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Man's economic system viewed as a
subsystem of the global environment
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Ecological economics (also called eco-economics, ecolonomy or bioeconomics of Georgescu-Roegen) is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially.By treating the economy as a subsystem of Earth's larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing strong sustainability and rejecting the proposition that natural capital can be substituted by human-made capital (see the section on Weak versus strong sustainability below).
Nicholas Georgescu-Roegen was a Romanian American mathematician, statistician and economist. He is best known today for his 1971 magnum opus The Entropy Law and the Economic Process, in which he argued that all natural resources are irreversibly degraded when put to use in economic activity. A progenitor and a paradigm founder in economics, Georgescu-Roegen's work was seminal in establishing ecological economics as an independent academic sub-discipline in economics.
In biology, coevolution occurs when two or more species reciprocally affect each other's evolution.
An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents. Understood in its broadest sense, 'The economy is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources'. Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain.
Ecological economics was founded in the 1980s as a modern discipline on the works of and interactions between various European and American academics (see the section on History and development below). The related field of green economics is, in general, a more politically applied form of the subject.
The green economy is defined as economy that aims at reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. It is closely related with ecological economics, but has a more politically applied focus. The 2011 UNEP Green Economy Report argues "that to be green, an economy must not only be efficient, but also fair. Fairness implies recognizing global and country level equity dimensions, particularly in assuring a just transition to an economy that is low-carbon, resource efficient, and socially inclusive."
According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation.Ecological economists have questioned fundamental mainstream economic approaches such as cost-benefit analysis, and the separability of economic values from scientific research, contending that economics is unavoidably normative, i.e. prescriptive, rather than positive or descriptive. Positional analysis, which attempts to incorporate time and justice issues, is proposed as an alternative. Ecological economics shares several of its perspectives with feminist economics, including the focus on sustainability, nature, justice and care values.
Intergenerational equity in economic, psychological, and sociological contexts, is the concept or idea of fairness or justice between generations. The concept can be applied to fairness in dynamics between children, youth, adults and seniors, in terms of treatment and interactions. It can also be applied to fairness between generations currently living and generations yet to be born.
Uncertainty refers to epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable and/or stochastic environments, as well as due to ignorance, indolence, or both. It arises in any number of fields, including insurance, philosophy, physics, statistics, economics, finance, psychology, sociology, engineering, metrology, meteorology, ecology and information science.
Sustainable development is the organizing principle for meeting human development goals while simultaneously sustaining the ability of natural systems to provide the natural resources and ecosystem services upon which the economy and society depend. The desired result is a state of society where living conditions and resources are used to continue to meet human needs without undermining the integrity and stability of the natural system. Sustainable development can be defined as development that meets the needs of the present without compromising the ability of future generations.
The antecedents of ecological economics can be traced back to the Romantics of the 19th century as well as some Enlightenment political economists of that era. Concerns over population were expressed by Thomas Malthus, while John Stuart Mill predicted the desirability of the stationary state of an economy. Mill thereby anticipated later insights of modern ecological economists, but without having had their experience of the social and ecological costs of the Post–World War II economic expansion. In 1880, Marxian economist Sergei Podolinsky attempted to theorize a labor theory of value based on embodied energy; his work was read and critiqued by Marx and Engels.Otto Neurath developed an ecological approach based on a natural economy whilst employed by the Bavarian Soviet Republic in 1919. He argued that a market system failed to take into account the needs of future generations, and that a socialist economy required Calculation in kind, the tracking of all the different materials, rather than synthesising them into money as a general equivalent. In this he was criticised by neo liberal economists such as Ludwig von Mises and Freidrich Hayek in what became known as the socialist calculation debate.
The Age of Enlightenment was an intellectual and philosophical movement that dominated the world of ideas in Europe during the 18th century, the "Century of Philosophy".
John Stuart Mill, usually cited as J. S. Mill, was a British philosopher, political economist, and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to social theory, political theory, and political economy. Dubbed "the most influential English-speaking philosopher of the nineteenth century", Mill's conception of liberty justified the freedom of the individual in opposition to unlimited state and social control.
The post–World War II economic expansion, also known as the golden age of capitalism and the postwar economic boom or simply the long boom, was a broad period of worldwide economic expansion beginning after World War II and ending with the 1973–75 recession. The United States, Soviet Union, Western European and East Asian countries in particular experienced unusually high and sustained growth, together with full employment. Contrary to early predictions, this high growth also included many countries that had been devastated by the war, such as Japan, West Germany and Austria (Wirtschaftswunder), South Korea, France, Italy and Greece.
