Chapter 7

Ecological limits and Economical

development
GaneshThapa

The earth provides enough resources for everyones

need, but not for some peoples greed
Ghandi

What is Economic Growth?

Increase in the production and consumption of
goods and services
Occurs when either population or per capita
consumption increases

Typically measured using GDP

Total expenditure on all goods and services
produced within a country
2

Economic growth is no longer improving

peoples lives in the developed world

WHY?

The Economy and the Environment

Resources
Resources

Waste
Waste

products
products

Waste Waste

Economic theories of development

What development economists agree on:
Development economics: deals with the economic,
social, political, and institutional mechanisms, both
public and private, necessary to bring about
improvements in wellbeing.
BUT: does this mean a shift away from agriculture
in the economy?

 Most neoclassical economists assume that

technological advance will outpace resource
scarcity over the long run and that ecological
services can also be replaced by new
technologies.
Ecological economists, on the other hand,
assume that resource and ecological limits are
critically important and are much less
confident that technological advances will
arise in response to higher prices generated by
scarcities.

Can Technology Save Us?

Can we decouple economic growth from resource use?

Between 1980 and 2005:

GDP

The World

Material Use

Material Intensity

Material intensity (i.e. kg of

biomass, minerals, and fossil
fuels required to produce a
dollar of GDP) decreased by
31%
Population increased by 46%,
Per capita GDP increased by
47%
Total resource use increased
by 49%

Source: SERI (www.materialflows.net)

The History of Economic Growth

The Global Economy, 12006 AD

Can this really continue???

Source: Maddison 2008

The Ecological Footprint

Measures how much land society needs to:
Produce the resources it consumes
Assimilate the wastes it generates
A countrys ecological footprint is the sum of all the cropland,
grazing land, forest and fishing grounds required to produce the
food, fiber and timber it consumes, to absorb the wastes emitted
when it uses energy and to provide space for infrastructure
Earths people needed 18 billion hectares of productive land in order
to provide each and every person with the resources they required to
support their lifestyle and to absorb the wastes they produced.

The bad news is that there were only 12

billion global hectares available.

Global Ecological Overshoot

The World

Global ecological footprint

is greater than available
biocapacity!
We are in a state of
overshoot
Resources are being used
faster than they can be
regenerated
Wastes are being produced
faster than they can be
assimilated

Source: Global Footprint Network

11

Prevailing Economic System

Private ownership of material resources
Public ownership of sinks
Assumptions of
Perfect functioning of the market
Infinite substitutability of resources
Subsidized disposal, energy, water

Main problems with current economic

theory
Externalities
- costs not borne by those
who create them

Badly defined property rights

- environmental goods perceived as
commons

The environment is not subject of rights

- the environments interests are not legally
represented in the economic system

The Limits to Growth

14

Ecological Limits
Ecological limits makes us understand the
interactions between the economy and the
environment.
Ecological limits refers to the biological and
physical limits to economic growth beyond which
both ecological and economic collapse would
occur.
In this view, limits are seen as absolute constraints
on economic activity, not just as a point beyond
which economic growth results in environmental
destruction.

3.1 Biophysical limits to growth

Finitude: fixed size of the ecosystem that hosts an expanding
economic system
Entropy: the ordered structures of the economic subsystem
are maintained at the expense of creating a more than
offsetting amount of disorder in the rest of the system.
Ecological interdependence: ecological connections
between economic sub-system and its hosting ecosystem
are disrupted with growth of economy

3.2 Ethical and social limits to growth

Costs to future generations: Welfare of future
people?
Cost to other life forms: extinction and the welfare
of other animals and planet

Is It All Worth It?

Imogen Shaw

Enough is Enough

20

Happiness and GDP

Percentage very happy

United States

Real income
per person

Percentage
very happy
Source: Layard (2005)

Americans have been more successful decoupling GDP from happiness than in
decoupling it from material and energy Peter Victor

21

Happiness (Index)

Happiness and GDP Across

Countries

Source: Inglehart and Klingemann (2000)

Income per Person ($)

22

Socialism collapsed because it did not

allow prices to tell the economic truth.

Capitalism may collapse because it does not

allow prices to tell the ecological truth.

Source: Dahle, 2001.

What
then?

United Nations Definition of Development :

The basic purpose of development is to enlarge

people's choices.
People often value achievements that do not show
up at all, or not immediately, in income or growth
figures:
o greater access to knowledge,
o better nutrition and health services,
o more secure livelihoods,
o security against crime and physical violence,
satisfying leisure hours,
o political and cultural freedoms and sense of
participation in community activities.

What then?
The objective of development is to create an enabling
environment for people to enjoy long, healthy and creative
lives
UN definition of sustainable development:
development which meets the needs of the present without
sacrificing the ability of the future to meet its needs.
Growth: quantitative increase by assimilation or accretion
of materials
Development: qualitative improvement, realization of
potential

3. Sustainable development
"Anyone who believes exponential
growth can go on forever in a finite
world is either a madman or an
economist."
Kenneth Boulding (1910-1993)

Concept of ecologically sustainable

development
Ecologically sustainable development is the
environmental component of sustainable
development.
It can be achieved partially through the use of
the precautionary principle; if there are threats
of serious or irreversible environmental damage,
lack of full scientific certainty should not be used
as a reason for postponing measures to prevent
environmental degradation.

