Lecture 8 Sustainability Concepts Flashcards
Concepts of sustainability
Stock-based definitions
Strong Sustainability: Preserving the stock of natural capital
Weak Sustainability: Maintenance of aggregate productive capacity
Ecological thresholds
Keep safe and minimal standards for all species
Meet conditions for ecosystem resilience
Flow-based definitions
Obtaining constant yield of natural resources
Non-declining utility/consumption over time
Strong sustainability
Constancy of natural capital stock = strong sustainability
Critique of stock-based definition of sustainability
· In reality, some substitutions and compensation between capital and nature are possible. Where? How much?
· Is spatial substitution permitted?
· What exactly are the natural stocks? Habitats, species, genes?
· How about pests and germs?
· How to deal with minimum thresholds for certain ecological systems?
Flow-based definition of sustainability
Obtaining constant yield of natural resources
Non-declining utility/consumption over time
Ecological thresholds definition of sustainability
Keep safe and minimal standards for all species
Meet conditions for ecosystem resilience
Weak sustainability
Constant productive capacity (= aggregated possibilities of production) = weak sustainability
Sustainability indicators
- Genuine Savings (Green Net Investment)
- Environmental Performance Index (EPI)
- ISEW (socio-economic indicator)
- Ecological Footprint (bio-physical indicator)
How is the traditional definition of savings expanded in genuine
savings?
Genuine saving: how much a country truly saves for future
1. Investment in other types of reproductive capital (human capital, R&D, social capital)
2. Extractions of natural resources and environmental pollution are offset (after deduction)
Problems with non-negative Genuine Savings
Non-negative Genuine Savings = weak sustainability
1. No focus on future
2. Monetary estimation of natural goods and other types of capital without market price
3. Limited consideration of environmental pollution (only CO2-emissions), particularly with Adjusted Net Savings of the World Bank
Environmental Performance Index (EPI)
Multidimensional index with focus on ecology
Main objectives:
1. Environmental Health
2. Ecosystem Vitality and Natural Resource Management
Index of Sustainable Economic Welfare
= Personal consumption - inequality index - defensive expenditures (health+edu) + welfare improving contributions (…)
It is an economic indicator intended to replace GDP
Problems with mutlidimensional indicators
- Weighting
- Conversion of different indicators in a single unit of measurement
- Explanatory power of aggregated indicator with very heterogeneous sub-indicators
Ecological footprint
EF attempts to translate ecological impact of human activities into the space necessary to produce the resources consumed and absorb the generated pollution.
Biocapacity (available space) - Footprint
’ sustainable if EF > 0
Sustainable value of ecological footprint
EF > 0, SustainabilityRatio=EcologicalFootprint/Biocapacity
Genuine Savings (= Green Net Investment)
Genuine Saving =
Gross Saving
- Depreciation of fixed capital
+ Educational expenses
- Depletion on natural resources
- Pollution damages
Hartwick’s Rule (no tech progress)
Hartwick’s Rule (with tech progress)
Interpretation
Hartwick’s Rule (no tech progress)
Constant (non-declining) output or consumption requires reinvesting the entire “resource rent” into reproducible capital. In the simple Cobb-Douglas model, that translates to
𝑠=1−𝛼
Hartwick’s Rule (with tech progress)
The same rule
s=1−α now more than maintains output—it lets it grow at the rate of technical progress (i.e., (1−α)A).
In reality, if technology continuously improves and the resource is used efficiently, the economy can sustain (or even increase) output despite declining resource availability.
Interpretation
The “value of total capital” (physical + natural) must stay constant (or grow) for sustainability.
Investing resource rents into physical capital is the mechanism to offset depletion of the non-renewable resource.
Hartwick’s Rule Assumptions
Underlying Assumptions
- No population growth.
- Elasticity of substitution between capital and resource = 1 (Cobb-Douglas).
- No other distortions or externalities.
- In the final slides, exogenous technical progress A.
Hartwick’s Rule
Use all the rents from extracting a nonrenewable resource to build up reproducible capital if you want to keep consumption (or output) from falling in the future. In the simplest Cobb-Douglas model (without technical progress), the rule emerges mathematically as a constant savings rate s=1−α. When technical progress is present, that same rule not only maintains output but can raise it due to exogenous improvements in productivity.
