Session 8.

A Sustainable

Baltic Region

Ecological Economics

Markets, prices and budgets

in a sustainable society

Session 8 Structure

1. Strong and weak sustainability.

2. Making sustainability operational.

3. Sustainability in the real-world economies.

4. Economic growth and sustainability.

5. Equity within and between generations.

6. Environmental accounting and green budgets.

7. Market limitation.

8. Economic instruments for environmental protection.

9. Conclusive remarks.

1. Strong and weak sustainability

In the 1980s, long debates about different approaches to environmental policies led to the appearance of the sustainable development concept (see folia 2). Although today we don’t have generally accepted understanding of “sustainability”. The most of them address to the idea of the Brundtland report (WCED 1987) i.e. “to meet the needs of the present without compromising the ability of future generations to meet their own needs”. To be sustainable, a policy has to address environmental problems in a way that preserves both the physical and social bases for further development.

In the matter, there are two different points of view on future development, referred as strong and weak sustainability. The strong sustainability concept calls for maintaining stocks of both natural and manmade capital. The weak sustainability concept is consistent with depleting natural capital as long as it is offset by man-made capital accumulation. The question is, however, how long the two types of capital can sub­stitute for each other.

Discussing sustainability di­rects the attention to the physi­cal volume of inputs and outputs flowing through the world economy. This flow - conveniently called throughput - has been largely ignored by economic analysis, which focuses on the monetary value of its selected components rather than on its physical scale.

2. Making sustainability operational

Despite theoretical and practical problems, there have been at­tempts make 'sustain­able development' operational by proposing rules on how to use the environ­ment and natural resources in a sustainable way. In the direction Daly (1990) suggested the following three principles (see folia 2):

(i) With respect to the physical volume of inputs into the economy and its outputs: by consciously limiting the over­all scale of resource use, shift technological progress from the current pattern of maxi­mizing throughput to maxi­mizing efficiency understood as the ratio of economic effects achievable from a given throughput.

(ii) With respect to renewable re­sources: by exploiting these on a profit-maximizing sus­tained-yield basis, prevent them from driving to extinc­tion. More specifically this means that: (a) with respect to resources serving as inputs (such as plants and animals), harvesting rates should not exceed regeneration rates; (b) with respect to resources serv­ing as 'sinks' (such as the Earth's atmosphere), waste emissions should not exceed the renewable assimilative capacity.

(iii)With respect to exhaustible resources: maintain the total stock of natural capital by de­pleting its non-renewable natural components (such as mineral deposits) at a rate cor­responding to the creation of renewable substitutes.

What is even more important is that they help us to realize that environ­mental issues need to be seen in a much broader perspective than before.

3. Sustainability in the real-world economies.

Are these principles actu­ally applied in real-world econo­mies? The shortest answer is "no".

Stocks of renewable resources are being depleted and the carrying capacity of the environment has been transgressed in many parts of the globe. Fossil fuels are burnt at a faster pace than solar energy is being harnessed.

Nevertheless, the overall pic­ture is much more complicated. On the one hand, growing environmental aware­ness in the West is likely to re­sult in decreased pressure on the global throughput. On the other hand, if economies in transition succeed at establishing healthy markets and stable democracies, their domestic products have po­tential to grow fast over the next couple of decades.

While there are many exam­ples of carrying capacity being ex­ceeded, there is also a growing number of conscious efforts to limit emissions to the level that can be safely assimilated by the environment (see folia 3):

• Vienna Convention phasing out ozone-depleting substances;

• Ge­neva Convention on long-range transboundary air pollution;

• Washington Convention on trade in endangered species;

• Rio de Janeiro Conven­tion on biodiversity.

In fact, in many places world-wide, human populations have managed their resource bases sustainably for centuries. Obviously low densities of popu­lation were decisive in extraction rates being kept below the natu­ral regeneration rates. Positive trends can also be found in the area of the exhaust­ible resource sector. For example, the growing scarcity of metal deposits has been perceived by markets as a signal to increase the rate of re­cycling and/or to invest in devel­oping renewable substitutes. In their signaling role, markets are strengthened by policy instru­ments such as deposit-refund sys­tems, product charges, etc.

The aim of the session is to explain analytical techniques necessary to gauge progress, understand its logic and model policy options.