Public debt versus environmental debt: is there a similarity?

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Public debt versus environmental debt: is there a similarity?

New Delhi: The tendency of any generation is to overuse resources to meet their material needs and this leaves limited resources available for future generations to meet their needs. Overexploitation leads to the depletion and degradation of natural resources and environmental pollution (eg overexploitation of groundwater, land degradation, deforestation, air and water pollution).

If each generation is delimited by a strict constraint on the use of natural resources and “environmental space”, there is a possibility of achieving “sustainable development”. These constraints should be assessed at national, sub-national and local levels keeping in mind “the current state of the environment and natural resources”. It is also necessary that environmental regulators strictly enforce environmental constraints at all levels. Considering the “environmental space” available for each generation, if the current generation cannot control environmental pollution and / or overexploit natural resources, this will have ripple effects on future generations in terms of “Environmental debt”. The scarcity of natural resources and a healthy environment will be supported by society as a whole. It is especially the poor and marginal sections of our society who suffer the most, as they cannot afford to protect themselves from the impact of pollution or the scarcity of natural resources (for example, adoption of water purification devices. ‘water / air, source substitution).

Therefore, protecting the environment and conserving natural resources can be seen as collective self-protection (or self-assurance), as opposed to adopting avoidance behavior (purification of points of use ) by individuals – private (individual) self-protection (or private self-insurance). Collective self-protection could be cost-effective compared to individual self-protection when the available corrective measures (point-of-use purification) are expensive. There are also limits to expanding the available environmental space by increasing the efficiency in the use of natural resources (for example, the efficiency of water use), by controlling pollution (for example, by reducing pollution), conserving natural resources (e.g. water conservation, land conservation) and entrepreneurial innovations. and investments in technological breakthroughs (for example, replacing fossil fuels with renewable energies). There is also a limit to adopting preventive behaviors to deal with environmental pollution. In addition, some environmental damage is irreversible (eg loss of species).

In public finances, if public expenditure exceeds available public resources, it runs up against a revenue deficit and / or a budget deficit. The accumulation of deficits over the years, net of repayments, increases the government’s public debt. While the burden of servicing the public debt (interest and principal payment) is considerably high in terms of current income generation, it leaves few resources available to spend on public goods and services. Therefore, if public spending on public goods and services is greater than the mobilized resources of the current generation, it can translate into public debt. The costs of servicing public debt can be borne by future generations by contributing more to public resources to maintain consistency in the delivery of public goods and services. Inadequate provision of public goods and services can lead to the problem of “elite capture” and private financing (provision) of public goods. It is the poor who suffer most as they cannot afford to obtain public / merit goods from the market (eg education, health, clean water, sanitation). Achieving intergenerational equity in public finances is comparable to the concept of “sustainable development” in environmental economics.

Adopting rules-based public financial management (PFM) helps the government maintain fiscal discipline by controlling short-term budget revenues and deficits and long-term public debt. The adoption of the Fiscal Responsibility and Fiscal Management Act (FRBM) at national and subnational levels in India since the early 2000s has helped governments exercise fiscal prudence. Likewise, adopting rules-based environmental management can contribute to the achievement of sustainable development.

Unlike the environmental space, the government’s fiscal space could be expanded by increasing the tax base (as measured by the size of the economy and economic growth) and the dynamism of (tax) revenue. Given economic growth, fiscal dynamism depends on tax compliance, fiscal efforts, removing loopholes in the tax system, and political support for income generation. Environmental space is also limited because there is a limit to the carrying capacity of an environment and an ecosystem. If the regenerative capacity of the environment and the ecosystem exceeds limits, the result is pollution of the environment and disruption of ecosystem services. Like fiscal space, the limit of the carrying capacity of the environment (or environmental space) could also be measured by natural resource accounting (NRA) methods. Incorporating the NRA into the National Income Accounts (NIA) could help us measure real progress in our well-being. Considering local conditions, a bottom-up approach can help assess the environmental space available for a generation. Like public debt, environmental debt could also be estimated, given the build-up of pollutant loads in the environment (eg, aquatic environment, air environment, land environment) over time.

In the event of high public debt, the government resorts to public debt management by increasing revenues and controlling public expenditure. Likewise, if less environmental space is available, it becomes our responsibility to protect the environment by limiting the exploitation of natural resources and controlling pollution. Conservation of natural resources (eg reduction, recycling and reuse of wastewater) and investments in improving the regenerative capacity of the environment could help reduce environmental space deficits.

Physical accounting for the depletion and degradation of natural resources and the environment could help us understand the current state of environmental debt. Linking physical accounts to economic activities and the underlying environmental management practices could help us identify the interventions needed to protect our environmental well-being. Environmental regulations as well as market-based instruments to control the use of environmental space can help reduce long-term environmental impacts. For example, mandatory adoption of water efficiency standards in all water fittings can help reduce water uses. Likewise, restricting the use of polluting inputs in manufacturing could help reduce pollutant loadings entering the environment, for example by replacing phosphate with zeolite in detergents to reduce the threat of foam and scum in the environment. our rivers and bodies of water.

As there are many economic agents involved, there is also a need for social mobilization by involving communities. Involving existing institutions such as pollution control commissions and universities / colleges in environmental assessment, Comptroller and Auditor General of India in environmental audit could help achieve the targets.

As today’s environment becomes the most important concern for the whole world, it makes sense to think about the environmental debt our ancestors placed in us and the burden we bequeath to future generations. The environment provides inputs for production and acts as a sink for waste. In addition, various ecosystem services help our production systems. The multiple functions of the environment and the ecosystem help maintain our well-being. It is necessary to periodically assess the “state of the environment and natural resources” in a comprehensive manner to identify the gap between the availability and use of environmental space. The NRA of water resources, land and forests could help assess “environmental debt”. We also need to reorient our production and consumption systems to reduce carbon and water footprints. Like the FRBM law in PFM, a rules-based approach in the use of environmental space and limiting pollution loads in the environment could help us achieve sustainable development.

Sacchidananda Mukherjee is a guest contributor. The opinions expressed are personal.


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