Ecological Economics !101Pres
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Ecological Economics !101Pres

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I deliverd this presentation in Bangkok at the Thammasat Int\'l MBA Business School.

I deliverd this presentation in Bangkok at the Thammasat Int\'l MBA Business School.

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  • Mathis WackernagelA comprehensive resource accounting systems that links resource use to global limitsAre we using more than we have available?EnergySettlementTimber & PaperFood & Fiberseafood
  • If everybody used resources like we Americans do, we’d need 6 Earths
  • Carl Sagan - Billions & Billions1 trillion = a million millionsUS GDPBureau of Economic Analysis$14.58 Trillion – GDP 2008 estimate$48,000 per capitadecreased at an annual rate of 3.8 percent in the fourth quarter of 2008third quarter, real GDP decreased 0.5 percentUS Treasury DeptNational Debt$10.64 Trillion$34,800 per capita
  • DeforestationRate of loss of forest and service – fuel, food, fiber, purification$2 – 4.5 TrillionIf we continue by 2050 – losing 7% of GDPCoastal mangrove and coral reefs(cancer and Alzheimer’s cures) Budget on bio-prospecting and potential markets for cureTotal CapitalistFinancial – Human – NaturalValue = MoneyAspect of ignoring value if it doesn’t transact in Markets!!!Friendship – education – law & order – enjoying nature$11 MoviesFree Sunsets100,000 conservation area s – 11% of the land massWe are spending too little to make them effective (protection biodiversity)$40 – 50 B / yearNatural servcies valued at $5 Trillion
  • John Locke (IPA: /lɒk/) (29 August 1632 – 28 October 1704) was an English philosopher. Locke is considered the first of the British Empiricists, but is equally important to social contract theory. His ideas had enormous influence on the development of epistemology and political philosophy, and he is widely regarded as one of the most influential Enlightenment thinkers, classical republicans, and contributors to liberal theory. His writings influenced Voltaire and Rousseau, many Scottish Enlightenment thinkers, as well as the American revolutionaries. This influence is reflected in the American Declaration of Independence.[1]George Mason IV (December 11, 1725 – October 7, 1792) was a United States patriot, statesman, and delegate from Virginia to the U.S. Constitutional Convention. Along with James Madison, he is called the \"Father of the Bill of Rights\".[1][2][3][4] For all of these reasons he is considered to be one of the \"Founding Fathers\" of the United States.[5][6]George Mason wrote the Virginia Declaration of Rights, which detailed specific rights of citizens. Similar to anti-federalist Patrick Henry, he was later a leader of those who pressed for the addition of explicitly stated individual rights as part of the U.S. Constitution, and did not sign the document in part because it lacked such a statement. His efforts eventually succeeded in convincing the Federalists to modify the Constitution and add the Bill of Rights (the first ten amendments of the Constitution). The Bill of Rights is based on Mason's earlier Virginia Declaration of Rights.Mason had a mixed record on slavery, and walked a fine line. He wanted to ban importation of further slaves from Africa, stop the spread of slavery to more states, and found slavery repugnant for a variety of reasons. However, he did not want the new federal government to be able to ban slavery where it already existed, because he anticipated that would involve great difficulties. Like his fellow Virginian Thomas Jefferson, Mason owned slaves whom he never freed.
  • 900 M without potable water2.5 B without access to sanitation1/3 of world’s population ‘Water Scarce’ area – will be 2/3 by 2020Growing demand for water with the Same Supply of Water& as wages and lifestyles improve, our per capita consumptionof water goes upHuge socio-political issue..
  • Education $141B Health Care $153B
  • Energy $58 BScience & Technology $16 BInfrastructure $92 B
  • Pg 363
  • limit Agreed to limits?????
