Principles of Environmental Economics: Economics, Ecology and Public Policy


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Fees and funding

The first would entail privatizing resources such as water, air etc. Collective action through the State is necessary only to correct market failures that occur because most environmental services are public goods air, water, ability to absorb waste, etc.

Once these failures have been resolved to ensure the correct economic signals of the relative scarcity of these environmental services, the dynamics of the intertemporal allocation of resources based on cost-benefit assessments would tend to be processed efficiently, with no problems of uncertainty and risk of irreversible losses. Not everyone, however, has accepted that this logical conclusion based on the assumptions made. For long, economists participating in this current have been concerned about the risk of potentially important irreversible environmental losses; important in that they can cause significant losses of well-being that could be prevented.

This dilemma between the conservation and exhaustion of a given ecosystem has been structured as a discrete choice issue, which recognizes that there are many situations in which the full conservation or the irreversible transformation of a given ecosystem can be legitimately claimed. The problem is defining which one. Thus, the risks inherent in the cost-benefit analysis would be reduced in situations in which the losses can be very importantes.

Theoretically, the problem of global warming could be solved like that of any other environmental externality resulting from a market failure in the use of public natural resources, by pricing the ecosystem service of climate regulation. Thus, as the cost of warming increases progressively, the market would induce the introduction of technological solutions that reduce the cost of controlling greenhouse gas emissions mitigation.

Initially, as pointed out by Vale , Nordhaus found that the laissez-faire would not be enough, and that State intervention beyond pricing would be required as in the establishment of minimum efficiency standards for engines , in order to force a faster adjustment of emissions to adequate safety levels. The big challenge, then, would be to estimate marginal curves of control cost mitigation and pollution cost for a complex and very long term global problem.

As of , prices should rise sharply. Thus, Nordhaus manages to maintain allocative efficiency as a rule of decision in terms of marginal cost-benefit to address an environmental problem that he had singled out initially as deserving special, non-marginalist State action. Ecological economics: sustainable scale and the law of entropy. From the standpoint of ecological economics, the environment represents an absolute limit to the expansion of the economy, which is one of its subsystems.

However, if by definition a subsystem cannot be larger than the system that contains it, its size in relation to the whole does not have the system as its maximum limit, but rather its carrying capacity, which is defined by thresholds of ecosystem resilience. This is one of the fundamental premises of ecological economics that has its origin in the work of Kenneth E. It is not possible to replace essential ecosystem services with capital. The difficulty lies in the idea that economic growth, increasing production and per capita income are also limited by the size of Spaceship Earth.

This is another fundamental premise of Ecological Economics which has its origin especially in the work of N. Georgescu-Roegen The thermodynamic destabilizing effects of human activities result from two sources. The first source of imbalance is the expansion of human occupation of the space. Rich estuarine ecosystems give way to cities and ports; huge natural spaces are radically transformed by agriculture, forestry and animal husbandry.

The second is the introduction of materials and energy from sources exogenous to the system. Depending on the amount, this waste represents a source of pollution that can affect or even destroy the ability of ecosystems to provide services. These activities have impacts similar to those of volcanoes, with the difference, however, of being selective: the volcanoes spew especially relatively high entropy materials such as silica, which are abundant in nature, so that their assimilation by ecosystems is easier besides the fact that ecosystems have co-evolved with volcanic activities for hundreds of millions of years ; human mineral extraction practices, on the contrary, are focused on low-entropy materials concentrated in certain places by telluric forces for million years, thus hindering their assimilation by ecosystems.

Added to these materials are those produced artificially, an already huge number of new substances whose impacts on ecosystems and directly on humans are not well known, such as POPs Persistent Organic Pollutants , hormone-mimicking molecules, etc. In the long term, therefore, the sustainability of the economic system is not possible without the stabilization of waste and heat 28 production levels according to the carrying capacity of the planet. This is the biggest limiting factor: the environment as a producer of ecosystem services and not as a producer of non-renewable raw materials.

Services that cannot be replaced by capital and that the market is incapable of adequately taking into account. Once the existence of a carrying capacity that cannot be exceeded is recognized, the next issue is its size. To what extent human pressure on ecosystems can be absorbed by these without a catastrophic rupture? According to Rockstrom et al. However, although these efforts are required, it must be recognized that these ecosystem services result from complex ecosystems that have, inter alia , the property of resilience, i.

