Introduction to Ecological Economics Greentax Sep 7, 2004 Gary Flomenhoft-Gund Institute CIRCULAR FLOW MODEL OF ECONOMY “EXTERNALITIES” SOCIETY ? ECONOM Y ENVIRONMENT ? Environment as subset of ECONOMY NEO-CLASSICAL ECONOMICS 1890No Ingredients, only labor and capital P = f(L,K)= ALa BKb (Cobb-Douglas multiplication) Labor (Chef ) = x X Capital (Mixing bowl) Capital (oven) Bread? NEO-CLASSICAL ECONOMICS INFINITE SUBSTITUTABILITY: 2P = f(L,K)= 2ALa 2BKb More Chefs x or Bigger Mixing bowl = More Bread? Quotable Quotes • “There is no reason we can’t have a perfectly healthy economy with virtually no resources whatsoever” Robert Solow • “We can without agriculture because it’s only 2% of the economy.” Norgaard? • “neo-classical economics is a form of brain damage” Hazel Henderson ECOLOGICAL ECONOMY NO “EXTERNALITIES” Intro to Ecological Economics Throughput-open system 1st Law: Conservation of mass (some) ECONOMY (waste ) GREEN TAX SOURCES (some) ECONOMY (waste ) Ss: Source s Sites Surface locations: ie: Sink s Intro to Ecological Economics Entropy=disorder, randomness 2nd Law: entropy always increases (waste ) ECONOMY LOW ENTROPY (dissipated) HIGH ENTROPY Causes (cont.) Mineral, gas, oil extraction Non-native species Harvest Modified fire regimes Road construction/maintenance Industrial development 134 115 101 83 83 81 Czech et al 2000 Bioscience 50(7):593-601 Individuals Carrying Capacity Scenarios K K-selection r-selection Time K and r-selected Species GNP K Natural capital allocated to wildlife Natural capital allocated to human economy Time Czech, B 2000 Economic growth as the limiting factor for wildlife conservation Wildlife Society Bulletin 28(1):4-14 Natural Capital “We treat the earth like a business in liquidation.” Herman Daly Opportunity cost Loss is not counted (OVERSHOOT) Economic Carrying Capacity (“Plimsoll line”) GNP K K-selection r-selection Time K and r-selected Economies We Might Ask GGP K Economy of nature Human economy 19 29 19 32 19 35 19 38 19 41 19 44 19 47 19 50 19 53 19 56 19 59 19 62 19 65 19 68 19 71 19 74 19 77 19 80 19 83 19 86 19 89 19 92 19 95 American GNP, 1929-1997 8000 7000 6000 K or r-selected? 5000 4000 3000 2000 1000 Natural Capital Allocation Revisited GNP X natural capital allocable Natural capital allocated to non-human economy KU KT Natural capital allocated to human economy Time Distribution-Grow out of poverty? Poverty rate vs GDP per Capita (1996$) $35,000 20% 18% $30,000 16% $25,000 14% $20,000 12% $15,000 10% 19 19 1 19 19 19 9 19 19 7 9 19 19 19 19 19 1 9 19 19 19 9 0 8% 59 $10,000 per capita GDP (1996$) poverty rate ALLOCATION Adam Smith Rivalness and Excludability • rival – My use leaves less for you to use • Excludable (property rights) – One person can keep another from using the good – Consumer must pay, market will supply Must hav e a price to w ork in the free market! Rivalness and Excludability • Non-rival – My use does not leave less for you to use – Market sells for a price, discouraging use, but social cost of use = 0, therefore market should not supply • Non-excludable – One person can’t keep another from using the good – Consumer will not pay, market will not supply Must hav e a price to w ork in the free Excludable Rival} Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution Potential market good Non-rival} (Tragedy of the “noncommons”)but inefficient: patented information, Pond, roads (congestible), streetlights Private beaches, private Non-rival, gardens, toll roads, congestible zoos, movies NonExcludable Open Access Regime: (misnamed: Tragedy of the commons) Oceanic fisheries, timber etc from unprotected forests, air pollution, waste absorption capacity Pure Public Good: climate stability, ozone layer, clean air/water/land, Biodiversity, information, habitat, life support functions, etc Public beaches, gardens, roads, etc [...]... economist” Kenneth Boulding Intro to Ecological Economics Throughput-isolated system Universe Intro to Ecological Economics- human dev Growth=increase in throughputquantitative Developmen Growth t Development=qualitative improvement Intro to Ecological Economics- population Demographic transition Theory Growth Developmen t Intro to Ecological Economics- population Intro to Ecological Economics- forest succession...Intro to Ecological Economics WHAT IS ANTI-ENTROPIC? (SYNTROPIC) (waste ) ECONOMY LOW ENTROPY HIGH ENTROPY Intro to Ecological Economics Throughput-closed system earth ECONOMY SCALE-Full World or Empty World? Source: Ecological Economics Principles & Applications, Farley and Daly Marginal disutility Differences Sky-Trust... features of the proposed U.S Sky Trust o Carbon emissions cap set initially at 1.346 billion tons, the 1990 level o Tradable carbon emission permits sold annually to energy companies at the top of the carbon chain o All revenue from permit sales goes into a nationwide trust o Trust pays equal annual dividends to all U.S citizens (like the Alaska Permanent Fund) o Dividends can be placed tax-free in Individual... -Ayn Rand “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.” -Milton Friedman 1962 Enron, World Com, Tyco???? Cost of regulations-OMB report Annual Cost: $37-43 billion EPA conservative approach, Consistently overestimates costs, not... emission permits of $25 a ton; ceiling rises 7 percent a year for four years o Transition Fund to help those most adversely affected by higher carbon prices Fund starts at 25 percent of permit revenue, declines 2.5 percent per year Governance Governance “Golden Rule of Publicly held companies: “Maximization of Shareholder Value” Rational behavior: Externalize costs Influence politics to Seek subsidies and