Valuation 12:Ecological Footprints

• The neo-classical approach to monetary valuation

• The critique• The alternative: The ecological

footprint• Critique on the alternative

Last weeks we looked at

• The neo-classical approach to the monetary valuation of environmental goods and services that are not traded on the market

• We will look at one alternative, the ecological footprint

• This approach challenges economic theory

Uses of economic valuation

• Valuation can serve different purposes• To determine the optimal level of policy

intervention – If an optimum is sought, the marginal external cost

function must be estimated, and expressed in money– Find optimum: Marginal benefit equals marginal cost

(Cost-Benefit Analysis)

• To calculate the compensation polluters need to pay to victims

• To value the total amount of environmental pollution and degradation, – For inclusion in the national accounts – To demonstrate value of environment Perhaps to achieve a more sustainable development

Sustainability -2

Bruntland report (WCED, 1987)Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Wonderful, but what does this mean?

Sustainability =

• Weak sustainability– Non-declining utility– Non-declining production opportunities– Non-declining yields of resource services

• Strong sustainability– Non-declining natural capital stocks– Ecosystem stability and resilience

• A social construct• All that, plus efficiency and equity

The critique on the neo-classical approach

• Last weeks we looked at neo-classical approach to the monetary valuation of environmental goods and services that are not traded on the market – With the exception of the damage cost approach

• The neo-classical theory of value is built on two premises:– Supply versus demand; or relative scarcity– Human preferences; or what people want

• The implications are, of course, that absolute scarcity is irrelevant, as long as people do not care – and that, if it does not matter to people, it does not matter

• There are, of course, also operational objections, and misinterpretations

The alternative• Wackernagel and Rees argue that

conventional monetary analyses seem blind to natural capital depletion– Market prices and other monetary valuation methods

are unreliable means of assessing the long-term viability of ecosystems that provide goods and services such as climatic stability, biodiversity, fuel etc

• They propose to use biophysical measures of natural capital instead

• They use a narrow definition of natural capital, the life-supporting natural capital– It is the capital that provides the basic life-support

services such as the ability to renew biomass-based resources and to assimilate waste

The alternative (2)• To track human demand on these life-

supporting services, they develop accounts that measure how much of the biosphere’s regenerative capacity is used by human economy

• These are called Ecological Footprints • Since its inception in 1995, the EF has become

tremendously popular, partly because of the energy of W&R and partly because it is a really simple indicator

• There a number of similar indices that are less popular but try do the same thing, that is, derive a superindicator measured in physical terms

The Ecological Footprint

• The EF measures the amount of renewable and non-renewable ecologically productive land area required to support the resource demands and absorb the wastes of a given population or specific activities

• When humanity's Footprint exceeds the amount of renewable biocapacity a draw down in natural capital is required and this is considered unsustainable

The EF land use types

• Cropland: crops for food, animal feed, fiber and oil

• Grassland and pasture: support grazing animals for meat, hides, wool, and milk

• Forests: provide timber, wood fiber and fuelwood as well as sequester carbon dioxide

• Marine and inland waters: provide fish and other products

• Built-up land: accommodates infrastructure for housing, transportation, industry, and for capturing renewable energy

Bio-productive areas

EF accounts express the use of land use areas in standardized units of biologically productive areas – termed global hectares (gha)

Il Orma Ecologica: An example

• 57 mln Italians drink some 15 mln tonnes of milk per year; an hectare yields some 500 kg milk, so that‘s 0.5 ha/cap

• They eat 26 mln tonnes of cereals, for which they need 0.2 ha/cap – the energy this takes comes later, the pesticides and nutrients are omitted

• They eat about 5 mln tonnes of meat per year; this takes 0.8 ha/cap – this is not just an average over space, but also over time

Il Orma Ecologica (2)• 57 mln Italians use 29 mln tonne of timber, 26 of

which is imported – with 2000 kg/ha, this take 0.25 ha/cap

• Italians consume 12 GJ of coal; absorbing the emitted carbon at 55 GJ/ha would take 0.2 ha/cap

• Italians have about 0.1 ha/cap of build-up area…• Suppose we have ha/cap for all land use types, we

cannot just add these up, because agricultural land is biologically more productive than are forests

• Multiplying space with the appropriate indicators, Italians use 4.2 ha/cap

• But, they have only 1.3 ha/cap!

