Introduction to Ecological Economics Greentax Sep. 7, 2004 Gary Flomenhoft-Gund Institute

CIRCULAR FLOW MODEL OF ECONOMY ECONOMY “EXTERNALITIES” SOCIETY ENVIRONMENT ? ?

Environment as subset of ECONOMY

= NEO-CLASSICAL ECONOMICS No Ingredients, only labor and capital P = f(L,K)= AL a. BK b (Cobb-Douglas multiplication) Labor (Chef ) Capital (Mixing bowl) x Bread? Capital (oven) X

= NEO-CLASSICAL ECONOMICS INFINITE SUBSTITUTABILITY: 2P = f(L,K)= 2AL a. 2BK b More Chefs or Bigger Mixing bowl x More Bread?

Quotable Quotes “There is no reason we can’t have a perfectly healthy economy with virtually no resources whatsoever” Robert Solow “We can do without agriculture because it’s only 2% of the economy.” Norgaard? “neo-classical economics is a form of brain damage” -- Hazel Henderson

ECOLOGICAL ECONOMY NO “EXTERNALITIES”

Intro to Ecological Economics Throughput-open system 1st Law: Conservation of mass ECONOMY (waste) (some)

ECONOMY (waste) (some) Sources Sub-surface Resources Sites Surface locations: ie: land Sinks Absorbtion of waste 3 Ss: GREEN TAX SOURCES

Intro to Ecological Economics Entropy=disorder, randomness 2nd Law: entropy always increases ECONOMY (waste) LOW ENTROPYHIGH ENTROPY (dissipated)

Intro to Ecological Economics WHAT IS ANTI-ENTROPIC? (SYNTROPIC) ECONOMY (waste) LOW ENTROPYHIGH ENTROPY

Intro to Ecological Economics Throughput-closed system ECONOMY earth

SCALE-Full World or Empty World? Source: Ecological Economics Principles & Applications, Farley and Daly

Marginal disutility

Differences

ECONOMY (waste) (some) Sources Sub-surface Resources Sky-Trust model GO UPSTREAM!

Sky-Trust model Appendix : Key Features of U.S. Sky Trust Here are the key features of the proposed U.S. Sky Trust. o Carbon emissions cap set initially at billion tons, the 1990 level o Tradable carbon emission permits sold annually to energy companies at the top of the carbon chain. o All revenue from permit sales goes into a nationwide trust. o Trust pays equal annual dividends to all U.S. citizens (like the Alaska Permanent Fund). o Dividends can be placed tax-free in Individual Retirement Accounts or Individual Development Accounts for children. o Initial price ceiling on carbon emission permits of $25 a ton; ceiling rises 7 percent a year for four years. o Transition Fund to help those most adversely affected by higher carbon prices. Fund starts at 25 percent of permit revenue, declines 2.5 percent per year.

Governance

“Maximization of Shareholder Value” “Golden Rule of Publicly held companies: Rational behavior: Externalize costs Influence politics to Seek subsidies and favors “Invisible boot”

“Altruism is evil and selfishness is a virtue.”-Ayn Rand Quotable Quotes “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.” -Milton Friedman 1962 Enron, World Com, Tyco????

Cost of regulations-OMB reportOMB report Annual Cost: $37-43 billion EPA conservative approach, Consistently overestimates costs, not considering least cost approach and technical innovation Annual Benefits: $ EPA consistently underestimates benefits USING ACTUAL NOT THEORETICAL CASES BENEFITS OUTWEIGH COSTS 5:1

CONSILIENCE “~Resources are infinite and the economy can grow forever”-Julian Simon “Anyone who thinks you can have infinite growth on a finite planet is either a madman or an economist”Kenneth Boulding

Intro to Ecological Economics Throughput-isolated system Universe

Intro to Ecological Economics-human dev Growth Development Growth=increase in throughput-quantitative Development=qualitative improvement

Intro to Ecological Economics-population Growth Development Demographic transition Theory

Intro to Ecological Economics-population

Intro to Ecological Economics-forest succession Growth Development Reorganization Aggredation Transition Steady-state (mature)

We hear: “There is no conflict between economic growth and environmental protection!”

GDP 1825: ~$200 BILLION 2000: $41,000 B ILLION OR $41 TRILLION =205X 1825 level.

60 Million yrs of CO2

CLIMATE DAMAGE

Europe in August 2003 COUNTRYDEATHSDETAILS France14,802 Temperatures soared to 104 degrees Fahrenheit in parts of the country; temperatures in Paris were the highest since record-keeping began in Germany7000 High temperatures of up to degrees Fahrenheit, the hottest since records began in 1901, raised mortality some 10 percent above average. Spain4230 High temperatures coupled with elevated ground-level ozone concentrations exceeding the European Union's health-risk threshold. Italy4175 Temperatures in parts of the country averaged 16 degrees Fahrenheit higher than previous year. UK2045 The first triple digit (Fahrenheit) temperatures were recorded in London. Neth1400 Temperatures ranged some 14 degrees warmer than normal. Portugal1316 Temperatures were above 104 degrees Fahrenheit throughout much of the country. Belgium150 Temperatures exceeded any in the Royal Meteorological Society's records dating back to TOTAL35,118

ESA Listings and GDP $10 $9 $8 $7 $6 $5 $4 $3 R 2 = 98.4 Source: The Wildlife Society Technical Review

Endangerment Causes Urbanization Agriculture Water diversions (e.g., reservoirs) Recreation, tourism development Pollution Domestic livestock, ranching Czech et al Bioscience 50(7):

Causes (cont.) Mineral, gas, oil extraction Non-native species Harvest Modified fire regimes Road construction/maintenance Industrial development Czech et al Bioscience 50(7):

K Carrying Capacity Scenarios Individuals Time r-selection K-selection

K and r-selected Species

Time GNP K Natural capital allocated to human economy Natural capital allocated to wildlife Czech, B Economic growth as the limiting factor for wildlife conservation. Wildlife Society Bulletin 28(1):4-14.

Natural Capital “We treat the earth like a business in liquidation.” Herman Daly Opportunity cost. Loss is not counted.

K Economic Carrying Capacity (“Plimsoll line”) GNP Time r-selection K-selection (OVERSHOOT)

K and r-selected Economies

GGP K Human economy Economy of nature We Might Ask

American GNP, K or r-selected?

KTKT GNP Natural capital allocated to human economy Natural capital allocated to non-human economy X natural capital allocable Time KUKU Natural Capital Allocation Revisited

Distribution-Grow out of poverty?

ALLOCATION Adam Smith

Rivalness and Excludability rival –My use leaves less for you to use Excludable (property rights) –One person can keep another from using the good –Consumer must pay, market will supply Must have a price to work in the free market!

Rivalness and Excludability Non-rival –My use does not leave less for you to use –Market sells for a price, discouraging use, but social cost of use = 0, therefore market should not supply Non-excludable –One person can’t keep another from using the good –Consumer will not pay, market will not supply Must have a price to work in the free market!

Rival} Non-rival} Excludable Non-Excludable Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution Potential market good (Tragedy of the “non- commons”)but inefficient: patented information, Pond, roads (congestible), streetlights Pure Public Good: climate stability, ozone layer, clean air/water/land, Biodiversity, information, habitat, life support functions, etc. Open Access Regime: (misnamed: Tragedy of the commons) Oceanic fisheries, timber etc. from unprotected forests, air pollution, waste absorption capacity Non-rival, congestible Private beaches, private gardens, toll roads, zoos, movies Public beaches, gardens, roads, etc.