Chapter 7 Ecological Limits and Economic Devlopment

8/10/2019 Chapter 7 Ecological Limits and Economic Devlopment

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Chapter 7Ecological limits and Economical

development

GaneshThapa

The earth provides enough resources for everyonesneed, but not for some peoples greed

Ghandi


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What is Economic Growth? Increase in the production and consumption of

goods and services Occurs when either population or per capita

consumption increases

Typically measured using GDP Total expenditure on all goods and services

produced within a country


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WHY?

Economic growth is no longer improving peoples lives in the developed world


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The Economy and the Environment

Waste products

Waste

products

Resources Waste

Resources Waste


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Closed Economic System

Capital Technology Stock Stock

Production Labor

OutputConsum tion Households

Capital Investment

Technology Investment

Source: Pezzey


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Economic theories of development

What development economists agree on:Development economics: deals with the economic,

social, political, and institutional mechanisms, both public and private, necessary to bring aboutimprovements in wellbeing .

Structural change is an essential part of this process

BUT: does this mean a shift away from agriculturein the economy?


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Most neoclassical economists assume thattechnological advance will outpace resourcescarcity over the long run and that ecologicalservices can also be replaced by newtechnologies.

Ecological economists, on the other hand,assume that resource and ecological limits arecritically important and are much less

confident that technological advances willarise in response to higher prices generated byscarcities.


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8

0

50

100

150

200

250

1980 1985 1990 1995 2000 2005

I n d e x

( 1 9 8 0 =

1 0 0

)

Can Technology Save Us?

Source: SERI (www.materialflows.net)

Between 1980 and 2005: Material intensity (i.e. kg of

biomass, minerals, and fossil

fuels required to produce adollar of GDP) decreased by31%

Population increased by 46%,Per capita GDP increased by

47% Total GDP increased by 116% Total resource use increased

by 49%

The WorldGDP

Material Use

Material Intensity

Can we decouple economic growth from resource use?

Technological progressSwitch from goods to services


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9

0

1

2

3

4

5

6

7

0

2 0 0

4 0 0

6 0 0

8 0 0

1 0 0 0

1 2 0 0

1 4 0 0

1 6 0 0

1 8 0 0

2 0 0 0

Year

P o p u

l a t i o n

( B i l l i o n s

)

0

1000

2000

3000

4000

5000

6000

7000

PerCapita GDP (1990$)

Population

Per Capita GDP

The History of Economic GrowthThe Global Economy, 1 2006 AD

Can this really continue???

Source: Maddison 2008


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The Ecological Footprint Measures how much land society needs to:

Produce the resources it consumes Assimilate the wastes it generates

A countrys ecological footprint is the sum of all thecropland, grazing land, forest and fishing groundsrequired to produce the food, fiber and timber itconsumes, to absorb the wastes emitted when it usesenergy and to provide space for infrastructure

Earths people needed 18 billion hectares of productive land in order to provide each and every person with the resources they required to supporttheir lifestyle and to absorb the wastes they

produced.


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The bad news is that there were only 12billion global hectares available.


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12

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1 9 6 0

1 9 7 0

1 9 8 0

1 9 9 0

2 0 0 0

N u m

b e r o

f E a r t

h s

Ecological Footprint Biocapacity

Global Ecological Overshoot

Global ecological footprintis greater than available

biocapacity!

We are in a state ofovershoot Resources are being used

faster than they can be

regenerated Wastes are being produced

faster than they can beassimilated

Source: Global Footprint Network

The World


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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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Main problems with current economic theory

Externalities- costs not borne by those who

create them

Badly defined property rights

- environmental goods perceived as commons

The environment is not subject of rights

- the environments interests are not legally represented inthe economic system


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Problems with Current Economic Theory

Assumes market prices reflect consumer willingness to pay. Assumes that consumers are the best judge of value and that

community considerations are irrelevant.

Assumes consumers understand the value of ecologicalresources provided by many biological resources.

Assumes consumer, aided by the market place, knowswhich species are unnecessary for ecosystem maintenance.

Assessment of economic value ignores many equity andmoral considerations.

General failure to recognize that market prices are highlydistorted.


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The Limits to Growth


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To understand the interactions between theeconomy and the environment concept ofecological limits is most.

