Econ_Project_1

Negative Externalities of the Paper-Making Industry The paper-making industry is an important part of society, for people have become accustomed to the use of paper for daily uses. Unfortunately, along with the production of paper, there are the productions of impacting negative externalities. The principal externality of paper making is the problem of global deforestation, and how the government is able to solve this problem. A negative externality results when part of the cost of producing a good or service is born by a firm or household other than the producer or purchaser. One of the main negative externalities of the paper-making industry is deforestation. An example is the Asia Pulp & Paper (APP), one of the largest pulp and paper companies in the world. The industry consumes much of Indonesia’s forests, destroying homes for millions of indigenous people and wildlife dependent on the forests. The majority of Indonesia’s forests has degraded, or is considered unsuitable for logging, and only 17 million ha of feasible production forest is left. It has also been recorded by the Indonesia-UK Tropical Forest Management Programme that 73 percent of all APP logging in Indonesia are undocumented, and assumed to be retrieved from illegal sources. On a broader scale, the great loss of forests and trees contributes to global warming. Trees regulate the Earth’s climate by moderating the greenhouse gases in the atmosphere (an example includes carbon dioxide). Without the trees to stabilize the increase of these gases, the atmosphere will lead to an increase in temperature, climate, and weather change. Clearing the forests also causes erosion, for when there are no trees to keep the soil in place, the nutrients in the soil are washed out. Flooding is also an effect of deforestation. Because of the lack of trees, there is nothing to absorb the extra rainfall. Thereby dramatically increasing the surface run-off from rainfall, and increasing flooding. One way to solve the problem of deforestation caused by the lumber industry is legislation. Legislation involves the law, which restricts many of the costs of society to be continued. However, the legislation that is proposed must be to an agreeable standard. If the legislation is too harsh, the benefits of the polluting activity would subside. If the legislation is too loose, then the polluting activity would still continue. The marginal cost should equal the marginal benefit. In this example, the legislation is in the form of “those that prohibit or regulate behavior that imposes external costs” (Sloman 223). This indicates that the lumber industry must find an agreeable contract. One suggestion is to allow the lumber industry plant back twice the amount of trees they cut down. Or they could have a fixed interval of cutting down trees, whereas in the rest of the year, they could leave the forests alone. If the government wants to stop the lumber industry, this would be highly unlikely. Consumers need wood in all cases. The government cannot overrule the industry and shut down the production, even though the action of cutting down trees is hazardous to the earth’s environment. Thus with legislation, the supply and demand curve is like this: Other than that, there is also the type of government method of legislation that completely bans the usage of lumber, but as pointed out, this is highly unlikely. Another way to solve the problem of deforestation caused by the lumber industry is to issue pollution permits. An organization would be organized to regulate the damage the deforestation is doing to the overall environment. Then, licenses would then be issued to ration pollution to just that amount that is acceptable for the environment to withstand. The licenses go to the highest bidder that thinks it would be unacceptable to stop business because of the environmental factors. The lumber industry could be ranked in the top bidders. Other industries would find the permits unnecessary for their production because their production is not that dangerous to the environment’s health. Thus, the pollution could be very much controlled. Though this method seems highly unlikely for the present day, governments and industries are working together to bring the idea into full measure. They know that the environment is in much danger than it was before.