It is a radical uncertainty that science is unable to solve. From these assumptions, the central question for ecological economics is how to get the economy to operate while accepting the existence of these limits. Two action plans need to be considered: a one relates to specific policies for each type of environmental problem to be addressed; b the other to the stabilization of global waste production at sustainable levels - zero growth. In fact, as pointed out by Daly , the prices reflect the availability of each resource regardless of the total stock of resources, thus preventing them from being used to signal an optimal extraction process from the standpoint of sustainability.

In the case of environmental services not traded in the market due to their nature as public goods, the adjustment mechanism proposed does not take into account key ecological principles to ensure sustainability, in that this mechanism is based on cost-benefit calculation by economic agents with a view to allocating resources between investments in pollution control and payment of pollution fees to minimize the total cost. The fees, in turn, will be calculated based on a set of economic valuation methodologies that measure either directly or indirectly the willingness of individuals to pay for environmental goods and services.

The fact that the assimilative capacity is exceeded in a given period t reduces the assimilative capacity in the following period and so forth, and may result in irreversible loss.

This adjustment mechanism implies that technology and preferences and, implicitly, income distribution are used as nonphysical parameters that determine a position of equilibrium in which the physical variables of the quantities of goods and services used scale are adjusted. Thus, it is the allocation of investments in pollution control and payment, according to the technology and optimizing preferences of the agents, that determines the scale of use of natural resources.

In the case of the ecological economics this process needs to be reversed, starting by determining the sustainable scale of use of natural resources. Thus, what used to be process adjustment variables amount of ecosystem goods and services to be used are now being treated as physical parameters of ecological sustainability, to which the now nonphysical variables of technology and preferences should adjust. Because of the technology, the latter begin to be limited by the scale.

Determining a sustainable scale, in turn, involves other values besides the individual pursuit of maximizing gain or well-being, such as solidarity between and within generations. These values have to be affirmed in the context of scientific controversies and uncertainties in complex cases such as those of global environmental problems. In such cases, the scale deemed sustainable can only be determined through collective decision-making processes, from perspective of application of the Precautionary Principle. Thus, without a collective intervention to define the scale that society deems sustainable, the improvement of environmental quality induced by environmental degradation the Environmental Kuznets Curve tends to be limited to the degradation that affects the level of well-being of the very agents making the decision such as that caused by the emission of sulfurous gases, particulates, disposal of domestic sewage, etc.

Once the sustainable scale has been determined, the issue of distribution of the right of access - which has become restricted - to a particular ecosystem good or service follows suit. This issue does not exist in the conventional analytical scheme, since there are no environmental limits. The basic distribution criterion should be one that society considers fair. In the case of global warming, the policies proposed by the Kyoto Protocol followed this analytical framework.

A sustainable scale of use regarding the capacity to absorb greenhouse gases was defined 33 based on ecological criteria; then the distribution of the use of this capacity among signatory countries was established based on criteria considered fair emission reduction based on the contribution of each country ; and finally the allocation of investments was left to the carbon market, with the addition of the ingenious Clean Development Mechanism CDM.

Regarding the second action plan - stabilization of the level of heat and waste emissions in developed countries, which implies stopping economic growth zero growth - the problem is how to do it without generating a socioeconomic crisis to be discussed in a coming section. In the case of developing countries, economic growth is essential to eliminate poverty and inequality. For those, policies like the ones advocated by UNEP and by eco-developmentalists in general are the ones that should be implemented.

Final Remarks: steady state and welfare. The debate about zero growth or even degrowth 36 has gained momentum in recent years. Specifically, it is about tackling, for example, the problem of employment, of inequality and of incentive to technological innovation. The legitimacy for the implementation of these policies depends on the solution of the second problem, the one regarding consumer expectations that give legitimacy to the opposing, growth incentive policies.


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One must not lose sight of the fact that the emergence of mass consumer societies was unprecedented in human history and released the great mass of the population from the oppression of poverty. It was the result of a process of sustained economic growth. However, this necessary legitimizing altruism of zero growth policies may be enhanced by the growing realization that the current level of material comfort is more than enough, and that continuing growth efforts will produce more harm than good.

The curve of marginal disutility is increasing because it reflects the negative effects of economic growth on well-being, including the effect of environmental degradation and other risk factors, as well as the increase in social entropy. As the current generation starts from an already high level of material comfort, increased incomes and the consequent increase in consumption would result in a utility gain lower than that obtained by the previous generation.

Actually, it was found that this gain tended to be null! Surveys of the sense of happiness of the population conducted in the United States on a regular basis by polling firms like Gallup and the National Opinion Research Center show that income growth had not been accompanied by an increase in the happiness of people as they perceived it. The first case is not surprising, to some extent, since stepping out of poverty and having increased access to goods and services is always a source of relief and satisfaction.