The debate on energy in economic systems can also be traced back to Nobel prize-winning radiochemist Frederick Soddy (1877–1956). In his book Wealth, Virtual Wealth and Debt (1926), Soddy criticized the prevailing belief of the economy as a perpetual motion machine, capable of generating infinite wealth—a criticism expanded upon by later ecological economists such as Nicholas Georgescu-Roegen and Herman Daly.
The Nobel Prize in Chemistry is awarded annually by the Royal Swedish Academy of Sciences to scientists in the various fields of chemistry. It is one of the five Nobel Prizes established by the will of Alfred Nobel in 1895, awarded for outstanding contributions in chemistry, physics, literature, peace, and physiology or medicine. This award is administered by the Nobel Foundation, and awarded by Royal Swedish Academy of Sciences on proposal of the Nobel Committee for Chemistry which consists of five members elected by Academy. The award is presented in Stockholm at an annual ceremony on December 10, the anniversary of Nobel's death.
Radiochemistry is the chemistry of radioactive materials, where radioactive isotopes of elements are used to study the properties and chemical reactions of non-radioactive isotopes. Much of radiochemistry deals with the use of radioactivity to study ordinary chemical reactions. This is very different from radiation chemistry where the radiation levels are kept too low to influence the chemistry.
Frederick Soddy FRS was an English radiochemist who explained, with Ernest Rutherford, that radioactivity is due to the transmutation of elements, now known to involve nuclear reactions. He also proved the existence of isotopes of certain radioactive elements.
European predecessors of ecological economics include K. William Kapp (1950) – A Study of Economics as if People Mattered (1973) was published just a few years before the first edition of Herman Daly's comprehensive and persuasive Steady-State Economics (1977).Karl Polanyi (1944), and Romanian economist Nicholas Georgescu-Roegen (1971). Georgescu-Roegen, who would later mentor Herman Daly at Vanderbilt University, provided ecological economics with a modern conceptual framework based on the material and energy flows of economic production and consumption. His magnum opus, The Entropy Law and the Economic Process (1971), is credited by Daly as a fundamental text of the field, alongside Soddy's Wealth, Virtual Wealth and Debt. Some key concepts of what is now ecological economics are evident in the writings of Kenneth Boulding and E.F. Schumacher, whose book Small Is Beautiful
Karl Paul Polanyi was an Austro-Hungarian economic historian, economic anthropologist, economic sociologist, political economist, historical sociologist and social philosopher. He is known for his opposition to traditional economic thought and for his book, The Great Transformation, which argued that the emergence of market-based societies in modern Europe was not inevitable but historically contingent. Polanyi is remembered today as the originator of substantivism, a cultural approach to economics, which emphasized the way economies are embedded in society and culture. This view ran counter to mainstream economics but is popular in anthropology, economic history, economic sociology and political science.
Romania is a country located at the crossroads of Central, Eastern, and Southeastern Europe. It borders the Black Sea to the southeast, Bulgaria to the south, Ukraine to the north, Hungary to the west, Serbia to the southwest, and Moldova to the east. It has a predominantly temperate-continental climate. With a total area of 238,397 square kilometres (92,046 sq mi), Romania is the 12th largest country and also the 7th most populous member state of the European Union, having almost 20 million inhabitants. Its capital and largest city is Bucharest, and other major urban areas include Cluj-Napoca, Timișoara, Iași, Constanța, Craiova, and Brașov.
Vanderbilt University is a private research university in Nashville, Tennessee. Founded in 1873, it was named in honor of New York shipping and rail magnate Cornelius Vanderbilt, who provided the school its initial $1-million endowment despite having never been to the South. Vanderbilt hoped that his gift and the greater work of the university would help to heal the sectional wounds inflicted by the Civil War.
The first organized meetings of ecological economists occurred in the 1980s. These began in 1982, at the instigation of Lois Banner,with a meeting held in Sweden (including Robert Costanza, Herman Daly, Charles Hall, Bruce Hannon, H.T. Odum, and David Pimentel). Most were ecosystem ecologists or mainstream environmental economists, with the exception of Daly. In 1987, Daly and Costanza edited an issue of Ecological Modeling to test the waters. A book entitled Ecological Economics, by Juan Martinez-Alier, was published later that year. He renewed interest in the approach developed by Otto Neurath during the interwar period. 1989 saw the foundation of the International Society for Ecological Economics and publication of its journal, Ecological Economics , by Elsevier. Robert Costanza was the first president of the society and first editor of the journal, which is currently edited by Richard Howarth. Other figures include ecologists C.S. Holling and H.T. Odum, biologist Gretchen Daily, and physicist Robert Ayres. In the Marxian tradition, sociologist John Bellamy Foster and CUNY geography professor David Harvey explicitly center ecological concerns in political economy.
