A Brief Introduction to A Brief Introduction to Ecological EconomicsEcological Economics

Joshua Farley, PhDJoshua Farley, PhDUniversity of VermontUniversity of Vermont

Community Development and Applied Economics &Community Development and Applied Economics &Gund Institute for Ecological EconomicsGund Institute for Ecological Economics

What is Economics?What is Economics? The allocation of scarce resources The allocation of scarce resources

among alternative desirable endsamong alternative desirable ends

Sequence of 5 questions…Sequence of 5 questions…

What are the desirable ends?What are the desirable ends? What are the scarce resources?What are the scarce resources? What are the characteristics of these What are the characteristics of these

resources relevant to allocation? resources relevant to allocation? What are the characteristics of human What are the characteristics of human

nature relevant to allocation?nature relevant to allocation? How do we allocate?How do we allocate?

……with changing answers: with changing answers: Coevolutionary economicsCoevolutionary economics

Hunter-gatherer economicsHunter-gatherer economics Accumulation = deathAccumulation = death

Economics of early agricultural societiesEconomics of early agricultural societies Depended on technological advanceDepended on technological advance Advent of property rightsAdvent of property rights

Industrial market economicsIndustrial market economics Use of non-renewable resources: FOSSIL FUELSUse of non-renewable resources: FOSSIL FUELS

Ecological economicsEcological economics Driven by the growing scarcity of natural capitalDriven by the growing scarcity of natural capital

Ecological crises are driven by Ecological crises are driven by economic decisionseconomic decisions

Climate changeClimate change Deforestation/mangrove lossDeforestation/mangrove loss OverfishingOverfishing Toxic wasteToxic waste Nuclear powerNuclear power Ozone loss etc. etc.Ozone loss etc. etc.

What are the Desirable What are the Desirable Ends?Ends?

Desirable EndsDesirable Ends A high quality of life for this and future generations.A high quality of life for this and future generations.

Quality of life = fulfillment of human Quality of life = fulfillment of human needsneeds

Much more than Much more than consumptionconsumption

Explicitly normative Explicitly normative question: draws on question: draws on ethics, philosophy, ethics, philosophy, religionreligion

Market goods only Market goods only one of many one of many human needshuman needs

Satiation occurs Satiation occurs

Three necessary intermediate Three necessary intermediate ends, in order of importance:ends, in order of importance:

Ecologically sustainable scaleEcologically sustainable scale Socially just distribution of Socially just distribution of

resources within and between resources within and between generationsgenerations

Economically efficient allocationEconomically efficient allocation

What are the What are the scarce resources?scarce resources?

Draws on physics and ecologyDraws on physics and ecology

Laws of thermodynamicsLaws of thermodynamics Dual nature of resources provided by Dual nature of resources provided by

naturenature

First law of thermodynamicsFirst law of thermodynamics Matter energy cannot be created or Matter energy cannot be created or

destroyeddestroyed We cannot create something from nothing, We cannot create something from nothing,

nor nothing from somethingnor nothing from something All economic production requires natural All economic production requires natural

capitalcapital Continuous physical growth of the Continuous physical growth of the

economy is impossibleeconomy is impossible

Second law of thermodynamicsSecond law of thermodynamics Entropy never decreases in an isolated Entropy never decreases in an isolated

systemsystem Things fall apart, wear out, become wasteThings fall apart, wear out, become waste Irreversible, evolutionary, qualitative changeIrreversible, evolutionary, qualitative change Low entropy energy required for all economic Low entropy energy required for all economic

processesprocesses Finite stock of accumulated low entropyFinite stock of accumulated low entropy Finite rate of flow of solar energyFinite rate of flow of solar energy The ultimate limit to the physical size of the economic The ultimate limit to the physical size of the economic

system is the low entropy provided by solar energysystem is the low entropy provided by solar energy

Production Requires Production Requires ThroughputThroughput

Laws of Thermodynamics: What goes in Laws of Thermodynamics: What goes in must come outmust come out

