The following points highlight the five economic problems faced in recent years. The economic problems are: 1. Acid Rain 2. The Green House Effect 3. Depletion of the Ozone Layer 4. Nuclear Radiation 5. Land and River Pollution.

1. Acid Rain:

This is caused by sulphur and nitrogen emissions from power stations, industry and cars.

It has been blamed for forest death in central Europe and the contamination of many lakes and streams, with the death of fish and plant life.

2. The Green House Effect:

This is caused by carbon dioxide and other gases emitted again by power stations, various industries and cars. The fear is that these gases will cause a heating of the earth’s atmosphere. This will lead to climatic changes which will affect food production. It will also cause raising of sea levels and flooding as parts of the polar ice caps melt.

3. Depletion of the Ozone Layer:


This is caused by the use of CFC gases in aerosols, refrigerators and the manufacture of polystyrene foam. The ozone layer protects us from harmful ultraviolet radiation coming from the sun. A depletion of this layer could lead to increased skin cancer.

4. Nuclear Radiation:

The fear in that accidents or shortage at nuclear power stations could cause dangerous releases of radiation. The disposal of nuclear waste is another environmental hazard.

5. Land and River Pollution:

The dropping of toxic waste into the ground or into rivers can cause long-term environmental damage. Soils can be poisoned, riv­ers and seas can become polluted. It is not just industry that is to blame here. Sewage pollutes rivers and seas. Nitrogen run off and slurry from farming are also major pollutants.

The costs of pollution abatements are high, especially in the short run. As long as these short-run costs are greater than the perceived costs of continuing pollution, so long industry and government will continue to incur them. The conse­quence of this, however, could be devastating and far more costly in the long run, in both a financial and an environmental sense.


What can economists say about these environmental problems?

They have three common features:

(i) Ignorance:

It is often not for many years that the nature and causes of environmental damage are realised. Take the ease of aerosols. It was not until the 1980s that scientists connected their use to ozone.

(ii) The Polluters Do Not Pay:

The costs of pollution are rarely paid by the polluters. Economists call such costs external costs. Because polluters rarely pay to clean up their pollution or compensate those who suffer, they frequently ignore the problem.

(iii) Present Gain For Future Costs:


The environmental costs of industrialisa­tion often build up slowly and do not become critical for many years. The benefits of industrialisation are, however, immediate. Thus, governments, consumers and industry are frequently prepared to continue with various practices and have fu­ture generation to worry about their environmental consequences.

The problem is therefore a reflection of the importance that people attach to the present relative to the future.

Environmentalists stress the need for clean technologies, for environmentally sound growth and for greater responsibility by industry, consumers and govern­ment alike. Policies, they argue, should prevent problem occurring and not merely be a reaction to them once they are nearing crises point.

If growth is to be sustain­able into the long-term, with a real increase in the quality of life, then current growth must not be at the expense of the environment.

Accounting, at the national level, of the costs of environmental degradation and the costs of reducing the pollution to bearable levels, has barely begun, at least in the developing economies like India. There is a great need to incorporate these costs in the normal procedures of national income accounting.