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Ecological economics

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Ecological economics is a transdisciplinary field of academic research that aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space.[1] It is distinguished from environmental economics, which is the mainstream economic analysis of the environment, by its treatment of the economy as a subsystem of the ecosystem and its emphasis upon preserving natural capital.[2] One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing "strong" sustainability and rejecting the proposition that natural capital can be substituted by human-made capital.[3]

Ecological economics was founded in the works of Kenneth E. Boulding, Nicholas Georgescu-Roegen, Herman Daly, Robert Costanza, and others. The related field of green economics is, in general, a more politically applied form of the subject.[4][5]

According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation.[6] Ecological economists have questioned fundamental mainstream economic approaches such as cost-benefit analysis, and the separability of economic values from scientific research, contending that economics is unavoidably normative rather than positive (empirical).[7] Positional analysis, which attempts to incorporate time and justice issues, is proposed as an alternative.[8][9]

Ecological economics includes the study of the metabolism of society, that is, the study of the flows of energy and materials that enter and exit the economic system. This subfield may also be referred to as biophysical economics, bioeconomics, and has links with the applied science of industrial symbiosis. Ecological economics is based on a conceptual model of the economy connected to, and sustained by, a flow of energy, materials, and ecosystem services. Analysts from a variety of disciplines have conducted research on the economy-environment relationship, with concern for energy and material flows and sustainability, environmental quality, and economic development.

Contents


Nature and ecology

Environmental Scientist sampling water.
Environmental Scientist sampling water.

A simple circular flow of income diagram is replaced in ecological economics by a more complex flow diagram reflecting the input of solar energy, which sustains natural inputs and environmental services which are then used as units of production. Once consumed, natural inputs pass out of the economy as pollution and waste. The potential of an environment to provide services and materials is referred to as an "environment's source function", and this function is depleted as resources are consumed or pollution contaminates the resources. The "sink function" describes an environment's ability to absorb and render harmless waste and pollution: when waste output exceeds the limit of the sink function, long-term damage occurs.[10] Some persistent pollutants, such as some organic pollutants and nuclear waste are absorbed very slowly or not at all; ecological economists emphasize minimizing "cumulative pollutants".[10] Pollutants affect human health and the health of the climate.

The economic value of natural capital and ecosystem services is accepted by mainstream environmental economics, but is emphasized as especially important in ecological economics. Ecological economists may begin by estimating how to maintain a stable environment before assessing the cost in dollar terms.[10] Ecological economist Robert Costanza led an attempted valuation of the global ecosystem in 1997. Initially published in Nature, the article concluded on $33 trillion with a range from $16 trillion to $54 trillion (in 1997, total global GDP was $27 trillion).[11] Half of the value went to nutrient cycling. The open oceans, continental shelves, and estuaries had the highest total value, and the highest per-hectare values went to estuaries, swamps/floodplains, and seagrass/algae beds. The work was criticized by articles in Ecological Economics Volume 25, Issue 1, but the critics acknowledged the positive potential for economic valuation of the global ecosystem.[10]

The Earth's carrying capacity is a central issue in ecological economics. Early economists such as Thomas Malthus pointed out the finite carrying capacity of the earth, which was also central to the MIT study Limits to Growth. Diminishing returns suggest that productivity increases will slow if major technological progress is not made. Food production may become a problem, as erosion, an impending water crisis, and soil salinity (from irrigation) reduce the productivity of agriculture. Ecological economists argue that industrial agriculture, which exacerbates these problems, is not sustainable agriculture, and are generally inclined favorably to organic farming, which also reduces the output of carbon.[10]

Global wild fisheries are believed to have peaked and begun a decline, with valuable habitat such as estuaries in critical condition.[10] The aquaculture or farming of piscivorous fish, like salmon, does not help solve the problem because they need to be fed products from other fish. Studies have shown that salmon farming has major negative impacts on wild salmon, as well as the forage fish that need to be caught to feed them.[12][13]

Since animals are higher on the trophic level, they are less efficient sources of food energy. Reduced consumption of meat would reduce the demand for food, but as nations develop, they tend to adopt high-meat diets similar to that of the United States. Genetically modified food (GMF) a conventional solution to the problem, presents numerous problems – Bt corn produces its own Bacillus thuringiensis, but the pest resistance is believed to be only a matter of time.[10] The overall effect of GMF on yields is contentious, with the USDA and FAO acknowledging that GMFs do not necessarily have higher yields and may even have reduced yields.[14]

Global warming is now widely acknowledged as a major issue, with all national scientific academies expressing agreement on the importance of the issue. As the population growth intensifies and energy demand increases, the world faces an energy crisis. Some economists and scientists forecast a global ecological crisis if energy use is not contained – the Stern report is an example. The disagreement has sparked a vigorous debate on issue of discounting and intergenerational equity.

