Content
The Big Picture: Why Environmental Economics Matters
The Importance of the Environment
This course will approach environmental economics from the perspective that the environment matters and that saving the environment matters.
Historical Climate Context
The Last 100,000 Years of Temperature
A graph of Earth’s surface temperature for the last 100,000 years reveals two critical observations. First, there were wild swings in temperature as glaciation occurred, with temperatures fluctuating significantly. Second, it was considerably cooler before modern times. These massive fluctuations and cooler temperatures characterized most of this period.
The Holocene Era
About 15,000 years ago, a significant change occurred, marking the beginning of a new geologic era called the Holocene. The Holocene is characterized by two things: slightly warmer temperatures and, more importantly, the absence of dramatic temperature swings. This stability created what many scientists call the Goldilocks Zone, where conditions became suitable for the emergence of many aspects of our current life. This is when agriculture began and when the first great human civilizations, such as the Sumerians and Egyptians, emerged. None of these developments occurred during the earlier period of temperature instability.
We currently exist in this unique and special Goldilocks zone, which is extremely beneficial but also emphasizes the importance of remaining within this stable region. There is reason for concern about our continued stability in this zone.
The Anthropocene Concept
Some scientists argue that we are on the edge of transitioning into a brand new ecological zone, leaving the Holocene and entering something called the Anthropocene. This concept has gained enough recognition to be featured on the cover of The Economist, which, while somewhat humorous as a form of scientific validation, does indicate the importance of this concept in economic discussions. There is considerable scientific debate about what actually constitutes a geologic era, but the underlying concern about significant environmental change remains valid.
Understanding Climate Transitions
A three-dimensional representation of climate transitions helps frame the questions this course will address. This visualization shows three key dimensions: the passage of time, stability (which is decreasing), and global temperature. The stability dimension is analogous to a marble in a bowl, where the bottom of the bowl represents a stable point. Multiple stable points exist along the temperature spectrum.
Climate change is a fundamental basis of this course. The change that defined the Holocene, and what concerns us about modern-day anthropogenic climate change, will be examined through the lens of adaptation, understanding what climate change does to the sustainability of our economies.
Thresholds and Choices
The concept of thresholds is central to understanding the choices before us. We can think of humanity as being at a decision point where we have choices about how much to emit. Emitting a lot pushes us toward higher temperatures and more severe climate change, while we also have options for stabilizing the climate and pushing it in the opposite direction.
The concerning possibility is that feedback loops may exist, and there is substantial evidence that they do. Once we cross certain thresholds, the rate of change may accelerate, leading to a split in possible futures. One equilibrium, sometimes called Hothouse Earth, represents a world with significantly higher temperatures. Alternatively, we could avoid that planetary threshold by reducing emissions now and end up in a less ideal but still much better equilibrium that remains stable at lower temperatures.
This framing of how our decisions push us toward different equilibria will be used throughout the course, applying not just to temperature but to a variety of environmental factors.
Planetary Boundaries Framework
Introduction to Planetary Boundaries
The concept of planetary boundaries is one that is just beginning to gain public recognition. Scientists like Johann Rockstrom have been compelling speakers who can give TED Talks about these issues and motivate people to action. This framework expresses the potential peril we face, as illustrated by recent papers with titles like “Earth Beyond Six of Nine Planetary Boundaries.”
Categories of Planetary Boundaries
While a detailed discussion of the science behind each boundary is more appropriate for an environmental science major, the main categories include climate change, biospheric integrity (another way of describing biodiversity loss or species loss), genetic integrity, and land systems change. The framework identifies a safe operating space represented by a green area. For some indicators, we have not yet surpassed the planetary boundary, but unfortunately for six of them, we are in a tenuous space beyond the boundary, essentially waiting for consequences to materialize.
The Success Story: Ozone Depletion
This course will emphasize hopefulness, and the story of stratospheric ozone depletion provides a powerful example. The ozone hole was a serious problem that could have led to significant increases in skin cancer, but it was solved through collective action. Scientists identified that CFCs, a chemical used in refrigeration, were creating the ozone hole. The Montreal Protocol was developed and implemented, successfully addressing the problem. This is one planetary boundary that has not been surpassed, essentially because of successful collective action.
