Chapter Six FINAL REMARKS

Transcription

1 Chapter Six FINAL REMARKS 6.1 Conclusion This dissertation has two goals. The first goal is to develop appropriate methodologies to model economic activities at the national level and their links to the environment. The first goal also encompasses the analysis of the impact of national environmental management policies designed to improve environmental quality on national economic growth and household incomes for different socioeconomic classes in Indonesia. The second goal of this dissertation is to find an elaboration of a national environmental management policy that, in addition to controlling the amount of pollutants emitted, generates a rapid rate of national economic growth and a more equal income distribution. This section argues that this dissertation achieves the two goals. The dissertation fulfills the first goal for two reasons. First, this dissertation develops a methodology to expand a Social Accounting Matrix (SAM) to a Social and Environmental Accounting Matrix (SEAM), so that the SEAM captures the impact of economic activities on the environment and the impact of the feedback from changes in environmental quality on the economy. This dissertation also presents the procedures to use the Constrained Fixed Price Multiplier (CFPM) method derived from the SEAM to analyze the impact of environmental policies on household incomes for different socioeconomic groups. Furthermore, the first essay (Chapter Two) and the second essay (Chapter Three) demonstrate how to construct a SEAM and how to implement a CFPM method for the cases air pollutants and pesticides, respectively, in 162

2 163 Indonesia. The combination of the development of a SEAM and the use of a CFPM method certainly achieves the first goal of this dissertation. Second, to fulfill the first goal, this dissertation develops a multi-period Computable General Equilibrium (CGE) model that includes the relationships between the economy and the environment. Identical to the purpose of the SEAM, this CGE also captures the impact of economic activities on environmental quality and the impact of the feedback from changes in environmental quality on the economy. In addition, this dissertation shows the procedures to use the CGE to analyze the impact of policies designed to improve environmental quality on economic growth and household incomes. The third and fourth essays (Chapters Four and Five) present the implementation of this CGE for the case of pesticides and air pollutants in Indonesia. The CGE analysis clearly achieves the first goal. The dissertation also fulfills its second goal -- elaboration of a national environmental policy -- for the cases of air pollutants and pesticides in Indonesia. Specifically, the conclusions from the four essays in the dissertation achieve this goal. Before summarizing these conclusions, several points concerning limitations of the conclusions, methodologies and topics of the essays deserve review. It is important to qualify the conclusions. Since data are limited, the SEAM and the CGE do not capture perfectly all relationships within the economy, within the environment, and between the economy and the environment. The underlying assumptions for the SEAM, the CGE, and the simulation scenarios should be carefully examined. Concerning methodologies, the first and second essays utilize the CFPM method; the third and fourth essays develop a CGE model. Regarding topics, the first and fourth essays focus on the

3 164 Indonesian clean air program, the Blue Sky Program (BSP). The second essay analyzes two programs designed to reduce the quantity of pesticide-related illnesses, i.e. the Safe Use of Pesticides (SUP) and the Integrated Pest Management (IPM) programs. The third essay limits its analysis to the implementation of the IPM program in the food crop sector. The first essay shows that air pollution abatement policies that require direct society to adopt relatively inexpensive technologies to reduce pollutants emitted to the air, but do not reduce the output of dirty production sectors, 1 generate a more equal income distribution in the country. 2 The first essay demonstrates that these abatement policies benefit all socioeconomic classes of households, except urban households. Since the average income of urban households on a per capita basis is higher than that of agricultural and rural households, a drop in average income of the urban households combined with a rise in average income of the agricultural and rural households should contribute to a more equal income distribution in the country. The fourth essay also focuses on air pollution and suggests that the Indonesian government simultaneously implement the Phasing Out Two-Stroke Engines, Unleaded Gasoline, and Vehicle Emission Standard Policies as the appropriate air pollutant abatement policy. Under the Unleaded Gasoline Policy, the Indonesian government is assumed to be able to produce unleaded gasoline. The Phasing Out Two-Stroke Engine Policy assumes that the government bans the use of two-stroke engines in large cities. The Vehicle Emission Standard Policy requires vehicle owners to comply with the Indonesian Vehicle Emission 1 Dirty production sectors are defined as the sectors that release pollutants to the air. 2 Important to note is that, in 1994, the Indonesian Agency for the Assessment and Application of Technology (BPPT) conducted a survey on the availability of technologies to reduce air pollutants in Indonesia. The BPPT concluded that such technologies are readily available.