  • EducationHealth careLaw and orderWaterFoodHousing
  • Nestle wants to site a water bottling plant. Using a local stream and paying the city of McCloud 350,000 per year. Water rights Payment methodologies Natural services impacts Community benefits / detractionsbottling plant proposed by Nestle for the McCloud site will, when it reaches full capacity, generate additional income of $23 to $31 million to residents and businesses in Siskiyou Countyconcern for the health of the McCloud River and its primary surface tributary Squaw Valley Creek. The McCloud River is a designated California Department of Fish and Game one of the most famous and pristine trout streams in the world. “Any potential changes in water quantity or water quality in Squaw Valley Creek as a result of the proposed project could result in the reduction in aquatic riparian frog habitat and thus mortality to the tailed frog, foothill yellow-legged frog, and the Cascades frog eggs, tadpoles, or adults. This impact is considered to be potentially significant subject to mitigation.”
  • The obstacles associated with determining market values for non-market goods stem from the assumption that the market is the best way to determine value. Obstacles, according to Daly (p.408), include uncertainty (with its partners ignorance and unfamiliarity), time, distribution and valuation.  A major “obstacle” (for which we should all be grateful) for determining market value of natural resources is the complexity of ecosystems and the difficulty of understanding them. Even if we can quantify a waste stream, for example, and charge it to the correct polluter, the challenge of valuing what would have happened (and for what time frame) if the waste had not been emitted is nearly impossible. That uncertainty combines with our incomplete understanding of ecosystems and our inexperience with valuing them. The challenge of time and the scope for renewable resources is another barrier to determing market values of natural resources. Is it preferable to sacrifice a renewable flow for a non-renewable fund-service or for a one-time liquidation of “stock”? (p.408) This requires a comparison of present and future values, and no agreed-upon system exists for determining such a formula for natural resources. By using resources now we are implicitly denying their use to future generations. This gives rise to the concept of intergenerational distribution, which is another area where no metrics exist for such a value calculation. One option is to assign resource property rights to future generations, which of course gives rise to more questions of how to evaluate what will and will not hold value to future generations.
  • Pg 376 Table 21.1
  • a) Market Price MethodEstimates economic values for ecosystem products or services that are bought and sold in commercial markets.b) Productivity MethodEstimates economic values for ecosystem products or services that contribute to the production of commercially marketed goodsc) Hedonic Pricing MethodEstimates economic values for ecosystem or environmental services that directly affect market prices of some other good. Most commonly applied to variations in housingprices that reflect the value of local environmental attributes.d) Travel Cost MethodEstimates economic values associated with ecosystems or sites that are used for recreation. Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site.e) Damage Cost Avoided, Replacement Cost, and Substitute Cost MethodsEstimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services. f) Benefit Transfer MethodEstimates economic values by transferring existing benefit estimates from studies already completed for another location or issue.g) Contingent Valuation MethodEstimates economic values for virtually any ecosystem or environmental service. The most widely used method for estimating non-use, or “passive use” values. Asks people to directly state their willingness to pay for specific environmental services, based on a hypothetical scenario.h) Contingent Choice MethodEstimates economic values for virtually any ecosystem or environmental service. Based on asking people to make tradeoffs among sets of ecosystem or environmental services or characteristics. Does not directly ask for willingness to pay—this is inferred from tradeoffs that include cost as an attribute.1 A2 B3 C , D4 E5 FG , HReview the explanations in the text. Discuss among yourselves. Think of a realistic exmaple and be prepared to decsribe it in class.Prep – 15 minutes - Present 30 minutes
  • The ‘Natural Capital Project’Stanford, WWF, Nature ConservancyEstimated natural services provide $32 T per yearStudying habitat in Sierra Mtns – natural filtering of water, instead of a tax supported POTW, $2.2 B (confirm)(SUBSTITUTE COST METHOD)These values often left out of land use decisionsDeveloped tool – InVEST, on-line – free“liquidating 50% of the plants / animals in this 100-year period”.
