Chapter 09: Measuring the Sustainability Standard Flashcards
What is the issue with sustainability and capital?
Interested amount of capital and sustainability - issue: measure sustainability and def.
Has human well-being improved?
Human well-being improved:
- Fewer famines, increased caloric intake, reduced child and infant mortality, increased life expectancy
Will this overall trend has cont. in recent decades, continue in the future?
What was Thomas Malthus’s An Essay on the Principle of Population about?
Thomas Malthus wrote book: An Essay on the Principle of Population
- Ecologicalist - fairly pessimistic
Assumed:
- Food supply grows arithmetically
- Healthy population grows geometrically
Population growth outstrip food supply, leading increased bad shit* (cyclical)
Population growth outstrip food supply, leading increased bad shit* (cyclical)
How has Malthus’s assumptions been challenged?
Challenging Assumptions:
If premises correct - numbers were way off (generous)
Somewhat right and wrong (missed out tech advances)
- Agricultural output has not grown arithmetically(1950-80s) Green Revolution resulted great increased yield
Today:
- Food production > caloric intake - Market distorted = not appropriate distribution
-
Population not always increase geometrically
Excluding immigration, developed countries have very low population growth rates - often below zero
(a) New family and birthcontrol
(b) Access to eduction for women = less children
(c) Increased affluence - smaller families
- correction birth rate and poverty
- Cost investing children increase - diminishing marginal returns
How have ecological economists replied to Malthus?
Ecological Economist’s Reply:
- Other resource contraints arable land
- Agriculture requires massive quantities of fresh water, energy …
Just because production increased faster than pop - no guarantee that it will cont. in the future
- Rising affluence resulted massive increase demand meat (resource intensive)
1972 Book: Limits to Growth and 2009 Study: Planetary Boundaries
♻️ Food production today > caloric intake
Why: Market distored = not appropriate distribution
Define Ecosystem Services:
Ecosystem Services:
Benefits people receive from nature (Chapter 10)
Factor into natural capital (clean air, bee population)
Ex: Clean air, bee population
- Hard to quantify
- Current measures: better than nothing
Majority ecosystems services be declining at the same time as there are big gains in human well-being?
- May be important services (ex: food production) increasing → makes up other decline
- Tech advances made well-being less dependent natural capital
- Time lags between declines natural capital and declines in standards of living
What are the four ways to measure sustainability?
I. IPAT Equation
II. Ecological Footprint
III. Net National Welfare (NNW)
IV. Inclusive Wealth
IPAT
What is the IPAT measurement?
IPAT equation → Environmental Impact = Population X Affluence X Technology
Guidance to scale of substitution from manufactured capital that would be needed from degrading natural capital
- P = Population (Number of people in x)
- A = Affluence (Whatever trying to measure influence = hope to create amount of affluent)
- T = Technology (Hard to measure - effect output)
Smaller it gets → more tech is advancing
IPAT
What are the 3 challenges to reducing environmental impact
3 Challenges to Reducing Environmental Impact: (Direct Relationship)
- Reduce population
- Reduce Standard of living
- Reverse technnology (less = better) = improve tech
However, P and A increasing
Burden on T → must change a lot
IPAT
How does ecologists and neoclassicalists view IPAT?
- Ecologists: T not fast enough → must offset by something else
- Neoclassicalists: (Optimistic) Tech grow fast enough
3 Challenges to Reducing Environmental Impact: (Direct Relationship)
- Reduce population
- Reduce Standard of living
- Reverse technnology (less = better) = improve tech
However, P and A increasing
Ecological Footprint
Define ecological footprint:
Calculate how much land and water area needed provide resources for production and for assimilation of wastes for community (waste always sideeffect)
- All activities use land+water = footprint
- Currently: need about 1.5 earths to accommodate all demands over time
Ecological Footprint
What is “zero footprint?”
Zero Footprint: Replace land and water used → Net effect = zero (not emit nothing)
- Ex: Airlines add pay extra to offset carbon footprint
Ecological Footprint
What is the correlation between wealth and ecological footprint?
How does that relate to offsetting wealth?
