(M2) Lecture 12 - Valuing Ecosystems Flashcards
Neoclassical Economics: Overview of the assumptions
- Resources are infinite or substitutable (can be replaced)
- NOTE: the Earth is a closed system. Even renewable resources can be exploited and used up quicker than they can be replenished. - Long-term effects should be discounted
- the usual argument: “that won’t happen in my lifetime!”
- mkt value of resources is discounted for future use - Costs and benefits are internal (aka consequences don’t matter)
- Neoclassical economics: all costs and benefits of goods or services are borne by the individuals involved in the transaction
- Real life: we are all connected, and your decisions will always impact others somehow
- Externalities: costs or benefits of a transaction that involve ppl other than the buyer or seller. Can be positive or negative.
- Problem: too many negative externalities! - Growth is good
- “More and bigger” isn’t aways better
- Commonly used metric for the health of an economy is its growth rate: how many more goods and services are provided
*All fine and dandy until you realize these assumptions have massive environmental implications
Neoclassical Economics
- A theory of economics that explains…
- A theory of economics that explains market prices in terms of consumer preferences for units of particular commodities
- Buyers desire the lowest possible price, whereas sellers desire the highest possible price
- This conflict between buyers and sellers results in a compromise-price and the “right” quantities of commodities being bought and sold
Neoclassical Economics: Tragedy of the commons
- Analogy that shows how individuals driven by self-interest can end up destroying the resource upon which they all depend
- Each individual acts independently according to their own best interest and contrary to the common good of all users, by depleting or spoiling a resource
- Hardin’s analogy remains a powerful one for describing how the selfish interests of individuals can bring about costs to all members of a group
- Natural resources = commons; if a resource is not regulated it will be depleted
Neoclassical Economics: Single bottom line system
Generating profit is the only focus; any action that will increase the profit net income of a company, state, institution etc.
Ecological Economics: Trible bottom line system
- Evaluation of economic, social, and environmental components
- Only way a business/gov can be sustainable and elevate performance and success
Ecological Economics: Concept of the 3Ps and how its represented
-How do we do this?
3 Ps: People, Profit, Planet
How do we do this?
Assign a value to the goods and services we receive from the environment.
Ecological Economics: Concept of sustainability in the 3BL system
Being socially and environmentally responsible is used together with profitability to evaluate performance, success, and sustainability of a company.
- measuring profitability based on 3P’s = a way to introduce sustainability
Definition of ecosystem services and goods, and function
Ecosystem Goods and Services: The benefits humans derive, directly or indirectly, from ecosystem functions. Often referred together simply as “ecosystem services”.
Ecosystem Function: The capacity of natural processes and components to provide goods and services that satisfy human needs, either directly or indirectly.
4 types of ecosystem services (with examples)
- Provisioning: the delivery (provisioning) of products that we directly use
- ex. food, water, fuelwood, fiber, biochemicals, genetic resources
- products the enviro provides us - Regulating: services provided that regulate our environment
- climate regulation, disease regulation, water regulation, water purification, pollination - Cultural: “non-material” benefits that enrich the human experience
- spiritual and religious, recreation and ecotourism, aesthetic, inspirational, educational, sense of place, cultural heritage - Supporting: the provision of ecosystem processes needed to support life and all other ecosystem services.
- soil formation, nutrient cycling, primary production
Ecosystem valuation definition and what if represents
Ecosystem valuation: the assignment of economic value to an ecosystem or ecosystem services.
Often represents:
1. The monetary cost of replacing the ecosystem service.
2. The monetary value of the capital gained from the resource.
Valuing Natural Capital
- Estimating the values of the Earth’s natural capital; monetary worth of ecosystem services
- Estimating nonuse values: existence value, aesthetic value, option value
Types of capitals in Neoclassical vs. Ecological Economics (natural capital, social capital, human capital, etc.)
Traditional/Neoclassical Economics
- Capital: goods and services of economic value; resources that can be used to produce goods
- Social capital: the value of relationships between ppl.
- Natural capital: the summation of all ecosystem services on Earth, available to us for free.
Ecological Economics
- Natural capital: resources and services provided by the Earth’s natural
- Human capital: people’s physical and mental talents, includes the “social capital” from traditional economics
- Manufactured capital: tools and materials
Models of Economies (recap)
- Neoclassical economists
- Earth’s natural capital is part of the human economic system
- Grow, compete, and use resources fast - Ecological economists
- Human economic systems are subsystems of the biosphere
- Conventional economic growth will become unsustainable
- Just use so much and no more; take only what you need and leave your competitor enough to live
- when parts wear out, use it for something else
- give to the future
Economic Value of Natural Capital and Pollution Control
- Things we must estimate
Things we must estimate:
- present and future values of a resource or ecosystem service
- optimum levels of pollution control and resource use
Comparing the likely costs and benefits of an environmental action is useful
- involves many uncertainties
Optimum Levels of Pollution Control and Resource Use
Marginal cost of resource production
- cost of removal goes up with each additional unit taken
Optimum level of resource use
- intersection of supply and demand curves
Optimum level for pollution cleanup
- when cost of removing pollutants exceeds harmful costs of pollution
2 Examples of Ecosystem Valuation
- Alberta Timber
- Value of timber production
- $6.2 billion over 20 yrs of simulated harvest activities
- based on a preference for 80+ yr old trees - Carbon Sequestration in Alberta
- How much C is stored in forests
- Valued as the mkt cost of C as defined by the AB government
- Value of forest carbon in AB would be $144 billion based on current storage
