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Ecological economics is a transdisciplinary field of academic research that aims to address the interdependence of human economies and natural ecosystems. It is distinguished from environmental economics by its connection to disciplines within the natural sciences and its focus on how to operate an economy within the ecological constraints of earth's natural resources.

Ecological economics was founded in the works of Kenneth E. Boulding, Nicholas Georgescu-Roegen, Herman Daly and others. The disciplinary field of ecological economics also bears some similarity to the topic of green economics.^[1]

According to ecological economist Malte Faber, 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.^[2]

The identity of ecological economics as a field has been described as fragile, with no generally accepted theoretical framework and a knowledge structure which is not clearly defined.^[2] 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 rather than positive (empirical).^[3] Positional analysis, which attempts to incorporate time and justice issues, is proposed as an alternative.^[4]

Ecological economics includes the study of the metabolism of society, that is, the study of the flows of energy and materials that enter and exit the economic system. This subfield is also called biophysical economics, sometimes referred to also as bioeconomics. It is based on a conceptual model of the economy connected to, and sustained by, a flow of energy, materials, and ecosystem services.^[5] Analysts from a variety of disciplines have conducted research on the economy-environment relationship, with concern for energy and material flows and sustainability, environmental quality, and economic development.^[6]

Contents 1 Nature and ecology 2 Ethics 3 Schools of thought 4 Differentiation from mainstream schools 5 History and Development 6 Topics 6.1 Methodology 6.2 Allocation of resources 6.3 Energy economics 6.4 Energy accounting and balance 6.5 Environmental services 6.6 Externalities 7 See also 8 References 9 Further reading 10 External links

[edit] Nature and ecology

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.^[7]:8 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".^[7]:28 Pollutants affect human health and the health of the climate.

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.^[7]:9 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).^[8] 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.^[7]:129

The Earth's carrying capacity is another central question. This was first examined by Thomas Malthus, and more recently in an MIT study entitled Limits to Growth. Although the predictions of Malthus have not come to pass, some limit to the Earth's ability to support life are acknowledged. In addition, for real GDP per capita to increase real GDP must increase faster than population 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.^[7]:26 Global fisheries are believed to have peaked and begun a decline, with valuable habitat such as estuaries in critical condition.^[7]:28 Aquaculture, especially fish farming, does not help solve the problem because fish feed is derived from fish, and a recent study stating that fish farming has a major negative effect on wild salmon.^[9] 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 adopt high-meat diets similar to the United States. Genetically modified food (GMF) a conventional solution to the problem, have problems – Bt corn produces its own Bacillus thuringiensis, but the pest resistantance is believed to be only a matter of time.^[7]:31 The overall effect of GMF on yields is contentious, with the USDA and FAO acknowledging that GMFs do not necessarily have higher yields and may even have reduced yields.^[10]

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. Others, notably William Nordhaus, believe that the world should spend little to reduce carbon emissions because the damage in the future should be discounted. The disagreement has sparked a vigorous debate on issue of discounting and intergenerational equity.

GLOBAL GEOCHEMICAL CYCLES CRITICAL FOR LIFE

Nitrogen cycle

Water cycle

Carbon cycle

Oxygen cycle

[edit] Ethics

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,^[11] and may have goals similar to green politics.

Renewable energy
	Biofuels • Biomass • Geothermal Hydro power • Solar power • Tidal power Wave power • Wind power

[edit] 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.

[edit] Differentiation from mainstream schools

In ecological economics, natural capital is added to the typical capital asset analysis of land, labor, and financial capital. Ecological economics uses tools from mathematical 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 pessimists. 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.^[12]

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 both classical and neoclassical means which would 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. Bill Clinton, Paul Martin and other former world leaders have become closely involved in this project which includes lobbying for the issue of International Monetary Fund Special Drawing Rights to recognize the rainforest's value directly within the framework of the Bretton Woods institutions. If successful this would be a major victory for advocates of ecological economics as the new mainstream form of economics.

[edit] History and Development

Early interest in ecology and economics dates back to the 1960s and the work by Kenneth Boulding and Herman Daly, but the first meetings occurred in the 1980s. It began with a 1982 symposium in Sweden which was attended by people who would later be instrumental in the field, including Robert Costanza, Herman Daly, Charles Hall, Ann-Mari Jansson, 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. Ecological Economics by Joan Martinez-Alier was published later that year.^[13]

European conceptual founders include Nicholas Georgescu-Roegen (1971), William Kapp (1944)^[14] and Karl Polanyi (1950).^[15] Some key concepts of what is now ecological economics are evident in the writings of 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).^[16][17] Other figures include ecologists C.S. Holling, H.T. Odum and Robert Costanza, biologist Gretchen Daily and physicist Robert Ayres. CUNY geography professor David Harvey explicitly added ecological concerns to political economic literature. This parallel development in political economy has been continued by analysts such as sociologist John Bellamy Foster.

