Sustainable Community Development and Ecosystem Services: A Recovering Economist’s View U.S. EPA – Mid-Continent Ecology Division Duluth, MN October 8, 2008

JERRY HEMBD State Specialist Community and Economic Development University of Wisconsin-Extension Associate Professor of Economics Department of Business and Economics University of Wisconsin-Superior

“... the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” John Maynard Keynes in The General Theory of Employment, Interest, and Money, 1936.

Y = C + I + G + X Q = f ( L, K ) In the Microeconomic World In the Macroeconomic World Some Economic World Scribbles

Four Challenges Posed by the Transition to Sustainability We need more accurate models, metaphors, and measures to describe the human enterprise relative to the biosphere. It will require a marked improvement and creativity in the arts of citizenship and governance. The public’s discretion will need to be informed through greatly improved education. It will require learning how to recognize and solve divergent problems, which is to say a higher level of spiritual awareness. Source: David Orr. The Last Refuge: Patriotism, Politics, and the Environment in an Age of Terror. Washington, DC: Island Press, 2004.

The Three Waves of Community Economic Development Plus One Three Waves Portion Derived from: Blakely, Edward J., and Bradshaw, Ted K. Planning Local Economic Development: Theory and Practice. 3d ed. Thousand Oaks, CA: Sage Publications, Drabenstott, Mark. “Rethinking Federal Policy for Regional Economic Development.” Economic Review, Vol. 91, No. 1 (First Quarter 2006). Eberts, Randall W. “Overview of State and Local Economic Development Policies and Practice in the United States.” In Local Governance for Promoting Employment—Comparing the Performance of Japan and Seven Countries, pp Edited by Sylvain Giguere, Yoshio Higuchi, and the Japan Institute for Labour Policy and Training. Tokyo, Japan: The Japan Institute for Labour Policy and Training, Shaffer, Ron; Deller, Steve; and Marcouiller, Dave. “Rethinking Community Economic Development.” Economic Development Quarterly, February 2006.

First Wave Industrial Recruiting 1950s to early 1980s Driver Export base Goal Attract outside firms Strategies Financial incentives Industrial parks Keys to success Government funds for subsidies and tax breaks Industrial infrastructure

Second Wave Cost Competition Early 1980s to early 1990s Driver Efficiency and scale economies Goal Retention and expansion of existing firms Strategies Reduce taxes Deregulation Industry consolidation and cost cutting Keys to success Health of existing firms Training programs Social and physical resources

Third Wave Regional Competitiveness Early 1990s to present Driver Innovation and entrepreneurship Goal Enhance regional resources to promote industrial clusters Strategies Entrepreneurship Clusters Building regional collaboration Keys to success Distinct regional assets such as –Human capital –Higher education –Amenities –Creative economy Leadership and development of quality environment Bridging economic and community development

The Fork in the Path  Current trajectory  Technical tinkering  Incremental adjustment  Paradigm change  Sustainability revolution  Radical overhaul

Fourth or “New” Wave Sustainability Revolution and Paradigm Change Early 1980s and still evolving Drivers Sustainable development and systems thinking Goal Sustainability Emerging Strategies Eco-municipality movement (The Natural Step) Localization Valuing ecosystem services Precautionary principle Local food systems Sustainable (eco) tourism Triple bottom line business Industrial ecology Green jobs Alternative and renewable energy sources

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Intergenerational equity Source: World Commission on Environment and Development. Our Common Future. The Brundtland Report. Oxford University Press, 1987, p. 43.

“It contains two key concepts: the concept of “needs,” in particular the essential needs of the world’s poor, to which overriding priority should be given; and the idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs.” Intragenerational equity Environmental Limits

Evolving Views of the Community Unconnected or silos viewInterconnected or linkages view Interdependent, nested, or systems view Environment Economy Society Environment Economy Society Environment Society Economy

Political Capital Natural Capital Cultural Capital Human Capital Financial Capital Built Capital Social Capital Healthy Ecosystem Vital Economy Social Well-Being Community Capitals Framework Source: Cornelia Butler Flora, North Central Regional Development Center, 2004

Natural Capital Financial Capital Manufactured Capital Human Capital Economy Society Natural Capital Social Capital The Five Capitals Framework Source: Forum for the Future

