Tema 3. The sustaintability of growth Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment

Basic Economic activities Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Humans & environment Basic Economic activities Consumption.- The use by human individuals of goods an services to satisfy some of their needs and wants. Not all consumption is ‘consumptive’ Production.- Commodities to be consumed by individuals or by firms  Investment.- …in Capital Stock, which provides capital services Life support services: the purification of our air and water; the stabilisation, and moderation, of the climate; nutrient cycling; the pollination of plants. All of the other plants and animals that we use as natural resources, which participate in waste assimilation, and which contribute to the provision of amenity services, also depend on these life support services.

Reproducible or human-made 1. Economic activity and Environment 2. Constituents of human well-being The concept of Ecological Economics Interdependent systems Sustainability Capital Stock Reproducible or human-made Durable capital.- Tools, machinery, buildings, infrastructures.. Human Capital.-Stock of learned skills Intellectual capital.- Accumulated knowledge and skills Social capital.- Set of institutions and customs Natural capital.- Stocks in the environment that deliver services to the economy.

Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Two questions Can be consumption held constant indefinitely, if the population is constant in size, given that non-renewable resources are a necessary input to production? How to allocate efficiently the environmental resources in case of market failures?

Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The Hartwick rule Constant consumption in a model economy can be achieved if the total value of the economy’s stock of reproducible capital together with its stock of non-renewable resources is held constant over time by investing the rent. The amount of investment in reproducible capital that is needed to exactly offset declining stocks of non-renewable resources.

The optimum pollution level Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The optimum pollution level Economic Equilibrium: (P) BMg=CMg privado Environmental Equilibrium: (P*) - OL*. Lesser resources consumption and higher prices BMg = CMg total (privado + ambiental)

Campesinos deciden individualmente Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The tragedy of commons Explotación conjunta de pastos comunales.- Valor de leche producida es f(L) y coste de una vaca es c. Campesinos deciden individualmente Si PMe [f(L+1)/(L)] es mayor que el coste  llevará la vaca, pero… …Incorporar una vaca adicional disminuye la producción media del resto (coste social)  sobreexplotación El pasto no se explota hasta el nivel de maximizan los beneficios sino hasta el nivel en que Bº=0  sobre explotación

“visions” on sustainability Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment “visions” on sustainability Neoclassical economics focus on the level of consumption Hartwick rule: total of natural and human-made capital together remains constant over time “Weak sustainability” Correcting market failures: Internalising externalities Ecologists think about sustainability in terms of the extent to which the prevailing structure and properties of the ecosystem can be maintained  Resilience Ecological economics accept that resilience is important for sustainability, and they argue that following the Hartwick rule and correcting market failure will not suffice to achieve sustainability. “Strong sustainability” natural and human-made capital are complements rather than substitutes. critical natural capital, which acknowledges substitutability close to zero for some parts of capital and assumes higher substitutability for others

The “unlimited-growth” limits Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The “unlimited-growth” limits Neoclassical and the Weak sustainability rule: 𝑲 = 𝑲 𝒎 + 𝑲 𝒉 + 𝑲 𝒏 The total stock of capital remains for the next generation Critics: Life support services?.... ‘Ozone’ Uncertainties and Unknowledges…. ‘Tropical forests’ Irreversibility and resilience… ‘capital for the future’ Which is the elasticity substitution? *durable(Km), human(Kh) and natural (Kn)

The “unlimited-growth” limits Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The “unlimited-growth” limits Ecological and the Strong sustainability rule: 𝑲 =𝑺− 𝜹 𝒎 𝑲 𝒎 + 𝜹 𝒉 𝑲 𝒉 + 𝑲 𝒏 𝜹 𝒏 ≥𝟎 𝑲 𝒄 𝒏 ≥𝟎 Neither the total stock of capital, nor the the critic-natural capital decrease Critics: How to calculate and monetize Kcn *durable(Km), human(Kh) and natural (Kn)