Raw materials and wasteRaw materials and waste Left out in the abstraction process in Left out in the abstraction process in

neoclassical economicsneoclassical economics Throughput = CostThroughput = Cost

Ecosystem goodsEcosystem goods

Low entropy matter-energyLow entropy matter-energy FiniteFinite ExamplesExamples

TimberTimber FishFish MineralsMinerals WaterWater

Ecosystem goodsEcosystem goods

Raw materials = ecosystem structureRaw materials = ecosystem structure Materially transformed into what it Materially transformed into what it

producesproduces Used up, not worn out: use = depletionUsed up, not worn out: use = depletion Units independent of timeUnits independent of time Characterized by riskCharacterized by risk

Ecosystem servicesEcosystem services

ExamplesExamples Poorly understood life support functionsPoorly understood life support functions Nutrient cyclingNutrient cycling Water regulationWater regulation Climate regulationClimate regulation Erosion controlErosion control Recreation, etc., etc.Recreation, etc., etc.

Mostly non-pricedMostly non-priced Scarcity Scarcity price increase price increase innovation innovation

Ecosystem servicesEcosystem services

Structure generates function= ecosystem Structure generates function= ecosystem servicesservices

Not transformed into what it producesNot transformed into what it produces Spontaneously restoredSpontaneously restored Units time dependent: x/tUnits time dependent: x/t Highly complex: Characterized by Highly complex: Characterized by

uncertainty and ignoranceuncertainty and ignorance

So What?So What?

Economic production depletes ecosystem Economic production depletes ecosystem structure, and generates wastestructure, and generates waste

Depletion of ecosystem structure and waste Depletion of ecosystem structure and waste emissions both deplete ecosystem servicesemissions both deplete ecosystem services

Both ecosystem goods and services are Both ecosystem goods and services are essentialessential

Economic growth has an enormous opportunity Economic growth has an enormous opportunity cost, measured in the depletion of ecosystem cost, measured in the depletion of ecosystem servicesservices

Human made capital has grown more abundant, and natural capital more scarce

Primacy of ScalePrimacy of Scale

Sustainable growth is an oxymoronSustainable growth is an oxymoron Ever continuing growth in material consumption Ever continuing growth in material consumption

is an impossible goalis an impossible goal BUT welfare is a psychic flux, not a physical flux.BUT welfare is a psychic flux, not a physical flux. Economic development is possible, but not Economic development is possible, but not

continuous economic growthcontinuous economic growth Nothing that says an economic equilibrium Nothing that says an economic equilibrium

corresponds to an ecological equilibrium: no corresponds to an ecological equilibrium: no ‘when to stop’ rule‘when to stop’ rule

Status of ScaleStatus of Scale Humans capture or degrade 40% of net primary Humans capture or degrade 40% of net primary

productivityproductivity

Ecological Footprint estimated at 1.2 planetsEcological Footprint estimated at 1.2 planets

Natural capital is the limiting factor in Natural capital is the limiting factor in developmentdevelopment

Most important service of natural capital is global Most important service of natural capital is global life support functionslife support functions

What is Sustainable Scale?What is Sustainable Scale?

Scientific question Scientific question Can’t be answered using Can’t be answered using

standard science, i.e . standard science, i.e . experiments and repeatable experiments and repeatable observations.observations.

Pre-analytic vision of EEPre-analytic vision of EE

Finite planet, where the laws of Finite planet, where the laws of thermodynamics applythermodynamics apply

Scarce resources are low entropy matter Scarce resources are low entropy matter energyenergy

Economic growth displaces ecosystem Economic growth displaces ecosystem functionfunction

Ecosystem services are becoming Ecosystem services are becoming dangerously scarcedangerously scarce

Ecological economic system is extremely Ecological economic system is extremely complex, non-linear and poorly understoodcomplex, non-linear and poorly understood

The Pre-analytic vision of NCEThe Pre-analytic vision of NCE

Market relevant Market relevant characteristics of scarce characteristics of scarce

resourcesresources

ExcludabilityExcludability

Excludable resource regimeExcludable resource regime One person can prevent another from using the One person can prevent another from using the

resourceresource Necessary for markets to existNecessary for markets to exist

Non-excludable Non-excludable No enforceable property rights No enforceable property rights Can’t charge for useCan’t charge for use

Some resources non-excludable by nature. None are Some resources non-excludable by nature. None are inherently excludable.inherently excludable.