Articles by Inge Ropke (2004, 2005)and Clive Spash (1999) cover the development and modern history of ecological economics and explain its differentiation from resource and environmental economics, as well as some of the controversy between American and European schools of thought. An article by Robert Costanza, David Stern, Lining He, and Chunbo Ma responded to a call by Mick Common to determine the foundational literature of ecological economics by using citation analysis to examine which books and articles have had the most influence on the development of the field. However, citations analysis has itself proven controversial and similar work has been criticized by Clive Spash for attempting to pre-determine what is regarded as influential in ecological economics through study design and data manipulation. In addition, the journal Ecological Economics has itself been criticized for swamping the field with mainstream economics.
Various competing schools of thought exist in the field. Some are close to resource and environmental economics while others are far more heterodox in outlook. An example of the latter is the European Society for Ecological Economics. An example of the former is the Swedish Beijer International Institute of Ecological Economics. Clive Spash has argued for the classification of the ecological economics movement, and more generally work by different economic schools on the environment, into three main categories. These are the mainstream new resource economists, the new environmental pragmatists,and the more radical social ecological economists. International survey work comparing the relevance of the categories for mainstream and heterodox economists shows some clear divisions between environmental and ecological economists.
Some ecological economists prioritise adding natural capital to the typical capital asset analysis of land, labor, and financial capital. These ecological economists then use tools from mathematical economics as in mainstream economics, but may apply them more closely to the natural world. Whereas mainstream economists tend to be technological optimists, ecological economists are inclined to be technological sceptics. They reason that the natural world has a limited carrying capacity and that its resources may run out. Since destruction of important environmental resources could be practically irreversible and catastrophic, ecological economists are inclined to justify cautionary measures based on the precautionary principle.
The most cogent example of how the different theories treat similar assets is tropical rainforest ecosystems, most obviously the Yasuni region of Ecuador. While this area has substantial deposits of bitumen it is also one of the most diverse ecosystems on Earth and some estimates establish it has over 200 undiscovered medical substances in its genomes - most of which would be destroyed by logging the forest or mining the bitumen. Effectively, the instructional capital of the genomes is undervalued by analyses which view the rainforest primarily as a source of wood, oil/tar and perhaps food. Increasingly the carbon credit for leaving the extremely carbon-intensive ("dirty") bitumen in the ground is also valued - the government of Ecuador set a price of US$350M for an oil lease with the intent of selling it to someone committed to never exercising it at all and instead preserving the rainforest.
While this natural capital and ecosystems services approach has proven popular amongst many it has also been contested as failing to address the underlying problems with mainstream economics, growth, market capitalism and monetary valuation of the environment.Critiques concern the need to create a more meaningful relationship with Nature and the non-human world than evident in the instrumentalism of shallow ecology and the environmental economists commodification of everything external to the market system.
A simple circular flow of income diagram is replaced in ecological economics by a more complex flow diagram reflecting the input of solar energy, which sustains natural inputs and environmental services which are then used as units of production. Once consumed, natural inputs pass out of the economy as pollution and waste. The potential of an environment to provide services and materials is referred to as an "environment's source function", and this function is depleted as resources are consumed or pollution contaminates the resources. The "sink function" describes an environment's ability to absorb and render harmless waste and pollution: when waste output exceeds the limit of the sink function, long-term damage occurs. 8 Some persistent pollutants, such as some organic pollutants and nuclear waste are absorbed very slowly or not at all; ecological economists emphasize minimizing "cumulative pollutants". :28 Pollutants affect human health and the health of the ecosystem.:
The economic value of natural capital and ecosystem services is accepted by mainstream environmental economics, but is emphasized as especially important in ecological economics. Ecological economists may begin by estimating how to maintain a stable environment before assessing the cost in dollar terms. 9 Ecological economist Robert Costanza led an attempted valuation of the global ecosystem in 1997. Initially published in Nature, the article concluded on $33 trillion with a range from $16 trillion to $54 trillion (in 1997, total global GDP was $27 trillion). Half of the value went to nutrient cycling. The open oceans, continental shelves, and estuaries had the highest total value, and the highest per-hectare values went to estuaries, swamps/floodplains, and seagrass/algae beds. The work was criticized by articles in Ecological Economics Volume 25, Issue 1, but the critics acknowledged the positive potential for economic valuation of the global ecosystem. :129:
The Earth's carrying capacity is a central issue in ecological economics. Early economists such as Thomas Malthus pointed out the finite carrying capacity of the earth, which was also central to the MIT study Limits to Growth . Diminishing returns suggest that productivity increases will slow if major technological progress is not made. Food production may become a problem, as erosion, an impending water crisis, and soil salinity (from irrigation) reduce the productivity of agriculture. Ecological economists argue that industrial agriculture, which exacerbates these problems, is not sustainable agriculture, and are generally inclined favorably to organic farming, which also reduces the output of carbon. 26:
Global wild fisheries are believed to have peaked and begun a decline, with valuable habitat such as estuaries in critical condition. 28 The aquaculture or farming of piscivorous fish, like salmon, does not help solve the problem because they need to be fed products from other fish. Studies have shown that salmon farming has major negative impacts on wild salmon, as well as the forage fish that need to be caught to feed them.:
Since animals are higher on the trophic level, they are less efficient sources of food energy. Reduced consumption of meat would reduce the demand for food, but as nations develop, they tend to adopt high-meat diets similar to that of the United States. Genetically modified food (GMF) a conventional solution to the problem, presents numerous problems – Bt corn produces its own Bacillus thuringiensis toxin/protein, but the pest resistance is believed to be only a matter of time. :31
Global warming is now widely acknowledged as a major issue, with all national scientific academies expressing agreement on the importance of the issue. As the population growth intensifies and energy demand increases, the world faces an energy crisis. Some economists and scientists forecast a global ecological crisis if energy use is not contained – the Stern report is an example. The disagreement has sparked a vigorous debate on issue of discounting and intergenerational equity.
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Mainstream economics has attempted to become a value-free 'hard science', but ecological economists argue that value-free economics is generally not realistic. Ecological economics is more willing to entertain alternative conceptions of utility, efficiency, and cost-benefits such as positional analysis or multi-criteria analysis. Ecological economics is typically viewed as economics for sustainable development,and may have goals similar to green politics.
In international, regional, and national policy circles, the concept of the green economy grew in popularity as a response to the financial predicament at first then became a vehicle for growth and development.
The United Nations Environment Program (UNEP) defines a ‘green economy’ as one that focuses on the human aspects and natural influences and an economic order that can generate high-salary jobs. In 2011, its definition was further developed as the word ‘green’ is made to refer to an economy that is not only resourceful and well-organized but also impartial, guaranteeing an objective shift to an economy that is low-carbon, resource-efficient, and socially-inclusive.
The ideas and studies regarding the green economy denote a fundamental shift for more effective, resourceful, environment-friendly and resource‐saving technologies that could lessen emissions and alleviate the adverse consequences of climate change, at the same time confront issues about resource exhaustion and grave environmental dilapidation.
As an indispensable requirement and vital precondition to realizing sustainable development, the Green Economy adherents robustly promote good governance. To boost local investments and foreign ventures, it is crucial to have a constant and foreseeable macroeconomic atmosphere. Likewise, such an environment will also need to be transparent and accountable. In the absence of a substantial and solid governance structure, the prospect of shifting towards a sustainable development route would be insignificant. In achieving a green economy, competent institutions and governance systems are vital in guaranteeing the efficient execution of strategies, guidelines, campaigns, and programmes.
Shifting to a Green Economy demands a fresh mindset and an innovative outlook of doing business. It likewise necessitates new capacities, skills set from labor and professionals who can competently function across sectors, and able to work as effective components within multi-disciplinary teams. To achieve this goal, vocational training packages must be developed with focus on greening the sectors. Simultaneously, the educational system needs to be assessed as well in order to fit in the environmental and social considerations of various disciplines.
Among the topics addressed by ecological economics are methodology, allocation of resources, weak versus strong sustainability, energy economics, energy accounting and balance, environmental services, cost shifting, modeling, and monetary policy.
The classical Carnot heat engine
A primary objective of ecological economics (EE) is to ground economic thinking and practice in physical reality, especially in the laws of physics (particularly the laws of thermodynamics) and in knowledge of biological systems. It accepts as a goal the improvement of human well-being through development, and seeks to ensure achievement of this through planning for the sustainable development of ecosystems and societies. Of course the terms development and sustainable development are far from lacking controversy. Richard B. Norgaard argues traditional economics has hi-jacked the development terminology in his book Development Betrayed.
