Economics and the environment

This is the text, including slides, from a talk given on October 28 2020 during an online event organised by University College Cork’s Economics and Environmental Societies. (I didn’t follow the text word for word during the talk, but it covered the same ground)

Thank you very much, I’m delighted to be able to participate in this discussion.

My name is Caroline Whyte, I have a background in ecological economics and I do research and help with communications for a think tank called Feasta: the Foundation for the Economics of Sustainability.

Feasta, as some of you may know, is the Irish word for ‘in the future’. We have our administrative headquarters in at the ecovillage in Cloughjordan, and we’re in the Environmental Pillar of Irish environmental NGOs and in Stop Climate Chaos Ireland, but our focus is actually quite global and we have international membership. I’ll be explaining a bit more about Feasta later.

If I’m asked about the role economics plays in the environment and sustainability, my answer would be ‘what kind of economics are you talking about’ because there are a lot of different schools of thought within economics. You could be forgiven for not knowing that though, because there’s one particular school of thought that’s become quite dominant in university courses and in think tanks, political advisory groups, the media and so on – you could call it Neoclassical economics.

I find this approach to economies – particularly standard macroeconomic theory – quite problematic in many ways for the environment and for society and I’ll explain why in a minute. I’d argue that there needs to be a much broader range of economic thinking in universities, in the media, in advisory groups, all over really, if the economy is going to be able to adapt itself properly to our environment. We need to be including perspectives from ecological economics, feminist economics, institutional economics, and so on.

So what’s the problem and what can be done about it?

‘Economics’ literally means ‘Household management’. So how well are we managing our global household, both in terms of the house itself and in terms of the wellbeing of all the people in it?

Image source here.

The answer is somewhat mixed but overall right now I’d say, not very well at all.

Things aren’t looking good at all for the environment, and that means that things aren’t looking good for us humans. The Dáil declared a climate and biodiversity emergency last year. You can see in this set of charts that a lot of things are being used or degraded very fast. The charts are a bit old but most things haven’t improved since, with the exception of the ozone hole (a bit).

Source: “Debt as Power”, Tim Di Muzio and Richard H. Robbins. Adapted from Steffen, W., et al. (2004) Global Change and the Earth System: A Planet under Pressure (New York: Springer): 132–133.


Despite a great many international meetings, repeated and exhausting negotiations and reams of reports and recommendations, the world still hasn’t managed to get aggregate global greenhouse gas emissions to diminish consistently. And during those times when emissions have gone down, such as the first few months of the COVID crisis and the 2008 financial crash, there’s also been a lot of suffering.

The chart below from the Stockholm Resilience Centre shows the breaching of biophysical limits. The red bits are in serious trouble and the yellow bits show increasing risk. Biodiversity is threatened to a very alarming extent. Biodiversity is the invisible infrastructure that keeps the built infrastructure – the things we normally think of as infrastructure – able to function. There are also several areas – shown with question marks – for which we don’t even have adequate data yet.

Source: Stockholm Resilience Centre. Click to enlarge.


So we’re facing an existential challenge here. We’re not managing our household very well.

We’re also not managing it terribly well in terms of the wellbeing of all the people who live in the house. I won’t go into detail here about global inequality and poverty but I just wanted to comment that I find it very interesting to see exactly which people are responsible for the most damage in the environment. It’s easy to assume that the root cause of environmental degradation is over-population, but the reality is far more nuanced than that. This is a well-known chart from Oxfam. You can see that the top 10% of the population are responsible for almost 50% of greenhouse gas emissions, while the lower 50% are responsible for 10% of the emissions.

Source: Oxfam


Image source: http://feasta.org/documents/feastareview/daly.htm

This diagram is by Herman Daly and he used it in the very first Feasta annual lecture, back in 1999. Herman Daly is one of the founders of ecological economics and I’m going to be drawing from his work quite a bit in this talk.

