Sustainability Weak vs Strong

Sustainable Energy Systems Sustainability Weak vs Strong Economy of Natural Resources and Environment Prof. Manuel Coelho Prof.ª Joana Pais Ana Gonçalves Pedro Neto Raquel Segurado Sandrina Pereira 4 of January 2008

Sustainable Energy Systems What is sustainable development? “…sustainable development, which implies meeting the needs of the present without compromising the ability of future generations to meet their own needs…” Report of the World Commission on Environment and Development, United Nations, 1987

Sustainable Energy Systems Agenda

Growth theory with limited resources Sustainable Energy Systems Success drivers to a non-decrease consumption Production function Q=Q(L,K,N) Natural resource (N) essential to production of Q Average production of natural capital does not have an upper bound Elasticity (ε) of substitution between produced capital (K) and natural capital is (N) is greater than 1 ε is equal to 1 and the interest rate of the produced capital is higher than the valorization of the natural resource ε is not constant but is there a technology improvement or or Solow’s model, 1974 Assumptions 4

From growth theory to weak sustainability Sustainable Energy Systems Total capital K=Kh+Km+Kn Kh – Human capital Km – Produced or manufactured capital Kn – Natural capital Weak sustainability Given a degree of substitutabilitybetween produced capital and natural resources returns from non renewable, scarcity rent should be reinvested in produced capital. • Sustainability is equivalent to non-decreasing or increasing total capital stock In a mathematical formulation: Hartwick rule 5

Weak sustainability Sustainable Energy Systems Capital The pinch from the shrinking natural capital is countered by the services and technology from the enlarged produced capital stock C0 Produced capital Natural capital Time 6

Weak sustainability – an workable theory Sustainable Energy Systems Information about the amount to be reinvested All the scarcity rent must be invested Possible to evaluate the sustainability each year What is happening to total capital? Is it declining or increasing? 7

Weak Sustainability Indicators Sustainable Energy Systems 8

Elasticity of Substitution 1/2 Sustainable Energy Systems An high elasticity of substitution value can say, that this resources is not very essential and can be easily replaceable. Sustainability Elasticity between Kn and Km ≥ 1 9

Elasticity of Substitution 2/2 Sustainable Energy Systems Open questions Potential problems Difficulty to calculate the real value of the Elasticity of Substitution How evaluate δKn(t)? Tendency to overestimate or underestimate real value Difficulty in the cases where the resource is essential to life support How to apply to some resources? What is the elasticity of substitution of air? And biodiversity? 10

Technological Progress 1/2 Sustainable Energy Systems Sustainability Technological Progress Rate > Population Growth Rate HHS Model 11

Sustainable Energy Systems Technological Progress 2/2 Difficulties Indicator limitations Indicator with a very limited scope • Is not easy to measure the technological progress The priority is given to the elasticity of substitution • The production functions don’t have the capacity to incorporate, at same time, the technological progress and the elasticity of substitution. 12

Sustainable Energy Systems Scarcity Rent 1/3 Mercantile Natural Capital Non renewableresources, and some renewable – forests Non Mercantile Natural Capital Renewable resources - air and environmental services

Sustainable Energy Systems Scarcity Rent 2/3 Mercantile Natural Capital Definition Potential difficulties The externalities associated to the use and extraction of the resources (negative externalities) for the future generation are not included in the calculation of the opportunity cost. A Rarity rent (final use cost) is the difference between the shadow price of the natural resource (opportunity cost) and the marginal cost of its extraction. How to allocate a shadow price to the natural resource? The price attributed can be insufficient in the sustainability point of view

Sustainable Energy Systems Scarcity Rent 3/3 Non Mercantile Natural Capital Characteristics Difficulties • Unlimited resources in quantity, that are not under any system of property law • Freeaccess • How determinate the shadow price? • No market price • No access costs

Environmentally-Adjusted Net Product Sustainable Energy Systems 5th Framework Programme Correction of the national balance sheet taking into account the issues of the environment and sustainable development Environmentally-Adjusted Net Product eaNNP = GDP – δKp – δKn GDP- GrossDomesticProductδKm- Depreciationofmanufacturedcapital δKn- Depreciationofnatural capital (resourcedepletion + environmentaldegradation) 16

