Ecological Economics

Author: Bartosz Bartkowski | 18th of December 2016
Patron and academic review: Prof. Dr. Irene Ring

1. Core elements

The core idea of ecological economics is that human economic activity is bound by absolute limits. These limits are not entirely fixed, however, since they are co-determined by: (1) (fixed) ‘planetary boundaries’ (Rockström et al. 2009); and (2) (dynamic) social factors, such as values, institutions etc. The economy is viewed as a sub-system embedded in the larger systems of society and the biosphere. The emphasis of the relevance of the laws of thermodynamics to economics is at the core of this view, and is also vital to the historical foundations of ecological economics. This is exemplified by the pioneering book by Nicholas Georgescu-Roegen on The Entropy Law and the Economic Process (1971). Thus, ecological economics, as opposed to neoclassical economics, focuses not only on questions of efficiency and distribution, but it does so against the backdrop of the scale of material throughput (see Terms, analysis, conception of economy). Furthermore, the following issues are emphasized: institutions, power relations, uncertainty and ignorance. In this context, interactions between the economy, society and the environment are analysed, while always keeping in mind the goal of a transition towards sustainability.

While the absolute limits of material throughput is the main idea underlying ecological economics, there are further more or less agreed-upon ‘core beliefs’ (Røpke 2005), upon which different representatives lay different emphasis. These are:

• environmental problems as the critical challenge faced by modern societies;
• a strong focus on sustainability;
• pluralism of methods, values etc.;
• a post-normal understanding of science and transdisciplinarity;
• a systems perspective, holism;
• a focus on distributive issues (both intra- and intergenerational); and
• acknowledgement of the intrinsic value of nature.

2. Terms, analysis, conception of economy

Ecological economics conceives of the economy as an open system embedded in the larger systems of society and the biosphere. Economic activities are constrained by the biosphere’s carrying capacity, i.e. its ability to sustain the material throughput, also called social metabolism, which is the sum of the natural resources used in human production processes and necessary to sustain human activities. Most ecological economists subscribe to the perspective of strong sustainability, i.e. the assumption that natural capital is only very limitedly substitutable by other forms of capital. The unsubstitutable, essential stocks of natural capital are called critical natural capital (CNC). Its existence leads to the contention that there are inherent limits to growth faced by human economies.

It is usually assumed in ecological economics that our knowledge about both the social and natural systems (or, viewed together, social-ecological systems) are inherently limited, so that we face uncertainty or even ignorance about the relevant processes and interactions. This leads to an emphasis on concepts such as resilience (the ability of systems to remain in a given state in the face of disturbances) and the precautionary principle or safe minimum standards (both concepts emphasising the need to minimise the risk of potentially disastrous actions).

Very often, non-human nature is framed as natural capital, a stock from which society derives flows of ecosystem services. However, the instrumental, anthropocentric and essentially reductionist nature of this concept has been much-debated within the ecological economics literature. Ecological economists also emphasise the relevance of cultural ecosystem services, such as aesthetics, recreation and similar ‘non-material’ uses of ecosystems; these are often under-represented by other economic perspectives (Chan et al. 2012).

The analytical approach of ecological economics is holistic and pluralist. First, it adopts a systems perspective, looking at ecological and economic processes from the perspective of systems, and less from the perspective of individuals. These systems are both natural ecosystems and society and its institutions. Second, it embraces pluralism of methods, approaches and values, though the extent of admissible or sensible pluralism is debated (see below). With regard to values, incommensurability (that the relevant values cannot be reduced to a common measure) is a much-debated challenge, the main questions of which are how widespread incommensurability is and how to deal with it.

3. Ontology

The basic element of ecological economics’ ontology is the view that natural resources and the absorption capacity of sinks are absolutely scarce. On the planetary level, the perspective is one of a closed system. Related to that, most ecological economists subscribe to the perspective of strong sustainability, i.e. they doubt that human-made capital can substitute for natural capital to a meaningful extent. This has been expressed by Herman Daly with respect to the difference between neoclassical economics and ecological economics regarding their pre-analytic visions: while mainstream economics views the economic process as a closed circular flow (depicted in many introductory textbooks), ecological economics sees the economy as embedded in the biosphere, deriving natural resources from it and emitting various kinds of pollution into it.

