Resource and Environmental Economics: Russia - Term Paper Example

? Resource and Environmental Economics A Consultancy Report Client: The Government of Russia Environment and resources antRussia Russia is the largest country in the world rich in resources like oil, gas, coal, metals and chemicals that present up to 80% of the budgetary income. Forests make up to 69% of the total land. The most exploited resources include minerals like oil, gas and fish. Oil and gas are the backbone of Russia economy. They are drawn from the easily exploitable reservoirs ignoring balanced drilling on new sites and this continually degrades the environment and puts the environmental balance at stake. The rate of environmental fragmentation is expected to increase as the need to exploit new reservoirs to maintain supply of the products. More pressure comes from environmental pollution from oil and gas spillages that are estimated to be at least two in a day. In Russia, in zones of high population, there is poor water quality due to overuse, poor water distribution and closeness to polluting industries. According to the Islington (2010, p.52), air pollution is very rampant with over 69% of the cities affected. Islington (2010, p.52) reports that pollution rate is constantly rising due to nonconformity to laid down environmental policies, low production discipline, lack of investment in technologies which are not detrimental to the environment. Untreated industrial wastes cause a lot of pollution to the environment. Only 40% of the waste produced is treated, 60% is piled in open sites and this causes lots of pollution to the environment. According to the Russian constitution, there are rules controlling the exploitation and maintenance of natural resources that include water bodies, forests and land. The government also controls economic activities to ensure sustainable economic development. Article 35 stipulates that regulations shall be adhered to, to ensure that water bodies are maintained in a state meeting the quality and heath standards as stipulated in the constitution. Limits as to the allowed level of chemical substances, radioactive materials and other water pollutants released into the water bodies and concentration of industrial effluents in the water channeled into water bodies must not go above the set limit. Water quality indicators shall be set and applied on each river basin and the quality of water in the river shall be determined according to standards set out in the constitution of Russian federation. According to article 42, industrial water use shall be structured in such a way that it protects the ecology of the water body; this includes the aquatic life and quality of the water. According to article 44, water bodies can be used as drainage systems in accordance to the law. It is illegal to discharge wastes in water bodies which have a medicinal value and which are protected by the government. According to the Russian forest code, (chapter 9) use of forests should be carried out in a way that does not damage the ecosystem; this includes the environment, resources and organisms inhabiting the forests. Forestry management strives to preserve, nurture the environment, conserve water catchment basins and improve forests. According to the land code of Russian federation(1), land protection is meant to prevent degradation, pollution, littering and destruction of the natural ecosystem by the effects of exploration for economic purposes. It is also meant to restore and develop lands that have already been degraded and destroyed by economic activities. Article 13 states that land owners are legally obliged to preserve soil fertility though continuous improvement and restoration. Economic Theories Economic theories make a substantial contribution to the application of new models to old real problems in the society; they help in building economic knowledge thus giving a platform for economic development. The New Economic Theory According to martin (199, p. 2), the new economic geography lays its fundamentals on economic localization based on growing returns. Martin (1999, p.4) further points out that research majorly focuses on the different aspects of regional development and convergence, and the spatial benefits accrued from the economic activity which is linked to the development of urban centers and location of industries. We can deduce that when returns grow due to external influence on the economy, this leads to rise in imperfect competition through local growth of industries and urban centers. The world economy tries to overcome geographical imitations in distribution of productive resources through the movement of finished goods and other factors of production. Trade and the factors influencing it determine changes in prices of commodities. Economic theory gives a narrow focus of geographical economics based on modern economic tools. However, its framework opens avenues to further research and development. There have been little efforts to draw conclusions from new economic geography theory. Government intervention is critical in the achievement of results in the said economies. There is no guarantee that economic growth will be positive but minimal policy amendments can have huge effects. Krugman (1991, p.20) model of labor has been advanced by Stahl and Waltz (2001, p.20). They bring into focus sector and firm specific shocks and costs of employees in those sectors. Firms venture into risky investments to increase their out put. The New Growth Theory According to Krugman (1991, p.5), growth theory holds the view that growth and development is a circle influenced by external factors of the economy. Modernization in technology and the way of doing things leads to modernization. Thus, there exists a high and low growth equilibrium