Introduction to Ecological Economics

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Introduction to Ecological Economics VT Law
School June 10, 2005 Gary Flomenhoft-Gund
Institute
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Intro to Ecological Economics
DEFINE TERMS

1. SCALE-Size of the economy in relation to the
   biosphere (macro-economics)
2. DISTRIBUTION-Apportionment of income and wealth
   among different individuals
3. ALLOCATION-Apportionment of resources to
   production of different goods and services
4. CONSILIENCE, (EO WILSON)-Theories must be
   consistent with other sciences

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SCALE
Course website
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CIRCULAR FLOW MODEL OF ECONOMY
EXTERNALITIES SOCIETY
ECONOMY
?
?
ENVIRONMENT
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NEO-CLASSICAL ECONOMICS 1890-
No Ingredients, only labor and capital P
f(L,K) ALa . BKb (Cobb-Douglas multiplication)
Labor (Chef )

x
Bread?
Capital (oven)
X
Capital (Mixing bowl)
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NEO-CLASSICAL ECONOMICS
INFINITE SUBSTITUTABILITY 2P f(L,K) 2ALa .
2BKb
More Chefs

x
More Bread?
or Bigger Mixing bowl
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Quotable Quotes

• There is no reason we cant have a perfectly
  healthy economy with virtually no resources
  whatsoever Robert Solow
• We can do without agriculture because its only
  2 of the economy. Norgaard?
• neo-classical economics is a form of brain
  damage -- Hazel Henderson

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ECOLOGICAL ECONOMY
NO EXTERNALITIES
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Intro to Ecological Economics
Throughput-open system 1st Law Conservation of
mass
(some)
(waste)
ECONOMY
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Intro to Ecological Economics
Throughput-closed system
earth
ECONOMY
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Intro to Ecological Economics
Throughput-isolated system
Universe
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Intro to Ecological Economics-human dev
Growthincrease in throughput-quantitative
Development
Growth
Developmentqualitative improvement
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Intro to Ecological Economics-population
Demographic transition Theory
Development
Growth
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Intro to Ecological Economics-population
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Intro to Ecological Economics-forest succession
Development
Growth
Reorganization Aggredation Transition
Steady-state (mature)
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We hear

• There is no conflict between economic growth and
  environmental protection!

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GDP 1825 200 BILLION 2000 41,000 B
ILLION OR 41 TRILLION 205X 1825 level.
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60 Million yrs of CO2
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CLIMATE DAMAGE
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CLIMATE DAMAGE
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Europe in August 2003
COUNTRY DEATHS DETAILS
France 14,802 Temperatures soared to 104 degrees Fahrenheit in parts of the country temperatures in Paris were the highest since record-keeping began in 1873.
Germany 7000 High temperatures of up to 105.4 degrees Fahrenheit, the hottest since records began in 1901, raised mortality some 10 percent above average.
Spain 4230 High temperatures coupled with elevated ground-level ozone concentrations exceeding the European Union's health-risk threshold.
Italy 4175 Temperatures in parts of the country averaged 16 degrees Fahrenheit higher than previous year.
UK 2045 The first triple digit (Fahrenheit) temperatures were recorded in London.
Neth 1400 Temperatures ranged some 14 degrees warmer than normal.
Portugal 1316 Temperatures were above 104 degrees Fahrenheit throughout much of the country.
Belgium 150 Temperatures exceeded any in the Royal Meteorological Society's records dating back to 1833.
TOTAL 35,118
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ESA Listings and GDP
10 9 8 7 6 5 4 3
R2 98.4
1973 1980 1990 2001
Source The Wildlife Society Technical Review
2003-1.
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Endangerment Causes

• Urbanization
• Agriculture
• Water diversions (e.g., reservoirs)
• Recreation, tourism development
• Pollution
• Domestic livestock, ranching

• 247
• 205
• 160
• 148
• 143
• 136

Czech et al. 2000. Bioscience 50(7)593-601.
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Causes (cont.)

