While different economic techniques are devised and often a hypothetical market is designed to gather important information about the values of natural resources where there is a market failure, we cannot always put the price tag on such resources. We often overexploit them.
We are, furthermore, less appreciative of the services and benefits that nature delivers. It is only when human intervention becomes imperative then we realise the true value of the otherwise 'free' natural resources.
And Covid-19 is an example of such a phenomenon. The unseen virus, initially detected in Wuhan during December 2019, has thus far affected the whole world. Some countries have been hit much harder than others and India is one of them.
The new wave has caught India off-guard. With each passing day, the number of new Covid-19 cases and deaths is breaking previous records. The situation has turned out scarier, attributable to the increased breathing problems of the patients and lack of artificial oxygen supply. Some hospitals are, reportedly, refusing to admit new Covid-19 patients.
Amidst such concerns, India, a supplier of medical oxygen to Bangladesh, has suspended exports. The growing demand for oxygen in hospitals has made the government of Bangladesh temporarily halt the industrial application of oxygen.
Let us explore the economics of oxygen cylinders. Simple math will suffice. An adult, for instance, when resting, inhales roughly 11,000 litres of air per day according to the available data.
Atmospheric air contains 21 percent oxygen, which means an adult inhales some 2,310 litres of oxygen every day. As the journal article titled, "How much oxygen does the human lung consume?" reveals, 5% of the oxygen inhaled by a human is eventually consumed by a lung, the ballpark estimate for natural oxygen demand in the world each day is some 900 billion litres, imputed to the requirement of human bodies (the number would automatically increase once different activities of people are considered, such as, exercise, walking, etc.).
Oxygen is now being sold at Rs.8,000 per 100-litre oxygen cylinder in India, as the Indian Express reported on 25 April 2021. However, the Guardian reported on 28 April 2021 that oxygen in the Indian black market is charged at £700 per cylinder against the business-as-usual price of Rs.6,000 (£58).
All these show how indebted to nature we are only for using atmospheric oxygen every day, not to mention the many other resources we extract from nature mercilessly. Unless nature teaches us a lesson, we, surprisingly, are oblivious of the economics of natural resources. Fortunately, nature neither counts how many litres of the oxygen we consume nor charge us.
We, certainly, do not pay in exchange for natural resources but the externalities that we produce during extracting and using natural resources have their consequences. Systemic disruptions to the environment for years have generated externalities at a level that has started to take its toll on different parts of the world.
The scorching heat and changing rainfall patterns are already providing glimpses of what it would mean to live on a warmer planet, say beyond 1.5°C or 2°C hotter than the pre-industrial levels. To this end, the Lancet report has quantified that globally more than 300 billion working hours have been lost in 2019 due to extreme heat, a testament to the impacts of the high level of human-induced greenhouse gas (GHG) emissions.
Bangladesh in that regard lost some 18 billion potential working hours in 2019. Worst-case scenario, the planet could be 4°C warmer by the end of this century.
While the case of atmospheric oxygen (not medical oxygen) is a public good, which is non-rivalrous and non-excludable, GHG emissions are an externality where the contributors of it do not internalise the cost. At best, a company provides the price signal for a product, which includes the typical cost like salary, transportation etc. while ignoring or underestimating the social and environmental costs.
A consumer, on the other hand, makes the buying decision based on the price signal. The paradox, therefore, is, to support current living standards, we are extensively extracting natural resources to make the planet worse off.
On the other hand, to address anthropogenic climate change, every year the Conference of the Parties (COP) is organised under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC). The total negotiation process entails the engagement of around 20,000 people, including policymakers, observers, companies, etc., travelling from every corner of the world and spending two weeks in a foreign country and thus emitting thousands of tons of CO2.
Of course, several hundred thousand US dollars are spent elsewhere to offset the GHG emissions generated from a COP, but limiting the number of participants to the COP to less than a thousand could easily reduce COP related resource consumption and associated GHG emissions by 80% to 90%. Money spent on the carbon offset project could, therefore, be channelled to other projects to achieve real emission reduction instead of offsetting it.
The recent Leaders' Summit on Climate Change is an example of what could be done even without attending a conference in person. The conference has garnered consensus among the participating leaders that urgent action shall be taken and has also delivered some key results.
The current US president has agreed to cut his country's GHG emission 50% by 2030 compared to the 2005 levels and committed to double its climate finance for the developing and least developed countries by 2024. Among other things, the US and India have launched a joint-clean energy initiative while Japan has committed to a 46% emission reduction by 2030 compared to 2005 levels, etc.
In conclusion, the elephant in the room is the hypothesis of the endless capacity of nature to deliver inputs to our economic production and meet our insatiable needs and wants. This simplification rewards overconsumption of resources and the destruction of ecosystems.
What is ironic is that while we boast about the global development we have achieved at the expense of the environment, the whole world has been brought to its knees by a small and invisible virus in just one and a half years. Perhaps what we can learn from the Covid-19 pandemic is that ominous clouds loom large on the climate front.
If Covid-19 can cause an oxygen crisis, climate change can trigger even a bigger disaster. Economics is there to comprehend the respective advantages and disadvantages of spearheading actions that could help us either avert climate crises or wait for the catastrophe. The choice is, indeed, ours to make.
The author is a Humboldt Scholar and an Asia Edge Fellow 2021; He is an engineer and environmental economist.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.