On the impact of economic growth on environmental protection; highlights the trade off between environmental protection and economic growth at least in the short-term.
Economic growth is considered important compared to environmental protection by firms, consumers and governments for the following reasons:
Economic growth gives firms an opportunity to earn more profits due to high level of economic activity.
Economic growth gives the consumers high income and there fore increase substantially their standard of living measured by per capita income.
Economic growth gives the government more tax revenue as well overall development and capacity of the economy. It also increases the efficiency in producing goods and services. In addition, economic growth produces lower unemployment and governments prefer lower unemployment.
Because of these above reasons, in Australia Environmental issues takes a low priority compared to other macroeconomic objectives such as high economic growth, inflation and unemployment compared to environmental protection.
In addition, the firms do not normally take in to their cost of production the environmental costs. That is, there is a difference of private and social cost which is shared by the society as a whole. If the government regulates pollution by banning or by any market instruments to control environmental externalises, the firms will pass on these cost to consumers. As well, they will reduce their production levels and there fore in the short term produce more unemployment. In other words, if environmental cost is incorporated in the firm’s costs it will lead to low economic growth and lower standard of living in Australia.
In a market economy, demand and supply allocates resources and they don’t take in to account environmental cost because they are social cost and only private costs are taken in to account. That is, the negative environmental externally is a market failure in a market economy like Australia.
As discussed above, at least in the short-term there is a trade off between economic growth and environmental protection. That is, in Australia as discussed above high economic growth is preferred and due to the nature of environmental costs and difficulty to incorporate these costs in to the production costs of firms and profitability of companies and there fore, economic growth and environmental protection is in conflict but not supplementary.
High economic growth also leads to the degradation of land and unsustainable depletion of renewable and non renewable resources. Mostly, all manufacturing and modern processes produces pollution in one form or another. For example, the use of fertilizers to boost food production leads to poor water quality and other problems of biodiversity.