level. Underdeveloped countries fail to reach the critical level in the virtuous circle. The virtuous circle comes from the interaction between market size and the net returns of the firm. Constant growth and development in a country returns is the heart of development theory. The New Trade Theory The new trade theory focuses on the role of increasing output in proportion to input and the value of each single consumer of the produced goods. According to Krugman (1991, 6), trade theory brings into focus the importance of large scale production of a single commodity rather than producing small quantities of all commodities. Despite the fact that market for the produced commodities may not be large enough, traders accrue much profit from division and specialization characterized in trade and labor. Specialization is due to favorable factors which foster large scale production in a given locality. Trade reduces the detrimental effects of indivisibility and wipes out the limitations conferred by the uneven geographical distribution of resources. Trade enhances geographical mobility of resources. Research on relationship between environmental regulations and industrial development New economic school in Moscow carried out research to determine the influence of environmental laws and regulation on growth of industries in Russia. The research was meant to deduce whether industrial growth was fueled by noncompliance to environmental regulations or weak environmental laws. Economic growth is given an upper hand by institutions, consumers and governments. This is because it gives firms higher returns due to increased economic activity; it improves the living standards of the citizens and increases the government’s tax returns. There is a trade-off between economic growth and environmental degradation. Despite the fact that high economic growth is the aim of every government, it has detrimental effects on the environment. Economic growth results into destruction of land and unsustainable exploitation of renewable and non-renewable resources. Despite strict laws and regulations in Russia, Finnish companies continue to cause huge environmental degradation. Enso-gutzeit Oy company has gained rights to log in Ladoga an area estimated to be 380,000 ha. The whole coverage trespasses into a forest estate, a 50,000 reserve that is a 2km strip at the coast. The company is accused of clear felling and causing damage to young trees. Large companies have been well known for using their financial muscles to oppose compliance to regulations if they perceive them to be lowering, slowing and an obstacle to their operations. Environmental regulations encourage international competitiveness and drive the economy and private firms to effectively compete in the international markets. Environmental Kuznets curve is a relationship between various indicators of environmental degradation and income per capita. In the initial stages of the economy, environmental degradation increases, but when the economy stabilizes the environment improvement is constant (Kuznets 1966, p.125). Perman and Stern (1998, p.1) bring into focus environmental Kuznets curve effect. They argue that environmental kuznet effect is non-existent. Environmental degradation increases with increase in production. In rapid growing economies, economic growth increases accelerate the rate of environmental degradation. On the other hand, in developed countries’ growth is slow and consistent and pollution reduction methods employed are achievable (Kuznets 1965, p.26). This is supported by the fact that developing countries are the worst hit by the problem of pollution and its control. Jones (2011, p.2) suggests that increased economic activity is detrimental to the environment due to its growth in technology and investments. They further assert that rise in income per capita creates the need for environmental improvement and the resources available for exploitation and investment. Developed countries demonstrate high environmental awareness, strict environmental regulations which must be adhered to, improved technology and budgetary allocations on environmental expenditures and this controls environmental degradation (Panayotou, 1993, p.1). Introduction of emissions trading system policy for water pollution by the federal government is bound to have several effects on the Government, Processing firms, Non-Governmental Organizations and the rest of the world. The Government The government will steer adoption, implementation and conformance to the new policies by its institutions, the private sector and individuals. The aim of the policy is to reduce pollution from industrial effluents, to reduce the risks caused by garbage and other pollutants to the aquatic life and human beings, to protect ground water bodies and to restore the already damaged water ecosystems. The Government’s aim will be to combat water pollution which affects about 75% of the surface water in Russia and 50% of all the water bodies. Regulatory policies will also aim at ensuring sustainable water use through protecting and maintaining good water quality in the water bodies together with ensuring social and economic development. Pollution control policies should be integrated in resource management framework to protect the quality of water and encourage recycling of wastewater. The government policies will ensure that industrial and human activities leading to water pollution have been reduced and or controlled. Private Firms Policies regulating water pollution from industrial effluents are bound to have several effects on the production and costs accrued from the process of waste disposal. Stringent policies on waste disposal into water bodies may force firms to: Pay fees for waste disposal: This ensures that hazardous waste disposal is