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Doctoral Program and Advanced Degree in Sustainable Energy Systems Doctoral Program in Climate Change and Sustainable Development Policies Doctoral Program in Mechanical Engineering Doctoral Program in Environmental Engineering Sustainable Development, Energy and Environment Lecture 05 Paulo Ferrão Full Professor Tiago Domingos Assistant Professor Rui Mota Researcher IN+, Centre for Innovation, Technology and Policy Research Environment and Energy Scientific Area Department of Mechanical Engineering “Empty World” Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA. “Full World” Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA. Main Issues in Sustainable Development • Scale – Ecology; – Environmental dimension of sustainability • Distribution – Ethics and Sociology; – Social dimension of sustainability • (Allocative) Efficiency – Economics; – Economic dimension of sustainability • Constraints – Thermodynamics – Institutions – Knowledge Value and Indicators • Economic – – – – Valuation techniques National Accounting and Macroeconomic Variables Genuine Savings Green Net National Product • Social – Human Development Index – Index of Sustainable Economic Welfare – Gini coefficient • Biophysical – Ecological Footprint – Human Appropriation of Net Primary Production • Multi-criteria analysis Sustainable Development in Space and Time • Theories of growth and sustainable development – – – – Solow growth model Ayres’s theory of growth (the role of energy) Growth accounting Weak vs. strong sustainability • The network dimension: direct vs. indirect effects – Life Cycle Assessment – Input-Output (IO) Analysis and Environmentally Extended IO • Energy, environment and economic growth Sustainable Development and Energy • Energy in Portugal and the World • Energy efficiency – New paradigms: from supply to demand – The rebound effect – Behavioural aspects An Integrative Case Study • Towards sustainable cities, an urban metabolism perspective Sustainable Development • “Development that meets the needs of the present without compromising the ability of future generations to meet their own need.” – Intra- and inter-generational equity – Anthropocentric • Sustainability of what? – – – – non-declining aggregate output or consumption, non-declining utility, non-declining aggregate resources (productive base), non-increasing pollution, … • Weak vs. Strong Sustainability – Limits to substitution, – Is the combined value of all assets remain constant, that is, it is possible to substitute one form of capital for another, so natural capital can be depleted or the environment degraded as long as there are compensating investments in other types of capital? – Critical levels of natural capital. Sustainability vs Optimality • A Sustainable Economic path at time t is one that obeys where is the maximum sustainable utility, defined as • A Present Value Optimal path is one that results from the maximization of Present Value (PV): W (0) : U (C(t ))e t dt 0 • Future utility is being discounted with a constant discount rate d • Hicks (1946) : Individual’s income “maximum amount of money which the individual can spend this week, and still expect to be able to spend the same amount in real terms in each ensuing week". Dasgupta-Heal Model • Capital resource economy with no technological progress: subject to Production can be used to consume or invest: F K (t ), R(t ) c(t ) K (t ) Extraction of a non-renewable resource used in production • Optimal Path: Hotelling’s rule Ramsey’s rule • Optimal and sustainable? Discount Rate Justification and Components • The same monetary flow at different instants does not have the same value (time preference) – CONSUMPTION: Uncertainty • Being alive in the future (individual vs. society) • Preferences in the future • Value of the benefit or the cost – CONSUMPTION: Impatience – PRODUCTION: Capital productivity (opportunity cost of capital) • Under certain conditions, the discount rate is equal to the real market interest rate consumption discount rate pure time preference rate C r C utility discount rate . pL variation in survival probability per capita consumption growth rate elasticity of the marginal utility of consumption Turner et al. (1994), pp. 102-106.