Ecological economics has a broader view of human nature than neoclassical economics’ homo economicus; for instance, the former includes in its analyses insights from behavioural science and cognitive and social psychology. In the area of economic valuation of environmental goods, this leads to questioning the assumption that human beings have pre-defined preferences even over complex environmental problems; rather, preferences have to be formed within deliberative, social processes (‘deliberative ecological economics’).

Ecological economics takes a holistic view of the world, which furthermore emphasises social and ecological dynamics. Collectives and systems are not simply a sum of their parts, they are complex entities with their own characteristics and behavioural properties. While static analysis is not completely absent from ecological economics, the focus is rather on dynamics and change.

4. Epistemology

Ecological economics is based on a post-normal understanding of science. This means that its primary interest is not simply understanding the world around us (‘truth’), but tackling specific problems faced by society, particularly sustainability-related problems (solutions). The following are key assumptions of the epistemology of ecological economics:

• The relationships between socio-economic and ecological systems are complex and there are many uncertainties involved.
• We face uncertainty or even ignorance regarding relevant processes and interactions in both systems, so empirical, context-related approaches are employed.
• Uncertainty, myopia and other externalities strongly reduce the informational usefulness of market prices.
• Values are contested, pluralistic and potentially incommensurable, which necessitates active engagement of science with stakeholders, i.e. transdisciplinarity.

Being inherently interdisciplinary, heavily influenced by biology, climate science, physics and other natural sciences, ecological economics has a strong orientation towards empirical testing of theories and hypotheses, grounded in a moderately falsificationist understanding of science.

5. Methodology

Since ecological economics is explicitly interdisciplinary in its general approach, it draws upon a large and diverse set of methods. These range from more ‘conventional’ methods shared with neoclassical environmental and resource economics, such as cost–benefit analysis (CBA), economic valuation, environmental-economic accounting, input–output analysis, econometric analyses, to more ‘heterodox’ methods such as multi-criteria analysis (MCA), deliberative monetary valuation (DMV), life-cycle assessment (LCA), qualitative methods, happiness economics and integrated environmental assessment. The choice of methods is dependent on the context and the particular research question. Mixed methods are also quite common, as it is widely acknowledged that particular methods (e.g. economic valuation) can provide only fragmentary information that has to be complemented by information from other sources (e.g. qualitative research).

A particularly potent and controversial area is the economic valuation of environmental goods. Here, ecological economists use methods common in neoclassical environmental economics, but also develop them further. Examples for this are the case of DMV, which abandons the assumptions of pre-defined preferences and partly transcends both methodological individualism, and the related debate on the meaning of social values of ecosystem services (Kenter et al. 2015).

6. Ideology and political goals

Ecological economics has a clear normative goal: the achievement of sustainability. Sustainability is understood to have both environmental and social components. Mostly, it is understood in terms of intra- and intergenerational justice: (1) the environment should be preserved so as not to undermine the ability of future generations to enjoy a good life; (2) within the current generation, injustice should be tackled. Accordingly, ecological economics questions the neoclassical idea of consumer sovereignty by directing normative demands at individuals.

Within ecological economics, the issue of whether a sustainable economy (sometimes called a steady-state economy) is compatible with modern capitalist structures is an important debate. Within this, discussion of concepts such as degrowth, steady-state economy, post-/agrowth, post-extractivism, buen vivir etc. is ongoing; strategies for a non-growing society are also being developed and investigated, including working-hour reductions, alternative monetary systems, sufficiency and self-subsistence strategies and circular economic processes.