  • a) Market Price MethodEstimates economic values for ecosystem products or services that are bought and sold in commercial markets.b) Productivity MethodEstimates economic values for ecosystem products or services that contribute to the production of commercially marketed goodsc) Hedonic Pricing MethodEstimates economic values for ecosystem or environmental services that directly affect market prices of some other good. Most commonly applied to variations in housingprices that reflect the value of local environmental attributes.d) Travel Cost MethodEstimates economic values associated with ecosystems or sites that are used for recreation. Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site.e) Damage Cost Avoided, Replacement Cost, and Substitute Cost MethodsEstimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services. f) Benefit Transfer MethodEstimates economic values by transferring existing benefit estimates from studies already completed for another location or issue.g) Contingent Valuation MethodEstimates economic values for virtually any ecosystem or environmental service. The most widely used method for estimating non-use, or “passive use” values. Asks people to directly state their willingness to pay for specific environmental services, based on a hypothetical scenario.h) Contingent Choice MethodEstimates economic values for virtually any ecosystem or environmental service. Based on asking people to make tradeoffs among sets of ecosystem or environmental services or characteristics. Does not directly ask for willingness to pay—this is inferred from tradeoffs that include cost as an attribute.1 A2 B3 C , D4 E5 FG , HReview the explanations in the text. Discuss among yourselves. Think of a realistic exmaple and be prepared to decsribe it in class.Prep – 15 minutes - Present 30 minutes
  • Pg 376 Table 21.1
  • 2 Birds with One Stone? Ever seen it done? It takes 2 stones!!Tax energy and raise its price to promote efficiency?OROr subsidize energy and lower its price to help the poor?DEBATE – DEBATE – DEBATEOne instrument (price of energy) can not address two objectives – Efficiency & EquityPerhaps, we tax fuel and distribute revenues to the poor….
  • AB32 says that we need to reach 1990 levels by 2020.Does everyone absolutely need to reduce 30%? No, on average we need to accomplish this. Some will do more, some will do less.Chase the least –restrictive instrument that attains the overall objective
  • Safety margins!Biophysical limits with great uncertainty and irreversible effects, let’s build in safety factorsHow big a Safety Factor?Risk Management – Severity & LikelihoodHandlingPlutonium in the Envvs Handling ChlorineSafety factor of the welds on a bicycle frame or a Boeing 777 wing support.
  • Change from within.New managers love to ‘Reinvent’!We never start with a blank slate….A certain gradualismInteraction between systems is sometime understood – but frequently not….Continuous improvement is the mantra
  • Change is ever present….Some policies may seem ideal in theory may not be ideal when implementedAs we learn how things work in the real world, we must adapt and improve them…feedback loops for monitoring are key.Adaptive management styles must be a guiding principle…Ecological Economics represents an adaptive management style as we move from an empty world to a full world.
  • Principle of SubsidiarityDeal with the problems at the lowest level possible to createthe positive change necessary.At the same scale as the problem.UN doesn’t solve neighborhood problems.Garbage is a municipal issue – Climate Change is a global problem and needs to be addressed by suitable scaled institutions
  • Advantages-Most of them limit the amount of pollution/resource harvest to an acceptable level, thus contributing to the goal of a desirable scale. Especially effective for renewable resources. Policy makers are familiar with approach and can be fairly cheap to monitor or enforce.  Disadvantages-They ignore 2nd design principle- sacrifice the MINIMUM micro freedom to obtain macro control.  Regulations often fail to meet the criteria for allocative efficiency (Marginal costs = Marginal benefits) and thus are not the most cost effective way to reach a desirable goal. They fail to provide incentives for surpassing a goal. EX: Bring pollution below regulated level.If goals are achieved no incentive to innovate new technology or reduce pollution Incentives for misinforming a regulator who comes to collect info on MACs (firms need to be able to act on own according to abatement costs) or Pollution levels.   Environmental Policies should achieve this goal but this would require, in case of pollution, that we know the marginal social costs of pollution, the benefits of the activities that pollute and (MACs) Marginal abatement costs of pollution. Perfect allocative efficiency is a pipe dream…so we really need a cost effective solution 
