Fundamentals of Ecological Economics: Thermodynamic Limits, Ecosystem Services, and the Economy Loyola University, March 2016 Maggie Winslow, Ph.D. Classic Diagram From Microeconomics Allocate resources based on market price P S P* D Q* Q Classic Diagram From Macroeconomics $ Goods and Services Firms Households Labor Savings/Investment Environment $ Taxes/ Government Spending Imports/Exports Classic Diagram From Macroeconomics $ Goods and Services Firms Households Labor $ Ecosystem Diagram from Ecological Economics heat recycling matter matter Economy energy energy Ecosystem Thermodynamic Limits 1st Law 2nd Law In any closed system matter and Transformations lead to increased energy can be neither created entropy. 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 Resource Depletion Resource Degradation/ Throughput Pollution Is there a thermodynamically determined limit to the rate 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 environment and 3. Within our capacity to recycle or replace non- renewables. If we are using resources faster then this, we are drawing down natural capital. It isn’t income, it is capital spending. Can't man-made capital make up for natural capital? • Renewable resources • Non-renewable resources • Ecosystem services Constraints: •Lack of technical knowledge •Thermodynamic (energy) limits Simple Model of the Economic System positive impacts on human capital capacity being, doing, relating Well Being (Individual and Ecological having, being Complex property services/ doing, relating Community) rights regimes amenities Individual Common Public - having, having - being Consumption (based on changing, Solar Natural Capital Wastes adapting preferences) Energy Restoration, Conservation Evolving Education, training, Goods Human Capital Economic GDP Cultural research. and Production Norms and Services Institutional Social Capital Process Policy rules, norms, etc. Investment recycling (decisions about, taxes Building Manufactured community spending, Capital education, science and negative impacts on all forms of capital technology policy, etc., based on complex property rights regimes) Materially closed earth system Waste heat 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 value delivered by the biosphere 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. NATURE, VOL 387, 15 MAY 1997 The Great Acceleration Global Climate Change and the Earth System, Steffen et al. (2004) Future Generations and Just Distribution • 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 uneconomic growth, consumption by wealthy is decreasing ability of poor to exist. Question: Can we have a vibrant economy (e.g. high employment levels) while limiting the extraction of scarce resources and the degradation of natural capital? YES! Micro-Level Solutions Develop Encourage fair disruptive regulation technologies 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 renewable energy. 3. A new industrial revolution through innovation, low-emission growth, and regeneration. Sources of Employment Growth: • Energy • Retrofits/conservation • Energy conservation innovation and product production • Renewable energy generation/ product production • Smart grid • Water • 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 water conservation technologies • Small scale, organic farms • Recycling • Product development and production • Bio-based cleaners/ green chemicals • Recycled materials • Less hazardous options • Electric vehicles • Lighting • 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 externalities. Seeing sustainability as an opportunity not risk avoidance. • Firms with large amounts of fixed assets (oil industry for example) do not want to change as much as adapt. • Service 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. 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 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 Ecosystems and Biodiversity www.teebweb.org • WAVES – Wealth Accounting and the Valuation of Ecosystem Services www.wavespartnership.org Ex. Tennessee Forests Urban forests in Tennessee provide an estimated: •$204 million per year in pollution removal •$66 million per year in energy savings http://worldlandscapearchitect.com/tennessees-urban-forests-valued-in-the-billions- 2/#.T2p8osrN6dM Annual cost of global forest 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 welfare. (e.g. World Bank 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 population growth. • Reduce the work week, especially to accommodate productivity 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?.