Energy subsidies are measures that keep prices for customers
below market levels, or for suppliers above market levels, or reduce
costs for customers and suppliers.
Energy subsidies may be direct cash transfers to suppliers, customers,
or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access.
During FY 2016–22, most US federal subsidies were for renewable
energy producers (primarily biofuels, wind, and solar), low-income
households, and energy-efficiency improvements. During FY 2016–22,
nearly half (46%) of federal energy subsidies were associated with
renewable energy, and 35% were associated with energy end uses. Federal
support for renewable energy of all types more than doubled, from $7.4
billion in FY 2016 to $15.6 billion in FY 2022.
If governments choose to subsidize one particular source of energy more than another, that choice can impact the environment. That distinguishing factor informs the below discussion on all energy subsidies of all sources of energy in general.
Main arguments for energy subsidies are:
Security of supply – subsidies are used to ensure adequate
domestic supply by supporting indigenous fuel production in order to
reduce import dependency, or supporting overseas activities of national
energy companies, or to secure the electricity grid.
Environmental and health improvement – subsidies are used to improve health by reducing air pollution, and to fulfill international climate pledges. For example the IEA says the purchase price of heat pumps should be subsidized.
Economic benefits – subsidies in the form of reduced prices are used
to stimulate particular economic sectors or segments of the population,
e.g. alleviating poverty and increasing access to energy in developing
countries.
With regards to fossil fuel prices in particular, Ian Parry, the lead
author of a 2021 IMF report said, "Some countries are reluctant to raise
energy prices because they think it will harm the poor. But holding
down fossil fuel prices is a highly inefficient way to help the poor,
because most of the benefits accrue to wealthier households. It would be
better to target resources towards helping poor and vulnerable people
directly."
Employment and social benefits – subsidies are used to maintain employment, especially in periods of economic transition.
In 2021, with regards to fossil fuel prices in particular, Ipek Gençsü,
at the Overseas Development Institute, said: "[Subsidy reform] requires
support for vulnerable consumers who will be impacted by rising costs,
as well for workers in industries which simply have to shut down. It
also requires information campaigns, showing how the savings will be
redistributed to society in the form of healthcare, education and other
social services. Many people oppose subsidy reform because they see it
solely as governments taking something away, and not giving back."
Main arguments against energy subsidies are:
Some energy subsidies, such as the fossil fuel subsidies
(oil, coal, and gas subsidies), counter the goal of sustainable
development, as they may lead to higher consumption and waste,
exacerbating the harmful effects of energy use on the environment,
create a heavy burden on government finances and weaken the potential
for economies to grow, undermine private and public investment in the
energy sector. Also, most benefits from fossil fuel subsidies in developing countries go to the richest 20% of households.
Impede the expansion of distribution networks and the development of
more environmentally benign energy technologies, and do not always help
the people that need them most.
The study conducted by the World Bank
finds that subsidies to the large commercial businesses that dominate
the energy sector are not justified. However, under some circumstances
it is reasonable to use subsidies to promote access to energy for the
poorest households in developing countries. Energy subsidies should
encourage access to the modern energy sources, not to cover operating
costs of companies. The study conducted by the World Resources Institute finds that energy subsidies often go to capital intensive projects at the expense of smaller or distributed alternatives.
Types of energy subsidies are below. ("Fossil-fuel subsidies
generally take two forms. Production subsidies...[and]...consumption
subsidies."):
Direct financial transfers – grants to suppliers; grants to customers; low-interest or preferential loans to suppliers.
Preferential tax treatments – rebates or exemption on royalties,
duties, supplier levies and tariffs; tax credit; accelerated
depreciation allowances on energy supply equipment.
Trade restrictions – quota, technical restrictions and trade embargoes.
Energy-related services provided by government at less than full
cost – direct investment in energy infrastructure; public research and
development.
Regulation of the energy sector – demand guarantees and mandated
deployment rates; price controls; market-access restrictions;
preferential planning consent and controls over access to resources.
Failure to impose external costs – environmental externality costs; energy security risks and price volatility costs.
Depletion Allowance – allows a deduction from gross income of up to ~27% for the depletion of exhaustible resources (oil, gas, minerals).
Overall, energy subsidies require coordination and integrated
implementation, especially in light of globalization and increased
interconnectedness of energy policies, thus their regulation at the
World Trade Organization is often seen as necessary.
Early support of solar power by the United States and Germany greatly helped renewable energy commercialization to reduce greenhouse gas emissions worldwide, but may not have helped local manufacturing. Support for nuclear fusion continues, although it is not expected to be commercially viable in time to contribute to countries net zero targets. Energy storage research is also supported.
Fossil fuel subsidies
Fossil-fuel subsidies per capita, 2019. Fossil-fuel pre-tax subsidies per capita are measured in constant US dollars.Fossil-fuel
subsidies as a share of GDP, 2019. Fossil-fuel pre-tax subsidies are
given as a share of total gross domestic product.
Eliminating fossil fuel subsidies would reduce the health risks of air pollution, and would greatly reduce global carbon emissions thus helping to limit climate change. As of 2021, policy researchers estimate that substantially more money is spent on fossil fuel subsidies than on environmentally harmful agricultural subsidies or environmentally harmful water subsidies. The International Energy Agency
says: "High fossil fuel prices hit the poor hardest, but subsidies are
rarely well-targeted to protect vulnerable groups and tend to benefit
better-off segments of the population."
Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies, as of 2023 they continue because of voter demand, or for energy security. Global fossil fuel consumption subsidies in 2022 have been estimated at one trillion dollars; although they vary each year depending on oil prices, they are consistently hundreds of billions of dollars.