The idea is that there are biological and physicallimits to economic growth beyond which bothecological and economic collapse would occur.

In this view, limits are seen as absolute constraintson economic activity, not just as a point beyondwhich economic growth results in environmentaldestruction.

Ecological Limits


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3.1 Biophysical limits to growthFinitude: fixed size of the ecosystem that hosts an expanding

economic system

Entropy: the ordered structures of the economic subsystem

are maintained at the expense of creating a more thanoffsetting amount of disorder in the rest of the system.Ecosystem as source of low-entropy inputs and sink forhigh entropy waste. Entropic costs = depletion of resourcesand pollution

Ecological interdependence: ecological connections between economic sub-system and its hosting ecosystemare disrupted with growth of economy


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3.2 Ethical and social limits to growthCost to unpaid workers:anything that does not enter the calculations of GDP

does not matter, therefore it can be used upwithout need for reinvestment

Costs to future generations: how do discount rateswork? Welfare of future people?

Cost to other life forms: extinction and the welfareof other animals and planet


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Is It All Worth It?

Imogen Shaw


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Enough is Enough


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Happiness and GDP

Americans have been more successful decoupling GDP from happiness than indecoupling it from material and energy Peter Victor

Real income

per person

Percentagevery happy

Source: Layard (2005)

United States

P e r c e n

t a g e v e r y

h a p p y


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Happiness and GDP Across

Countries

Source: Inglehart and Klingemann (2000)

Income per Person ($)

H a p p

i n e s s

( I n

d e x )


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Socialism collapsed because it did not allow

prices to tell the economic truth.

Capitalism may collapse because it does not

allow prices to tell the ecological truth.

Source: Dahle, 2001.


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What then?United Nations Definition of Development :

The basic purpose of development is to enlarge people's choices.

People often value achievements that do notshow up at all, or not immediately, in incomeor growth figures:

o greater access to knowledge,o better nutrition and health services,o more secure livelihoods,o security against crime and physical violence,

satisfying leisure hours,o political and cultural freedoms and sense of

participation in community activities.


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What then? The objective of development is to create an enabling

environment for people to enjoy long, healthy and creative

lives

UN definition of sustainable development: development which meets the needs of the present withoutsacrificing the ability of the future to meet its needs.

Growth: quantitative increase by assimilation or accretionof materials

Development: qualitative improvement, realization ofpotential


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3. Sustainable development

"Anyone who believes exponentialgrowth can go on forever in a finite

world is either a madman or aneconomist."

Kenneth Boulding (1910-1993)


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Concept of ecologically sustainabledevelopment

Ecologically sustainable development is theenvironmental component of sustainabledevelopment.

It can be achieved partially through the use ofthe precautionary principle ; if there are threatsof serious or irreversible environmental damage,lack of full scientific certainty should not be usedas a reason for postponing measures to preventenvironmental degradation.

f


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Also important is the principle of

intergenerational equity; the present generationshould ensure that the health, diversity and

productivity of the environment is maintained or

enhanced for the benefit of future generations. In order for this movement to flourish,

environmental factors should be more heavily

weighed in the valuation of assets and services to provide more incentive for the conservation of biological diversity and ecological integrity.

Concept of ecologically sustainabledevelopment


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Economy with Environmental ConsiderationsEnvironmentalProductivity

Natural Resource StocksRenewable Non- PollutionCapital Technology Resources Renewable Stock Stock Stock Resources

Production

Labor

Output Waste FlowsHouseholds

Capital Investment Consumption

Utility Environmental Amenity Technology Investment

Clean Up Expenditure

Environmental Quality

Source: Pezzey


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Sustainable Economic System

Understands primary role of natural systems in theeconomy

Integrates functions of industrial and natural

ecologies Accounts for true costs of waste and disposal

Cradle-to-Grave responsibility for products

Penalizes waste, rewards efficiency Provides for fair, just, meaningful, and fulfilling

employment of human resources


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What is a Steady State Economy

(SSE) ? Stable population

Stable per capita consumption

Energy and material flows are reduced andkept within ecological limits

Constant stocks of natural and human-built


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How Do we overcome the

Ecological limits? Adopt the right macro-economic goal : the

Steady State Economy

Gradually change existing policies from

growth towards a steady state


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Ecological concepts applied to

the economy Assimilative capacity : the capacity of the natural

environment to absorb wastes Regenerative capacity: the ability of the ecosystem to

replace resources that we use in our production systems Renewable resources , such as wood or wind energy, are

in continuous supply, although the rate at which theycan be replenished will vary from resource to resource

Non-renewable resources , such as iron ore or fossilfuels, are in limited supply within the earths crust, andthus once they are used up they cannot be replaced.


