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ANALYSIS OF THE INTERRELATIONSHIP OF
ENERGY, ECONOM Y, AND ENVIRONMENT:
A MODEL OF A SUSTAINABLE ENERGY FUTURE FOR KOREA
by
Kyung-Jin Boo
A dissertation submitted to the Faculty o f the University o f Delaware inpartial fulfillment o f the requirements for the degree of Doctor o f Philosophy in UrbanAffairs and Public Policy
Summer 2000
Copyright 2000 Kyung-Jin Boo
All Rights Reserved
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UMI Number 9998730
Copyright 2000 by
Boo, Kyung-Jin
All rights reserved.
___
UMIUMI Microform 9998730
Copyright 2001 by Bell & Howell Information and Learning Company.
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
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ANALYSIS OF THE INTERRELATIONSHIP OF
ENERGY, ECONOMY, AND ENVIRONMENT:
A MODEL OF A SUSTAINABLE ENERGY FUTURE FOR KOREA
by
Kyung-Jin Boo
QApproved: HWLu,
ekr AJRaffel, Ph. 11lyirec torof the School o f Urban Affairs and Public Policy
Approved: _________________________________
Daniel Rich, Ph.D.
Dean of the Graduate College of Human Services, Education andPublic Policy
Approved:
Conrado M. Gempfesaw n, Ph.D.
Vice Provost for Academic Programs and Planning
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Signed:
Signed:
Signed:
Signed:
I ce rtify that I have read thi^ "dissertation and that in m y opinion it meets
the academic and professional standard required by the University as adissertation for the degree o f Doctor o f Philosophy.
aYoung-Doo Wang, Ph.D. jProfessor in cnarge o f dissertation
I certify that I have read this dissertation and that in my opinion it meets
the academic and professional standard required by the University as a
dissertationfOr\he degreb ofDoctor o f Philosophy.
John EtymeyPn.D. 7Professor in charge Oi dissipatio n
I certify that I have read this dissertation and that in my opin ion i t meetsthe academic and professional standard required by the Univers ity as a
dissertation for the degree o f Doctor o f Philosophy.
William Latham HI, Ph.D.
Mem ber o f dissertation committee
I certify that I have read this d issertation and that in my opinion it meetsthe academic and professional standard required by the Univers ity as adissertation for the degree o f Doc tor o f Philosophy.
Eui-Soon Shin, Ph.D.
Member o f dissertation committee
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ACKNOWLEDGMENTS
The intellectual journey I have taken during the Ph.D. program at the
Center for Energy and Environmental Policy (CEEP) has been a watershed event in
my life that has enriched me through exposure to new ideas and great minds o f various
backgrounds and disciplines. As a result, I am now quite different from the person I
used to be in terms o f academic achievement and ideology, and have gained a more
balanced perspective toward the world and life.
I am indebted to a number o f individuals who, in various ways, were
instrumental in the successful completion o f this dissertation. In particular, I would
like to express my sincere thanks to Professor Wang for his insights, guidance and
encouragement at every stage in the development o f this doctoral thesis. I am also
deeply indebted to Professor John Byrne for introducing me to alternative discourses
in energy and environmental studies. His comprehensive knowledge inspired me
intellectually and enriched and broadened my worldview. His guidance was key to the
development o f the underlying theory of my dissertation. I also wish to th ank the other
members of my committee, Professors William Latham and Eui-Soon Shin. Professor
Latham taught me the econometric simulation modeling technique, which was the
basis of the quantita tive analytical methodology employed in th is dissertation. He
provided ingenious tips whenever I encountered trouble with the econometric model.
Professor Eui-Soon Shin graciously accepted the burden o f becoming a committee
member when first asked to do so. His review o f and comments on my dissertation
was more than helpful. In addition, I would like to take this opportunity to recognize
iv
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Chris Linn, a graduate student in CEEP, for his outstanding job as an editor of my
dissertation draft.
This dissertation is dedicated to each member of my beloved family for
their unbounded support and patience. Nothing can compensate the immeasurable
sacrifice my mother, Im-Keun Shin made for her three sons since m y fathers untimely
death. I hope that she is proud of her sons for their achievements. My beloved wife,
Hyunduk has been in and out of the U.S. every summer and winter break to support
me spiritually as well as financially. I only regret that she couldnt attend my disserta
tion defense as originally planned because o f an operation conducted just three weeks
before my defense. She has been the inspiration o f my life, including the time taken to
complete the dissertation. I will be forever, happily, in her debt. My son, Chang-Yong
has been staying with me throughout this journey, witnessing the slow but steady pro
gress of my dissertation. I feel sorry for not being a better father to him, taking the dis
sertation as an excuse. I hope he will understand my feelings someday in the future
when he is grown up and might be busy with his own doctoral dissertation.
Kyung-Jin Boo.
10 July, 2000
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TABLE OF CONTENTS
LIST OF TABLES.................................................................................................................. x
LIST OF FIGURE S............................................................................................................. xiiABSTRACT........................................................................................................................ xiv
Chapter
1 INTRODUCTION...................................................................................................... 11.1. Identification o f Research Problems............................................................... 1
1.2. Purpose o f the Study........................................................................... 4
1.3. Methodology........................................................................................ 61.4. Organization o f the Dissertation........................................................ 9
2 THEORETICAL FRAM EWO RK.......................................................................... 11
2.1 Theories o f Sustainable Development..........................................................11
2.1.1 Economics Perspec tive ..................................................................... 14
2.1.2 Ecological Perspective...................................................................... 172.1.3 Socio-political Perspective............................................................... 192.1.4 Integrative Approaches .................................................................... 21
2.1.4.1 Ecological Economics Approach.................................... 23
2.1.4.2 Steady-State Economy...................................................... 242.1.4.3 MC A (Multi-Criteria Analysis) ...................................... 25
2.1.4.4 Equity-Based Approach................................................... 26
2.2 A Global Perspective o f Sustainable Development: Evolution of a
Global Order................................................................................................... 312.2.1 Negotiation o f Global Environmental Issues.................................33
2.3 Sustainable Energy Developm ent................................................................ 36
2.3.1 Sustainable Energy Development as a Goal .................................. 392.3.2 The Economic Dimension of a Sustainable Energy Sys tem 41
2.3.2.1 Energy Efficiency.............................................................41
2.3.2.2 Renewable Energy ........................................................... 43
2.3.3 The Environmental Dimension o f Sustainable EnergySystem ................................................................................................ 43
2.3.3.1 Diversified and Decentralized Energy Sys tem .............43
2.3.3.2 Social Cost-Based Energy Prices....................................442.3.4 Socio-Political Dimension of Sustainable Energy Systems 44
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2.3.4.1 Deomocratic Energy Sy stem........................................... 45
2.3.4.2 An Equtiy-Based Energy System .....................................452.3.4.3 An Energy Service Oriented Sy ste m.............................. 48
2.4 Modeling Framework for a Sustainable Energy Sy stem .......................... 48
2.5 Conclusion...................................................................................................... 51
3 SUSTAINABLE ENERGY DEVELOPMENT IN THE KOREANCONTEXT ...............................................................................................................53
3.1 Overview o f Economic Situation in Korea..................................................543.2 Diagnosis o f the Korean Energy System.....................................................56
3.2.1 Energy Dem and by Fuel Type.........................................................57
3.2.1.1 Petroleum........................................................................... 583.2.1.2 Coal: Anthracite and Bi tum inou s....................................59
3.2.1.3 Gas: LNG........................................................................... 593.2.1.4 Electricity........................................................................... 60