Climate reparations are a type of requested loss and damage payments for damage and harm caused by climate change, which may include debt cancellation. The term climate reparations differs from simple "loss and damage," in that it is based on the concept of reparations, that compensation holds countries accountable for historical emissions, and is an ethical and moral obligation.
"The idea behind calls for loss and damage funding is that the
countries that have done most to pollute the atmosphere, and grown rich
doing so, should compensate," according to The New Republic.
The High Commissioner for Human Rights has states that human
rights obligations require that states cooperate toward the promotion of
human rights globally, including adequate financing from those who can
best afford it. This requires climate change mitigation, adaptation,
and rectification of damage. The subject of reparations must be
considered with equity to be the center of global response. This
requires that the counties who have disproportionately created the
environmental crisis must do more to compensate for the damages they
have cause, including respecting the most vulnerable countries.
Generally, reparations are an effort to redress societal harm through
the acknowledgement of wrongdoing and through in-kind and monetary
means. Acceptance of responsibility, followed by undertaking that
address and repair societal injustices and widespread harms are key
principles of reparatory justice. In the context of climate change, it
would require identifying those who have contributed the most greenhouse
gas emissions with the harms they have caused and rectify the serious
damage inflicted disproportionately on low income countries.
Loss and damage was discussed at COP26. As a part of its COP26 coverage, New York Magazine featured a David Wallace-Wells article about climate reparations on its cover.
A Bangladeshi consultant remarked at COP26, "The term ‘loss and damage’
is a euphemism for terms we’re not allowed to use, which are ‘liability and compensation' ... ‘Reparations’ is even worse."
At COP27, climate reparations, in the form of loss and damage funding for developing nations, are "top of the agenda", according to the World Economic Forum. Environment and Climate Change Canada
has announced support for discussion of "loss and damage," and the U.S.
has announced support for "formal negotiations over possible climate
reparations."
Two days before the COP27 talks began, a compromise was reached,
"that discussion would focus on 'cooperation and facilitation' not
'liability or compensation.'"
Vanuatu's starting point for climate reparations at COP27 is US $117 million.
At the United Nations Framework Convention on Climate Change,
there have been a consistent opposition to climate reparations from the
wealthiest and most powerful nations. These same nations have benefited
from current carbon emissions and using an excess of their atmospheric
budget. Furthermore, this would require the redistribution of resources
from the wealthy nations to colonized areas across the globe.
Considerations for implementation
A 2023 study published in One Earth
estimated that the top 21 fossil fuel companies will owe cumulative
climate reparations of $5.4 trillion over the period 2025–2050.
A "corrective justice model" could be based on governments
accepting moral responsibility for damage to climate. In this model, the
countries most responsible provide funding to the affected, poorer
countries, which has done relatively little damage to climate. Funds
might be distributed by an “international compensation commission,”
which adjudicates claims by affected countries.
Another approach would be lawsuits against corporations
responsible for carbon emissions or damage to climate, in which courts
would determine the funding to be distributed to affected parties.
Compensation could be distributed based on a "Polluter Pays"
principle, meaning "that in addition to having to cover the expense of
corrective action, the polluter also has to pay to compensate those who
have suffered environmental harm as a result of their conduct."
Mechanisms for distribution of funding could include debt forgiveness and direct grants for climate adaptation and mitigation efforts.
Challenges for implementation include accountability and evaluation to ensure that funds do not disappear due to corruption. Although IPCC
has a task force on measuring emissions, it does not yet have a task
force capable of establishing metrics for climate mitigation impact.
Opposition
Some
opponents have argued that current generations should not be considered
responsible for the greenhouse gas emissions of their ancestors. Since
it was not widely understood before 1990 that greenhouse gas emissions
would be a problem, some opponents argue that pre-1990 emissions should
not be taken into consideration. One organization has pointed out that a
relatively small number of corporations have been knowingly responsible
for large amounts of damaging emissions for forty years, and argues
that a public which has been willfully deceived by corporate public
relations campaigns should not be expected to pay for these damages.
Pakistan and other nations from the Global South will be pushing for climate reparations at COP27.
Organizations supporting debt cancellation as a means of climate finance
include the African Forum and Network on Debt and Development, the
CARICOM Reparations Committee, the Transnational Accountability &
Justice Initiative, Fridays for Future Bangladesh, and the Jubilee Debt Campaign.Climate campaigners have estimated that the G20 nations
are collectively responsible for about 80% of greenhouse gas emissions,
and some assert that expecting the poorer countries to bear the brunt
of climate impacts is essentially continuing a legacy of colonialism and oppression connected with extractive industries.
An opinion piece in the Bulletin of the Atomic Scientists suggests that "rather than on locking down borders as a response to climate migration,'
it is important to acknowledge "climate displacement as something
driven by our fossil-fueled way of life in the Global North," and "focus
on the question of responsibility and reparations, in a moral, legal,
and financial framework under international law."
The CARICOM Reparations Commission is more blunt: "Either we
allow climate migrants to move in, or we compensate these refugees
financially for the damages caused by our greenhouse gas emissions."
Spaceship Earth (or Spacecraft Earth or Spaceship Planet Earth) is a worldview encouraging everyone on Earth to act as a harmonious crew working toward the greater good.
History
The earliest known use of the term is a passage in Henry George's best known work, Progress and Poverty (1879). From book IV, chapter 2:
It is a well-provisioned ship, this on which we sail
through space. If the bread and beef above decks seem to grow scarce, we
but open a hatch and there is a new supply, of which before we never
dreamed. And very great command over the services of others comes to
those who as the hatches are opened are permitted to say, "This is
mine!"
