Ecological and Environmental Economics

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Ecological and Environmental Economics

What are the differences between ecological and environmental economics? This table offers a good summary.

It’s from the paper, “Ecological Economics: Themes, Approaches, and Differences with Environmental Economics” (pdf), by Jeroen C.J.M. van den Bergh, professor of Environmental and Resource Economics in the Faculty of Economics & Business Administration and the Institute for Environmental Studies, VU University Amsterdam, and published as a Tinbergen Institute Discussion Paper.

The core of ERE (Environmental Resource Economics) is the theory of (negative) externalities or external costs. This considers environmental degradation and use of unpriced natural resources as a negative effect outside the market by one economic agent on another, without any form of compensation taking place. This implies that the environmental problem is cast in terms of an interaction between people (economic agents), that is, nature and environment are only implicitly described. EE (Ecological Economics) is instead more interested in an explicit modelling of people-environment or economic-ecological relations, by mapping out cause-effect relationships and dynamic processes within the environment (hydrological, chemical, physical and ecological). According to Turner et al. (1997) this is due to the fact that EE is more closely related to traditional “resource economics”, notably concerning renewable resources like fish, forests and water (Clark 1990, Neher 1990), than to environmental economics in a narrow sense (“economics of pollution”).

Another important opposition is between scale and allocation. ERE is aimed at optimal allocation and thus efficiency of use of scarce means (including resources). Environmental problems are translated through the concept “externality” (or “external effect” or “external cost”). The objective is to find the optimal level of an externality, which follows from striving towards optimal social welfare or Pareto efficiency. The latter is defined as a situation in which an improvement in the welfare of any individual cannot be achieved without a welfare loss for someone else. ERE considers natural resources (gas, oil, fish, timber), environmental quality, services rendered by the environment, and nature as scarce resources to which (optimal) allocation theories are applicable. Daly (1992) has since long argued that economists have neglected the issue of an optimal physical scale or size of the economy, and instead have focused completely on allocation issues. In the context of environmental sustainability and sustainable development goals, the scale problem has received much attention, shown also by academic and policy discussions about indicators for determining the physical dimensions of the economy (Gibson et al. 2000; see also Section 5).

EE has chosen sustainable development as its central concept. This is subsequently approached both qualitatively and empirically, with particular attention for spatial scales (ranging from local to global). Within ERE, sustainable development is usually regarded as being identical to sustainable growth, which is studied with general and abstract models that avoid any reference to historical and spatial aspects, as well as specific characteristics of countries. …

The main goals and criteria for evaluating developments, policies and projects differ between EE and ERE. The dominant criterion of ERE is “efficiency” (or sometimes a more limited version, such as cost-effectiveness). Most economists would regard this as something trivial and hardly ethical. Nevertheless, it presumes that “more is always better”. Furthermore, whereas in ERE distribution and equity are secondary criteria, EE emphasises (basic) needs, North-South welfare differences, and the complex link between poverty and environment. In addition, EE is best characterised by the “precautionary principle”, linked to environmental sustainability, with much attention to “small–probability–large–impact” combinations.

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