Environmental and Ecological Economics We cannot solve problems by using the same kind of thinking we used when we created them. -Attributed to Albert Einstein

Environmental vs Ecological Economics Neoclassical/Environmental Economics focus: Efficient allocation of resources ment/energy/great-energy-challenge/global-energy- subsidies-map/ Applied Microeconomic models Externalities are market failures: All costs to society not included in market price Incomplete information available to consumers Growth & Increasing income Factors of Production: Land, Labor, Physical Capital, Human Capital, Entrepreneurship

Economics, Growth, and Values Recent History of Emphasis on Economic Growth After WWII, economic growth came to dominate U.S. politics Given the international dominance of US at this time, other countries followed Other goals sacrificed for the sake of growth Economic theory viewed nature, if at all, as a storehouse of resources waiting to be used. Sustainability has had a hard time breaking into economic theory because the economics of the past 50 years has been overwhelmingly devoted to economic growth…meaning growth in GDP.– Herman Daly (Ecological Economist)

Environmental vs Ecological Economics Ecological economics focus: Distribution of resources & goods – EQUITY Scale of the economy relative to the ecosystems upon which it is reliant. Development (vs Growth) Reading: Prosperity Without Growth Quality vs Quantity Increased income does not necessarily lead to improvement in well-being Land, Labor, Physical Capital, Human Capital, Natural Capital, Entreneurship

Example of Natural Capital Provisions A stock of trees provides: a flow of new trees used for production in the future soil erosion prevention water absorption and flood control habitat for plants and animals waste absorption for these species oxygen generation and sequestering of carbon from atmosphere (cleansing the air) spiritual inspiration, recreation

Models: Ecology/Economy Relationship Traditional Economic Model Ecosystem is merely the extractive & waste disposal sector of economy. Nature is supplier of super- abundant, limitless, and substitutable resources. Only limit to growth is technology. Growth of economy is not at the expense of anything else, so why oppose growth?

Models: Ecology/Economy Relationship Ecological Economic Model Humans & their economies are part of a larger ecosystem and coevolve with these natural systems. Resources are limited. Infinite growth on finite planet? As economy grows, crowds out Natural Capital. Natural Capital yields flow of natural services and resources in the future. Natural Capital depreciates.

Economys Relation to the Environment

Sustainability: The Reconciliation of Environmental, Social and Economic Deman ds THREE PILLARS of SUSTAINABILITY

Sustainability Definition Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs. (Brundtland Commission, UN, 1987). Sustainability is about stabilizing the currently disruptive relationship between human culture and the rest of the living world.

The Economics of the Coming Spaceship Earth Kenneth Boulding, 1966 The closed earth of the future requires economic principles which are somewhat different from those of the open earth of the past. … I am tempted to call the open economy the "cowboy economy," The closed economy of the future might similarly be called the "spaceman economy, The difference between the two types of economy becomes most apparent in the attitude towards consumption.

Ecological Economics Ecology: The science of the relationships between organisms and their environments. The study of the detrimental effects of modern civilization on the environment, with a view toward prevention or reversal through conservation (also called human ecology). Ecological Economics: Aims to address the interdependence of human economies and natural economics. It is different from Environmental Economics by its connection to the natural sciences AND its Focus on how to operate an economy within the ecological constraints of earths natural resources!!!

Measuring Economic Progress Help the next generations of economists take proper account of nature and cultural diversity. Gross Domestic Product (GDP) Genuine Progress Indicator (GPI) $ (market) value of all goods and services produced within a country in a given year. C+I+G+(X-M) Corresponds with traditional economic view $ value of the addition to welfare/well-being of people in a country in a given year. Better measure of sustainability of economy/society. GDP Less: negative effects related to economic activity cost of crime, cost of ozone depletion, cost of resource depletion, loss of leisure time. Plus: positive effects related to economic activity Value of housework and volunteer work (BP oil spill) You manage what you measure

The New Paradigm Questions What does society wish to become? What is the ecosystems health relative to the social objective? How to measure it to ensure we get there? MANAGE WHAT YOU MEASURE Where does business, government, individuals fit in?