3.2.2 Energy Dem and and Supply by Secto r...........................................61
3.2.2.1 Industrial Sector.................................................................623.2.2.2 Residential, Commercial, and the Public Se cto r...........633.2.2.3 Transportation Secto r....................................................... 653.2.2.4 Energy Transformation Sector: Electricity and
District Heat....................................................................... 673.3 Korean Energy Po licy.................................................................................... 71
3.3.1 Basic Framework of the Current Energy Po licy........................... 723.3.2 Energy Price and T ax ...................................................................... 74
3.3.3 Deregulation and Restructuring in Korean Energy Ind ustry 773.3.4 Environmental Concern in the Korean Energy Policy..................78
3.3.4.1 Policies on Energy-Related Air PollutantEmissions........................................................................... 79
3.3.4.2 Policies on Green-House Gas (GHG) Em issions 83
3.4 Sustainable Energy Development for Korea.............................................. 863.4.1 Emerging Environmental Awareness.............................................863.4.2 External Pressure and Nuclear Po w er............................................873.4.3 Harmonization o f Energy and Environm ental Policie s................88
3.4.4 Internalization o f Social Costs.........................................................903.4.5 Towards a Sustainable Energy System...........................................92
3.5 Summary and Conclusion............................................................................. 93
4 POLICY SIMULATION M OD EL ........................................................................ 95
4.1 Introduction....................................................................................................954.2 Reviews of Simulation Modeling Techniques............................................96
4.2.1 System Dynam ics.............................................................................974.2.2 Input-Output (I-O) Models..............................................................99
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4.2.3 Linear Programming Models........................................................ 101
4.2.4 Econometric Models...................................................................... 101
4.2.5 Hybrid Models............................................................................... 1034.3 Development o f Econometric Simulation Model................................... 105
4.3.1 Model Structure............................................................................. 1064.3.2 Sectors............................................................................................ 108
4.3.3 Model Specification...................................................................... I l l4.3.3.1 Economic M od ule ......................................................... 113
4.3.3.2 Energy Module ............................................................... 119
4.3.3.3 Environmental Module .................................................. 1234.3.3.4 Socio-Political Module.................................................. 127
4.3.4 The D ata ......................................................................................... 1294.4. Summary and Conclusion......................................................................... 130
5 MODEL ESTIMATION AND POLICY SIMULATION ................................ 1325.1 Estimation and Prediction......................................................................... 1325.2 Forecasting.................................................................................................. 140
5.2.1 Assumptions................................................................................... 1415.2.2 Simulated Projection: Reference C ase ........................................ 144
5.2.2.1 Projection o f Economic Indicators...............................145
5.2.2.2 Projection o f Energy Demand and CO2Emissions.... 1465.2.2.3 Projection o f Environmental Indicators....................... 149
5.3 Policy Sim ula tion ....................................................................................... 151
5.3.1 Policy Simulation Scenarios......................................................... 1515.3.2 Policy Simulation Resu lts............................................................ 155
5.3.2.1 Impacts on Energy Demand.......................................... 156
5.3.2.2 Impacts on Environmental Variables........................... 1625.3.2.3 Impacts on the Econom y.............................................. 165
5.3.2.4 Reinvestment o f Energy and Carbon T ax es ................168
5.3.2.5 Induced Energy Efficiency Improvements.................. 1695.3.2.6 Stabilization of CO2 Emissions at the Level o f
2000 ................................................................................. 1715.4 Major Fin dings .......................................................................................... 174
5.5 Summary and Conclusion..........................................................................176
6 STRATEGIES FOR SUSTAINABLE ENERGY FUTURE IN KO RE A 1816.1. Introduction................................................................................................ 181
6.2. Transition toward a Sustainable Energy Sys tem ....................................1816.2.1 Historical Evidence ...................................................................... 183
6.2.2 The Next Energy Transition ......................................................... 187
6.2.2.1 Resources Constraints and Responses in EnergyDemand........................................................................... 187
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6.2.2.2 Environmental Concerns ................................................. 190
6.2.2.3 Institutional Change.......................................................... 1926.3 Energy Options for a Sustainable Future in Korea ................................... 193
6.3.1 Energy Efficiency and Conservation............................................. 1936.3.2 Fuel Switching................................................................................. 194
6.3.3 New and Renewable Energy Sources............................................ 195
6.3.4 Integrated Resources Planning (IRP)............................................ 2026.4 Barriers to the Transition towards a Sustainable Energy Fu ture ........... 203
6.5 Strategies o f Energy Transition for Ko rea ................................................ 2066.5.1 Reform Strategy.............................................................................. 207
6.5.2 Institutional Strategy....................................................................... 2086.5.2.1 Characteristics o f Energy Institu tion ............................ 2096.5.2.2 Removal o f Subsidies ..................................................... 211
6.5.2.3 Reconfiguration o f Markets and GovernmentRoles................................................................................ 213
6.5.2.4 Full Cost Pricing: Consideration o f Externalities 217
6.5.2.5 Efficiency vs. Equity. ...................................................... 221
6.5.2.6 Democratic Participation in Energy-RelatedDecision Making............................................................. 2246.6 Summary and Conclusion........................................................................... 227
7 CONCLUSION...................................................................................................... 2317.1. Realities and Issues ..................................................................................... 231
7.2. Theories....................................................................................................... 232
7.3 Results from Empirical Analysis: Modeling ............................................ 234
7.4 Goalsand Strategies..................................................................................... 2357.5 Inventing the Future: Can Korea Choose Its Own Energy Future? 238
7.6 Suggestions for Future Research ............................................................... 243
Appendix
A MODEL SPECIFICATIONS.................................................................... 246B MAPES (MEAN ABSOLUTE PERCENTAGE ER RO RS)................. 251
REFERENCE ..................................................................................................................... 252
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LIST O F TABLES
Table 3.1 Major Socio-Economic Indicators in Korea................................................. 55
Table 3.2 Major Energy Indicato rs................................................................................. 56
Table 3.3 Primary Energy Consumption by Fuel T ype ................................................57
Table 3.4 Final Energy Demand by Sector.................................................................... 61
Table 3.5 Industrial Energy Consumption by Fuel Type............................................. 63
Table 3.6 Residential/Commercial/Others Energy Consumption............................... 64
Table 3.7 Fuel Consumption in the Transportation Sec tor..........................................66
