Economics & Sustainable Development (MAN-BKV17-2021-1-V)
Radboud University
Content
Lecture 1: Introduction
1. Views of sustainability
- Lecture 2: Weak versus Strong sustainability
● Literature: Weak versus strong sustainability
Lecture 3: How to value nature
● Literature: Ecological and economic dimensions in ecosystem and biodiversity valuation
● Seminar: valuation methods and ecosystem services
2. Beyond GDP and growth
Lecture 4: Beyond GDP
● Literature: Limits to Growth
Lecture 5: Alternatives for the future
● Literature: Beyond GDP
● Seminar: Exam questions
3. Behaviour, cooperation and sustainable development
Lecture 6: Impacting individual behaviours
● Tackling environmental problems with behavioural insights (OECD)
Lecture 7: Engaging citizens
● Literature: cope with climate change
● Seminar: weak- vs strong sustainability and behaviour
4. Firms and sustainability
Guest Lecture 8: Circular Economy
● Literature: resources, conservation and recycling
Lecture 9: Corporate Social Responsibilty
● Literature: individual and corporate responsibility
● Seminar: Exam questions
5. International agreements
Guest Lecture 10: Innovation policy and energy sector
● Energy technology innovation
Lecture 11: Fiscal policies and international cooperation
● Literature: public finance and fiscal policy reform
6. Sustainable development and the financial system
Lecture 12: Money and green finance
Guest Lecture 13: Climate, finance and role of central banks
● Literature: Climate bubble
● Literature: Climate change as financial risk (NGFS)
Lecture 14: Conclusion and paths forward
● Literature: Decarbonise the welfare state
Hoorcollege 1: Introduction
,- population growth since IR accompanied by increasing wealth and energy consumption
● doubling of wealth = 80% increase environmental pressures
- global economy 5x as big as ½ century ago → 60% ecosystems degraded
- change in weather patterns → migration
Economic capitalist system
- economic system within larger environment of materials
● production: means privately owned, produce for the market to make a profit
● consumers: earn wages, profit or rent from labour
● waste: materials move out economic system, recycling: turn back into the system
- economics and (sustainable) environment are intertwined
Sustainable development
Limits to Growth (1972): condition of ecological and economic stability that is sustainable far
into the future and satisfied basic materials needs of people
- Blueprint for Survival (1972): stable society that could be sustained indefinitely while giving
optimum satisfaction to members
- Brundtland’s World Commission: development that meets needs of the present without
comprising the ability of future generations to meet their needs
Conclusion
- Companies like Exxon and Shell discovered rising environmental pressures not
corresponding with sustainable development , but didn’t publish it
- This course: How to conceive sustainable development?
1. Views of sustainability
,Hoorcollege 2: Weak vs. Strong sustainability
Weak vs. Strong sustainability
- Weak: human capital can substitute natural capital (environmental economics)
● relative scarcity
- Strong: human capital and natural capital are complementary, but not interchangeable;
some environmental functions cant be duplicated by humans
● absolute scarcity, non-mainstream and pluralism (ecological economics)
- economics & sustainability: key terms involved in human-economy-environment relation
Weak sustainability and neoclassical economics
- economics: science which studies human behaviour as relationship between ends and
scarce means with multiple uses
- neoclassical:
● maximisation of profits
● self-interest implies societal interest
● price mechanism creates balance to prevents exhaustion (relative scarcity)
● rational people; homo economicus
○ actors have preferences; try to optimize their satisfaction; respond to
incentives; act out of self-interest; make marginal decisions; self-regulating
market (invisible hand) transforms self-interest into public interest
● small government, efficient, competitive markets
Types of goods/services
Excludable Non-excludable
Rivalry Private goods Common pool resources
Non-rivalry Club goods Public goods
Types of capital
Natural capital: stock of raw materials, energy, biodiversity, water and air
physical capital: man-made infrastructure
human capital: level of development and health of population
social capital: social relations, mutual trust, standards and values
institutional capital: measures quality of formal institutions
Market failures
- when markets don’t enable people’s maximum satisfaction
● - Externalities: social costs > private costs
● Freeriding problem: resource burden by using common resources without paying
○ Tragedy of the Commons: self-interests causes depletion of commons
Weak sustainability
- Neoclassical theory: total capital is preserved, because human- capital can completely
replace natural capital; relative scarcity
● focus on technology and innovation
● nature/environment as subsystem of the economy
● economy can grow without limitation
, Strong sustainability
