Ecological Economics Themes:

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Ecological Economics - Themes

• Economic Systems (Worldviews)
• Environmental Problems with Market Economies
• Solutions to Environmental Problems
• Growth in GDP is underlying problem
• Sustainable Economies
• Ecological Economics
• Sustainable Living

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I. Economics - Worldviews

• Command Economic System - economic decisions made
  by government
• Capitalistic System - Market competition between
  sellers and buyers brings about the greatest
  efficiency of resource use
• Pure Market Economy - Philosophy of Adam Smith
• Every individual necessarily labors to render
  the annual revenue of the society . for his own
  gain, and he is in this, led by an invisible hand
  to promote an end which was no part of his
  intention. By pursuing his own interest he
  frequently promotes that of the society more
  effectually than when he really intends to
  promote it.
• Mixed Market Economy - Gov. control necessary
  to fix problems of pure market economy

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• 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
  science to develop modern economic theory
• Retained emphasis on supply and demand in
  determining prices and resource allocation
• Become dominant guide of 20th Century economics

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• Demand is the amount of a product or service
  consumers are willing to buy at various prices
• Supply is the quantity of that product being
  offered for sale at various prices

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• Two key points in Neoclassical Economics
• Growth is seen as a necessity (a meas. of
  vitality)
• Natural resources viewed as merely factors of
  production rather than critical supplies of
  materials, services, and waste sinks

Unimportance of nature
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• II. Problems with pure market economy
• Monopolies / Cartels
• Cycles / Lags (esp. in agriculture)
• Price elasticity (supply/demand not affected by
  price)
• Providing public goods services (e.g.,
  education, police)
• Inequitable wealth distribution
• Maintaining public health safety
• Protection of Environment (Sustainability) !

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• How much is clean air worth?
• Can you charge somebody for damaging your air?
• How much are you willing to pay for clean air?
• Should you have to pay for clean air?

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Market Economy promotes environmental damage in
many ways

• Lack of full cost pricing
• Market price includes only internal (direct)
  costs
• Omits external cost to society future
  generations (e.g., contaminating air, water,
  resource loss)
• Damage to some resources by use of others
  (cutting forest gt damage to watershed)
• Lack of ownership (responsibility) of some
  resources (air, water, ground water)
• Lack of ability to correctly cost account for
  resource loss
• Incorrect method of evaluating economic well-being

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Solving Environ. Problems via the Market a.
Accounting for External Costs

• Internal Costs - Expenses borne by those
  marketing a good/service or buying it
• External Costs - Expenses born by someone other
  than the explicit market participants
• Include global warming, ocean pollution, resource
  depletion, etc.
• Internalizing Costs - Ensuring those that reap
  the benefits of resources, labor, capital, etc.
  bear all the costs of the use of the resources

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b. Protecting Communal Resources

• Communal Property Resources(Ocean resources,
  forests, ground water)
• Lack of ownership of resources leads to their
  degradation and loss
• Tragedy of the Commons Garret Hardin
• Commonly held resources are inevitably degraded
  because self-interests of individuals tend to
  outweigh public interests

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c. Choosing appropriate Discount Rates

• DR assumes that something is worth less in the
  future than it is today
• Example A 5 discount rate (DR) predicts a
  Future Value of 100 in 20 years is worth 38
  today (Net Present Value) Net Present Value
  Future Value / (1DR)years
• Consider a growing forest stand, in which the
  amount of wood will double in 20 years A timber
  company could1. Cut the trees and sell them now
  (50 each)2. let them grow and increase in value
  (100 value in 20 years 38 NPV)

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Normal Discount Rates create a bias against
conservation and undermine efforts towards
sustainability

• High discount rates favor converting natural
  resources to human-made capital, since that will
  likely yield a higher return
• Discount rates undervalue
• intangible resources,
• most natural resources, and
• using resources slowly over time

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d. Market-Based Environmental Protection

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

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Market Solutions Pigouvian Taxes