Around the same time, Walt Whitman in Old Age Echoes (Leaves of Grass, multiple editions between 1855 and 1891) associated:
"One thought ever at the fore—
That at the Divine Ship, the World, breathing Time and Space,
All peoples of the globe together sail, sail the same voyage, are bound to the same destination."
The world is a raft sailing through space with,
potentially, plenty of provisions for everybody; the idea that we must
all cooperate and see to it that everyone does his fair share of the
work and gets his fair share of the provisions seems so blatantly
obvious that one would say that no one could possibly fail to accept it
unless he had some corrupt motive for clinging to the present system.
We travel together, passengers on a little space ship,
dependent on its vulnerable reserves of air and soil; all committed for
our safety to its security and peace; preserved from annihilation only
by the care, the work, and, I will say, the love we give our fragile
craft. We cannot maintain it half fortunate, half miserable, half
confident, half despairing, half slave—to the ancient enemies of
man—half free in a liberation of resources undreamed of until this day.
No craft, no crew can travel safely with such vast contradictions. On
their resolution depends the survival of us all.
The following year, Spaceship Earth became the title of a book by a friend of Stevenson's, the economist Barbara Ward.
In 1966, Kenneth E. Boulding, who was influenced by reading Henry George's work, used the phrase in the title of his essay, The Economics of the Coming Spaceship Earth. Boulding described the past open economy
of apparently illimitable resources, which he said he was tempted to
call the "cowboy economy", and continued: "The closed economy of the
future might similarly be called the 'spaceman' economy, in which the
earth has become a single spaceship, without unlimited reservoirs of
anything, either for extraction or for pollution, and in which,
therefore, man must find his place in a cyclical ecological system".
This "cowboys in a spaceship" theme would eventually be taken up by
scholar David Korten in his 1995 book When Corporations Rule the World.
... we can make all of humanity successful through
science's world-engulfing industrial evolution provided that we are not
so foolish as to continue to exhaust in a split second of astronomical
history the orderly energy savings
of billions of years' energy conservation aboard our Spaceship Earth.
These energy savings have been put into our Spaceship's
life-regeneration-guaranteeing bank account for use only in self-starter
functions.
United NationsSecretary-GeneralU Thant spoke of Spaceship Earth on Earth Day March 21, 1971 at the ceremony of the ringing of the Japanese Peace Bell:
"May there only be peaceful and cheerful Earth Days to come for our
beautiful Spaceship Earth as it continues to spin and circle in frigid
space with its warm and fragile cargo of animate life."
Spaceship Earth is the name given to the 50 m (160 ft) diameter geodesic sphere that greets visitors at the entrance of Walt Disney World's Epcot theme park. Housed within the sphere is a dark ride that serves to explore the history of communications
and promote Epcot's founding principles, "[a] belief and pride in man's
ability to shape a world that offers hope to people everywhere." A previous incarnation of the ride, narrated by actor Jeremy Irons and revised in 2008, was explicit in its message:
Like a grand and miraculous spaceship, our planet has
sailed through the universe of time, and for a brief moment, we have
been among its many passengers... We now have the ability and the
responsibility to build new bridges of acceptance and co-operation
between us, to create a better world for ourselves and our children as
we continue our amazing journey aboard Spaceship Earth.
The term "Spaceship Earth" is frequently used on the labels of Emanuel Bronner's products to emphasize and promote his belief in the unity of humankind.
Criticism
Sociologist Steffen Roth has demonstrated that, if realized, Spaceship Earth would epitomise the most total institution ever created in human history.
Humanity's economic system viewed as a subsystem of the global environment Ecological economics, bioeconomics, ecolonomy, eco-economics, or ecol-econ is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. By treating the economy as a subsystem of Earth's larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing strong sustainability and rejecting the proposition that physical (human-made) capital can substitute for natural capital (see the section on weak versus strong sustainability below).
Ecological economics was founded in the 1980s as a modern
discipline on the works of and interactions between various European and
American academics (see the section on History and development below). The related field of green economics is in general a more politically applied form of the subject.
According to ecological economist Malte Michael Faber [de], ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation. Ecological economists have questioned fundamental mainstream economic approaches such as cost-benefit analysis, and the separability of economic values from scientific research, contending that economics is unavoidably normative, i.e. prescriptive, rather than positive or descriptive. Positional analysis, which attempts to incorporate time and justice issues, is proposed as an alternative.Ecological economics shares several of its perspectives with feminist economics, including the focus on sustainability, nature, justice and care values. Karl Marx also commented on relationship between capital and ecology, what is now known as ecosocialism.
The debate on energy in economic systems can also be traced back to Nobel prize-winning radiochemistFrederick Soddy (1877–1956). In his book Wealth, Virtual Wealth and Debt
(1926), Soddy criticized the prevailing belief of the economy as a
perpetual motion machine, capable of generating infinite wealth—a
criticism expanded upon by later ecological economists such as Nicholas
Georgescu-Roegen and Herman Daly.
European predecessors of ecological economics include K. William Kapp (1950) Karl Polanyi (1944), and Romanian economist Nicholas Georgescu-Roegen (1971). Georgescu-Roegen, who would later mentor Herman Daly at Vanderbilt University,
provided ecological economics with a modern conceptual framework based
on the material and energy flows of economic production and consumption. His magnum opus, The Entropy Law and the Economic Process (1971), is credited by Daly as a fundamental text of the field, alongside Soddy's Wealth, Virtual Wealth and Debt. Some key concepts of what is now ecological economics are evident in the writings of Kenneth Boulding and E.F. Schumacher, whose book Small Is Beautiful – A Study of Economics as if People Mattered (1973) was published just a few years before the first edition of Herman Daly's comprehensive and persuasive Steady-State Economics (1977).
