Sustainability

1. Sustainability (Gerhard Haderer)

2. Use of “sustainable” is unsustainable source: xkcd.com/1007/

3. Peak sustainability? source: http://books.google.com/ngrams

4. Trend in U.S. Consumption as a proportion of GDP. Sustainable? % Personal consumption as a proportion of GDP (right-hand axis) Personal savings % GDP year-on-year growth rate GDP year-on-year growth rate Personal consumption as a proportion of GDP (right-hand axis) Adapted from www.fundamentalfinance.com (accessed 3/11/09) which uses national accounts data from the U.S. Bureau of Economic Analysis (http://www.bea.gov/national/nipaweb/Nipa-Frb.asp)

6. Progress on poverty • leading United Nations Millennium Development Goal: cut % of people from the developing world in extreme poverty (<US$1.25/day) by ½ from 1990 level by 2015 Source: World Bank

7. Progress on inequality Poverty lines mostly Africa Source: Pinkovskiy and Sala-i-Martin (2009)

8. Income and life expectancy, 1800-2009 • Are these measures of assets/capital stocks? http://www.gapminder.org/world

9. Human Development Index (HDI)1970-2010 • The HDI is a statistic used by the United Nations to describe countries’ well being. • It gives equal weight to indicators of: • education • life or health, and • Income • Is this indicative of sustainability? See interactive version – “DIY – HDI: Build your own index”  Select sustainability • http://hdr.undp.org/en/data/trends/ Source: Hidalgo 2010

10. Outline • Defining Sustainability • An economic perspective: sustainability and economic growth • Limits to growth? “Economic Growth, Carrying Capacity and the Environment” • Measures of sustainability: greening our national accounts

11. 1. Defining Sustainability • How do you interpret sustainability? • What’s your response when someone argues that we should be following sustainable practices? • How do we operationalize sustainability for making choices? • How can it/should it change the policy questions we ask and how they get answered?

12. Roots/conceptual antecedents • Aldo Leopold’s “Land Ethic” • Ecologist, forester, environmentalist • A Sand County Almanac (1949, Oxford University Press, New York) • “Quit thinking about decent land use as solely an economic problem. • Examine each question in terms of what is ethically and aesthetically right, as well as what is economically expedient. • A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise.” • Not inconsistent with the idea of natural resource use so long as the ecosystem is not degraded (Kolstad 2000)

13. Sustainability as a scientific challenge or a “technical problem” to be solved Harvey Brooks (Harvard academic): • “There is a need for a relatively value-neutral definition of sustainability … • that permits consensus among people with widely differing value perspectives and world views to agree on whether or not the objective criteria for sustainability have been met … • whether or not a given development path is sustainable should…be a scientific…question…” (Brooks, 1992, c.f. Viederman, 1995)

14. Key concept: Capital stocks • Capital: the stock of assets that serve as a “factor of production” (i.e. that increase the rate of output of some good or service) and are not used up or consumed in the production process. • Can “depreciate” or be augmented through “investment”. • physical capital (technologies, the built environment, aka “man-made capital”, “capital stock”), • human capital (economically productive knowledge from experience and education; health), • natural capital (ecosystems, air/water quality, forests, etc), • social capital (social connections), • cultural capital (the body of folklore supporting our world view and our role)

15. Key concept: Capital stocks A “simple” model of productive capital: • Define: • t: year • Kt: capital stock • Lt: labor input • Yt: output • Ct: consumption • It: Investment • Production: • Yt = KtγLt(1-γ) • Budget: • Yt = Ct + It • Investment: • Kt+1 = Kt + It Investment augments capital available in the next period

16. Sustainability as “a vision of the future….[which focuses] on a set of values and ethical and moral principles by which to guide our actions”: • Stephen Viederman (historian,UN involvement) (Viederman 1995) • “Sustainability is a community's control and prudent use of all forms of capital…“ • physical capital • human capital • natural capital • social capital, and • cultural capital • “…to ensure…that present and future generations can attain a high degree of economic security and achieve democracy while maintaining the integrity of the ecological systems upon which all life and production depends" (p. 46). • Can we operationalize this definition for local, regional, national or global policy-making?

17. 1987: “Brundtland Commission” (UN World Commission on Environment and Development) (Brundtland , 1987, c.f. Hacket, p. 326) • Sustainability’s “most celebrated formulation” (Pearce, 2002) • “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (World Commission on Environment and Development, 1987, c.f. Pearce 2002) • “It contains within it two key concepts: • the concept of `needs’, in particular the essential needs of the world's poor, to which overriding priority should be given; and • the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs” (p. 43).

18. How did the Brundtland Commission operationalize sustainability? • “Seven strategic imperatives for sustainable development: • reviving (economic) growth; • changing the quality of growth; • meeting essential needs for jobs, food, energy, water, and sanitation; • ensuring a sustainable level of population; • conserving and enhancing the resource base; • reorienting technology and managing risk; • merging environment and economics in decision-making.” (Hackett, 2006)

19. Operationalizing sustainability • "... development that meets the needs of the present without compromising the ability of future generations to meet their own needs." (World Commission 1987.) • Dasgupta (2006): • This formulation “…requires that relative to their populations each generation should bequeath to its successor at least as large a productive base as it had itself inherited.” • But how is a generation to judge whether it is leaving behind an adequate productive base for its successor?