Well-being in ecological economics is also differentiated from welfare as found in mainstream economics and the 'new welfare economics' from the 1930s which informs resource and environmental economics. This entails a limited preference utilitarian conception of value i.e., Nature is valuable to our economies, that is because people will pay for its services such as clean air, clean water, encounters with wilderness, etc.
Ecological economics is distinguishable from neoclassical economics primarily by its assertion that the economy is embedded within an environmental system. Ecology deals with the energy and matter transactions of life and the Earth, and the human economy is by definition contained within this system. Ecological economists argue that neoclassical economics has ignored the environment, at best considering it to be a subset of the human economy.
The neoclassical view ignores much of what the natural sciences have taught us about the contributions of nature to the creation of wealth e.g., the planetary endowment of scarce matter and energy, along with the complex and biologically diverse ecosystems that provide goods and ecosystem services directly to human communities: micro- and macro-climate regulation, water recycling, water purification, storm water regulation, waste absorption, food and medicine production, pollination, protection from solar and cosmic radiation, the view of a starry night sky, etc.
There has then been a move to regard such things as natural capital and ecosystems functions as goods and services.However, this is far from uncontroversial within ecology or ecological economics due to the potential for narrowing down values to those found in mainstream economics and the danger of merely regarding Nature as a commodity. This has been referred to as ecologists 'selling out on Nature'. There is then a concern that ecological economics has failed to learn from the extensive literature in environmental ethics about how to structure a plural value system.
Resource and neoclassical economics focus primarily on the efficient allocation of resources and less on the two other problems of importance to ecological economics: distribution (equity), and the scale of the economy relative to the ecosystems upon which it relies.Ecological economics makes a clear distinction between growth (quantitative increase in economic output) and development (qualitative improvement of the quality of life), while arguing that neoclassical economics confuses the two. Ecological economists point out that beyond modest levels, increased per-capita consumption (the typical economic measure of "standard of living") may not always lead to improvement in human well-being, but may have harmful effects on the environment and broader societal well-being. This situation is sometimes referred to as uneconomic growth (see diagram above).
Ecological economics challenges the conventional approach towards natural resources, claiming that it undervalues natural capital by considering it as interchangeable with human-made capital—labor and technology.
The impending depletion of natural resources and increase of climate-changing greenhouse gasses should motivate us to examine how political, economic and social policies can benefit from alternative energy. Shifting dependence on fossil fuels with specific interest within just one of the above-mentioned factors easily benefits at least one other. For instance, photo voltaic (or solar) panels have a 15% efficiency when absorbing the sun's energy, but its construction demand has increased 120% within both commercial and residential properties. Additionally, this construction has led to a roughly 30% increase in work demands (Chen).
The potential for the substitution of man-made capital for natural capital is an important debate in ecological economics and the economics of sustainability. There is a continuum of views among economists between the strongly neoclassical positions of Robert Solow and Martin Weitzman, at one extreme and the 'entropy pessimists', notably Nicholas Georgescu-Roegen and Herman Daly, at the other.
Neoclassical economists tend to maintain that man-made capital can, in principle, replace all types of natural capital. This is known as the weak sustainability view, essentially that every technology can be improved upon or replaced by innovation, and that there is a substitute for any and all scarce materials.
At the other extreme, the strong sustainability view argues that the stock of natural resources and ecological functions are irreplaceable. From the premises of strong sustainability, it follows that economic policy has a fiduciary responsibility to the greater ecological world, and that sustainable development must therefore take a different approach to valuing natural resources and ecological functions.
Recently, Stanislav Shmelev developed a new methodology for the assessment of progress at the macro scale based on multi-criteria methods, which allows consideration of different perspectives, including strong and weak sustainability or conservationists vs industrialists and aims to search for a 'middle way' by providing a strong neo-Keynesian economic push without putting excessive pressure on the natural resources, including water or producing emissions, both directly and indirectly.
A key concept of energy economics is net energy gain, which recognizes that all energy requires energy to produce. To be useful the energy return on energy invested ( EROEI ) has to be greater than one. The net energy gain from production coal, oil and gas has declined over time as the easiest to produce sources have been most heavily depleted.
Ecological economics generally rejects the view of energy economics that growth in the energy supply is related directly to well being, focusing instead on biodiversity and creativity - or natural capital and individual capital, in the terminology sometimes adopted to describe these economically. In practice, ecological economics focuses primarily on the key issues of uneconomic growth and quality of life. Ecological economists are inclined to acknowledge that much of what is important in human well-being is not analyzable from a strictly economic standpoint and suggests an interdisciplinary approach combining social and natural sciences as a means to address this.
