Ecological Economics

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Ecological Economics
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Outline

• Economic Worldviews
• Classical Economics
• Neo-Classical Economics
• Ecological Economics
• Resources, Capital, and Reserves
• Population, Technology, and Scarcity
• Natural Resource Accounting
• Trade, Development, and Jobs
• Green Business

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ECONOMIC WORLDVIEWS

• Economy is the management of resources to meet
  needs in the most efficient manner possible.
• Central theme of sustainability is to use assets
  in ways that will make them last.

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Classical Economics

• Originally a branch of moral philosophy concerned
  with how individual interests and values
  intersect with larger social goals.
• Adam Smith - Founder of modern western economics.
• Capitalistic System - Market competition between
  willing sellers and buyers is believed to bring
  about the greatest efficiency of resource use.

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Classical Economics

• David Ricardo further refined relation between
  supply and demand.
• Demand is the amount of a product or service
  consumers are willing and able to buy at various
  prices assuming they are free to express their
  preferences.
• Supply is the quantity of that product being
  offered for sale at various prices.

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Classical Economics

• In a free market, supply and demand should come
  into market equilibrium.
• Marginal Costs - Cost of producing one more unit
  of a product or service.
• Price Elasticity - Raising price does not
  necessarily reduce demand.

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Neoclassical Economics

• At the end of the 19th Century, the field of
  economics divided into two camps
• Political Economy was concerned with social
  structures, value systems, and relationships
  among classes.
• Neoclassical Economics adapted principles of
  modern science to economic analysis.
• Retained emphasis on scarcity and supply and
  demand in determining prices and resource
  allocation.

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Neoclassical Economics

• Growth is seen as a necessity.
• Natural resources viewed as merely factors of
  production rather than critical supplies of
  materials, services, and waste sinks.

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Ecological Economics

• Acknowledges dependence on essential life-support
  services provided by nature.
• Regards some aspects of nature as irreplaceable
  and essential.
• Principle concern is equitable distribution of
  resources and rights.
• Steady-State economy is characterized by low
  human birth and death rates, use of renewable
  energy sources, material recycling, and emphasis
  on efficiency and stability.

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Ecological Economics
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RESOURCES, CAPITAL, AND RESERVES

• Resource Types
• Capital is any form of wealth available to
  produce more wealth.
• Natural
• Human / Cultural
• Manufactured
• Social

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Resource Types

• Resource - Anything with potential use in
  creating wealth or giving satisfaction.
• Nonrenewable resources - Materials present in
  fixed amounts in the environment.
• Renewable resources - Materials that can be
  replenished or replaced.
• Intangible resources - Abstract resources such as
  open space, beauty, serenity etc..

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Economic Resource Categories

• Proven Reserves - Have been thoroughly mapped and
  are economical to recover at current prices with
  available technology.
• Known Reserves - Have been located but are not
  completely mapped.
• Undiscovered Reserves - Only speculative or
  inferred.
• Recoverable Reserves - Accessible with current
  technology, but are not necessarily economical.

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Communal Property Resource

• Garret Hardin - Tragedy of the Commons
• Argued commonly held resources are inevitably
  degraded because self-interests of individuals
  tend to outweigh public interests.
• Theorized each individual will attempt to
  maximize personal gain.
• Hardin was describing open access system with no
  rules to manage resource use.

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POPULATION TECHNOLOGY AND SCARCITY

• Many economists contend neither supply / demand
  relationships, nor economically recoverable
  reserves, are rigidly fixed.
• Human ingenuity and enterprise often allow us to
  respond to scarcity in ways that postpone or
  alleviate predicted effects.

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Market Efficiencies and Technological Development

• Increasing technological efficiency can alter
  supply / demand relationships.
• As technology makes goods and services cheaper,
  the quantity available at a given price can
  increase.
• As materials become more expensive and difficult
  to obtain, it becomes more cost-effective to
  discover new supplies or use existing supplies
  more efficiently.

