Download Towards a Sustainable, Just and Efficient Economy in a Post Peak

Climate Change, Peak oil and
Biodiversity Loss: Why Scientists
are Terrified and Economists
Complacent
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
Universit of Vermont
Outline of Presentation
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Brief Overview of Triple Crisis
Why are conventional economists
complacent about the problems?
Why are ecological economists terrified
about the problems…
…and reasonably complacent about the
solutions?
Leverage points for changing the system
Brief Overview of the Triple
Crisis
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Peak Oil
Global Climate Change
Natural resource depletion/biodiversity loss
Energy and the Economy
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Laws of thermodynamics: It is impossible to
do work without low entropy energy
No work = no economic production
86% of global energy use is fossil fuels
95% of nitrogen in our bodies was fixed by
Haber process using natural gas
Is the Market the Driver of
Economic Growth, or Is Energy?
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Wealth of nations: 1776
First effective steam engine: 1784
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Used to pump water from coal mines
One barrel of oil = 20,000 hrs human labor
Our oil consumption increases our work
capacity by 340 hrs per person per day
Status of Oil Reserves: The
Hubbert curve-discovery
The Hubbert curve-production
Peak Oil
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Declining EROI
Once production can no longer increase with
demand, prices will skyrocket
If price of oil is rising faster than returns on
alternative investments, incentive to keep oil
in ground
Substitution with coal, tar sands, oil shale
could prove disastrous
Can cause serious disruption of economic
system
Climate Change: History of
Fluctuations
Punctuated by Uniquely Stable
Period
Is Climate Change Happening
and is it Human Caused?
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Scientific method and climate change
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Sample size of one
Extremely complex system
Uncertain facts
High stakes
Urgent decisions
Values matter
‘It is virtually impossible for mortals outside
the group that did the modeling to
understand the detailed results’.
Nordhaus, 2006
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No definitive answer
How Fast will it Happen?
Feedback Loops
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Warmer tundra releases methane
Ice pack reflects ~90% of heat back into
space, open land and water absorbs ~90%
Warmer oceans hold less CO2
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BBC headlines “Oceans are 'soaking up less
CO2‘” ~1/2 as much as in 1990s.
Warmer soils release more CO2
Etc. etc. etc.
Summary of
potential
problems
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Crop failures
Water shortages
Biodiversity loss
Extreme weather
Sea level rise, etc.
Natural Resource Depletion and
Biodiversity Loss
Extinction in the News
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“Species disappearing at an alarming rate,
report says”
“We are confronting an episode of species
extinction greater than anything the world
has experienced for the past 65 million
years.” Peter Raven, Missouri Botanical Gardens
“By 2048 all current fish, seafood species
projected to collapse”
Irreversible change
Biodiversity Loss and Time Lags: Case
Study of Brazil’s Atlantic Forest
Highest Biodiversity Terrestrial
Ecosystem Known; 93% gone
Rule of thumb from Island Biogeography: Loss of
90% of Ecosystem eventually leads to 50% loss of
biodiversity
Without immediate action to restore ecosystem,
biodiversity may collapse; irreversible and
catastrophic change
Time Lags 2: Cassowaries
Ecological Thresholds: Case
Study Amazon
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Amazon recycles 50% of its rainfall
Loss of 30% of forest may lead to
irreversible, catastrophic change
Recent estimates in neighborhood of > 20%
loss
• Including selective
logging increased
previous estimates of
deforestation by 60%
2005 Record Drought
The Resilience Question
R
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S y s t e m
S ta te
M
S
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T i m
R
e s i li e n c e
=
e
M
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/
R
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lt e r n a t iv e
s t a t e
Why Are Economists
Complacent?
History
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Malthus
Jevons: “The Coal Question”
Meadows et al. “The Limits to Growth”
Ehrlich vs. Simon
Environmental Kuznets Curve
Endless growth and a richer future
Theory
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Substitutability:
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P=f(K,L)
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Scarcity  price increase  innovation
(substitutes)
“The Ultimate Resource”
Invisible hand will solve our problems
Raw materials do not enter the production
function, nor do waste emissions
P=f(K,L,N)
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When raw materials do enter the production
function, labor and capital function as substitutes
Growth
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The larger our economy, the more we have to
spend on environmental problems
The wealthier people are, the more they care
about the environment
The wealthier people are, the fewer babies
they have
Economic growth is the solution to poverty,
environmental problems and overpopulation
Discounting
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Less value given to future than present
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Opportunity cost
Pure time preference
Distant future assigned negligible value
Assumes endless growth
The Truly Rosy View
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Schelling (Nobel Prize in 2005):
“Agriculture and Forestry are less than 3% of total
output, and little else is much affected. Even if
agricultural productivity declined by a third over the
next half century, the per capita GNP we might
have achieved by 2050 we would still achieve in
2051.”
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Nordhaus, Beckerman and others parrot this
view
The Pessimistic View: The Stern
Review
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Many models show loss of
0-3% of GDP for 2-3 C increase
5-10% of GDP for 5-6 C increase
in comparison to what otherwise would have
occurred.
Stern suggests 5-20% loss of GNP over what
otherwise would have occurred
Baseline is economic growth of 2.3% per
capita per year.
Why sacrifice for a wealthier future?
Why Ecological Economists
Terrified about the Problems…
What is Economics?
