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Home , Ecological economics, Energy

Fundamentals of Ecological : Thermodynamic Limits, Services, and the

Loyola University, March 2016

Maggie Winslow, Ph.D. Classic Diagram From Allocate based on

P S

P*

D

Q* Q

Classic Diagram From

$

Goods and Services

Firms

Labor

Savings/

Environment $ Taxes/ Government Spending

Imports/Exports Classic Diagram From Macroeconomics

$

Goods and Services

Firms Households

Labor

$ Ecosystem

Diagram from

matter Economy energy

Ecosystem Thermodynamic Limits

1st Law 2nd Law In any closed matter and Transformations lead to increased energy can be neither created . Energy is needed to nor destroyed. decrease entropy (increase Matter and energy can be opportunity). interchanged. ’ You can t make something Recycling uses energy. from nothing. GDP

Raw Throughput Materials Waste

Goods and Services Depletion Resource Degradation/ Throughput

Is there a thermodynamically determined limit to the of throughput? Limits to Growth

Ecosystem’s capacity to 1. Regenerate renewable resources 2. Restore ecosystem services

Technological capacity to 3. Recycle and/or substitute non-renewable resources Throughput has to be:

1. Within the regenerative and 2. Re-absorptive capacity of the and 3. Within our capacity to recycle or replace non- renewables.

If we are using resources faster then this, we are drawing down natural . It isn’t income, it is capital spending. Can't man-made capital make up for ?

• Renewable resources • Non-renewable resources • Ecosystem services

Constraints: •Lack of technical knowledge •Thermodynamic (energy) limits Simple Model of the

positive impacts on capacity

being, doing, relating Well Being (Individual and Ecological having, being Complex services/ doing, relating ) rights regimes amenities Individual Common Public - having, having - being (based on changing, Solar Natural Capital Wastes adapting preferences) Energy Restoration, Conservation Evolving Education, training, Goods Human Capital Economic GDP Cultural research. and Norms and Services Institutional Social Capital Process Policy rules, norms, etc. Investment recycling (decisions about, taxes Building Manufactured community spending, Capital education, and negative impacts on all forms of capital policy, etc., based on complex property rights regimes)

Materially closed system

From: Costanza, R., J. C. Cumberland, H. E. Daly, R. Goodland, and R. Norgaard. 1997. An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, 275 pp. Natural Capital is Valuable

The delivered by the is estimated to be in the range of US$33 trillion per year (1997).

Global economy delivers US$18 trillion per year. -The value of the world’s ecosystem services and natural capital. , VOL 387, 15 MAY 1997 The Great Global Change and the Earth System, Steffen et al. (2004) Future Generations and Just

• As we use up resources, we decrease what is available for future generations.

• If continued growth is not possible and we are actually at a point of , consumption by wealthy is decreasing ability of poor to exist. Question: Can we have a vibrant economy (e.g. high levels) while limiting the extraction of scarce resources and the degradation of natural capital?

YES! Micro-Level Solutions

Develop Encourage fair disruptive regulation

Sustainable Profits

Reorient Reduce products/ throughput services Different Visions of Economic Encourage fair regulation Possibilities

1. Cost-neutral emission reduction or a ‘decoupling’ of GDP and carbon emissions.

2. Job creation through investment in resource and energy efficiency, low-emission technologies, and .

3. A new industrial revolution through , low-emission growth, and regeneration. Sources of Employment Growth:

• Energy • Retrofits/conservation • innovation and product production • Renewable energy generation/ product production • Smart grid

• • Retrofits/conservation/reclamation • Innovation

• Pollution Control • Innovation and technology development and manufacturing • Retrofitting • Carbon markets – trading, offsets • Remediation Sources of Employment Growth:

• Agriculture • Innovation, e.g. green roofs, vertical gardens, hydroponics • Innovation in technologies • Small scale, organic farms

• Recycling

• Product development and production • Bio-based cleaners/ green chemicals • Recycled materials • Less hazardous options • Electric vehicles • • Green building materials Disruptive Creative Transformation technologies There are limitations with marginal improvements

Turnover in S&P 500: 1.5% per year in 1920 10% per year today -Creative Destruction, Foster and Kaplan Breaking away from path dependence and network .

Seeing as an opportunity not avoidance.

• Firms with large amounts of fixed assets (oil industry for example) do not want to change as much as adapt.

• and retail are more able to switch course. Reorient Sustainable Value products/ services

Value Cycles Services not Products

Base of the Pyramid Products and Services Reduce MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. , , living ) throughput

Comprehensive Efficiency Identity

MMK MMK services gained MMK stock throughput NK stock services gained= X X X NK services MMK stock throughput NK stock NK services sacrificed sacrificed

Service Efficiency How well are man made resources meeting what they are designed for? How well are we allocating resources? Reduce MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. soil, minerals, living organisms) throughput

Comprehensive Efficiency Identity

MMK MMK services gained MMK stock throughput NK stock services gained= X X X NK services MMK stock throughput NK stock NK services sacrificed sacrificed

Maintenance Efficiency or Durability How much man-made stock are we getting for a given level of throughput? Are things well-made and durable? Reduce MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. soil, minerals, living organisms) throughput

Comprehensive Efficiency Identity

MMK MMK services gained MMK stock throughput NK stock services gained= X X X NK services MMK stock throughput NK stock NK services sacrificed sacrificed

Production Efficiency Are we getting a high level of throughput for the amount of NK stock available? Reduce MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. soil, minerals, living organisms) throughput

Comprehensive Efficiency Identity

MMK MMK services gained MMK stock throughput NK stock services gained= X X X NK services MMK stock throughput NK stock NK services sacrificed sacrificed

Ecosystem Efficiency Amount of NK stock we can get for NK services sacrificed. Some Macro-Level Solutions

• Recognize Natural Capital • TEEB –The Economics of and www.teebweb.org • – Wealth Accounting and the Valuation of Ecosystem Services www.wavespartnership.org Ex. Tennessee

Urban forests in Tennessee provide an estimated: •$204 million per year in pollution removal •$66 million per year in energy http://worldlandscapearchitect.com/tennessees-urban-forests-valued-in-the-billions- 2/#.T2p8osrN6dM Annual cost of global loss: $2 - $5 trillion http://news.bbc.co.uk/2/hi/science/nature/7662565.stm Some Macro-Level Solutions Cont.

• Incorporate sustainability criteria into quantitative indices of national income, wealth, and . (e.g. Natural Capital Accounting) • Develop and implement regulatory and incentive-based instruments (limits, taxes, and trading). • Invest in public goods (education, healthcare, technology). • Support policies that reduce growth. • Reduce the week, especially to accommodate increases. • Limit trade. What Would the New Economy Look Like?

Fewer, more Living smaller durable goods

More services Shorter work weeks What Do You Want the New Economy to Look Like?