Topics in Economics and Environment (Jour) 2024-2025 PDF

Topics in Economics and Environment (Jour) Philippe Roman ICHEC Brussels Management School 2024-2025 Topics in Economics and Environment (Jour) 2024-2025 1 3. What is a sustainable economy? Topics in Economics and Environment (Jour) 2024-2025...

Topics in Economics and Environment (Jour) Philippe Roman ICHEC Brussels Management School 2024-2025 Topics in Economics and Environment (Jour) 2024-2025 1 3. What is a sustainable economy? Topics in Economics and Environment (Jour) 2024-2025 2 We are here Topics in Economics and Environment (Jour) 2024-2025 3  Figure: Occurrence of « durable; durabilité; soutenable; soutenabilité » in French books Source: Google Books Ngram Viewer Source : Jeremy L. Caradonna, Sustainability. A History, OUP. Figure: Occurrence of « sustainability » in English books Source: Google Books Ngram Viewer Topics in Economics and Environment (Jour) 2024-2025 4 Some landmarks in the history of sustainable development Google Ngram for ecodevelopment Google Ngram for sustainability, sustainable development and circular economy Topics in Economics and Environment (Jour) 2024-2025 5 3.1. Diversity of criteria Topics in Economics and Environment (Jour) 2024-2025 6 Source : White, M. A., « Sustainability: I know it when I see it », Ecological Economics, 86, p. 213-217. Topics in Economics and Environment (Jour) 2024-2025 7 A polysemic concept In the early 1990s already, John Pezzey found hundreds of definitions for « sustainability » in his review of the concept. Basic idea = to maintain, sustain, prolong, make sthg survive, keep living etc. → But what? → Development itself? → Well-being? → Living standards? → (Inclusive) Wealth? → Consumption? Topics in Economics and Environment (Jour) 2024-2025 8 The Brundtland report (« Our Common Future ») Former Norwegian Prime Minister Gro Harlem Brundtland chaired the World Commission on Environment and Development (WCED). The report Our Common Future was published in 1987. → Definition: see next slides. Topics in Economics and Environment (Jour) 2024-2025 9 Sustainable development: the “official” view “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987, p. 43). https://eur-lex.europa.eu/summary/glossary/sustainable_development.html Topics in Economics and Environment (Jour) 2024-2025 10 Sustainable development: the “official” view … but we tend to forget the rest of the paragraph: “It contains within it two key concepts: the concept of ‘needs’, in particular the essential needs of the world’s poor, to which overriding priority should be given; and the idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs.” Topics in Economics and Environment (Jour) 2024-2025 11 Sustainable development: the “official” view After the Brundtland report, sustainable development has tended to be interpreted as some kind of equilibrium, or harmony, between the social, ecological and economic dimensions of development. → The Venn diagram and the three pillars of sustainability (3 secant circles) → Combination / equilibrium between diverse (sometimes opposed) requirements → But what does it mean in practice? Is there a dimension that takes precedence over the others? → How to make this operational? In 2006, the EU revised its strategy in favour of sustainable development: “a long-term vision for sustainability in which economic growth, social cohesion and environmental protection go hand in hand and are mutually supporting”. Topics in Economics and Environment (Jour) 2024-2025 12 How to represent the concept of sustainable development? Topics in Economics and Environment (Jour) 2024-2025 13 Sustainable development: the “economic” view 1° Economic development is sustainable ‘if it does not decrease the capacity to provide non-declining per capita utility for infinity’ (Neumayer, 2010, p. 7) 2° The mainstream economic view of sustainable development relies also on capital assets. The maintenance of these capital assets is supposed to sustain per capita utility. → Development is sustainable if it does not reduce some aggregate amount of capitals. Topics in Economics and Environment (Jour) 2024-2025 14 Sustainability approaches and indicators Depending on the approach of sustainability, different criteria will be selected and also different indicators will be chosen. Mainstream economic approaches (more prone to weak sustainability) tend to opt for monetary (and mostly market-based) measures (of capital assets and/or of utility). Ecological economists (more prone to weak sustainability) tend to rely on energy and physical-based and non-monetary