Some challenges are harder than the ozone problem. The ozone issue involved just one hole, one small spot, and one chemical. Other issues like climate change may be much more complex. However, the key takeaway is that collective action can solve these problems.
Limitations of the Planetary Boundaries Framework
The planetary boundaries framework establishes that there are biophysical boundaries that should not be crossed, and we should tread carefully. The economy should not push these boundaries, and we need to understand the costs to the economy from surpassing them.
However, this framework has limitations. While it is a very popular framing, its primary effect may be to create fear. Fear and depression do not lead people to make positive change on the environment. It is important to know the status, but the framework is not very useful for guiding action. Additionally, it provides no information about what is pushing these variables around or what is causing us to possibly surpass the planetary boundaries.
The Safe and Just Corridor: The Planetary Donut
Introduction to the Donut Framework
The Safe and Just Corridor, also known as the Planetary Donut, provides a more complete framing. This framework maintains planetary boundaries while adding an important dimension: humans. The planetary boundaries framework only describes the biophysical state of the world without addressing the underlying people, their choices, and their well-being.
Kate Raworth’s Contribution
The Planetary Donut was first introduced in 2017 by Kate Raworth. She refers to the planetary boundaries as the ecological ceiling but adds a critical layer called the social floor or foundation. The shape creates a donut, where for any indicator, we do not want to exceed the planetary boundary, but we also must ensure that we are producing the things necessary to create the social foundation.
Finding the Safe and Just Corridor
Kate Raworth’s central question concerns what policies can avoid falling below and undershooting on the production of key things we care about while also not overshooting and exceeding planetary boundaries. The goal is to identify how we can stay in the safe and just corridor.
In 2023, Kate Raworth published in Science the formal paper describing this framework with quantitative metrics in detail. There are now many ways to apply this framework, with various other donut-based analyses being developed as popular organizing principles.
Limitations of the Donut Framework
The Planetary Donut framework is a significant improvement over planetary boundaries alone because it includes human agents in the system. However, it still does not answer fascinating questions like what should we do and what policies might get us into the safe and just corridor.
The framing throughout this class will be to analyze those policies. We need to understand the Earth’s systems at play to be smart enough to figure out what policies might work or what impact they would have, but the focus will be on the actual levers we can pull.
The Role of Economics in Environmental Solutions
The Tension Between Economics and Environmentalism
What is the economist’s role in solving environmental problems? This question arises frequently in discussions with ecologists, conservation biologists, and others less focused on economics as a discipline. There is often a feeling of needing to apologize for economics because the old framing of environmental economics was the environment versus the economy. This framing has been used by various interests in society to polarize people and discourage care about important environmental issues.
One side of this polarization comes from environmentalists who assume that anything an economist says will be bad because it relates to perfect markets, capitalism, and endless growth. These are important issues to address, but economics is actually an incredibly useful lens for examining environmental questions. It is not an either/or situation.
The Success of Economics at Improving Physical Consumption
Economics has performed phenomenally well at improving physical consumption. Modern economics can be traced to right after World War II, when systems of national accounts were created to define, among other things, GDP.
GDP is now constantly reported and obsessed over, making and breaking presidents and policies. It was essentially a measure of how much the economy can produce, which is critically important during wartime when military success depends on literally producing tanks and other materials. It serves as a good measure for the well-being derived from physical consumption.
These systems of national accounts were navigational tools designed to help navigate out of the Great Depression. The course will cover specific tools that fit within this framework and address how they succeed or fail at simultaneously accounting for the value of nature and the value of production.
Evidence of Economic Success
Poverty Reduction
It is easy to forget how significant the change has been in the last 100 years. From 1820 to 2015, the world population living in extreme poverty has decreased dramatically. In the earlier era, the probability of struggling to have enough calories to survive was 90 to 95 percent. Now it is the opposite, with a drastic reduction in poverty.