Principles of Ecological Economics: Guidance for a Sustainable Society with Robert Costanza, PhD, Wednesday, January 23, 2008
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Ecological economics vs. conventional economics

Ecological economics is a growing transdisciplinary field that aims to improve and expand economic theory to integrate the earth’s natural systems, human values and human health and well-being. In conventional economics, the primary goal is to increase goods and services produced by human industries (built capital), and the gross domestic product (GDP) is a national measure of the total value of goods and services produced annually. Conventional economics assumes that ever-increasing GDP is desirable, possible, and that everyone benefits. Ecological economics takes a broader perspective and recognizes that there are more things that contribute to human well-being than just the amount of stuff, such as health and education (human capital), friends and family (social capital) and the contribution of the earth and its biological and physical systems (natural capital). Its goal is to develop a deeper scientific understanding of the complex linkages between human and natural systems, and to use that understanding to develop effective policies that will lead to a world which is ecologically sustainable, has a fair distribution of resources (both between groups and generations of humans and between humans and other species), and efficiently allocates scarce resources including “natural” and “social” capital.

What is sustainability and how does it relate to Ecological Economics?

Ecological economics reminds us that "sustainability" is a multi-faceted goal by focusing on the complex interrelationship between different elements of sustainability: ecological sustainability, social sustainability and economic sustainability. It reminds us of the complexity of the many interacting systems that make up the biosphere and the uncertainty that is a fundamental characteristic of all complex systems. Ecological economics is concerned with the problem of assuring sustainability in the face of uncertainty, and aims to maintain the resilience of ecological and socioeconomic systems by conserving and investing in natural, social and human assets.

 

Ecological economics also seeks true economic efficiency. Economic efficiency and good economic decision making are not possible if all of the costs and benefits are not considered or included in prices. Often current market prices do not capture the full costs of an economic activity that depletes resources or damages natural systems (natural capital); or inflicts costs to human health and well-being (social and human capitals) caused by pollution or other side effects of the activity. These excluded costs are called "externalities", defined as costs that are not included in the price of the product but are shouldered by a third party, outside the producer/seller and buyer/consumer. Capture of these costs in the market would provide a powerful incentive to move towards sustainability.

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Source: Sustainability 2030

Economics is the study of the nature and rationale behind decision-making by humans (individuals and groups) in relation to the allocation, use and distribution of valuable resources (living or non-living). It provides a set of analytical tools that can be used in any given situation in which the scarcity of means requires the balancing of competing objectives. Therefore, an economic resource is a good or service for which there is sufficient demand (scarcity) that people are willing to pay for it (price) - in general, the scarcer the good, the higher the price.

A natural resource can be described as any naturally occurring environmental component which supports or supplies the basis for economic activity, in terms of goods, services or attributes. Natural resources can be regarded as physical or biological. Physical resources include soils, minerals and quarry materials, hydrocarbons, water and atmospheric conditions. Biological resources include forests, wetlands beaches, oceans, and their associated flora, fauna and other valuable components. 

In general, the focus of "resource economics" is primarily on the optimal exploitation of natural resources (goods, services and attributes), whereas "environmental economics" is more concerned with the economics of environmental quality and pollution - it may be regarded as the application of the principles of economics to the study of how environmental resources are developed, managed and conserved.

The primary focus of environmental economics is on the nature and rationale of human decision-making processes that have consequences for the natural environment. However, it is also concerned with how economic institutions and policies can be modified to bring environmental impacts more into balance with human preferences as well as the needs of the ecosystem itself. The study of the behaviour of individuals and small groups of resource users is known as "micro-economics"; "macro-economics" is the study of the economic performances of economies as a whole. Environmental economics is therefore concerned with both of these considerations; however, there is a general tendency for there to be more focus on micro-economics than macro-economics.