Table 3.8 Number o f Vehicles by T y pe ........................................................................ 67
Table 3.9 Fuel Consumption for Power Generation..................................................... 68
Table 3.10 KEPCO's Plan of Power Plant Construction............................................... 70
Table 3.11 Price o f Petroleum Products and Taxes in Korea........................................75
Table 3.12 Air-Pollutant Emissions by Sector and Fuel Type in Korea (1997)......... 82
Table 3.13 CO2Emissions from Energy Consumption in K or ea ................................. 85
Table 3.14 Taxes on Fuel Types....................................................................................... 90
Table 4.1 Subdivision o f Secto rs.................................................................................. 110
Table 5.1 MAPE Distribution o f the Simulation M od el........................................... 138
Table 5.2 MAPEs o f Selected Endogenous Variables................................................138
Table 5.3 Assumptions for Exogenous Variables in BA U Forecasting.................. 143
Table 5.4 Projected Ma jor Economic Indicators........................................................ 145
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Table 5.5 Energy Demand and CO2Emissions Projection...................................... 148
Table 5.6 Projection o f Selected Environmental Indicators....................................149
Table 5.7 Energy Contents, CO2 Emissions Factors and Tax Rates ($5/bbl
equivalent tax)..............................................................................................153
Talbe 5.8 Scenarios Set-Up for Policy Sim ula tions.................................................154
Table 5.9 Impact o f Excise Tax on Primary Energy Consumption........................158
Table 5.10 Impact o f Energy Tax on Primary Energy Consum ption.......................159
Table 5.11 Impact o f Carbon Tax on Primary Energy Consumption.......................161
Table 5.12 Impacts of Energy and Carbon Taxes on Environment in 2020.............163
Table 5.13 Impacts of Energy and Carbon Taxes on the Economy..........................167
Table 5.14 Economic Benefits o f Carbon Tax Reinvestment ($10/bbl CarbonTax)................................................................................................................ 169
Table 5.15 Economic Benefits of Carbon Tax Reinvestment ($10/bbl Carbon
Tax)................................................................................................................ 171
Table 5.16 Economic Impacts o f2000 CO2 Stabilization ($20/bbl Carbon
Tax)................................................................................................................ 173
Table 5.17 Impacts o f Carbon Taxes on Energy Consumption.................................175
Table 6.1 New and Renewable Energy Potential in Korea......................................196
Table 6.2 Typology o f Decision-Making (DM) M od el...........................................227
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LIST OF FIGURES
Figure 2.1 Objective of Environmentally Sustainable Development......................... 26
Figure 2.2 CO2 Parity in the Year 2050 ......................................................................... 27
Figure 2.3 Economic Parity in the Year 2050............................................................... 28
Figure 2.4 Optimality, Sustainability, and Survivability ............................................. 30
Figure 2.5 Sustainable Energy Development................................................................ 40
Figure 2.6 Interactions of Energy, Economy, Environment, and Socio-Politics .......................................................................................................... 50
Fgirue 3.1 Trend o f Energy Consumption by Fuel Type ............................................. 58
Figure 3.2 Trend of Share by Sector in Final Energy Consumption........................... 62
Figure 3.3 Emission Trend and Concentration o f Major Air-Pollutants....................80
Figure 3.4 Trend o f CO2Emissions from Energy Consumption................................ 85
Figure 4.1 General Scheme o f Simulation M odel ...................................................... 108
Figure 4.2 Economic Module ....................................................................................... 114
Figure 4.3 Energy Module ............................................................................................ 120
Figure 4.4 Environmental Module ............................................................................... 125
Figure 4.5 Socio-Political Module ............................................................................... 128
Figure 5.1 Actual and Predicted Values o f Selected Economic Variables .............. 135
Figure 5.2 Actual and Predicted Values of Energy Variables.................................. 136
Figure 5.3 Actual and Predicted Values o f Environmental Variables ......................137
Figure 5.4 Energy Demand and CO2 Emissions Projection..................................... 148
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Figure 5.5 Forecasted Emissions and Air Qua lity...................................................... 150
Figure 5.6 Impacts o f Excise Tax on Primary Energy Con sumption.......................157
Figure 5.7 Impacts o f Energy Tax on Primary Energy Demand................................159
Figure 5.8 Impacts o f Carbon Tax on Total Primary Energy Dem and.....................161
Figure 5.9 Impacts o f Taxes on SO2 , NOx, and CO ...................................................162
Figure 5.10 Economic Impacts of Energy and Carbon Tax es.....................................166
Figure 5.11 CO2 Stabilization Impacts on the Econ omy..............................................173
Figure 6.1 Institutions Influencing Sustainable Energy Sys tem............................... 210
Figure 6.2 Dynamics o f Energy Market Stru ctu res....................................................216
Figure 6.3 Institutiona l Strategy for Sustainable Energy Future............................... 229
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ABSTRACT
The primary purpose of this disserta tion is to provide the groundwork for a
sustainable energy future in Korea. For this purpose, a conceptual framework of sus
tainable energy development was developed to provide a deeper understanding o f
interrelationships between energy, the economy, and the environment (E3). Based on
this theoretical work, an empirical simulation model was developed to investigate the
ways in which E3 interact.
This dissertation attempts to develop a unified concept o f sustainable
energy development by surveying multiple efforts to integrate various definitions of
sustainability. Sustainable energy development should be built on the basis o f three
principles: ecological carrying capacity, economic efficiency, and socio-political
equity. Ecological carrying capacity delineates the earths resource constraints as well
as its ability to assimilate wastes. Socio-political equity implies an equitable distri
bution of the benefits and costs of energy consumption and an equitable distribution of
environmental burdens. Economic efficiency dictates efficient allocation o f scarce
resources.
The simulation model is composed o f three modules: an energy module,
an environmental module and an economic module. Because the model is grounded
on economic structural behaviorism, the dynamic nature o f the current economy is
effectively depicted and simulated through manipulating exogenous policy variables.
This macro-economic model is used to simula te six m ajor policy intervention scenar
ios. Major findings from these policy simulations were: 1) carbon taxes are the most
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effective means o f reducing air-pollutant emissions; 2) sustainable energy develop
ment can be achieved through reinvestment o f carbon taxes into energy efficiency and
renewable energy programs; and 3) carbon taxes would increase a nations welfare if
reinvested in relevant areas.
The policy simulation model, because it is based on neoclassical econ
omics, has limitations such that i t cannot fully account for socio-political realities
(inter- and intra-generational equity) which are core feature o f sustainability. Thus,
alternative approaches based on qualitative analysis, such as the multi-criteria ap
proach, will be required to complement the current policy simulation model.
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Chapter 1
INTRODUCTION
1.1 Identification of Research Problem
The question o f linkages between fossil fuel use and environmental
degradation has gained increasing attention over the past three decades. Energy and
environmental policy makers have worked together in the formulation and implement
ation of policies to arrest rates o f air pollution caused by excessive consumption of
fossil fuels. The environmental effects of energy use, however, have much broader
implications for society as a whole and have spurred the study o f sustainable energy
development. The energy-environment nexus was an area o f intense debate at the
United Nations Conference on Environment and Development (UNCED) in 1992 and
1997. In Agenda 21, Chapter 9 (UNCED, 1992), it was agreed that current patterns of
production and utilization o f energy cannot be sustained, and that one o f the ways o f
promoting sustainable development is to reduce adverse effects on the atmosphere
from the energy sector.
