Valuation 12: Ecological Footprints

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Valuation 12Ecological Footprints

• The neo-classical approach to monetary valuation
• The critique
• The alternative The ecological footprint
• Critique on the alternative

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Last weeks we looked at

• The neo-classical approach to the monetary
  valuation of environmental goods and services
  that are not traded on the market
• We will look at one alternative, the ecological
  footprint
• This approach challenges economic theory

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Uses of economic valuation

• Valuation can serve different purposes
• To determine the optimal level of policy
  intervention
• If an optimum is sought, the marginal external
  cost function must be estimated, and expressed in
  money
• Find optimum Marginal benefit equals marginal
  cost (Cost-Benefit Analysis)
• To calculate the compensation polluters need to
  pay to victims
• To value the total amount of environmental
  pollution and degradation,
• For inclusion in the national accounts
• To demonstrate value of environment
• Perhaps to achieve a more sustainable development

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Sustainability -2

• Bruntland report (WCED, 1987)
• Sustainable development is development that
  meets the needs of the present without
  compromising the ability of future generations to
  meet their own needs
• Wonderful, but what does this mean?

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Sustainability

• Weak sustainability
• Non-declining utility
• Non-declining production opportunities
• Non-declining yields of resource services
• Strong sustainability
• Non-declining natural capital stocks
• Ecosystem stability and resilience
• A social construct
• All that, plus efficiency and equity

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The critique on the neo-classical approach

• Last weeks we looked at neo-classical approach to
  the monetary valuation of environmental goods and
  services that are not traded on the market
• With the exception of the damage cost approach
• The neo-classical theory of value is built on two
  premises
• Supply versus demand or relative scarcity
• Human preferences or what people want
• The implications are, of course, that absolute
  scarcity is irrelevant, as long as people do not
  care and that, if it does not matter to people,
  it does not matter
• There are, of course, also operational
  objections, and misinterpretations

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The alternative

• Wackernagel and Rees argue that conventional
  monetary analyses seem blind to natural capital
  depletion
• Market prices and other monetary valuation
  methods are unreliable means of assessing the
  long-term viability of ecosystems that provide
  goods and services such as climatic stability,
  biodiversity, fuel etc
• They propose to use biophysical measures of
  natural capital instead
• They use a narrow definition of natural capital,
  the life-supporting natural capital
• It is the capital that provides the basic
  life-support services such as the ability to
  renew biomass-based resources and to assimilate
  waste

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The alternative (2)

• To track human demand on these life-supporting
  services, they develop accounts that measure how
  much of the biospheres regenerative capacity is
  used by human economy
• These are called Ecological Footprints
• Since its inception in 1995, the EF has become
  tremendously popular, partly because of the
  energy of WR and partly because it is a really
  simple indicator
• There a number of similar indices that are less
  popular but try do the same thing, that is,
  derive a superindicator measured in physical terms

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The Ecological Footprint

• The EF measures the amount of renewable and
  non-renewable ecologically productive land area
  required to support the resource demands and
  absorb the wastes of a given population or
  specific activities
• When humanity's Footprint exceeds the amount of
  renewable biocapacity a draw down in natural
  capital is required and this is considered
  unsustainable

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The EF land use types

• Cropland crops for food, animal feed, fiber and
  oil
• Grassland and pasture support grazing animals
  for meat, hides, wool, and milk
• Forests provide timber, wood fiber and fuelwood
  as well as sequester carbon dioxide
• Marine and inland waters provide fish and other
  products
• Built-up land accommodates infrastructure for
  housing, transportation, industry, and for
  capturing renewable energy

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Bio-productive areas
EF accounts express the use of land use areas in
standardized units of biologically productive
areas termed global hectares (gha)
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Il Orma Ecologica An example

• 57 mln Italians drink some 15 mln tonnes of milk
  per year an hectare yields some 500 kg milk, so
  thats 0.5 ha/cap
• They eat 26 mln tonnes of cereals, for which they
  need 0.2 ha/cap the energy this takes comes
  later, the pesticides and nutrients are omitted
• They eat about 5 mln tonnes of meat per year
  this takes 0.8 ha/cap this is not just an
  average over space, but also over time

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Il Orma Ecologica (2)

• 57 mln Italians use 29 mln tonne of timber, 26 of
  which is imported with 2000 kg/ha, this take
  0.25 ha/cap
• Italians consume 12 GJ of coal absorbing the
  emitted carbon at 55 GJ/ha would take 0.2 ha/cap
• Italians have about 0.1 ha/cap of build-up area
• Suppose we have ha/cap for all land use types, we
  cannot just add these up, because agricultural
  land is biologically more productive than are
  forests
• Multiplying space with the appropriate
  indicators, Italians use 4.2 ha/cap
• But, they have only 1.3 ha/cap!