According to Abramovitz , this fact could be explained by a set of psycho-cultural reasons, of which one of the most important would be the fact that the satisfaction each individual gets by increasing his consumption capacity is related to the consumption capacity of his fellow citizens; that is, if income increases for society as a whole, the perception of increased consumption capacity vanishes.

Sustained growth understood as a long-term growth process that results from a virtuous cycle of savings and investment that increases employment and income, which, in turn, expand opportunities for new investments. The modeling performed was a system dynamics that had just been developed by Jay Forrester. A simulation based on system dynamics is essential if we want to know, for example, what happens in a given system when the flow of input or output of an exogenous source of energy or matter increases or decreases.

This was precisely the weakness of the model, because the technological variable implies the possibility of relative magnification of the system Planet Earth under analysis. Economic growth would tend to improve income distribution by increasing scarcity and labor productivity, as it would have been observed historically in developed countries - the Kuznets Curve.

With the perhaps single exception of Furtado in The myth of economic development. For Furtado, the conclusion of the Club of Rome report would be proof that economic development was not for everyone, though in his analytical scheme, exclusion mechanisms are not directly related to environmental issues. Moral in the sense that no growth would ultimately mean a return to barbarism. Environmental limits to growth, as hopefully and poorly argued by Friedman, could be overcome by technical progress.

Note the difference in the position of the Marxist and structuralist currents: the liability is more for situations created by the colonial past, which have become endogenous, and less for active exogenous mechanisms embedded in international relations between center and periphery that benefit the first. In the first report, the conclusion was that if the observed trends - in relation to the increase in world population, industrialization, pollution, use of natural resources etc. In the second, the conclusion is even more extreme, in that the rates of use of many essential resources and of generation of various types of pollution would have already exceeded the rates that would be physically sustainable.

And the remedy as well, because it will not only be necessary to achieve zero growth as soon as possible, but also to significantly reduce the flows of matter and energy by rapidly increasing eco-efficiency. The policy proposal to reduce emissions under the Kyoto Protocol represents the theoretically optimal solution advocated by Ecological Economics, as will be discussed in the next section. Or yet, when it is estimated that the opportunity cost of deforestation is three times greater than its benefits.

Baumol admits the thermodynamic restriction that the efficiency of real systems cannot be increased indefinitely, but the replaceability between capital and natural resources would ensure perpetual economic growth. That is, the thermodynamic saci does not exist, but the capitalist Midas does and could handle the problem by himself. The present value of a given development project D is deducted from the benefits of preservation P.

In cases where these uncertainties are even greater and the benefits of the development alternative are dubious, the criteria of the Krutilla-Fisher approach would not be sufficient to prevent irreversible losses of resources whose conservation would prove a posteriori to be invaluable. In this case, an alternative would be the so-called safe minimum standards approach SMS , developed especially by Bishop based on the work of Ciriacy-Wantrup However, the need to define these standards contradicts the assumptions mainstream economists work with.

The definition according to which the intolerably high cost of conservation should be in accordance with the standard economic thinking based especially in sustaining adequate levels of consumption by human populations. In the last two decades, the expansion of economic activities led by the Asian giants, China and India have entailed an exponential growth of human pressure on the environment, despite the increase in eco-efficiency.

Definitely, humanity has become an almost geological factor of change. We have gone for Holocene to Anthropocene! Ecosphere is the name given to the space where life on Earth is concentrated: from a few meters underground to a few hundred meters into the atmosphere. Several factors explain the absence of a distribution of probabilities of a given phenomenon: cognitive or computational deficiency, lack of information, lack of knowledge, which theoretically can be overcome at some point; but there are cases of ignorance that cannot be eliminated. The threshold of complex ecosystems fits into the latter situation see Dequech, Methodologies that have their specific limitations and are applied without an adequate ecosystem evaluation.

In general, therefore, the decline of pollution associated with the increase in income was due to local institutional reforms, such as environmental legislation and incentives based on market mechanisms, which do not consider international and intergenerational consequences. In other words, these reforms do not help to avoid problems when their costs are borne by the populations usually poor of other countries or by future generations, i. Certainly economic considerations cost of adjustment intervened in the definition of what should have been determined only by scientific considerations.