• Taxes on any goods that cause pollution equal to
  the cost to society of that pollution
• Efficiently raises the price of goods, such that
  the amount consumed is reduced to the optimal
  level, e.g. tax on gasoline, or tax on carbon
• A good way to deal with widespread, multifaceted
  issues such as pollution
• Government taxation accomplishes two things
• Covers societal costs of pollution (health
  effects, land degredation, etc)
• Creates incentives for firms to innovate, so as
  to reduce tax and increase profits
• Becomes part of culture

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• NY Times, Gas Taxes Lesser Evil, Greater Good
• Cheap gas is no longer compatible with a secure
  nation, a healthy environment or a healthy
  economy - if ever it was.
• The real question is whether we should continue
  paying the extra dollar or two per gallon in the
  form of profits to the Saudis and other
  producers, or in the form of taxes to the United
  States Treasury, where the money could be used to
  build true energy independence.
• Gas taxes have been effective in most European
  nations
• However, taxes are singularly negative in the
  U.S., and the most often used from of political
  attack

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• Gas or carbon tax
• Reduce greenhouse gas emissions
• Reduce road congestion and accidents
• Encourage exercise walking/biking
• Effective public transit now difficult due to
  car-centered development, with highly dispersed
  land-use patterns
• Better than fuel economy standards, which
• encourage more driving as fuel economy increases
  and
• fleet level standards basically mean a hybrid
  car simply allows car company to produce more
  large SUVs, which crush hybrid cars in accident

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Market Solutions Tradable Permits

• Tradable Pollution Permits
• Firms that can lower pollution cheaply, sell
  permits
• Firms where it is expensive to lower pollution
  can buy permits
• Drawbacks hot spots can be created (mostly in
  rural and low income communities
• e.g., current administration proposed marketable
  permits for Mercury, which would have allowed
  levels to egreatly exceeded those considered safe

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• Tradable Harvest Permits
• Excellent solution for over-harvested fisheries
• Problem Too many commercial anglers chasing too
  few fish
• e.g., New Zealand fisheries
• Each angler given a Tradable Harvest Permit for X
  fish
• Low-profit anglers sell their permits and
  eventually leave business!
• Low cost anglers buy permits and subsidize the
  downsizing!

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e. Cost-Benefit Analysis for Economic Decisions

• 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
  appropriate monetary values on intangible costs
  and benefits

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Fig. 14.21
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f. Jobs and the Environment

• For years, business leaders portrayed
  environmental protection as costing jobs (as
  opposed to affecting profits)
• Ecological economists found only 1 of all
  large-scale layoffs in the US in recent years
  were due to governmental regulations of any kind
• Many aspects of sustainable living promote jobs
• Recycling requires more labor than using virgin
  materials

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• Study of four industries (Paper, Plastic,
  Petroleum, and Steel) by Morgenstern et al. 2002
  JEEM
• About 2 of manufacturing jobs lost from all
  environ. Issues
• However, nationally, the average gross job effect
  is a net gain of 1.5 jobs per 1 million in
  additional abatement spending
• A jobs transfer instead of jobs lost due to
  environmental regulation!

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Biggest Negative toward sustainable economy is
using GDP for evaluating Economic Well-being !

• Even worse is that we use Growth in GDP
• GDP (Gross Domestic Product) is total value of
  all economic activity in a nation for a year
• It is a very poor way to evaluate true Economic
  Well-being
• Growth in GDP promotes environmental damage, poor
  health, and population growth

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Problems with GDP

• Does not distinguish between beneficial and
  harmful growth
• Does not account for resource depletion or
  ecosystem damage
• Most negatives are added to GDP (? cost of ill
  health gt ? GDP !)Pollution is a triple
  negative Higher Corp. profit Value from
  cleanup Value of neg. health effects
• Underestimates environmental / social positives
  (e.g., energy efficiency, good health,
  sustainability))

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• Growth in GDP overestimates society well being
• 1950-2000 GDP ? 170 But Wages ? 14 Oil
  reserves ? 40
• Alternatives to GDP
• Index of Sustainable Economic Welfare (ISEW)
• Genuine Progress Indicator (GPI)
• Takes into account real per capita income,
  distributional equity, natural resource
  depletion, environmental damage, etc.
• GPI increased 60 from 1950 to 1970, but has
  remained unchanged since then

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Fig. 14.22
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Growth in GDP vs. population growth
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A New Economic Philosophy is Needed !