Thermoeconomics is based on the proposition that the role of energy in biological evolution should be defined and understood through the second law of thermodynamics, but also in terms of such economic criteria as productivity, efficiency, and especially the costs and benefits (or profitability) of the various mechanisms for capturing and utilizing available energy to build biomass and do work.As a result, thermoeconomics is often discussed in the field of ecological economics, which itself is related to the fields of sustainability and sustainable development.
Exergy analysis is performed in the field of industrial ecology to use energy more efficiently.The term exergy, was coined by Zoran Rant in 1956, but the concept was developed by J. Willard Gibbs. In recent decades, utilization of exergy has spread outside of physics and engineering to the fields of industrial ecology, ecological economics, systems ecology, and energetics.
An energy balance can be used to track energy through a system, and is a very useful tool for determining resource use and environmental impacts, using the First and Second laws of thermodynamics, to determine how much energy is needed at each point in a system, and in what form that energy is a cost in various environmental issues.[ citation needed ] The energy accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system.
Scientists have written and speculated on different aspects of energy accounting.
Ecological economists agree that ecosystems produce enormous flows of goods and services to human beings, playing a key role in producing well-being. At the same time, there is intense debate about how and when to place values on these benefits.
A study was carried out by Costanza and colleaguesto determine the 'value' of the services provided by the environment. This was determined by averaging values obtained from a range of studies conducted in very specific context and then transferring these without regard to that context. Dollar figures were averaged to a per hectare number for different types of ecosystem e.g. wetlands, oceans. A total was then produced which came out at 33 trillion US dollars (1997 values), more than twice the total GDP of the world at the time of the study. This study was criticized by pre-ecological and even some environmental economists - for being inconsistent with assumptions of financial capital valuation - and ecological economists - for being inconsistent with an ecological economics focus on biological and physical indicators.
The whole idea of treating ecosystems as goods and services to be valued in monetary terms remains controversial. A common objectionis that life is precious or priceless, but this demonstrably degrades to it being worthless within cost-benefit analysis and other standard economic methods. Reducing human bodies to financial values is a necessary part of mainstream economics and not always in the direct terms of insurance or wages. Economics, in principle, assumes that conflict is reduced by agreeing on voluntary contractual relations and prices instead of simply fighting or coercing or tricking others into providing goods or services. In doing so, a provider agrees to surrender time and take bodily risks and other (reputation, financial) risks. Ecosystems are no different from other bodies economically except insofar as they are far less replaceable than typical labour or commodities.
Despite these issues, many ecologists and conservation biologists are pursuing ecosystem valuation. Biodiversity measures in particular appear to be the most promising way to reconcile financial and ecological values, and there are many active efforts in this regard. The growing field of biodiversity financebegan to emerge in 2008 in response to many specific proposals such as the Ecuadoran Yasuni proposal or similar ones in the Congo. US news outlets treated the stories as a "threat" to "drill a park" reflecting a previously dominant view that NGOs and governments had the primary responsibility to protect ecosystems. However Peter Barnes and other commentators have recently argued that a guardianship/trustee/commons model is far more effective and takes the decisions out of the political realm.
Commodification of other ecological relations as in carbon credit and direct payments to farmers to preserve ecosystem services are likewise examples that enable private parties to play more direct roles protecting biodiversity, but is also controversial in ecological economics.The United Nations Food and Agriculture Organization achieved near-universal agreement in 2008 that such payments directly valuing ecosystem preservation and encouraging permaculture were the only practical way out of a food crisis. The holdouts were all English-speaking countries that export GMOs and promote "free trade" agreements that facilitate their own control of the world transport network: The US, UK, Canada and Australia.
Ecological economics is founded upon the view that the neoclassical economics (NCE) assumption that environmental and community costs and benefits are mutually canceling "externalities" is not warranted. Joan Martinez Alier,for instance shows that the bulk of consumers are automatically excluded from having an impact upon the prices of commodities, as these consumers are future generations who have not been born yet. The assumptions behind future discounting, which assume that future goods will be cheaper than present goods, has been criticized by David Pearce and by the recent Stern Report (although the Stern report itself does employ discounting and has been criticized for this and other reasons by ecological economists such as Clive Spash).
Concerning these externalities, some like the eco-businessman Paul Hawken argue an orthodox economic line that the only reason why goods produced unsustainably are usually cheaper than goods produced sustainably is due to a hidden subsidy, paid by the non-monetized human environment, community or future generations.These arguments are developed further by Hawken, Amory and Hunter Lovins to promote their vision of an environmental capitalist utopia in Natural Capitalism: Creating the Next Industrial Revolution .