Sustainability in energy development has been approached from diverse
perspectives such as economic (Daly, 1992, 1981; Peet, 1992), ecological (Odum,
1968; Capra, 1983), and technological perspectives (Lovins, 1977; Goldemberg,
1988). Although each approach reflects its own worldview and valuation o f nature,
individuals, and society, they are similar in approaching current environmental
problems from a systems view. A systems view presumes interactive relationships
1
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among energy, economic, and environmental systems, the so-called E3. The main
stream E3 systems view is a dramatic improvement over purely economic methods o f
analysis, but its omission o f social and political realities limits its ability to capture the
full complexity o f real-world interactions.
More recently, socio-political concerns such as equitable energy consump
tion and environmental justice have been incorporated into the E3 discourse (Byrne et
al., 1998; UNDP, 1995; Munasinghe, 1994). As a result o f this expanded view, it is
now rea lized that socio-political reforms are required as a precondition for the transi
tion toward a sustainable energy system. Moreover, this view requires us to overcome
narrow neoclassical economic theories which are inadequate for understanding the
holistic and integrated nature of sustainability (Daneke, 1995). The major concern of
this approach is to maintain the stability o f social and cultural systems, while simul
taneously insuring sustainable use of resources.
Sustainability issues began to be discussed in a global context as a result
o f several initiatives o f the United Nations. Global environmental issues at an early
stage were limited to the problems of trans-boundary pollution such as acid rain and
oil spills, which require bilateral agreements between adjacent countries. Beginning in
the 1970s, several major academic works regarding global environmental problems
such as the Club o f RomesLimits to Growth(Meadows e t al., 1972) turned our
attention to global sustainability.1 The Brundtland Commissions report, Our
1Dennis Meadows was a student of Jay W. Forrester, a professor at MIT, who developed the idea o f systems dynamics in the early 1960s. Extrapolating the trend of the
existing growth rates in major variables such as population and consumption of natural
resources, Meadows simulated ecosystem into the fixture. His conclusion was thathumanity would reach the material limit o f several key resources by the mid-twenty-
first century and exhaust the "carrying capacity" o f the earth. It was the first globalsimulation analysis by computer.
2
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Common Future(1987) made the concept o f sustainable development a key inter
national issue. The report has since been a role model for sustainable development in
the global context. Its primary contribution to the discourse of sustainable develop
ment has been the identification o f inequity between generations and classes as one o f
the key variables in solving the current g lobal environmental problems.
Another persistent issue that has characterized the global environmental
debate has been the w ide separation in the political and economic priorities o f devel
oped and developing nations, commonly referred to as the North-South divide. Both
sides, while agreeing to the seriousness o f global environmental problems such as
ozone depletion, climate change, and the loss o f biodiversity, have different ideas
regarding the causes and solutions o f these problems. Nowhere is this more evident
than with respec t to the debate over climate change. For example, the North blames
rapid population growth in the South for intensifying climate change, whereas the
South blames the lavish lifestyles of the North.
As part o f the effort to expand the E3 discourse, many quantitative models
have been developed to simulate the interactive character of resource-environment
problems at the global and regional scale . The computer simulation model developed
by Meadows e t al. in their monumental work, The Limits to Growth(1972), was the
first global empirical model to tackle the E3 issues. Since then, many modeling tech
niques have been developed to interpret and simulate the interrelationships between
energy, the economy, and the environment. Major techniques employed for this
purpose include the input-output method, linear programming, macro-economic sim
ulations, and the computable general equilibrium model (Donnelly, 1987; Bunn and
Larson, 1997). Each technique has its strengths and limitations in dealing with the
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interactions between energy, the economy, and the environment. However, on the
whole, these models have made a great contribution in identifying the interdependent
nature o f the so-called E3 and providing a firm basis for the evaluation of policies that
are proposed to promote sustainable development.
These empirical approaches, however, fail to incorporate socio-political
issues, such as equity and justice, into their quantitative calculations o f energy con
sumption and environmental costs. The socio-political dimension of sustainability is
no less important than the three Es. Despite much discussion, there is only a poor
quantitative understanding o f the socio-political dimension o f the energy-economy-
environment nexus. Compared to the interaction of the three E s, there have been few
formal, or empirical, analyses o f how a sustainable energy system would affect the
socio-political structure o f a society.
1.2 Purpose o f the Study
This dissertation has two major purposes: 1) to build a conceptual frame
work of a sustainable energy system that integrates energy, economic, environmental,
and socio-political dimensions of sustainability; and 2) to develop a policy simulation
model for Korea based on the conceptual framework. This methodology will be used
to identify the impacts o f policy tools to achieve a sustainable energy future in Korea.
Firstly, this dissertation will conceptualize a sustainable energy system.
Currently, sustainability has been defined in as many ways as there are academic
disciplines. This multiplicity of definitions causes so much confusion that its meaning
has become obfuscated, hi this regard, it would be valuable to draw a clear-cut and
unambiguous definition of sustainability by synthesizing recent works. In this theo
retical effort, an operational definition o f sustainable energy development will be
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suggested, based on a survey o f the dominant theories o f sustainable development. The
development of this definition will also require an in-depth analysis o f socio-political
dimension to better understand, and get a clearer picture of, sustainability in terms o f
energy development. From a socio-political viewpoint, a sustainable energy system is
characterized by intergenerational, interregional, and interclass justice.
As the second goal set by this dissertation, an empirical simulation model
will be developed to support the theoretical framework established in the first part. An
empirical model is not only necessary for supporting the conceptual framework of
sustainable energy development, but it also provides a simple but realistic understand
ing of the relationship among policies, institutions, and social patterns. In recognition
of these needs, a num ber o f simulation models (KEEI,2 1998; Jung and Hahn, 1998;
Kwak, 1995; Jung and Yoo, 1994) have been developed which integrate energy, the
economy, and the environment in the Korean context. However, the interactions
between energy and the environment have not be en fully reflected in their models.
The analytical focus o f these models is mostly directed on just one aspect o f environ
mental degradation such as global warming. Thus, it is virtually impossible to
describe the overall relationship between energy and the environment in these models.
In contrast, the model developed in this dissertation takes into consideration not only
global wanning, b ut also air-quality problems caused by energy consumption. This
approach allows a broade r understanding of the energy-environment nexus.
This disse rtation also intends to build a more comprehensive simulation
model by including socio-political concerns along with purely economic, energy, and
environmental concerns. Socio-political structure is seen as a key component in this
2 Korea Energy Economics Institute.
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simulation model as indicated by the theoretical framework. However, this intention
was left unfulfilled due to insufficient data related to socio-political structure, such as
income distribution and environmental indices. If socio-political concerns were
integrated into the model developed in this dissertation, it would generate essential
information for policy-makers to promote environmental and social sustainability in
society.
1.3 Methodology
It is generally accepted that the establishment o f a sustainable energy
system requires a multi-disciplinary approach, including economics, ecology, and
socio-politics. Follow ing such a mainstream approach, this dissertation will examine
these three dimensions o f sustainability on equal terms. Socio-political structure will
form the overarching context in constructing a theoretical framework of this dissert
ation.