• Too much and too long, we have surrendered
  community excellence and community values in the
  mere accumulation of material things.
• Our gross national product - if we should
  judge America by that - counts air pollution and
  cigarette advertising and ambulances to clear our
  highways of carnage. It counts the destruction of
  our redwoods and the loss of our natural wonders
  in chaotic sprawl
• Yet the gross national product does not allow
  for the health of our children, the quality of
  their education, or the joy of their play. It
  measures neither our wit nor our courage neither
  our wisdom nor our learning neither our
  compassion nor our devotion to our country.
• It measures everything, in short, except that
  which makes life worthwhile.

Robert F. Kennedy Address, University of Kansas,
March 18, 1968 3 months before he was assassinated
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III. Sustainable Economiesa. Ecological
Economics

• Acknowledges dependence on essential life-support
  services provided by nature
• Regards some aspects of nature as irreplaceable
  and essential
• Sustainable economy is characterized by, use of
  renewable energy sources, material recycling, and
  emphasis on efficiency, stability, and true
  measures of economic well being

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Prevailing economic philosophy treats Natural
Resources as equivalent to all others

• Types of Economic Capital
• Natural
• Manufactured
• Human (Labor, Entrepreneurial)
• Social (Education, Health, Safety)
• Capital is a resource converted to human use and
  available to produce more wealth
• Prevailing philosophy assumes complete resource
  inter-substitutability

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• Debate over value / substitutability of Natural
  Resources
• Economically recoverable reserves are not rigidly
  fixed
• Human ingenuity and technology often allow us to
  respond to scarcity in ways that alleviate
  predicted effects
• Technological developments led to price declines
  for most raw materials during the industrial
  revolution
• Economists generally believe this pattern will
  continue, while Ecologists disagree(so far,
  economists have been right!)

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• However, Natural Resources are not equivalent!
• Nonrenewable resources - Materials present in
  fixed amounts in the environment (e.g., metals,
  fossil fuels, some ground water)
• Renewable resources - Materials that can be
  replenished or replaced (e.g., water, forest
  products, food)
• Intangible resources - Abstract resources such as
  open space, beauty, areas for solitude etc.

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Viewpoint 2 The world will run out of oil
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Prevailing Economic System

• Private ownership of material resources
• Public ownership of sinks
• Perfect functioning of the market
• Infinite substitutability of resources
• Subsidized disposal, energy, water

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In prevailing economies the Ecosystem is seen as
a sector of the Economy Mostly serves as
subsidized source of resources sink for wastes
Economy
Ecosystem
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Ecological Economics considers human economic
systems to be part of natural ecosystems
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Summary of Current vs. Ecological Economics

• Current economic system
• Depends on the scale of material/energy
  throughput
• Subsidizes resource extraction and pollution
• Taxes productive activities
• Does not measure welfare
• A system based on Ecological Economics would
• Shift taxes to waste, inefficiency, and pollution
  away from wages, productivity, and
  investment
• Focus on dematerialization, energy efficiency,
  decarbonization, and waste reduction
• Measure true welfare instead of absolute monetary
  transactions material gain
• Support an Sustainability Revolution

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b. Sustainable Living

• Involves educated citizenry and leadership at
  local, national and global levels
• Starts with individuals acting to protect their
  own health and that of their local environment
• Individuals can chose to support environmentally
  sustainable businesses
• Our leaders must eliminate subsidies to
  environmentally destructive businesses and
  activities
• The global community must act in the interest of
  protecting the Earth and the well being of all
  peoples

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• The economy responds to signals it is sent
• Cheap waste disposal
• Low costs for emissions (air, water, land)
• Low cost for environmental impacts
• Cheap and subsidized resources
• Tax benefits for resource depletion
• We need to send new signals!
• Recognizing the value of Nature
• Change from consumption-driven economy
• Supporting green businesses
• Leaders with vision to challenge status quo

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Supporting Green Business

• Consumers support Businesses that recognize that
  raw materials are not inexhaustible that
  maintain the highest standards for worker health
  and benefits
• Businesses operate in a socially responsible
  manner that is consistent with principles of
  sustainable development
• Good for business consumers
• E.g., pollution from inefficiency waste lower
  profits

