Climate Change, Peak oil and Biodiversity Loss: Why Scientists

are Terrified and Economists Complacent

Joshua FarleyCommunity Development and Applied Economics

Gund Institute for Ecological EconomicsUniversit of Vermont

Outline of Presentation

● 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

● Peak Oil● Global Climate Change● Natural resource depletion/biodiversity loss

Energy and the Economy

● 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?

● Wealth of nations: 1776● First effective steam engine: 1784

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

● 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?

● Scientific method and climate change 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

● No definitive answer

How Fast will it Happen? Feedback Loops

● Warmer tundra releases methane● Ice pack reflects ~90% of heat back into

space, open land and water absorbs ~90%● Warmer oceans hold less CO2

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

• Crop failures

• Water shortages

• Biodiversity loss

• Extreme weather

• Sea level rise, etc.

Natural Resource Depletion and Biodiversity Loss

Extinction in the News

● “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 Biodiversity Loss and Time Lags: Case Study of Brazil’s Atlantic ForestStudy 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

● Amazon recycles 50% of its rainfall● Loss of 30% of forest may lead to

irreversible, catastrophic change● Recent estimates in neighborhood of > 20%

loss

Click to add title

Including selective logging increased previous estim ates of deforestation by 60%

Click to add title

Including selective logging increased previous estim ates of deforestation by 60%

• Including selective logging increased previous estimates of deforestation by 60%

2005 Record Drought

R T

M S

T i m e

S y s t e m

S t a t e

A l t e r n a t i v e s t a t e

R e s i l i e n c e = M S / RT

The Resilience Question

Why Are Economists Complacent?

History

● 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

● Substitutability: Scarcity price increase innovation

(substitutes) “The Ultimate Resource” Invisible hand will solve our problems

● P=f(K,L) Raw materials do not enter the production

function, nor do waste emissions● P=f(K,L,N)

When raw materials do enter the production function, labor and capital function as substitutes

Growth

● 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

● Less value given to future than present Opportunity cost Pure time preference

● Distant future assigned negligible value● Assumes endless growth

The Truly Rosy View

● 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.”

● Nordhaus, Beckerman and others parrot this view

The Pessimistic View: The Stern Review

● Many models show loss of 0-3% of GDP for 2-3 C increase5-10% 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?

● 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

● You can't make something from nothing All economic production requires the transformation

of resources provided by nature● Energy is required to do work

All economic production requires energy Fossil fuels drive our economy

The Laws of Physics

● You can't make nothing from something, and you can't burn the same match twice Everything the economy uses eventually returns to

the ecosystem as waste

© Basel Action Network

The Laws of Ecology

● 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

● 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

● Stop engaging in an activity when rising marginal costs exceed diminishing marginal benefits

Ecosystem Goods: Raw Materials

● Required for all economic production

● We can use them up as fast as we like

● If I use it, you can't 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

XX

=

Ecosystem Services

● 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) Cooperative in use

● Can't be owned● Non-market goods—no

price signal to indicate scarcity

● Markets ignore ES

The Laws of Ecology

• 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

● 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

● Can help solve many of our problems if used correctly

● Information improves through use● Do profits allocate resources to produce most

important information? Eflornithine

● Do patents slow advance in knowledge? Nobel prize, anti-commons

● Patents allow price rationing, create artificial scarcity Ozone depletion

Triple Crisis Caused by Catastrophic Failure of Existing Economic System

● 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

● 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?

● A high quality of life for this and future generations Sustainability, Justice, Health, education,

happiness, satisfaction with life as a whole● Conventional economists claim unlimited

wants 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

● 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

● 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

● 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. Internalizes externalities Scale: how much to use? Distribution: who is entitled to use it?

Would Addressing the Triple Crisis be a Sacrifice?

● 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 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?

● Changing the paradigm Economy is sustained and contained by the

global ecosystem Continuous economic growth is impossible Macroallocation is central problem

● Changing the goals 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?

● Changing the rules 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

Information improves through use Prices ration use, create artificial scarcity Transparent government Independent media

How do We Get There?

● Must take advantage of windows of opportunity

● Creating commons sector alongside public sector and private sector

Conclusions

● 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.” John Stuart Mill, Of the Stationary State