4 165 Standard. With these three policies, besides controlling air pollution from vehicles, the government could expect a higher growth rate of GDP and a more equal income distribution in the country. However, important to highlight that if this combined air pollution policy is not implemented, the income distribution in Indonesia becomes increasingly more equal each year during the ten-year time horizon, i.e. each year the percentage increase in the incomes of agricultural households is higher than that of urban household. The implementation of this combined air pollution policy most likely exhibit the same income distribution as if no air pollution policy implemented, i.e. the income distribution in Indonesia still becomes more equal. The impact of the combined air pollution policy on income distribution is thus trivial. The second essay demonstrates that the simultaneous implementation of the SUP and IPM programs in a cost-effective manner that substantially reduces the quantity of pesticide-related illnesses achieves a more equal income distribution in Indonesia. The SUP program attempts to ensure that farmers use pesticides in a safe and effective manner. This essay assumes that active implementation of the SUP program by the Indonesian government decreases the number of pesticide-related illnesses among farmers. The IPM program is a comprehensive pest control program to reduce the use of pesticides in agriculture. The program aims to better control these pests than a program that solely depends on the use of pesticides. The IPM program is assumed to successfully decrease the quantity of pesticide-related illnesses among farmers. The second essay then presents both a situation in which an IPM program increases yields (Progressive IPM) and a situation which an IPM program does not increase yields (Conservative IPM). The second essay concludes that either

5 166 the SUP, the Progressive IPM, or the Conservative IPM benefits agricultural households more than urban households. Hence, a more equal income distribution in Indonesia most likely occurs under any of these programs. The main conclusion from the third essay is that implementation of an IPM program increases the average annual growth rate of the national Gross Domestic Product (GDP) during a ten-year time horizon. The higher the government increases IPM program funding during these ten years, the higher the growth rate of GDP. The IPM program also produces a more equal income distribution. Identical to the case of the combined air pollution policy, the implementation of an IPM program most likely exhibits the same income distribution as if no IPM program were implemented, i.e. the income distribution in Indonesia still becomes more equal. The impact of an IPM program on income distribution is thus trivial. In addition, note that the third essay assumes that farmers who implement the IPM are able to reduce their use of pesticides and increase their yields. 6.2 Possibilities for Further Research This dissertation not only achieves its goals, but also provides possibilities for further research. These possibilities involve issues concerning the Social and Environmental Accounting Matrix, the Computable General Equilibrium model, and the case studies Social and Environmental Accounting Matrix The Social and Environmental Accounting Matrix (SEAM) presents two areas for further research. First, the SEAM in this dissertation includes pollutant recovery activities conducted by individuals and the government to fix the

6 167 damage caused by pollutants. It is important to emphasize that these pollutant recovery activities are ex-post actions. Equally critical is the fact that Leontief introduced antipollution activities in his Input-Output (I-O) table. 3 These activities reduce the amount of pollutants emitted to the environment, i.e. antipollution activities are ex-ante actions. In the future, the SEAM should include both the pollutant recovery and antipollution activities in its accounts. A second issue with the SEAM is that the environmental accounts are still not balanced, i.e. only the socioeconomic accounts in the SAM part are balanced. Future research could develop a methodology to balance all -- both environmental and socioeconomic -- accounts in the SEAM. If all accounts already are balanced, the traditional fixed price multiplier method, instead of the Constrained Fixed Price Multiplier method, could be utilized to analyze the impact of environmental policies on income distribution, i.e. the output of dirty production and pollutant recovery activities would not be constrained. The output of dirty production and pollutant recovery activities would adjust to a desired level of ambient air pollutants Computable General Equilibrium Model Concerning the CGE, four issues are relevant to future research. First, the CGE model in this dissertation takes into account antipollution activities which consist of private and government investment in technologies, and consumption of services to reduce pollutants emitted to the environment. The CGE does not model the antipollution activities as a separate sector. For example, the government spends money to educate food crop farmers about the IPM; the IPM training activities are not modeled as a separate sector, but are included in the 3 Leontief did not consider pollutant recovery activities in his I-O table.

