AN INTRODUCTION TO ECOLOGICAL ECONOMICS by Robert Costanza John Cumberland Herman Daly Robert Goodland Richard Norgaard St. Lucie Press and ISEE Copyright © 1997 CRC Press, LLC Cover photo: Looking out over Maryland ’s Assawoman Bay with Ocean City in the background looming over the marsh and bay. Photo by Michael J. Reber , Solomons, Maryland. Mr. Reber is a nature/environmental photogra- pher with 30 years of experience working on the Chesapeake estuary , 25 of which were with the University of Maryland’s Chesapeake Biological Laboratory. His formal training in zoology brought him to Maryland on a research grant to study the sea nettle. Coupling his love for photography with science, he began documenting the creatures of the Chesapeake and has had hundreds of images published in scientific journals and public information publications. This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission, and sources are indicated. A wide variety of references are listed. Reasonable efforts have been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the conse- quences of their use. Neither this book nor any part may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming, and recording, or by any informa- tion storage or retrieval system, without prior permission in writing from the publisher. The consent of CRC Press LLC does not extend to copying for general distribution, for promo- tion, for creating new works, or for resale. Specific permission must be obtained in writing from CRC Press LLC for such copying. Direct all inquiries to CRC Press LLC, 2000 Corporate Blvd., N.W., Boca Raton, Florida 33431. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation, without intent to infringe. Copyright 1997 by CRC Press LLC St. Lucie Press is an imprint of CRC Press No claim to original U.S. Government works International Standard Book Number 1-884015-72-7 Printed in the United States of America 2 3 4 5 6 7 8 9 0 Printed on acid-free paper vi Copyright © 1997 CRC Press, LLC Contents Preface Acknowledgments 1. Humanity's Current Dilemma 1.1 The Global Ecosystem and the Economic Subsystem 1.2 From Localized Limits to Global Limits First Evidence of Limits: Human Biomass Appropriation Second Evidence of Limits: Climate Change Third Evidence of Limits: Ozone Shield Rupture Fourth Evidence of Limits: Land Degradation Fifth Evidence of Limits: Biodiversity Loss 1.3 Population and Poverty 1.4 Beyond Brundtland 1.5 Toward Sustainability 1.6 The Fragmentation of Economics and the Natural Sciences 2. The Historical Development of Economics and Ecology 2.1 The Early Codevelopment of Economics and Natural Science Adam Smith and the Invisible Hand Thomas Malthus and Population Growth David Ricardo and the Geographic Pattern of Economic Activity Sadi Carnot, Rudolf Clausius, and Thermodynamics Charles Darwin and the Evolutionary Paradigm John Stuart Mill and the Steady-State Karl Marx and the Ownership of Resources W. Stanley Jevons and the Scarcity of Stock Resources Ernst Haeckel and the Beginnings of Ecology Alfred J. Lotka and Systems Thinking A. C. Pigou and Market Failure Harold Hotelling and the Efficient Use of Resources over Time Copyright © 1997 CRC Press, LLC 2.2 Economics and Ecology Specialize and Separate 2.3 The Reintegration of Ecology and Economics General System Theory Open-Access Resource Management and Commons Institutions Energetics and Systems Spaceship Earth and Steady-State Economics Adaptive Environmental Management Coevolution of Ecological and Economic Systems The Role of Neoclassical Economics in Ecological Economics Critical Connections Increased Efficiency and Dematerialization. Ecosystem Health Environmental Epistemology Political Ecology Conclusions 3. Problems and Principles of Ecological Economics 3.1 Sustainable Scale, Fair Distribution, and Efficient Allocation From Empty-World Economics to Full-World Economics Reasons the Turning Point Has Not Been Noticed Complementarity vs. Substitutability Policy Implications of the Turning Point Initial Policy Response to the Historical Turning Point 3.2 Ecosystems, Biodiversity, and Ecological Services Biodiversity and Ecosystems Ecosystems and Ecological Services Defining and Predicting Sustainability in Ecological Terms Ecosystems as Sustainable Systems 3.3 Substitutability vs. Complementarity of Natural, Human, and Manufactured Capital Growth vs. Development More on Complementarity vs. Substitutability More on Natural Capital Sustainability and Maintaining Natural Capital 3.4 Population and Carrying Capacity 3.5 Measuring Welfare and Well-Being Copyright © 1997 CRC Press, LLC The GNP and Its Political