7. Current debates and analyses

A recurring debate within ecological economics discusses its methodological and conceptual proximity to neoclassical environmental and resource economics. While some participants in the debate call for a radical break with all neoclassical elements, others argue for a more pragmatic approach, comprising the use of neoclassical methods where sensible and other methods and approaches elsewhere. Recent contributions to this debate have discussed the philosophical foundations of ecological economics including its stance towards constructivism (Spash 2013). However, an important missing or unclear element in ecological economic theory is a theory of human action (Vatn 2016). Another currently active strand within ecological economic literature is the development of an ecological macroeconomics, often in cooperation and exchange with Post-Keynesian economists (Rezai and Stagl 2016).

As mentioned above, economic valuation is a hotly debated topic. Special attention is given to the questions of whether it should be at all; under which circumstances economic valuation might be useful; where its limits are; and whether neoclassical valuation methods should be used; and if so, when (Kallis et al. 2013; Gsottbauer et al. 2015; Lo and Spash 2013). Some ecological economists find the estimation of rough prices of environmental goods important and helpful to inform decision-making processes, while others express concerns about the risk of the commodification of nature (e.g. Gómez-Baggethun and Ruiz Pérez 2011).

In a look-ahead essay in their Handbook of Ecological Economics, Martínez-Alier and Muradian (2015) identified the following ‘current concerns’ and future foci for ecological economics:

• ecosystem services, biodiversity and ecosystem governance, and related instruments in policy mixes (Ring and Barton 2015), including instruments like Payments for Ecosystem Services (PES);
• interactions between rising energy demands and climate change (transition towards a more sustainable energy generation system);
• socio-environmental conflicts (see, e.g. Berbés-Blázquez et al. 2016) and (collective) management of common resources;
• social metabolism and degrowth, development of sustainability indicators that reflect societal well-being better than GDP; and
• experimental and behavioural economics (e.g. attempts to develop a theory of human action, as called for by Vatn 2016).

8. Delineation: subschools, other economic theories, and other disciplines

Being an explicitly interdisciplinarity-oriented school, ecological economics has more or less active collaborations with numerous disciplines, schools and movements. Many members of the school have non-economic backgrounds, which facilitates exchange between different disciplines. With respect to growth, there is a strong relationship with the degrowth movement (much degrowth-related literature is published in the journal Ecological Economics). More generally, political ecology, urban ecology, industrial ecology, feminist economics, environmental/economic history and heterodox institutional economics have many overlaps with ecological economics and there is much cross-fertilisation between these schools. Close ties also exist to resilience research, while the social metabolism approach has a basis in sociology.

There are some differences between the regional societies. For instance, the United States Society for Ecological Economics (USSEE) has a more pronounced focus on systems thinking and society-ecosystems interactions, while the European Society for Ecological Economics (ESEE) emphasises social and institutional aspects of social-ecological systems.

A recently emerging sub-school is ecological macroeconomics, which is being developed in an active dialogue with Post-Keynesian economists. Another area of active exchange with other schools is DMV theory, where there are many connections to theories of deliberative democracy, as the idea is to enrich economic valuation  by deliberative elements and to make it more ‘democratic’.

9. Delineation from the mainstream

The boundary between ecological economics and neoclassical environmental and resource economics is fluent and hotly debated. Many ecological economists are active in both areas, and publish both in heterodox and mainstream journals. ‘Core’ ecological economics is represented by the International Society for Ecological Economics (ISEE) and its regional member societies (e.g. USSEE and ESEE).

In general, ecological economics differs from conventional environmental and resource economics due to its focus on intra- and intergenerational justice, the assumption of strong sustainability and a more holistic view of social-ecological systems. Also, its view of human beings is more flexible and pragmatic than the homo economicus, and the emphasis on institutions is stronger. Ecological economics explicitly acknowledges its normative background and emphasises the plurality of values people represent, going well beyond the narrow preference utilitarianism of neoclassical economics. Its research is clearly problem-oriented and policy-relevance is an important criterion. While neoclassical environmental and resource economics is based on the assumption of weak sustainability, most ecological economics subscribes to the idea of strong sustainability (Daly 1997a,b).

