Summary environmental economics
Chapter 2 - Sustainability
Eco-services: Economy – Ecology interaction
Different types of natural resources
- Resource economics (input in production)
-> “non-renewable” and renewable like land, fossil fuels, minerals, timber, food
- Environmental economics (services)
-> life support: e.g. air, water, ozone
-> waste sink e.g. recycling, assimilation
- Emitting pollutants
-> amenity: direct welfare
- Natural beauty
- Complex interactions
-> river example: drinking water , cooling for power plants, waste sink, transport, landscape,
support for fisheries, support for fish species climate change
Land
- Malthus (1798)
-> people like to have 𝑓 > 2 children per couple.
-> that leads to exponential population growth
-> Food cannot grow along, so that famine recurs and people stay poor and hungry (as
equilibrium mechanism)
-> Only remedy: have fewer children
- Ricardo (+/-1809)
-> (i) more and less fertile land available
-> (ii) marginal land determines cost of food
-> (iii) more fertile land produces rent for owner (𝑟𝑋 = 𝑝𝑌 − 𝑤𝐿)
-> Characteristic: fixed (constant) supply of heterogeneous quality
-> Important to agricultural economies
Options for management (Substitution)
- Resource economics
-> Greenhouses with artificial light and heating for land
-> Reproducible (man-made) capital for non-renewable resources e.g wind+solar+bio for
coal+oil+gas
-> Between natural resources e.g. vegetables for meat and fish, bio-energy for fossil fuels
- Problem of substitution is mainly technical (innovation)
Options (Substitution)
- Environmental economics
- Less polluting production methods, end-of-pipe cleaning technology (removal of SO2 from coal
fired power plant exhausts)
- How much ecological damage to accept as price to pay for wealth
, -> gradual deterioration of assimilative / carrying capacity
-> limited resilience of ecological system: tipping points + induced instability
- weak sustainability = good substitution: no need for nature per se
- strong sustainability = poor substitution: trade-off unacceptable
- Problem of substitution is on either technology, or preferences & ethics
- Do we accept polluting the oceans ‘because’ we also provide great wealth and new
technologies to our children?
- Or ‘should’ we provide both? (“Generous Sustainability”)
I = P x A x T as accounting identity
- accounting identity: True by construction
- I: impact (e.g. CO2 emissions, waste) [tCO2/yr]
- P: population (demography) [bn]
- A: per capita affluence [k€/cap yr]
- T: technology, resource use per unit [tCO2/k€]
- accounting identity: changes over time
I = P x A x T as analysis tool
- For predictions.
- Popular among researchers with ‘engineers’ view, but it has deficits
- E.g., iff income increases by x%, impact also increase by x%
-> Only iff there is no composition effect (adding a person, or a euro in Europe causes
less emissions compared to US)
-> Only iff other RHS variables are independent (and constant)
-> If income growth comes from innovations, which tend to be cleaner than existing,
then A ↗ and T ↘
- E.g. iff population increases by x%, impact increase by x%
-> Not true if innovations increase with number of people (end. growth)
- For assessment
- Based on averages, but uneven distribution
-> an additional person in Surinam contribute less to CO2 as in Netherlands
-> An additional highly-educated person = rich ≠ average contribution
Poverty and inequality
- Poverty is a persistent problem
-> Human Development Report, UN
-> But Chinese economic growth has pulled millions out
- Can poor afford strict environmental policy?
-> The tradeoff is misguided. Poverty and environmental degradation have the same cause:
corrupted institutions.
Limits to growth (Meadows et al. 1972)
-Meadows c.s ask whether continued economic growth is feasible.
, -> Assume exponential growth
-> Conclude that such is incompatible with a finite earth
-> Resembles Malthus (1798): physical bounds will limit growth through hardship
Simple Malthus model
- Per capita utility from food consumption: 𝑢𝑡 = 𝑐𝑡
- Aggregate consumption requires resources: 𝐿𝑡𝑐𝑡 = 𝑅𝑡
- Resource extraction limited by land and technology: 𝑅𝑡 ≤ 𝐴𝑡Ṝ
- Technological growth: 𝐴𝑡+1 = 𝐴𝑡 + 𝐺𝐴
- People have children: 𝐿𝑡+1 = (1 + 𝑔𝐿)𝐿t
Simple Limits to growth model
- Per capita utility from consumption: 𝑢𝑡 = 𝑐𝑡
- consumption requires resources: 𝑐𝑡 = 𝑟𝑡
- Resource extraction limited by technology: 𝑟𝑡 ≤ 𝑎𝑡
- Exponential technological growth: 𝑎𝑡+1 = (1 + 𝑔)𝑎𝑡
- Population growth: 𝐿𝑡
- Nature’s carrying capacity (CH17): M𝑡+1= 𝑀𝑡 + 4𝛾𝑀𝑡(1 – 𝑀𝑡) − 𝐿𝑡𝑟𝑡
- The above economy will collapse when 𝐿𝑡𝑐𝑡 > 𝛾.
