www.ceners.org fb.me/CenterForEnergyStudies Neoclassical vs. environmental economics Filip Černoch cernoch@mail.muni.cz Introductory remarks • Environment is providing us with necessary resources and services • These services are processed in the economy • Prevailing economic paradigm determines the way these sources are managed • Is the dominant paradigm sustainable? Sustainability • „Do we care about future?“ • System or process is sustainable if it can be continued indefinitely, without depleting any of the material or energy required to keep it running • Sustainable society – society in balance with the natural world, neither depleting its resource base nor producing pollutants in excess of nature´s capacity to absorb them • Sustainable development – progress that meets the needs of the present without compromisisng the ability of future generations to meet their own needs (intragenerational equity) Environmental system and society Neoclassical economics • People (= rational actors) have rational preferences among outcomes, associated with a value • Individuals maximize utility, firms profits • People act independently on the basis of full and relevant information • Emphasis on market • Created in the limitless world – focus on the distribution, less on sources. • Resources are „free“ – not valuated. Mindset of traditional economics Modern 7bn people world Environmental economics • Recognizes necessity to consume natural resources and services and pollute • Calls for balancing the economic activity and environmental impacts by taking into account all costs and benefits • Market failure = inability of markets to refects the full costs or benefits, resulting in inefficient allocation of resources • To fix the market failures by correcting prices so they take into account external costs • Scarcity of resources Tools of environmental economics • Putting the price on the nature (externalities and ´tragedy of commons´) • Regulation • Change of mindset – GDP to be replaced by „index of happines“? Approaches to energy resources • Technology-based substitution Approaches to energy resources • Thermodynamics argumentation: • Energy can neither be created nor destroyed • Energy transformation always losses at least a little energy in the form of diffuese heat (entropy) • In any process some energy is always needed – full substitution of energy with technology is not possible (steam engine – from 0,5% to 60% at best). Approaches to energy resources • New (unconventional) sources of energy • EROEI = usable energy output/energy consumed • Net energy = energy output – energy consumed • Global EROEI is declining (= you need to produce more gross energy to satisfy the same consumption) Approaches to energy resources • New energy source • „Are there any?“ • Path dependence Sources • Andersen, P.: Environmental Science, Bozeman Science. • Erickson, J.: Ecological Economics, GundIndistute. • NASA: Third of Big Goundwater Basins in Distress.