A Brief Introduction to Ecological Economics Joshua Farley, PhD University of Vermont Community Development and Applied Economics & Gund Institute for Ecological Economics

What is Economics?  The allocation of scarce resources among alternative desirable ends

Sequence of 5 questions…  What are the desirable ends?  What are the scarce resources?  What are the characteristics of these resources relevant to allocation?  What are the characteristics of human nature relevant to allocation?  How do we allocate?

…with changing answers: Coevolutionary economics  Hunter-gatherer economics Accumulation = death Accumulation = death  Economics of early agricultural societies Depended on technological advance Depended on technological advance Advent of property rights Advent of property rights  Industrial market economics Use of non-renewable resources: FOSSIL FUELS Use of non-renewable resources: FOSSIL FUELS  Ecological economics Driven by the growing scarcity of natural capital Driven by the growing scarcity of natural capital

Ecological crises are driven by economic decisions  Climate change  Deforestation/mangrove loss  Overfishing  Toxic waste  Nuclear power  Ozone loss etc. etc.

What are the Desirable Ends?

Desirable Ends  A high quality of life for this and future generations.

Quality of life = fulfillment of human needs  Much more than consumption  Explicitly normative question: draws on ethics, philosophy, religion  Market goods only one of many human needs  Satiation occurs

Three necessary intermediate ends, in order of importance:  Ecologically sustainable scale  Socially just distribution of resources within and between generations  Economically efficient allocation

What are the scarce resources?

Draws on physics and ecology  Laws of thermodynamics  Dual nature of resources provided by nature

First law of thermodynamics First law of thermodynamics  Matter energy cannot be created or destroyed We cannot create something from nothing, nor nothing from something We cannot create something from nothing, nor nothing from something All economic production requires natural capital All economic production requires natural capital Continuous physical growth of the economy is impossible Continuous physical growth of the economy is impossible

Second law of thermodynamics Second law of thermodynamics  Entropy never decreases in an isolated system Things fall apart, wear out, become waste Things fall apart, wear out, become waste Irreversible, evolutionary, qualitative change Irreversible, evolutionary, qualitative change Low entropy energy required for all economic processes Low entropy energy required for all economic processes Finite stock of accumulated low entropy Finite stock of accumulated low entropy Finite rate of flow of solar energy Finite rate of flow of solar energy The ultimate limit to the physical size of the economic system is the low entropy provided by solar energy The ultimate limit to the physical size of the economic system is the low entropy provided by solar energy

Production Requires Throughput Production Requires Throughput  Laws of Thermodynamics: What goes in must come out  Raw materials and waste  Left out in the abstraction process in neoclassical economics  Throughput = Cost

Ecosystem goods  Low entropy matter-energy  Finite  Examples Timber Timber Fish Fish Minerals Minerals Water Water

Ecosystem goods  Raw materials = ecosystem structure  Materially transformed into what it produces  Used up, not worn out: use = depletion  Units independent of time  Characterized by risk

Ecosystem services  Examples Poorly understood life support functions Poorly understood life support functions Nutrient cycling Nutrient cycling Water regulation Water regulation Climate regulation Climate regulation Erosion control Erosion control Recreation, etc., etc. Recreation, etc., etc.  Mostly non-priced Scarcity  price increase  innovation Scarcity  price increase  innovation

Ecosystem services  Structure generates function= ecosystem services  Not transformed into what it produces  Spontaneously restored  Units time dependent: x/t  Highly complex: Characterized by uncertainty and ignorance

So What?  Economic production depletes ecosystem structure, and generates waste  Depletion of ecosystem structure and waste emissions both deplete ecosystem services  Both ecosystem goods and services are essential  Economic growth has an enormous opportunity cost, measured in the depletion of ecosystem services

Human made capital has grown more abundant, and natural capital more scarce

Primacy of Scale  Sustainable growth is an oxymoron  Ever continuing growth in material consumption is an impossible goal  BUT welfare is a psychic flux, not a physical flux.  Economic development is possible, but not continuous economic growth  Nothing that says an economic equilibrium corresponds to an ecological equilibrium: no ‘when to stop’ rule

Status of Scale  Humans capture or degrade 40% of net primary productivity  Ecological Footprint estimated at 1.2 planets  Natural capital is the limiting factor in development  Most important service of natural capital is global life support functions

What is Sustainable Scale?  Scientific question  Can’t be answered using standard science, i.e. experiments and repeatable observations.

Pre-analytic vision of EE  Finite planet, where the laws of thermodynamics apply  Scarce resources are low entropy matter energy  Economic growth displaces ecosystem function  Ecosystem services are becoming dangerously scarce  Ecological economic system is extremely complex, non-linear and poorly understood

The Pre-analytic vision of NCE

Market relevant characteristics of scarce resources

Excludability  Excludable resource regime One person can prevent another from using the resource One person can prevent another from using the resource Necessary for markets to exist Necessary for markets to exist  Non-excludable No enforceable property rights No enforceable property rights Can’t charge for use Can’t charge for use  Some resources non-excludable by nature. None are inherently excludable.

Rivalness  Rival resources My use leaves less for you to use My use leaves less for you to use  Non-rival (or non-subtractable) My use does not leave less for you to use My use does not leave less for you to use Rationing through prices reduces benefits without reducing costs: INEFFICIENT Rationing through prices reduces benefits without reducing costs: INEFFICIENT  Innate characteristic of the resource, not a result of institutions

Allocation

How do we allocate? Rival: competition Non-rival: cooperation Excludable: Markets possible Non-Excludable: No market possible Market Good: Ecosystem structure, Waste absorption capacity (e.g. CO 2 ) Tragedy of the non- commons: patented information Pure Public Good: Most ecosystem services unpatented information Open Access Regime “tragedy of the commons”: Unowned ecosystem structure, waste absorption capacity (e.g. SO 2 )

Ecologically sustainable and desirable scale  Macro-allocation: How much ecosystem structure needed to provide life support functions, how much available for economic production?  Scale must be price determining, not price determined  Democratic decision-making, informed by scientific expertise and precautionary principle  Democracy, not plutocracy

When to Stop Rule: MC=MB  Diminishing marginal benefits of economic growth  Increasing marginal costs

Socially just distribution  End enclosure of the commons  Guiding principles Value created by nature or society is part of commonwealth (economic profit, rent) Value created by nature or society is part of commonwealth (economic profit, rent) Value added by sweat of brow belongs to individual (normal profit) Value added by sweat of brow belongs to individual (normal profit)

Economically efficient micro-allocation  Depends entirely on specific resource  Non-excludable resources must be free  Non-rival resources should be free Owned and provided by the polis Owned and provided by the polis Democracy, not plutocracy Democracy, not plutocracy

Can We Cooperate?

How do people behave?  Homo economicus Self interest Self interest Always wants moreAlways wants more Purely competitivePurely competitive “homogenous globules of desire”“homogenous globules of desire” Rational actor Rational actor What is rational?What is rational? Are people purely rational, or also emotional and spiritual?Are people purely rational, or also emotional and spiritual?

How do people behave?  Or are we cooperative, social animals, concerned about the future that differ across cultures? e.g. H. comunicus, concern for fairness and community preferences e.g. H. comunicus, concern for fairness and community preferences H. naturalis, concern for sustainability and whole system preferences H. naturalis, concern for sustainability and whole system preferences  Brain Chemicals: Dopamine and Oxytocin

Is Sustainability a Sacrifice? Is Sustainability a Sacrifice?

What Makes People Happy?  Money? (Not very, and only relative wealth once basic needs are met) (Not very, and only relative wealth once basic needs are met)  Desiring less  Friends  Marriage  Religion/community  Helping others

What makes people unhappy?  Pursuit of material gain “young adults who focus on money, image and fame tend to be more depressed, have less enthusiasm for life and suffer more physical symptoms such as headaches and sore throats than others.”  Comparing yourself with others Status is a never-ending tread-mill Status is a never-ending tread-mill

Conclusions  Efficiency is allocation of resources in a way that maximizes quality of life for this and future generations  Economic growth has high opportunity costs, low marginal benefits  Things that make us happy are most compatible with sustainability

Course Projects Several will be in collaboration with grad level course in EESeveral will be in collaboration with grad level course in EE

Envisioning a Sustainable and Desirable Vermont Survey of Vermonters to find out what they want in the futureSurvey of Vermonters to find out what they want in the future Tells us the desirable ends, so we have criteria by which to rank policies and politiciansTells us the desirable ends, so we have criteria by which to rank policies and politicians Draw on the scenarios given in the Millennium Ecosystem AssessmentDraw on the scenarios given in the Millennium Ecosystem Assessment Use conjoint analysisUse conjoint analysis Turn into journal article, editorials, etc.Turn into journal article, editorials, etc.

Envisioning a Sustainable and Desirable Vergennes In partnership with Vergennes planning commissionIn partnership with Vergennes planning commission –Work with Mark Hattler, Chair –Meeting September 18 (need to check) Similar to that for Vermont, but smaller sample size, and will hopefully have a direct and immediate influence on policySimilar to that for Vermont, but smaller sample size, and will hopefully have a direct and immediate influence on policy

3 Atelier courses What is an atelier? What is an atelier? – Problem based field course Wicked problems: Facts uncertain, stakes high, decisions urgent, values matter Wicked problems: Facts uncertain, stakes high, decisions urgent, values matter – Transdisciplinary – Transinstutional: Academia, policy makers, civil society (NGOs, stakeholders), business – Analysis, synthesis and communication Design web site for ateliers-- content, not structure Design web site for ateliers-- content, not structure Prepare invitations, applications, etc. Prepare invitations, applications, etc.

Payments for Ecosystem Services Atelier Takes place in Costa Rica next MarchTakes place in Costa Rica next March 4 components4 components –Presentation of real life problems –Study of real solutions –Introduction to theory –Develop working solutions to actual problems Partner with Costa Rican National UniversityPartner with Costa Rican National University Work with Robin Kemkes and Azur MoulaertWork with Robin Kemkes and Azur Moulaert

Participatory Watershed Management in Mexico Takes place in Veracruz, Mexico next May- JuneTakes place in Veracruz, Mexico next May- June 3 part atelier3 part atelier –Vision –Analysis, modeling of ES –Policy proposals Partner with Anahuac UniversityPartner with Anahuac University Work with Jimena, Luz and JaimeWork with Jimena, Luz and Jaime