- Collapse can only be prevented by voluntary reduced growth, not consuming as much as technically
possible: 𝑐𝑡 ≤ 𝛾/𝐿𝑡 < 𝑎𝑡 .
Criticism to Limits to growth
- Ignore feedback mechanisms such as the price mechanism (Solow) and policy
-> Non-renewable resources are still ample available
Simple model, green growth extension
- Per capita utility from consumption: 𝑢𝑡 = 𝑐𝑡
- consumption requires resources: 𝑐𝑡 = 𝜃t𝑟𝑡
- Resource extraction limited by technology: 𝑟𝑡 ≤ 𝑎𝑡
- Exponential technological growth: 𝑎𝑡+1 = (1 + 𝑔a)𝑎𝑡
- Quality growth: 𝜃𝑡+1 = (1 + 𝑔𝜃)𝜃t
- Nature’s carrying capacity (CH17): M𝑡+1= 𝑀𝑡 + 4𝛾𝑀𝑡(1 – 𝑀𝑡) − 𝐿𝑡𝑟𝑡
- Value of growth can come from throughput 𝑟𝑡 or quality 𝜃𝑡
- We can choose for clean or dirty innovations: 𝑔𝑎 + 𝑔𝜃 = ḡ
- Sustainable growth is possible if we choose clean innovations In the long run, 𝑔𝑎 = 0, 𝑔𝜃 = ḡ.
Green growth
- Direct innovation towards quality of products, efficient processes, a circular economy, reducing
material throughput.
Chapter 2 - Sustainability
Eco-services: Economy – Ecology interaction
Different types of natural resources
- Resource economics (input in production)
-> “non-renewable” and renewable like land, fossil fuels, minerals, timber, food
- Environmental economics (services)
-> life support: e.g. air, water, ozone
-> waste sink e.g. recycling, assimilation
- Emitting pollutants
-> amenity: direct welfare
- Natural beauty
- Complex interactions
-> river example: drinking water , cooling for power plants, waste sink, transport, landscape,
support for fisheries, support for fish species climate change
Land
- Malthus (1798)
-> people like to have 𝑓 > 2 children per couple.
-> that leads to exponential population growth
-> Food cannot grow along, so that famine recurs and people stay poor and hungry (as
equilibrium mechanism)
-> Only remedy: have fewer children
- Ricardo (+/-1809)
-> (i) more and less fertile land available
-> (ii) marginal land determines cost of food
-> (iii) more fertile land produces rent for owner (𝑟𝑋 = 𝑝𝑌 − 𝑤𝐿)
-> Characteristic: fixed (constant) supply of heterogeneous quality
-> Important to agricultural economies
Options for management (Substitution)
- Resource economics
-> Greenhouses with artificial light and heating for land
-> Reproducible (man-made) capital for non-renewable resources e.g wind+solar+bio for
coal+oil+gas
-> Between natural resources e.g. vegetables for meat and fish, bio-energy for fossil fuels
- Problem of substitution is mainly technical (innovation)
Options (Substitution)
- Environmental economics
- Less polluting production methods, end-of-pipe cleaning technology (removal of SO2 from coal
fired power plant exhausts)
- How much ecological damage to accept as price to pay for wealth
, -> gradual deterioration of assimilative / carrying capacity
-> limited resilience of ecological system: tipping points + induced instability
- weak sustainability = good substitution: no need for nature per se
- strong sustainability = poor substitution: trade-off unacceptable
- Problem of substitution is on either technology, or preferences & ethics
- Do we accept polluting the oceans ‘because’ we also provide great wealth and new
technologies to our children?
