Ecological economics

1
Ecological economics
Jan Sendzimir Jakub Kronenberg Charles Kibert
General remarks Example commodity system
challenges (including more specific remarks)
2
Ecosystem as subsystem of economy
3
Empty World View
Source Daly 1999.
4
Full World View
Source Daly 1999.
5
Main problems with current economic theory

• Externalities
• - costs not borne by those who create them

Badly defined property rights - environmental
goods perceived as commons
The environment is not subject of rights - the
environments interests are not legally
represented in the economic system
6
Internalization

• London Congestion Charge
• 5 daily for driving or parking a vehicle on
  public roads within the congestion charging zone
  between 0700 and 1830, Mon to Fri
• Goals
• reduce congestion
• improve bus services
• improve journey reliability for car users
• make the distribution of goods and services more
  reliable, sustainable and efficient

7
Changes in traffic entering and leaving the
charging zone during charging hours - 2003 vs.
2002
Source Transport for London 2004.
8
Commodity system challenges

• What are commodities?
• What forces drive the commodity markets?
• What are the challenges of the CS?
• How to neutralise them?

Source Sustainability Institute 2003.
9
What are commodities?

• Raw material or only little processed item
• Traded product
• Uniform characteristics everywhere the same
• Standardization and substitutability
• Choice based on price since all are the same

10
Commodity systems

• Mono-culture Few similar, specialized
  large-scale producers sell internationally
• Huge production increases Large price
  decreases

11
Generic commodity behaviour
price volume
price
production
2000 time
1900
12
Forces driving the commodity systems (1/3)
Demand Growth Loop
Average
-
Price
R3
Pressure to
expand markets


-
Commodity
Demand for
R4
Supply
Commodity

Total

Production
13
Forces driving the commodity systems (2/3)
Efficiency boosting loop

14
Forces driving the commodity systems (3/3)
Capital Growth Loop
15
Forces driving the commodity systems
16
3 commodity systems traps !
Trap Easy to fall in, Hard to get out
17
Evidence of trap 1 resource depletion
18
Resource depletion trap

Regeneration rate
Harvest
Rate


Resource level
-
19
Often when supply seems plentiful
Over-harvest
20
Resource depletion trap WHY?

• Harvest capacity overgrows
• passes sustainable yield ? overshoot
• Market signals of scarcity (prices are said to
  reflect scarcity, arent they?)
• too weak, too delayed
• Endgame tactics
• final desperate efficiency boosts ? harvest
  increase as resource disappears

21

• Socialism collapsed because it did not allow
  prices to tell the economic truth.
• Capitalism may collapse because it does not
  allow prices to tell the ecological truth.

Source Dahle, 2001.
22
Resource depletion trap HOW TO ESCAPE?

• Better information feedbacks
• Link health of resource with change (increase or
  decrease) in harvest capacity
• Research to accurately know rates of harvest and
  resource regeneration
• Better control of capacity
• Rates of harvest and death never exceed
  regeneration rate

23
Environmental pollution trap
-
Waste level
-

Waste generation
Purification rate
24
All production is joint production !
Implied by the First and the Second Laws of
thermodynamics

• permits to depict externalities related to
  production
• solid foundation for the precautionary principle

Source Faber et al. 1998.
25
Community decline trap
Producer-buyer power differential
-
Community well-being
Producer-landlord power differential
-

-
Producers income
Number of producers
-
-
Consolidation rate
-
26
Where do the problems come from?

