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Chapter 15 Questions, Questions, Questions – and Some Answers We are now about to end a long journey that took us from vague anecdotal and even spiritual descriptions of environmental problems to more systematic measurement and assessment. We then extended these assessments into prediction and policy analysis. Figure 15.1 illustrates how we set out from viewing environmental problems as symptoms of overcharged ecological carrying capacities (what’s the problem?). Economic activities are responsible for this overuse of environmental services, but they also offer solutions to mitigating environmental impacts (what’s economics got to do with it?). Integrative environmental-economic policies face trade-offs and need to set priorities. Before taking action (what can be done?), one has to compare, therefore, the significance of environmental impacts with the benefits of economic activity – now and in the future (how bad is it?). The interaction of environment and economy spans nearly everything under the sun, and in fact the sun as well. It is no surprise that there are no definite answers to the four questions of Figure 15.1. Lack of knowledge and empirical evidence are Fig. 15.1 Towards sustainability – conclusive questions P. Bartelmus, Quantitative Eco-nomics, 263 © Springer Science + Business Media, B.V. 2008 264 15 Questions, Questions, Questions – and Some Answers the reasons. All one can do now, at the end of the book, is to raise these questions again and summarize the – sometimes contradictory and partial – answers in a brief synopsis of 15 questions. The solution of remaining problems will have to be left to future research. 15.1 What Is the Problem? History tells about the downfall of societies because of overuse of natural resources and local climate changes, but also because of overpopulation, excessive taxation and war (Section 1.1). Current data reveal environmental problems of natural resource depletion, pollution and deteriorating health of humans and ecosystems (Table 1.1). Q1: Do available data describe the ‘problem’? Q2: Is it a matter of limits? Environmental indicators assess different symp-toms of environmental deterioration. They alert us to actual or potential violations of environ-mental standards. They do not provide a com-prehensive picture of the overall sustainability of economic growth or development (Sections 1.3, 4.2.3). The ecological point of view sees non-sustain-ability as the transgression of planetary and local carrying capacities (Sections 1.3, 2.4.1). Available data do not assess unequivocally the closeness to, or ultimate violation of, global or regional limits (Sections 1.3, 4.2.3). 15.2 What Has Economics Got To Do with It? The initial assessment of selected environmental problems (Section 1.3) indicates interdependence of economic activity and environmental deterioration, and human welfare effects from both. The question is if and how the powerful integra-tive concepts and tools of economics apply to environmental and social concerns. Environmentalists and ecological economists reject the commodification of envi-ronmental and social services through market valuation. Environmental econo-mists, on the other hand, describe environmental impacts as the result of market and policy failures, which can be remedied by market instruments and policy reform (Sections 2.1, 13.3). The following questions reflect this dichotomy. 15.2 What Has Economics Got To Do with It? 265 Q3: Is the assumption of a rational, utility maximiz-ing homo oeconomicus of practical use in an imperfect world? Yes, because - Economics in a vacuum throws light on complex problems (Section 2.1) - Markets reveal individual preferences, which experts or governmental fiat should not override (Sections 2.3.2, 13.3.2). No, because - Economic rationality ignores the altruistic side of a homo politicus [FR 2.1] - Of the history of wrong diagnosis and projections, and of misleading policy advice by economists (Section 2.1) - Environmental experts are better equipped to see the loom-ing violation of planetary limits than short-sighted econo-mists and policymakers (Sections 1.3, 2.2.3). Q4: Is economic growth the solu- Yes, because tion of the environmental - Post-industrial service economies are dematerialized and problem? can afford environmental protection (Section 2.2.2) Q5: Is sustainable development the solution? - Policy tools of environmental cost internalization fos-ter innovation and seek optimality and sustainability in economic performance and growth (Section 2.3.2, 12.3, 13.3.2). No, because - The environmental Kuznets curve hypothesis is generally rejected (Section 11.1) - Vital environmental thresholds have been transgressed in a full-world economy (Sections 1.3, 2.2.2) - Complementarities of critical natural capital prevent sub-stitution by other production factors (Section 2.4.2). Yes, because - The paradigm alerts us to interactions with other, notably social, development goals, beyond economic and environ-mental ones (Section 3.2.2) - Of the need to introduce ethics and social values into policymaking so as to counteract irrelevant or misleading advice by puzzle-solving economists (Sections 2.1, 13.4.2) - Economic wealth does not make us happy (Section 3.2.1). No, because of: - Failure of development strategies (Section 3.1.1) - Lip service to, and hidden agendas behind, the opaque cor-nucopian development paradigm (Section 3.2.1) - Normative (expertocratic or governmental) targets and standards that blur scientific analysis (Section 3.3, 13.4.2) - Lack of comparable measures of social (and other) sus-tainability effects (Sections 3.1, 3.3.2). 