The first organized meetings of ecological economists occurred in
the 1980s. These began in 1982, at the instigation of Lois Banner, with a meeting held in Sweden (including Robert Costanza, Herman Daly, Charles Hall, Bruce Hannon, H.T. Odum, and David Pimentel).
Most were ecosystem ecologists or mainstream environmental economists,
with the exception of Daly. In 1987, Daly and Costanza edited an issue
of Ecological Modeling to test the waters. A book entitled Ecological Economics, by Joan Martinez Alier, was published later that year. Alier renewed interest in the approach developed by Otto Neurath during the interwar period. The year 1989 saw the foundation of the International Society for Ecological Economics and publication of its journal, Ecological Economics, by Elsevier. Robert Costanza
was the first president of the society and first editor of the journal,
which is currently edited by Richard Howarth. Other figures include
ecologists C.S. Holling and H.T. Odum, biologist Gretchen Daily, and physicist Robert Ayres. In the Marxian tradition, sociologist John Bellamy Foster and CUNY geography professor David Harvey explicitly center ecological concerns in political economy.
Articles by Inge Ropke (2004, 2005) and Clive Spash (1999)
cover the development and modern history of ecological economics and
explain its differentiation from resource and environmental economics,
as well as some of the controversy between American and European schools
of thought. An article by Robert Costanza, David Stern, Lining He, and Chunbo Ma
responded to a call by Mick Common to determine the foundational
literature of ecological economics by using citation analysis to examine
which books and articles have had the most influence on the development
of the field. However, citations analysis has itself proven
controversial and similar work has been criticized by Clive Spash
for attempting to pre-determine what is regarded as influential in
ecological economics through study design and data manipulation. In addition, the journal Ecological Economics has itself been criticized for swamping the field with mainstream economics.
Schools of thought
Various
competing schools of thought exist in the field. Some are close to
resource and environmental economics while others are far more heterodox
in outlook. An example of the latter is the European Society for Ecological Economics. An example of the former is the Swedish Beijer International Institute of Ecological Economics.Clive Spash
has argued for the classification of the ecological economics movement,
and more generally work by different economic schools on the
environment, into three main categories. These are the mainstream new
resource economists, the new environmental pragmatists, and the more radical social ecological economists.
International survey work comparing the relevance of the categories for
mainstream and heterodox economists shows some clear divisions between
environmental and ecological economists. A growing field of radical social-ecological theory is degrowth economics.Degrowth
addresses both biophysical limits and global inequality while rejecting
neoliberal economics. Degrowth prioritizes grassroots initiatives in
progressive socio-ecological goals, adhering to ecological limits by
shrinking the human ecological footprint (See Differences from
Mainstream Economics Below). It involves an equitable downscale in both
production and consumption of resources in order to adhere to
biophysical limits. Degrowth draws from Marxian economics, citing the growth of efficient systems as the alienation of nature and man. Economic movements like degrowth reject the idea of growth itself. Some degrowth theorists call for an "exit of the economy".
Critics of the degrowth movement include new resource economists, who
point to the gaining momentum of sustainable development. These
economists highlight the positive aspects of a green economy, which
include equitable access to renewable energy and a commitment to
eradicate global inequality through sustainable development (See Green
Economics).
Examples of heterodox ecological economic experiments include the
Catalan Integral Cooperative and the Solidarity Economy Networks in
Italy. Both of these grassroots movements use communitarian based
economies and consciously reduce their ecological footprint by limiting
material growth and adapting to regenerative agriculture.
Non-traditional approaches to ecological economics
Cultural
and heterodox applications of economic interaction around the world
have begun to be included as ecological economic practices. E.F. Schumacher introduced examples of non-western economic ideas to mainstream thought in his book, Small is Beautiful, where he addresses neoliberal economics through the lens of natural harmony in Buddhist economics. This emphasis on natural harmony is witnessed in diverse cultures across the globe. Buen Vivir is a traditional socio-economic movement in South America that rejects the western development model of economics. Meaning Good Life, Buen Vivir
emphasizes harmony with nature, diverse pluralculturism, coexistence,
and inseparability of nature and material. Value is not attributed to
material accumulation, and it instead takes a more spiritual and
communitarian approach to economic activity. Ecological Swaraj
originated out of India, and is an evolving world view of human
interactions within the ecosystem. This train of thought respects
physical bio-limits and non-human species, pursuing equity and social
justice through direct democracy and grassroots leadership. Social
well-being is paired with spiritual, physical, and material well-being.
These movements are unique to their region, but the values can be seen
across the globe in indigenous traditions, such as the Ubuntu Philosophy in South Africa.
Differences from mainstream economics
Ecological
economics differs from mainstream economics in that it heavily reflects
on the ecological footprint of human interactions in the economy. This
footprint is measured by the impact of human activities on natural
resources and the waste generated in the process. Ecological economists
aim to minimize the ecological footprint, taking into account the
scarcity of global and regional resources and their accessibility to an
economy. Some ecological economists prioritise adding natural capital to the typical capital asset analysis of land, labor, and financial capital. These ecological economists use tools from mathematical economics,
as in mainstream economics, but may apply them more closely to the
natural world. Whereas mainstream economists tend to be technological
optimists, ecological economists are inclined to be technological
sceptics. They reason that the natural world has a limited carrying capacity
and that its resources may run out. Since destruction of important
environmental resources could be practically irreversible and
catastrophic, ecological economists are inclined to justify cautionary
measures based on the precautionary principle.
