Sustainability
(Gerhard Haderer)
Use of “sustainable” is unsustainable
source:
xkcd.com/1007/
Peak sustainability?
source: http://books.google.com/ngrams
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-onyear 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)
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
Progress on inequality
Poverty lines
mostly Africa
Source: Pinkovskiy and Sala-i-Martin (2009)
Income and life expectancy, 1800-2009
http://www.gapminder.org/world
• Are these measures of assets/capital stocks?
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:
(i) education
(ii) life or health, and
(iii) Income
Source:
Hidalgo 2010
Is this indicative of
sustainability? See interactive
version – “DIY – HDI: Build your
own index”  Select
sustainability
http://hdr.undp.org/en/data/trend
s/
Outline
1. Defining Sustainability
2. An economic perspective: sustainability and
economic growth
3. Limits to growth? “Economic Growth, Carrying
Capacity and the Environment”
4. Measures of sustainability: greening our
national accounts
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?
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)
Sustainability as a scientific
challenge or a “technical problem”
to be solved
Harvey Brooks (Harvard academic):
– “There is a need for a relatively valueneutral 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)
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)
Key concept: Capital stocks
A “simple” model of
productive capital:
– Production:
• Yt = Ktγ Lt(1-γ)
– Define:
• Budget:
• Yt = Ct + It
•
•
•
•
•
•
t: year
Kt: capital stock
Lt: labor input
Yt: output
Ct: consumption
It: Investment
– Investment:
• Kt+1 = Kt + It
Investment augments capital
available in the next period
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?
• 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).
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?
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.
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)
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 sufficiently compensated for in other capital stocks.
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
A “simple model” of stocks. To what extent can we substitute?
t: time
At+1 =
At - aCt + R(At)
+R(At)
-aCt
At: Natural
capital stock
Kt+1 =
Kt + It
Kt: human-made
capital stock
R(At): stock
renewal
function
U(Ct, At): utility
F(Kt,At):
Production
Consumption: Ct
I t:
Investment
Substitutes?
Adapted from Dasgupta and Heal 1974
A “simple model” of stocks. To what extent can we substitute?
t: time
At+1 =
At - aCt + R(At)
+R(At)
-aCt
At: Natural
capital stock
Kt+1 =
Kt + It
Kt: human-made
capital stock
R(At): stock
renewal
function
U(Ct, At): utility
ρt F(Kt,At):
Production
Consumption: Ct
I t:
Investment
ρt : “exponentially increasing” multiplier for
1
technological progress…sufficient to
overcome depletion of natural capital?
t, time
(last 50 years ρ = 2% approx.)
“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)
3. Limits to growth
Priorities: Environment vs. Economic Growth
Source: http://www.gallup.com
3. Limits to growth? “Economic Growth, Carrying
Capacity and the Environment” Arrow et al. 1996
….“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
• Evaluate the proposition: “economic growth is good for
the environment”
The environmental “Kuznet’s curve”
Image source: http://en.wikipedia.org/wiki/Image:Kuznets_curve.png
To what extent is the environmental Kuznet’s curve real?
“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
• 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”)
U.S. pollution emissions time series
Nitrogen oxide emissions, 1940–1998.
Carbon monoxide emissions, 1940–1998.
(Brock and Taylor, 2005)
Sulfur dioxide emissions, 1940–1998.
Lead
emissions,
1970–1998.
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
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.”
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)
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
“the narrow focus on real GDP growth that
characterized economic development in the
postwar period often failed (in several ways):
1. to screen out projects and policies that harmed the
environment,
2. to address poverty and empowerment, and
3. to sustain local communities and indigenous
peoples.”
Hackett (2009):
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.
Sustainability and the measurement of wealth
Arrow et al. (2012)
Changes in aggregate natural capital stocks:
Changes in capital stocks:
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
Per capita assessment of
comprehensive wealth:
substitutions
health capital now included
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.
Optional additional slides
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 decisionmaking.”
(Hackett, 2006)
Carrying capacity and resillience of the planet
Arrow 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.”
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)
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.”
Conclusions for Economic Growth and
Environmental Policy (Arrow et al. 1996)
“What matters
is the content
of growth
source:
visionnoblesville
– the composition of inputs (including environmental
resources) and
– outputs (including waste products)”
• “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.
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)
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.
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)