Image:Nitrogen_Cycle.jpg|Nitrogen cycle Image:Water cycle.png|Water cycle Image:Carbon cycle-cute diagram.svg|Carbon cycle Image:Oxygen Cycle.jpg|Oxygen cycle

Ethics

Mainstream economics has attempted to become a value-free 'hard science', but ecological economists argue that value-free economics is generally not realistic. Ecological economics is more willing to entertain alternative conceptions of utility, efficiency, and cost-benefits such as positional analysis or multi-criteria analysis. Ecological economics is typically viewed as economics for sustainable development,[15] and may have goals similar to green politics.

Schools of thought

Various competing schools of thought exist in the field. Some are close to resource and environmental economics while others are far more heterodox in outlook. An example of the latter is the European Society for Ecological Economics. An example of the former is the Swedish Beijer International Institute of Ecological Economics.

Differentiation from mainstream schools

In ecological economics, natural capital is added to the typical capital asset analysis of land, labor, and financial capital. Ecological economics uses tools from mathematical economics, but may apply them more closely to the natural world. Whereas mainstream economists tend to be technological optimists, ecological economists are inclined to be technological pessimists. They reason that the natural world has a limited carrying capacity and that its resources may run out. Since destruction of important environmental resources could be practically irreversible and catastrophic, ecological economists are inclined to justify cautionary measures based on the precautionary principle.[16]

The most cogent example of how the different theories treat similar assets is tropical rainforest ecosystems, most obviously the Yasuni region of Ecuador. While this area has substantial deposits of bitumen it is also one of the most diverse ecosystems on Earth and some estimates establish it has over 200 undiscovered medical substances in its genomes - most of which would be destroyed by logging the forest or mining the bitumen. Effectively, the instructional capital of the genomes is undervalued by both classical and neoclassical means which would view the rainforest primarily as a source of wood, oil/tar and perhaps food. Increasingly the carbon credit for leaving the extremely carbon-intensive ("dirty") bitumen in the ground is also valued - the government of Ecuador set a price of US$350M for an oil lease with the intent of selling it to someone committed to never exercising it at all and instead preserving the rainforest. Bill Clinton, Paul Martin and other former world leaders have become closely involved in this project which includes lobbying for the issue of International Monetary Fund special drawing rights to recognize the rainforest's value directly within the framework of the Bretton Woods institutions. If successful this would be a major victory for advocates of ecological economics as the new mainstream form of economics.

History and development

Early interest in ecology and economics dates back to the 1960s and the work by Kenneth Boulding and Herman Daly, but the first meetings occurred in the 1980s. It began with a 1982 symposium in Sweden which was attended by people who would later be instrumental in the field, including Robert Costanza, Herman Daly, Charles Hall, Ann-Mari Jansson, Bruce Hannon, H.T. Odum, and David Pimentel. Most were ecosystem ecologists or mainstream environmental economists, with the exception of Daly. In 1987, Daly and Costanza edited an issue of Ecological Modeling to test the waters. A book entitled Ecological Economics, by Juan Martinez-Alier, was published later that year.[17] 1989 saw the foundation of the International Society for Ecological Economics and publication of its journal, Ecological Economics, by Elsevier. Robert Costanza was the first president of the society and first editor of the journal, currently edited by Richard Howarth.

European conceptual founders include Nicholas Georgescu-Roegen (1971), K. William Kapp (1950)[18] and Karl Polanyi (1944).[19] Some key concepts of what is now ecological economics are evident in the writings of E.F. Schumacher, whose book Small Is Beautiful – A Study of Economics as if People Mattered (1973) was published just a few years before the first edition of Herman Daly's comprehensive and persuasive Steady-State Economics (1977).[20][21] Other figures include ecologists C.S. Holling, H.T. Odum and Robert Costanza, biologist Gretchen Daily and physicist Robert Ayres. CUNY geography professor David Harvey explicitly added ecological concerns to political economic literature. This parallel development in political economy has been continued by analysts such as sociologist John Bellamy Foster.