As ecological economists try to minimize these potential disasters,
calculating the fallout of environmental destruction becomes a
humanitarian issue as well. Already, the Global South has seen trends of
mass migration due to environmental changes. Climate refugees from the Global South are adversely affected by changes in the environment, and some scholars point to global wealth inequality within the current neoliberal economic system as a source of this issue.
The most cogent example of how the different theories treat similar assets is tropical rainforest ecosystems, most obviously the Yasuni region of Ecuador. While this area has substantial deposits of bitumen
it is also one of the most diverse ecosystems on Earth and some
estimates establish it has over 200 undiscovered medical substances in
its genomes – most of which would be destroyed by logging the forest or
mining the bitumen. Effectively, the instructional capital of the
genomes is undervalued by analyses that view the rainforest primarily as
a source of wood, oil/tar and perhaps food. Increasingly the carbon credit for leaving the extremely carbon-intensive
("dirty") bitumen in the ground is also valued – the government of
Ecuador set a price of US$350M for an oil lease with the intent of
selling it to someone committed to never exercising it at all and
instead preserving the rainforest.
While this natural capital and ecosystems services approach has
proven popular amongst many it has also been contested as failing to
address the underlying problems with mainstream economics, growth,
market capitalism and monetary valuation of the environment.
Critiques concern the need to create a more meaningful relationship
with Nature and the non-human world than evident in the instrumentalism
of shallow ecology and the environmental economists commodification of everything external to the market system.
Natural resources flow through the economy and end up as waste and pollution.
A simple circular flow of income
diagram is replaced in ecological economics by a more complex flow
diagram reflecting the input of solar energy, which sustains natural
inputs and environmental services which are then used as units of production.
Once consumed, natural inputs pass out of the economy as pollution and
waste. The potential of an environment to provide services and materials
is referred to as an "environment's source function", and this function
is depleted as resources are consumed or pollution contaminates the
resources. The "sink function" describes an environment's ability to
absorb and render harmless waste and pollution: when waste output
exceeds the limit of the sink function, long-term damage occurs.
Some persistent pollutants, such as some organic pollutants and nuclear
waste are absorbed very slowly or not at all; ecological economists
emphasize minimizing "cumulative pollutants". Pollutants affect human health and the health of the ecosystem.
The economic value of natural capital and ecosystem services
is accepted by mainstream environmental economics, but is emphasized as
especially important in ecological economics. Ecological economists may
begin by estimating how to maintain a stable environment before
assessing the cost in dollar terms. Ecological economist Robert Costanza led an attempted valuation of the global ecosystem in 1997. Initially published in Nature, the article concluded on $33 trillion with a range from $16 trillion to $54 trillion (in 1997, total global GDP was $27 trillion). Half of the value went to nutrient cycling.
The open oceans, continental shelves, and estuaries had the highest
total value, and the highest per-hectare values went to estuaries,
swamps/floodplains, and seagrass/algae beds. The work was criticized by
articles in Ecological Economics Volume 25, Issue 1, but the critics acknowledged the positive potential for economic valuation of the global ecosystem.
The Earth's carrying capacity is a central issue in ecological economics. Early economists such as Thomas Malthus pointed out the finite carrying capacity of the earth, which was also central to the MIT study Limits to Growth. Diminishing returns
suggest that productivity increases will slow if major technological
progress is not made. Food production may become a problem, as erosion, an impending water crisis, and soil salinity (from irrigation) reduce the productivity of agriculture. Ecological economists argue that industrial agriculture, which exacerbates these problems, is not sustainable agriculture, and are generally inclined favorably to organic farming, which also reduces the output of carbon.
Global wild fisheries are believed to have peaked and begun a decline, with valuable habitat such as estuaries in critical condition. The aquaculture or farming of piscivorous fish, like salmon, does not help solve the problem because they need to be fed products from other fish. Studies have shown that salmon farming has major negative impacts on wild salmon, as well as the forage fish that need to be caught to feed them.
Since animals are higher on the trophic level,
they are less efficient sources of food energy. Reduced consumption of
meat would reduce the demand for food, but as nations develop, they tend
to adopt high-meat diets similar to that of the United States. Genetically modified food (GMF) a conventional solution to the problem, presents numerous problems – Bt corn produces its own Bacillus thuringiensis toxin/protein, but the pest resistance is believed to be only a matter of time.
Global warming is now widely acknowledged as a major issue, with all national scientific academies expressing agreement on the importance of the issue. As the population growth intensifies and energy demand increases, the world faces an energy crisis. Some economists and scientists forecast a global ecological crisis if energy use is not contained – the Stern report is an example. The disagreement has sparked a vigorous debate on issue of discounting and intergenerational equity.
Mainstream economics has attempted to become a value-free 'hard science',
but ecological economists argue that value-free economics is generally
not realistic. Ecological economics is more willing to entertain
alternative conceptions of utility, efficiency, and cost-benefits such as positional analysis or multi-criteria analysis. Ecological economics is typically viewed as economics for sustainable development, and may have goals similar to green politics.
Green economics
In international, regional, and national policy circles, the concept of the green economy grew in popularity as a response to the financial predicament at first then became a vehicle for growth and development.
