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Introduction to Ecological Economics Greentax Sep. 7, 2004 Gary Flomenhoft-Gund Institute. CIRCULAR FLOW MODEL OF ECONOMY. “EXTERNALITIES” SOCIETY. ?. ECONOMY. ?. ENVIRONMENT. Environment as subset of ECONOMY. NEO-CLASSICAL ECONOMICS 1890-. No Ingredients, only labor and capital - PowerPoint PPT Presentation
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Introduction to Ecological Economics
Greentax
Sep. 7, 2004
Gary Flomenhoft-Gund Institute
CIRCULAR FLOW MODEL OF ECONOMY
ECONOMY
“EXTERNALITIES”
SOCIETY
ENVIRONMENT
? ?
Environment as subset of ECONOMY
=
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)
ECONOMY
(waste)
(some)
SourcesSub-surface Resources
SitesSurface locations: ie: land
SinksAbsorbtion of waste
3 Ss:
GREEN TAX SOURCES
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? (SYNTROPIC)
ECONOMY
(waste)
LOW ENTROPY HIGH ENTROPY
Intro to Ecological Economics
Throughput-closed system
ECONOMY
earth
SCALE-Full World or Empty World?
Source:
Ecological Economics Principles & Applications,
Farley and Daly
Marginal disutility
Differences
ECONOMY
(waste)
(some)
SourcesSub-surface Resources
Sky-Trust model
GO UPSTREAM!
Sky-Trust modelAppendix : Key Features of U.S. Sky TrustHere are the key features of the proposed U.S. Sky Trust.
o Carbon emissions cap set initially at 1.346 billion tons, the 1990 level
o Tradable carbon emission permits sold annually to energy companies at the top of the carbon chain.
o All revenue from permit sales goes into a nationwide trust.
o Trust pays equal annual dividends to all U.S. citizens (like the Alaska Permanent Fund).
o Dividends can be placed tax-free in Individual Retirement Accounts or Individual Development Accounts for children.
o Initial price ceiling on carbon emission permits of $25 a ton; ceiling rises 7 percent a year for four years.
o Transition Fund to help those most adversely affected by higher carbon prices. Fund starts at 25 percent of permit revenue, declines 2.5 percent per year.
Governance
Governance
“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????
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
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
100010501100115012001250130013501400145015001550160016501700175018001850190019502000
World GDP Billions US$$
250
270
290
310
330
350
370
ATMOSPHERIC CO2
World GDPCO2 level
CO2 vs WORLD GDP
270
290
310
330
350
370
$1 $10 $100 $1,000 $10,000 $100,000
WORLD GDP Billions of 1990 Intl $$ Log scale (source: De Long)
ATM CO2 CONCENTRATION parts per million(ppm)
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
$3
R2 = 98.4
Source: The Wildlife Society Technical Review 2003-1.
Endangerment CausesUrbanization
Agriculture
Water diversions (e.g., reservoirs)
Recreation, tourism development
Pollution
Domestic livestock, ranching
247
205
160
148
143
136
Czech et al. 2000. Bioscience 50(7):593-601.
Causes (cont.)Mineral, gas, oil extraction
Non-native species
Harvest
Modified fire regimes
Road construction/maintenance
Industrial development
134
115
101
83
83
81
Czech et al. 2000. Bioscience 50(7):593-601.
K
Carrying Capacity ScenariosIn
divi
dual
s
Time
r-selection
K-selection
K and r-selected Species
Time
GN
PK
Natural capital allocated to human economy
Natural capital allocated to wildlife
Czech, B. 2000. Economic growth as the limiting factor for wildlife conservation. Wildlife Society Bulletin 28(1):4-14.
Natural Capital
“We treat the earth like a business in liquidation.”
Herman Daly
Opportunity cost. Loss is not counted.
K
Economic Carrying Capacity(“Plimsoll line”)
GNP
Time
r-selection
K-selection
(OVERSHOOT)
K and r-selected Economies
GG
P
K
Human economy
Economy of nature
We Might Ask
American GNP, 1929-1997
0
1000
2000
3000
4000
5000
6000
7000
8000
19291932193519381941194419471950195319561959196219651968197119741977198019831986198919921995
K or r-selected?
KTGNP
Natural capital allocated to human economy
Natural capital allocated to non-human economy
X natural capital allocable
Time
KU
Natural Capital Allocation Revisited
Distribution-Grow out of poverty?Poverty rate vs. GDP per Capita (1996$)
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
1959196119631965196719691971197319751977197919811983198519871989199119931995199719992001
8%
10%
12%
14%
16%
18%
20%
per capita GDP (1996$) poverty rate
ALLOCATION
Adam Smith
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.