𝑰≡𝑷∗𝑨∗𝑻 𝐼𝑚𝑝𝑎𝑐𝑡≡𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛∗𝐴𝑓𝑓𝑙𝑢𝑒𝑛𝑐𝑒∗𝑇𝑒𝑐ℎ𝑛𝑜𝑙𝑜𝑔𝑦 The IPAT Identity? Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The IPAT Identity? 𝐼𝑚𝑝𝑎𝑐𝑡≡𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛∗𝐴𝑓𝑓𝑙𝑢𝑒𝑛𝑐𝑒∗𝑇𝑒𝑐ℎ𝑛𝑜𝑙𝑜𝑔𝑦 𝑰≡𝑷∗𝑨∗𝑻 IPAT is a tautology -- it states what must be true. It is, nonetheless, very useful. It reflects the “trade-off” between growth and environment. An increasing demand (P or A), raises the pollution at least… … something happen with technology (T) It points us to the proximate determinants of the environmental impacts of economic activity. It does not tell us about the fundamental, or underlying, determinants.

Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The IPAT Identity? Arto y Dietznbacher (2014): Drivers of the growth in global GHG emissions (gigatonnes of CO2eq)

Modelling growth and the environment Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Modelling growth and the environment IPAT doesn’t give information about the determinants of P, A, T. Cobb-Douglas production function  Substitution Leontieff production function  Not substitution 𝑌=𝑓 𝐾,𝐿,𝑅 = 𝐾 𝛼 · 𝐿 𝛽 · 𝑅 𝛿 =∝𝐾+𝛽𝐿+𝛿𝑅 𝑌=𝑓 𝐾,𝐿,𝑅 =min⁡( ∝∗𝐾 , 𝛽∗𝐿 , 𝛿∗𝑅 )

The Scenarios Analysis Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment The Scenarios Analysis A scenario is an internally consistent story about one way in which the future could unfold. It is not a prediction or a forecast. Scenario Proyections 2050 P I T Impact People GDP/pc Tonnes/$ Tonnes Co2 A Baseline 6.000.000.000 7.000 0,00055 23.100.000.000 B Low Fertility 7.866.000.000 30.284.100.000 31% C Medium Fertility 9.322.000.000 35.889.700.000 55% D High Fertility 10.934.000.000 42.095.900.000 82% E Growth 1% 11.512 37.989.600.000 64% F Growth 2,5% 24.060 79.398.000.000 244% G Growth 3% 49.747 164.165.100.000 611% Best Worst the commodity composition of GDP can be regarded as the ‘technology’ by means of which needs and desires are satisfied in a particular economy… and it could be calculated the coal embodied.

Scenarios Example: Carbon footprint of nuclear energy Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Scenarios Example: Carbon footprint of nuclear energy Zafrilla, J. E., M.-Á. Cadarso, F. Monsalve and C. de la Rúa. (2014): How Carbon-Friendly Is Nuclear Energy?

Kuznets Curve Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Kuznets Curve

Kuznets Curve Remarks: GDP composition: Services vd industry Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Kuznets Curve I = Resources/waste per cápita y = Income per cápita t = Time Z = other variables variables Remarks: GDP composition: Services vd industry Leakages effects.- Globalization and value chains Technological progress Society preferences Green Legislation: energy, consumption, recycling

Kuznets Curve Estimación de la curva: Confirman la curva de Kuznets: Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Kuznets Curve Estimación de la curva: Confirman la curva de Kuznets: Pico: 8.266 € per cápita 1857 y 1986 relación positiva. 1987-2007 relación inversa.

Piketty’s Inequality in twenty-first century Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Piketty’s Inequality in twenty-first century When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.

Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Boyce Thesis Greater inequalities of power and wealth lead to more environmental degradation: The excess environmental degradation driven by powerful winners is not offset by the environmental degradation prevented by powerful losers; Inequality raises the valuation of benefits reaped by rich and powerful winners relative to cost imposed on por and less powerful losers; Inequality raises the rate of time preference applied to environmental resources by both the poor and the rich, by increasing their poverty and political insecurity.

Spanish household consumption Economic and environmental sustainability The IPAT identity The Environmental Kuznets Curve Inequality and environment Spanish household consumption Figure 4. Carbon footprint by SCU and type of household (TCO2eq.). * López, L. A., Arce, G., Morenate, M., & Monsalve, F. (2015). Assessing the inequality of Spanish households through the carbon footprint. The 21st Century Great Recession effect. López, L. A., Arce, G., Morenate, M., & Monsalve, F. (2015).