Week 7 The Problem of Sustainability & Economic Growth PDF

WEEK 7 THE PROBLEM OF SUSTAINABILITY & ECONOMIC GROWTH ADMN 509 ECONOMICS FOR POLICY ANALYSIS Instructor: Katya Rhodes We acknowledge and respect the lək̓ ʷəŋən peoples on whose traditional territory the university stands and the Songhees, Esquimalt and W̱ SÁNEĆ peoples wh...

WEEK 7 THE PROBLEM OF SUSTAINABILITY & ECONOMIC GROWTH ADMN 509 ECONOMICS FOR POLICY ANALYSIS Instructor: Katya Rhodes We acknowledge and respect the lək̓ ʷəŋən peoples on whose traditional territory the university stands and the Songhees, Esquimalt and W̱ SÁNEĆ peoples whose historical relationships with the land continue to this day. Course outline topics Week 1: Introduction to economics Week 2: Supply and demand Week 3: Market efficiency and market failures Week 4: Economic trade-off analyses Week 5: Mid-term exam + Economic valuation methods Week 6: Policy evaluation Week 7: The problem of sustainability & economic growth & Assignment 1 due Week 8: Economics of environmental pollution + guest lecture on Indigenous Economies Week 9: Renewable and non-renewable resource economics + guest lecture with BC policy-makers Week 10: Reading break (no class) Week 11: Special topics Assignment 2 due Week 12: Final exam Reading for next week Feir, Donn L. "Policies for Other People: Reflections from an Economist on Research and Federal Policy Regarding Indigenous Nations in Canada after 1975." Canadian Public Policy 50, no. S1 (2024): 36-61. https://www.utpjournals.press/doi/pdf/10.3138/cp p.2023-051 Week 7: Learning objectives 1. Classify the key environmental problems 2. Explain human-based capital versus natural capital 3. Define and depict weak versus strong sustainability 4. Relate the first and second laws of thermodynamics to economic and ecological concepts of sustainability 5. Compare and contrast the “growth paradigm” with “steady-state” principles 6. Define and discuss the appropriateness of GDP and alternative indicators for measuring societal well-being How does Canada compare in terms of sustainability? 17 goals and 248 indicators Canada #26 in the world (2023) 1. Classifying environmental problems The great transformation! 10 http://www.nature.com/news/anthropocene-the-human-age-1.17085  Environmental challenges: What are the bad things? Bad thing Long ago Now Time What are the bad things? Source: IGBP, Steffen et al., 2004  Human activity impacts all spheres, particularly the biosphere 13 Rockstrom et al. (2009): Safe operating space Rockstrom et al. (2009): Identifying and quantifying boundaries Evolution of boundaries 2023 Tipping points Threats to sustainability Resource depletion – Any use of non-renewable resources (fossil fuels, ore) – Over-use of renewable resources (forest, fish, water, soil) Waste impacts and accumulation – Greenhouse gas emissions – Air pollution – Ozone depletion – Water pollution – POPs Loss of ecosystem resilience (biodiversity) – Species extinction – Mono-culture  Pollutants (read only) Criteria air pollutants (CACs) – Carbon monoxide (CO), Nitrogen Oxides (NOx), Ozone (O3), Oxides of Sulfur (SOx), Particulate matter (PM10, PM2.5), Lead (Pb) – Volatile organic compounds (VOCs) – ozone formation Greenhouse gases (GHGs) – Carbon dioxide (CO2), methane (CH4), ozone (O3), N2O, halocarbons Ozone depleting pollutants – Cloroflourcarbons (CFCs, freons, halons) Water pollutants – Sulfur dioxide, ammonia, fertilizers (nitrates and phosphates), heavy metals, insecticides/herbicides Persistent organic pollutants (POPs) – DDT, PCBs (and other things I can’t spell or say) 2. The “Growth Paradigm” One depiction of the growth paradigm. What does this imply? /capita /capita GDP as a measure of “well-being” Gross Domestic Product (GDP) – value of output produced by factors of production (producers) located in the domestic economy and equal to the sum of all of the factor incomes arising in the domestic economy Gross National Product (GNP) – value of output produced by domestically owned factors of production (producers), irrespective of where production occurs GDP = private consumption + gross investment + government spending + (exports – imports) Why is rising GDP supposed to be a good thing? Arguments in favour of growing GDP: – Reduces poverty – Increases literacy – Reduces unemployment – Slows population growth (reduces fertility rates) – Reduces environmental degradation Does GDP growth cause all or any of these benefits? Anyone knows the history of GDP? Environmental Kuznets Curve (EKC) Turning point Empirical observation Environmental degradation that in early stages of societal development environment is negatively impacted, but after a turning point at higher levels of per capita income, environmental quality improves An “inverted U-shape” for environmental degradation Per capita income What explanations could there be for the EKC shape? Emissions and impacts increase as a country starts to industrialize (to use fossil fuels and materials on large scale) As for the turning point, the argument is that at higher incomes… – Consumers and businesses can afford more efficient technology – Citizens develop “pro-environmental” values (once basic needs are already met) – Citizens vote for governments that are pro-environmental – Government puts in laws and institutions that are better for the environment But, EKC may depend on scale and type of pollution Thinking further about GDP: The Exxon-Valdez oil spill example What might be the impacts on GDP from each of these (+, -, or 0)? – Loss of oil (reduction in stocks) – Wildlife damage and deaths (not related to tourism) – Impact on commercial fishing – Impact on tourism – Repair or replacement of the tanker – Costs of oil spill cleanup Overall impact of the spill on GDP? Is GDP a good measure of progress toward sustainability? Does not account for: – resource depletion – environmental degradation – equity or distribution – social problems (crime) – non-market services (clean air) 3. Conceptualizing “capital” and sustainability Can sustainability be defined? “the term sustainable development is often invoked in policy discussions as an exhortatory term that embodies little more than the values and biases of the speaker” (Howarth, 1995) Understanding natural capital Capital: goods/assets used to produce goods and services Physical capital (Kp) Intellectual capital (Ki) Human-based capital (K ) HB Human capital (Kh) Natural capital (Kn) Natural capital (K ) N Production function Q = F(K,L) = F (capital, labour) (Translation: economic output, GDP, is a function of capital and labour) Total Capital K = Kp + Ki + Kh + Kn Two definitions of sustainability Weak sustainability – K = KN + KHB – Natural and human-based capital are perfect substitutes Strong sustainability – Q = F(KN,KHB) – Natural and human capital are complements (both required)  Strong vs. weak sustainability Welfare per capita Weak Capital per capita Weak K time KH Welfare per capita Strong KN time time Definitions of sustainability: Weak or strong? Brundtland Commission “meet the needs of the present without compromising the ability of those in future generations to meet their own needs” UNESCO “each generation should leave water, air, and soil resources as pure and unpolluted as when it came on the earth” Solow “Each generation should be presented with the capability of being at least as well off as previous generations.” Neoclassical economics view (e.g. Solow) Weak sustainability: we can substitute between natural and human-based capital Non-declining welfare per capita Environment isn’t the goal, but a means to an end (human welfare) Society doesn’t care how welfare is produced Hartwick-Solow Rule: reinvest resource profits into other forms of capital Ecological economics view (e.g. Daly) Strong sustainability: substitution between natural and human capital is impossible (boats and fish) A certain ‘critical level’ of natural capital is required in production (e.g., basic life support services) Critical level should account for resilience and perhaps the ‘precautionary principle’ Deep ecology: nature does not just have instrumental value; other species rights to exist 4. Thermodynamics, biophysical limits, and sustainability? Thermodynamics and systems Thermodynamics is the study of energy and its conversion or transformation. Applied to the study of systems. Three types: 1. Open system: both energy and materials can be exchanged 2. Closed system: only energy can be exchanged 3. Isolated system: neither energy nor materials can be exchanged Neo-classical economics: Open, closed or isolated? ECONOMIC SYSTEM Amenities SOME MATERIALS RECYCLING Resour ces PRODUCTION CONSUMPTION GOODS & SERVICES Wastes Wastes “Economy in environment” or ecological economics: Open, closed or isolated? Solar GLOBAL ECOSYSTEM Energy ECONOMIC SYSTEM Amenities MATERIALS RECYCLING Resour ces PRODUCTION CONSUMPTION GOODS & SERVICES Wastes Wastes Waste Energy Laws of Thermodynamics First Law of Thermodynamics (Conservation) – Conservation of energy and matter – Energy and matter are neither created nor destroyed – Energy can be “converted” from one form to another Second Law of Thermodynamics (Entropy) – “Entropy law” – there are always “losses” – Entropy is the measure of energy quality or system disorder – Systems naturally go from order to disorder (from low to high entropy) – Example: Fossil fuels are high quality energy (low entropy), combusting them transforms them to low quality heat energy (high entropy) – So, by “using” more natural resources (high quality), more wastes are created Example: Canada’s energy flow. Can you see both laws here?  