measures. Topics in Economics and Environment (Jour) 2024-2025 15 What condition for sustainability? (based on O. Godard) Solow very weak sustainability: Weak sustainability: K is measured in monetary terms Strong sustainability: Very strong sustainability: constraints on overall material and energy flows. Absolute limits to the physical scale of the economy. Beware, the definitions of weak sustainability and strong sustainability may vary somewhat from one author to another (in the same way as for the concept of sustainability itself, but in a more limited way). But the bottom line remains that strong approaches do not allow for easy and widespread substitution of natural capital with other forms of capital while weak approaches do. Topics in Economics and Environment (Jour) 2024-2025 16 Topics in Economics and Environment (Jour) 2024-2025 17 3.2. Weak sustainability Topics in Economics and Environment (Jour) 2024-2025 18 3.2.1. Principles of weak sustainability Topics in Economics and Environment (Jour) 2024-2025 19 What is weak sustainability? Basic idea: to sustain development, we should keep the aggregate(monetary) amount of capital assets in the economy non decreasing. It is not necessary to keep all assets non decreasing. Manufactured and human capitals can substitute natural capital to a large extent. “it does not matter whether the current generation uses up nonrenewable resources or dumps CO2 in the atmosphere as long as enough machineries, roads and ports are built in compensation” (Neumayer, 2003, p. 1). Topics in Economics and Environment (Jour) 2024-2025 20 Two key authors of weak sustainability Robert Solow, (1992), « An almost practical step toward sustainability », in Oates W.E. (éd.), The RFF reader in environmental and resource management, Washington DC, RFF, 1999, p. 263-272. John Hartwick, (1977), « Intergenerational Equity and the Investing of Rents from Exhaustible Resources », American Economic Review, 67, p. 972- 974. Topics in Economics and Environment (Jour) 2024-2025 21 The Hartwick rule Hartwick, J. (1977), « Intergenerational Equity and the Investing of Rents from Exhaustible Resources », American Economic Review, 67, p. 972-974. Investing the rent of natural resources exploitation in physical/manufactured capital. This is only possible if there is perfect substitutability between different kinds of capital. Ex.: according to Geoffrey Heal, Botswana is on track to follow Hartwick’s rule by efficiently investing its mining (diamond) rent in physical and human capital. Topics in Economics and Environment (Jour) 2024-2025 22 Investing in the future Classical case: how to use the oil rent? Saudi Arabia, Qatar, Venezuela…: enough investment in the future? Norway: Norwegian State Petroleum Fund: funded by the national oil company, Statoil. Alaska : Alaska Permanent Fund: receives 25% of oil and gas royalties. Topics in Economics and Environment (Jour) 2024-2025 23 What lies behind weak sustainability? In a market economy, scarcity drives the evolution of relative prices, which prompts consumption and production changes. Overall, this would keep economic welfare stable. Confidence in the ability or markets to send relevant price signals → The scarcer a resource, the more expensive it is supposed to be. Confidence in the ability of new technologies to provide alternatives to the use of scarce resources. → Did “oil save the whales”? https://mises.org/wire/petroleum-industry-saved-whales; https://www.resilience.org/stories/2020-06-29/why-oil-didnt-save-the-whales-and-why-it-matters/ There are no elements that are absolutely indispensable to human well-being ; no irreversibility or radical uncertainty either. Topics in Economics and Environment (Jour) 2024-2025 24 3.2.2. Weak sustainability in practice Topics in Economics and Environment (Jour) 2024-2025 25 Examples Oil price spikes in the 1970s → New research and development on energy efficiency + new oil exploration → new oil carriers discovered → “Self-regulating” market Oil price increases tend to make solar energy more desirable. → Price signals help find substitutes and make them economically viable. Topics in Economics and Environment (Jour) 2024-2025 26 Examples Artificial pollination → Natural capital is not irreplaceable ; humans can artificially produce substitute ecosystem services. Topics in Economics and Environment (Jour) 2024-2025 27 Examples Artificial snow → Natural capital is not irreplaceable ; humans can artificially produce substitute ecosystem services. Topics in Economics and Environment (Jour) 2024-2025 28 Will backstop technologies save