The diagram shows a standard macroeconomic view of the environment, labelled ‘ecosystem’ here. It’s embedded in a wider economy. If the ecosystem is being damaged, the solution that’s proposed therefore is to incorporate it more fully into the economy, primarily through effective uses of pricing. The idea is that if you price things right, then you’ll have a well-functioning economy and environmental problems will ease. You price in externalities, like carbon dioxide in the atmosphere, that haven’t generally been included in standard economic analyses. This is a very, very widely-accepted theory, even if it’s not always adopted in practice. Here is Herman Daly, describing this perspective (which he himself does not share):

“The eco system is the extractive sector of the economy, garbage dumps, stuff like that and we can recycle these materials faster and faster and the economy grows. In this picture the economy is growing into the void. Economic growth in this vision does not entail encroachment on anything else. There is no opportunity cost, nothing has to be sacrificed as the economy expands, so who could be against growth? It doesn’t increase the scarcity of anything else. It doesn’t encroach on anything. There’s no opportunity cost. In fact growth just relaxes scarcity among all parts within the economy so the idea that there is anything problematic with growth is utter nonsense and this is the way the world is.”

Image source here.

However, over the past thirty years or so there’s been increasing concern that some things just can’t be priced accurately enough, and perhaps shouldn’t be priced at all. A lot of people now are saying that trying to solve environmental and social problems through pricing is problematic, and probably impossible in any case. So the way they have thought about it is, we’ll keep our current system of pricing because it’s necessary but we’ll combine it with other, non-monetary measures of well-being and give them equal weight with the pricing. This is called the triple bottom line, in which economy, society and the ecosystem are all given equal weight and the challenge is to find the common ground between them all.

The problem with this is that in reality, the economy can’t function at all unless society is functioning, and society can’t function at all unless the environment is functioning. So a more accurate way to show the relationship between those three things would be something like this.

Or better yet, the next image, which incorporates the sustainable development goals. You can see that the economic goals rest on the social goals, which in turn rest on the environmental goals. As I already mentioned, the environment – biodiversity – is the hidden infrastructure which everything else rests on. It’s our life support system. It’s not that the environmental goals are more important to our wellbeing than the others, but rather that they’re necessary in order to achieve the others, whereas the reverse doesn’t hold. I should mention also that one of the economic goals, SDG8, which includes economic growth, is quite problematic and threatens to undermine the other SDGs. More about that later.

Source: Stockholm Resilience Centre

So how might an economy be constructed which takes into account this hierarchy, with environmental protection being prioritised? Here’s one suggestion from the ecological economist Kate Raworth, who works in Oxford and Cambridge. This is called the ‘doughnut economy’. The hole of the doughnut is the place where people’s survival needs aren’t adequately met. She’s put those needs in there: water, food, health and so on. The outer edge is the place where biosphere limits are reached. They’re the same limits as we looked at earlier, from the Stockholm Resilience Centre. We need to find a way to live in the doughnut.

Source: Doughnut Economics Actions Lab

Below is a handy list of ways to think like a 21st century economist, also from Kate Raworth. The word ‘growth’ crops up a lot in the left column, which describes 20th century economics. The right column instead has phrases like ‘distributive by design, regenerative by design’. The one place where it mentions growth is at the end, where it says ‘growth agnostic’.

Source: Doughnut Economics Action Lab

It’s clear that the doughnut, in which the economy is embedded in society and the environment, differs quite wildly from the standard macroeconomic vision we saw in slide 7, or even the triple bottom line one in slide 8. There are two very, very different paradigms here. Here’s Herman Daly on that:

Image source here.

“Now I think it is very difficult to argue across those two paradigms. It’s like Ptolemy and Copernicus arguing back and forth. You can present evidence but basically it’s just a matter of just how you want to look at it. That’s not to say that one way is not better than the other, but it’s hard to force the argument.

“In an effort to be as fair as I can, let me make a qualification to this interpretation that I am giving. The brown stuff in this picture [the ‘Ecosystem as a subsystem of macroeconomy’ diagram above]…to be fair to the economists they’re thinking of that brown stuff as GDP rather than tonnes and barrels and so forth. So, as it has a value dimension rather than a purely physical dimension, it’s not fair to say that they’re thinking physical things will grow forever. What they’re really thinking is that value will grow forever.”