In contrast, ecological economists, like Joan Martinez-Alier, appeal to a different line of reasoning.Rather than assuming some (new) form of capitalism is the best way forward, an older ecological economic critique questions the very idea of internalizing externalities as providing some corrective to the current system. The work by Karl William Kapp explains why the concept of "externality" is a misnomer. In fact the modern business enterprise operates on the basis of shifting costs onto others as normal practice to make profits. Charles Eisenstein has argued that this method of privatising profits while socialising the costs through externalities, passing the costs to the community, to the natural environment or to future generations is inherently destructive. As social ecological economist Clive Spash has noted, externality theory fallaciously assumes environmental and social problems are minor aberrations in an otherwise perfectly functioning efficient economic system. Internalizing the odd externality does nothing to address the structural systemic problem and fails to recognize the all pervasive nature of these supposed 'externalities'.
Mathematical modeling is a powerful tool that is used in ecological economic analysis. Various approaches and techniques include:evolutionary, input-output, neo-Austrian modeling, entropy and thermodynamic models, multi-criteria, and agent-based modeling, the environmental Kuznets curve, and Stock-Flow consistent model frameworks. System dynamics and GIS are techniques applied, among other, to spatial dynamic landscape simulation modeling. The Matrix accounting methods of Christian Felber provide a more sophisticated method for identifying "the common good"
Ecological economics draws upon its work on resource allocation and strong sustainability to address monetary policy. Drawing upon a transdisciplinary literature, ecological economics roots its policy work in monetary theory and its goals of sustainable scale, just distribution, and efficient allocation.Ecological economics' work on monetary theory and policy can be traced to Frederick Soddy's work on money. The field considers questions such as the growth imperative of interest-bearing debt, the nature of money, and alternative policy proposals such as alternative currencies and public banking.
Assigning monetary value to natural resources such as biodiversity, and the emergent ecosystem services is often viewed as a key process in influencing economic practices, policy, and decision-making.While this idea is becoming more and more accepted among ecologists and conservationist, some argue that it is inherently false.
McCauley argues that ecological economics and the resulting ecosystem service based conservation can be harmful.He describes four main problems with this approach:
Firstly, it seems to be assumed that all ecosystem services are financially beneficial. This is undermined by a basic characteristic of ecosystems: they do not act specifically in favour of any single species. While certain services might be very useful to us, such as coastal protection from hurricanes by mangroves for example, others might cause financial or personal harm, such as wolves hunting cattle.The complexity of Eco-systems makes it challenging to weigh up the value of a given species. Wolves play a critical role in regulating prey populations; the absence of such an apex predator in the Scottish Highlands has caused the over population of deer, preventing afforestation, which increases the risk of flooding and damage to property.
Secondly, allocating monetary value to nature would make its conservation reliant on markets that fluctuate. This can lead to devaluation of services that were previously considered financially beneficial. Such is the case of the bees in a forest near former coffee plantations in Finca Santa Fe, Costa Rica. The pollination services were valued to over US$60,000 a year, but soon after the study, coffee prices dropped and the fields were replanted with pineapple.Pineapple does not require bees to be pollinated, so the value of their service dropped to zero.
Thirdly, conservation programmes for the sake of financial benefit underestimate human ingenuity to invent and replace ecosystem services by artificial means. McCauley argues that such proposals are deemed to have a short lifespan as the history of technology is about how Humanity developed artificial alternatives to nature's services and with time passing the cost of such services tend to decrease. This would also lead to the devaluation of ecosystem services.
Lastly, it should not be assumed that conserving ecosystems is always financially beneficial as opposed to alteration. In the case of the introduction of the Nile perch to Lake Victoria, the ecological consequence was decimation of native fauna. However, this same event is praised by the local communities as they gain significant financial benefits from trading the fish.
McCauley argues that, for these reasons, trying to convince decision-makers to conserve nature for monetary reasons is not the path to be followed, and instead appealing to morality is the ultimate way to campaign for the protection of nature.
Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. Two of these underpin our economy and society and make human life possible.
Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied topic due to growing environmental concerns in the twenty-first century. Quoting from the National Bureau of Economic Research Environmental Economics program:
... Environmental Economics ... undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world .... Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming.
Human ecology is an interdisciplinary and transdisciplinary study of the relationship between humans and their natural, social, and built environments. The philosophy and study of human ecology has a diffuse history with advancements in ecology, geography, sociology, psychology, anthropology, zoology, epidemiology, public health, and home economics, among others.