Il Orma Ecologica (4)

• Italians use 4.2 ha/cap• But, they have only 1.3 ha/cap!• Note that the ecological footprint implicitly

condemns international trade – it states that Italy uses 3 times its allocated space, which is possible only because Italy forcibly uses other countries‘ room

• This point becomes even more pungent if one calculates the EF for cities; e.g., London‘s footprint is 200 times the size of the city

Ecological Footprints (ha/cap)EF Av.Cap Deficit

Argentina 3.9 4.6 0.7

Australia 9.0 14.0 5.0

Bangladesh 0.5 0.3 -0.2

Germany 5.3 1.9 -3.4

Iceland 7.4 21.7 14.3

India 0.8 0.5 -0.3

Indonesia 1.4 2.6 1.2

Singapore 6.9 0.1 -6.8

USA 10.3 6.7 -3.6

World 2.8 2.1 -0.7

Ecological Footprint

• World consumption takes up about 2.8 ha/cap, whereas the world has only 2.2 ha/cap available

• This is only possible because we are using up fossil resources – which is true for energy, soil and water

• This is a recipe for disaster, unless one considers that resource stocks are being replaced with capital and knowledge stocks

Rehdanz‘s footprint• My footprint is about 3.3 global hectare (German

average is 4.8) – if everyone were to live like me, we would need 1.8 Earths

• That is because I rarely eat meat, live in a flat and commute mostly by bike

• However, I attend international conferences and in years where those are far away my footprint increases to 5.8 gha (equivalent to 3.2 Earths)

• See the test on http://www.earthday.net/Footprint/index.asp

• This test may surprise you, shock you, or make you think, please remain calm ... But not too calm!!

Critique• The used weights are presumably physical and

ecological – and therefore have little relation to social or political priorities – this may reflect a higher truth, but is not handy for a decision analytic tool

• What to make of an assessment that praises Iceland and Indonesia, while condemning Bangladesh and Singapore?

• Part of this comes from using average productivity figures

Critique (2)• Why are crop land and roads equally

productive?• Why are all forests equal, regardless of how

they are managed?• Also, the EF does not distinguish between

sustainable and unsustainable land use– Quality does not matter– Intensive land use leads to lower EF but at the

expense of higher environmental pressure

• Land use is regarded to be associated with single functions only, but provide in many cases multiple services and functions – at least in reality

Critique (3)• How does the EF address environmental impacts?• Included are impacts related to fossil fuel combustion only• The land appropriated by fossil energy use makes up

more than 50% of the EF estimate for most developed countries

• This is mostly the land area needed to catch (assimilate) the CO2 emissions from burning fossil fuel, i.e. ‘carbon sink’ land (forests)

• Also, the more land will be (re)forested, the more expensive the option will become while other sustainable solutions are less land-intensive

• The EF is much dominated by energy use • Why not biomass energy, or solar power? – both would

lead to substantially lower numbers• What about other impacts and emissions?

Critique (4)

• The EF has an anti-trade bias and can, therefore, not be regarded as an objective indicator

• It does not distinguish between imports based on sustainable or unsustainable land use

• The EF completely neglects comparative advantages of countries and regions related to endowments of environmental and ecological resources – and the good things that trade can do for the economy and the environment

Critique (5)

• Most problematic, however, the EF has an absolute measure of value – much like the classical labour theory of value

• The labour theory of value found its grave, in theory as well as in practice

• Absolute value theories may work as long as the anchor is indeed dominant, but get increasingly complex if that is no longer the case

• Whether land dominates at present is, at best, questionable