In order to build a theoretical framework for sustainable energy develop
ment, the dissertation will survey the literature on the dominant theories o f sustain
ability. Several scholars (Byrne, 1996, 1989, 1983; Flavin, 1996, 1994; Munasinghe,
1996; Lovins, 1977) address sustainability in terms o f energy development. The com
monalities among these authors will be identified based on an analysis o f their
theories. These common denominators will be used to develop an operational
definition of sustainability that addresses energy, economic, environmental, and socio
political concerns.
To create an empirical model o f a sustainable energy system requires a
clear-cut, operational definition of sustainability. A couple o f scholars attempted to
develop an operational definition of sustainability by developing a list o f the indices.
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Daly (1993) developed the Index of Sustainable Economic Welfare (ISEW) by syn
thesizing the works o f Zolatas (1981) and Nordhaus and Tobin (1972). Noormans
(1995) and Pezzeys (1992) works probably were the first serious analytical works that
analyzed sustainability concepts and suggested a model for a sustainable development
path, based on an operational definition o f sustainability. They built a general model
depicting stocks and flows of economic and environmental variables such as capital,
labor and natural resources.3
The methodology in this dissertation basically adopts an eclectic approach
of neo-classical economics and alternative approaches. Pezzeys analysis (1992) of
sustainable development concepts provides a good example o f this approach. As he
explained, his approach uses neoclassical economic concepts in the context of intra-
and inter-generational equity. Furthermore, his integrated concept o f optimality,
sustainability, and survivability is more relevant to the N ewly Industrialized Countries
(NICs) such as South Korea, Taiwan, Hong-Kong, and Malaysia in a practical sense.
Based on Pezzeys theoretical framework o f sustainability, this dissertation will
attempt to build an empirical model of sustainable energy development for Korea.
In the second part, the dissertation attempts to build a simulation model.
Though most empirical models have been developed based on the input-output tech
nique or linear programming, this dissertation will employ an econometric simulation
model as a basic evaluation tool. There are only a few interactive economic-energy-
environmental models that use econometric techniques. The estimation o f regression
3 Pezzey admitted that the assumptions in his models are far from realistic; nonumbers appear; results are only generalized suggestions; one cannot say, based on
this model, whether the development path in a certain country is sustainable, and if
not, what policies should be taken to make development sustainable (1992: 2).
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equations that are relevant from the energy, economic, and environmental perspective
is difficult, while mathematical calibration of relationship among the key factors is
relatively easy. Modeling techniques other than the econometric model are mostly
constructed using mathematical relationships, ignoring any central behavioral notions,
and economic parameters such as prices, income, tax, etc. In contrast, an econometric
model can describe the economic behavioral relationships between major macro-
economic variables, such as prices, income, taxes and GNP. Because an econometric
model is free from a mathematical specification, it shows more flexibility in model
building.
Few attempts have been made in developing econometric simultaneous-
equation models in the energy and environmental fields, due to limited data avail
ability and poor data quality.4 Despite these restrictions, a number o f simultaneous-
equation models have been developed to simulate the interrelationship o f the three Es
(Italianer, 1986; Mori, 1992). hi this dissertation, an econometric simultaneous-
equation model that uses endogenous and exogenous variables to describe the
interdependence o f the energy-economic-environmental system will be composed.
4 A good num ber o f simultaneous-equation models have been developed that aremodestly successful at describing regional as well as national economies. This
method, nonetheless, poses several problems in estimating equations that belong to asystem of relations as well as with the analysis and interpretation o f such systems. In
particular, when a relation is part o f a system, some regressors are typically stochastic
and correlated with the regression disturbance term. In this case the ordinary least
squares (OLS) estimators of the regression coefficients are inconsistent and othermethods such as indirect least squares (ILS) and two-stage least squares (TSLS) are
devised to provide consistent estimates. In addition, simultaneous equation models
require a database o f good quality. Moreover, econometric simulation models are
criticized as not robust enough to analyze periods of rapid structural change (Bun andLarson, 1997).
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The model consists o f three modules: economic, energy, and environment
al modules. Each module is composed of identities as well as stochastic equations,
totaling 35 stochastic equations and 89 identities. To tes t the predic tive accuracy and
robustness o f the model, mean absolute percentage error (MAPE) is employed as a
backcasting technique. Version 3 o fEVierwswas the modeling software program
chosen fo r this effort.5 Several policy simulations will be conducted with the model to
evaluate the impacts o f three types o f taxes excise taxes, energy taxes, and carbon
taxes on key variables. In addition to these policy simulations, the impacts o f energy
and carbon taxes on the economy will be evaluated in the case of reinvestment o f
carbon taxes into energy efficiency improvements and renewable energy R&D and
dissemination programs.
1.4 Organization of the Dissertation
The dissertation is divided into two basic parts. Part One which is com
prised o f chapters two and three, is concerned w ith conceptualizing the general theory
o f sustainable energy development, with emphasis placed on the socio-political dimen
sion o f sustainability. Part Two, which comprises chapters four, five, and six, is
devoted to developing a general simulation model to illustrate the interrelationship of
the three Es and socio-political structure, and to quantify the impacts o f various
polic ies on the possible evolution o f a sustainable energy system.
5Eview sis a new version of a set o f tools for manipulating time series data originally
developed in the Time Series Processor (TSP) software for large computers. The
immediate predecessor ofEviewswasMicroTSP, first released in 1981. Eviews
provides sophisticated data analysis, regression, and forecasting tools on Window-
ba sed computers. It is a most useful development tool for economists.
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Chapter 2 discusses the conceptual framework o f sustainable energy
development. Here, concepts and operational definitions o f sustainability will be
analyzed. This analysis will consider sustainability generally as well as sustainability
within the context of the energy problem. Mainstream discourses on sustainability
will be evaluated through an examination of alternative perspectives. Part of this
chapter will provide an historical examination o f energy transitions. This historical
analysis will provide insights into the transition from conventional to sustainable
energy systems. Chapter 3 examines the Korean energy system as a case study for
empirical analysis. It first describes the current Korean energy system and discusses
possible strategies for a transition to a susta inable energy system, suggesting what
must be done to accomplish this task.
Chapter 4 develops a simulation model to show the interactions between
energy, the economy, and the environment. Severa l techniques for simulation model
building will be reviewed, including input-output models, econometric simultaneous
models, linear programming, and computable general equilibrium models. This dis
sertation chose an econometric simultaneous regression model for its analysis. The
final simulation model developed for this dissertation was structured with three
modules: an energy, an economic, and an environmental module. Chapter 5 conducts
and evaluates a policy simulation to provide policy tools for developing a sustainable
energy system. Chapter 6 discusses the possible transition to a sustainable energy
system in Korea. This discussion will be based on the insights gained from the theo
retical framework constructed in Part One and from the empirical analysis provided by
the simulation model. A summary and the policy implications o f this dissertation are
provided in the concluding chapter.
