Tema 3. The sustaintability of growth

1. Economic and environmental sustainability

2. The IPAT identity

3. The Environmental Kuznets Curve

Two questions

i. Can be consumption held constant indefinitely, if the population is constant in size, given that non-renewable resources are a necessary input to production?

ii. How to allocate efficiently the environmental resources in case of market failures?

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

The Hartwick rule

o Constant consumption in a model economy can be achieved if the total value of the economy’s stock of reproducible capital together with its stock of non-renewable resources is held constant over time by investing the rent.

o The amount of investment in reproducible capital that is needed to exactly offset declining stocks of non-renewable resources.

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

The optimum pollution level

o Economic Equilibrium: (P)o BMg=CMg privado

o Environmental Equilibrium: (P*) - - OL*. Lesser resources consumption and higher priceso BMg = CMg total (privado + ambiental)

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

“visions” on sustainability

o Neoclassical economics focus on the level of consumptiono Hartwick rule: total of natural and human-made capital together

remains constant over time “Weak sustainability”o Correcting market failures: Internalising externalities

o Ecologists think about sustainability in terms of the extent to which the prevailing structure and properties of the ecosystem can be maintained Resilience

o Ecological economics accept that resilience is important for sustainability, and they argue that following the Hartwick rule and correcting market failure will not suffice to achieve sustainability. “Strong sustainability”o natural and human-made capital are complements rather than

substitutes.o critical natural capital, which acknowledges substitutability close to zero

for some parts of capital and assumes higher substitutability for others

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

The “unlimited-growth” limits

Neoclassical and the Weak sustainability rule:

o The total stock of capital remains for the next generation

o Critics:o Life support services?.... ‘Ozone’o Uncertainties and Unknowledges…. ‘Tropical forests’o Irreversibility and resilience… ‘capital for the future’o Which is the elasticity substitution?

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

*durable(Km), human(Kh) and natural (Kn)

The “unlimited-growth” limits

Ecological and the Strong sustainability rule:

o Neither the total stock of capital, nor the the critic-natural capital decrease

o Critics:o How to calculate and monetize Kc

n

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

*durable(Km), human(Kh) and natural (Kn)

The IPAT Identity?

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

𝐼𝑚𝑝𝑎𝑐𝑡≡ 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛∗ 𝐴𝑓𝑓𝑙𝑢𝑒𝑛𝑐𝑒∗ h𝑇𝑒𝑐 𝑛𝑜𝑙𝑜𝑔𝑦

o IPAT is a tautology -- it states what must be true. It is, nonetheless, very useful.

o It reflects the “trade-off” between growth and environment.o An increasing demand (P or A), raises the pollution at least…

o … something happen with technology (T)

o It points us to the proximate determinants of the environmental impacts of economic activity.

o It does not tell us about the fundamental, or underlying, determinants.

𝑰 ≡𝑷∗ 𝑨∗𝑻

The IPAT Identity?

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

Arto y Dietznbacher (2014): Drivers of the growth in global GHG emissions (gigatonnes of CO2eq)

The IPAT Identity?

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

𝐼𝑚𝑝𝑎𝑐𝑡≡ 𝑃𝑜𝑝𝑢𝑙𝑢𝑡𝑖𝑜𝑛∗ 𝐴𝑓𝑓𝑙𝑢𝑒𝑛𝑐𝑒∗ h𝑇𝑒𝑐 𝑛𝑜𝑙𝑜𝑔𝑦

o IPAT is a tautology -- it states what must be true. It is, nonetheless, very useful.

o It points us to the proximate determinants of the environmental impacts of economic activity.

o It does not tell us about the fundamental, or underlying, determinants.

𝐼≡ 𝑃∗ 𝐴∗𝑇

Modelling growth and the environment

o IPAT doesn’t give information about the determinants of P, A, T.

o Cobb-Douglas production function Substitution

o Leontieff production function Not substitution

·

)

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

The Scenarios Analysis

o A scenario is an internally consistent story about one way in which the future could unfold. It is not a prediction or a forecast.

Scenario Proyections 2050 P I T Impact

People GDP/pc Tonnes/$ Tonnes Co2

A Baseline 6.000.000.000

7.000

0,00055 23.100.000.000

B Low Fertility 7.866.000.000 7.000 0,00055 30.284.100.000 31%

C Medium Fertility 9.322.000.000 7.000 0,00055 35.889.700.000 55%

D High Fertility 10.934.000.000 7.000 0,00055 42.095.900.000 82%

E Growth 1% 6.000.000.000 11.512 0,00055 37.989.600.000 64%

F Growth 2,5% 6.000.000.000 24.060 0,00055 79.398.000.000 244%

G Growth 3% 6.000.000.000 49.747 0,00055 164.165.100.000 611%

BestWorst

o the commodity composition of GDP can be regarded as the ‘technology’ by means of which needs and desires are satisfied in a particular economy… and it could be calculated the coal embodied.