- Biofysical: natural capital once substituted into human capital can’t be reversed, so natural
capital must be preserved
● human capital is reproducible, but natural capital is irriversible
● natural capital services to well-being are multidimensional
○ critical natural capital: services essential for human life
● natural capital complementary to human capital
○ intergenerational justice: future generations same right to natural capital
- absolute scarcity: no/little substitution of natural resources possible
- economy is a subsystem of the environment
- limited human rationality
Sustainable steady state
- interrelated transdisciplinary goals of ecological economics:
● sustainable scale (environment)
● fair distribution (society)
● efficient allocation (economy)
- from economic growth towards sustainable steady state; cooperation > competition
Recap
- basics of neoclassical, mainstream economics
- two paradigms on scarcity and economy-environment relations
● need for pluralism (weak + strong) accepted by both
- spectrum weak versus strong sustainability: neoclassical → environmental →
ecological economics → deep ecology movement
Weak versus strong sustainability
- debate on sustainability between economy-environment
- sustainable development translated into intergenerational equity
● any decrease in welfare seen as unsustainable
○ survivability: allows reduction of welfare if consumption exceeds a minumum
○ welfare hard to operationalize
1) Hicksian sustainability: non-decreasing consumption of produced and natural goods
2) Hartwick-Solow sustainability: maintain total stock of society
- operationalisation: Z = S/Y - dm/Y - dn/Y
● S=savings, Y=GNP. dm=depreciation man-made capital, dn=dep. natural capital
● weak sustainability, because it assumes man-made capital as substitutable for
natural capital
○ value based indicators: choice between man-made or natural capital
○ Wrong! Nauru phosphate mining made inhabitants rich, but after crisis the
inhabitants got poor and their resources were devastated
Strong sustainability
- non-decreasing consumption by conserving manmade and natural capital
- every component of natural capital must be preserved, but this is impossible
● current economic system relies on fossil fuels
● natural change
Radboud University
Content
Lecture 1: Introduction
1. Views of sustainability
- Lecture 2: Weak versus Strong sustainability
● Literature: Weak versus strong sustainability
Lecture 3: How to value nature
● Literature: Ecological and economic dimensions in ecosystem and biodiversity valuation
● Seminar: valuation methods and ecosystem services
2. Beyond GDP and growth
Lecture 4: Beyond GDP
● Literature: Limits to Growth
Lecture 5: Alternatives for the future
● Literature: Beyond GDP
● Seminar: Exam questions
3. Behaviour, cooperation and sustainable development
Lecture 6: Impacting individual behaviours
● Tackling environmental problems with behavioural insights (OECD)
Lecture 7: Engaging citizens
● Literature: cope with climate change
● Seminar: weak- vs strong sustainability and behaviour
4. Firms and sustainability
Guest Lecture 8: Circular Economy
● Literature: resources, conservation and recycling
Lecture 9: Corporate Social Responsibilty
● Literature: individual and corporate responsibility
● Seminar: Exam questions
5. International agreements
Guest Lecture 10: Innovation policy and energy sector
● Energy technology innovation
Lecture 11: Fiscal policies and international cooperation
● Literature: public finance and fiscal policy reform
6. Sustainable development and the financial system
Lecture 12: Money and green finance
Guest Lecture 13: Climate, finance and role of central banks
● Literature: Climate bubble
● Literature: Climate change as financial risk (NGFS)
Lecture 14: Conclusion and paths forward
● Literature: Decarbonise the welfare state
Hoorcollege 1: Introduction
,- population growth since IR accompanied by increasing wealth and energy consumption
● doubling of wealth = 80% increase environmental pressures
- global economy 5x as big as ½ century ago → 60% ecosystems degraded
- change in weather patterns → migration
Economic capitalist system
- economic system within larger environment of materials
● production: means privately owned, produce for the market to make a profit
● consumers: earn wages, profit or rent from labour
● waste: materials move out economic system, recycling: turn back into the system
- economics and (sustainable) environment are intertwined
Sustainable development
Limits to Growth (1972): condition of ecological and economic stability that is sustainable far
into the future and satisfied basic materials needs of people
- Blueprint for Survival (1972): stable society that could be sustained indefinitely while giving
optimum satisfaction to members
- Brundtland’s World Commission: development that meets needs of the present without
comprising the ability of future generations to meet their needs
Conclusion
- Companies like Exxon and Shell discovered rising environmental pressures not
corresponding with sustainable development , but didn’t publish it
- This course: How to conceive sustainable development?