RivalnessRivalness

Rival resourcesRival resources My use leaves less for you to useMy use leaves less for you to use

Non-rival (or non-subtractable)Non-rival (or non-subtractable) My use does not leave less for you to useMy use does not leave less for you to use Rationing through prices reduces benefits Rationing through prices reduces benefits

without reducing costs: INEFFICIENT without reducing costs: INEFFICIENT

Innate characteristic of the resource, not a Innate characteristic of the resource, not a result of institutionsresult of institutions

AllocationAllocation

How do we allocate?How do we allocate?

Rival:competition

Non-rival:cooperation

Excludable:Markets possible

Non-Excludable:No market possible

Market Good: Ecosystem structure,Waste absorption capacity (e.g. CO2)

Tragedy of the non-commons: patented information

Pure Public Good:Most ecosystem services unpatented information

Open Access Regime “tragedy of the commons”:Unowned ecosystem structure, waste absorption capacity (e.g. SO2)

Ecologically sustainable and Ecologically sustainable and desirable scaledesirable scale

Macro-allocation: How much ecosystem Macro-allocation: How much ecosystem structure needed to provide life support structure needed to provide life support functions, how much available for functions, how much available for economic production?economic production?

Scale must be price determining, not price Scale must be price determining, not price determineddetermined

Democratic decision-making, informed by Democratic decision-making, informed by scientific expertise and precautionary scientific expertise and precautionary principleprinciple

Democracy, not plutocracyDemocracy, not plutocracy

When to Stop Rule: MC=MBWhen to Stop Rule: MC=MB Diminishing Diminishing

marginal marginal benefits of benefits of economic economic growthgrowth

Increasing Increasing marginal costsmarginal costs

Socially just distributionSocially just distribution

End enclosure of the commonsEnd enclosure of the commons Guiding principlesGuiding principles

Value created by nature or society is part of Value created by nature or society is part of commonwealth (economic profit, rent)commonwealth (economic profit, rent)

Value added by sweat of brow belongs to Value added by sweat of brow belongs to individual (normal profit)individual (normal profit)

Economically efficient Economically efficient micro-allocationmicro-allocation

Depends entirely on specific resourceDepends entirely on specific resource Non-excludable resources must be freeNon-excludable resources must be free Non-rival resources should be freeNon-rival resources should be free

Owned and provided by the polisOwned and provided by the polis Democracy, not plutocracyDemocracy, not plutocracy

Can We Cooperate? Can We Cooperate?

How do people behave?How do people behave?

Homo economicusHomo economicus Self interestSelf interest

• Always wants moreAlways wants more• Purely competitivePurely competitive• ““homogenous globules homogenous globules

of desire”of desire” Rational actorRational actor

• What is rational?What is rational?• Are people purely Are people purely

rational, or also rational, or also emotional and spiritual?emotional and spiritual?

How do people behave?How do people behave?

Or are we cooperative, social Or are we cooperative, social animals, concerned about the future animals, concerned about the future that differ across cultures?that differ across cultures? e.g. e.g. H. comunicus, H. comunicus, concern for fairness concern for fairness

and community preferencesand community preferences H. naturalis, H. naturalis, concern for sustainability concern for sustainability

and whole system preferencesand whole system preferences

Brain Chemicals: Dopamine and Brain Chemicals: Dopamine and OxytocinOxytocin

Is Sustainability a Sacrifice?Is Sustainability a Sacrifice?

What Makes People Happy?What Makes People Happy?

Money?Money? (Not very, and only relative wealth once basic (Not very, and only relative wealth once basic

needs are met)needs are met) Desiring lessDesiring less FriendsFriends MarriageMarriage Religion/communityReligion/community Helping othersHelping others

What makes people unhappy?What makes people unhappy?