  • A.C. Pigou – English Economist early 20th century economistPigouvian taxes/subsidies are designed to address the problem of scarcity of natural resources. There was a time when natural resources seemed limitless; that time coincided with the formation of the capitalist system, and that belief in limitless (and hence unimportant to count) resources became ingrained. Pigou tried to devise a way to internalize (negative) environmental externalities. A Pigouvian tax aims to create a charge (tax) equal to the marginal external cost of polluting; a Pigouvian subsidy aims to pay/reward for each unit of environmental cost reduction. The much-discussed concept of a carbon tax is an example of a Pigouvian tax. In the argument over how best to reduce carbon emissions, a cap and trade system seems to be winning out over a carbon tax. As always, the devil is in the details: in cap and trade, there is danger of setting the emissions levels too low or too high, and there is inherent uncertainty (which business dislikes) in that carbon emission prices will fluctuate. A carbon tax has the advantage of certainty of price/cost to business; its disadvantage is that it is difficult to “sell” politically and there is the question of how the tax monies will be spent, i.e., they could be used to stimulate the economy (presumably, given these times) which may in turn raise the level of emissions. It is also difficult to know the “best” tax level to set. Carbon taxes exist now in Sweden, Finland, the Netherlands and Norway. The tax was proposed in New Zealand but defeated with a change of government. Al Gore was an early proponent of a carbon tax; his support was used as a campaign issue by conservatives in 2000. The San Francisco Bay Area Air Qualoity Mgt District established a Pigouvian carbon tax of 4.2 cents per ton in July 2008; the amount raised will be small and limited a few major polluters, but the precedent has been set. The monies will be used to monitor greenhouse gas emissions. (Source: SF Chronicle, http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/20/MNEV1083DT.DTL&hw=carbon+tax&sn=008&sc=747)

Ecological Economics !101Pres Ecological Economics !101Pres Presentation Transcript

  • “How Much Are Our Natural Resources Worth?” Roberto Piccioni April 26, 2009 Roberto_Piccioni@yahoo.com 925.330.2246 http://www.greenmba.com/ 1
  • Agenda: Sunday, April 26 “How Much Are Our Natural Resources Worth?” • Presentation: Ecological Economics, Global Eco- Footprint, Estimating Ecosystems Value, Policy Design • Evaluating Estimation Methods, – Group Activity, Explanation & Example 2
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  • Economy Revenue growth opportunities Reduced operating costs Reduced liability & risks Enhanced supply chain management Enhanced Opportunity for customer innovation relations Social Environment Responsibility Enhanced Boost reputation brand image Improved employee morale
  • Sustainability: Definitions & Perceptions “Development “The business of business is that meets the business, not sustainability.” need of the - Milton Friedman present without compromising the ability of “Sustainability seems to future encompass everything under generations to the sun. It‟s just more tree- meet their own hugger mumbo jumbo.” needs” - Mfg VP The UN’sBrundtland Commission, “It‟s „Berkeley-esque‟, it‟s 1987 mushy.” 5
  • 10 Myths of Sustainability 1. Nobody knows what sustainability really means. 2. Sustainability is all about the environment. 3. “Sustainable” is a synonym for “green.” 4. It’s all about recycling. 5. Sustainability is too expensive.
 

  • 10 Myths of Sustainability 6. Sustainability means lowering our standard of living. 7. Consumer choices and grassroots activism, not government intervention, offer the fastest, most efficient routes to sustainability 8. New technology is always the answer. 9. Sustainability is ultimately a population problem. 10.Once you understand the concept, living sustainably is a breeze to figure out.