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• Green businesses -)
• Newmans Own 100 organic profits to Earth
  sustaining activites
• 3 M Company reducing resource use and reusing
  and recycling resources
• BioShield makes environ. friendly paints,
  thinners,
• Canon global recycling taken action for
  reducing global warming
• Kinkos many programs to reduce paper
  consumption
• American Apparel no sweat shops! favorable
  worker health conditions
• Patagonia Clothing organic cotton! support
  worker health / environ. causes
• Esperanze Threads organic cotton!
• Aveda Cosmetics Body Products environmentally
  friendly products
• Burts Bees Body Products use natural
  ingredients
• REI donates profits to conservation, using
  renewable energy
• Ikea eliminated plastics, and reduced waste in
  furniture manufacture
• Johnson Johnson - has cut air and water
  pollutants dramatically
• Trader Joes organic foods renewable energy
  support

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• Black Businesses (
• Mitsubishi - most environmentally destructive
  corporation ever!!!
• Clearcutting of tropical forests in Indonesia
• Clearcutting of tropical forests in Ecuador
• Dumping of radioactive wastes in Malaysia
• Dumping of toxic wastes and acids in Mexico the
  Ocean
• Walmart business practices encourge
  externalizing costs
• Exxon-Mobil huge amts of pollution,
  environmental exploitation, legislative lobbying
• Also Chevron, Pemex
• DOW huge amounts of pollution, health worker
  safety
• Arthur Daniels Midland massive agricultural
  impacts (chemicals, fertilizers, etc)
• Boise-Cascade Paper products derived from
  deforestation in Cent S. America
• Kimberly-Clarke (Kleenex other paper products)
  massive forest clearcutting
• Ford Motor Co. lobbying for polluting vehicles,
  leading user of "Maquiladoras"
• (Most other auto companies, as well)
• Nike / Reebok sweat shops with heinous working
  conditions and very low wages
• Abercombie Fitch sweat shops, deceptive
  labeling (says made in USA, but not)
• GAP Clothing sweatshops with low wages and poor
  working conditions

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World Economic Issues

• According to economic theory, each place has
  goods or services it can supply in better
  quality, or at better prices, than its neighbors
• Basically, this keeps less-developed countries in
  a perpetual role of resource suppliers to
  more-developed countries
• General Agreement on Trade and Tariffs has played
  a hugely negative role in promoting
  environmentally destructive practices
• World Trade Organization (part of GATT) has never
  to my knowledge ruled in favor of the
  environment!
• World Bank - a consortium of banks from developed
  countries looking to exploit cheap labor and lack
  of environ. regulations in developing countries

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Trade Development

• 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
• In practice, however, most trade keeps
  less-developed countries in a perpetual role of
  suppliers of resources and cheap labor to
  more-developed countries
• Many lending practices also promote this
  inequality (IMF, World Bank)

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Fig. 14.5
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Micro-lending

• Small loans to individuals families promote
  local economies

• Mohammad Yunus and Grameen Bank shared the 2006
  Nobel Peace Prize
• Grameen now has 6 million borrowers worldwide

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What is a Maquiladora?

• Maquiladoras originated as part of Mexican
  governments Border Industrialization Program
  (1965)
• Maquiladoras are foreign-owned manufacturing
  plants that process or assemble imported
  components for export
• Maquiladoras account for 49 of Mexicos exports

Maquiladoras employ mostly women aged 18-25 for
its labor force
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Examples Maquiladoras in Mexico

• Bali Company
• Bayer / Medsep
• BMW
• Casio
• Chrysler
• Eastman Kodak / Verbatim
• Eberhard-Faber
• Eli Lilly Corporation
• Ericsson
• Fisher Price
• Ford
• General Electric

• Hewlett Packard
• Honda
• IBM
• JVC
• Mattel
• Mercedes Benz
• Mitsubishi
• Nissan
• Samsung
• Sony
• Xerox
• Zenith

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• Enormous amounts of toxins used in maquiladoras
• Majority of workers are not provided with the
  necessary education or protection concerning
  the chemicals they are exposed to on a daily
  basis

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Lets end on a bright note!