CHAPTER 1 - INTRODUCTION
A BRIEF HISTORY: FRO M WELFARE TO SUSTAINABILITY
Let us start halfway the previous century
• “Golden sixties” : welfare state = growth + redistribution
• A bi-polar world
• Circa 2000 : technology / globalization …
• Attention for environment / climate change / sustainability
• Trade off between welfare and sustainability !? = how to combine these objectives ?
TRADE OFFS
• Economics = the study of how to make trade-offs = the science of the allocation of scarce resources.
• There is difficulty in confronting trade-offs between environmental preservation and some economic
activities and economic growth.
• The longer we defer decisions, the more costly the trade-offs will be.
• Example : Climate change and global warming : too much short term self-interest the future cost
becomes higher (and higher).
Trade-offs occur at local and global level
We are experiencing losses of habitat and the collapse of many renewable resources including:
• The majority of our most important global fisheries.
• Massive losses of tropical forests.
• Rapid die-off of coral reefs.
• Extensive losses of wetlands.
• Conversion of grasslands and other ecosystems.
• Desertification at an alarming rate.
• Loss of biodiversity...
ONE OF THE GOALS OF THIS COURSE
• Develop a framework for examining environmental problems and recognizing what constitutes a set
of feasible solutions.
• Attempt to show how economics can be part of this framework together with many other disciplines.
,NOW IN THIS INTRODUC TION, TWO ISSUES :
• 1. Different environmental resources (a taxonomy).
• 2. Why environmental economics?
1. A TAXONOMY OF RESOURCES
• Three categories of resources can be defined:
• Natural Resources
• Physical Resource Flows
• Environmental Resources ( Ecological services)
• Different properties different problems and solutions
NATURAL RESOURCES
• These are provided by nature and can be divided into increasingly smaller units and can be allocated
at the margin and can be traded.
• Examples include: barrels of oil, cubic meters of wood, kilograms of fish.
• Stocks of natural resources may be fixed and in this case can be exhaustible
• Example : minerals, oil.
• Stocks of natural resources may have regenerative capability: renewable resources
• Example : animals.
• Challenge of natural resources : Trade-off between using now today and using in the future
• = use now without endangering the future
PHYSICAL RESOURCE FLOWS
• These resources do not exist as a stock, but have never-ending flows.
• Examples include: solar energy, wind power, tidal power and geothermal power.
• Our consumption of these resources (now) has no effect on the stock or on our ability to consume
them (in the future).
= No Trade-off !
• Example : renewable energy from wind, water, sun, …
ENVIRONMENTAL RESOURCES
• Resources provided by nature that are indivisible, they can not be allocated (distributed among differ-
ent parties).
• Examples include: an ecosystem, an estuary, and the ozone layer.
• These resources can be examined at the margin in terms of quality but not quantity (= we can have
better, not more of it).
• These resources are not consumed directly, but people consume the ecological services provided by
these resources.
,ECOLOGICAL SERVICES
= are a flow coming from environmental resources.
• Ecological service is a function of quality of the environmental resource.
• These services are provided to both ecosystems and social systems.
• Clean air and water support basic biological functions.
• Clean air and water provide important recreational and aesthetic benefits.
• Clean water contributes to economic production processes.
CONCLUSION -> A Taxonomy of Resources
Environmental policy should
- protect our environmental resources and the resulting flow of ecological services.
- take care of the management of our natural resources.
- make smartly use of physical resources : use for “renewable energy”.
2. WHY STUDY ENVIRONMENTAL AND RESOURCE ECONOMICS?
• Study of natural sciences is not sufficient to completely analyze problems because these sciences do
not include human behavior.
• Optimal allocation requires understanding the whole ecological system and how it responds to
changes in both ecological and economic systems.
• An optimal allocation of environmental resources is essential: decisions that are made now have impli-
cations for future choices (dynamic aspect).
CONT
• Market failure is an important characteristic of many environmental issues. More particularly : public
good problems are essential.
• Many decisions regarding environmental resources
are irreversible.
• Evolutions can be non-linear. There are Physical and Natural Environment
‘tipping points’ (from where the situa-
tion cannot be reversed).
Social System
Economic
System
, ECOLOGICAL ECONOMICS
• 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 sub-
stances, solid waste, and global warming. (NBER, US)
• Ecological economics is referred to as both a transdisciplinary and interdisciplinary field of academic
research that aims to address the
interdependence and coevolution of human economies and natural ecosystems over time and space.
(New Palgrave Dictionary of
Economics)
CONCLUSION
• The social and economic systems are not separate from the physical and natural environment, but
contained within it.
• A good understanding of environmental and resource economics requires the development of an un-
derstanding of how physical and natural sciences contribute.
• Economics becomes even more significant when integrated into an interdisciplinary overview (=eco-
logical economics).
PARADOX: GROWTH AND WELFARE
“The world economy performed better in the last half century than at any time in the past. World GDP in-
creased sixfold from 1950 to 1998 with an average growth of 3,9% a year, compared with 1,6% from 1820 to
1950 and 0,3% from 1500 to 1820”
Paradox : but ‘Collapse' is possible
“Collapse: How Societies Choose to Fail or Succeed”
Five factors contribute to collapse:
‣ Climate change
‣ Conflicts (military)
‣ Collapse of trade partners
‣ Environmental problems
‣ Adaptation to change
A BRIEF HISTORY: FRO M WELFARE TO SUSTAINABILITY
Let us start halfway the previous century
• “Golden sixties” : welfare state = growth + redistribution
• A bi-polar world
• Circa 2000 : technology / globalization …
• Attention for environment / climate change / sustainability
• Trade off between welfare and sustainability !? = how to combine these objectives ?