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

Scenarios Example: Carbon footprint of nuclear energy

Variable Unit Scenario code Variation Emissions Const.

(gCO2eq/kWh)Emissions Fuel (gCO2eq/kWh)

EmissionsO&M (gCO2eq/kWh)

Total Emissions (gCO2eq/kWh)

SRIO A1 - 1.45 3.71 2.03 7.19MRIO-LCA A2 - 2.54 6.73 3.49 12.76hMRIO-LCA (Aggregate 7 Regions) A3 2.71 13.08 3.68 19.46hMRIO-LCA (baseline) A4 - 2.59 14.33 3.62 20.54

fast built (5y) B1 5 2.33 14.33 3.62 20.283 years extension B2 11 2.85 14.33 3.62 20.806 years extension B3 14 3.11 14.33 3.62 21.061980 USA (75%) C1 75% 2.82 14.33 3.70 20.85intermediate (85%) C2 85% 2.49 14.33 3.59 20.40near-full load C3 95% 2.23 14.33 3.50 20.05Double price D1 100% 2.59 18.16 3.62 24.38Triple price D2 200% 2.59 21.99 3.62 28.21

early decommissioning 25Y C1 25 6.23 14.33 4.79 25.34intermediate 40Y C2 40 3.89 14.33 4.07 22.29long lifetime 100Y C3 100 1.56 14.33 3.27 19.15Paner Plan 2020 F1 -35% 2.54 14.33 3.49 20.3590% renewables scenario F2 -78% 2.47 14.33 3.31 20.11Coal Decree F3 22.80% 2.63 14.33 3.72 20.67EU-Fuel Cycle GA1 - 2.59 13.61 3.62 19.83NAFTA-Fuel Cycle GA2 - 2.59 13.21 3.62 19.43BRIIAT-Fuel Cycle GA3 - 2.59 16.12 3.62 22.34EU-O&M GB1 - 2.05 14.33 2.92 19.29China-O&M GB2 - 5.33 14.33 7.25 26.91BRIIAT-O&M GB3 - 3.55 14.33 5.07 22.95RUE-Construction GC1 - 2.05 14.33 3.62 20.00China-Construction GC2 - 5.47 14.33 3.62 23.42BRIIAT-Construction GC3 - 3.89 14.33 3.62 21.84hMRIO-LCA (baseline) H1/A3 - 2.59 14.33 3.62 20.54Excluding Decommisioning Baseline H2 -3.15 2.59 14.33 2.75 19.67Adding ENRESA Decommisioning H3 -2.88 2.59 14.33 3.17 20.09

Report OECD+IEA I1 5.30% 2.61 15.09 3.82 21.52Report MIT 2003 I2 251.78% 3.05 50.39 12.75 66.19

Best cases compiled Z1 - 1.15 14.33 1.79 17.26Worst cases compiled Z2 - 8.24 56.22 32.39 96.85

COSTS SCENARIOS

I. FINANCE COMPARISON g/CO2e

BESTS AND WORSTS CASESZ. BEST AND WORST CASE (Departing from Baseline A3)

g/CO2e

F. GHG INTENSITY OF ECONOMY g/CO2e

G. WORLD CONSUMPTION PATTERN

g/CO2e

H. DECOMMISIONING €/MWh

E. LIFETIME years

METHODOLOGICAL SCENARIOS

A. METHODOLOGICAL APPROACH g/CO2e

TECHNOLOGICAL SCENARIOS

B. CONSTRUCTION PERIOD years

C. LOAD FACTOR %

D. URANIUM PRICE g/CO2e

POLITICAL SCENARIOS

Zafrilla, J. E., cadarso, M. A., Monsalve, F., & Rúa, C. (2014).

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

Kuznets Curve

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

Kuznets Curve

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

I = Resources/waste per cápitay = Income per cápitat = TimeZ = other variables variables

o Remarks:o GDP composition: Services vd industry

o Leakages effects.- Globalization and value chains

o Technological progress

o Society preferences

o Green Legislation: energy, consumption, recycling

Kuznets Curve

1. Economic and environmental sustainability2. The IPAT identity3. The Environmental Kuznets Curve

Confirman la curva de Kuznets: • Pico: 8.266 € per cápita• 1857 y 1986 relación

positiva. • 1987-2007 relación

inversa.

Estimación de la curva:

Libros:Jackson, T. (2009): Prosperity without growth? The transition to a sustainable economy, Sustanible Development Commission. Labandeira, X., Carmelo, J. L., Vázquez, M. X. (2006): Economía Ambiental, Pearson Educación. (Capítulo 2).

Artículos:Arto, I. y Dietzenbacher, E. (2014): “Drivers of the Growth in Globlal Greenhouse Gas Emissions”, Environmental, Science and Technology, 48 (10), 5388-5394.Esteve, V. and Tamarit, C. (2012): “Threshold cointegration and nonlinear adjustment between CO2 income: The Environmental Kuznets Curve in Spain, 1857-2007”, Energy Economics 34, 2148-2156.

References