minimized and only industrial wastes with the stipulated concentration of the effluents is released to the water bodies. Policies prevent actions like abstraction of ground water and if a firm does it, it attracts certain fee. The polluter should bear Pollution costs and consequences. Institutions should carefully evaluate their economic ventures and a reconstructive action should be taken when a firm’s activity alters damages and over exploits the aquatic bodies thus negatively affecting the aquatic life. Water policies regulate the amount of discharge into the water bodies. This has a direct effect on industrial production because the industry may be forced to either cut down on its production to reduce waste release into drainage systems or to incur extra costs in treating its wastes to meet the required waste concentration standards. Legislations that require firms to ensure that their effluents do not have a long-term hazardous effect to the environment are costly and may at times lead to the shutting-down of operations in a firm. Non-Governmental Organizations These are voluntary groups of individuals that are not profit oriented and have no political affiliation. They are organized either at grassroots or at international level to fight for economic, cultural and social health of the society. They also promote issues that affect a particular group of people but the government has neglected them. In water policies, Non-Governmental Organizations act as representatives of the civil society. In circumstances that call for a community’s participation in planning and management of water usage, Non-governmental Organizations come in as their representatives. Non-governmental organizations are very instrumental in the process of coming up with water management bodies, this is because they integrate the community to ensure participation at the grassroots level and they play a vital role in water conflict resolution. As trainers, Non-Governmental Organizations help in organizing associations to monitor water use and pollution, they train individuals and institutions on the importance of water pollution control and they enlighten people on their rights and duties as presented by the new policy. Non -Governmental Organizations take a step further in protecting the commoners from exploitation by large firms that use finances to avoid compliance to the law. For the common good of the entire society and as an effort towards the success of the project, Non-Governmental Organizations monitor and evaluate the implementation of the policies and point out the challenges facing the entire process. The Rest of the World Laws that prohibit and control pollution in Russian water bodies are all inclusive. They are also applicable to organizations and governments that might want to do business and establish investments on the Russian soil. Stringent water laws which institutions and governments might consider expensive discourage investments and affect development negatively. A response or management strategy Developing Policies For success in the implementation of these policies to restore ecological balance in the water bodies, water preservation and conservation measures need to be carried out for along period of time because accumulation of the pollutants also took place over a considerable period of time. The government should set achievable goals. For instance, the effluent loads entering the water bodies and drainage system will have a certain amount of pollutants that should be constantly reduced over a given period. To achieve these targets, consideration should be put in industrial production and its economic importance. Research on cost effective ways to reduce pollution should be carried out and the easy and simpler ones discovered by individuals should be given an upper hand. Policies that are more encompassing should be developed. This is achievable through bringing all stakeholders together and policies should be sensitive to both environmental and economical factors of development and should be achievable in the near future (OECD, 2004, p.19). The government should develop policies to ensure industries treat wastes before releasing them into the water bodies. This is through education forums on the benefits of the exercise to both private and public industrial producers. The government should also offer training on and provide the water treatment equipments at an affordable price to the stakeholders. Water policies make it the responsibility of the firm to control its waste output and help in restoring and maintaining health and ecology of the national waters. Policies also act to force firms to regulate their waste output making it illegal to dispose certain wastes in the waters and this is punishable by law. Firms should be tasked to research on the effect of their economic activities to the environment. This is through evaluating the effects of their discharge into the water bodies, assessing the damage it causes to the aquatic life and human beings and computing estimates of the monetary value of the damages. To reinforce compliance to the policies, municipal dischargers will be required to achieve the desired level of waste treatment. The technology employed by the industries should be approved to ensure efficiency and avoid further environmental degradation. The technology chosen by the government should be technologically and economically affordable and available to the stakeholders. Industrial Water Pollution Control Practices Management strategies will focus on practices and procedures that prevent and reduce pollution of water drainage systems and water bodies. They also put in consideration waste treatment policies, operating technology, practices employed to control water runoff from agricultural fields and measures taken