Pursuit of material gainPursuit of material gain“young adults who focus on money, image “young adults who focus on money, image and fame tend to be more depressed, and fame tend to be more depressed, have less enthusiasm for life and suffer have less enthusiasm for life and suffer more physical symptoms such as more physical symptoms such as headaches and sore throats than others.” headaches and sore throats than others.”

Comparing yourself with othersComparing yourself with others Status is a never-ending tread-millStatus is a never-ending tread-mill

ConclusionsConclusions

Efficiency is allocation of resources in a Efficiency is allocation of resources in a way that maximizes quality of life for this way that maximizes quality of life for this and future generationsand future generations

Economic growth has high opportunity Economic growth has high opportunity costs, low marginal benefitscosts, low marginal benefits

Things that make us happy are most Things that make us happy are most compatible with sustainabilitycompatible with sustainability

Course ProjectsCourse Projects

• Several will be in collaboration with grad Several will be in collaboration with grad level course in EElevel course in EE

Envisioning a Sustainable and Envisioning a Sustainable and Desirable VermontDesirable Vermont

• Survey of Vermonters to find out what they Survey of Vermonters to find out what they want in the futurewant in the future

• Tells us the desirable ends, so we have Tells us the desirable ends, so we have criteria by which to rank policies and criteria by which to rank policies and politicianspoliticians

• Draw on the scenarios given in the Draw on the scenarios given in the Millennium Ecosystem AssessmentMillennium Ecosystem Assessment

• Use conjoint analysisUse conjoint analysis• Turn into journal article, editorials, etc.Turn into journal article, editorials, etc.

Envisioning a Sustainable and Envisioning a Sustainable and Desirable VergennesDesirable Vergennes

• In partnership with Vergennes planning In partnership with Vergennes planning commissioncommission– Work with Mark Hattler, ChairWork with Mark Hattler, Chair– Meeting September 18 (need to check)Meeting September 18 (need to check)

• Similar to that for Vermont, but smaller Similar to that for Vermont, but smaller sample size, and will hopefully have a sample size, and will hopefully have a direct and immediate influence on policydirect and immediate influence on policy

3 Atelier courses3 Atelier courses• What is an atelier?What is an atelier?

– Problem based field courseProblem based field course• Wicked problems: Facts uncertain, stakes high, Wicked problems: Facts uncertain, stakes high,

decisions urgent, values matterdecisions urgent, values matter– TransdisciplinaryTransdisciplinary– Transinstutional: Academia, policy makers, civil Transinstutional: Academia, policy makers, civil

society (NGOs, stakeholders), businesssociety (NGOs, stakeholders), business– Analysis, synthesis and communicationAnalysis, synthesis and communication

• Design web site for ateliers-- content, not structureDesign web site for ateliers-- content, not structure• Prepare invitations, applications, etc.Prepare invitations, applications, etc.

Payments for Ecosystem Payments for Ecosystem Services AtelierServices Atelier

• Takes place in Costa Rica next MarchTakes place in Costa Rica next March• 4 components4 components

– Presentation of real life problemsPresentation of real life problems– Study of real solutionsStudy of real solutions– Introduction to theoryIntroduction to theory– Develop working solutions to actual problemsDevelop working solutions to actual problems

• Partner with Costa Rican National UniversityPartner with Costa Rican National University• Work with Robin Kemkes and Azur MoulaertWork with Robin Kemkes and Azur Moulaert

Participatory Watershed Participatory Watershed Management in MexicoManagement in Mexico

• Takes place in Veracruz, Mexico next May-Takes place in Veracruz, Mexico next May-JuneJune

• 3 part atelier3 part atelier– VisionVision– Analysis, modeling of ESAnalysis, modeling of ES– Policy proposalsPolicy proposals

• Partner with Anahuac UniversityPartner with Anahuac University• Work with Jimena, Luz and Jaime Work with Jimena, Luz and Jaime