- Or ‘should’ we provide both? (“Generous Sustainability”)
I = P x A x T as accounting identity
- accounting identity: True by construction
- I: impact (e.g. CO2 emissions, waste) [tCO2/yr]
- P: population (demography) [bn]
- A: per capita affluence [k€/cap yr]
- T: technology, resource use per unit [tCO2/k€]
- accounting identity: changes over time
I = P x A x T as analysis tool
- For predictions.
- Popular among researchers with ‘engineers’ view, but it has deficits
- E.g., iff income increases by x%, impact also increase by x%
-> Only iff there is no composition effect (adding a person, or a euro in Europe causes
less emissions compared to US)
-> Only iff other RHS variables are independent (and constant)
-> If income growth comes from innovations, which tend to be cleaner than existing,
then A ↗ and T ↘
- E.g. iff population increases by x%, impact increase by x%
-> Not true if innovations increase with number of people (end. growth)
- For assessment
- Based on averages, but uneven distribution
-> an additional person in Surinam contribute less to CO2 as in Netherlands
-> An additional highly-educated person = rich ≠ average contribution
Poverty and inequality
- Poverty is a persistent problem
-> Human Development Report, UN
-> But Chinese economic growth has pulled millions out
- Can poor afford strict environmental policy?
-> The tradeoff is misguided. Poverty and environmental degradation have the same cause:
corrupted institutions.
Limits to growth (Meadows et al. 1972)
-Meadows c.s ask whether continued economic growth is feasible.
, -> Assume exponential growth
-> Conclude that such is incompatible with a finite earth
-> Resembles Malthus (1798): physical bounds will limit growth through hardship
Simple Malthus model
- Per capita utility from food consumption: 𝑢𝑡 = 𝑐𝑡
- Aggregate consumption requires resources: 𝐿𝑡𝑐𝑡 = 𝑅𝑡
- Resource extraction limited by land and technology: 𝑅𝑡 ≤ 𝐴𝑡Ṝ
- Technological growth: 𝐴𝑡+1 = 𝐴𝑡 + 𝐺𝐴
- People have children: 𝐿𝑡+1 = (1 + 𝑔𝐿)𝐿t
Simple Limits to growth model
- Per capita utility from consumption: 𝑢𝑡 = 𝑐𝑡
- consumption requires resources: 𝑐𝑡 = 𝑟𝑡
- Resource extraction limited by technology: 𝑟𝑡 ≤ 𝑎𝑡
- Exponential technological growth: 𝑎𝑡+1 = (1 + 𝑔)𝑎𝑡
- Population growth: 𝐿𝑡
- Nature’s carrying capacity (CH17): M𝑡+1= 𝑀𝑡 + 4𝛾𝑀𝑡(1 – 𝑀𝑡) − 𝐿𝑡𝑟𝑡
- The above economy will collapse when 𝐿𝑡𝑐𝑡 > 𝛾.
- Collapse can only be prevented by voluntary reduced growth, not consuming as much as technically
possible: 𝑐𝑡 ≤ 𝛾/𝐿𝑡 < 𝑎𝑡 .
Criticism to Limits to growth
- Ignore feedback mechanisms such as the price mechanism (Solow) and policy
-> Non-renewable resources are still ample available
Simple model, green growth extension
- Per capita utility from consumption: 𝑢𝑡 = 𝑐𝑡
- consumption requires resources: 𝑐𝑡 = 𝜃t𝑟𝑡
- Resource extraction limited by technology: 𝑟𝑡 ≤ 𝑎𝑡
- Exponential technological growth: 𝑎𝑡+1 = (1 + 𝑔a)𝑎𝑡
- Quality growth: 𝜃𝑡+1 = (1 + 𝑔𝜃)𝜃t
- Nature’s carrying capacity (CH17): M𝑡+1= 𝑀𝑡 + 4𝛾𝑀𝑡(1 – 𝑀𝑡) − 𝐿𝑡𝑟𝑡
- Value of growth can come from throughput 𝑟𝑡 or quality 𝜃𝑡
- We can choose for clean or dirty innovations: 𝑔𝑎 + 𝑔𝜃 = ḡ
- Sustainable growth is possible if we choose clean innovations In the long run, 𝑔𝑎 = 0, 𝑔𝜃 = ḡ.
Green growth
- Direct innovation towards quality of products, efficient processes, a circular economy, reducing
material throughput.