The antecedents can be traced back to the Romantics of the 19th century as well as some Enlightenment political economists of that era. Concerns over population were expressed by Thomas Malthus, while John Stuart Mill hypothesized that the "stationary state" of an economy was desirable, anticipating later insights of modern ecological economists, without having had their experience of the social and ecological costs of the dramatic post-World War II industrial expansion. As Martinez-Alier explores in his book the debate on energy in economic systems can also be traced into the 19th century e.g. Nobel prize-winning chemist, Frederick Soddy (1877 1956). Soddy criticized the prevailing belief of the economy as a perpetual motion machine, capable of generating infinite wealth a criticism echoed by his intellectual heirs in the now emergent field of ecological economics.[22]

The Romanian economist Nicholas Georgescu-Roegen (1906 1994), who was among Daly's teachers at Vanderbilt University, provided ecological economics with a modern conceptual framework based on the material and energy flows of economic production and consumption. His magnum opus, The Entropy Law and the Economic Process (1971), has been highly influential.[23]

Articles by Inge Ropke (2004, 2005)[24] and Clive Spash (1999)[25] cover the development and modern history of ecological economics and explain its differentiation from resource and environmental economics, as well as some of the controversy between American and European schools of thought. An article by Robert Costanza, David Stern, Lining He, and Chunbo Ma[26] responded to a call by Mick Common to determine the foundational literature of ecological economics by using citation analysis to examine which books and articles have had the most influence on the development of the field.

Topics

Methodology

A primary objective of ecological economics (EE) is to ground economic thinking and practice in physical reality, especially in the laws of physics (particularly the laws of thermodynamics) and in knowledge of biological systems. It accepts as a goal the improvement of human well-being through development, and seeks to ensure achievement of this through planning for the sustainable development of ecosystems and societies. Of course the terms development and sustainable development are far from lacking controversy. Richard Norgaard argues traditional economics has hi-jacked the development terminology in his book Development Betrayed.[27]

Well-being in ecological economics is also differentiated from welfare as found in mainstream economics and the 'new welfare economics' from the 1930s which informs resource and environmental economics. This entails a limited preference utilitarian conception of value i.e., Nature is valuable to our economies, that is because people will pay for its services such as clean air, clean water, encounters with wilderness, etc.

Ecological economics is distinguishable from neoclassical economics primarily by its assertion that the economy is embedded within an environmental system. Ecology deals with the energy and matter transactions of life and the Earth, and the human economy is by definition contained within this system. Ecological economists argue that neoclassical economics has ignored the environment, at best considering it to be a subset of the human economy.

The neoclassical view ignores much of what the natural sciences have taught us about the contributions of nature to the creation of wealth e.g., the planetary endowment of scarce matter and energy, along with the complex and biologically diverse ecosystems that provide goods and ecosystem services directly to human communities: micro- and macro-climate regulation, water recycling, water purification, storm water regulation, waste absorption, food and medicine production, pollination, protection from solar and cosmic radiation, the view of a starry night sky, etc.

There has then been a move to regard such things as natural capital and ecosystems functions as goods and services.[28][29] However, this is far from uncontroversial within ecology or ecological economics due to the potential for narrowing down values to those found in mainstream economics and the danger of merely regarding Nature as a commodity. This has been referred to as ecologists 'selling out on Nature'.[30] There is then a concern that ecological economics has failed to learn from the extensive literature in environmental ethics about how to structure a plural value system.

Allocation of resources

Resource and neoclassical economics focus primarily on the efficient allocation of resources, and less on two other fundamental economic problems which are central to ecological economics: distribution (equity) and the scale of the economy relative to the ecosystems upon which it is reliant.[31] Ecological Economics also makes a clear distinction between growth (quantitative increase in economic output) and development (qualitative improvement of the quality of life) while arguing that neoclassical economics confuses the two. Ecological economists point out that, beyond modest levels, increased per-capita consumption (the typical economic measure of "standard of living") does not necessarily lead to improvement in human well-being, while this same consumption can have harmful effects on the environment and broader societal well-being.

Strong versus weak sustainability

Ecological economics challenges the conventional approach towards natural resources, claiming that it undervalues natural capital by considering it as interchangeable with human-made capital labor and technology.