us? In weak sustainability approaches, price signals convey scarcity information, which prompts the development of « backstop technologies ». Nuclear fission + fusion (?) ; large-scale renewables ; carbon capture and storage ; geoengineering (?) Were we to find a breakthrough new zero-carbon source of energy, would this solve the climate problem? → Go to En-Roads simulator and look at details of “New Zero-Carbon” heading. Topics in Economics and Environment (Jour) 2024-2025 29 The cornucopian movement From the latin cornu copiae (horn of plenty) The economist Julian Lincoln Simon is a pioneer of the cornucopian movement. →The Ultimate Resource, 1981. → He did a famous bet in 1980 with Paul R. Ehrlich (neomalthusian biologist): that the price of primary resources would not rise in the future. One also refers to ecopragmatism, or « Blue-Green » movement, or enlightenment environmentalism, or humanistic environmentalism. → John Asafu-Adjaye, Jesse Ausubel, Stewart Brand, Ruth DeFries, Ted Nordhaus or Michael Shellenberger. Topics in Economics and Environment (Jour) 2024-2025 30  In the US, members of the Breakthrough Institute and signatories of the « ecomodernist manifesto » spearhead a promethean ecology: we should bet on humans’ ingenuity and scientific progress. Topics in Economics and Environment (Jour) 2024-2025 31 Topics in Economics and Environment (Jour) 2024-2025 32 3.2.3. Indicators of weak sustainability Topics in Economics and Environment (Jour) 2024-2025 33  Mainly indicators using monetary values Mainly indicators assessing stocks of capitals (natural, manufactured, human, sometimes social or health) Tend to be aggregated indexes where dimensions can compensate each other Topics in Economics and Environment (Jour) 2024-2025 34 The mainstream economic approach to sustainability: maintaining capital stocks Source: Inclusive Wealth Report 2018 Topics in Economics and Environment (Jour) 2024-2025 35 A weak sustainability indicator: Adjusted net savings (World Bank) Topics in Economics and Environment (Jour) 2024-2025 36 Adjusted net savings Worked out by the World Bank Monetary capital-based approach to sustainability Starts from national accounting categories (gross and net savings) and adds/subtracts the monetary value of changes in different forms of ‘capital’. Weak sustainability Topics in Economics and Environment (Jour) 2024-2025 37 Adjusted net savings for a sample of countries Topics in Economics and Environment (Jour) 2024-2025 38 Topics in Economics and Environment (Jour) 2024-2025 39  Are Namibia and Botswana on sustainable development paths? Topics in Economics and Environment (Jour) 2024-2025 40  Knowing that, in the World Bank’s approach, development is sustainable if total wealth per capita does not decrease (weak sustainability), what can you say about the sustainability of countries? Topics in Economics and Environment (Jour) 2024-2025 41  The Inclusive Wealth approach Topics in Economics and Environment (Jour) 2024-2025 42 Another weak sustainability indicator: The Inclusive Wealth Index Topics in Economics and Environment (Jour) 2024-2025 43  What can you say about the (weak) sustainability of the mentioned countries? Topics in Economics and Environment (Jour) 2024-2025 44 Topics in Economics and Environment (Jour) 2024-2025 45 Topics in Economics and Environment (Jour) 2024-2025 46 Topics in Economics and Environment (Jour) 2024-2025 47 Topics in Economics and Environment (Jour) 2024-2025 48 Topics in Economics and Environment (Jour) 2024-2025 49 Topics in Economics and Environment (Jour) 2024-2025 50 3.2.4. The “Natural Capital” movement Topics in Economics and Environment (Jour) 2024-2025 51 “Natural capital” and business A broad movement led by big environmental NGOs (WWF, IUCN…) and big business platforms (World Economic Forum, WBCSD…) has taken shape to make the case for preserving nature (and economic activity based on nature) with the help of the “natural capita” concept and the series of methodological tools to measure and value it. This is mostly inward-looking work and discourse: demonstrating that preserving natural capital makes economic sense (implicitly for companies themselves). → Preserving natural capital is some kind of self-insurance in the medium-to-long run. So, monetary valuations of natural capital are deemed necessary to make the point. Topics in Economics and Environment (Jour) 2024-2025 52 Topics in Economics and Environment (Jour) 2024-2025 53 Topics in Economics and Environment (Jour) 2024-2025 54 Topics in Economics and Environment (Jour) 2024-2025 55 Topics in Economics and