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The allocation of scarce resources among
alternative desirable ends
Before we can decide how to allocate, we
must understand the physical characteristics
of the scarce resources
The Nature of the Scarce
Resource: The Laws of Physics
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You can't make something from nothing
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All economic production requires the transformation
of resources provided by nature
Energy is required to do work
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All economic production requires energy
Fossil fuels drive our economy
The Laws of Physics
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You can't make nothing from something, and
you can't burn the same match twice
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Everything the economy uses eventually returns to
the ecosystem as waste
© Basel Action Network
The Laws of Ecology
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The raw materials converted into economic
products are elements of ecosystem structure
Ecosystem services are provided by a special
configuration of ecosystem structure
The Laws of Ecology
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If we deplete ecosystem structure, we deplete
ecosystem services
When we return waste to the ecosystem, we
deplete ecosystem services.
All economic activity affects ecosystem services
Humans like all species depend on ecosystem
services for their survival
• The nature of the
scarce resources has
changed
• If we want more
timber, we need more
forest, not more
sawmills
• Ecosystem services
have grown relatively
scarcer, and do not fit
into the market model
The Laws of Economics
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Stop engaging in an activity when rising
marginal costs exceed diminishing marginal
benefits
Ecosystem Goods: Raw Materials
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Required for all
economic production
We can use them
up as fast as we like
If I use it, you can't
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Competition for use
Can generally be
owned
Market goods
Ecosystem structure,
building blocks of
ecosystems
Do Prices Reflect Scarcity of
Raw Materials?
Neoclassical Economics Ignores Raw
Material Inputs and Waste Outputs
X
=
… or considers inputs
substitutable with labor and capital
X
X
X
=
X
=
Ecosystem Services
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Essential to human survival
Include the capacity to
regenerate structure
Provided at a given rate
over time
If I use it, you still can
(except waste absorption)
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Cooperative in use
Can't be owned
Non-market goods—no
price signal to indicate
scarcity
Markets ignore ES
The Laws of Ecology
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The raw materials converted into economic
products are elements of ecosystem structure
Ecosystem services are provided by a special
configuration of ecosystem structure
Ecosystem Services, uncertainty
and Ignorance
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We often don't know what
services are until they're gone
 Sardines and global climate
change
 Passenger pigeons
 The ozone layer
Impacts of Growth
Ecological footprint
Rising marginal costs
The Role of Information
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Can help solve many of our problems if used
correctly
Information improves through use
Do profits allocate resources to produce most
important information?
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Do patents slow advance in knowledge?
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Eflornithine
Nobel prize, anti-commons
Patents allow price rationing, create artificial
scarcity
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Ozone depletion
Triple Crisis Caused by Catastrophic Failure
of Existing Economic System
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Phenomenally successful at producing
certain commodities for certain people, but
ignores others
Ecosystem services systematically ignored
Triple crisis caused by economic decisions,
emphasis on endless growth
“We may be lost, but we’re making great
time”
Yogi Berra
Fundamental transformation required
Why Ecological Economists are
more Complacent about Solutions
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Economics is the allocation of scarce
resources among alternative desirable ends
First question an economist must ask is what
are the desirable ends?
What are the Desirable Ends?
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A high quality of life for this and future
generations
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Sustainability, Justice, Health, education,
happiness, satisfaction with life as a whole
Conventional economists claim unlimited
wants
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Desirable end is ever increasing material
consumption
Economic growth is the solution
Are we insatiable?
• The Hunter-Gatherer
economy
– 99% of human history
– Accumulation = death
Diminishing marginal benefits of growth
Per Capita GDP in Trinidad: ~ $9,500
Conventional Economics:
Microallocation
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How do we convert raw materials and energy
provided by nature into highest value end
products?
Decisions based on one dollar, one vote
No when-to-stop rule: how much natural
capital should we convert?
Sustainable Economics:
Macro-Allocation
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How much ecosystem structure must be left
intact to provide life support functions and
other services, and how much can be
converted to (or degraded by) economic
production?
Markets unable to make this decision
Democratic and cooperative methods better
than plutocratic and competitive ones
Just Economics:
Reclaiming the Commons
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If resources are finite, then distribution
matters
Common property rights to resources created
by nature or society as a whole
Community decisions over macroallocation:
oil use, waste emissions, resource depletion,
airwaves, etc.
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Internalizes externalities
Scale: how much to use?
Distribution: who is entitled to use it?
Would Addressing the Triple Crisis
be a Sacrifice?
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Over 80% reduction in fossil fuel use
required
Per capita income (adjusted for inflation) in
1969 was 1/3 of today’s GDP
Poverty was lower (evidence we can’t grow
our way out of poverty)
Energy intensity of GDP in 1969 was 2x
today’s intensity
We could live at 1969 standard with 17% of
current CO2 emissions
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With proper incentives in place, we could do
even better
How Miserable was Life in 1969?:
The Genuine Progress Indicator
How do We Get There?
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Changing the paradigm
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Economy is sustained and contained by the
global ecosystem
Continuous economic growth is impossible
Macroallocation is central problem
Changing the goals
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Shared vision of a sustainable and desirable
future.
Continuous economic growth is undesirable
Doom and gloom doesn’t win converts
How do We Get There?
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Changing the rules
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Democratic control over the commons and the
problem of macroallocation
Cooperative provision/management of non-rival
resources
Just distribution of resources provided by nature
and society
Information flows
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Information improves through use
Prices ration use, create artificial scarcity
Transparent government
Independent media
How do We Get There?
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Must take advantage of windows of
opportunity
Creating commons sector alongside public
sector and private sector
Conclusions
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In a no-growth economy
“There would be as much scope as ever for
all kinds of mental culture, and moral and
social progress; as much room for improving
the Art of Living, and much more likelihood of
its being improved, when minds ceased to be
engrossed by the art of getting on.”
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John Stuart Mill, Of the Stationary State