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Chapter 2
THEORETICAL FRAMEWORK
The k ey issue to be addressed in this chapter is a definition of sustain
ability. Firstly, a brie f review of theories o f sustainable development will be presented
in order to understand the core concept o f sustainable energy development. Secondly,
a conceptual framework of sustainable energy development will be discussed. At the
end o f the discussion an appropriate theoretical model of sustainability in energy de
velopment will be suggested, providing the basic framework for developing a sim
ulation model for a sustainable energy system. The discussion will also include an
issue o f energy transition and a discussion o f the socio-political dimension o f the
sustainable energy system.
2.1 Theories o f Sustainable Development
Since the term sustainable development officially appeared in the report of
the Brundtland Commission, Our Common Future,in 1987, it has become a standard
element in major environment-related discourses.6 However, sustainability remains a
vague, catch-all concept. Despite numerous efforts in refining the definition, the term
sustainable development is still ambiguous and in need of clarification. Sustainabil
ity has been interpreted in different contexts, depending upon different worldviews or
6 The concept o f sustainability was first coined by Barbara Ward for her report to the1972 Stockholm Conference on the Human Environment. When Ward used it, sustain-
ablehad a much simpler meaning than now: something is sustainable when it iscapable of being maintained on an indefinite basis (Porritt, 1993: 25).
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ideologies. These ideologies pose different valuation of the relationsh ip between
current and future generations, as w ell as the relationship between hum an beings and
nature (Noorman, 1995). This is the crux o f the problem of sustainab le development,
and perhaps the main reason why there has been great acceptance o f it in principle, but
less concrete actions to put it into practice. Many o f those with the power to effect the
necessary changes have the least motivation to alter the status quo that gave them that
power (Schmidheiny, 1992; as quoted by Daneke, 1995).
Concerned with the ambiguity of the concept of susta inable development,
world-renowned thinkers and organizations have worked on the operational concept
ualization of sustainable development. Herman Daly (1991) and P orr itt (1993) were
probably the first scholars to correct the abused concept o f sustainabilfty. They
challenged the concept of sustainable growth, arguing that economic growth is
physically limited by the earth ecosystem that is finite, not growing, and materially
closed. Therefore, according to his reasoning, sustainable development is possible
only if it is not associated with growth. A similar approach was taken in the World
Bank's World Development Report(1992). The World Banks current work in this
area is designed not to generate a general theory of sustainability, but rathe r to focus
on key conceptual issues with potentially important operational implications, hi line
with such an effort, the UNDP is working on the develop-ment of Sustainab le Devel
opment Indices (SDI), on which the sustainability of a development pro jec t and the
economic performance in a country can be evaluated. Besides these institutional
efforts, a num ber of independent scholars have suggested the conceptual framework o f
sustainability in various ways.
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There are a t least three mainstream perspectives o f sustainable develop
ment based on various academic disciplines such as economics, ecology, and socio
logy.7 The WCED's definition o f sustainable energy development gives us a point o f
departure to discuss three aspects of sustainability.8 The Commission considered
sustainable development to be a process of interaction between three sub-systems
within the society: the ecological system (exploitation o f resources), the economic
system (investment and technological development), and the socio-cultural system
(institutional changes) (Noorman, 1995). Each subsystem poses different goals for
sustainability and different approaches to meet them. In order to resolve the confusion
and draw an unambiguous and clear-cut operational definition of sustainability, it is
necessary to integrate the viewpoints o f these disciplines (Munasinghe, 1994 and
1996). Differences in the approach are grounded in the different valuation o f nature
and environment. Understanding the underlying theory of each discipline can help
avoid an unnecessary conflict that obstructs interdisciplinary communication and
cooperation. What follows is a brief description of each approach.
7 Mode of human existence is determined by three spheres: an economic sphere(modes o f production), a social sphere (social regulation), and the biosphere
(ecological regulation). These three spheres, Jean-Claude Debeir et al. (1991) argued,account for all human activities. The authors contended that no species, let alone thehuman species, can escape the laws of nature. The human activities analyzed by
economics (production, exchange, consumption) constitute only one sphere of humanpractice with its own regulators (in capitalist society: the market, prices, and so on),itself a component of a broader social sphere (civil society, the state, ideologies). But
economic sphere significantly affects the broader universe of inanimate and livingmatter which encompasses economics and extends far beyond it.
8 . . . In essence, sustainable development is a process of change in which the exploitation of resources, the direction o f investments, the orientation of technological
development, and institutional change are all in harmony and enhance both current and
future potential to meet human needs and aspiration (WCED, 1987: 46).
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2.1.1 Economics Perspective
The economic approach to sustainability is based on the Hicks-Lindahl
concept of the maximum flow o f income that could be generated while at least maint
aining the stock o f assets (or capital) which yields these benefits (Solow, 1986; Maler,
1990; Daly, 1989. 1994).9 There is an underlying concept of optimality and economic
efficiency applied to the use o f scarce resources. Problems of interpretation arise in
identifying the kinds o f capital to be maintained (e.g., manufactured, natural and
human capital) and their substitutability, as well as in valuing these assets, particularly
ecological resources. The issues o f uncertainty, irreversibility and catastrophic
collapse pose additional difficulties (Pearce and Turner, 1990).
Economists use methods to seek to maximize human welfare within theconstraints o f existing capital stock and technologies. Until recently, economics
viewed the economic system as a closed and complete system isolated from nature.
Economists recognized only the use value of nature. Nature was seen as a provider of
material resources and a sink for wastes from economic activities and little else. The
earth is inert and pass ive and therefore legitimately exploitable. Scarcity problems of
limited resources, they argue, can be solved through substitution, technology develop
ment, and the price mechanism (Hotelling, 1931; Solow, 1986; Dasgupta, 1979;
Maler, 1990; Nordhaus, 1991).10 This idea o f sustainability could lead todays
9 It is unreasonable to trea t capital consumption as income. The world-renowned
economist J. R. Hicks pointed out that income is the maximum amount a person orsociety can consume over some period o f time and still be as well o ff at the end as at
the beginning. Capital must not be run down in order to keep income constant
(1948:72). Eficksian income is by definition sustainable in an economical sense.
10 They proposed the optimal depletion policy for resources tha t are inexhaustible but
available in various grades and at various costs. Costs are assumed to increase withcumulative extraction up to a point, but then to remain constant as a backstop supply
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generation not to worry about the carrying capacity of the earth and only pass on to the
next generation an aggregate capital stock no less than the one enjoyed currently.
Such reasoning is egoistic, linear, instrumental and rational (Gladwin et al., 1995).
As environmental problems have become globalized, economists are
relearning the importance o f natural capital. A new breed o f economic thought
(Hawken and Lovins, 1999; Norgaard, 1994; Daly, 1990; Georgescu-Roegen, 1971;
Boulding, 1968) has emerged by challenging the traditional basic assumptions o f
efficiency, market rationality, etc. They argued that our earth, not the economy, is a
closed system within which nature is nothing but a limited subsystem. This alternative
view o f economics has focused its attention on the interactions between energy,
economy, and the environment. This perspective has recently been recognized in a
new branch o f economics, namely, ecological economics.