Notes on the Five Capitals Framework  Different representations are possible, what matters most is the interconnections and interdependencies  Natural and human capital are the primary forms of capital (and only sources of wealth), with social and manufactured capital derived from them  Must take account of the preconditionality of natural capital  There are no hard lines

What is a system? Source material from TNS Canada

Conventional Thinking Traditionally, we try to understand complex systems by reducing the whole and studying the individual parts. This is called reductionist thinking. Source material from TNS Canada

Systems Thinking But… We know that the properties of systems depend on the relationships between the parts as much as the parts themselves. When you dissect the system, you destroy the pattern of relationships. Source material from TNS Canada

We must look at the whole... … and not get stuck on details Systems Thinking Source material from TNS Canada

Types of Systems – A Beginning Closed system –Imports and exports energy only; matter circulates within the system  the Earth approximates such a system... energy flows through, material cycles within... finite, nongrowing Open system –Takes in and gives out both matter and energy  the economy is such a system... it can change in size

Solar Energy Energy Source Functions Sink Functions Resources Finite Global Ecosystem Waste Heat Energy Resources Recycled Matter Natural Capital (Ecosystem) Manmade Capital (Economy) Growing Economic Subsystem Human Welfare Economic services Ecosystem services Source: Daly, Herman. Ecological Economics. Island Press, 2004

Supporting Nutrient cycling Soil formation Primary production Provisioning Food Freshwater Wood and fibre Fuel Regulating Climate regulation Flood regulation Disease regulation Water purification Cultural Aesthetics Spiritual Educational Recreational Major Categories of Ecosystem Services Source: Millennium Ecosystem Assessment Washington, DC: Island Press.

Examples from Forests of Services Provided by Ecosystems Gas regulation – Trees store CO 2 and growing trees create O 2 ; forests can clean SO 2 from the atmosphere. Climate regulation – Greenhouse gas regulation; evapotranspiration and subsequent transport of stored heat energy to other regions by wind; affects of shade and insulation on local humidity and temperature extremes. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Disturbance regulation – Storm protection, flood control, drought recovery, and other aspects of habitat response to environmental variability mainly controlled by vegetation structure. Water regulation – Tree roots aerate soil, allowing it to absorb water during rains and release it during dry times, reducing risk and severity of both droughts and floods. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Water supply – Evapotranspiration can increase local rainfall; forests can reduce erosion and hold stream banks in place, preventing siltation of in-stream springs and increasing water flow. Waste absorption capacity – Forests can absorb large amounts of organic waste, and filter pollutants from runoff; some plants absorb heavy metals. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Erosion control and sediment retention – Trees hold soil in place, forest canopies diminish impact of torrential rainstorms on soils, diminish wind erosion. Soil formation – Tree roots grind rocks; decaying vegetation adds organic matter. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Nutrient cycling – Tropical forest are characterized by rapid assimilation of decayed material, allowing little time for nutrients to run off into stream and be flushed from the system. Pollination – Forests harbor insects necessary for fertilizing wild and domestic species. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Biological control – Insect species harbored by forests prey on insect pests. Refugia or habitat – Forests provide habitat for migratory and resident species, create conditions essential for reproduction of many of the species they contain. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Examples from Forests of Services Provided by Ecosystems Genetic resources – Forests are sources for unique biological materials and products, such as medicines, genes for resistance to plant pathogens and crop pests. Recreation – Eco-tourism, hiking, biking, etc. Cultural – Aesthetic, artistic, educational, spiritual and/or scientific values of forest ecoysystems. Source: Daly, Herman E., and Farley, Joshua. Ecological Economics. Washington, DC: Island Press, 2004.

Ehrlich-Holdren “IPAT” Equation I = P * A * T I = environmental impact of the economy P = population  growing A = average material standard of living  growing rapidly (consumption) T = throughput (resource consumption, pollution, and ecosystem impacts) per unit of output  technology term to compensate for P and A Original Source: Ehrlich, P., and Holdren, J “Impact of Population Growth.” Science 171:

World Population Since AD 1 Billion People

Trillion Dollars 2003 Dollars Gross World Product

US Energy Consumption Quadrilion BTU

The Age of Oil Year Billions of barrels

Growth Trends Summary: 1950 to 2000 Population  more than 2X Economy  7X Food consumption  3X Water use  3X Energy use  4X

