Ecological economics – an introduction

Inge Røpke

Ecological economics is a scientific field that cuts across the natural, social and human sciences. The basic concept of ecological economics is that human societies can be perceived as biological systems – metabolic organisms that are kept alive by the flow of energy and materials. Like other biological systems, human societies have physical and chemical properties, which means that social and economic processes can also be regarded as biophysical processes. Most people would agree with this, but ecological economics goes one step further and emphasises that social and economic processes should, therefore, not only be studied with terms taken from the social sciences, but also with terms from the natural sciences such as ecology and thermodynamics.

The idea that economic theory should include natural science understandings is not new. Following the formulation of thermodynamic theory in the 19th century, there was, for example, an attempt to give the concept of energy a central role in economic theory, and since then many other related ideas have been put forward. However, it was only when environmental and resource problems first appeared on the agenda in the 1960s that the time became ripe for the wider dissemination of the idea. In the field of economics, not least Nicholas Georgescu-Roegen and his student Herman Daly contributed to giving the ideas a more modern expression. In the 1970s and 1980s, researchers who studied fields as diverse as economics, energy, ecosystems and systems theory began to collaborate having been inspired by the ideas of Georgescu-Roegen and Daly. In the late 1980s, this resulted in the creation of ecological economics as an independent scientific field with an association and a scientific journal.

Compared to many other scientific fields, not least economics, the delimitation of ecological economics is very fluid and there are significant differences between the views of those who call themselves ecological economists. However, the basic notion of adopting a biophysical perspective involves some shared ideas.

Basic concepts in ecological economics

Limits to growth
First and foremost, the biophysical perspective involves limits to economic growth. In a thermodynamic perspective, the Earth is a closed system in which (almost) only energy is exchanged with the surrounding universe, and the economy is a metabolic organism that grows within the limits set by the biosphere. The larger the organism becomes – based on an ever-increasing flow of energy and materials – the greater the risk that it will undermine its own life-sustaining conditions.

The greatest risk is that the life-sustaining systems will be changed to such an extent that the world will be less well suited to human habitation. For example, we depend on the composition of the atmosphere, the water cycle, the nutrient cycle, the pollination of plants and soil fertility. The challenges are connected, for example, when attempts to restrict the use of fossil fuels for climate reasons lead to increased use of biomass for energy purposes and, thereby, to the overexploitation of land and water resources and pressure on biodiversity. Today, we live in a ‘full world’ where the economy has become so large compared to the biosphere that the systems that sustain life for humans are under threat in many ways.

Technology and caution
Technological optimists (including some traditional economists) are of the opinion that environmental challenges can be solved through technological development, while at the same time the standard of living in rich countries can continue to increase. However, ecological economists are sceptical of this because they think that the problems are so great that they need to be approached on all fronts: identifying technological improvements that increase the efficiency of resource use; limiting the increase in living standards and limiting population growth. In addition, only embracing technological change is problematic because our understanding of nature and our interaction with it is limited. The dynamics of nature’s development are so complex that we can not expect to become so insightful that we will be able to control it. There will not only be uncertainty about the effects of interfering with nature, but also basic ignorance in that we do not know what we do not know. As technological development often turns out to have unexpected side-effects, launching large-scale experiments, where the side-effects may be dramatic is particularly problematic. For example, typically, ecological economists prefer to intervene in order to limit climate change through prevention rather than hoping that future developments in geo-engineering will make it possible to manipulate the climate on a large scale.

The current challenge in an energy-historical perspective
When ecological economists describe the current challenge as being very great, it is related to an energy-historical perspective. In order for a species to be able to survive, it must be able to obtain more energy through food than the amount of energy that is required to produce the food, while there must be a surplus for reproduction and to cope with the inroads made by its external and internal enemies. Because of the central importance of energy, a biophysical perspective on humanity’s history will focus on how people over time have acquired the necessary energy, whether there has been an energy surplus and if so, how it has been utilised. A distinction is made between three periods in human history each with its own energy basis. Firstly, the hunter-gatherer society, for which the energy basis was purely photosynthesis, which provided biomass for food and heating.

This was followed by the agricultural society where the exploitation of biomass was made increasingly efficient through cultivation and was also converted into pulling power from animals, and where energy based on water and wind power was mobilised. Finally, the industrial society emerged, which primarily exploited fossil energy sources. Biomass is, of course, still essential in the form of food, but fossil fuel became completely dominant as an energy source and still is. The use of fossil fuels in combination with the technologies that can exploit them has enabled a huge leap in living standards and massive population growth. Therefore, today, we consume a great deal of energy, while at the same time we need to find a new energy basis because the climate problem means that we have to limit carbon emissions. We are on the brink of a radical transformation into a fourth phase in humanity’s energy history.