Sustainable Energy Systems Problems with the WS One condition must be fulfilled Is it? Super-abundance  Natural resources must be available in an abundant quantity The need of a new sustainability concept emerged: Strong Sustainability (SS) Elasticity of substitution Value of elasticity must be equal or greater than one – natural resources are substitutable  Technological progress Existing technology must increase the productivity of natural capital faster than its depletion  One example: Oil

Sustainable Energy Systems The creation of the SS concept …‘strong sustainability’, sees sustainability as nondiminishing life opportunities. This should be achieved by conserving the stock of human capital, technological capability, natural resources and environmental quality Brekke, 1997

Sustainable Energy Systems There were developed 3 theories Theories Description Conservationist • Created by Daly in the early 90’s • Is the most radical theory which states that to achieve sustainability, the natural capital must remain constant London School • Developed in the 90’s over the model of Barbier and Markandya • Is an intermediate theory stating that a minimum amount of natural capital must be maintained Similarity to the WS Ecological-economical • Created by Ruth in 1994 • Is a theory where the economical agents must know and apply the limits imposed by environmental factors

Sustainable Energy Systems Stationary state - base for Conservationists Main hypothesis The shadow price of natural capital may achieve the infinite Interest rate /compound interest is null Elasticity of substitution between natural and physical capital is null Economic activity must be determined by the capacity to regenerate and assimilate Technical progress has limited impact on natural capital Economic and demographic growth rates must be null Management of natural capital should be done by regulatory agents Is this economically and socially sustainable?

Sustainable Energy Systems London School’s natural capital categories Division Description Categories Mercantilism of capital • Mercantile natural capital • Non mercantile natural capital • The division of these two forms of capital is based on the possibility to trade a certain asset • Non mercantile natural capital is multifunctional and so, harder to substitute Substitutability of capital • Substitutable natural capital • Critical natural capital • This hierarchy is established considering the natural capital’s substitutability by other forms of capital • Critical natural capital should not decrease below a minimum value so the system can be sustainable

Sustainable Energy Systems Modeling the critical natural capital Maintenance of minimum level of critical capital The Barbier and Markandya model of 1990 However, is very difficult to create measures to assess the value of natural capital This value ends up to be measured monetarily (resembling to the WS) • Existence of a minimum value for environmental assets • Utility optimization • a – lower threshold not to be crossed • Kn* - Critical natural capital Hamiltonian

Sustainable Energy Systems The 3 corners of Ecological-Economical view Main concepts • Opportunity costs • Substitutability • Temporal preferences Thermodynamic serves as a tool to understand how economy and ecology should relate to each other • Material cycles • Energy fluxes • Complexity of environment/systems interactions • Definition of the system and its boundaries • Fluxes of energy and mass • Distinction of different systems

Ecological Footprint Sustainable Energy Systems Ecological Footprint measures how much land and water area human population requires to produce the resources it consumes and to absorb its wastes under prevailing technology. http://www.footprintnetwork.org 25

Sustainable Energy Systems Ecological Footprint Biocapacity varies each year with ecosystem management, agricultural practices (fertilizer use and irrigation), ecosystem degradation, and weather Average per person resource demand (Ecological Footprint) and per person resource supply (Biocapacity) in Portugal. 26

Sustainable Energy Systems Case Studies

Weak Sustainability Sustainable Energy Systems ThePhysicalDestructionofNauru 1/4 • Small island located in the central pacific; • < 20 km; • 1900 one of the highest grades of phosphate rock (primary ingredient in commercial fertilizers ) ever found was discovered; • 90 years of mining caused devastation of 80% of the island; • Elevated plateau - Topside

Weak Sustainability Sustainable Energy Systems ThePhysicalDestructionofNauru 2/4 • Scraping of the surface soil; • Removing of the phosphate between the walls of an ancient coral; • Mined out areas: • Disappearance of species; • Inaccessible to humans; • Unusable for habitation; • Unusable for crops, … • Loss of vegetation on Topside: • - Hotter and drier micro climate.

