EC 5106 REE L No .2 BASIC CONCEPTS KEY PROCES OF NR

1. EC 5106 REE L No .2BASIC CONCEPTS KEY PROCES OF NR • Resource Scarcity is not a constraint - Substitutes - Technical Innovations - Efficient use of marginal stocks - Conservation induced - Curbing demand • Ecologist View - KM grown at the expenses of KN - Reduce Biospheres capacity to provide essential services to support human life. • Absolute Scarcity – Physical limit • Relative Scarcity - Relative Price – substitution

2. Limit to Growth Eco Sys.< Econ. Sub Sys. Radiated Solar Energy Energy Ecosystem Nat.Res. Wastes Energy Pollution Socioeconomic Subsystem Ecological Services

3. Restructuring Development to Make Growth More Sustainable Socioeconomic Subsystem Ecosystem Ecosystem Socioeconomic Subsystem Sustainable Unsustainable

4. Environmental Kuznets Curve EKC • Theoretical requirements for EKC • Marginal utility of consumption falling or constant, So that cost of giving up consumption falls as income are higher. 2. Marginal disutility of pollution rises As problem gets worse, it is more valuable to do some thing about them. • Marginal damages rising. 4. Marginal abatement cost rising. It is expensive to do a lot.

5. Implication of the EKC • While EKC relationships have been observed, critics raise concerns that suggest other possibilities: 1. the curve could shift downward over time might the peak be lower for newly developed countries since they use tech. developed else where. 2. Once every one's income rises, where does the pollution go? 3. Over time , countries shift away from traditional pollutants, but use more pollutants that are more dangerous. Note: There is little empirical evidence for the last two theories.

6. The Environment in Developing Countries 1. Population growth 2. Industrialization – Moving from agrarian societies to industrial societies lead to more pollution. 3. Increasing in urbanization – people move for jobs Env. Problem become more when people live close. 4. Weak governance – weak regulation & enforcement 5. Lack of information/ education – demand for env. regulation depends on awareness of the problem. 6. Lack of technology – 7. Lack of access to infrastructure – this rises dependency on natural resources, such as wood. 8. Poverty – leads to less weight on future generation.

7. “Tunneling” to make development more sustainable : Environmental Risk versus Development Level Environmental Kuznet Curve C Safe limit “Tunnel” Environmental Risk (eg.per capita degradation of natural resources) E D B A Development Level (eg per capita income)

8. The Challenge • Global Economy – Sustainable Economy • Increase in env. expenditure and employment • Increase resource Productivity • Adopt high technology – International • Simultaneous progress in • Economic, Human, Env. & Technology

9. Finding the “Tunnel”:Steps to Make Development More Sustainable • Define development activity (Project or Policy) • Identify relevant indicators of sustainability (Pressure, State, Impact: P-S-I) • Assess vulnerability and impacts • Determine remedial response (R) • Modify development activity accordingly

10. Integrating Various Elements of SD • Optimization: Typically Max.W =fw(ct)e-rt dt subject to K<K0 Max. Econ. W [(discounted utility of consum. (c) ] Subject to Environment/ Social constraints. Thus, primary focus is on max. output-consu, While maintaining resource secondary is secondary • Durability: • Typically D = D (Resilience, Vigor, Org., Stress) • Main focus is on durability of econ. &/ or social sys., • and Resilience to external shocks. • Willingness to trade-off some optimality to maintain • systems within safety margins.

11. Optimal Development Paths • Max. welfare (or Utility), subject to non-declining stock of productive assets (or welfare itself). • Max. of the flow of aggregate W cumulative discounted over infinite time (t), is : Max. ƒ0œW (C, Z) e-rt dt C is consumption rate & Z is a set of other relevant variables r is the discount rate. C depends on the production rate of the economy which in turn depends on stocks of various assets. Side constraints may be imposed to satisfy sustainability needs, E.g: Non decreasing consumption or stocks of productive assets (including natural resources)

12. Economic Sustainability Rules • Max. flow of income that could be sustained indefinitely, without reducing stocks of productive assets. • Economic efficiency ensures both efficient resource allocation in production & effi. consumption e max. Utility. • Weak Sustainability Rule: dA/dt >0 Different forms of assets are substitutable • Strong Sustainability Rule: dE/dt >0 ; dN/dt >0; dS/dt >0 Diff. forms of assets are complementary- not substitutable A =Total assets, = Econ. Capi. (E) + Nat. Capi. (N) + Social Capital (S)

13. Durable Development Paths • Focus mainly on sustaining the quality of life by satisfying env., social & econ. Susta. Requ.s. • Permit growth, but are not necessarily econ. Opti. • There is more willingness to trade off some economic optimality for the sake of greater safety, in order to stay with in critical economic, environment and social limits. • A simple durability index (D) for an organization or system expected lifespan is a fraction of the normal lifespan: D = D (R, V, O, S) R = resilience, V = vigor, O = org. & S = State of the external env. esp. in relation to damaging shocks. Durable path seek to increase diversity & adaptive capacity while reducing risk.

14. The Fundamental Issues Whether the Ecosys. are Productive,Stable & Sust.? • Low or high productive over time • Output may fluctuate mildly or significantly or it may remain relatively stable • The system may also be more or less equitable • Finally, systems may recover from shocks and stress, either quickly or slowly Optimality A path of dev. that max. the PV value of future gains in H Welfare Sustainability Human Welfare that rises, or at least does not fall over time. Survivability A path of dev. That lies above min. HW, anything below it is not survival

15. Some Key SD Modeling Approaches • Utilitarian – Opti. discounted W or consum. over T. • Equality (Intra-generational) – Ensure income distribution at any given time will not become less equitable over time. • Equity (Inter-generational) – Ensure per capita income will not fall over time. • Strong Sustainability – Ensure aggregate stock of productive assets ( full Sustain.), will not decrease • Weak Sustainability – Ensure stocks of critical types of (non-substi.) productive assets will not Durability – Maintain R & decrease V of socio -economic & ecological sys. to withstand shocks within desirable limits. Steady State – Maintain consumption & Resource use at constant levels.Combination of the above.