Environmental Ethics in Ecological Economics

1. Environmental Ethics in Ecological Economics • Overview • Brief history • Utilitarianism • Rawls’ theory of justice • Public goods, externalities and social dilemmas • Social norms and social capital

2. Natural Capital

3. Lecture overview • Sustainable development • Natural capital • Economic and ecological sustainability • A debate on natural capital, substitutability and entropy

4. The issues • What is the relationship between the economy and the physical world? • What are the physical limits on the economy? • Is sustainable development possible?

5. Substitution • Natural capital • Manufactured capital • Human capital • Intellectual capital • How much can these different types of resources be substituted for each other?

6. Questions (Daly, 1997, p. 265) • Must economic activities satisfy mass balance? • Why is it that neoclassical production functions do not satisfy the condition of mass balance? • Do you believe that Georgescu-Roegen’s interpretation of production as physical transformation is correct?

7. Is the economic system embedded in the larger environmental system, and totally dependent on it as both source and sink for the matter/energy transformed by economic activity? • Are the matter/energy transformations required by economic activity are constrained by the entropy law?

8. International agreements/meetings on sustainable development • 1972 - UN Conference on the Human Environment Stockholm • 1983 - UN General Assembly - World Commission on Environment and Development • 1992 - UN Conference on Environment and Development (Earth Summit). Agenda 21 action plan for implementing global sustainable development.

9. Sustainable development • World Commission on Environment and Development (Brundtland Report) • “…meets the needs of the present without compromising the ability of future generations to meet their own needs” (1987, p. 8). • Vague definition – political consensus

10. Sustainability and economic efficiency • Possibly conflicting concepts • Economic efficiency aims to “maximise the net present value of society’s well-being” • Sustainability may be worth pursuing for moral reasons, e.g. justice and fairness

11. Relationship between economic and ecological sustainability Four possibilities: 1. Neither is possible • Finite supply of non-renewable resources, • Consumption of renewable resources occurs at a rate exceeding their natural rates of replenishment, • There are no substitutes

12. 2. Economic sustainability without ecological sustainability • There are human-made substitutes for natural resources • If for example agriculture distresses the soil but invests the profit in hydroponics agricultural production might be sustainable (economic sustainability) but the original ecosystem may fail due to soil loss (ecologically unsustainable).

13. 3. Ecological sustainability without economic sustainability • Ecological constraints cause economic activity to decline. • For example, if legislation required a production process to internalize the processing of waste could cause some firms and industries to fail and without new industries to substitute for them, there would be a loss in economic sustainability.

14. 4. Ecological and economic sustainability • The creation of energy systems based on the efficient use of renewable energy sources • For example, new industries replacing the fossil fuel industry – a basis for Ecologically Sustainable Development. • A question of structural change - associated effects like structural unemployment?

15. Definitions of sustainable development • Concern with the long-term health of the environment. • Apprehensions about the welfare of future generations • Condemnation of rapid population growth • Worry over whether it is possible to maintain economic growth in the face of resource scarcity.

16. Sustainable consumption? • What is to be sustained? • Per capita income (output) • Stock of total capital – human plus natural capital • Earth’s ecosystems or life-support functions • No consensus

17. Investment • Natural resources can be considered as “biological assets”. • Society chooses a portfolio of assets that it wishes to retain.

18. Sustainability • Constraints of sustainability on maximising net present value (Pezzey, 1997) • Alternatives: 1. Sustainable development 2. Development is sustainable 3. Development is survivable

19. Economic approaches to sustainability • A sustainable system is one with sustainable income. This notion is based on the writings of Hicks who defined sustainable income as “..the maximum amount that a person or a nation could consume over some time period and still be as well off at the end of the period as they were at the beginning.”

20. Definition of Natural Capital • Natural Capital – “.. any stock of natural resources or environmental assets, such as oceans, forests or agricultural land, that yield a flow of useful goods and services now and in the future” (Macdonald et al., 1999, 74) • Examples: soils, minerals, plants, animals, air and water - that are exploitable commercially - set of living and inanimate objects lacking the systems part of 'ecosystems' ecological natural capital - biodiversity and ecological integrity.

21. Capital stocks • What form of capital should the current generation pass onto the next?

22. Capital • Capital is traditionally defined as produced or manufactured means of production (Costanza and Daly, 1992). • The concept of natural capital is based on a functional definition of capital as “a stock that yields a flow of valuable goods or services into the future”.

23. Critical Capital • Dodds (1995) argued that any asset, natural or human-made which are irreplaceable, subject to uncertainty and equity, should be preserved. • Includes non-replaceable natural or built capital of cultural or historical significance, living or non-living assets necessary to maintain essential life support systems and ecosystem functions, and a safe minimum level of all or representative forms of living natural capital.

24. Renewable/Nonrenewable Capital • Renewable natural capital – e.g. a forest might be harvested for wood or provide a flow of ecosystem services such as erosion control and recreation. • Nonrenewable natural capital – fossil fuels and mineral deposits. They generally yield no services until extracted.

25. Strong and weak sustainability • Weak sustainability - calls for maintaining the combined total of both natural and human-made capital intact. • Strong sustainability - independently maintaining the stocks of both human-made and natural capital.

26. Neoclassical Economic thought is that of maintaining total capital stock - weak sustainability. • Ecological Economics, on the other hand, argues that natural capital and human-made capital are essentially complements, not substitutes. Therefore, it is important to maintain natural capital stocks intact independently or human-made capital stocks - strong sustainability.

27. Strong sustainability • Some natural resources are essential for production • Downplays role of prices and technological change • Substitutability between elements of natural capital?