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Increasing Environmental Carrying Capacity

• Technological developments have resulted in price
  decreases for most raw materials over the last
  hundred years.
• Economists generally believe this pattern will
  continue, while ecologists generally disagree.

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Economic Models

• Limits to Growth
• Club of Rome (1972)
• Beyond the Limits
• The Meadows Group (1992)

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Limits to Growth
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Beyond the Limits
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NATURAL RESOURCE ACCOUNTING

• Gross National Product (GNP) - Total value of
  goods and services produced by an economy during
  a year.
• Gross Domestic Product (GDP) - Only includes
  activity within national boundaries.
• Both criticized as measure of well-being because
  they do not distinguish between beneficial and
  harmful growth.
• Also do not account for resource depletion or
  ecosystem damage.

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Measuring Real Progress

• Genuine Progress Index (GPI)
• Takes into account real per capita income,
  distributional equity, natural resource
  depletion, and environmental damage.
• Human Development Index (HDI)
• Incorporates life expectancy, educational
  attainment, and standard of living measures.
• Gender Development Index - HDI adjusted for
  inequality between genders.

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Measuring Nonmarket Values

• Natural resources characteristics that should be
  considered in ecological economics
• Use - Price to consume a resource.
• Option - Preserving for future.
• Existence - Even if unseen.
• Aesthetic - Appreciated for beauty.
• Cultural - Important in cultural identity.
• Scientific - Experiential aspects.

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Cost-Benefit Analysis

• Attempts to assign values to resources and social
  and environmental effects of carrying out any
  undertaking.
• Tries to find optimal efficiency point at which
  the marginal cost of pollution control equals the
  marginal benefit.
• Criticisms include absence of standards,
  inadequate attention to alternatives, and placing
  monetary values on intangible costs and benefits.

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Market-Based Environmental Protection

• Pollution Charges - Fees assessed per unit of
  effluent.
• Encourages businesses to perform as much
  pollution control as possible.
• Emissions Trading - Allows companies or nations
  that can reduce pollution below target levels to
  sell their excess capacity.

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Discount Rates

• Economic method of introducing a time factor into
  accounting.
• Recognition that something may be worth more
  today than it will be in the future.
• Choice of discount rates is problematic with
  intangible resources and long time frames.

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Internal vs. External Costs

• Internal Costs - Expenses borne by those using a
  resource.
• External Costs - Expenses borne by someone other
  than those using a resource.
• Internalizing Costs - Ensuring those that reap
  the benefit of resource use also bear all
  external costs.

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TRADE, DEVELOPMENT, AND JOBS

• According to economic theory and comparative
  advantage, each place has goods or services it
  can supply in better quality, or at better
  prices, than its neighbors.
• Keeps less-developed countries in a perpetual
  role of resource suppliers to more-developed
  countries.

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International Development

• Two-thirds of 25 billion loaned annually for
  developing world projects comes from the World
  Bank.
• Founded in 1945 to provide aid to war-torn Europe
  and Japan.
• Many projects have been environmentally
  destructive and controversial.
• U.S. Congress now insists all loans for
  international development be reviewed for
  environmental and social effects.

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GREEN BUSINESS

• During first Industrial Revolution, raw materials
  were seen as inexhaustible.
• Recently many businesses have realized this
  theory is flawed.
• Operating in a socially responsible manner
  consistent with principles of sustainable
  development can be good for business.
• Pollution Waste Lower Profits

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Jobs and the Environment

• For years, business leaders portrayed
  environmental protection and jobs as mutually
  exclusive.
• Ecological economists found only 0.1 of all
  large-scale layoffs in the U.S. in recent years
  were due to governmental regulations.
• Recycling requires more labor than using virgin
  materials.

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Summary

• Economic Worldviews
• Classical Economics
• Neo-Classical Economics
• Ecological Economics
• Resources, Capital, and Reserves
• Population, Technology, and Scarcity
• Natural Resource Accounting
• Trade, Development, and Jobs
• Green Business

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