin the 1960s,whenirs notbeingmadeWhydosubsidies anddis-

24 DixoadMwdk