28. Weak sustainability • High substitutability • Technology • Past and future projections?

29. Comparison

30. Steady State Economies • Daly (1989) and Common (1995) discuss the concept of a steady state economy where the economic system operates at a level such that a constant rate of per capita consumption is maintained indefinitely. It is argued that if such a level of consumption is attained, given a constant population, economic growth is not required. • http://oak.cats.ohiou.edu/~piccard/entropy/daly.html

31. Costanza and Daly (1992, p. 37) • “A minimum necessary condition for sustainability is the maintenance of the total natural capital stock at or above the current level. While a lower stock of natural capital may be sustainable, society can allow no further decline in natural capital given the large uncertainty and the dire consequences of guessing wrong.”

32. Costanza and Daly (1992, p. 37) • “This “constancy of total natural capital” rule can thus be seen as a prudent minimal condition for assuring sustainability, to be relaxed only when solid evidence can be offered that it is safe to do so.”

33. Costanza and Daly (1992, p. 37) • Substitutability of manufactured for natural capital. • Quantifying ecosystem services and natural capital. • The role of discount rates in valuing natural capital.

34. Costanza and Daly (1992, p.37) argue for the maintenance of the total natural stock at or above current levels. The argument is based on the premise that society can no longer afford to decline natural capital given the large uncertainty and consequences of further decline in capital.

35. Costanza and Daly (1992, p. 41) • “Individuals are allowed to appropriate matter-energy from the ecosystem as required for their individualistic purposes. Since the benefits of such expropriation are mostly private while the costs are largely social, there is a tendency to overexpand the scale of the economy – or to “allocate” too much of the matter-energy of the total ecosystem to the economic subsystem.”

36. The dismal science • Malthus – the constraints of natural resources and population growth. • Production functions – labour, capital, technology • Land and resources versus reproducable capital (Nordhaus and Tobin, 1972). • Human-made capital a perfect substitute for land and other exhaustible resources.

37. The dismal science • Until recently, only manufactured stocks were considered as capital. • The economy was very small in relation to natural processes. • “We are now entering an era, thanks to the enormous increase of the human scale, in which natural capital is becoming the limiting factor” (Constanza and Daly, 1997, p. 40).

38. Technology • Costanza and Daly (1997) noted the disagreement between technological optimists and skeptics. • Optimists - see technical progress as eliminating all resource constraints to growth and development • Skeptics do not think the potential of technology is as great and fear the irreversible use of resources and damage to natural capital.

39. Relevant Economic Disciplines • Neo-classical economics • Natural resource economics • Environmental economics • Bioeconomics • Ecological Economics

40. Bioeconomics • “… production functions that incorporate natural resources in ways that are at least partially consistent with the dynamics of ecological systems” (Perring, 1997, p. 303) • Ecosystem services

41. The Ecological Economic Perspective • The world is a materially closed, finite, non-growing ecosystem, within which the human economy is an open subsystem that depends for its existence on the viability of the ecosystem. • Assumes that natural capital is the limiting factor in human economic activity.

42. http://www.feasta.org/documents/feastareview/daly.htm

43. Growth versus Development • Costanza and Daly (1992) distinguish between growth (a material increase in size) and development (an improvement in organization without size change. • Growth cannot be sustained indefinitely and there are probably limits on development.

44. Human or Natural Capital • Are they substitutes? • Are human-made capital and natural capital important individually, or is only total capital, in whatever form, important?

45. A debate on natural capital, substitutability and entropy Hotelling, Harold (1931). The Economics of Exhaustible Resources. The Journal of Political Economy, Vol. 39(2), 137-175. Solow, Robert M. (1974). The Economics of Resources or the Resources of Economics. The American Economic Review, Vol. 64(2), 1-14 Costanza, Robert and Daly, Herman E. Daly (1992). Natural Capital and Sustainable Development. Conservation Biology, Vo. 6(1), 37-46. Young, Jeffrey T. (1994). Entropy and Natural Resource Scarcity: A Reply to the Critics. Journal of Environmental Economics and Management, 26, 210-213.

46. Volume 22 of Ecological Economics (1997): Perrings, Charles (1997). Georgescu-Roegen and the ‘irreversibility of material processes. Ecological Economics, 22, 303-304. Daly, Herman E. (1997). Forum: Georgescu-Roegen versus Solow/Stiglitz. Ecological Economics, 22, 261-266. Solow, Robert M. (1997). Reply: Georgescu-Roegen versus Solow/Stiglitz. Ecological Economics, 22, 267-268.

47. Daly, Herman E. Daly (1997). Forum: Reply to Solow/Stiglitz. Ecological Economics, 22, 271-273. Tisdell, Clem (1997). Capital/natural resource substitution: the debate of Georgescu-Roegen (through Daly) with Solow/Stiglitz. Ecological Economics, 22, 289-291. Turner, R. Kerry (1997). Georgescu-Roegen versus Solow/Stiglitz: a pluralistic and interdisciplinary perspective. Ecological Economics, 22, 299-302.

48. Perrings (1997, p.303) • “One of the more unfortunate features of the development of ecological economics has been the acerbic edge to much of the literature. It is hard enough to persuade people that it is worth exploring a new and slightly uncomfortable set of ideas. It is impossible to do so when the invitation is couched in abuse. If ecological economics is to be taken seriously, its proponents need to engage in a more constructive debate than this.”

49. Robert M. Solow Solow, Robert M. (1974). The Economics of Resources or the Resources of Economics. The American Economic Review, Vol. 64(2), 1-14 (1924 - )

50. Joseph E. Stiglitz Stiglitz, J. E., (1979). A Neoclassical Analysis of the Economics of Natural Resources. In: Smith, V. Kerry (Ed.), Scarcity and Growth Reconsidered. RFF and John Hopkins Press, Baltimore, MD. (1943 - )