The potential for the substitution of man-made capital for natural capital is an important debate in ecological economics and the economics of sustainability. There is a continuum of views among economists between the strongly neoclassical positions of Robert Solow and Martin Weitzman, at one extreme and the entropy pessimists , notably Nicholas Georgescu-Roegen and Herman Daly, at the other.[32]

Neoclassical economists tend to maintain that man-made capital can, in principle, replace all types of natural capital. This is known as the weak sustainability view, essentially that every technology can be improved upon or replaced by innovation, and that there is a substitute for any and all scarce materials.

At the other extreme, the strong sustainability view argues that the stock of natural resources and ecological functions are irreplaceable. From the premises of strong sustainability, it follows that economic policy has a fiduciary responsibility to the greater ecological world, and that sustainable development must therefore take a different approach to valuing natural resources and ecological functions.

Energy economics

A key concept of energy economics is net energy gain, which recognizes that all energy requires energy to produce. To be useful the energy return on energy invested (EROEI) has to be greater than one. The net energy gain from production coal, oil and gas has declined over time as the easiest to produce sources have been most heavily depleted.[33]

Ecological economics generally rejects the view of energy economics that growth in the energy supply is related directly to well being, focusing instead on biodiversity and creativity - or natural capital and individual capital, in the terminology sometimes adopted to describe these economically. In practice, ecological economics focuses primarily on the key issues of uneconomic growth and quality of life. Ecological economists are inclined to acknowledge that much of what is important in human well-being is not analyzable from a strictly economic standpoint and suggests an interdisciplinary approach combining social and natural sciences as a means to address this.

Thermoeconomics is based on the proposition that the role of energy in biological evolution should be defined and understood through the second law of thermodynamics, but also in terms of such economic criteria as productivity, efficiency, and especially the costs and benefits (or profitability) of the various mechanisms for capturing and utilizing available energy to build biomass and do work.[34][35] As a result, thermoeconomics are often discussed in the field of ecological economics, which itself is related to the fields of sustainability and sustainable development.

Exergy analysis is performed in the field of industrial ecology to use energy more efficiently.[36] The term exergy, was coined by Zoran Rant in 1956, but the concept was developed by J. Willard Gibbs. In recent decades, utilization of exergy has spread outside of physics and engineering to the fields of industrial ecology, ecological economics, systems ecology, and energetics.

Energy accounting and balance

Also see:Net energy gain

An energy balance can be used to track energy through a system, and is a very useful tool for determining resource use and environmental impacts, using the First and Second laws of thermodynamics, to determine how much energy is needed at each point in a system, and in what form that energy is a cost in various environmental issues. The energy accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system.[37]

Scientists have written and speculated on different aspects of energy accounting.[38]

Environmental services

A study was carried out by Costanza and colleagues[39] to determine the 'price' of the services provided by the environment. This was determined by averaging values obtained from a range of studies conducted in very specific context and then transferring these without regard to that context. Dollar figures were averaged to a per hectare number for different types of ecosystem e.g. wetlands, oceans. A total was then produced which came out at 33 trillion US dollars (1997 values), more than twice the total GDP of the world at the time of the study. This study was criticized by pre-ecological and even some environmental economists - for being inconsistent with assumptions of financial capital valuation - and ecological economists - for being inconsistent with an ecological economics focus on biological and physical indicators.[40] See also ecosystem valuation and price of life.

The whole idea of treating ecosystems as goods and services to be valued in monetary terms remains controversial to some. A common objection is that life is precious or priceless, but this demonstrably degrades to it being worthless under the assumptions of any branch of economics. Reducing human bodies to financial values is a necessary part of every branch of economics and not always in the direct terms of insurance or wages. Economics, in principle, assumes that conflict is reduced by agreeing on voluntary contractual relations and prices instead of simply fighting or coercing or tricking others into providing goods or services. In doing so, a provider agrees to surrender time and take bodily risks and other (reputation, financial) risks. Ecosystems are no different than other bodies economically except insofar as they are far less replaceable than typical labour or commodities.

Despite these issues, many ecologists and conservation biologists are pursuing ecosystem valuation. Biodiversity measures in particular appear to be the most promising way to reconcile financial and ecological values, and there are many active efforts in this regard. The growing field of biodiversity finance[41] began to emerge in 2008 in response to many specific proposals such as the Ecuadoran Yasuni proposal[42][43] or similar ones in the Congo. US news outlets treated the stories as a "threat"[44] to "drill a park"[45] reflecting a previously dominant view that NGOs and governments had the primary responsibility to protect ecosystems. However Peter Barnes and other commentators have recently argued that a guardianship/trustee/commons model is far more effective and takes the decisions out of the political realm.

