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Environmental Resource Management: Lecture 3 Page 1 of 8

Lecture 3: Sustainable development and resource use

1. What is meant by "sustainable development"?

Having considered the nature of environmental resources and the allocative problems they pose in our
first lecture, our second lecture then considered the nature of economic growth and how this concept
relates to the environment.

In that lecture we drew attention to the fact that the debate about the ability of any economy to sustain a
growing or even a stable rather than declining level of consumption and living standards hinged on our
ability to find sustainable substitutes for resources liable to entropy.

In this lecture we examine this assertion in more detail, starting by asking the question: what do we
really mean when we talk about sustainability and sustainable development (the two terms tend to be
used interchangeably, and for our purposes we shall regard them as such).

Not surprisingly, we shall quickly discover that these terms mean different things to different groups of
people. In managing environmental resources with sustainability in mind, the trick will be to find a
concept for this term which is sufficiently broad to embrace most acceptable usages, and also
sufficiently practicable to be applicable in the everyday management of the environment.

So in this lecture, we shall review various approaches to sustainability and sustainable development with
this objective in mind. In the final lecture of this part of the course, we shall consider some attempts at a
synthesis of the various approaches designed to provide working sets of rules for sustainable
management of environmental resources, and some of the evidence on sustainability.

2. Alternative interpretations of sustainable development (SD)

Table 1 in the handout for this lecture provides a selection of definitions of sustainability, with a brief
commentary on each. The commentary makes it clear that there is no consensus about the meaning of
the term. Perhaps the most famous of these definitions is that given in the Report of the World
Commission on Environment and Development, operating under Mrs Brundtland. This offered a
definition of SD in terms of human needs:

Sustainable development is development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.

While succinct, this definition begs a number of questions. To gain a solid understanding of why there
are so many competing interpretations of this concept, it is best to start from first principles. We can
divide these interpretations into two basic groups:

l sustainable development as applied in economic usage;

l sustainable development as applied in ecological usage. 8/5/2004
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The following provides a list of 5 alternative interpretations of SD grouped under these two headings:

Economic usage:

a. A sustainable state is one in which consumption is non-declining over time: the consumption
definition of SD;

b. A sustainable state is one in which resources are arranged so as to maintain production opportunities
for the future: the PPF definition of SD;

Ecological usage:

c. A sustainable state is one in which the natural capital stock is non-declining through time: the
environmental stock definition of SD;

d. A sustainable state is one in which resources are managed so as to maintain a sustainable yield of
natural resource services: the environmental flow definition of SD;

e. A sustainable state is one which satisfies minimum conditions of ecosystem stability and resilience
through time: the ecosystem stability definition of SD.

We can review each of these interpretations briefly and consider how they relate to each other. The first
two define sustainability in terms of the ability of the economy to maintain material production or
consumption indefinitely over time. Since this is not likely to be possible without indefinite use of
environmental resources, these interpretations implicitly also require some degree of environmental
sustainability. The remaining three interpretations define sustainability directly in terms of the
environment and its capacity to continue to respond to demands on it.

Economic definitions of sustainability

Sustainability in the economic sense focuses on our ability at least to maintain a given level of
consumption of production of material goods and services indefinitely over time. Ideally, this will also
allow for the possibility that we might increase our consumption or productive capacity into the future,
allowing living standards not just to stabilise but to grow.

All economies are to some extent reliant on the extraction and use of finite stocks of non- renewable
resources, such as fossil fuels. We know that these stocks cannot provide growing economies with
supplies continuously into the indefinite future: at some point stocks will run out. Under these
circumstances, it appears improbable that any economy could achieve even constant levels of productive
capacity or consumption indefinitely. The point is of most immediate relevance to the oil-rich
economies of the Middle East. Surely in such cases, these countries are running their economies on a
totally non-sustainable basis?

The way out of this apparent contradiction was first identified by John Hartwick in the 1970s. Hartwick
identified the theoretical conditions under which use of non-renewable resources was consistent with the
indefinite maintenance of a given level of consumption or productive capacity, and hence living

His results are based on an elegant mathematical proof, termed Hartwick's Rule. Interestingly, they build
on the work undertaken in the 1930s by Harold Hotelling, which as already mentioned dealt with 8/5/2004
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establishing the optimal rate of depletion of a non-renewable resource. This came to be known as
Hotelling's Rule, so that the combined conditions for this type of sustainability may be termed the
Hotelling-Hartwick Rules.