This growth in value is what’s now generally known as ‘green growth’ – growth that doesn’t damage the environment.

I always find this graphic promoting green growth amusing because as far as I know, whoever drew it did sincerely believe in green growth, but if you look at its trunk you can see how incredibly unbalanced that tree is. In real life there’s no way that tree would stay upright. The trunk would just crash over to the right immediately and take the whole arrow down with it. (Note added when uploading this talk: I tried to track down the source of this file but it doesn’t seem to be available online any longer!)

Now let’s just take another quick look at some real world things that are going on. In this next graph we have the correlation between energy use and GDP. You can see it follows the same trajectory as that arrow in the previous slide – as energy use goes up, so does GDP. Bear in mind that renewables still provide just a small percentage of global energy use.

Source: econbrowser, 2014 figures

Here we can see the correlation between GDP growth and greenhouse gas emissions in the USA.

Source: Spash et al, “Policies to reduce CO2 emissions: Fallacies and evidence from the United States and California”, Environmental Science and Policy 94 (2019)

Now this is something that an enormous amount of research has been done on – whether or not you can decouple growth from emissions. The evidence is pretty clear that you can’t, in absolute terms – or at least not on anywhere near the scale that’s required in order to prevent catastrophic climate disruption and other severe environmental damage[1]. I can go into that more in the questions if you like. What needs to happen is to shift the goalposts away from growth and towards something else. What should that be, and how can we tell that we’ve got there?

There’s a very vibrant ongoing debate about this. At the moment the idea of wellbeing is probably the most popular. Feasta’s a member of the Wellbeing Economy Alliance which is a global network that’s exploring these issues. The Alliance talks about the importance of narrative – of having a clear vision of where you want to go.

Source: Wellbeing Economy Alliance

Below you can see Feasta’s Theory of Change, which is meant to help provide some narrative. Click on the image to enlarge it and then zoom in to read the text. It gives an overview of goals that we’re working towards, all of which are oriented towards wellbeing.

At the top you can see our ultimate goal, which is “a vibrant, commons-based and stable global economy that promotes human flourishing and well-being within a resilient and health global ecosystem”.

Immediately underneath there are sub-goals, which currently include democratising the financial system and making it growth-neutral; putting an upstream limit on fossil fuel production and phasing it out; introducing a universal basic income; reforming taxation so that everyone is fairly compensated for the use of common resources; improving our measurements of progress by developing alternative metrics to GDP growth; and intelligent agriculture with an emphasis on agroecology.

Underneath that you can see suggested pathways towards achieving those goals, and finally, the role that Feasta can play in getting us further along those pathways.

We revise the Theory of Change periodically and there’ll be another revision coming up in the next couple of months. If you’re interested in any or all of these ideas, please take a look at the Feasta website or get in touch with us at info [AT] feasta.org.

I’ll end with a quote from President Michael D. Higgins. It’s from a talk he gave on October 8. The emphases were added by me.

I really like that he mentioned economic heterodoxy. That brings us back to the ideas mentioned at the beginning of this talk – that there are many useful streams of economic thought and they all need to be considered, and made as accessible to the public as possible.

Endnotes

[1] See for example the European Environmental Bureau’s October 2019 report ‘Decoupling Debunked’: https://eeb.org/library/decoupling-debunked/ and these two more recent studies: https://www.tandfonline.com/doi/ abs/10.1080/09644016.2020.1783951?journalCode=fenp20 and https://www.sciencedirect.com/science/article/pii/ S1462901120304342?dgcid=coauthor

Featured image: extract from Copernic solar system by Cellarius. Source: https://upload.wikimedia.org/wikipedia/commons/thumb/f/ff/Copernic_solar_system%2C_Cellarius_(1646).jpg/698px-Copernic_solar_system%2C_Cellarius_(1646).jpg

Note: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one ‘Feasta line’. The views of the article do not necessarily represent the views of all Feasta members. 

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