Commodification of other ecological relations as in carbon credit and direct payments to farmers to preserve ecosystem services are likewise examples that enable private parties to play more direct roles protecting biodiversity. The United Nations Food and Agriculture Organization achieved near-universal agreement in 2008[46] that such payments directly valuing ecosystem preservation and encouraging permaculture were the only practical way out of a food crisis. The holdouts were all English-speaking countries that export GMOs and promote "free trade" agreements that facilitate their own control of the world transport network: The US, UK, Canada and Australia.[47]

Externalities

Ecological economics is founded upon the view that the neoclassical economics (NCE) assumption that environmental and community costs and benefits are mutually canceling "externalities" is not warranted. Juan Martinez Alier,[48] for instance shows that the bulk of consumers are automatically excluded from having an impact upon the prices of commodities, as these consumers are future generations who have not been born yet. The assumptions behind future discounting, which assume that future goods will be cheaper than present goods, has been criticized by Fred Pearce[49] and by the recent Stern Report (although the Stern report itself does employ discounting and has been criticized by ecological economists).[50]

Concerning these externalities, Paul Hawken argues that the only reason why goods produced unsustainably are usually cheaper than goods produced sustainably is due to a hidden subsidy, paid by the non-monetized human environment, community or future generations.[51] These arguments are developed further by Hawken, Amory and Hunter Lovins in "Natural Capitalism: Creating the Next Industrial Revolution".[52]

Ecological-economic modeling

Mathematical modeling is a powerful tool that is used in ecological economic analysis. Various approaches and techniques include[53][54]: evolutionary, input-output, neo-Austrian modeling, entropy and thermodynamic models, multi-criteria, and agent-based modeling, the environmental Kuznets curve. Systems Dynamics and GIS are techniques applied, among other, to spatial dynamic landscape simulation modeling.[55][56]

See also

References

Further reading

  • Common, M. and Stagl, S. 2005. Ecological Economics: An Introduction. New York: Cambridge University Press.
  • Costanza, R., Cumberland, J. H.,Daly, H., Goodland, R., Norgaard, R. B. (1997). An Introduction to Ecological Economics, St. Lucie Press and International Society for Ecological Economics, (e-book at the Encyclopedia of Earth)
  • Costanza, R., Stern, D. I., He, L., Ma, C. (2004). Influential publications in ecological economics: a citation analysis. Ecological Economics 50(3-4): 261-292. - http://econpapers.repec.org/article/eeeecolec/v_3A50_3Ay_3A2004_3Ai_3A3-4_3Ap_3A261-292.htm
  • Daly, H. and Townsend, K. (eds.) 1993. Valuing The Earth: Economics, Ecology, Ethics. Cambridge, Mass.; London, England: MIT Press.
  • Georgescu-Roegen, N. 1975. Energy and economic myths. Southern Economic Journal 41: 347-381.
  • Krishnan R, Harris JM, Goodwin NR. (1995). A Survey of Ecological Economics. Island Press. ISBN 1-55963-411-1, ISBN 978-1-55963-411-3.
  • Martinez-Alier, J. (1990) Ecological Economics: Energy, Environment and Society. Oxford, England: Basil Blackwell.
  • Martinez-Alier, J., Ropke, I. eds. (2008). Recent Developments in Ecological Economics, 2 vols., E. Elgar, Cheltenham, UK.
  • R pke, I. (2004) The early history of modern ecological economics. Ecological Economics 50(3-4): 293-314.
  • R pke, I. (2005) Trends in the development of ecological economics from the late 1980s to the early 2000s. Ecological Economics 55(2): 262-290.
  • Spash, C. L. (1999) The development of environmental thinking in economics. Environmental Values 8(4): 413-435.
  • Stern, D. I. (1997) Limits to substitution and irreversibility in production and consumption: A neoclassical interpretation of ecological economics. Ecological Economics 21(3): 197-215. - http://econpapers.repec.org/article/eeeecolec/v_3A21_3Ay_3A1997_3Ai_3A3_3Ap_3A197-215.htm
  • Tacconi, L. (2000) Biodiversity and Ecological Economics: Participation, Values, and Resource Management. London, UK: Earthscan Publications.
  • Vatn, A. (2005) Institutions and the Environment. Cheltenham: Edward Elgar.

External links

Schools and institute:

International Journal of Green Economics http://www.inderscience.com/ijge/

Environmental data:

Miscellaneous:

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