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).
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.
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 rather than positive (i.e. 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.
As an ecological economy, especially in the 1980s emerged approaches for the renewal of environmental economics are called. The “traditional” environmental economics is essentially based on the neoclassical theory and understands environmental problems mainly as a faulty resource allocation due to external effects. The ecological economy turns against this purely economic point of view and understands itself on the other hand transdisciplinary. For example, attempts are made in the German-speaking area, with reference to social-ecological researchto explicitly address the social condition of ecological limitations. Ecological limits of the physical size of the economy (“scale”, material flow, see Herman Daly) are considered as absolute and as growth limits in the economic sciences. To determine the growth limits, for example, the basic thermodynamic conditions of production and consumption are considered on the ” spaceship earth ” (Kenneth E. Boulding ). Which elements of natural capital to what extent by produced capital on the way to the limits of growth can and should be replaced is an important field of work in ecological economics.
The articles published in the journal Ecological Economics cover both content and methodology a wide range of topics that can only be vaguely distinguished from contributions within (neo) classical environmental and resource economics. The tendency is to either question or explicitly deny some of the often uncritically applied axioms or working hypotheses of neoclassicism. Examples are
the emphasis on the distributional dimension (” fairness “) of economic decisions, rather than solely on the macroeconomic efficiency,
the rejection of the Kaldor-Hicks criterion as an undisputed “valid” decision criterion for social allocation questions,
the desire to supplement, if not overcome the benefit-cost analysis with increased acceptance of multi-criteria processes,
the attention for multiple perspectives on the connection between environment and development including the addressing of power issues.
Occasionally, attempts to combine environmental economics and ecological economics (eg sustainable economy, new environmental economics) emerge under various names in German-speaking countries.
Even if, given the heterogeneity of the contributions, it can not be said that there is a single understanding of science, the ecological economy tends to seek to tackle even complex relationships and the needs of sustainable development. It necessarily transcends the narrow limits of a discipline-oriented ” normal science ” to a problem-oriented and interdisciplinary transdisciplinarity. The productive dealing with uncertainty and ignorance is at the center of such “post-normal” Science.
Principles and objectives
The ultimate ambition of the ecological economy is sustainable human well-being. This includes other considerations such as the protection and restoration of nature, evolving towards social and intergenerational justice, a stabilization of the population and recognition of the contribution of human and natural capital to human well-being, it will also pass by better development of the indicators of well-being. This conception of the economy also has the capacity, unlike the neoclassical approach, to lead to a steady-state, also seen as an objective. Ultimately, the aim is to achieve loose economic stability and growth while remaining within the ecological scale. To reach this ultimate ambition, some principles will have to be respected.
A new vision of the economy
The ecological economy encompasses different types of capital (natural, social, cultural, human or “human manufacturing”). Only by considering these different capitals can the ecological economy achieve its three interconnected objectives: a sustainable scale (1), a fair distribution of resources (2) and an efficient allocation of resources. resources (3). This hierarchical approach thus marks an evolution with the concept of sustainable development where no priority is given. The diagram on the right shows: The ecological economy is a vision where the negative consequences of the production systems are no longer considered as “externalities”, as if the environment and the human population living there were not included in the economic system. In the three circles on the right, the economy operates within a society made up of social relations and this set takes place within the environment. Since 2012, the authors of the book “Building a Sustainable and Desirable Economy-in-Society-in-Nature” make explicit that the environmental limit refers to the limit of 2 °C. That is to say, this economic model chooses to be constrained to a defined carbon budget.
Technology and values
The integration of renewable energies took place with more or less long adaptation times depending on the country, for historical reasons of their own. Not to be mistaken, the history of renewable energies is emerging in the context of the environmental protest of the seventies. They represent then an alternative of public policy vis-a-vis an electrical sector marked by the domination of certain actors and certain values analogous to the neoclassical economy. What is also called into question, both in the post-May 1946 pronuclear France and post-war Germany, is the conception of the role of the state and economic actors. Two models confront each other at this time: the first is based on a logic based on the energy supply, on a centralized production of energy marked by a strong use of fossil resources and where the distribution is managed by only a few actors. The other is based on a logic based on energy demand, on a decentralized energy production marked by a reasoned use of natural resources by renewable energies managed via a participative model. From this alternative model, the system kept the technology, but rejected the company project that accompanied it decentralized energy marked by reasoned use of natural resources by renewable energies managed through a participatory model. From this alternative model, the system kept the technology, but rejected the project of society that accompanied it decentralized energy marked by reasoned use of natural resources by renewable energies managed through a participatory model. From this alternative model, the system kept the technology, but rejected the project of society that accompanied it.
The ecological economy, unlike environmental economics, is precisely keeping both: technology and values.
From then on, human societies are invited to rethink themselves. Notably through better integration of natural and human capital in the economy, or through the development of better indicators than GDP. Such progress necessarily involves the exit of the couple productivism-consumerism and the establishment of a new economic and social structure. So it is the social logic that must also be reviewed, this is an area where the influence of values is important.
To this task, there is no doubt that a change in thinking, including a change in values, will be essential.
Nature and ecology
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 The overall effect of GMF on yields is contentious, with the USDA and FAO acknowledging that GMFs do not necessarily have higher yields and may even have reduced yields.
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.
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.
Schools of thought
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.
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, and modeling.
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.
Allocation of resources
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).
Weak versus strong sustainability
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.
Energy accounting and balance
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. 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.
Ecosystem services and their valuation
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 colleagues to 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 objection is 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 finance began 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.
Not ‘externalities’, but cost shifting
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.
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”
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