Importance GNP: Concepts and Measurement From GNP to Hicksian Income and Sustainable Development From GNP to a Measure of Economic Welfare The Index of Sustainable Economic Welfare Toward a Measure of Total Human Welfare Alternative Models of Wealth and Utility 3.6 Valuation, Choice, and Uncertainty Fixed Tastes and Preferences and Consumer Sovereignty Valuation of Ecosystems and Preferences Uncertainty, Science, and Environmental Policy Technological Optimism vs. Prudent Skepticism Social Traps Escaping Social Traps The Dollar Auction Game 3.7 Trade and Community Free Trade? Community and Individual Well-Being Community, Environmental Management, and Sustainability Globalization, Transaction Costs, and Environmental Externalities Policy Implications 4. Policies, Institutions, and Instruments 4.1 The Need to Develop a Shared Vision of a Sustainable Society 4.2 History of Environmental Institutions and Instruments 4.3 Successes, Failures, and Remedies The Policy Role of Non-Government Organizations Adaptive Ecological Economic Assessment and Management Habitat Protection, Intergenerational Transfers, and Equity 4.4 Policy Instruments Regulatory Systems Incentive-Based Systems: Alternatives to Regulatory Control The Role of Economic Efficiency Pollution Fees and Subsidies Popular Critiques of the Incentives for Efficiency Approach Copyright © 1997 CRC Press, LLC Advantages and Disadvantages of Incentive-Based Systems of Regulation Three Policies to Achieve Sustainability Natural Capital Depletion (NCD) Tax The Precautionary Polluter Pays Principle (4P) Ecological Tariffs: Making Trade Sustainable Toward Ecological Tax Reform A Transdisciplinary Pollution Control Policy Instrument Implementation and Operational Considerations Appropriate Policies, Instruments, and Institutions for Governance at Different Levels of Spatial Aggregation The Local Level Land Purchasing and Conservation Easements Full-Cost Pricing The Regional Level: Reducing Counterproductive Interregional Competition for Growth The National Level: Toxic Release Inventory and the Public’s Right to Know The EIS as a National Policy Instrument Ecological Labeling Other National Policies The International Level and the Third World The Global Level Conclusions Further Reading References About the Authors Copyright © 1997 CRC Press, LLC Preface This book is not intended to be a stand-alone economics textbook, nor is it a comprehensive treatment of the wide range of activities cur- rently going on in the transdisciplinary field of ecological economics. Rather, it is an introduction to the field from a particular perspective. It is intended to be used in introductory undergraduate or graduate courses, either alone or in combination with other texts. It is also in- tended for the interested independent reader. The book is structured in four sections. We begin with a descrip- tion of some of the current problems of society and their underlying causes. We trace the causes to problems in the conventional way in which the world, and humans' role in it, are viewed. Ecological eco- nomics is essentially a rethinking of this fundamental relationship and a working out of the implications of a new way of thinking for how we manage our lives and our planet. In Section 2 we present a histori- cal narrative of how worldviews have evolved. This emphasizes how much worldviews do evolve and change. We outline what we think the next step in this evolution will be (or should be). We present vari- ous ideas and models in their proper historical context and as a living narrative, rather than as a list of sterile abstractions. The third section is a distillation of what we view as the fundamental principles of eco- logical economics that are the result of this evolutionary process. The fourth section is a set of policies that follow from the principles and a set of instruments that could be used to implement the policies. It lays out the process of shared envisioning as an essential element to achiev- ing sustainability. A brief conclusions section summarizes and gives prospects for the future. This book is part of a coordinated set of four publications and a video. The book in your hands is intended for advanced readers and undergraduate and graduate courses. There is also a technical vol- ume aimed at ecological economics practitioners (Jansson et al. 1994), a popular version aimed at a lay audience (Prugh et al. 1995), and a short “executive summary” aimed at the policy community. Finally, there is a 43-minute video which is useful for quickly bringing mixed groups up to speed on the basic ideas (Griesinger 1994). We thus