Those interested in the mathematical derivation of the Hotelling-Hartwick Rules can follow this up in
the more advanced references listed for this part of the course. For these lectures, we shall confine our
discussion to explaining the implications of Hartwick's Rule, having already briefly mentioned the basis
for Hotelling's Rule in the first lecture.

The Hartwick conditions for achieving indefinitely non-declining consumption in any economy at least
partially dependent on non-renewable environmental resources depend on the adoption of particular
savings rule. This rules states that if the profits or rents derived from non-renewable resource extraction
(ie the surpluses above extraction costs) are saved and completely invested in reproducible capital, then
under certain circumstances it can be shown that levels of output and consumption will remain constant
over time.

This is a somewhat modest result, you may well conclude. It offers no guarantee that economic
sustainability can be achieved in practice. However, Hartwick's Rule does point to the theoretical
attainability of this type of sustainability, despite the existence and use of non-renewable environmental
resources. In this sense, therefore, it provides the justification for the Kuwaiti Government's strategy of
channelling most of its oil profits into a national investment trust, which has used these funds to buy up
a large portfolio of stocks and shares in other industries, so as to provide a flow of income to the country
once the oil reserves become exhausted.

The substitutability of capital

A common theme in virtually all the arguments about the existence of economic sustainability is the
possibility of substituting other forms of productive asset for declining stocks of environmental
resources. We should spend a little time considering this point.

If our productive capacity or level of consumption is to be maintained indefinitely, then this is

equivalent to arguing that we must preserve our stock of capital assets indefinitely. It is, after all, this
stock of capital assets, defined in its broadest sense to include all types of assets, including those from
the environment, which will ensure that we have the productive capacity to achieve an indefinite flow of
output or consumption.

So we can assert that the productive potential of an economy at any point of time will be a function of
the stock of productive assets it is able to command. Now consider what this stock of productive assets
consists of. Firstly, subtract from such assets the stock of untrained labour power that people without
any skills or education can offer. This allows us to define stocks of capital assets in a very broad sense,
to include any economically useful resource other than raw labour power.

In such a broad sense, capital assets available for maintaining our productive potential will then include
the following:

1. Natural or environmental capital: any naturally occurring stock of assets, such as aquifers and
water systems, fertile land, crude oil and gas fields, forests, fisheries and other stocks of biomass,
and the earth's atmosphere itself. This category is broadly equivalent to what are commonly
termed natural resources. As we have already noted, these environmental assets are a mixture of
non-renewable, renewable but exhaustible and renewable, non-exhaustible resources, but for our 8/5/2004
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purposes they do not include the human population.

2. Reproducible capital: this consists of plant, equipment, buildings and infrastructure made by
humans in order to add to productive capacity rather than for final consumption. As we have
noted, stocks of reproducible capital are accumulated by devoting part of current production to
investment purposes.
3. Human capital: this is defined as the stock of learned skills, which are embodied in particular
individuals, such as those possessed by trained scientists and soccer stars. Human capital acquired
by training and education will enhance the productive potential of both the individual and the
economy in which he or she is employed, adding to the earnings and consumption stream that
individuals could obtain from being paid for their raw labour power.
4. Intellectual capital: this consists of disembodied skills. Intellectual capital is derived from the
stocks of useful knowledge societies accumulate over time, which at any point in time we might
term the "state of technology". We term such intellectual assets disembodied skills because they
do not reside specifically in trained individuals, but instead are part of the common knowledge of
any society at a specific time.

We can use this classification to understand the implications of defining sustainability in terms of
maintaining our stock of productive assets. If we define human-made capital as the sum of reproducible,
human and intellectual capital assets, then it is readily seen that the sum of the stock of productive assets
in an economy at any moment in time consists of two distinct elements: environmental and human-made

Our economic definition of sustainability will be achieved if the composite stock of productive capital is
non-declining over time. Some elements of this composite stock of capital assets are bound to decline.
This must be the case for non-renewable finite stocks of environmental capital like fossil fuels.

In terms of this definition of sustainability, we can see that the decline of individual elements of the total
capital stock would not be crucial, provided that other types of capital, reproducible, human and
intellectual, could substitute for declining environmental capital.

