The environmental health of the world has become increasingly a part of the economic discourse for many countries. This is reflected in two articles recently featured in The Economist (The Economist staff) (The Economist staff).
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The burning of fossil fuels, long taken for granted as a driver of economic development, is now identified with massive climate change trends. For some nations, fossil fuel prices have been subsidized for many years. This practice is receiving a wide and searching re-examination. Its economic impacts have may have been more negative than positive (The Economist staff).
Although there are direct economic reasons for considering discontinuing fossil fuel subsidies, there are other, less immediately obvious long-term benefits to taking a hard look at environmental policy. Nations may find that environmental improvement has economic benefits for individual citizens as well, and thus, for the whole country. Research suggests that lifetime health and income outcomes are worsened by exposure to air pollution.
This may go against expectation because heavy industry is usually associated with prosperity, in popular thinking. However, long-term comparisons of areas that implemented air quality regulations with those that did not demonstrate that reduced pollution improved both chronic disease morbidity and adult labor market performance (The Economist staff).
In their article on fossil fuels subsidies, the Economist’s writers note that several countries are contemplating reducing fuel subsidies. These include Malaysia, Indonesia, Egypt, Jordan, and India. Their governments have been spending substantial percentages of their gross domestic product on such subsidies. The article cites a global figure of 2 trillion dollars spent on underwriting fossil fuel use, or more than 8%, when losses due to sacrificed tax revenues are taken into account.
The article also notes that these expenditures are non-productive. They lead to inefficiencies in the economy, perhaps because due to unresponsiveness to market forces. Another problem is subsidies make national governments vulnerable to unpredictable budgetary expansion when the price of fossil fuel jumps. The government must pay the world market price, no matter the price charged to consumers or transportation systems.
The most severe indictment of fossil fuels subsidies asserted by the authors of this article is that the benefit of any fuel subsidy accrues not to the poor of a country, but rather to the wealthy. This is an eye opening insight and supports the idea that all that money could be better spent on improving the economic potential of the poorest citizens.
However, increased energy costs raise the cost of living, and this is one potent objection to eliminating fuel subsidies. This can be an inflammatory move on the part of a government, and the article cites popular protests against subsidy cuts in places like Malaysia.
This article brings to light an element in the economic health of a nation that may be new to many student readers. These subsidies, doubtless well-meant, may have the effect of sapping the economy of significant resources, while at the same time, not helping the people it should help (The Economist staff). The danger that this student sees is that the benefits could go to industrial interests that perhaps should not need it.
The reasons cited for reducing or eliminating did not include much concern for the environmental impact. Governmental support for fossil fuels does not encourage the development of alternative energy technologies. This problem connects this article with the other story because alternative fuels are hoped to reduce pollution. The second article details the disturbing long-range effects of pollution on economic prospects and health.
However, the good news is that areas of the USA that have implemented the 1970 Clean Air Act were higher lifetime earners than their neighbors in places that somehow avoided this regulation. This means that the loss of dirty and polluting heavy industries is not the unmitigated disaster that politicians and corporate interests often assert. This should be reassuring to economists concerned about the impact of ‘Not In My Back Yard’ (NIMBY) objections to the siting of dangerous industrial activities.
On the other hand, these findings make it all the more disturbing to consider the impact of dirty industries on lifetime health. The article cites heart disease and diabetes, as well as reduced life expectancy, as results of being conceived, born, brought up, or living in polluted locales. These are serious problems that also affect could affect the economy in several negative ways.
These diseases cost substantial money to the health care system to treat, and they increase absenteeism and reduce productivity in business. They take people out of the work force before necessary. This reduces the efficiency of the economy overall to some extent.
However, the most distressing implication of these findings is that by saying no to dirty industry in the USA, the problem is not solved for the whole world. The pollution is an externality that does not disappear when it is offshored. A dirty industry that merely moves from a first world location to a third world location as a result of The Clean Air Act, or the equivalent regulations in other countries does not eliminate the impact of the toxins. Instead, it simply shifts the unpleasantness to people who are less able to protest.
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This is a dramatic example of why environmental justice is more than merely a matter of ethics and morals. Instead, the findings described in this article show that shifting polluting industries to less advantaged communities does them no favors in health or economic terms. This must be a concern for the whole world. It supports the notion that finding environmentally sound ways to produce what we need should be a central pursuit of economists (The Economist staff).
Both articles demonstrate that policies can have unintended consequences. They should be considered for all their economic impacts. These can include unexpected externalities.
The Economist staff. “Energy Subsidies: Fuelling Controversy.” 11 January 2014. The Economist. Web.
—. “Environmentalism: Clean Living Pays Off.” 4 February 2014. The Economist. Web.