in controlling spillages. These operations encourage treatment of industrial wastes. The processes are aimed at removal of contaminants from the water before it is disposed off into the water drain age systems and water bodies. The process includes physical, biological and chemical removal of contaminants to produce wastes that are not hazardous to the environment. Treated wastes can also be re-used as clean water (this technology has currently being invented in Singapore) and farm fertilizer. Storm water management strategies have been put in place to alleviate the effects water runoff into the water bodies due to continued land use. They focus on effects of development activities to the water bodies. For instance, impervious surfaces that includes artificial structures that are covered by materials, which do not allow water to soak in like concrete and stone. Impervious materials seal the soil surface, making rainwater infiltration impossible and prevent ground water recharge. They also collect a lot of solar heat that has high temperatures. Runoff water from these surfaces reduces the amount of oxygen that can dissolve into the water and this leads to suffocation of the aquatic life. This can be controlled by proper land use, like controlling the number of structures erected in a given area. Water from impervious surfaces can also be collected in water tanks for domestic and industrial use. Detention water basins can also be constructed next to a drainage system to retain water for some time and avoid flooding and erosion caused by floodwaters. Hydrodynamic separators are devices structured to remove sediment and other water pollutants from industrial fluid and ground water runoff from agricultural fields (Victoria, 2005, p.34). They are meant to reduce speed, separate floaters and heavy particles from waster. They are not sufficient in the removal of dissolved substances in water. Industrial waste treatment mechanisms are used to treat water that has been contaminated by industrial activity before its recycling or release to the environment. Policies have been put in place to regulate industrial waste production. Many industries depend on waste treatment processes to meet water pollution policy requirements. Pollutants include both soluble and insoluble metals, rocks and debris from mines and quarries and radioactive pollutants among others. Industries are legally obligated to treat industrial waster to reduce environmental degradation. This is through removal of solids, oil and grease and biodegradable organs (Hyun-Hoon, et al. 2005, p.3). Permits, Fees and Subsidies In Russia, there are pollution charges levied to persons who have acquired environmental permits. Pollution Charges are very instrumental in the control of release of pollutants both to the atmosphere and into water bodies. Permits given by environment protecting bodies specify the emission limit and the type of pollutant allowed in that particular institution. As per the agreement, the allowed pollutant concentrations should not be harmful to the environment and its long term effects should not be harmful to human health. Specific charge rates apply to pollutants within the stipulated limits and higher rates are imposed on pollutants above limits. For discharges without permit, the charge rates are 25 times higher than the normal rates, the charge rates are set at a level believed to be able to compensate the economic damage caused by the pollution to the environment. According to Hansel (2001, p.9), charges provide environmental authorities with funds to facilitate the management process. Discharge of effluent into natural water bodies attracts a fee that is determined by the estimates of the potential effects of discharge to the aquatic and human life. Levying charges on pollution ensures that the society does not bear costs of the effects of pollution. Subsidies include direct and indirect payment by the government to support measures of environmental protection and help in protecting its citizens from high prices of commodities may result from the additional cost of pollution charges on that particular institution. List of References Hyun-Hoon, L et al. 2005, On the Relationship Between Economic Growth and Environmental Sustainability, viewed 28 March 2012, http://www.unescap.org/esd/environment/mced/documents/materials/EG_ES.pdf Islington 2010, Report on the state of the environment 2010-2011, viewed 28 March 2012, Jones, G & Rodgers, D 2011, ‘The World Bank’s Development Report’, Journal of International Development, vol.23, no.7. Krugman, P 1991b, “Increasing Returns and Economic Geography”, Journal of Political economy, vol.99, pp.483-99 Kuznets, S 1965, modern economic growth New Haven, Yale University press Kuznets, S 1966, Economic Growth and Structural Change, New Haven, Yale University press Martin, R 1999, “The new geographical turn in economics: Some critical Reflections”, Cambridge journal of economics, vol.23, pp.65-91 OECD, 2004, Reform of Pollution Charges in the Russian Federation: Assessment of Progress and Opportunities and Constraints for Further Improvement. Viewed 28 March 2012, Ongley, E 2006, Control of Water Pollution from Agriculture, Burlington, Canada. Panayotou, P 1993, Empirical Tests and Policy Analysis of Environmental Degradation at Different stages of Economic Development, Technology Environment and Employment Geneva International Labour Office, vol.1, no.1, pp.13-36. Perman, R & Stern, D 1998, “progress on the environmental Kuznets curve?”, Environment and Development Economics, vol.3, pp.173-196. Victoria, S 2005, Environmental Protection in Russia: The Evolution from Strict Enforcement Measures and Environmental Compliance Control to New Combined Approaches Based Upon Preventive Strategies, viewed, 28 March 2012, Read More