Basic concepts of ecological economics

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Basic concepts of ecological economics
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Natural capital

• The whole endowment of land and resources
  available to us, including air, water, fertile
  soil, forests, fisheries, mineral resources and
  the ecological life support systems.

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Value of capital

• Capital stocks are the basis for generating flows
  of income through production of goods and
  services
• Increasing size of capital stocks increases
  potential income flow

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Accounting for change in capital

• Depreciation wearing out, depletion, obsolesce
• Investment producing new capital
• New construction
• New machinery
• Planting trees
• Discovery of new mineral stocks

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Accounting for scale
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Sustainable development

• There are hundreds of definitions of sustainable
  development.
• Sustainable development means different things to
  different people
• The starting point for most people has been the
  definition prepared by the World Commission on
  Environment and Development (the Brundtland
  Commission) in its report Our Common Future
  (Oxford Oxford University Press, 1987)

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

• Sustainable development focuses on improving the
  quality of life for all of the Earth's citizens
  without increasing the use of natural resources
  beyond the capacity of the environment to supply
  them indefinitely. http//www.sdgateway.net/intro
  sd/definitions.htm

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Ecological economics measures of sustainability

• Net primary production ability to capture
  photosynthetic energy
• Resilience ecosystem capacity to recover from
  adverse impact
• Substitutability of human made capital for
  natural capital

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When is development sustainable?

• Two sustainability criterion
• Weak sustainability humanmade capital can
  perfectly substitute for the loss of any natural
  capital
• Strong sustainability limits to the substitution
  of humanmade capital for natural capital losses

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Weak sustainability criterion

• Development is sustainable so long as genuine
  capital growth occurs
• Genuine capital growth occurs when investment in
  new capital depreciation of physical capital
  depletion of natural resource stocks
  environmental degradation

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Weak sustainability criterion

• Investment can include
• New physical capital
• RD to improve productivity of physical capital
• Education to improve productivity of human
  capital
• Exploration for discovery of new stocks of
  natural resources

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Solved problem

• GDP last year was 12 trillion, including
• 2 trillion in new capital,
• 1 trillion in RD,
• 500 billion in exploration and development of
  new natural resource stocks and
• 3 billion in human capital improvement.

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Solved problem

• Last year the economy incurred the following
  expenses in producing the 12 trillion GDP
• 2 trillion in depreciation of physical capital,
• 700 billion in depletion of natural resource
  stocks and
• 500 billion in the degradation of the
  environment.
• Did the economy experience genuine growth?

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Strong sustainability criterion

• Strong sustainability criterion based on
  recognition that
• Natural resource stocks cannot be aggregated into
  one measure
• Other forms of capital cannot always substitute
  for depletion of natural capital
• Development will be constrained by the most
  limiting factor

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Strong sustainability criterion

• Strong sustainability principles
• Maintain level of flows from renewable resources
• Maintain flow of income from non-renewable
  resources
• Safe minimum standard
• Limits to environmental resilience
• Precautionary principle

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Safe minimum standard

• Safe minimum standard
• The principle that environmental policies on
  issues involving uncertainty should be set to
  avoid possible catastrophic consequences.

The reactor plant at Chernobyl
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Precautionary principle

• Minimum interference with the operation of
  natural systems given
• Ecological complexity
• Potential irreversibility
• Scientific unknowns