266 15 Questions, Questions, Questions – and Some Answers 15.3 How Bad Is It? Assessing the comparative significance of environmental and economic costs and benefits is the core issue of this book. To this end, one can either look back and ask how bad it has been, or look forward and see how bad (or good) it will be. 15.3.1 How Bad Has It Been? The environmental-economic dichotomy trickles down to measurement. On the one hand, we have physical statistics, indicators, and material and energy balances (Chs. 4 to 6). On the other hand, welfare indices (Section 7.1) and greened national accounts (Ch. 8) attempt to synthesize the physical data in money terms. Physical and monetary accounts confirm (rather than overcome) the dichotomy. The ques-tion is, what does this mean for assessing sustainable growth and development? Q6: Can non-economic indicators assess sustainable economic growth and devel-opment? Q7: Accounting for sustainability: weighting by weight or pricing the priceless? Q8: Has economic growth been sustained? Indicators warn us about environmental and social risks and measure progress in reaching particular targets (Section 4.2.3). Aggregation of indicators into indices fails to assess the question of how bad ‘it’ (the overall environ-mental-economic situation) is. The reasons are judgemental indicator selection, aggrega-tion problems and lack of operational sustain-ability concepts (Sections 5.3, 7.1). - Environmentalists opt for physical measures of the violation of collective sustainability targets (Sections 2.4, 6.2.3, 6.3.1). Economists object to overriding individual preferences and rely on market prices to evaluate environmental scarci-ties and sustainability (Section 2.3, 8.1). - Physical balances indicate pressure on natural systems (Section 6.3.1) but fail to integrate environmental and economic effects (costs and benefits) (Section 6.3.3). - Integrated (monetary) accounts assess the inte-grative notion of sustainable economic growth (Section 8.2.1). - The short answer is yes – weakly, and no – strongly. - For strong sustainability, most countries show only relative dematerialization, i.e. delinkage of material input from economic growth at levels below sustainability targets (factors 4 or 10) (Sections 6.3.2, 10.1.2). (continued) 15.3 How Bad Is It? (continued) Q9: Are we better off? 267 - For weak sustainability, case studies of green accounting generally indicate capital mainte-nance, i.e. positive environmentally adjusted net capital formation, except for some low-income African countries (Sections 8.3, 10.1.3). - No: some welfare calculations (ISEW/GPI) confirm the threshold hypothesis of declin-ing welfare at high levels of economic growth (Section 10.1.1). - Probably: several GPI calculations fail to con-firm the hypothesis (Section 10.1.1). - Yes: in terms of wealth and consumption, which might not make us happy, but reflect the continuing human quest for more prosperity (Section 3.2.1). 15.3.2 How Bad Will It Be? Descriptive models of structural analysis (Section 10.2) look backward: they seek to quantify the causes (driving forces) of past developments, whose influence can be expected to reach into the future. Predictive models such as the Environmental Kuznets Curve (EKC) and the Limits-to-Growth (LTG) model (Ch. 11) make such implicit trend analysis explicit. Prescriptive models try to give a direct answer to the final question of ‘what can be done?’ Q10: What are the causes of environmental deterioration? Q11: Will economic growth be sustainable? - Structural profiles (Section 10.2.1), input-out-put analyses (Section 10.2.2) and decomposi-tion analyses (Section 10.2.3) show economic growth and growth-based energy use as the principal cause of CO emission, counteracted to some extent by eco-efficient technology. - Critique: model assumptions and use of placeholders (CO ) impair the assessment of total environmental impact (Sections 4.3, 10.2.3, 12.1.2). - Yes: some economists support the EKC hypothesis of environmental improvement (after initial decline) with high standards of living (Sections 2.2.2, 11.1); they reject the LTG model’s predictions of environmental and social collapse, citing model flaws (Section 11.2.2). - No: ecological economists and environmentalists reject the EKC hypothesis on empirical (valid only for selected pollutants) and moral (inaction in a full world invites disaster) grounds (Sections 11.1.2,3; 13.1); they adopt the LTG model as the theoretical and empiri-cal underpinning of likely environmental disaster (Section 11.2.1). 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