Are there limits to the economic system? The biosphere? Solar GLOBAL ECOSYSTEM Energy ECONOMIC SYSTEM MATERIALS RECYCLING Resour ces PRODUCTION CONSUMPTION GOODS & SERVICES Wastes Wastes Waste Energy  Is it a question of scale? Daly and “Full World” (Large scale) Economics Solar GLOBAL ECOSYSTEM Energy ECONOMIC SYSTEM MATERIALS RECYCLING Resour ces PRODUCTION CONSUMPTION GOODS & SERVICES Wastes Wastes Waste Energy  Is it a question of scale? Daly and “Full World” (Large scale) Economics MATERIALS RECYCLING Solar Energy Resour ces PRODUC- CONSUMP- TION TION Waste WastesWastes Energy  Daly: “Because of the exponential economic growth since World War II, we now live in a full world, but we still behave as if it were empty, with ample space and resources for the indefinite future. The founding assumptions of neoclassical economics, developed in the empty world, no longer hold, as the aggregate burden of the human species is reaching—or, in some cases, exceeding—the limits of nature at the local, regional, and planetary levels. The prevailing obsession with economic growth puts us on the path to ecological collapse, sacrificing the very sustenance of our well- being and survival.” Controversy of economic growth and sustainability Pessimists – Malthus (1798): food shortage is inevitable – Club of Rome (1972) – Limits to Growth: continued exponential growth demands, will run out by year 2000 – Daly, Victor, others –accumulation of waste in the environment exceeds the earth’s carrying capacity Optimists – Julian Simon: human ingenuity is “the ultimate resource”. More supply or substitutes are found. – William Nordhaus: Limits to Growth not based on real data, and did not include realistic models of economy/physical systems – Robert Ayres: we can use the (nearly infinite) energy from the sun to recycle material – Growth doesn’t have to be material: as economies develop, they can decouple from resource use Which statement best fits your perspective on thermodynamic limits and the economy? a) We should keep growing— thermodynamic limits do not apply b) We are close to limits—we need to be cautious c) We have exceeded our limits—we need to change direction d) There are limits—but technology will improve to help us break those limits Is decoupling of GHGs from GDP possible? Darker red represents a larger difference between GDP and CO2 growth rates  5. Alternatives to growth… and how to measure it? How to replace/ supplement GDP? Daly’s (2004) Steady-State Principles 1. Renewable resources: harvest at maximum sustainable yield 2. Nonrenewable resources: invest in equal renewable replacement 3. Emissions do not exceed assimilative capacity of the environment (ability of env’t to carry waste materials without being damaged) 4. *Limit scale of human activity (e.g. pollution, energy, population) *Especially controversial… Alternatives to GDP Human Development Index (HDI) Green-adjusted GDP Genuine Progress Indicator (GPI) Index of Sustainable Economic Welfare (ISEW) Genuine Savings Inclusive Well-being World Values Survey (happiness) Gross National Happiness (Bhutan) Happy Planet Index National Well-being Index Genuine Progress Indicator (GPI) Considers – Income distribution – Volunteer work – Family breakdown – Crime – Resource depletion – Pollution – Loss of farmlands, wetlands 2017 the BC NDP – Green Party Confidence and Supply Agreement Three objectives: – make life affordable – deliver services – developing sustainable and innovative economy GPI idea to look at economic, social, and environmental progress and assess how the 3 objectives move together concurrently Pembina (2005): 2 different views of Alberta (1961- 2003) Measuring happiness directly: e.g. Bhutan’s Gross National Happiness Index But how to measure happiness? How to ask survey questions? Happiness and GDP: What is the relationship…?  Side note: neat study found that pro-environmental behaviour (PEB) is associated with higher life satisfaction (LS) Schmitt et al. (2017) Full Article: https://www.sciencedirect.com/science/article/pii/S0921800917303415 Which do you think is the best measure of progress and well-being for our country? a) Gross domestic product (GDP) b) Genuine progress indicator (GPI) c) Human development index (HDI) d) Happiness e) None of the above… Sustainability debate exercise Debate rules Formal debate begins with a resolution; a statement that expresses a belief, opinion or value to be taken into consideration Each debate team will be assigned either an 'affirmative' stance towards the statement (they agree), or a 'negative' stance towards the statement (they disagree) You will be playing the role of candidates for British Columbia’s provincial election Debate format Opening statements: present your case, and touch on important points in your argument (for or against) Cross examination: question your opponent to: – Clarify any reasoning or evidence made by your opponent – Expose any errors or weaknesses in their logic or assertions – Set up your own future arguments Closing arguments: Persuade your audience over the significance of your argument and make final rebuttals against your opponent At the end of the debate, the observers will vote for the “winner.” Debate teams Resolution #1: The expansion of the Kinder Morgan pipeline should be rejected because the environmental and community impacts will violate our province’s sustainability goals. Affirmative: Team 1 – Strong sustainability Negative: Team 2 – Weak sustainability Resolution #2: Fully developing and utilizing BC’s forest resources for rising timber demand is sustainable because this will benefit present and future generations. Affirmative: Team 3 – Weak sustainability Negative: Team 4 – Strong sustainability