The antecedents can be traced back to the Romantics of the 1800s as well as some Enlightenment political economists of that era. Concerns over population were expressed by Thomas Malthus, while John Stuart Mill hypothesized that the "stationary state" of an economy might be something that could be considered desirable, anticipating later insights of modern ecological economists, without having had their experience of the social and ecological costs of the dramatic post-World War II industrial expansion. As Martinez-Alier explores in his book the debate on energy in economic systems can also be traced into the 1800s e.g. Nobel prize-winning chemist, Frederick Soddy (1877-1956).

The Romanian economist Nicholas Georgescu-Roegen (1906-1994), who was among Daly's teachers 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), has been highly influential.^[18]

Articles by Inge Ropke (2004, 2005)^[19] and Clive Spash (1999)^[20] 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.

[edit] Topics

[edit] Methodology

Thermodynamic equations
Laws of thermodynamics Zeroth law First law Second law Third law
Conjugate variables
Thermodynamic potential
Material properties
Maxwell relations
Bridgman's equations
Exact differential
Table of thermodynamic equations
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The 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 Norgaard argues traditional economics has hi-jacked the development terminology in his book Development Betrayed.^[21] 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 distinguishes itself from neoclassical economics primarily by its assertion that the economy is an 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 feel neoclassical economics has ignored the environment, at best relegating it to be a subset of the human economy. Economic theory, as encapsulated in general equilibrium models, then assume both an infinite resource base and also infinite waste sinks with no feedbacks; in simpler terms, resources never run out and pollution never occurs. This allows neoclassical economics to claim theoretically that infinite economic growth is both possible and desirable.

However, this belief disagrees with much of what the natural sciences have learned about the world, and, according to Ecological Economics, completely ignores 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. ^[22][23] 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'.^[24] 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.

[edit] Allocation of resources

Resource and neoclassical economics focus primarily on the efficient allocation of resources, and less on two other fundamental economic problems which are central to ecological economics: distribution (equity) and the scale of the economy relative to the ecosystems upon which it is reliant.^[25] Ecological Economics also makes a clear distinction between growth (quantitative) and development (qualitative improvement of the quality of life) while arguing that neoclassical economics confuses the two. Ecological economics challenges the common normative approach taken towards natural resources, claiming that it misvalues nature by displaying it as interchangeable with human capital--labor and technology. EE counters this convention by asserting that human capital is instead complementary to and dependent upon natural systems, as human capital inevitably derives from natural systems. From these premises, it follows that economic policy has a fiduciary responsibility to the greater ecological world, and that, by misvaluing the importance of nature, sustainable progress (as opposed to economic growth) --which is the only solution to elevating the standard of living for citizens worldwide--will not result. Furthermore, ecological economists point out that, beyond modest levels, increased per-capita consumption (the typical economic measure of "standard of living") does not necessarily lead to improvements in human well-being, while this same consumption can have harmful effects on the environment and broader societal well-being.

[edit] Energy economics

It 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.

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.^[26][27] As a result, thermoeconomics are 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.^[28] 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.

[edit] Energy accounting and balance

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.^[29] The energy accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system. ^[30]

Energy Accounting is the hypothetical system of distribution, proposed by Technocracy Incorporated in the Technocracy Study Course, which would record the energy used to produce and distribute goods and services consumed by citizens in a Technate.^[31]

Scientists have written and speculated on different aspects of energy accounting.^[32] Many variations of energy accounting are in use now, as this issue relates to current (price system) economics directly, as well as projected models in possible Non-market economics systems.

In Wealth, Virtual Wealth and Debt, (George Allen & Unwin 1926), Frederick Soddy turned his attention to the role of energy in economic systems. He criticized the focus on monetary flows in economics, arguing that “real” wealth was derived from the use of energy to transform materials into physical goods and services. Soddy's economic writings were largely ignored in his time, but would later be applied to the development of bioeconomics and ecological economics in the late 20th century.^[33]

[edit] Environmental services

A study was carried out by Costanza and colleagues^[34] to determine the 'price' 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 capital valuation - and ecological economists - for being inconsistent with an ecological economics focus on biological and physical indicators.^[35]. See also ecosystem valuation and price of life.