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  • Developing Stress… • Rapid population growth in developing countries puts stress on food, water, and ecosystems, environmental problems are spreading. • One in five developing countries will face water shortages by 2030. – By 2010, China is expected to have 90 times the number of cars it had in 1990, – and it will probably have more cars than America by 2030. – India faces a similar auto explosion. 12
  • 13 Source: Global Footprint Network
  • • Since the mid 1980s, humanity has been in ecological overshoot with annual demand on resources exceeding what Earth can regenerate each year. • It now takes the Earth one year and four months to regenerate what we use in a year. • Overshoot results in collapsing fisheries, diminishing forest cover, depletion of fresh water systems, and the build up of pollution and waste, which creates problems like global climate change. These are just a few of the most noticeable effects of overshoot. Source: Global Footprint Network 14
  • • Global usage exceeds available resources by 30%. • By 2030, we will need “2 Planets” at current predictions 15
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  • Ecological Footprint of Nations Available Global Hectares Per Person Available 2.1 United Arab Emirates 9.6 Malaysia 2.4 United States 9.5 Brazil 2.6 United Kingdom 5.4 Thailand 2.3 Japan 5.3 China 2.2 Singapore 5.2 Iraq 1.5 World 2.7 Sri Lanka 1.0 India 1.0 18
  • “Look deep into nature, and then you will understand everything better.” Albert Einstein 19
  • Economics • Neoclassical Economics – Traditional view that the market and laws of supply and demand can determine effective allocation of resources. • Ecological Economics – Recognizes that certain resources are not adequately addressed by current market forces 20
  • Millions, Billions, Trillions 1,000,000 • A million seconds is 12 days. • April 14 – 1,000,000,000 • A billion seconds is 31 years. • 1978 – Were You Born? (Jimmy Carter was Pres in US) 1,000,000,000,000 • A trillion seconds is 31,688 years. • Neanderthals stalked the plains of Europe. 21
  • PavanSukhdev is a Managing Director at Deutsche Bank Sound Clip • $ 2 – 4.5 Trillion • 2050 – 7% of GDP losses • “Total Capitalist” – Financial & Human & Natural 22
  • • quot;no one ought to harm “We hold these Truths to be another in his self-evident, that all Men are life, health, liberty, or possessions” created equal, that they are endowed by their Creator • John Locke, whose ideas with certain unalienable were later reflected in the Rights, that among these are first article of the Virginia Life, Liberty and the pursuit Declaration of Rights on of Happiness.” June 12, 1776 • The United States Declaration of Independence, which was primarily written by Thomas Jefferson, was adopted by the Second Continental Congress on July 4, 1776 23
  • Economic Impacts of a Water Shortage Source: Dr. Robert Eyler, Chair, Department of Economics and Director, Center for Regional Economic Analysis at Sonoma State University , May 2007 24
  • Highlights of Economic Recovery Plan 2-year Package: Health Care $39 billion Subsidies to • $550 billion in new health insurance for unemployed; providing spending coverage through • $275 billion in tax relief Medicaid $90 billion Help to states with Medicaid Education $20 billion Modernization of health-information $41 billion Grants to local school technology systems districts $4 billion Preventative care $79 billion State fiscal relief to prevent cuts in state aid Source: Associated Press Jan 16, 2009 $21 billion School modernization 25
  • Highlights of Economic Recovery Plan Energy Science and Technology $32 billion Funding for quot;smart $10 billion Science facilities electricity gridquot; to reduce waste $6 billion High-speed Internet access for rural and $20 billion + Renewable energy underserved areas tax cuts and a tax credit for research and development on Infrastructure energy-related work, and a $32 billion Transportation projects multiyear extension of $31 billion Construction and repair renewable energy production of federal buildings and other tax credit public infrastructure $19 billion Water projects $6 billion Funding to weatherize $10 billion Rail and mass transit modest-income homes projects 26
  • objectives of ecological economic… • Sustainable Scale – living within the limits of our systems… • Just Distribution – ensuring that all have access to basic needs… • Efficient Allocation – exchanging goods & services effectively… Source: Herman Daly, Ecological Economics, 2004 27
  • ecological economics objectives “Requires a social or 1. Scale collective limit on 2. Allocation aggregate throughput to keep it within the 3. Distribution absorptive and regenerative capacities of the eco-system” Criteria: Sustainability 28