10. Institutions

Pioneers:

Sigfried von Ciriacy-Wantrup

H.T. Odum

K. William Kapp

Nicholas Georgescu-Roegen

Herman Daly

Kenneth Boulding

Journals:

Ecological Economics

Environmental Policy & Governance

Environmental Values

Organisations:

International: ISEE und regionale Vereinigungen: ASEE (Afrika), ASAUSEE (Argentinien, Uruguay), ANZSEE (Australien, Neuseeland), ECOECO BRAZIL (Brasilien), CANSEE (Kanada), ESEE (Europa), INSEE (Indien), SMEE (Mittelamerika), RSEE (Russland), USSEE (USA)

Germany: Vereinigung für Ökologische Ökonomie (vöö)

More: CASSE (Center for the Advancement of the Steady State Economy), Institute for Ecological Economics (Vienna University of Economics and Business), Gund Institute for Ecological Economics an der University of Vermont, Beijer Institute of Ecological Economics in Stockholm

References       

Berbés-Blázquez, M., González, J.A., Pascual, U., 2016. Towards an ecosystem services approach that addresses social power relations. Current Opinion in Environmental Sustainability, Sustainability science 19, 134–143.

Chan, K.M.A., Satterfield, T., Goldstein, J., 2012. Rethinking ecosystem services to better address and navigate cultural values. Ecol. Econ. 74, 8–18.

Daly, H.E., 1997a. Reply to Solow/Stiglitz. Ecological Economics 22, 271–273.

Daly, H.E., 1997b. Georgescu-Roegen versus Solow/Stiglitz. Ecological Economics 22, 261–266.

Georgescu-Roegen, N., 1971. The Entropy Law and the Economic Process. Harvard University Press, Cambridge, MA.

Gómez-Baggethun, E., Ruiz Pérez, M., 2011. Economic valuation and the commodification of ecosystem services. Prog. Phys. Geogr. 35, 613–628.

Gsottbauer, E., Logar, I., van den Bergh, J., 2015. Towards a fair, constructive and consistent criticism of all valuation languages: Comment on Kallis et al. (2013). Ecol. Econ. 112, 164–169.

Kallis, G., Gómez-Baggethun, E., Zografos, C., 2013. To value or not to value? That is not the question. Ecol. Econ. 94, 97–105.

Kenter, J.O., O’Brien, L., Hockley, N., Ravenscroft, N., Fazey, I., Irvine, K.N., Reed, M.S., Christie, M., Brady, E., Bryce, R., Church, A., Cooper, N., Davies, A., Evely, A., Everard, M., Fish, R., Fisher, J.A., Jobstvogt, N., Molloy, C., Orchard-Webb, J., Ranger, S., Ryan, M., Watson, V., Williams, S., 2015. What are shared and social values of ecosystems? Ecol. Econ. 111, 86–99.

Lo, A.Y., Spash, C.L., 2013. Deliberative Monetary Valuation: In search of a democratic and value plural approach to environmental policy. Journal of Economic Surveys 27, 768–789.

Martínez-Alier, J., Muradian, R., 2015. Looking forward: current concerns and the future of Ecological Economics, in: Martínez-Alier, J., Muradian, R. (Eds.). Handbook of ecological economics. Edward Elgar, Cheltenham, UK, 473–482.

Rezai, A., Stagl, S., 2016. Ecological macroeconomics: Introduction and review. Ecol. Econ. 121, 181–185.

Ring, I., Barton, D.N., 2015. Economic instruments in policy mixes for biodiversity conservation and ecosystem governance, in: Martínez-Alier, J., Muradian, R. (Eds.), Handbook of Ecological Economics. Edward Elgar, Cheltenham, UK, 413–449.

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Røpke, I., 2005. Trends in the development of ecological economics from the late 1980s to the early 2000s. Ecol. Econ. 55, 262–290.

Spash, C.L., 2013. The shallow or the deep ecological economics movement? Ecol. Econ. 93, 351–362.

Vatn, A., 2016. What ecological economics needs to advance. In: ESEE (Ed.). 1996–2016 Anniversary Bulletin: Reflections on two decades of Ecological Economics in Europe.