The United Nations Environment Programme
(UNEP) defines a 'green economy' as one that focuses on the human
aspects and natural influences and an economic order that can generate
high-salary jobs. In 2011, its definition was further developed as the
word 'green' is made to refer to an economy that is not only resourceful
and well-organized but also impartial, guaranteeing an objective shift
to an economy that is low-carbon, resource-efficient, and socially-inclusive.
The ideas and studies regarding the green economy denote a
fundamental shift for more effective, resourceful, environment-friendly
and resource‐saving technologies that could lessen emissions and
alleviate the adverse consequences of climate change, at the same time confront issues about resource exhaustion and grave environmental dilapidation.
As an indispensable requirement and vital precondition to realizing sustainable development, the Green Economy
adherents robustly promote good governance. To boost local investments
and foreign ventures, it is crucial to have a constant and foreseeable
macroeconomic atmosphere. Likewise, such an environment will also need
to be transparent and accountable. In the absence of a substantial and
solid governance structure, the prospect of shifting towards a
sustainable development route would be insignificant. In achieving a
green economy, competent institutions and governance systems are vital
in guaranteeing the efficient execution of strategies, guidelines,
campaigns, and programmes.
Shifting to a Green Economy demands a fresh mindset and an
innovative outlook of doing business. It likewise necessitates new
capacities, skills set from labor and professionals who can competently
function across sectors, and able to work as effective components within
multi-disciplinary teams. To achieve this goal, vocational training
packages must be developed with focus on greening the sectors.
Simultaneously, the educational system needs to be assessed as well in
order to fit in the environmental and social considerations of various
disciplines.
Topics
Among
the topics addressed by ecological economics are methodology,
allocation of resources, weak versus strong sustainability, energy
economics, energy accounting and balance, environmental services, cost
shifting, modeling, and monetary policy.
A primary objective of ecological economics (EE) is to ground
economic thinking and practice in physical reality, especially in the
laws of physics (particularly the laws of thermodynamics)
and in knowledge of biological systems. It accepts as a goal the
improvement of human well-being through development, and seeks to ensure
achievement of this through planning for the sustainable development of
ecosystems and societies. Of course the terms development and
sustainable development are far from lacking controversy. Richard B. Norgaard argues traditional economics has hi-jacked the development terminology in his book Development Betrayed.
Well-being in ecological economics is also differentiated from
welfare as found in mainstream economics and the 'new welfare economics'
from the 1930s which informs resource and environmental economics.
This entails a limited preference utilitarian conception of value i.e.,
Nature is valuable to our economies, that is because people will pay for
its services such as clean air, clean water, encounters with
wilderness, etc.
Ecological economics is distinguishable from neoclassical economics
primarily by its assertion that the economy is embedded within an
environmental system. Ecology deals with the energy and matter
transactions of life and the Earth, and the human economy is by
definition contained within this system. Ecological economists argue
that neoclassical economics has ignored the environment, at best
considering it to be a subset of the human economy.
The neoclassical view ignores much of what the natural sciences
have taught us about the contributions of nature to the creation of
wealth e.g., the planetary endowment of scarce matter and energy, along
with the complex and biologically diverse ecosystems that provide goods
and ecosystem services
directly to human communities: micro- and macro-climate regulation,
water recycling, water purification, storm water regulation, waste
absorption, food and medicine production, pollination, protection from
solar and cosmic radiation, the view of a starry night sky, etc.
There has then been a move to regard such things as natural capital and ecosystems functions as goods and services.
However, this is far from uncontroversial within ecology or ecological
economics due to the potential for narrowing down values to those found
in mainstream economics and the danger of merely regarding Nature as a
commodity. This has been referred to as ecologists 'selling out on
Nature'. There is then a concern that ecological economics has failed to learn from the extensive literature in environmental ethics about how to structure a plural value system.
Allocation of resources
The marginal costs of a growing economy may gradually exceed the marginal benefits, however measured.
Resource
and neoclassical economics focus primarily on the efficient allocation
of resources and less on the two other problems of importance to
ecological economics: distribution (equity), and the scale of the economy relative to the ecosystems upon which it relies.
Ecological economics makes a clear distinction between growth
(quantitative increase in economic output) and development (qualitative
improvement of the quality of life),
while arguing that neoclassical economics confuses the two. Ecological
economists point out that beyond modest levels, increased per-capita consumption
(the typical economic measure of "standard of living") may not always
lead to improvement in human well-being, but may have harmful effects on
the environment and broader societal well-being. This situation is
sometimes referred to as uneconomic growth (see diagram above).
The three nested systems of sustainability - the economy wholly contained by society, wholly contained by the biophysical environment. Clickable.
Ecological economics challenges the conventional approach towards
natural resources, claiming that it undervalues natural capital by
considering it as interchangeable with human-made capital—labor and
technology.
The impending depletion of natural resources and increase of
climate-changing greenhouse gasses should motivate us to examine how
political, economic and social policies can benefit from alternative
energy. Shifting dependence on fossil fuels with specific interest
within just one of the above-mentioned factors easily benefits at least
one other. For instance, photo voltaic (or solar) panels have a 15%
efficiency when absorbing the sun's energy, but its construction demand
has increased 120% within both commercial and residential properties.
Additionally, this construction has led to a roughly 30% increase in
work demands (Chen).
The potential for the substitution of man-made capital for
natural capital is an important debate in ecological economics and the
economics of sustainability.
There is a continuum of views among economists between the strongly
neoclassical positions of Robert Solow and Martin Weitzman, at one extreme and the 'entropy pessimists', notably Nicholas Georgescu-Roegen and Herman Daly, at the other.