This mechanism, proposed by the Brazilian delegation, enables non-signatory developing countries to participate in the official carbon market; a triple winner solution: environmental efficiency reduced emissions , economic efficiency lower cost of adjustment in developed countries and social efficiency creation of jobs and income in developing countries. See the latest works of Professor Sachs , , Georgescu-Roegen believed that degrowth would be necessary for humanity to extend its life on Earth. The hypothesis is that the current level of production and consumption in developed countries cannot be generalized to all countries; these therefore need to progressively degrow to make room for the necessary growth of poor countries see www.

Environmental Economics

In the medieval West, the anthropocentric view of the meaning of human presence on Earth derived from the Judeo-Christian cosmology, in which human beings were created by God in his image and likeness and to whom the entire Earth and its resources are subject, coincided with territorial fragmentation and, within regions, the division of power between the center the crown and the local lord, implying the existence of multiple centers of decision. The first represented a remarkable change of mind in human history and contributed to a strongly proactive attitude in the sense of manipulating and transforming nature, by inventing new methods and procedures.

The second enabled expressing the first, insofar as it allowed innovative agents to bargain their ideas with leaders in a mutual competition see White, , ; Jones, ; Mokyr, ; Landes, , among others. Thinking about growth. Cambridge: Cambridge University Press, Observations on Perpetual Economic Growth. From Empty to Full World.

Economia e Sociedade. Economic growth, carrying capacity and the environment. Science , n. Measuring sustainable development : macroeconomics and the environment. Cheltenham: Edward Elgar, On the possibility of continuing expansion of finite resources. Kyklos , v. Economics of endangered species. American Journal of Agricultural Economics , n.

The economics of the coming spaceship earth. In: Environmental quality in a growing economy. Janet Ed. Paris: Armand Collin, Nosso futuro comum.

Principles of Environmental Economics : Ahmed M. Hussen :

A natureza como limite da economia. Resource conservation : Economics and policies. Berkeley: University of California Press, DALY, H. Beyond growth. The economics of sustainable development. Boston: Beacon Press, Ecological economics. Principles and applications.

Principles of Environmental Economics : Ecology, Economics and Public Policy

Washington: Island Press, Uncertainty: a typology and refinements of existing concepts. Journal of Economic Issues , v. The great green technological transformation. World Economic and Social Survey. United Nations, Capitalism and underdevelopment in Latin America. New York: Monthly Review Press, The moral consequences of economic growth. New York: Alfred A. Knopf, Desenvolvimento e subdesenvolvimento.

Rio de Janeiro: Fundo de Cultura, Rio de Janeiro: Paz e Terra, The Entropy Law and the economic process. Economic growth and the environment. The Quarterly Journal of Economics , v. Prosperity without growth? Washington, DC: Island Press. Dales, J. Pollution, Property and Prices. Toronto: University of Toronto Press. Daly, H. Steady State Economics.

San Francisco, Calif. Easterlin, R. Does economic growth improve the human lot? In David, P. New York: Academic Press, pp. Freeman, M. The Measurement of Environmental and Resource Values. Washington, DC: Resources for the Future. Kneese, A. Environmental Quality and Residuals Management. Baltimore, Md.

Lutz, M. The Challenge of Humanistic Economics. New York: Benjamin Cummings. Meadows, D. The Limits to Growth. New York: Earth Island. Page, T. Intergenerational justice as opportunity. In Maclean, D. Pearce, D.

Top Authors

Cost—Benefit Analysis. Basingstoke: Macmillan. Pigou, A. The Economics of Welfare. London: Macmillan. Ricardo, D. Principles of Political Economy and Taxation. London: Everyman.

Ecological Economics

Rose-Ackerman, S. Market models for pollution control: their strengths and weaknesses. Public Policy, 25, — Sagoff, M. The Economy of the Earth. Scitovsky, T. The Joyless Economy. Oxford: Oxford University Press. Simon, J. Oxford: Basil Blackwell. Turner, R.

Principles of Environmental Economics: Economics, Ecology and Public Policy Principles of Environmental Economics: Economics, Ecology and Public Policy
Principles of Environmental Economics: Economics, Ecology and Public Policy Principles of Environmental Economics: Economics, Ecology and Public Policy
Principles of Environmental Economics: Economics, Ecology and Public Policy Principles of Environmental Economics: Economics, Ecology and Public Policy
Principles of Environmental Economics: Economics, Ecology and Public Policy Principles of Environmental Economics: Economics, Ecology and Public Policy
Principles of Environmental Economics: Economics, Ecology and Public Policy Principles of Environmental Economics: Economics, Ecology and Public Policy

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