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Full citation: Munda, Giuseppe, "Environmental Economics,

Ecological Economics and the Concept of Sustainable
Development." Environmental Values 6, no. 2, (1997):
213-233.
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Environmental Economics, Ecological Economics,
and the Concept of Sustainable Development

GIUSEPPE MUNDA

Universitat Autonoma de Barcelona

Dept of Economics and Economic History
08193 Bellaterra (Barcelona), Spain
Email: [email protected]

ABSTRACT: This paper presents a systematic discussion, mainly for non-

economists, on economic approaches to the concept of sustainable develop-
ment. As a first step, the concept of sustainability is extensively discussed. As
a second step, the argument that it is not possible to consider sustainability
only from an economic or ecological point of view is defended; issues such
as economic-ecological integration, inter-generational and intra-generational
equity are considered of fundamental importance. Two different economic ap-
proaches to environmental issues, i.e. neo-classical environmental economics
and ecological economics, are compared. Some key differences such as weak
versus strong sustainability, commensurability versus incommensurability and
ethical neutrality versus different values acceptance are pointed out.

KEYWORDS: ecological economics, post-normal science, co-evolution, insti-

tutional economics, sustainability, incommensurability

1. INTRODUCTION

The growth of world population and the rapid growth of economic activity
have caused environmental stress in all socio-economic systems. There is a
wide scientific consensus that problems such as the greenhouse effect (and
climate change), ozone depletion, acid rain, loss of biodiversity, toxic pollution
and renewable and non-renewable resource depletion are clear symptoms of
environmental unsustainability.
Traditional neo-classical economics analyses the process of price formation
by considering the economy as a closed system: firms sell goods and services,
and then they remunerate the production factors (land, labour and capital). It
is interesting to note that while classical economists such as Malthus (1798),
Ricardo (1817), Mill (1857) and Marx (1867) had clear in their minds that

Environmental Values 6 (1997): 213-33

© 1997 The White Horse Press, Cambridge, UK.
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economic activity is bounded by the environment, neo-classical economics

completely forgot this important characteristic of real world economies up till
the seventies when the debate was started on social and environmental limits to
economic growth.1 The real economy started to be seen as an open system that
in order to function must extract resources from the environment and dispose
of large amounts of waste back into the environment (Ayres and Kneese, 1969;
Kneese et al., 1970).
The life support function of ecosystems (de Groot, 1992) is connected to
their physical, chemical, and biological role in the overall system. Ecosystems
can be divided into three categories (Odum, 1989):
• natural environments or natural solar-powered ecosystems (open oceans,
wetlands, rain forests, etc.);
• domesticated environments or man-subsidised solar-powered ecosystems
(agriculture lands, aquaculture, woodlands, etc.); and
• fabricated environments or fuel-powered urban-industrial systems (cities,
industrial areas, airports, etc.).
It is evident that fabricated environments are not self-supporting or self-main-
taining. To be sustained they are dependent on the solar-powered natural and
domesticated environments (life-supporting ecosystems). Stress caused by the
disposal of wastes and pollutants negatively affects recycling, feed-back loops
and control mechanisms in the life-supporting ecosystem and thereby the pro-
duction and maintenance of environmental goods and services. In the eighties,
the awareness of actual and potential conflicts between economic growth and
the environment led to the concept of ʻsustainable developmentʼ.

2. THE CONCEPT OF SUSTAINABLE DEVELOPMENT

Traditionally, Gross National Product (GNP) has been considered as the best per-
formance indicator for measuring national economy and welfare. But if resource
depletion and degradation are factored into economic trends, what emerges is
a radically different picture from that depicted by conventional methods (Daly
and Cobb,1990). In environmental terms, the GNP measure is plainly defective
because (Faucheux and OʻConnor, 1997):
• no account is taken of environmental destruction or degradation;
• natural resources as such are valued at zero; and
• repair and remedial expenditure such as pollution abatement measures,
health care, etc., are counted as positive contribution to GNP inasmuch as
they involve expenditures of economic goods and services.
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Let us try to clarify some fundamental points of the concept of ʻsustainable

