8. Measuring sustainability

Question 1

Simplistically explain the approach between neoclassical and ecological economics?

Answer 1

& neoclassical - optimistic - ingenuity will continue to prevail
* ecological - pessimistic - growth is achieved at the expense of future generations.

Question 2

Ecological economics’ intellectual lineage can be traced back to who?

Answer 2

To Mathus and his population trap which suggests as population grows geometrically and food supply increases only arithmetically, available food per person declines and eventually lack of food limits births, increases death and so population growth is halted or reversed.

Question 3

What is another name for ecological economists?

Answer 3

Neo-Malthusians

Question 4

Was Malthus right with his assumptions

Answer 4

No food not grown just arithmetically thanks to the ‘green revolution’ which resulted in greatly increased yields of major crops around the world and brought new hybrid forms of wheat, rice and corn seeds which had higher yields. Food increased by a factor of 2.6 compared to population.
Also his assumption around population increasing geometrically is also not correct. Excluding immigration, developed countries have very low population growth rates (often below zero).

Question 5

Although not correct, Malthus had valid concerns, express these (3)

Answer 5

• Increased production requires large amounts of land, water, energy, fertilisers and pesticides
• These cause wide damages such as run off of water pollution in the gulf of Mexico
• Increased wealth also lead to changing diets and increased meat consumption
• Meat consumption is responsible for 15-25% of global warming emissions worldwide and requires large quantities of fresh water and use of fossil fuels.

Question 6

The debate on limits to growth and planetary boundaries have moved from food availability to what? (3)

Answer 6

Broader issues including:

• state of the environment
• ability to support an extended human population
• eco system shifts which expose our economic vulnerabilities

Question 7

What does the Millennium Ecosystem Assessment? and what did it find

Answer 7

It indicates the state of the environment is depended on the ecosystem services, which are the benefits people receive from nature. That there was widespread decline in biodiversity and degradation of many important ecological processes.

Question 8

What are the types of ecosystem services and what are examples of each? (3)

Answer 8

• provisioning services: food, energy and clean water
• regulating services: carbon reduction, water purification, pollination
• cultural services: recreation & ecotourism

Question 9

The Millennium Ecosystem Assessment suggests that most of the ecosystem services are in decline, why then is human well-being not also in decline? (3)

Answer 9

a) Not all ecosystems are in decline (eg food production)
b) technological advances - have made well-being less dependent on natural capital
c) time lags - between decline in natural capital and decline in standard of living.

Question 10

What is the IPAT equation and what is it used for?

Answer 10

Impact = Population * Affluence * Technology
It is used to identify particular forms of natural capital in need of more aggressive protection to insure strong sustainability

Question 11

what is the key principle behind the IPAT equation?

Answer 11

If there is significant demand for resource which do not have good substitutes, then our use is unsustainable and the resource should be protected.

Question 12

In addition to IPAT, what is another measure of strong sustainability that ecological economists rely upon?

Answer 12

The ecological footprint which summarises in a single number the various constraints of land, water and environment and calculates how much land and water area is needed to supply for production and assimilation of wastes for that community. If we need more than 1 earth then we are living unsustainably.

Question 13

What is the human development index?

Answer 13

It is an indication rating which measures income, education and life expectancy. Most western countries have a high HDI.

Question 14

What is the interesting fact identified when looking at the HDI and the ecological footprint of different countries

Answer 14

That those with the highest HDI also have a high ecological footprint and are consuming unsustainably.

Question 15

What are two ways that neoclassical economists measure weak sustainability?

Answer 15

• net national welfare - attempts to measure on an annual basis the ‘real’ well being of society by adjusting GDP
• inclusive wealth - which seeks to assess the total value of a society’s capital stock - natural, manufactured, social and human.

Question 16

What does it mean if Net National Welfare or Inclusive Wealth is falling?

Answer 16

That the economy is unsustainable.

Question 17

What are the four well known problems for using GDP to measure sustainability?

Answer 17

• does not include non-market goods and services
• fails to exclude costs incurred in reducing harmful activities
• fails to account for the depreciation of capital used up in production
• reflects the experience of the ‘average’ but does not account for distribution or equity concerns.

Question 18

What is the calculation to determine Net National Welfare?

Answer 18

GDP + non-market goods and services - total externality and clean up costs - depreciation on natural and man-made capital

Question 19

What is the calculation to determine Inclusive Wealth?

Answer 19

Capital stock = human capital + manufactured capital + social capital + natural capital

Question 20

What are the key challenges in developing either measure (2)?

Answer 20

properly accounting for:

• external costs and benefits; and
• depreciation of natural capital

Question 21

What is the depreciation rule for natural capital?

Answer 21

Depreciation equals the value of the resource rent generated through resource-depleting activities. Eg oil is exchanged for cash, but for IW to rise and NNW to grow the resource rent must be productively invested into alternative forms of capital. Eg Alaskan Permanent Fund.

Question 22

What is the value of the resource rent?

Answer 22

It is the value lost to future generations from our decisions to harvest natural capital today.

Question 23

What are the two economic views to answer the question ‘are we achieving sustainability’?

Answer 23

Neoclassical - Emphasises increases in T (IPAT) will reduce impact (Optimistic view)
Ecological - Emphasises increase in P and A (IPAT) will increase impact (Pessimistic view)

Question 24

In California, Redefining Process is calculating a Genuine Process Indicator, what is the calculation? and result?

Answer 24

GDP + Non-market output - Externality and clean up costs - Deprecation of natural capital - depreciation of created capital - other costs of growth. The result is that while GDP is 6.2trillian, GPI is only 2.6trillian (1996 $).

Question 25

Use of NNW and IW help define what part of the Ramsay equation and why?

Answer 25

Growth, as the true growth can be determined which enables the discount rate to be determined.

Question 26

The USA EPA currently uses a value of 3% for climate change damages, and the actual rate is actually probably below 2%, so why are market discount rates usually much higher?

Answer 26

Because markets have very short time horizons - they are not prepared to invest in projects that have payback periods longer than 7 years.

Question 27

Why are high discount rates a critical factor and what could be the impact?

Answer 27

Because they can undermine the level of investment in natural capital protection and in manufactured capital substitutes which are required to insure sustainability.