The Basics of Environmental Economics part one George Horváth Building Q, room A235.

What is environmental economics? It is a social science, focussing on the relationship and interactions of society and environment It employs many concepts from regular economics: –the theoretic principles (like in externalities) –and methodology (such as marginal analysis) It complements regular economics with interdisciplinary approach (ecology, environment and chemistry) About the course Introduction Historical background The principles of environmental and ecological economics

How it all began… In the 1920s, Arthur Cecil Pigou explored the relationship between pollution and economic externalities The school of welfare economics enabled him to investigate environmental problems regularly As the questions about the environment grew in numbers, the area outgrew the capacities of microeconomics Arthur Cecil Pigou ( ) About the course Introduction Historical background The principles of environmental and ecological economics

The rivals of environmental economics Libertarian school of economics: there is no need for an extraordinary analysis of environmental relationships; all we need is to define ownership rights accurately, and the markets will do everything –Really? How? Ecological economics: we need to unify the principles of ecology and economics, and we need to stress the ecological constraints –Are these compatible, though? About the course Introduction Historical background The principles of environmental and ecological economics

What are we trying to investigate? We are trying to understand and describe the occurrences and processes of pollution and the use of environmental resources, using the concepts of economics –Whats going on? Were trying to discover where the rules of play of the economy are imperfect in treating environmental resources –Whats causing it? Were trying to devise alternatives to optimalise the relationship between the economy and the environment –What needs to be changed? About the course Introduction Historical background The principles of environmental and ecological economics

Things we need to pay attention to We need to use the precise terminology –so that we mean what we say We need to separate facts from opinions We need to distinguish between consecutive events and cause-and- effect events –the fallacy of post hoc ergo propter hoc About the course Introduction Historical background The principles of environmental and ecological economics

Is everything going like we think it is? Our economies were booming before the crisis; the economies expanded by several percentage points per year When the economic crisis broke out, our economies started contracting, causing havoc Is economic growth good for us? Does economic growth make us richer/happier/better? Why are our economies growth-orientated, then? About the course Introduction Historical background The principles of environmental and ecological economics

… in short: no! Growth may bring more economic wealth, but the richer we get, the less our sense of welfare increases When our economies started contracting, signs of rationalisation showed up. Economic growth in itself is not good for us –In fact, some scientists have come up with the idea that zero growth is ideal Our economies are growth oriented, because… uhm… well… –Does anybody know? About the course Introduction Historical background The principles of environmental and ecological economics

More about this later. About the course Introduction Historical background The principles of environmental and ecological economics

The most important milestones of environmental economics – part one Rachel Carson (1962) – Silent Spring Foundation of the Club of Rome (1968) Appeal from UN Sec.-Gen. U Thant (1969) USA: Earth Day, establishment of EPA, Clean Air Act (1970) UN conference on the human environment (1972) The Limits to Growth (MIT, 1972) Leontiefs World Model (1973) About the course Introduction Historical background The principles of environmental and ecological economics

Rachel Carson – Silent Spring (1962) An American marine biologist, writing about the adverse effects of DDT Her work is fiction, but it is based on scientific facts Points the limelight at the severity of environmental problems Rachel Carson ( ) About the course Introduction Historical background The principles of environmental and ecological economics

The Limits to Growth (1972) Aim: to draw the attention of governments and international organisations by focussing on and investigating a global problem, ie. a particular threat to humanity. About the course Introduction Historical background The principles of environmental and ecological economics Research ( ) Population Industrial Food production Pollution Depletion of natural resources Outcome If the current trends in economic growth persist, we will reach the limits to growth by the end of the 21st Century. Recommendation: Zero growth

Leontiefs World Model (1973) The UN was seeking the relationships between its development strategy and the problems with the environment Research into –how ecological factors influence economic growth –how good the international development strategies are About the course Introduction Historical background The principles of environmental and ecological economics Hypothesis: –Pollution and environmental protection can be dealt with technically, but its rather costly