Concept of ecologically sustainable development

Also
important
is
the
principle
of
intergenerational equity; the present generation
should ensure that the health, diversity and
productivity of the environment is maintained or
enhanced for the benefit of future generations.
In order for this movement to flourish,
environmental factors should be more heavily
weighed in the valuation of assets and services to
provide more incentive for the conservation of
biological diversity and ecological integrity.

Sustainable Economic
System
Understands primary role of natural systems
in the economy
Integrates functions of industrial and natural
ecologies
Accounts for true costs of waste and disposal
Cradle-to-Grave responsibility for products
Penalizes waste, rewards efficiency
Provides for fair, just, meaningful, and
fulfilling employment of human resources

What is a Steady State Economy

(SSE) ?
Stable population
Stable per capita consumption
Energy and material flows are reduced and kept
within ecological limits
Constant stocks of natural and human-built capital
31

How Do we overcome the

Ecological limits?
Adopt the right macro-economic goal: the
Steady State Economy
Gradually change existing policies from
growth towards a steady state

32

Ecological concepts applied to

the economy
Assimilative capacity: the capacity of the natural
environment to absorb wastes
Regenerative capacity: the ability of the ecosystem to
replace resources that we use in our production systems
Renewable resources, such as wood or wind energy, are
in continuous supply, although the rate at which they can
be replenished will vary from resource to resource
Non-renewable resources, such as iron ore or fossil
fuels, are in limited supply within the earths crust, and
thus once they are used up they cannot be replaced.

Five Capitals Framework

We are facing a sustainability crisis because we're consuming our stocks of

natural, human and social capital faster than they are being produced. Unless
we control the rate of this consumption, we can't sustain these vital stocks in
the long-term.
Forum for the Future

1. Limit Resource Use

Currently:

Few controls on use of resources and emission of pollutants

Montreal Protocol: limits ozone-depleting substances

EU Emissions Trading Scheme: limits CO2 emissions

In a SSE:

Impose strict resource and emission caps

Employ a capauctiontrade system

Caps set based on ecological criteria

Permits auctioned by government
Trade between industries to allow efficient allocation
35

2. Stabilise Population
Currently:

Natural increase is low in many wealthy countries

But many rich countries are trying to encourage population
growth

In a SSE:

Births plus immigration must equal deaths plus emigration

In wealthy countries:

Balance immigration with emigration

In poorer countries:

Provide education, access to birth control, and equal rights for women
36

3. Reduce Inequality
Currently:

Economic growth is used as an excuse to avoid dealing with

poverty

A rising tide lifts all boats

In a SSE:

No growth, so no excuses!
Finite resource use = Finite amount of wealth
Must deal with distribution explicitly

Need a minimum and maximum income

37

4. Reduce Working Hours

Currently:

Technological progress is used to increase production of goods

and services

A better widget machine = more widgets!

In a SSE:

We cannot increase production if it results in higher resource use

Instead, shorten the working day, week, & year

Same salaries but more leisure time!

38

5. Changing the Signals to the

Economy
Currently taxes are applied to positive aspects of
behavior: wages, productivity, profit
It would be better to tax aspects that are negative:
waste, inefficiency, pollution
Tax pollution, not production -Pollution excise,
Tradable pollution permits, Deposit fees, tax
credits
Shifting impacts of production to producers is
called internalization

6. Change How We Measure

Progress

Currently:

Rely on GDP, which doesnt distinguish between:

Benefits and costs

Quality and quantity

In a SSE:

What happens to GDP is not important

Replace GDP with two sets of accounts:

Well-being

To be maximised

Resource use

To be reduced and kept within ecological limits

40

Alternative Measures of Welfare

(Examples)
Index of Sustainable Economic Welfare
(ISEW)
Genuine Progress Indicator (GPI)
Human Development Index (HDI)

What Are We Actually

Measuring?
GDP
Total expenditure on all goods and services
produced within a country

Adds to GDP:

Also adds to GDP:

42

Genuine Progress Indicator (GPI)

Same accounting framework as GDP, but

Adds value of household and volunteer work

Subtracts cost of crime, pollution, and family breakdown
United States

Source: Redefining Progress

43

Human Development
Index
Created by the United Nations
Development Program (UNDP)
A composite of three indicators
Longevity: life expectancy
Knowledge: literacy, years of schooling
Standard of Living: purchasing power
based on GDP/capita

Conclusion
There is a conflict between economic growth and
environmental protection
Economic growth is no longer improving peoples lives in the
developed world
We need to make the transition to a SSE and sustainable
development
Adopt the right macroeconomic goal
Restrict resource use, stabilise population, limit inequality, reduce
working hours, eliminate fractional reserve banking, and change the
way we measure progress
47

Summary and Conclusions

The current economic system is not sustainable

Depends on the scale of material/energy throughput

Subsidizes resource extraction and pollution
Taxes productive activities
Does not measure welfare

A system based on Ecological Economics would:

Shift taxes to waste, inefficiency, and pollution, away from wages,
profits, productivity, and investment
Focus on dematerialization, deenergization, decarbonization, and
detoxification
Measure welfare instead of absolute monetary transactions
Support an EcoIndustrial revolution