Weak Sustainability Sustainable Energy Systems ThePhysicalDestructionofNauru 3/4 • High level of GDP in 1993; • Trust fund done with the income from the phosphate mining; • Interests from this trust fund should have insured a substantial and steady income and thus the economic stability of the island; • The Asian financial crisis, among other factors, has cleared out most of the trust fund; • Biologically impoverish island; • The money traded has vanished; • Trade with the outside world is now essential for Nauruans to get the necessities no longer available locally.

Weak Sustainability Sustainable Energy Systems ThePhysicalDestructionofNauru 4/4 • People all over the world are making this kind of decisions and with the same ultimate result as in the case of Nauru; • But the consequences are easier to see in a small island nation; • The development of Nauru followed the logic of weak sustainability, and shows clearly that weak sustainability may be consistent with a situation of near complete environmental devastation;

Forest Management in Nepal 1/5 Strong Sustainability Sustainable Energy Systems • The basic principal of the strong sustainability is being applied in different parts of Nepal for the forest management at the local community level; • Nepal has vast ecological resources ranging from subtropical to alpine climatic ranges; • 118 forest ecosystems; • 75 vegetation types; • 35 forest types; • 90% of the population lives in the forest areas; • Forest is a major resource: timber, fuel wood, medicinal plants,… 33

Forest Management in Nepal 2/5 Strong Sustainability Sustainable Energy Systems • Forest depletion in Nepal: • Fuel wood collection; • Grazing; • Illegal logging; • marginal expansion of agricultural areas; • Food deficit, because people sell firewood at the local market to purchase food items 34

Forest Management in Nepal 3/5 Strong Sustainability Sustainable Energy Systems • In 1999, the total forest area was 29% of the total area of Nepal; • In 1988 it was 37%; • 50 years ago it was more than 50%; • Deforestation rate – 1.7% per year; • Forest Act in 1993; • Forest regulations in 1995 lead to the creation of FUGs – Forest Users Group 35

Forest Management in Nepal 4/5 Strong Sustainability Sustainable Energy Systems • The FUG is responsible to manage the forest; • Constitution and operation plan approved by the District Forest Officer; • FUGs could: • initiate plantation of crops, such as medicinal herbs; • Fix prices of forestry products; • Establish forest-based industries; • And use surplus funds in any kind of community development work, but such activities should not hamper main forest stock; • 25% of the revenue used to enhanced natural capital 36

Forest Management in Nepal 5/5 Strong Sustainability Sustainable Energy Systems • Land ownership remains with the state, but the land use rights along with the forest resources except wildlife products, soils, sands, etc. belong to the FUGs; • In 2003 there were 12,079 FUGs (15% of total forest area); • Reverse the tragedy of the commons; • 61% of the total forest area; • People are experiencing the resilience of the local ecosystem over the period of one decade. 37

Water Resources in Austria 1/3 Strong Sustainability Sustainable Energy Systems • Austria is a rich country regarding water resources; • Protect the quality and quantity of the water resources by one of the most stringent legal frameworks  Wasserrechtsgesetz, 1959; • Critical regions: • Where large amounts of water are extracted; • Agricultural production and industrial waste sites; • Water in a sustainability context can be regarded as a regional (national) resource; 38

Water Resources in Austria 2/3 Strong Sustainability Sustainable Energy Systems • Within a naturally given catchment area the yearly extraction should not exceed the yearly renewal rate of the water resource; • The organic and inorganic load into the water resource should not exceed the regeneration capacity (carrying capacity); • The seasonal differences between water supply and demand should be taken into account; • Imports or exports from one region to another are only sustainable if previous principles are fulfilled. 39

Water Resources in Austria 3/3 Strong Sustainability Sustainable Energy Systems • Austria has one of the most stringent water pollution acts in Europe; • Every use of water, be it the extraction of groundwater or the discharge of sewage, has to be limited according to the state of the art in control technologies to minimize eventually harmful uses; • Groundwater has to be protected in its natural state; • Polluter-pays-principle and avoidance principle are the leading objectives. 40

Sustainability Weak vs Strong