Environment (Jour) 2024-2025 56 Topics in Economics and Environment (Jour) 2024-2025 57 Methodology: https://www.yorkshirewater.com/media/1irfk3ao/our-contribution-methodology-2020-21-v3.pdf Topics in Economics and Environment (Jour) 2024-2025 Highlights: https://capitalscoalition.org/casestudy/total-impact-valuation-assessment-by-yorkshire-water/ 58 Current limits of the natural capital approach For the time being, the approach is rather loose in its normative guidance and requirements. → Does not advocate or impose either a strong sustainability or weak sustainability approach. → Most probably weak sustainability measures and uses are currently implemented in the corporate world. The Natural Coalition, for example, presents itself as a gateway to the understanding of the natural world as a capital to be measure, valued and (to a certain extent) maintained. → Reference to specific tools, methods, theories etc. to practically implement the approach remains patchy. Topics in Economics and Environment (Jour) 2024-2025 59 Valuing natural capital Natural Capital Toolkit: https://naturalcapitalcoalition.org/protocol-toolkit/ https://shift.tools/contributors/551 Topics in Economics and Environment (Jour) 2024-2025 60 The great debate… Read the debate between George Monbiot (from the Guardian) and the Natural Capital Coalition: https://www.theguardian.com/commentisfree/2018/may/15/price- natural-world-destruction-natural-capital https://naturalcapitalcoalition.org/dear-george-we-cannot-take-a- monoculture-approach-to-the-conservation-of-the-natural-world/ Topics in Economics and Environment (Jour) 2024-2025 61 3.3. Strong sustainability Topics in Economics and Environment (Jour) 2024-2025 62 3.3.1. Principles of strong sustainability Topics in Economics and Environment (Jour) 2024-2025 63 Some landmarks Ecological economics (epistemological level) → Thermodynamics ; material flows analysis ; scepticism vis-à-vis market bounties Critical natural capital (conceptual level) → Some elements of natural capital are non substitutable. Degrowth / Steady state / Post-growth (normative horizon level) → Infinite growth is both impossible and undesirable Topics in Economics and Environment (Jour) 2024-2025 64 Topics in Economics and Environment (Jour) 2024-2025 65 Principles of strong sustainability There is little room to replace natural capital with other forms of capital. Natural capital presents specific features that other forms of capital can hardly reproduce. Socio-ecosystems might evolve in uncertain ways, especially if they are pushed beyond resilience thresholds. → Uncertainty warrants precaution when we destabilise ecosystems. There are strong limits to material and energetic growth of economic systems. Topics in Economics and Environment (Jour) 2024-2025 66 Herman Daly on sustainability “For the management of renewable resources there are two obvious principles of sustainable development. First that harvest rates should equal regeneration rates (sustained yield). Second that waste emission rates should equal the natural assimilative capacities of the ecosystems into which the wastes are emitted. “Regenerative and assimilative capacities must be treated as natural capital, and failure to maintain these capacities must be treated as “There remains the category of nonrenewable capital consumption, and therefore not sustainable.” resources (…) it is possible to exploit nonrenewables in a quasi-sustainable manner by limiting their rate “In the past the assumption of neoclassical economics has been that manmade capital is a near perfect substitute for natural resources, and of depletion to the rate of creation of renewable consequently for the natural capital that generates this flow of natural substitutes.” resources.” “Are they complements or substitutes? It should be obvious that they are basically complementary and only very marginally substitutable.” Topics in Economics and Environment (Jour) 2024-2025 67 3.3.2. Indicators of strong sustainability Topics in Economics and Environment (Jour) 2024-2025 68  An illustration of the energetic approach: EROI Topics in Economics Source: Charles A.S. Hall, 2017, Energy Return on Investment. and Environment A Unifying Principle(Jour) 2024-2025Economics, and Sustainability, Springer. for Biology, 69  Material Flows Accounting: some figures Source: http://www.materialflows.net/visualisation-centre/data-visualisations/?