• Strength tight information focus
• Narrow focus down to volume and cost makes system
  lean and efficient
• Weakness ignorant of long term trends
• Lack of feedback blinds us to signs of pollution,
  resource depletion, community decline
• Similar situation in most types of markets

27
How to escape the commodity traps?

• Market products outside the system
• High quality products recognized as unique by
  where and how produced
• Restructure the system
• Change rules, incentives and penalties to balance
  productive capacity with environmental and social
  goals

28
How to escape? More detailed strategies

• Collective agreement to limit harvest intensity
• Producers agree on a new set of rules ?
  individual rational choices add up to sustainable
  harvest
• Agreements to limit price supports and supply
• Producers give up the right to produce any amount
  in return for guaranteed minimum prices
• Certification programs
• Bring environmental and social goals into the
  system

29
Certification of organic farming

30
Certification ? fair trade coffee

• price covers the cost of production
• social premium for development purposes
• partial payment in advance to avoid small
  producer organizations falling into debt
• contracts that allow long term production
  planning and sustainable production practices
• decent wages, good housing, minimum health and
  safety standards, right to unionize, no child or
  forced labor
• minimum environmental requirements

31
Success ? surviving global price gyrations
Fair trade producers never fall below critical
minimum price
Price drops force many other producers
out. Result starvation in Central America
32
But... certification is only a partial answer

• Depends on substantial increase in demand
• Still vulnerable to certain traps such as
  over-production
• If some use extra income to expand production
  capacity
• If environmental practices are certified without
  focusing on balancing production with demand ?
  fall into trap of overproduction and declining
  incomes

33
A good certification programme

• A step to bring multiple goals to commodity
  system
• Must work with other strategies as part of system
  re-design
• Changes range of allowed practices, but not
  guaranteed block of production growth drivers
• Must build on all 3 goals (soc econ ecol)
• Voluntary consumer behavior is the power behind
  it and also its limitation

34
And finally... we can rely on government

• Shape incentives and rules
• legislation
• directives, rules and sponsoring and leading
  debates that establish agreements
• New institutional structures
• taxes, fines, and legal sanctions
• direct payments
• bringing different stakeholders into decision
  process

35
(New) institutional economics

• Aware of interdependencies between economy and
  nature
• Focused on transaction, empowerment and
  government failures and means to correct them
• Investigates roles of insitutions (as principal
  agents of change)

36
Less pollution and more funds for education
Iowa tax on fertilizer use Funds used to educate
farmers in more efficient methods
37
Addressing the pollution trap with taxes

38
Lessons from CS (1/2)

• Solution changing the system structure
• Introducing new feedback loops
• information, incentives, regulations concerning
  the state of resources, the surrounding
  environments and producing communities
• MUST be strong enough to counterbalance the
  inherent pressure to increase efficiency, scale
  and level of production

39
Lessons from CS (2/2)
Designing interventions

• an intervention should deal with the core growth
  drivers of a system
• the more effectively it does so, the more likely
  it is that it will neutralise more traps
• the boundaries of the solution should match the
  boundaries within which the commodity is produced
  and sold
• e.g. all of the producers selling into a given
  market should participate in the agreement

40
So... what ecological economics is about?

• Studying the interactions between economic
  systems and the ecosystems that they are part of
• Shaping those interactions so as to make them as
  harmonious as possible

41
Source Meadows 1998.
42

• REFERENCES
• Congestion charging - Central London - Impacts
  monitoring, Second Annual Report, Transport for
  London 2004, available at lthttp//www.transportfor
  london.gov.uk/tfl/cclondon/cc_monitoring-2nd-repo
  rt.shtmlgt.
• Commodity System Challenges, A Sustainability
  Institute Report, April 2003 available at
  lthttp//www.sustainer.org/pubs/SustainableCommodit
  ySys.2.1.pdfgt.
• Dahle, Ø., 2001 quoted in Brown, L.R.,
  Eco-economy Building an Economy for the Earth,
  W. W. Norton Co., New York 2001.
• Daly, H.E., Ecological economics and the ecology
  of economics. Essays in criticism, Edward Elgar,
  Cheltenham Northampton 1999.
• Faber, M., Proops, J.L.R., Baumgärtner, S., All
  production is joint production a thermodynamic
  analysis, in Faucheux, S., Gowdy, J., Nicolaï,
  I. (eds.), Sustainability and firms, Edward
  Elgar, Cheltenham Northampton 1998, p. 131-158.
• Meadows, D.,Indicators and Information Systems
  for Sustainable Development. A Report to the
  Balaton Group, The Sustainability Institute,
  Hartland VT 1998.