Many economists do not consider the importance of energy because energy production represents a very small part of GDP. However, when you look at energy in a thermodynamic perspective, it becomes clear that fossil fuels play a major role in economic growth because they are in the form of concentrated work energy (also called exergy, i.e. high quality energy that can be used to perform work, in contrast to heat energy). Replacing them will be a great challenge because the alternatives do not have the qualities of fossil fuels and because the conversion process requires major changes to the physical and social structures of society.

The ethical demand and values
The way in which the nature of the challenge is perceived involves values. It is not uncommon for economists to think of their own theories as being value-free, i.e. descriptive and analytical tools which are in themselves neutral, but which can be used by different political groups to promote their respective political goals. However, in the field of ecological economics, it is generally acknowledged that values are always embedded in the concepts and perspectives that are applied to societal development regardless of whether the theorist is aware of it or not. The idea that there is a limit to growth in terms of resource consumption and pollution, and that the challenges can not only be tackled with technological change forms the basis for the value-related view that society should aim to achieve a more even distribution of resources at both the national and international level. Taking both future generations and the disadvantaged in the present into account is seen as an ethical demand. If those with the best standard of living continue to aim for an ever-increasing standard of living, it will be at the expense of other people’s opportunities for improving their situation.

It is, of course, possible to apply a different value perspective: when resources are limited, it becomes a question of gaining as large a share as possible. Some biologists see this as a sort of extension of the ‘survival of the fittest’ in nature, but it is not very common that this point of view is expressed explicitly, although it can be discerned as a tacit premise behind much economic theory and politics. It is more common to cover up the point of view by looking at the economy in traditional economic terms, whereby the fundamental challenge of distribution is concealed by the fact that infinite growth seems to be possible.

Economic theory as a context for ecological economics
Economics is about keeping a house: How do people secure their livelihoods? How are the resources used? Which social institutions are part of the process of securing livelihoods and distributing the output? Throughout human history, much thought has been given to such issues, but it can only be characterised as economic theory once the idea has been established that the economy can be distinguished as a special focus area, a special social system or a particular aspect of the social system, which can be studied in its own right. This idea was first established in the 17th and 18th centuries. Books about the history of economic theory usually trace early economic reasoning back to the ancient Greeks and then describe mercantilists and physiocrats from the 17th and 18th centuries as early economic theorists, but the story really begins with the classic economists such as Smith, Malthus and Ricardo.

Without going into the historical development of theory, it can be concluded that since the establishment of neoclassical economics in approximately 1870, two different schools of economic theory have emerged. Neoclassical economists aimed to develop economic theory as a scientific field, which was inspired by Newtonian physics with the development of general laws based on abstraction and the use of mathematical models. The assumptions behind the models typically include rational agents, transparency and full information about the future. The models are based on the principle of methodological individualism, whereby explanations can ultimately be traced back to the agents’ motives, which are determined outside the model (exogenous preferences). Because this idea is so dominant in economic theory, it is often referred to as the mainstream, while the concurrent thinking that runs contrary to this idea is referred to as heterodox economics, which is based on the notion that the economy is constantly evolving, and that ‘general’ laws rarely make sense beyond highly delimited fields within microeconomics. Therefore, the focus is on the specific historical development of socio-economic institutions and their importance for economic processes. At the same time, the emphasis is placed on trying to explain the agents’ motives within the model in interaction with institutional changes (endogenous preferences). There are many different schools or research programmes that can be said to fall under heterodox economics, such as institutional, evolutionary, post-Keynesian and Marxist economics as well as economic sociology. It can be said that Keynes’s theories have been developed in two directions, partly within the mainstream as part of the so-called neoclassical synthesis, and partly by post-Keynesians, who identify themselves as being opposed to neoclassical theory.

Although the roots of ecological economics go far back in history, this line of thought does not become a part of the story of economic theory until the late 1960s. Apart from the physiocrats, most forerunners belong to fields of science other than economics such as chemistry. The field distinguishes itself from the other economic schools by ascribing the natural basis of the economy a much more prominent role in theoretical thinking. At the same time, the modern version of ecological economics is part of the heterodox trend in economic theory – as opposed to environmental economics, which is based on a neoclassical understanding.

The fact that ecological economics was established as a theoretical field in the 1960s can be seen as an example of a historical tendency in that the breakthrough of economic theories is often dependent on societal developments. In the 1930s, the Great Depression helped pave the way for Keynes’s theories, while in the 1960s, environmental and resource problems came to the attention of the public, which paved the way for and demanded new theories that could explain these phenomena. A similar trend can be seen today, as various crises are demanding the development of new explanatory models. This gives reason to expect even more progress for ecological economics and similar understandings.