1. Views of sustainability
,Hoorcollege 2: Weak vs. Strong sustainability
Weak vs. Strong sustainability
- Weak: human capital can substitute natural capital (environmental economics)
● relative scarcity
- Strong: human capital and natural capital are complementary, but not interchangeable;
some environmental functions cant be duplicated by humans
● absolute scarcity, non-mainstream and pluralism (ecological economics)
- economics & sustainability: key terms involved in human-economy-environment relation
Weak sustainability and neoclassical economics
- economics: science which studies human behaviour as relationship between ends and
scarce means with multiple uses
- neoclassical:
● maximisation of profits
● self-interest implies societal interest
● price mechanism creates balance to prevents exhaustion (relative scarcity)
● rational people; homo economicus
○ actors have preferences; try to optimize their satisfaction; respond to
incentives; act out of self-interest; make marginal decisions; self-regulating
market (invisible hand) transforms self-interest into public interest
● small government, efficient, competitive markets
Types of goods/services
Excludable Non-excludable
Rivalry Private goods Common pool resources
Non-rivalry Club goods Public goods
Types of capital
Natural capital: stock of raw materials, energy, biodiversity, water and air
physical capital: man-made infrastructure
human capital: level of development and health of population
social capital: social relations, mutual trust, standards and values
institutional capital: measures quality of formal institutions
Market failures
- when markets don’t enable people’s maximum satisfaction
● - Externalities: social costs > private costs
● Freeriding problem: resource burden by using common resources without paying
○ Tragedy of the Commons: self-interests causes depletion of commons
Weak sustainability
- Neoclassical theory: total capital is preserved, because human- capital can completely
replace natural capital; relative scarcity
● focus on technology and innovation
● nature/environment as subsystem of the economy
● economy can grow without limitation
, Strong sustainability
- Biofysical: natural capital once substituted into human capital can’t be reversed, so natural
capital must be preserved
● human capital is reproducible, but natural capital is irriversible
● natural capital services to well-being are multidimensional
○ critical natural capital: services essential for human life
● natural capital complementary to human capital
○ intergenerational justice: future generations same right to natural capital
- absolute scarcity: no/little substitution of natural resources possible
- economy is a subsystem of the environment
- limited human rationality
Sustainable steady state
- interrelated transdisciplinary goals of ecological economics:
● sustainable scale (environment)
● fair distribution (society)
● efficient allocation (economy)
- from economic growth towards sustainable steady state; cooperation > competition
Recap
- basics of neoclassical, mainstream economics
- two paradigms on scarcity and economy-environment relations
● need for pluralism (weak + strong) accepted by both
- spectrum weak versus strong sustainability: neoclassical → environmental →
ecological economics → deep ecology movement
Weak versus strong sustainability
- debate on sustainability between economy-environment
- sustainable development translated into intergenerational equity
● any decrease in welfare seen as unsustainable
○ survivability: allows reduction of welfare if consumption exceeds a minumum
○ welfare hard to operationalize
1) Hicksian sustainability: non-decreasing consumption of produced and natural goods
2) Hartwick-Solow sustainability: maintain total stock of society
- operationalisation: Z = S/Y - dm/Y - dn/Y
● S=savings, Y=GNP. dm=depreciation man-made capital, dn=dep. natural capital
● weak sustainability, because it assumes man-made capital as substitutable for
natural capital
○ value based indicators: choice between man-made or natural capital
○ Wrong! Nauru phosphate mining made inhabitants rich, but after crisis the
inhabitants got poor and their resources were devastated
Strong sustainability
- non-decreasing consumption by conserving manmade and natural capital
- every component of natural capital must be preserved, but this is impossible
● current economic system relies on fossil fuels
● natural change