Most economists would accept that there is some degree of substitutability between different stocks of
productive capital assets. So on this basis, seen from an economic perspective, it can be argued that
while sustainability requires the handing on to future generations of some constant aggregate value of
capital assets to ensure the maintenance of productive opportunities indefinitely over time, there is no
special reason why any particular element of this capital stock has to remain at a non-decreasing level,
provided substitutability between different types of capital assets is possible. We shall return to this
point shortly.

Ecological definitions of sustainability

All our ecological definitions of sustainability, you will recall, focus not on the ability of an economy to
maintain production or consumption indefinitely over time. Instead they concentrate on the ability of the
environment to maintain a stock or flow of environmental resources indefinitely over time, or the
capacity of the environment to respond to demands made on it indefinitely over time.

Sustainable environmental stocks

The maintenance of a non-declining stock of environmental capital would be a necessary condition for
sustainability if we considered environmental capital to be essential to the productive capacity of an
economy and if, moreover, it could not readily be replaced or substituted for by other human-made 8/5/2004
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forms of productive capital assets.

This point takes us straight back to the question of substitutability between different types of productive
asset. To what extent can human-made forms of capital assets compensate for the loss of environmental
assets? As expected, there is a healthy debate on this issue.

The consensus at present appears to suggest that while some substitutability between environmental and
non-environmental capital is possible, the degree of substitutability is in most cases quite low.

Given the irreversible character of much environmental capital when put to productive use, the
Precautionary Principle might be taken to suggest that under such circumstances it would not be wise to
assume a high degree of future substitutability.

So some authorities argue strongly that we should make every effort to preserve stocks of environmental
capital per se. This does not amount to a blanket ban on use of environmental capital. For example,
Pearce suggest that in projects which involve the using up of environmental assets, such as the
construction of a road through a forest, part of the obligations of the developers should include the
replanting of an equivalent stock of trees to make good the loss.

Sustainable environmental yields

What are the resource management implications of using the second ecological definition of
sustainability, in which this is regarded as achieving a sustainable yield of natural resources from the
stock of environmental capital?

The concept of sustainable yield applies as we have noted earlier to renewable but exhaustible stocks of
environmental resources, with particular application to biomass stocks. The trouble with this approach to
sustainability is that it tends to crumble once we examine it closely.

For example, how do we accommodate the fact that for finite stocks of non-renewable resources there
can never be such a thing as a sustainable yield? The trite response is to define sustainable yields in
terms of an aggregate flow of environmental resources. Yet this takes us back to the issue of
substitutability, in this case considering whether one can effectively substitute one type of
environmental resource for another.

Is the assumption of substitutability between different forms of environmental capital any more valid
than the parallel assumption of substitutability between environmental and non- environmental capital?
If we are going to apply the Precautionary Principle to one such assumption, should we not apply it to

Sustainable recycling capacity

One possible twist to this type of definition of sustainability is to regard it as the maximum yield which
can be recycled using non-entropic forms of energy from extra-terrestrial sources (solar or gravitational
energy sources).

We have already noted that the maximum recycling capacity of any closed material system such as the
earth is determined ultimately by the constant flow of energy that can be harnessed from extra-terrestrial
sources. So this must by itself impose a maximum rate of sustainable materials usage of all types in any
indefinitely sustainable state. 8/5/2004
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This is probably the most fundamental definition of sustainability available. Unfortunately it lacks
practicality when we attempt to determine the extent to which our current activities violate or can be
accommodated within this constraint.

Sustainable ecosystems

The final type of ecological definition of sustainability refers to the carrying capacity of the
environment, and whether this can be sustained indefinitely. This is the definition closest to that used by
ecologists when dealing with specific ecological systems. It places the environment rather than human
needs to the forefront.

The ultimate test of the carrying capacity of any ecosystem rests on its resilience: its capacity to retain
its organisational structure and function in essentially the same way following a significant disturbance.

By implication, any behaviour which reduces the resilience of ecosystems is potentially unsustainable.
So efforts to safeguard ecosystem resilience would require a much more stringent application of the
Precautionary Principle.

Conclusions on sustainability

Arguments about the meaning and implications of sustainability are ongoing. Let's try to summarise the
current state of the debate, in the light of the foregoing points, before we move on in the final lecture to
review briefly some of the efforts to apply sustainability in practice and to look at some of the evidence
on this.