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Il Orma Ecologica (4)

• Italians use 4.2 ha/cap
• But, they have only 1.3 ha/cap!
• Note that the ecological footprint implicitly
  condemns international trade it states that
  Italy uses 3 times its allocated space, which is
  possible only because Italy forcibly uses other
  countries room
• This point becomes even more pungent if one
  calculates the EF for cities e.g., Londons
  footprint is 200 times the size of the city

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Ecological Footprints (ha/cap)
EF Av.Cap Deficit
Argentina 3.9 4.6 0.7
Australia 9.0 14.0 5.0
Bangladesh 0.5 0.3 -0.2
Germany 5.3 1.9 -3.4
Iceland 7.4 21.7 14.3
India 0.8 0.5 -0.3
Indonesia 1.4 2.6 1.2
Singapore 6.9 0.1 -6.8
USA 10.3 6.7 -3.6
World 2.8 2.1 -0.7
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Ecological Footprint

• World consumption takes up about 2.8 ha/cap,
  whereas the world has only 2.2 ha/cap available
• This is only possible because we are using up
  fossil resources which is true for energy, soil
  and water
• This is a recipe for disaster, unless one
  considers that resource stocks are being replaced
  with capital and knowledge stocks

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Rehdanzs footprint

• My footprint is about 3.3 global hectare (German
  average is 4.8) if everyone were to live like
  me, we would need 1.8 Earths
• That is because I rarely eat meat, live in a flat
  and commute mostly by bike
• However, I attend international conferences and
  in years where those are far away my footprint
  increases to 5.8 gha (equivalent to 3.2 Earths)
• See the test on http//www.earthday.net/Footprint/
  index.asp
• This test may surprise you, shock you, or make
  you think, please remain calm ... But not too
  calm!!

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Critique

• The used weights are presumably physical and
  ecological and therefore have little relation
  to social or political priorities this may
  reflect a higher truth, but is not handy for a
  decision analytic tool
• What to make of an assessment that praises
  Iceland and Indonesia, while condemning
  Bangladesh and Singapore?
• Part of this comes from using average
  productivity figures

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Critique (2)

• Why are crop land and roads equally productive?
• Why are all forests equal, regardless of how they
  are managed?
• Also, the EF does not distinguish between
  sustainable and unsustainable land use
• Quality does not matter
• Intensive land use leads to lower EF but at the
  expense of higher environmental pressure
• Land use is regarded to be associated with single
  functions only, but provide in many cases
  multiple services and functions at least in
  reality

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Critique (3)

• How does the EF address environmental impacts?
• Included are impacts related to fossil fuel
  combustion only
• The land appropriated by fossil energy use makes
  up more than 50 of the EF estimate for most
  developed countries
• This is mostly the land area needed to catch
  (assimilate) the CO2 emissions from burning
  fossil fuel, i.e. carbon sink land (forests)
• Also, the more land will be (re)forested, the
  more expensive the option will become while other
  sustainable solutions are less land-intensive
• The EF is much dominated by energy use
• Why not biomass energy, or solar power? both
  would lead to substantially lower numbers
• What about other impacts and emissions?

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Critique (4)

• The EF has an anti-trade bias and can, therefore,
  not be regarded as an objective indicator
• It does not distinguish between imports based on
  sustainable or unsustainable land use
• The EF completely neglects comparative advantages
  of countries and regions related to endowments of
  environmental and ecological resources and the
  good things that trade can do for the economy and
  the environment

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Critique (5)

• Most problematic, however, the EF has an absolute
  measure of value much like the classical labour
  theory of value
• The labour theory of value found its grave, in
  theory as well as in practice
• Absolute value theories may work as long as the
  anchor is indeed dominant, but get increasingly
  complex if that is no longer the case
• Whether land dominates at present is, at best,
  questionable