• Mineral, gas, oil extraction
• Non-native species
• Harvest
• Modified fire regimes
• Road construction/maintenance
• Industrial development

• 134
• 115
• 101
• 83
• 83
• 81

Czech et al. 2000. Bioscience 50(7)593-601.
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Carrying Capacity Scenarios
K
K-selection
Individuals
r-selection
Time
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K and r-selected Species
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K
Natural capital allocated to wildlife
GNP
Natural capital allocated to human economy
Time
Czech, B. 2000. Economic growth as the
limiting factor for wildlife conservation.
Wildlife Society Bulletin 28(1)4-14.
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Natural Capital
We treat the earth like a business in
liquidation. Herman Daly
Opportunity cost. Loss is not counted.
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(OVERSHOOT)
Economic Carrying Capacity (Plimsoll line)
K
K-selection
GNP
r-selection
Time
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K and r-selected Economies
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SCALE-Full World or Empty World?
Source Ecological Economics Principles
Applications, Farley and Daly
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We Might Ask
K
What happens here?
Economy of nature
GGP
Human economy
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American GNP, 1929-1997
K or r-selected?
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Natural Capital Allocation Revisited
KU
X natural capital allocable
KT
Natural capital allocated to non-human economy
GNP
Natural capital allocated to human economy
Time
 
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Governance
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Governance
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Intro to Ecological Economics
Entropydisorder, randomness 2nd Law entropy
always increases
(waste)
ECONOMY
(dissipated)
LOW ENTROPY
HIGH ENTROPY
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Intro to Ecological Economics
WHAT IS ANTI-ENTROPIC?
(waste)
ECONOMY
LOW ENTROPY
HIGH ENTROPY
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Distribution-Grow out of poverty?
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ALLOCATION
Adam Smith
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ALLOCATION
PARETO EFFICIENCY No other allocation of
resources would make someone better off without
making someone else worse off.
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Rivalness and Excludability

• rival
• My use leaves less for you to use
• Excludable (property rights)
• One person can keep another from using the good
• Consumer must pay, market will supply

Must have a price to work in the free market!
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Rivalness and Excludability

• Non-rival
• My use does not leave less for you to use
• Market sells for a price, discouraging use, but
  social cost of use 0, therefore market should
  not supply
• Non-excludable
• One person cant keep another from using the good
• Consumer will not pay, market will not supply

Must have a price to work in the free market!
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Non-Excludable
Excludable
Open Access Regime (misnamed Tragedy of the
commons) Oceanic fisheries, timberetc. from
unprotected forests, air pollution, waste
absorption capacity
Market Good Food, clothes, cars, land, timber,
fish once captured, farmed fish, regulated
pollution
Rival
Potential market good (Tragedy of the
non-commons)but inefficient patented
information, Pond, roads (congestible), streetligh
ts
Pure Public Goodclimate stability, ozone layer,
clean air/water/land, Biodiversity, information,
habitat, life support functions, etc.
Non-rival
Private beaches, private gardens, toll roads,
zoos, movies
Non-rival, congestible
Public beaches, gardens, roads, etc.
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Golden Rule of Publicly held companies
Maximization of Shareholder Value
Rational behavior Externalize costs Influence
politics to Seek subsidies and favors
Invisible boot
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Quotable Quotes
Altruism is evil and selfishness is a
virtue. -Ayn Rand
Few trends could so thoroughly undermine the
very foundations of our free society as the
acceptance by corporate officials of a social
responsibility other than to make as much money
for their stockholders as possible. -Milton
Friedman 1962
Enron, World Com, Tyco????
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Marginal disutility
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Cost of regulations-OMB report
Annual Cost 37-43 billion EPA conservative
approach, Consistently overestimates costs, not
considering least cost approach and technical
innovation Annual Benefits 121-193 EPA
consistently underestimates benefits USING ACTUAL
NOT THEORETICAL CASES BENEFITS OUTWEIGH COSTS 51
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CONSILIENCE
Resources are infinite and the economy can grow
forever -Julian Simon Anyone who thinks you
can have infinite growth on a finite planet is
either a madman or an economist Kenneth
Boulding
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Differences