Neoclassical economists tend to maintain that man-made capital
can, in principle, replace all types of natural capital. This is known
as the weak sustainability
view, essentially that every technology can be improved upon or
replaced by innovation, and that there is a substitute for any and all
scarce materials.
At the other extreme, the strong sustainability
view argues that the stock of natural resources and ecological
functions are irreplaceable. From the premises of strong
sustainability, it follows that economic policy has a fiduciary
responsibility to the greater ecological world, and that sustainable
development must therefore take a different approach to valuing natural
resources and ecological functions.
Recently, Stanislav Shmelev developed a new methodology for the
assessment of progress at the macro scale based on multi-criteria
methods, which allows consideration of different perspectives, including
strong and weak sustainability or conservationists vs industrialists
and aims to search for a 'middle way' by providing a strong
neo-Keynesian economic push without putting excessive pressure on the
natural resources, including water or producing emissions, both directly
and indirectly.
Energy economics
Exergy
analysis can be performed to find connections between economic value
and the physical world. Here the costs of heating (vertical axis) are
compared with the exergy content of different energy carriers
(horizontal axis). Red dots and trend line indicate energy prices for
consumers, blue dots and trend line indicate total price for consumers
including capital expenditure for the heating system. Energy carriers
included are district heating (D), ground-source heat pump (G), exhaust
air heat pump (A), bioenergy meaning firewood (B), heating oil (O) and
direct electric heating (E).
A key concept of energy economics is net energy gain,
which recognizes that all energy sources require an initial energy
investment in order to produce energy. To be useful the energy return
on energy invested (EROEI)
has to be greater than one. The net energy gain from the production of
coal, oil and gas has declined over time as the easiest to produce
sources have been most heavily depleted.
In traditional energy economics, surplus energy is often seen as
something to be capitalized on—either by storing for future use or by
converting it into economic growth.
Ecological economics generally rejects the view of energy
economics that growth in the energy supply is related directly to
well-being, focusing instead on biodiversity and creativity – or natural capital and individual capital,
in the terminology sometimes adopted to describe these economically. In
practice, ecological economics focuses primarily on the key issues of uneconomic growth and quality of life.
Ecological economists are inclined to acknowledge that much of what is
important in human well-being is not analyzable from a strictly economic
standpoint and suggests an interdisciplinary approach combining social
and natural sciences as a means to address this. When considering
surplus energy, ecological economists state this could be used for
activities that do not directly contribute to economic productivity but
instead enhance societal and environmental well-being. This concept of dépense, as developed by Georges Bataille,
offers a novel perspective on the management of surplus energy within
economies. This concept encourages a shift from growth-centric models to
approaches that prioritise sustainable and meaningful expenditures of
excess resources.
Thermoeconomics is based on the proposition that the role of energy in biological evolution should be defined and understood through the second law of thermodynamics, but also in terms of such economic criteria as productivity, efficiency,
and especially the costs and benefits (or profitability) of the various
mechanisms for capturing and utilizing available energy to build
biomass and do work.
As a result, thermoeconomics is often discussed in the field of
ecological economics, which itself is related to the fields of
sustainability and sustainable development.
Exergy analysis is performed in the field of industrial ecology to use energy more efficiently. The term exergy, was coined by Zoran Rant in 1956, but the concept was developed by J. Willard Gibbs.
In recent decades, utilization of exergy has spread outside of physics
and engineering to the fields of industrial ecology, ecological
economics, systems ecology, and energetics.
An energy balance can be used to track energy through a system, and
is a very useful tool for determining resource use and environmental
impacts, using the First and Second laws of thermodynamics,
to determine how much energy is needed at each point in a system, and
in what form that energy is a cost in various environmental issues. The energy accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system.
Scientists have written and speculated on different aspects of energy accounting.
Ecological economists agree that ecosystems produce enormous flows of
goods and services to human beings, playing a key role in producing
well-being. At the same time, there is intense debate about how and when
to place values on these benefits.
A study was carried out by Costanza and colleagues
to determine the 'value' of the services provided by the environment.
This was determined by averaging values obtained from a range of studies
conducted in very specific context and then transferring these without
regard to that context. Dollar figures were averaged to a per hectare
number for different types of ecosystem e.g. wetlands, oceans. A total
was then produced which came out at 33 trillion US dollars (1997
values), more than twice the total GDP of the world at the time of the study. This study was criticized by pre-ecological and even some environmental economists – for being inconsistent with assumptions of financial capitalvaluation – and ecological economists – for being inconsistent with an ecological economics focus on biological and physical indicators.
The whole idea of treating ecosystems as goods and services to be
valued in monetary terms remains controversial. A common objection
is that life is precious or priceless, but this demonstrably degrades
to it being worthless within cost-benefit analysis and other standard
economic methods. Reducing human bodies to financial values is a necessary part of mainstream economics and not always in the direct terms of insurance or wages. One example of this in practice is the value of a statistical life,
which is a dollar value assigned to one life used to evaluate the costs
of small changes in risk to life–such as exposure to one pollutant.
Economics, in principle, assumes that conflict is reduced by agreeing
on voluntary contractual relations and prices instead of simply fighting
or coercing or tricking others into providing goods or services. In
doing so, a provider agrees to surrender time and take bodily risks and
other (reputation, financial) risks. Ecosystems are no different from
other bodies economically except insofar as they are far less
replaceable than typical labour or commodities.
