Environment and Economy

Molly Scott Cato

• Publisher: Routledge
• Year: 2020
• ISBN:
  9780429594014
• Edition: 2
• Topic: Economics
• Subtopic: Monetary Policy
• Index: Economics

Nothing is more important to our world than finding a more comfortable relationship between the economy and the environment. While issues such as species loss, nitrate pollution, water scarcity and climate change are now attracting the political attention they deserve, their origin in the way our economy is organized is less frequently recognized. This book makes that connection both theoretically – with references to a number of heterodox approaches to economics – and practically through a number of specific issues.

Environment and Economy begins by introducing readers to the pioneers of this field, such as Fritz Schumacher and Paul Ehrlich, who first drew attention to the disastrous consequences for our environment of our ever-expanding economy. Part II outlines the contributions to the field of Neoclassical Economics, Environmental Economics, Ecological Economics, Green Economics and Anti-Capitalist Economics. Part III takes a pluralist approach to using economic tools to solve a range of environmental problems: economic growth, resource depletion, pollution, globalization, climate change and markets vs. commons.

Written in an accessible style, this introductory text offers students an engaging account of the ways that the various traditions of economic thought have approached the environment, bringing them together for the first time in one volume. The text is complemented by boxes, case studies and recommended reading for each theme addressed. It will be of value to students interested in environmental sciences, geography, green issues and economics.

Part I

Setting the scene

1Introduction: an economy within the environment

1.1 Environment and economy: friends or foes?

The purpose of this book is to introduce you to the way that economists think, and particularly how they think about the environment. It was US president Harry Truman who frustratedly called for a one-handed economist, because he was so tired of being told, ‘On the one hand this, but on the other hand that’. But, for my money, this pluralism in economic debate is a healthy sign, which should be encouraged.

Economics is a social science and therefore is inevitably going to revolve around essentially contested concepts that generate an endless debate. In fact, if anything, we have seen too little plurality in recent years, with a near-hegemonic domination by the neoclassical approach. So, while this book may not be one-handed, I have certainly tried to be even-handed in explaining the perspective of a range of different types of economics.

Many books that explore the relationship between the economy and the environment begin by outlining and explaining the essential tension between the two. I am going to diverge from this path for the simple reason that I do not believe that such a tension is inevitable. More than 150 years ago, John Ruskin wrote the very useful small statement that sums up my view of the relationship between the economy and the environment: ‘There is no wealth but life’. If we have come to a state of difficulty with our planet because we are seeking to consume more than she can provide, then the solution is straightforward: we need to rethink the way our economy works. The tension appears to be inevitable only if you accept that the structure and essential dynamics of our economic system cannot be changed. If our species is to have a future on this beautiful planet, we need to sort out the structural problem – and fast.

That is why I am a Green economist. I make that point at the outset because the rest of this book will be taken up with a range of approaches to the relationship between economy and environment, or the economy–environment tension, as many of those represented will describe it. This is my book, and so I state my position at the outset. However, I will endeavour to give those with whom I disagree a fair hearing, and will refer you to other sources where you can find out more about them. Then it is your decision, and it is one you must take urgently – the need for our economy to establish a more comfortable relationship with our environment is pressing. My generation has only exacerbated this problem; the current generation of young people will spend their lives trying to solve it: I wish them every success.

As economists, what do we mean by ‘the environment’? It is clearly the source of all the resources that are used in the production of goods that are sold in the marketplace and that we use to support our lifestyles. In the chapters that follow, we will see how the different schools of economic thought have considered (in some cases only barely) the impact of economic processes on the environment. For some, the ‘exploitation’ of resources is an acceptable approach to economic life, while, at the other end of the spectrum, there are economists who believe that nature has a sacred value that can never be reduced to a price and bought or sold in the marketplace.

1.2 Complementarities and tensions within the economy–environment relationship

While it is my view that the tension between economy and environment is not inevitable, I am equally sure that the source of the current environmental stress – the evidence for which accumulates daily – is in economic activity. There is now a great deal of political focus on climate change, which is, indeed an emergency facing the global human community, but it is just one of a number of symptoms that indicate that we are living beyond our planetary means.

Figure 1.1 illustrates a number of earth systems that are now out of balance. Disturbingly, climate change is not the most severe. The integrity of our biosphere has deteriorated alarmingly as a result of the loss of species, while the biochemical systems of phosphorous and nitrogen are seriously disrupted. We lack information to draw realistic conclusions about vital earth systems including atmospheric aerosol loading and the impact of novel entities such as genetically modified organisms.