  • ecological economics objectives 1. Allocation “Requires some socially limited range of 2. Distribution inequality imposed on the market” 3. Scale Criteria: Justice 29
  • ecological economics objectives 1. Scale “the market cannot even attain allocative 2. Distribution efficiency unless the distribution and scale 3. Allocation questions have been answered” Criteria: A market consistent with imposed scale and distribution constraints 30
  • “Externality” Defined: • Marginal External Cost is An activity or transaction by the cost to society of the some parties that causes negative externality that an unintended loss or results from one more gain in welfare to another ‘unit’ of activity. party, and no • How define these ‘costs’ compensation for the – Trout? change occurs. – Frogs? – Wildlife sustaining stream? Source: Herman – Purifying water service? Daly, Ecological – Natural “Beauty”? Economics, 2004 31
  • “Seek policies that set the marginal benefits of production equal to the marginal environmental costs…” How can we figure this $ out? Taxes? Subsidies? Tradable Permits? 33
  • 3 Generally Accepted Approaches To Estimating Monetary Values Of Ecosystem Services 1. Market Prices – a. Market Price Method – “Revealed Willingness to b. Productivity Method Pay” c. Hedonic Pricing Method d. Travel Cost Method 1. Circumstantial Evidence – “Imputed Willingness to a. Damage Cost Avoided, Pay” Replacement Cost, Substitute Cost Methods f. Benefit Transfer Method 1. Surveys – – “Expressed Willingness to g. Contingent Valuation Pay” Method h. Contingent Choice Method http://www.ecosystemvaluation.org/1-02.htm 34
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  • Exploring the Valuation Methods A. Market Price Method Group Activity B. Productivity Method • Review the explanations in the C. Hedonic Pricing Method text. D. Travel Cost Method • Discuss among yourselves. E. Damage Cost Avoided, • Think of a realistic example and be prepared to describe it Replacement in class. Cost, Substitute Cost Methods • Prep 15 minutes F. Benefit Transfer Method • Present 5 minutes each. G. Contingent Valuation 1 A 2 B Method 3 C,D 4 E H. Contingent Choice 5 F 6 G,H Method http://www.ecosystemvaluation.org/1-02.htm 36
  • “Seek policies that set the marginal benefits of production equal to the marginal environmental costs…” Taxes? Subsidies? Tradable Permits? What to Do? •Adjust? •Reinvent? •Revolutionalize? •Maintain? •Nothing? 37
  • General Policy Design Principle #1 Economic policy always has more than one goal, and each independent policy goal requires an independent policy instrument. 38
  • General Policy Design Principle #2 Policies should strive to attain the necessary degree of macro-control with the minimum sacrifice of micro- level freedom and variability. 39
  • General Policy Design Principle #3 Policies should leave a margin of error when dealing with the biophysical environment. 40
  • General Policy Design Principle #4 Policies must recognize that we always start from historically given initial conditions. 41
  • General Policy Design Principle #5 Policies must be able to adapt to changed conditions. 42
  • General Policy Design Principle #6 The domain of the policy making unit must be congruent with the domain of the causes and effects of the problem with which the policy deals. 43
  • Command & Control Regulations Advantages Disadvantages • limit the amount of • fail to meet the criteria pollution/resource for allocative efficiency harvest to an • No incentive for acceptable level surpassing the goal • Institutions already exist – easy to understand – cheap to monitor 45
  • Pigouvian Tax • A method for internalizing environmental externalities • An attempt to impose a tax equal to the marginal external cost – “Carbon” Taxes – BAAQMD sets 4.2 cents per ton of GHG in July of 2008. Small, but a precedent… 46
  • Tradable Permits • Set and allow a • advantages maximum “use” right, • A market instrument • Clean Air Act, SO2 • obstacles • CA – RECLAIM program, etc • CA AB32 • Fisheries 47
  • • Tracking 20 Macro Issues • Affecting the Environment (Business) • Source: Joel Makower and the editors of GreenBiz.com, February, 2009 “SWIM” “TREAD” “SINK” 1. Clean Tech 1. Building Energy 7 Green Office 1. Carbon Intensity Investments Efficiency Space 2. Clean Energy 2. Carbon 8. Green Jobs 2. Employee patents Transparency Telecommuting 3. Energy Efficiency 3. Corporate 9. Green Power 3 E-Waste Reporting Use 4. Paper Use & 4. Employee 10. Packaging Recycling Commuting intensity 5. Water Intensity 5. Financial 11. Toxic Emissions Impacts 6. Fleet Impacts 12. Toxicity 48