We can do so by presenting three alternative perspectives on the debate: one which is pessimistic about
the issue, one which is optimistic, and one which reflects perhaps the general consensus amongst those
concerned with environmental resource management.

We start with the premise that economic growth will continue to require additional inputs of the earth's
stock of environmental resources. This premise may be open to question on the grounds that technology
might find ways of getting more from less, but practical considerations suggest that however effective
technology becomes, it will not allow us to stop using environmental resources.

Despite the high probability of continued high and probably rising demands on environmental resources,
the implications for sustainability are not clear-cut. The following scenarios can be identified from the
various contributions to the debate:

Pessimistic scenario

The pessimistic scenario is based on acceptance of the finite nature of environmental resources. This is
encountered in various ways: the use of non-renewable stocks, the growing entropy within our
ecosystems, and the limits to the environment's ability to cope with residuals.

Given this appreciation of the situation, economic growth is taken to be ultimately unsustainable. There
is an upper limit on output and productive capacity under this scenario, which is determined by the
recycling potential available from non-terrestrial sources.

The level of material throughput of the system cannot, in the long term, exceed this quantity of material
recycling. Substitution between different forms of productive asset when seen in this light is essentially 8/5/2004
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a "red herring". In Herman Daly's words:

Substitution is always of one form of low entropy matter-energy for another. There is no substitute for
low entropy itself, and low entropy is scarce, both in its terrestrial source (finite stocks of concentrated
fossil fuels and minerals) and in its solar source (a fixed rate of inflow of solar energy) Daly H (1974)
The economics of the steady state San Francisco, W H Freeman.

This view represents the strongest version of the limits to growth argument, and the strongest case
against sustainability. A weaker version of this view would stress the growing pressure from society to
limit growth because of increased unwillingness to tolerate ever-increasing environmental degradation.

Optimistic scenario

The optimistic scenario acknowledges the fact of rising rates of depletion of non-renewable resources,
increased harvesting of renewable but exhaustible resources, and increasing flows of environmental
residuals. But the advocates of this scenario point out that mechanisms already exist to incorporate
appropriate feedbacks into our management of environmental resources, which will allow us to cope
with and adapt to such pressures.

Rising prices for non-renewable resources and the increasing costs of disposal of residuals will force
producers to employ more efficient technology and change their technological coefficients to economise
on scarce resources.

The net effect of such responses will be to allow economies to continue to provide high living standards
while adapting to different resource constraints. The essence of this reasoning is based on a belief in the
existence of powerful price-induced substitution effects.

The current consensus scenario

Between the optimistic and the pessimistic scenarios outlined above, a consensus is currently discernible
which, while accepting the presence of adjustment mechanisms identified by the optimistic scenario,
questions whether these are sufficient to avoid all the consequences of the pessimistic scenario.

Limitations on our ability to adjust to resource constraints are created by the following weaknesses in
our present system of environmental resource management:

l the inability of markets to generate the appropriate price signals for all resource uses, partly
because of the existence of major externalities, and partly because of the absence of property
l the existence of irreversibility and uncertainty in the use of environmental resources;
l the limits to the technological possibilities of substitution between environmental and non-
environmental assets in maintaining our capital stock of productive assets.

On this basis, there is a strong case for concluding that current arrangements for ensuring the sustainable
development of our resources are defective, and that we require a much more pro- active approach if we
are to have any prospect of attaining sustainability in practice.

Some evidence of sustainability

In our concluding lecture to this section of the course, we shall look at some of the approaches to 8/5/2004
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sustainability being developed, and some of the techniques being applied to judge our degree of success
in attaining this.

As a final point to this lecture, however, we can consider Table 2 in the handout for the lecture. This is
taken from Perman, but it reviews work undertaken by Atkinson and Pearce on the measurement of
sustainable development.

If we take the maintenance of the total stock of productive assets as a requirement for sustainability, this
table illustrates the situation as it currently applies in a number of countries, using data on national
accounts supplemented by other sources.

Atkinson and Pearce compare the savings ratio (S/Y) in these countries - the share of current output not
being used for final consumption, but available to replace and add to the capital stock - with the current
rate at which these countries are using up both their stock of reproducible capital (M) and their stock of
environmental capital (N).

From this evidence, Atkinson and Pearce conclude that many countries do not at present meet even this
fairly weak definition of sustainability. 8/5/2004