Uneconomic growth, in human development theory, welfare economics, and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to leading ecological economist and steady-state theorist Herman Daly, though other theorists can also be credited for the incipient idea. Note Uneconomic growth should not be confused with economic degrowth, the reduction of the size of the economy to increase well-being and sustainability.
Ecosystem valuation is an economic process which assigns a value to an ecosystem and/or its ecosystem services. By quantifying, for example, the human welfare benefits of a forest to reduce flooding and erosion while sequestering carbon, providing habitat for endangered species, and absorbing harmful chemicals, such monetization ideally provides a tool for policy-makers and conservationists to evaluate management impacts and compare a cost-benefit analysis of potential policies. However, such valuations are estimates, and involve the inherent quantitative uncertainty and philosophical debate of evaluating a range non-market costs and benefits.
Herman Edward Daly is an American ecological and Georgist economist and emeritus professor at the School of Public Policy of University of Maryland, College Park in the United States. In 1996, he was awarded the Right Livelihood Award for "defining a path of ecological economics that integrates the key elements of ethics, quality of life, environment and community."
A steady-state economy is an economy made up of a constant stock of physical wealth (capital) and a constant population size, or one where these grow at constant rates. In effect, such an economy does not grow in the course of time. The term usually refers to the national economy of a particular country, but it is also applicable to the economic system of a city, a region, or the entire world. Early in the history of economic thought, classical economist Adam Smith of the 18th century developed the concept of a stationary state of an economy: Smith believed that any national economy in the world would sooner or later settle in a final state of stationarity.
The environmental humanities is an interdisciplinary area of research, drawing on the many environmental sub-disciplines that have emerged in the humanities over the past several decades. The environmental humanities aim to help bridge traditional divides between the sciences and the humanities, as well as between Western, Eastern and Indigenous ways of relating to the natural world and the place of humans within it.
Robert Costanza is an ecological economist and Professor of Public Policy at the Crawford School of Public Policy at The Australian National University.
Cutler J. Cleveland is an author, consultant, academic, and business executive. His research primarily involves natural resources, energy use, and their related economies. Dr. Cleveland is the editor-in-chief of the Encyclopedia of Energy and winner of an American Library Association award. He is also the founding editor-in-chief of the Digital Universe Encyclopedia of Earth.
Charles A. S. Hall (1943) is an American systems ecologist and ESF Foundation Distinguished Professor at State University of New York in the College of Environmental Science & Forestry.
Sustainability metrics and indices are measures of sustainability, and attempt to quantify beyond the generic concept. Though there are disagreements among those from different disciplines, these disciplines and international organizations have each offered measures or indicators of how to measure the concept.
Sustainability is the ability to exist constantly. In the 21st century, it refers generally to the capacity for the biosphere and human civilisation to coexist. Defined also as the process of people maintaining change in a balanced environment, in which the exploitation of resources, the direction of 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 aspirations. For many in the field, sustainability is defined through the following interconnected domains or pillars: environment, economic and social, which according to Fritjof Capra is based on the principles of Systems Thinking. Sub-domains of sustainable development have been considered also: cultural, technological and political. While sustainable development may be the organizing principle for sustainability for some, for others, the two terms are paradoxical. Sustainable development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Brundtland Report for the World Commission on Environment and Development (1987) introduced the term of sustainable development.
The history of sustainability traces human-dominated ecological systems from the earliest civilizations to the present. This history is characterized by the increased regional success of a particular society, followed by crises that were either resolved, producing sustainability, or not, leading to decline.
The Economics of Ecosystems and Biodiversity (TEEB) is a study led by Pavan Sukhdev. It is an international initiative to draw attention to the global economic benefits of biodiversity. Its objective is to highlight the growing cost of biodiversity loss and ecosystem degradation and to draw together expertise from the fields of science, economics and policy to enable practical actions. TEEB aims to assess, communicate and mainstream the urgency of actions through its five deliverables—D0: science and economic foundations, policy costs and costs of inaction, D1: policy opportunities for national and international policy-makers, D2: decision support for local administrators, D3: business risks, opportunities and metrics and D4: citizen and consumer ownership.
Joan Martinez Alier is a Spanish economist, Emeritus Professor of Economics and Economic History and researcher at ICTA at the Autonomous University of Barcelona.
Although related subjects, sustainable development and sustainability are different concepts. Weak sustainability is an idea within environmental economics which states that 'human capital' can substitute 'natural capital'. It is based upon the work of Nobel Laureate Robert Solow, and John Hartwick. Contrary to weak sustainability, strong sustainability assumes that "human capital" and "natural capital" are complementary, but not interchangeable.
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