_inputs_&sidebar=%22line_chart_2%22 Topics in Economics and Environment (Jour) 2024-2025 70 Critical natural capital and sustainability gaps Some elements of natural capital are essential, or “critical”. They should be preserved accordingly. No possibilities of substituting this critical natural capital with other types of capital. We should adopt “safe minimum standards” (SMS). Sustainability gaps tell us how we fare regarding the respect of SMS. Topics in Economics and Environment (Jour) 2024-2025 71 The “boundaries” approach Topics in Economics and Environment (Jour) 2024-2025 72  What are the main differences between this approach and one in terms of monetarised capital assets (weak sustainability)? Source: Fanning et al., 2020, Global Environmental Change, 64. Topics in Economics and Environment (Jour) 2024-2025 73  Topics in Economics and Environment (Jour) 2024-2025 74 Source: O’Neill et al., 2018, Nature Sustainability, 1, p. 88-95. Source: O’Neill et al., 2018, Nature Sustainability, 1, p. 88-95. Topics in Economics and Environment (Jour) 2024-2025 75 Topics in Economics and Environment (Jour) 2024-2025 76 3.3.2. Implementing strong sustainability: some examples Topics in Economics and Environment (Jour) 2024-2025 77 From planetary boundaries to planetary quotas? Topics in Economics and Environment (Jour) 2024-2025 78 Source: Meyer & Newman, 2020, Planetary Accounting, Springer.  Downscaling planetary boundaries to the micro level? Source: Meyer & Newman, 2020, Planetary Accounting, Springer. Topics in Economics and Environment (Jour) 2024-2025 79 An example of a strong sustainability approach to corporate accounting: the ‘‘Triple Depreciation Line’’ In this approach, capital must be preserved. There is no possible compensation between different forms of capital (this makes the approach a “strong sustainability” one) The valuation of the (different forms of) capital relies upon the costing of what it takes to maintain it, instead of the stream of benefits it is supposed to create in the future. →Departs from contemporary financial statements/norms → Departs from the neoclassical approach to the valuation of capital based on expected streams of benefits Topics in Economics and Environment (Jour) 2024-2025 80 Topics in Economics and Environment (Jour) 2024-2025 81 An example of a strong sustainability approach to corporate accounting: the ‘‘Triple Depreciation Line’’ Topics in Economics and Environment (Jour) 2024-2025 82 Topics in Economics and Environment (Jour) 2024-2025 83  Weak vs strong sustainability: a summary Source: https://sustainabledevelopment.un.org/content/documents/6569122-Pelenc- Weak%20Sustainability%20versus%20Strong%20Sustainability.pdf Topics in Economics and Environment (Jour) 2024-2025 84 3.4. The Sustainable Development Goals: the long road from consensus to coherence… Topics in Economics and Environment (Jour) 2024-2025 85 https://www.sdgs.be/en/sdgs → Read the short presentation ofTopics the inSDGs on and Economics theEnvironment Belgian (Jour) SDGs website 2024-2025 86 Is a broad set of goals the practical way to sustainability? SDGs are a set of objectives on varied topics No explicit underlying theory nor framework to understand them as interlinked Many observers criticise the lack of coherence of this set of goals and the fact that some goals are contradictory with others. → Lack of practical guidance on what to prioritise and how to make sure pursuing a goal does not impede pursuing other goals. As exemplified in the following slides, we are in a period of active search for more practical frameworks to make the SDGs work for good… Topics in Economics and Environment (Jour) 2024-2025 87 Topics in Economics and Environment (Jour) 2024-2025 88 Topics in Economics and Environment (Jour) 2024-2025 89 Topics in Economics and Environment (Jour) 2024-2025 90 Topics in Economics and Environment (Jour) 2024-2025 91 Useful resources Ecological Economics website and e-book: http://www.ecomacundervisning.dk/?lang=en ; http://www.ecomacundervisning.dk/wp- content/uploads/2017/11/Kompendium-English-2017-11-18.pdf Neumayer, E., 2013. Weak versus Strong Sustainability. Edward Elgar Publishing. Data on Adjusted Net Savings: https://data.worldbank.org/indicator/NY.ADJ.SVNG.GN.ZS Info on Inclusive Wealth: http://www.managi-lab.com/iwp/iwp_home.html Material Flow Analysis Portal: http://www.materialflows.net Donut-like country-level data: https://goodlife.leeds.ac.uk Ecological footprint: https://www.footprintnetwork.org/our-work/ecological-footprint/ Glossary on environmental concepts: https://ipbes.net/glossary Environmental justice glossary (contains entries on many strong sustainability concepts): http://www.ejolt.org/section/resources/glossary/ Topics in Economics and Environment (Jour) 2024-2025 92