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Five Capitals Framework

We are facing a sustainability crisis because we're consuming our stocks ofnatural, human and social capital faster than they are being produced. Unlesswe control the rate of this consumption, we can't sustain these vital stocks inthe long-term.

Forum for the Future


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1. Limit Resource UseCurrently:

Few controls on use of resources and emission of pollutants Montreal Protocol: limits ozone-depleting substances EU Emissions Trading Scheme: limits CO 2 emissions

In a SSE:

Impose strict resource and emission caps

Employ a cap auction trade system Caps set based on ecological criteria Permits auctioned by government Trade between industries to allow efficient allocation


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2. Stabilise PopulationCurrently:

Natural increase is low in many wealthy countries But many rich countries are trying to encourage population

growth

In a SSE:

Births plus immigration must equal deaths plus emigration

In wealthy countries: Balance immigration with emigration In poorer countries:

Provide education, access to birth control, and equal rights for women


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3. Reduce InequalityCurrently:

Economic growth is used as an excuse to avoid dealing with poverty

A rising tide lifts all boats

In a SSE:

No growth, so no excuses! Finite resource use = Finite amount of wealth Must deal with distribution explicitly

Need a minimum and maximum income


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4. Reduce Working Hours

Currently:

Technological progress is used to increase production of

goods and services A better widget machine = more widgets!

In a SSE:

We cannot increase production if it results in higherresource use

Instead, shorten the working day, week, & year Same salaries but more leisure time!

5 Changing the Signals to the


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5. Changing the Signals to theEconomy

Currently taxes are applied to positive aspects of behavior: wages, productivity, profit It would be better to tax aspects that are negative:

waste, inefficiency, pollution Tax pollution, not production -Pollution excise,

Tradable pollution permits, Deposit fees, tax credits

Shifting impacts of production to producers iscalled internalization


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6. Change How We Measure

ProgressCurrently: Rely on GDP, which doesnt distinguish between:

Benefits and costs Quality and quantity

In a SSE:

What happens to GDP is not important

Replace GDP with two sets of accounts: Well-being To be maximised

Resource use To be reduced and kept within ecological limits


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Alternative Measures of Welfare

(Examples) Index of Sustainable Economic Welfare

(ISEW) Genuine Progress Indicator (GPI)

Human Development Index (HDI)


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What Are We Actually

Measuring? GDP

Total expenditure on all goods and services

produced within a country

Adds to GDP:

Also adds to GDP:


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Same accounting framework as GDP, but

Adds value of household and volunteer workSubtracts cost of crime, pollution, and family breakdown

Genuine Progress Indicator (GPI)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

1 9 5 0

1 9 5 5

1 9 6 0

1 9 6 5

1 9 7 0

1 9 7 5

1 9 8 0

1 9 8 5

1 9 9 0

1 9 9 5

2 0 0 0

2 0 0 0 U S $

GPI per capitaGDP per capita

Source: Redefining Progress

United States


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Human Development Index

Created by the United Nations DevelopmentProgram (UNDP)

A composite of three indicators Longevity: life expectancy

Knowledge: literacy, years of schooling

Standard of Living: purchasing power based onGDP/capita


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The Degrowth Transition to a

SSE

Time

CarryingCapacity

Growth Degrowth SSE


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Conclusion There is a conflict between economic growth and

environmental protection

Economic growth is no longer improving peoples lives in the

developed world

We need to make the transition to a SSE and sustainabledevelopment

Adopt the right macroeconomic goal

Restrict resource use, stabilise population, limit inequality, reduceworking hours, eliminate fractional reserve banking, and change theway we measure progress

Summary and Conclusions


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Summary and Conclusions The current economic system is not sustainable

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, profits, productivity, and investment Focus on dematerialization, deenergization,

decarbonization, and detoxification Measure welfare instead of absolute monetarytransactions

Support an EcoIndustrial revolution

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Chapter 7 Ecological Limits and Economic Devlopment