Figure 1.1Biophysical systems overshooting planetary boundaries

Note: For each boundary passed the human race is taking more risks by exceeding the planet’s ability to remain resilient

Source: Planetary boundaries according to Gerten et al. (2015)

In Table 1.1, I suggest possible economic systems and processes that have contributed to the planetary overshoot illustrated in Figure 1.1. Table 1.1 also demonstrates how complex a task we have in pinning down exactly which economic process has caused the problem we may be concerned about. This is not only because the economy is globalized and made up of a vast number of players, but also because many of the causes of the environmental stresses are interrelated. For example, China seeks to develop through massively expanding its productive capacity and exporting goods to the West. This requires energy, so many new power stations are built, creating a huge increase in China’s emissions of greenhouse gas emissions. To counter this, China also invests in a programme of hydroelectric energy generation, including the building of vast dam projects (using energy and producing CO₂ via the production of concrete). The dam projects displace hundreds of thousands of subsistence farmers, who are now drawn into an economic production and distribution system that itself relies on fossil fuels, where their previous existence did not. The dam projects also disturb the local ecosystem, causing loss of species and loss of topsoil. Like truth, tracing the source of the economic causes of environmental problems is a process that is rarely pure, and never simple.

Does it have to be like this? I am sure that it does not; we need to reverse our thinking about the environment. Rather than seeing it as a ‘problem’ we need to realize that the environment is our home, and the source of everything that we value. Once we adopt that perspective, we can begin to reorient our economy so that it finds the planet a comfortable home, rather than a treasure chest of resources to be raided and a bottomless pit for our wastes.

Table 1.1 Examples of economic processes that give rise to the planetary overshoot identified in Figure 1.1

Problem		Economic cause
Pollution
Climate change		Massive expansion of productive processes that emit greenhouse gases; increasing use of fossil fuels
Atmospheric aerosol loading		Emission of CFCs by manufacturers of aerosols and refrigerants
Acidification		Emissions from fossil-fuel electricity-generating plants; rapid expansion of personalized transport
Species extinction/biodiversity loss		Loss of habitat caused by displacement of subsistence farmers; pressure on land caused by population increase
Nitrogen cycle		Intensive farming with heavy use of nitrogen fertilizer; burning of fossil fuels
Land degradation/loss of soil fertility ([bio]regional, national)		Loss of traditional systems of agriculture due to population displacement and movement away from subsistence agriculture
Ozone depletion		Use of HFCs in aerosols and as refrigerants
Freshwater use		Overuse and pollution of systems from industrial processes
Congestion (national)		Excessive material consumption

Note: CFCs = carbonfluorocarbons; HFCs = hydrofluorocarbons.

1.3 Economics and environment: some useful concepts

In this section I introduce three concepts that are useful in exploring the relationship between the economy and the environment: efficiency, optimality and sustainability. The first two of these concepts arise from conventional economic approaches, but have a particular twist when we introduce the environment into the equation, and the third is a word that has taken on a special salience – and become the source of heated argument – as the environmental crisis has grown in scope and urgency.

Conventional economists have their own particular way of using the idea of ‘efficiency’, and this is largely in terms of missed opportunities. If resources are being used ‘inefficiently’ then opportunities are being squandered. Greater efficiency could bring net benefits in terms of greater consumption. However, from the perspective of environmental economics, we might wish to extend our consideration of efficiency. For example, for an electricity-generating company, the cheapest fuel is the most efficient fuel – conventional economics will often use the concept of efficiency in a purely financial way like this. However, if the generation of electricity using this fuel creates environmental damage, for example by producing emissions that turn into acid rain, then it might not be efficient from the perspective of society.

The concept of optimality starts out from the position we reached with our definition of efficiency, but then moves on to question the nature of the allocation of any particular good or service, and whether it is socially ideal. In the case of power generation, an efficient solution to the problem of how we allocate the good or service might be to build a polluting power station in areas where few people would experience the pollution. But would this be socially optimal? We would need to have some sense of the social damage and introduce concepts of justice and fairness into our consideration. Conventional economics considers that we have an optimal situation if no person can have their situation improved without any other person’s situation becoming less beneficial. But som...