Solar Energy Growing Economic Subsystem Energy Source Functions Sink Functions Resources Finite Global Ecosystem Waste Heat Recycled Matter Natural Capital (Ecosystem) Manmade Capital (Economy) Human Welfare Economic services Ecosystem services Source: Daly, Herman. Ecological Economics. Island Press, 2004

Natural Capital (Ecosystem) Manmade Capital (Economy) Source: Daly, Herman. Ecological Economics. Island Press, 2004 Finite Global Ecosystem

A science- and systems-based definition for sustainability A decision-making framework and process to help organizations and communities plan for sustainability A shared language provides a compass to help us know if we’re moving in the right direction Source material from TNS Canada The Natural Step Framework

The Natural Step Resource Funnel Resource Availability and Ecosystem Ability to Provide Vital Services Raw materials, ecosystem services, declining integrity and capacity of natural systems Sustainability Margin for Action Societal Demand for Resources Growth in population, resource requirements as affluence increases, increased demands as technology spreads. Source: Nattrass, Brian, and Altomare, Mary. The Natural Step for Business. New Society Publishers, 1999.

Ways we are un-sustainable we dig stuff (like heavy metals and fossil fuels) out of the Earth’s crust and allow it to build up faster than nature can cope with it we create man-made compounds and chemicals (like pesticides and fire retardants in carpets, etc.) and allow them to build up faster than nature can cope with them we continuously damage natural systems and the free services they provide (including climate regulation and water filtration) by physical means (for example, overharvesting and paving wetlands) And... we live in and create societies in which many people cannot meet their basic needs (for example, affordable housing) Source material from TNS Canada

Basic conditions for sustainability concentrations of substances extracted from the earth's crust concentrations of substances produced by society degradation by physical means and, in that society… people are not subject to conditions that systematically undermine their capacity to meet their needs. In a sustainable society, nature is not subject to systematically increasing: Source material from TNS Canada

Sustainability objectives Reduce dependence on fossil fuels, scarce metals, and minerals. Reduce dependence on chemicals and synthetic substances that can accumulate in nature. Reduce dependence on activities that harm life-sustaining ecosystems Meet present and future human needs fairly and efficiently Source material from TNS Canada

Planning and Action Framework “D” Step  Right direction?  Flexible Platform?  Return on investment? time Source material from TNS Canada

A Growing Movement Community stories Source material from TNS Canada

Swedish Eco-municipalities An eco-municipality aspires to develop an ecologically, economically, and socially healthy community for the long term, using The Natural Step Framework for sustainability as a guide, and a democratic, highly participative development process as the method.

Wisconsin Eco-municipalities City of Washburn City of Ashland City of Madison City of Bayfield Town of Bayfield Douglas County Johnson Creek City of Marshfield City of Manitowoc City of Neenah City of Menasha Town of Cottage Grove La Crosse La Crosse County City Beloit City of Baraboo City of Sheboygan Dunn County Village of Spring Green Duluth, MN

Closing Comments and Topic for Another Time Ecosystem Services in a Market Economy

ECOSYSTEM GOODS AND SERVICE Use values Nonuse values e.g., existence, species preservation, biodiversity, cultural heritage Consumptive use e.g., harvesting, water supply (irrigation, drinking), genetic and medicinal resource Nonconsumptive use Direct e.g., recreation (boat/swim), transportation, aesthetics, birdwatching Indirect e.g., UVB production, habitat support, flood control, pollution control, erosion prevention V A L U E S The figure shows the multiple types of values from ecosystem goods and services that are considered within a total economic valuation (TEV) framework. Total Economic Evaluation Framework (A Utilitarian Approach)

The Tragedy of Ecosystem Services A competitive, market-based economy creates obstacles to putting the economic value of ecosystem services into operation Owners of natural capital resources from which such services could flow have insufficient incentives to employ resources for that purpose There are insufficient incentives for beneficiaries of such services flowing from other people’s resources to invest in their conservation or do anything other than reap as much of the benefits as possible as fast as possible

Ways of Correcting the Incentive Structure Better-defined property rights  Addressing externalities, information costs, transaction costs, and free riders Prescriptive state regulation  “Mutual coercion, mutually agreed upon by the majority of the people affected” Social norms  Customs, tacit agreements, and ways of getting along

Some things have to be believed to be seen.

Northern Center for Community and Economic Development Jerry Hembd, Director University of Wisconsin-Superior Belknap & Catlin, PO Box 2000 Superior, Wisconsin Phone: Fax: Website: