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Chapter 7

Ecological limits and Economical


development
GaneshThapa

‘The earth provides enough resources for everyone’s


need, but not for some people’s greed’
Ghandi
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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Economic growth is no longer improving
people’s lives in the developed world

WHY?
The Economy and the Environment

£
Resources
Resources Waste Waste
Waste
Waste
products
products £

4
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 about
improvements in wellbeing.

BUT: does this mean a shift away from agriculture


in the economy?
• Most neoclassical economists assume that
technological advance will outpace resource
scarcity over the long run and that ecological
services can also be replaced by new
technologies.
• Ecological economists, on the other hand,
assume that resource and ecological limits are
critically important and are much less
confident that technological advances will
arise in response to higher prices generated by
scarcities.
Can Technology Save Us?
 Can we decouple economic growth from resource use?

250 • Between 1980 and 2005:


• Material intensity (i.e. kg of
200 GDP
The World biomass, minerals, and fossil
fuels required to produce a
Index (1980=100)

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dollar of GDP) decreased by
Material Use
31%
100
• Population increased by 46%,
Material Intensity
Per capita GDP increased by
50
47%
0
• Total resource use increased
1980 1985 1990 1995 2000 2005 by 49%
Source: SERI (www.materialflows.net)

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The History of Economic Growth
The Global Economy, 1–2006 AD
7 7000
Population
6 6000
Per Capita GDP

Per Capita GDP (1990$)


Population (Billions)

5 5000

4 Can this really continue??? 4000

3 3000

2 2000
Source: Maddison 2008
1 1000

0 0
0

200

400

600

800

1000

1200

1400

1600

1800

2000
Year 8
The Ecological Footprint
• Measures how much land society needs to:
– Produce the resources it consumes
– Assimilate the wastes it generates
• A country’s ecological footprint is the sum of all the
cropland, grazing land, forest and fishing grounds
required to produce the food, fiber and timber it
consumes, to absorb the wastes emitted when it uses
energy and to provide space for infrastructure
• Earth’s people needed 18 billion hectares of
productive land in order to provide each and every
person with the resources they required to support
their lifestyle and to absorb the wastes they
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produced.
The bad news is that there were only 12
billion global hectares available.
Global Ecological Overshoot
The World
1.4
• Global ecological footprint
1.2 is greater than available
biocapacity!
1.0
Number of Earths

0.8
• We are in a state of
0.6 overshoot
– Resources are being used
0.4
faster than they can be
0.2 regenerated
– Wastes are being produced
0.0
faster than they can be
1960

1970

1980

1990

2000

assimilated
Ecological Footprint Biocapacity
Source: Global Footprint Network
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Prevailing Economic System
• Private ownership of material resources
• Public ownership of “sinks”
• Assumptions of
 Perfect functioning of the market
 Infinite substitutability of resources
 Subsidized disposal, energy, water
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 environment’s interests are not legally represented in
the economic system
The Limits to Growth

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Ecological Limits
• Ecological limits makes us understand the
interactions between the economy and the
environment.
• Ecological limits refers to the biological and
physical limits to economic growth beyond which
both ecological and economic collapse would
occur.
• In this view, limits are seen as absolute constraints
on economic activity, not just as a point beyond
which economic growth results in environmental
destruction.
3.1 Biophysical limits to growth
Finitude: 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 than
offsetting amount of disorder in the rest of the system.

Ecological interdependence: ecological connections


between economic sub-system and its hosting ecosystem
are disrupted with growth of economy
3.2 Ethical and social limits to growth

Costs to future generations: Welfare of future


people?

Cost to other life forms: extinction and the welfare


of other animals and planet
Is It All Worth It?

Imogen Shaw
Enough is Enough

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Happiness and GDP
United States
Percentage very happy

Real income
per person

Percentage
very happy

Source: Layard (2005)

“Americans have been more successful decoupling GDP from happiness than in
decoupling it from material and energy” —Peter Victor
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Happiness and GDP Across
Countries
Happiness (Index)

Source: Inglehart and Klingemann (2000)

Income per Person ($) 22


“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.


What
then?
United Nations Definition of Development :
• The basic purpose of development is to
enlarge people's choices.
• People often value achievements that do not
show up at all, or not immediately, in income
or 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.
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 without
sacrificing the ability of the future to meet its needs.

• Growth: quantitative increase by assimilation or accretion


of materials

• Development: qualitative improvement, realization of


potential
3. Sustainable development

"Anyone who believes exponential


growth can go on forever in a finite
world is either a madman or an
economist."
Kenneth Boulding (1910-1993)
Concept of ecologically sustainable
development
• Ecologically sustainable development is the
environmental component of sustainable
development.
• It can be achieved partially through the use of
the precautionary principle; if there are threats
of serious or irreversible environmental damage,
lack of full scientific certainty should not be used
as a reason for postponing measures to prevent
environmental degradation.
Concept of ecologically sustainable
development
• Also important is the principle of
intergenerational equity; the present
generation should 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.
Sustainable Economic System

• Understands primary role of natural systems in the


economy
• 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
What is a Steady State Economy
(SSE) ?
• Stable population

• Stable per capita consumption

• Energy and material flows are reduced and


kept within ecological limits

• Constant stocks of natural and human-built


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capital
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 they
can be replenished will vary from resource to resource
• Non-renewable resources, such as iron ore or fossil
fuels, are in limited supply within the earth’s crust, and
thus once they are used up they cannot be replaced.
Five Capitals Framework

We are facing a sustainability crisis because we're consuming our stocks of


natural, human and social capital faster than they are being produced. Unless
we control the rate of this consumption, we can't sustain these vital stocks in
the long-term.
Forum for the Future
1. Limit Resource Use
Currently:
• Few controls on use of resources and emission of pollutants
– Montreal Protocol: limits ozone-depleting substances
– EU Emissions Trading Scheme: limits CO2 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 Population
Currently:
• 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 Inequality
Currently:

• 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 higher


resource use
• Instead, shorten the working day, week, & year
– Same salaries but more leisure time! 38
5. Changing the Signals to the
Economy
• 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 is
called “internalization”
6. Change How We Measure
Progress
Currently:
• Rely on GDP, which doesn’t 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)
What Are We Actually
Measuring?
• GDP
– Total expenditure on all goods and services
produced within a country

• Adds to GDP:

• Also adds to GDP: 42


Genuine Progress Indicator (GPI)
 Same accounting framework as GDP, but
 Adds value of household and volunteer work
 Subtracts cost of crime, pollution, and family breakdown
United States
$40,000
GPI per capita
$35,000 GDP per capita

$30,000

$25,000
2000 US$

$20,000

$15,000

$10,000

$5,000
Source: Redefining Progress
$0
1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000 43
Year
Human Development Index

• Created by the United Nations Development


Program (UNDP)
• A composite of three indicators
– Longevity: life expectancy
– Knowledge: literacy, years of schooling
– Standard of Living: purchasing power based on
GDP/capita
Conclusion
• There is a conflict between economic growth and
environmental protection

• Economic growth is no longer improving people’s lives in the


developed world

• We need to make the transition to a SSE and sustainable


development
– Adopt the right macroeconomic goal
– Restrict resource use, stabilise population, limit inequality, reduce
working hours, eliminate fractional reserve banking, and change the
way we measure progress
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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 monetary
transactions
– Support an EcoIndustrial revolution