Despite these issues, many ecologists and conservation biologists are pursuing ecosystem valuation. Biodiversity
measures in particular appear to be the most promising way to reconcile
financial and ecological values, and there are many active efforts in
this regard. The growing field of biodiversity finance began to emerge in 2008 in response to many specific proposals such as the Ecuadoran Yasuni proposal or similar ones in the Congo. US news outlets treated the stories as a "threat" to "drill a park" reflecting a previously dominant view that NGOs and governments had the primary responsibility to protect ecosystems. However Peter Barnes
and other commentators have recently argued that a
guardianship/trustee/commons model is far more effective and takes the
decisions out of the political realm.
Commodification of other ecological relations as in carbon credit and direct payments to farmers to preserve ecosystem services
are likewise examples that enable private parties to play more direct
roles protecting biodiversity, but is also controversial in ecological
economics. The United NationsFood and Agriculture Organization achieved near-universal agreement in 2008 that such payments directly valuing ecosystem preservation and encouraging permaculture were the only practical way out of a food crisis. The holdouts were all English-speaking countries that export GMOs and promote "free trade" agreements that facilitate their own control of the world transport network: The US, UK, Canada and Australia.
Not 'externalities', but cost shifting
Ecological economics is founded upon the view that the neoclassical economics (NCE) assumption that environmental and community costs and benefits are mutually canceling "externalities" is not warranted. Joan Martinez Alier,
for instance shows that the bulk of consumers are automatically
excluded from having an impact upon the prices of commodities, as these
consumers are future generations who have not been born yet. The
assumptions behind future discounting, which assume that future goods
will be cheaper than present goods, has been criticized by David Pearce and by the recent Stern Report
(although the Stern report itself does employ discounting and has been
criticized for this and other reasons by ecological economists such as Clive Spash).
Concerning these externalities, some like the eco-businessman Paul Hawken
argue an orthodox economic line that the only reason why goods produced
unsustainably are usually cheaper than goods produced sustainably is
due to a hidden subsidy, paid by the non-monetized human environment,
community or future generations.
These arguments are developed further by Hawken, Amory and Hunter
Lovins to promote their vision of an environmental capitalist utopia in Natural Capitalism: Creating the Next Industrial Revolution.
In contrast, ecological economists, like Joan Martinez-Alier, appeal to a different line of reasoning.
Rather than assuming some (new) form of capitalism is the best way
forward, an older ecological economic critique questions the very idea
of internalizing externalities as providing some corrective to the
current system. The work by Karl William Kapp explains why the concept of "externality" is a misnomer. In fact the modern business enterprise operates on the basis of shifting costs onto others as normal practice to make profits. Charles Eisenstein has argued that this method of privatising profits while socialising the costs
through externalities, passing the costs to the community, to the
natural environment or to future generations is inherently destructive. As social ecological economist Clive Spash
has noted, externality theory fallaciously assumes environmental and
social problems are minor aberrations in an otherwise perfectly
functioning efficient economic system.
Internalizing the odd externality does nothing to address the
structural systemic problem and fails to recognize the all pervasive
nature of these supposed 'externalities'.
Ecological
economics draws upon its work on resource allocation and strong
sustainability to address monetary policy. Drawing upon a
transdisciplinary literature, ecological economics roots its policy work
in monetary theory and its goals of sustainable scale, just
distribution, and efficient allocation. Ecological economics' work on monetary theory and policy can be traced to Frederick Soddy's work on money. The field considers questions such as the growth imperative
of interest-bearing debt, the nature of money, and alternative policy
proposals such as alternative currencies and public banking.
Criticism
Assigning monetary value to natural resources such as biodiversity, and the emergent ecosystem services is often viewed as a key process in influencing economic practices, policy, and decision-making.
While this idea is becoming more and more accepted among ecologists and
conservationist, some argue that it is inherently false.
McCauley argues that ecological economics and the resulting ecosystem service based conservation can be harmful. He describes four main problems with this approach:
Firstly, it seems to be assumed that all ecosystem services are
financially beneficial. This is undermined by a basic characteristic of
ecosystems: they do not act specifically in favour of any single
species. While certain services might be very useful to us, such as coastal protection from hurricanes by mangroves for example, others might cause financial or personal harm, such as wolves hunting cattle.
The complexity of Eco-systems makes it challenging to weigh up the
value of a given species. Wolves play a critical role in regulating prey
populations; the absence of such an apex predator in the Scottish
Highlands has caused the over population of deer, preventing
afforestation, which increases the risk of flooding and damage to
property.
Secondly, allocating monetary value to nature would make its conservation reliant on markets that fluctuate. This can lead to devaluation of services that were previously considered financially beneficial. Such is the case of the bees in a forest near former coffee plantations in Finca Santa Fe, Costa Rica. The pollination
services were valued to over US$60,000 a year, but soon after the
study, coffee prices dropped and the fields were replanted with
pineapple. Pineapple does not require bees to be pollinated, so the value of their service dropped to zero.
Thirdly, conservation programmes for the sake of financial
benefit underestimate human ingenuity to invent and replace ecosystem
services by artificial means. McCauley argues that such proposals are
deemed to have a short lifespan as the history of technology is about how Humanity developed artificial
alternatives to nature's services and with time passing the cost of
such services tend to decrease. This would also lead to the devaluation
of ecosystem services.
Lastly, it should not be assumed that conserving ecosystems is
always financially beneficial as opposed to alteration. In the case of
the introduction of the Nile perch to Lake Victoria, the ecological consequence was decimation of native fauna.
However, this same event is praised by the local communities as they
gain significant financial benefits from trading the fish.
McCauley argues that, for these reasons, trying to convince decision-makers to conserve nature for monetary
reasons is not the path to be followed, and instead appealing to
morality is the ultimate way to campaign for the protection of nature.
