Macroeconomic policy and biodiversity conservation

1
Macroeconomic policy and
biodiversity conservation
Philip Lawn
Flinders University, Adelaide, Australia
Presented by
Mike Larson,
Chair-elect
SCB Working Group for
Ecological Economics Sustainability Science
2
Ecological economics
Human economy
Manuf. capital
Labor
Natural capital
Wastes
Throughput
Ecosphere biophysical limits
3
Economic growth...

• occurs by increasing...
• production consumption of goods services
• resource throughput
• efficiency of production materials recycling,
  which are limited
• depletes natural capital and results in
  biodiversity loss
• is limited by the ecospheres capacity to
  regenerate and assimilate wastes

4
Given limits to growth...

• How do current macroeconomic policies contribute
  to growth?
• What policy is needed to ensure economy is a
  sustainable size?
• What is the appropriate macroeconomic policy?
• general welfare of society
• biodiversity conservation

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Macroeconomic policy

• Fiscal policy
• government spending
• effect of taxes on...
• pvt. spending
• population growth (family size, immigration)
• Monetary policy
• adjusting interest rates
• adjusting money supplies
• International trade policy
• tariffs, import quotas
• increasingly characterized by minimal govt
  intervention

6
Current macroeconomic policy

• All mainstream policies are pro-growth
• Goal is to maximize inflation acceptable
  growth of real GDP
• usually 3 per year

7
Reverse macroeconomic policy?

• Best option for conserving biodiversity
• Drawbacks if not done carefully
• Reducing scale could cause very high unemployment
• Society reverts to a growth objective
• Insufficient for achieving biophysical targets

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What policy is needed?

• Society-imposed limits on rate of throughput
• Resource extraction regime varying by resource
  type geographic location
• Cap-and-trade system
• Cap constraint on throughput
• Price of tradable permits reflects absolute
  scarcity of resources
• Market approach is efficient

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Markets scarcity

• Throughput is NOT restricted by scarcity-induced
  price increases
• Prices reflect scarcity relative to alternatives,
  not absolute scarcity
• Prices are even worse at reflecting ecosystem
  services
• Discounting future events exacerbates the
  problem

10
Macroeconomic policy in a constrained economy

• Not expansionary
• in nations with unsustainably large economies
• Contractionary?
• Better to gradually lower caps on resource
  extraction
• Gradualist

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Macroeconomic policy in a constrained economy

• Fiscal policy
• Government expenditures
• Maintain public goods critical infrastructure
• Keep unemployment low during downturns in
  business cycle
• Ecological tax reform
• Tax resource depletion pollution
  rather than income profit

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Macroeconomic policy in a constrained economy

• International trade policy
• Restore comparative advantage as the governing
  principle
• Low costs due to lower environ. work standards
  confer little trade advantage
• Restrict international mobility of financial
  capital
• Mobility allows transnational corporations to use
  low-cost production locations (i.e.,
  absolute advantage)

13
Conclusions

• Current macroeconomic policy
• Fosters economic growth
• Future macroeconomic policy
• Not expansionary
• Helpful but not sufficient for biophysical
  targets
• Limits on resource throughput are needed
• Cap-and-trade system