The most important milestones of environmental economics – part two UN establishes the Brundtland Commission ( ) Montréal Protocol on the protection of the ozone layer (1987) Brundtland Commission publishes its report: Our Common Future (1987) UNs Rio Conference (1992) on the environment and development Kyoto Summit (1997) Johannesburg Summit (2002) Copenhagen Summit (2009) About the course Introduction Historical background The principles of environmental and ecological economics

The Brundtland Commission ( ) Aim: To investigate the critical aspects of environmental protection and development, and a realistic proposition to solve the issues Recommendation on forms of international cooperation Initiation of programmes improving environmental sensitivity and readiness to take action About the course Introduction Historical background The principles of environmental and ecological economics Results: Mapping of environment and development until 2000, while developing a global strategy for the period after that

And now for something completely different About the course Introduction Historical background The principles of environmental and ecological economics

But before we begin: –what IS the environment? About the course Introduction Historical background The principles of environmental and ecological economics

What do we call environment? When we say environment, we usually mean the natural environment –Vernacular approach –This also includes living and non-living things Built-up environment –Created by human beings About the course Introduction Historical background The principles of environmental and ecological economics

How can we define environment? Its the part of the world surrounding human beings where humans live and act. About the course Introduction Historical background The principles of environmental and ecological economics

What does our environment consist of? … or perhaps not. About the course Introduction Historical background The principles of environmental and ecological economics

The spheres of our environment Biosphere: –the place on Earth's surface where life dwells (Eduard Suess, 1875) Lithosphere – the Earths crust Hydrosphere – the waters of Earth Atmosphere – the air on Earth About the course Introduction Historical background The principles of environmental and ecological economics

The macroeconomic problems of environmental economics Economic growth Scarcity Indicators About the course Introduction Historical background The principles of environmental and ecological economics

Economic growth Growth-oriented economies increase the demand of natural resources Growth produces additional resources needed for social welfare… BUT It increases the demand for natural resources, whilst causing pollution These adverse effects may over-compensate the direct economic benefits –ie.: we may end up worse off than before! About the course Introduction Historical background The principles of environmental and ecological economics

The debate about economic growth Malthus (1798) claimed that famine is inevitable, because we cannot feed an exponentially growing population from a limited amount of land Meadows et al: The Limits to Growth Ecological economists: –Growth is undesirable, the aim is development –See also: Herman Dalys Steady State Economics About the course Introduction Historical background The principles of environmental and ecological economics

The perspectives of economic growth Growth is unacceptable, and is morally wrong –immaterialists, eg. Schumacher and Daly Growth is impossible on the long run –pessimists, eg. Meadows et al Growth and technological advancement go hand in hand, thus the quality of the environment improves over time –technocrats Growth and environmental deterioration is unavoidable, unstoppable –opportunists Growth is necessary for the funding of environmental protection –optimists About the course Introduction Historical background The principles of environmental and ecological economics

Economic growth and the environment Fundamental explanatory principles: Population growth and the increase in per- capita consumption increase the demand for natural resources, whilst increasing the level of pollution The technological advancements required for economic growth decrease the relative use of natural resources, and therefore, pollution (see: Solows growth theorem) What is the resultant outcome of these two, opposing thoughts? About the course Introduction Historical background The principles of environmental and ecological economics

The outcome: If we take the ecological footprint into consideration, a larger GDP will mean more pollution If we take the environmental performance index into consideration, a larger GDP will mean less pollution About the course Introduction Historical background The principles of environmental and ecological economics

Is there a solution, then? Economic prosperity and the use of raw materials must be de-coupled –Greater welfare with constant or decreasing material use Possible solutions –Produce less (towards Zero growth) –Produce less waste (cleaner technologies) –Recycle more (…and also, re-use more) –Growth in services and in low raw-material intensive sectors only About the course Introduction Historical background The principles of environmental and ecological economics

Thats it for today! See you next week! About the course Introduction Historical background The principles of environmental and ecological economics