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Introduction to Ecological Economics
VT Law School
June 10, 2005
Gary Flomenhoft-Gund Institute
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
CIRCULAR FLOW MODEL OF ECONOMY
ECONOMY
“EXTERNALITIES”
SOCIETY
ENVIRONMENT
? ?
=
NEO-CLASSICAL ECONOMICS 1890-
No Ingredients, only labor and capital
P = f(L,K)= ALa . BKb (Cobb-Douglas multiplication)
Labor (Chef )
Capital (Mixing bowl)
xBread?Capital (oven)X
=
NEO-CLASSICAL ECONOMICSINFINITE SUBSTITUTABILITY:
2P = f(L,K)= 2ALa . 2BKb
More Chefs
or Bigger Mixing bowl
x
More Bread?
Quotable Quotes
• “There is no reason we can’t have a perfectly healthy economy with virtually no resources whatsoever” Robert Solow
• “We can do without agriculture because it’s only 2% of the economy.”Norgaard?
• “neo-classical economics is a form of brain damage” -- Hazel Henderson
ECOLOGICAL ECONOMY
NO “EXTERNALITIES”
Intro to Ecological Economics
Throughput-open system
1st Law: Conservation of mass
ECONOMY (waste)
(some)
Intro to Ecological Economics
Throughput-closed system
ECONOMY
earth
Intro to Ecological Economics
Throughput-isolated system
Universe
Intro to Ecological Economics-human dev
Growth Development
Growth=increase in throughput-quantitative
Development=qualitative improvement
Intro to Ecological Economics-population
Growth Development
Demographic transition Theory
Intro to Ecological Economics-population
Intro to Ecological Economics-forest succession
Growth Development
Reorganization Aggredation Transition Steady-state (mature)
We hear:“There is no conflict between economic
growth and environmental protection!”
World GDP and CO2
$1
$10
$100
$1,000
$10,000
$100,000
1000
GDP 1825: ~$200 BILLION
2000: $41,000 B ILLION OR $41 TRILLION =205X 1825 level.
60 Million yrs of CO2
CLIMATE DAMAGE
CLIMATE DAMAGE
Europe in August 2003
COUNTRY DEATHS DETAILS
France 14,802Temperatures soared to 104 degrees Fahrenheit in parts of the country; temperatures in Paris were the highest since record-keeping began in 1873.
Germany 7000High temperatures of up to 105.4 degreesFahrenheit, the hottest since records began in 1901, raised mortality some 10 percent above average.
Spain 4230High temperatures coupled with elevated ground-level ozone concentrations exceeding the European Union's health-risk threshold.
Italy 4175Temperatures in parts of the country averaged 16 degrees Fahrenheit higher than previous year.
UK 2045The first triple digit (Fahrenheit) temperatures were recorded in London.
Neth 1400Temperatures ranged some 14 degrees warmer than normal.
Portugal 1316Temperatures were above 104 degrees Fahrenheit throughout much of the country.
Belgium 150Temperatures exceeded any in the Royal Meteorological Society's records dating back to 1833.
TOTAL 35,118
ESA Listings and GDP
0
200
400
600
800
1000
1200
1400
1973 1980 1990 2001
$10
$9
$8
$7
$6
$5
$4
$3
R2 = 98.4
Source: The Wildlife Society Technical Review 2003-1.
Endangerment CausesUrbanization
Agriculture
Water diversions (e.g., reservoirs)
Recreation, tourism development
Pollution
Domestic livestock, ranching
247
205
160
148
143
136
Czech et al. 2000. Bioscience 50(7):593-601.
Causes (cont.)Mineral, gas, oil extraction
Non-native species
Harvest
Modified fire regimes
Road construction/maintenance
Industrial development
134
115
101
83
83
81
Czech et al. 2000. Bioscience 50(7):593-601.
K
Carrying Capacity ScenariosIn
divi
dual
s
Time
r-selection
K-selection
Time
GN
PK
Natural capital allocated to human economy
Natural capital allocated to wildlife
Czech, B. 2000. Economic growth as the limiting factor for wildlife conservation. Wildlife Society Bulletin 28(1):4-14.
Natural Capital
“We treat the earth like a business in liquidation.”
Herman Daly
Opportunity cost. Loss is not counted.
K
Economic Carrying Capacity(“Plimsoll line”)
GNP
Time
r-selection
K-selection
(OVERSHOOT)
K and r-selected Economies
SCALE-Full World or Empty World?
Source:
Ecological Economics Principles & Applications,
Farley and Daly
GG
P
K
Human economy
Economy of nature
We Might Ask
American GNP, 1929-1997
K or r-selected?
KTGNP
Natural capital allocated to human economy
Natural capital allocated to non-human economy
X natural capital allocable
Time
KU
Natural Capital Allocation Revisited
Governance
Governance
Intro to Ecological Economics
Entropy=disorder, randomness2nd Law: entropy always increases
ECONOMY
(waste)
LOW ENTROPY HIGH ENTROPY
(dissipated)
Intro to Ecological Economics
WHAT IS ANTI-ENTROPIC?
ECONOMY
(waste)
LOW ENTROPY HIGH ENTROPY
Distribution-Grow out of poverty?Poverty rate vs. GDP per Capita (1996$)
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
8%
10%
12%
14%
16%
18%
20%
per capita GDP (1996$) poverty rate
ALLOCATION
Adam Smith
ALLOCATION
PARETO EFFICIENCY:
“No other allocation of resources would make someone better off without making someone else worse off.”
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!
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 can’t keep another from
using the good– Consumer will not pay, market will
not supply
Must have a price to work in the free market!
Rival}
Non-rival}
Excludable Non-Excludable
Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution
Potential market good(Tragedy of the “non-commons”)but inefficient: patented information,Pond, roads (congestible),streetlights
Pure Public Good:climate stability, ozone layer, clean air/water/land, Biodiversity, information, habitat, life support functions, etc.
Open Access Regime: (misnamed: Tragedy of the commons)Oceanic fisheries, timberetc. from unprotected forests, air pollution, waste absorption capacity
Non-rival,congestible
Private beaches, private gardens, toll roads, zoos, movies
Public beaches, gardens, roads, etc.
“Maximization of Shareholder Value”
“Golden Rule of Publicly held companies:
Rational behavior:
Externalize costs
Influence politics to
Seek subsidies and favors
“Invisible boot”
“Altruism is evil and selfishness is a virtue.” -Ayn Rand
Quotable Quotes
“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????
Marginal disutility
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 5:1
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
Differences