Strong correlation between footprint and wealth
Makes sense ask poor countries offset wealth FP
If offset:
(2) Wealthest must reduce more
(1) Rather: ask offset same amount
Only perfect agreement: Num changes insignificant = accomplish nothing
Ecological Footprint
What is the human development index? (HDI)
Human Development Index (HDI):
Includes measures of per capita income, education levels, and life expectancy (varies between 0 and 1)
- Norway highest: 0.94
- DRC lowest: 0.29
Net National Welfare
Define GDP:
♻️ GDP: Market value of all the final goods and services produced region over given time
Net National Welfare
Failure of GDP as a measure of sustainability:
(1) Fails include value nonmarket goods and services
1. Misses other things: childcare, housework (ex. stay-home mom), volunteering, illegal activities
2. Incentive: never do anything yourself → hire people (cause it does nothing for the economy)
(2) Include costs incurred in reducing harmful activities
Ex: *oil spill clean-up increases GDP* 1. Environmental catastrophe - increases GDP 2. Should subtract mess (cleanup costs)
(3) Fails account depreciation of capital used up in production (especially natural capital)
1. Deplete natural capital = GDP increases
2. Need to account for depreciation
(4) Reflects experience of “average person” but not account distribution or equity concerns
Net National Welfare
Define Net National Welfare (NNW):
Net National Welfare (NNW): measures, on annual basis, the “real” well-being society’s members
NNW: Total annual output both market and nonmarket goods + services - total externality - cleanup costs - depreciation capital (natural and human-made)
- Hard measure non-GDP measure
- Income statement = flow variable
Inclusive Wealth
What is inclusive wealth?
- Balance sheet (ish)
- Value x right now (stock variable)
Value of all capital stocks including (1) human capital, (2) manufactured capital, (3) natural capital, and (4) social capital
= Σ value capital stock
- If we leave future generations w greater overall wealth → they have the means to be better off
- However, if deplete wealth, future generations unable match current standard of living
Inclusive Wealth
How do Neoclassicalists and Ecologists view Inclusive Wealth?
(a) Appeal Neoclassical thinking: assume add different capitals together ⇒ assume substitution
(b) Ecological: m(x,y)=IW - Smallest variation is capital types
Weigh certain capital more
Inclusive Wealth
How to measure Inclusive Wealth?
How to measure IW:
- Amount each capital stock, K_j for j=1, 2, …, J types of capital stock
- Value of unit each type of capital stock, V_j as the value of unit of capital stock
Inclusive Wealth
Issues with Inclusive Wealth
- Measuring social capital
- Why weight certain capital differently?
- Calculaute depreciation?
How does depreciation influence measuring NNW or IW?
First, need to know how to measure depreciation of natural capital
Depreciation Rule for natural capital:
Depreciate equals the measured value of the resource rent
Resource Rent (not the full market value of the resources) is what future generations are losing by our exploitation of natural capital
What is resource rent?
Resource Rent (not the full market value of the resources) is what future generations are losing by our exploitation of natural capital
Are we achieving sustainability?
- Several studies show NNW and GDP not correlated - popular perception of GDP measure of economic welfare may be misguided
- Evidence indicates NNW and IW growing most countries but each growing more slowly than growth in GDP
Whether evidence is really proof of achieving sustainability: questionable
What if NNW is growing slowly?
With a discount rate of 0.5 to 1% a year.
Then, economy is weakly sustainable: the average person is getting better off (all things considered)
Rate of growth of NNW is precisely number should plug into Ramsey equation to get discount rate to conduct social benefit-cost analysis of natural capital development decisions:
r= δ + ηg
Discount Rate typically be low as well: 1-3%
Why do market actors use high discount rates?
Market Actors use high rates:
- Decisions makers in private sector often have shorter time horizons than government agencies:
- Companies and consumers often discount at 15-20%
- Hence, only invest in projects back back in 5-7 years
Why do nigh market discount rate explain why many decisions today are unsustainable?
Due to high discount rates, we fail make many long-lived investments could benefit our descendants
Why don’t people invest enough in the future?
Why are required profit rates so high, when there are many long term investments for the future that can’t be funded at these rates?
-
(a) High required returns reflect only private benefits of investment
(b) Fail account forthe external costs to society as a whole of growth - Some profits coming from resource rents - do not reflect any depreciation of natural capital
- High returns require to induce people to save and invest incomes
How do ecologists and neoclassicalists view the sustainability measurements?
Ecological Sustainability
- IPAT
- HDI and Ecological Footprint
Neoclassical Sustainability
- NNW
- IW
Both require determination of the depreciation of natural capital
- In advocating for strict standard, both safety proponents and ecological economists make utilitarian arguments:
Environmental protection is good for people because society-wide opportunity cost of protection is relatively low
- Efficiency Advocates and neoclassical economists reponds:a. Position is too extremeb. Instead, trade-offs and we can pay too much for a pristine environment
Compare efficiency, safety, and sustainability (neoclassical and ecological):