Over the past two decades existing economic principles have continued to
be modified and extended to encompass environmental and social valuations o f nature
which had not often been reflected in market transactions. Such concepts as economic
optimization and efficient resource allocation are not easy to apply to some environ
mental and social objectives. This limitation necessitates development of numerousdirect and indirect market valuation methods such as multi-criteria analysis, contin
gency valuation methods (CVM), and hedonic value methods (Dixon et al., 1994).
Environmental impacts o f projects are now routinely regarded as cost elements o f cost-
benefit analysis. These externalities are often difficult to measure in physical and
monetary terms.
is reached. According to their model, resources of the lowest grade or the highest costwill eventually be extracted from sources such as crystal rocks or deep-sea beds.
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Economic analysis o f environmental impacts, however, has been limited
to the microeconomic level. More recently, environmental economists have begun to
analyze macroeconomic impacts o f environmentally related policies at the sectoral or
national levels. Economy-wide policies have a significant effect on the natural
resources base, but the complicated interactions are not we ll understood. Many
aspects o f macroeconomic policy are based on the standard system o f national
accounts. To incorporate neglected environmental impacts into GNP and other related
measures o f income and output, the national accounts system should be environment
ally adjusted. A start has been made through satellite accounts containing environ
mental data that will supplement traditional standard national accounts (Costanza,
1991).
hi the late 1980s, a new area o f interdisciplinary study emerged with the
name ecological economics. As is implied by the name, it is a broad, ecological,
interdisciplinary, and holistic view of the problem o f studying and managing our
natural resources. It is intended to be a new approach to both ecology and economics
that recognizes the need to make economics more cognizant o f ecological impacts and
dependencies; the need to make ecology more sensitive to economic forces, incentives,
and constraints; and the need to treat integrated economic-ecologic systems with a
common (but diverse) set o f conceptual and analytical tools (Costanza, 1989).
Costanza (1997) contended tha t the services of ecological systems and the natural
capital stocks that produce them are critical to the functioning o f the Earths life-
support system. The economies o f the Earth, he continued to argue, would come to a
holt without the ecosystem services. Despite extreme difficulties and uncertainties in
evaluating the ecosystem services, he attempted to estimate the incremental or margin-
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al value o f ecosystem services, based on published studies and a few origina l calcul
ations.11
2.1.2 Ecological Perspective
Ecologists stress preservation of the integrity o f ecological subsystem s as
be ing critical for the overall stability o f the global system. Some argue fo r the preserv
ation o f all ecosystems, although others aim at a more modest goal o f maintaining the
resilience and dynamic adaptability o f natural life-support systems. The units o f
account are physical, not monetary, and the prevailing disciplines a re biology, geology,
chemistry, and the natural sciences generally.
The ecological worldview is based on the concept o f carrying capacity
(Meadows et al., 1992 and 1972). This perspective utilizes science-based estimates o f
limits in the capacity o f ecosystems to be stressed beyond which irreversible degrad
ation occurs in order to set ceilings on human activities. A soio-political version of
ecology, called deep ecology or social ecology (Bookchin, 1986; Naess, 1973) has
also been promoted in which human domination over nature is rejected in favor o f a
biological egalitarianism. A systems theory o f life and evolution that is fundament-
11 According to Constanzas calculation, the value (most o f which is outside the
market) o f 17 ecosystem services for 16 biomass is estimated to be in the range o f US$16-54 trillion per year, with an average o f US$33 trillion pe r year. Because o f the
nature o f the uncertainties, this must be considered a minim um estimate. Global gross
national product total is around US$18 trillion per year (Costanza et al., 1997. The
Value o f the Worlds Eco-system Services and Natural Capital. Nature,Vol. 387
May 15, 1997: 253-360)
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ally different from the classical neo-Darwinian theory has been proposed by several
scholars of various disciplines (Prigogine, 1984; Capra, 1982; Jantsch, 1980).12
According to this view, the premise that human beings occupy a privileged
place in nature is rejected. Human beings are only a part o f nature, both onto logically
and phylogenetically, unseparated from the rest o f nature. Non-human nature has
intrinsic value, independent of human values and human consciousness, which places
limits on the extent o f human prerogatives to use and alter it. The most significant
consequence o f continuing economic growth is the depletion o f the planet's earth's
natural resources. If the current pattern o f undifferentiated growth is continued, the
carrying capacity of the earth soon will be overshot. Some extremists argued that the
current human population size and its material demands already exceed their righteous
share o f resource allocation. Thus, to slow down the rapid depletion of our resources,
the abandonment of the idea o f continuing economic growth would not suffice. In
addition, worldwide population control should be seriously considered (Capra, 1982).
The optimum human population, according to Daly and Erlich's calculation is in the
range o f 1.5 to 2 billion people.13
12 The classical neo-Darwinian theory sees evolution as moving toward an equilibriumstate, with organisms adapting themselves ever more perfectly to their environment.According to the systems view, evolution operates far from equilibrium and unfoldsthrough the interplay of adaptation and creation. Moreover, systems theory takes intoaccount that the environment is, itself, a living system capable o f adaptation andevolution. Thus, the focus shifts from the evolution of an organism to the co-evolution
of organism plus environment. The consideration o f such mutual adaptation and coevolution was neglected in the classical view, which has tended to concentrate onlinear, sequential processes and to ignore transactional phenomenon that are mutuallyconditioning and going on simultaneously (Capra, 1982).
13 This calculation is based on the global ne t primary product o f photosynthesis (NPP).
The economy cannot grow beyond the NPP since it is the highest form of energyavailable. NPP is actually decreased with economic growth because such growth
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Ultimately, growth makes humanity and the rest o f nature poorer, not
richer in this view. The achievement of human security, dignity, and satisfaction can
only be reached through steady-state economics (Daly, 1991), material sufficiency, and
biospherical equality. Poverty is to be dealt w ith via redistribution o f wealth and
natural capital it to be preserved and enhanced. The current rates of energy and
material consumption would have to be reduced in order to observe the carrying
capacities o f ecosystem both on local and global scales.
2.1.3 Socio-Political Perspective
The socio-political approach emphasizes that the key actors are human
beings, whose patterns o f social organization are crucial for devising viable solutionsfor achieving sustainable development. Indeed, evidence is mounting that failure to
pay sufficient attention to social factors in the development process is seriously
jeopardizing the effectiveness o f various development programs and projects. The
current proponents of socio-political sustainability include many environment-related
NGOs and the United Nations.
The environment is threatened by human beings, including both local and
distant resources users. Sustainable development relies substantially upon social
action, especially at the level o f local people, individual firms and local governments,
but also concerns social structures at national and global scales. In other words, the
sociological approach puts social action and social structure at the center o f efforts to
reduces global photosynthesis and leads to lower heat-energy (entropy). Forty percent
o f this NPP is preempted by activities o f human beings which transform land and
displace photosynthesis with entropy. Based on this logic, and a premise that everyone
leads a decent life as contemporary Americans, it is concluded that the earth can
support up to 2 billion people (Daly, 1993).