7 168 public service sector. The structure of the IPM activities, however, could be significantly different from those of the most public sector activities. Future research thus could develop a separate antipollution sector in the CGE. Second, the CGE in this dissertation assumes that households maximize their utility as a function of their consumption bundle in a particular year, subject to their budget constraints in that year. The marginal propensity to save is treated as an exogenous variable. Future research should consider developing a household model in which households maximize their utility as a function of their consumption bundle throughout an infinite time horizon, subject to their infinite horizon budget constraints. The quantity of money to save would be endogenously determined. In addition, household consumption equations would become one of the dynamic equations linking current year economic conditions to future year economic conditions. Third, the CGE in this dissertation uses a fixed share coefficient to determine the amount of new capital invested in each production sector. Future research should model the investment decision (for a production sector) as a function of relative expected return of that sector compared to other sectors. With this new investment model, one can see that sectors with high expected returns will be crowded with new capital. Hence, these sectors might grow more quickly than sectors with low expected returns. Finally, the CGE in this dissertation only models a limited number of sources of technological progress that could occur in the economy of a country. The CGE models technological progress in the IPM program, in the food crop sector, 4 and for the case of the Vehicle Emission Standard Policy. (Under the 4 Technological progress in the food crop sector is a function of the number of food crop farmers who implement the IPM practices. Under this program, farmers are able to increase output with

8 169 latter policy, the CGE assumes that vehicle owners are able to reduce the amount of pollution.) Further research should cover a broader range of types of technological progress in the economy and develop more mechanisms to model sources of technological progress. In particular, future research could concentrate on two general sources and one specific source of potential technological progress (described below) that the CGE in this dissertation does not consider. First, a higher level of education and increased consumption of nutritious food could result in increased technical and intellectual abilities in individuals and consequently cause technological progress. In turn, this progress could increase the productivity of production sectors. In the end, higher productivity could be an important factor in increasing the economic growth rate. Second, adoption of new technologies could be a source of technological progress that should also increase the productivity of production activities. The CGE does not model the specific situation in which technological progress occurs as natural resources become increasingly scarce. Thus the third potential source of technological progress concerns environmental modeling. For example, as the prices of oil-based fuels rise due to (perhaps) a governmentimposed oil-based fuel tax, industries might react by developing technologies that more efficiently utilize these fuels Case Studies This dissertation conducts separate case studies for pesticides and air pollutants. These case studies present four areas for future research. less pesticides and the same amount of other inputs as would be used in the absence of the IPM program.

9 170 First, the parameter estimates in the CGE are based on a one-year SEAM for each case study. With this one point estimate, the accuracy of the parameters is questionable. Future research could include a sensitivity analysis for several parameters or calibration of the parameters based on a series of SEAMs. Note that since many countries produce (at most) a National Accounting Matrix once every five years, using a series of SEAMs could be a challenging exercise. Second, for pesticides and air pollutants, the dissertation limits its analysis to consideration of the impact of a high level of pollutants in the environment on human health. As more data become available on the societal cost of other types of pollutant-related damage, future research should be able to calculate and model a broader range of types of damage caused by pollutants in the environment. One then could better analyze the impact of environmental policies on economic growth and household incomes. Third, this research limits its scope to only two case studies. Clearly, the research could expand to include additional types of pollution. Finally, this dissertation analyzes a policy that reduces only one particular type of pollutant. Future research could analyze a policy that aims to simultaneously control several types of pollution. This policy could be a single policy to reduce two or more pollutants. One example is improvement in municipal waste management in large cities. People who live beside rivers in these cities burn their municipal waste and/or throw it into the river. A policy that improves municipal waste management would reduce pollutants emitted to the river and to the air. Alternatively, a combined policy could be considered, i.e. simultaneous implementation of two or more policies to control different pollutants. Analysis of the impact of a single or combined policy to control two

10 171 or more pollutants on economic growth and income distribution would constitute worthwhile future research.