20. 2. An economic perspective • Economist Robert Solow (1987 Nobel Laureate) • Sustainability is just what economists have been talking about (in the economic growth and environment literature). • Sustainability is making sure that each successive generation is no worse off than the current one, indefinitely. • Key argument: • physical capital (durable assets) and human capital (knowledge/health) can be substitutes for natural capital.

21. 2. An economic perspective Two key questions (Toman (1994), c.f. Kolstad (2000))  To what degree are natural and other types of capital (physical or human) substitutes?  What obligation does one generation owe to others? [Ethical/moral question] Noemie Goudal (2009)

22. Economic perspective [Neoclassical Growth Theory] • “Like traditional growth theory, the modern theory of sustainable development is based on notions of capital assets as the means of generating well-being. • The condition for sustainability … is that the sum of assets, i.e., total wealth, should increase in per capita terms over time.” • Assets capital (man-made, human, natural, and social). • Note: this allows for drawing down one type of capital as long as sufficientlycompensated for in other capital stocks.

23. A “simple model” of stocks t: time At: Natural capital stock Kt: human-made capital stock Kt + At: sum of capital assets (ignoring all other forms of capital) Adapted from Dasgupta and Heal 1974

24. A “simple model” of stocks. To what extent can we substitute? t: time At+1 = At - aCt + R(At) +R(At) -aCt R(At): stock renewal function At: Natural capital stock Kt+1 = Kt + It Kt: human-made capital stock consumer-related pollution U(Ct, At): utility F(Kt,At): Production Consumption: Ct It: Investment Substitutes? Adapted from Dasgupta and Heal 1974

25. A “simple model” of stocks. To what extent can we substitute? t: time At+1 = At - aCt + R(At) +R(At) -aCt R(At): stock renewal function At: Natural capital stock Kt+1 = Kt + It Kt: human-made capital stock consumer-related pollution U(Ct, At): utility ρt F(Kt,At): Production Consumption: Ct It: Investment ρt : “exponentially increasing” multiplier for technological progress…sufficient to overcome depletion of natural capital? (last 50 years ρ = 2% approx.) 1 t, time

26. “Weak” vs. “Strong” Sustainability • Weak Sustainability • holds that “human-made (constructed) capital can effectively substitute for natural capital and the services provided by ecological systems.” • “… developed from economic models of growth and technological change in the context of limited resources.” • Natural capital may be used up if we invest in other forms of capital that will support well-being. • Strong: • Holds that certain ecosystem functions cannot be replaced by human-made capital and must be maintained. (Pearce, 2005; Hacket, 2009)

27. 3. Limits to growth Priorities: Environment vs. Economic Growth Source: http://www.gallup.com

28. 3. Limits to growth? “Economic Growth, Carrying Capacity and the Environment” Arrow et al. 1996 • Evaluate the proposition: “economic growth is good for the environment” ….“justified by the claim that there exists an empirical relation between per capita income and some measures of environmental quality” Is this claim true? Environmental degradation The environmental “Kuznet’s curve” Image source: http://en.wikipedia.org/wiki/Image:Kuznets_curve.png

29. To what extent is the environmental Kuznet’s curve real? • Explanation: the poor “cannot afford to emphasize amenities over material well-being. … increased pollution is regarded as an acceptable side effect of economic growth.” When income goes up, “people give greater attention to environmental amenities.” (e.g. “environmental legislation, new institutions for the protection of the environment”) “the inverted U-shaped curve has been shown to apply to a selected set of pollutants only” (i.e. those involving salient short-term costs) Environmental degradation

30. U.S. pollution emissions time series Nitrogen oxide emissions, 1940–1998. Sulfur dioxide emissions, 1940–1998. Lead emissions, 1970–1998. Carbon monoxide emissions, 1940–1998. (Brock and Taylor, 2005)

31. U.S. and global GHG emissions All emission estimates from the Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2011 (EPA) . *Doesn’t account for the GHGs associated with manufacture of the goods we import. EPA

32. Assessment of the EKC Carson (2010) • Optimistic view: • “Income can influence pollution levels…” • BUT slowly/subtly: “through its influence on other factors such as improving institutions” • Practically, it’s hard to “separate out growth and the diffusion of clean technology.” • Pessimistic view: • “…belief in an autonomous EKC relationship engendered an unfounded optimism that growth by itself would be helpful for the environment.”

33. Carrying capacity and resillience of the planetArrow et al. 1996 • “There are limits to the carrying capacity of the planet.” • “The environmental resource base upon which all economic activity ultimately depends includes ecological systems that produce a wide variety of services. • This resource base is finite. • ….imprudent use of the environmental resource base may irreversibly reduce the capacity for generating material production in the future.”