The whole idea of treating ecosystems as goods and services to be valued in monetary terms remains controversial to some. A common objection is that life is precious or priceless, but this demonstrably degrades to it being worthless under the assumptions of any branch of economics. Reducing human bodies to financial values is a necessary part of every branch of economics and not always in the direct terms of insurance or wages. 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 than 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 [1] began to emerge in 2008 in response to many specific proposals such as the Ecuadoran Yasuni proposal [2] [3] or similar ones in the Congo. US news outlets treated the stories as a "threat" [4] to "drill a park" [5] 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 permit private parties to play more direct roles protecting biodiversity. The United Nations Food and Agriculture Organization achieved near-universal agreement in 2008 [6] 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 [7]. Increasingly the pro-GMO pro-trade view is in the extreme minority worldwide though it is disproportionately represented at the IMF, World Bank and so on.

[edit] Externalities

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. Juan Martinez Alier ^[36], 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 criticised by Fred Pearce^[37] and by the recent Stern Report (although the Stern report itself does employ discounting and has been criticised by ecological economists).^[38] Concerning these externalities, Paul Hawken argues 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^[39]. These arguments are developed further by Hawken, Amory and Hunter Lovins in "Natural Capitalism: Creating the Next Industrial Revolution"^[40].

[edit] See also

[edit] References

[edit] Further reading

• Common, M. and Stagl, S. 2005. Ecological Economics: An Introduction. New York: Cambridge University Press.
• Daly, H. and Townsend, K. (eds.) 1993. Valuing The Earth: Economics, Ecology, Ethics. Cambridge, Mass.; London, England: MIT Press.
• Georgescu-Roegen, N. 1975. Energy and economic myths. Southern Economic Journal 41: 347-381.
• Martinez-Alier, J. (1990) Ecological Economics: Energy, Environment and Society. Oxford, England: Basil Blackwell.
• Røpke, I. (2004) The early history of modern ecological economics. Ecological Economics 50(3-4): 293-314.
• Røpke, I. (2005) Trends in the development of ecological economics from the late 1980s to the early 2000s. Ecological Economics 55(2): 262-290.
• Spash, C. L. (1999) The development of environmental thinking in economics. Environmental Values 8(4): 413-435.
• Vatn, A. (2005) Institutions and the Environment. Cheltenham: Edward Elgar
• Krishnan R, Harris JM, Goodwin NR. (1995). A Survey of Ecological Economics. Island Press. ISBN 1559634111, 9781559634113.
• Martinez-Alier, J., Ropke, I. eds., Recent Developments in Ecological Economics, 2 vols., E. Elgar, Cheltenham, UK, 2008.

[edit] External links

• The International Society for Ecological Economics (ISEE) - http://www.ecoeco.org/
• The International Journal of Green Economics, http://www.inderscience.com/ijge
• Eco-Economy Indicators: http://www.earth-policy.org/Indicators/index.htm
• EarthTrends World Resources Institute - http://earthtrends.wri.org/index.php
• The Inspired Economist.
• Ecological Economics Encyclopedia - http://www.ecoeco.org/education_encyclopedia.php
• The academic journal, Ecological Economics - http://www.elsevier.com/locate/ecolecon
• The US Society of Ecological Economics - http://www.ussee.org/
• The Beijer International Institute for Ecological Economics - http://www.beijer.kva.se/
• Gaian Economics website - http://www.gaianeconomics.org/
• Sustainable Prosperity - http://sustainableprosperity.ca/
• World Resources Forum - http://www.worldresourcesforum.org
• The Gund Institute of Ecological Economics - http://www.uvm.edu/giee
• Ecological Economics at Rensselaer Polytechnic Institute - http://www.economics.rpi.edu/ecological.html
• An ecological economics article about reconciling economics and its supporting ecosystem - http://www.fs.fed.us/eco/s21pre.htm
• "Economics in a Full World", by Herman E. Daly - http://sef.umd.edu/files/ScientificAmerican_Daly_05.pdf
• Steve Charnovitz, "Living in an Ecolonomy: Environmental Cooperation and the GATT," Kennedy School of Government, April 1994.
• NOAA Economics of Ecosystems Data & Products – http://www.economics.noaa.gov/?goal=ecosystems