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explain current unsustainable tendencies. Many who espouse this approach argue that
the exploitation o f the earth's limited resources occurs because of a deeply unequal
world economic system that actually reproduces social injustice (Mellor, 1993). From
this point o f view, sustainable development requires social justice. Unsustainability,
thus, is regarded as socially constructed tha t is, social and economic arrangements
create current patterns o f overstressed ecosystems unable to sustain diverse habitats
and organisms, as well as patterns of unequal wealth and power. If sustainable devel
opment is to b e realized, change in socia l structure is necessary from th is perspective.
The socio-political approach urges us to build a new order in the relation
ship between na ture and humans; between rich and poor; between central and periph
eral regions; and between current and future generations.14 It recognizes people as the
instruments and beneficiaries, as well as the victims, o f all development activities.
Furthermore, unless we keep foremost in our minds the need to continue to improve
the welfare o f people, environmental programs will certainly fail (Munasinghe, 1996).
The poor, in particular, are the most vulnerable, but the least prepared, victims o f
environmental damage. And yet they are blamed for much of the damage on the basis
of their short-term necessities, ignorance, and lack o f resources. From this perspec
tive, we need to build the capacity to regula te economic and social interactions in
14 Jean-Claude Debeir et al. (1991) effec tively addressed the inequity between rich and
poor countries by pointing out two sides o f energy crises:
. . . Potentially more damaging, a new threat to the ecological balance o f the entire
planet has highlighted the two major aspects o f the crisis: scarcity is leading wholeregions o f Africa, Asia and Latin America to destroy their biological capita l particularly forests; while over-consumption in Europe and Japan threatens the same
forest spaces with deadly pollution (136).
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support o f an equitable society, which, in turn, will lead to environmentally sustainable
futures.
Incorporation of socio-political change into an agenda for sustainable
development demands competent social analysis and creative planning. Social
analysis needs to identify elements that can build a social organization committed to
sustain-able development. The elements o f social organization typically include the
social actors themselves and institutional arrangements, and the prevailing cultural
systems o f resource entitlement ownership and custodianship; authority systems and
enforcement mechanisms; and value and bel ief systems. Based on socio-political
analysis, institutions and policy instruments can be designed to mobilize and coordi
nate social resources on behalf of sustainability.
The socio-political approach delves into the local commons problems in
relation to global commons. It is concerned with the monopolized management o f the
global commons by regimes of unequal wealth and power. It proposes that reclaiming
local and global commons is needed and will depend upon the restoration o f commu
nity power to regulate the competitive rushes o f global economic development (The
Ecologist, 1993).
2.1.4 Integrative Approaches
The three perspectives discussed above provide basic tools to operation
alize the concept of sustainable energy development. Any single approach, however,
is not sufficient in addressing the current complex of environmental problems. While
economists, ecologists, and sociologists agree on the seriousness o f current environ
mental problems, their approaches to solve them are quite different. That's because
they do not see these problems through the same set of conceptual lenses. Addition-
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ally, their scope is bounded by academic disciplines to which they belong. Each inter
prets the same concerns through its own lens.
In response to a call for a unifying theory, many attempts have been made
to integrate three dimensions of sustainability. Actually, the Brundtland/WCED report
o f 1987, Our Common Future,sought to integrate various concepts o f sustainable
development, including dimensions o f ecological carrying capacity and social equity.
Ecological economics (Costanza, 1991; and Norgaard, 1992), as a new way of econ
omic thinking, has attempted to integrate economical and ecological approaches.
Herman Daly (1991) has suggested a steady-state economy as a strategy for sustainable
development. This concept combines carrying capacity with economic efficiency.
Munasinghe (1996) has attempted to integrate several approaches based on the tech
niques o f multi-criteria analysis (MCA). Pezzey (1992) has defined an operational
concept o f sustainability and developed several models of development based on a
merging o f ecological and neoclassical economic methodologies. Bym e et al. (1998)
have argued for an equity-based sustainability in which economic, ecological, and
socio-political dimensions are joined together. Klass Jan Noorman (1995) has pro
posed a sustainability model (ECCO: Enhancement of Capital Creation Options) that
is built on the concept of the natural capital accounting methodology.15
15 ECCO (Enhancement o f Capital Creation Options) was presented as a modelingapproach to depict the divergence between natural capital and human made capital andthe rate at which human capital can be created from natural capital. ECCO, according
to Noorman, can be applied to study the long-term effects of changing energy andmaterial use, changing production and consumption patterns and the dynamics of the
feedback mechanisms of environmental and economic parameters. He applied the
ECCO model to the Netherlands economy to examine its physical developmentpotential.
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What follows are discussions o f several approaches to integrate the
sustainable development, focusing on the core concept o f each approach.
2.1.4.1 Ecological Economics Approach
Ecological economics approach to sustainability is distinctive from other
integrated approaches in that it seeks to harmonize between traditional economic
approach (very weak sustainability) and ecological approach (very strong sustain
ability). It attempts to find a way in which a long-term, stable physical relationship
with our environment is ensured, h i other words, this approach is based on a political
economy o f sustainability in which the best o f biophysical systems thinking and
economic thinking are brought together, working cooperatively (Peet, 1992). Ra ther
than regarding economic and ecological goals as being in conflict, ecological approach
attempts to solve the disparity betw een these two approaches by hierarchical integra
tion.
Ecological economics pursues a prioritized approach to sustainability.
First o f all, it defines the carrying capacity of the planet earth in terms o f resources
base and environmental lim its . It then raises the ethical and moral questions o f our
responsibility for equitable distribution in resources allocation. Only after the eco
logical and ethical questions are resolved, economical efficiency in resources alloc
ation can be addressed (Norgaard and Howarth, 1992). In addition to this sequential
approach, it requires socio-economic institution that ensures all those issues to be
properly served.
Because ecological economics starts its argument in the perspective of
ecological stewardship (very strong sustainability), its policy priority for sustainability
is on the ecological imperative. Although ecological economics still needs old
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analytical tools mostly developed by economics, these tools should be used in new
- ways dictated by emerging conditions. Economic tools will be vitally important in
deve loping policies for transition to a sustainable future. Since no other institutions
are available to replace the existing socio-economic institutions, they can be re-usable
by modification (Daly, 1991). Here, price mechanism is sti ll seen as an effective way
to internalize estimates o f the value o f externalities. For example, full fuel cost on
energy analysis can evaluate many primary energy demands and pollution conse
quences o f economic activity.
2.1.4.2 Steady-State Econom y
Steady-state economy, proposed by Daly as part o f the movement towardan ecologica l economics, is an approach that calls for paradigmatic revolution. It rests
on the prem ise that the ecosystem has its carrying capac ity with respect to every
species, including human beings. Any productive system loses the capacity to regen
erate itse lf i f it is over-exploited (Porrit, 1993). This view was succinctly summ arized
by Herman Daly:
. . . Todays newly emerging paradigm (steady state, sustainable devel
opment), however, begins with physical parameters (a finite world,complex ecological interrelations, the laws o f thermodynamcis) andinquires how the nonphysical variables of technology, preferences,distribution, and lifestyles can be brought into feasible and jus t equili
brium with the complex biophysical system o f which we are a part.
The physical quantitative magnitudes are what is given, and the nonphysical qualita tive patterns o f life become variables. This emerging
paradigm is more like classical than neoclassical economics in thatadjustment is