34. Ecosystem resilience: One “index of environmental sustainability” • One way to think about ecosystem resilience: “the magnitude of disturbances that can be absorbed before a system centered on one locally stable equilibrium flips to another” • E.g. lake eutrophication, thermohaline circulation. • “Economic activities are sustainable only if the life-support ecosystems on which they depend are resilient.” • Ecosystem resilience proxies: • “the diversity of organisms or the heterogeneity of ecological functions” http://en.wikipedia.org/wiki/Thermohaline_cycle Eutrophication in the Caspian Sea (http://en.wikipedia.org/wiki/Eutrophication)

35. Conclusions for Economic Growth and Environmental Policy (Arrow et al. 1996) • “…given the fundamental uncertainties about the nature of ecosystem dynamics…. • …and the dramatic consequences we would face if we were to guess wrong, • …it is necessary that we act in a precautionary way so as to maintain the diversity and resilience of ecosystems.”

36. Conclusions for Economic Growth and Environmental Policy (Arrow et al. 1996) • the composition of inputs (including environmental resources) and • outputs (including waste products)” “What matters is the content of growth source: visionnoblesville • “This content is determined by (institutions which) need to be designed so that they provide the right incentives for protecting the resilience of ecological systems.

37. 4. Measures of sustainability: greening our national accounts • Earth Summit at Rio de Janeiro (1992): “gave a strong impetus to the search for measures of sustainable development. • However, almost all of the resulting indicators of sustainability are simply indicators of environmental and economic change (not the current state or stock). • The Rio Summit called for the development of revised measures of gross national product (GNP) to reflect this concern.” (Pearce, 2002, pp. 62-63).

38. Greening national accounts • Key developers of national income and product accounts (e.g. Nobel prize recipient Simon Kuznets) didn’t intend for the framework to be used as a measure of wellbeing(K&O, 2007, p. 222). • GDP: the dollar value of all goods produced in a country in a year. • Three ways to conceptualize: (1) total expenditures, (2) sum of value added, (3) sum of income • Common calculation • GDP = consumption + gross investment + government spending + net exports • Several metrics: • gross (depreciation of capital not included) v. net (includes depreciation of capital) • domestic (produced in a country) v. national (produced by a nation) • GDP: gross domestic product. • GNP: calculated for all nationals, whether domestic or abroad. • NDP (Net domestic product) = GDP – capital stock depreciation • NNP (Net national product) = GNP – capital stock depreciation

39. “the narrow focus on real GDP growth that characterized economic development in the postwar period often failed (in several ways): • to screen out projects and policies that harmed the environment, • to address poverty and empowerment, and • to sustain local communities and indigenous peoples.” Hackett (2009):

40. Current implementation of NNP is incomplete in accounting for changes in stocks, services valued, & inequality Currently accounted for in NNP?(K&O, 2007) • Pumping U.S. oil reserves • Yes value of sale, depreciation of equipment • No value of change in oil stocks, pollution generated from burning oil • Yes Value of livestock loss to disease • No Commercial fisheries depletion • No Income disparity, household production, volunteer services (e.g. Linux, Firefox)

41. Improving measures • “the proper measure of well-being is net national product (NNP)” inclusive of changes in all pertinent stocks (Pearce, p. 63) • dj: net depreciation in stock j. • M: man made/physical; N: natural; H: human; S: social • E.g. conceptualize lost value from degradation of natural resources (more GHGs, deforestation, loss of fish stocks, loss of biodiversity) as dN.

42. Alternative measures • Experiments with “greening” national account have taken place in Norway, the Philippines, Nambia and even the U.S. • U.S. effort in 1994: covered only a handful of mineral commodities, well-reviewed • Killed by Congress (K&O, 2002, p. 225)

43. Progress in assessing sustainability: “Sustainability and the measurement of wealth.” Arrow et al. 2012 • Develop and estimate a model: assess whether economic growth is compatible with sustaining wellbeing over time • Concentrates on wealth rather than income • Sustainability= comprehensive measure of wealth maintained through time (specifically 1995-2000). • Wealth measure accounts for: • reproducible and human capital, natural capital, health improvements • technological change. • Five countries: the U.S., China, Brazil, India and Venezuela. • Show that the often-neglected contributors to wealth – technological change, natural capital and health capital – fundamentally affect the conclusions regarding sustainability.

44. Sustainability and the measurement of wealth Arrow et al. (2012) Changes in aggregate natural capital stocks:

45. Changes in capital stocks:

46. Integrating the components to assess sustainability: growth in (1) wealth (stocks), (2) population, and (3) productivity the growth rate in per capita comprehensive wealth < growth rate in per capita GDP changes to health not yet incorporated

47. Per capita assessment of comprehensive wealth: substitutions health capital now included

48. Conclusions • Meeting the sustainability criterion: • Success: U.S., China, India and Brazil currently • Even before accounting for improvements in health: • Fail: Venezuela (depletion of natural capital and negative estimated TFP growth). • Countries that display sustainability differ considerably in the kinds of capital that contribute to it. • U.S. and India: investments in human capital very important • China: investments in reproducible capital dominate. • Accounting for improvements in health dramatically affects the estimates of changes in per capita wealth. • value of health capital more than twice as large as all other forms of capital combined.