TRADE OFFS
• Economics = the study of how to make trade-offs = the science of the allocation of scarce resources.
• There is difficulty in confronting trade-offs between environmental preservation and some economic
activities and economic growth.
• The longer we defer decisions, the more costly the trade-offs will be.
• Example : Climate change and global warming : too much short term self-interest the future cost
becomes higher (and higher).
Trade-offs occur at local and global level
We are experiencing losses of habitat and the collapse of many renewable resources including:
• The majority of our most important global fisheries.
• Massive losses of tropical forests.
• Rapid die-off of coral reefs.
• Extensive losses of wetlands.
• Conversion of grasslands and other ecosystems.
• Desertification at an alarming rate.
• Loss of biodiversity...
ONE OF THE GOALS OF THIS COURSE
• Develop a framework for examining environmental problems and recognizing what constitutes a set
of feasible solutions.
• Attempt to show how economics can be part of this framework together with many other disciplines.
,NOW IN THIS INTRODUC TION, TWO ISSUES :
• 1. Different environmental resources (a taxonomy).
• 2. Why environmental economics?
1. A TAXONOMY OF RESOURCES
• Three categories of resources can be defined:
• Natural Resources
• Physical Resource Flows
• Environmental Resources ( Ecological services)
• Different properties different problems and solutions
NATURAL RESOURCES
• These are provided by nature and can be divided into increasingly smaller units and can be allocated
at the margin and can be traded.
• Examples include: barrels of oil, cubic meters of wood, kilograms of fish.
• Stocks of natural resources may be fixed and in this case can be exhaustible
• Example : minerals, oil.
• Stocks of natural resources may have regenerative capability: renewable resources
• Example : animals.
• Challenge of natural resources : Trade-off between using now today and using in the future
• = use now without endangering the future
PHYSICAL RESOURCE FLOWS
• These resources do not exist as a stock, but have never-ending flows.
• Examples include: solar energy, wind power, tidal power and geothermal power.
• Our consumption of these resources (now) has no effect on the stock or on our ability to consume
them (in the future).
= No Trade-off !
• Example : renewable energy from wind, water, sun, …
ENVIRONMENTAL RESOURCES
• Resources provided by nature that are indivisible, they can not be allocated (distributed among differ-
ent parties).
• Examples include: an ecosystem, an estuary, and the ozone layer.
• These resources can be examined at the margin in terms of quality but not quantity (= we can have
better, not more of it).
• These resources are not consumed directly, but people consume the ecological services provided by
these resources.
,ECOLOGICAL SERVICES
= are a flow coming from environmental resources.
• Ecological service is a function of quality of the environmental resource.
• These services are provided to both ecosystems and social systems.
• Clean air and water support basic biological functions.
• Clean air and water provide important recreational and aesthetic benefits.
• Clean water contributes to economic production processes.
CONCLUSION -> A Taxonomy of Resources
Environmental policy should
- protect our environmental resources and the resulting flow of ecological services.
- take care of the management of our natural resources.
- make smartly use of physical resources : use for “renewable energy”.
2. WHY STUDY ENVIRONMENTAL AND RESOURCE ECONOMICS?
• Study of natural sciences is not sufficient to completely analyze problems because these sciences do
not include human behavior.
• Optimal allocation requires understanding the whole ecological system and how it responds to
changes in both ecological and economic systems.
• An optimal allocation of environmental resources is essential: decisions that are made now have impli-
cations for future choices (dynamic aspect).
CONT
• Market failure is an important characteristic of many environmental issues. More particularly : public
good problems are essential.
• Many decisions regarding environmental resources
are irreversible.
• Evolutions can be non-linear. There are Physical and Natural Environment
‘tipping points’ (from where the situa-
tion cannot be reversed).
Social System
Economic
System
, ECOLOGICAL ECONOMICS
• 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 sub-
stances, solid waste, and global warming. (NBER, US)
• Ecological economics is referred to as both a transdisciplinary and interdisciplinary field of academic
research that aims to address the
interdependence and coevolution of human economies and natural ecosystems over time and space.
(New Palgrave Dictionary of
Economics)
CONCLUSION
• The social and economic systems are not separate from the physical and natural environment, but
contained within it.
• A good understanding of environmental and resource economics requires the development of an un-
derstanding of how physical and natural sciences contribute.
• Economics becomes even more significant when integrated into an interdisciplinary overview (=eco-
logical economics).
PARADOX: GROWTH AND WELFARE
“The world economy performed better in the last half century than at any time in the past. World GDP in-
creased sixfold from 1950 to 1998 with an average growth of 3,9% a year, compared with 1,6% from 1820 to
1950 and 0,3% from 1500 to 1820”
Paradox : but ‘Collapse' is possible
“Collapse: How Societies Choose to Fail or Succeed”
Five factors contribute to collapse:
‣ Climate change
‣ Conflicts (military)
‣ Collapse of trade partners
‣ Environmental problems
‣ Adaptation to change