developmentʼ. In economics by ʻdevelopmentʼ is meant ʻthe set of changes in the
economical, social, institutional and political structure needed to implement the
transition from a pre-capitalistic economy based on agriculture, to an industrial
capitalistic economyʼ (Bresso, 1993). Such a definition of development presents
two main characteristics:
• the changes needed are not only quantitative (GNP growth), but qualitative
too (social, institutional and political); and
• the only possible model of development is that of western industrialised
countries. This implies that the concept of development is viewed as a proc-
ess of cultural fusion toward the best knowledge, the best set of values, the
best organisation and the best set of technologies.
The concept of sustainable development has wide appeal, partly because,
in contrast with the ʻzero growthʼ idea of Daly (1977; 1991a), it does not set
economic growth and environmental preservation in sharp opposition. Rather,
sustainable development carries the ideal of a harmonisation or simultaneous
realisation of economic growth and environmental concerns. For example,
Barbier (1987, p. 103) writes that sustainable development implies:
to maximise simultaneously the biological system goals (genetic diversity, resilience,
biological productivity), economic system goals (satisfaction of basic needs, en-
hancement of equity, increasing useful goods and services), and social system goals
(cultural diversity, institutional sustainability, social justice, participation).

This definition correctly points out that sustainable development is a multidi-

mensional concept, but as multicriteria decision analysis teaches us (see Munda
1995) it is impossible to maximise different objectives at the same time.
For example, according to actual social values in western countries, having
a car per two or three persons could be considered a reasonable objective in
less developed countries. This would imply a number of cars ten times greater
than at present, with enormous consequences for global warming, exhaustion
of petroleum, loss of agricultural land, noise, production of CO2 and NOx. Let
us consider a study by the United Nations cited in Bresso (1993). In 1980, the
total world energy consumption was 10 terawatt-hours (TW-h). With no increase
in consumption in less developed countries, by 2025 the whole world popula-
tion would need 14 TW-h. If the consumption of the whole world population
were at the level of western countries, then by 2025 it would be 55 TW-h. It is
clear that while the first hypothesis is socially unsustainable (zero growth in
less developed countries), the second one is environmentally unsustainable (in
terms of exhaustion of natural resources and global pollution).
It is evident how difficult it is to implement the idea of sustainable devel-
opment. From an economic point of view, the costs and benefits of economic
growth are incommensurable. Furthermore, ecology alone cannot explain
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(e.g. by using the concept of carrying capacity) an important characteristic

of human beings: the enormous differences in the use of materials and energy
among different people and territories. Geographical distribution is determined
historically, not biologically (Martinez-Alier, 1987, 1994; Martinez-Alier and
OʼConnor, 1996).
We can synthesise the main features of sustainable development as follows.
First, an important characteristic is the issue of distributional equity, both within
the same generation (intra-generational equity, e.g. the North-South divide)
and between different generations (inter-generational equity). Second, an eco-
nomic-ecological integration is needed, above all in terms of resource use and
pollution emissions.
We could put the question, ʻsustainable development of whom?ʼ Norgaard
(1994, p.11) writes, ʻconsumers want consumption sustained, workers want jobs
sustained. Capitalists and socialists have their “isms”, while aristocrats and tech-
nocrats have their “cracies”.ʼ We can conclude that environmental management
is effectively conflict analysis characterised by technical, socio-economic, envi-
ronmental and political value judgments. The concept of ecological distribution
refers to the social, spatial, and temporal asymmetries or inequalities in the use
by humans of environmental resources and services. Thus, the territorial asym-
metries between SO2 emissions and the burdens of acid rain is an example of
spatial ecological distribution; the inter-generational inequalities between the
enjoyment of nuclear energy and the burdens of radioactive waste is an example
of temporal ecological distribution. In the USA, ʻenvironmental racismʼ is a
term used to describe the location of polluting industries or toxic waste disposal
sites in areas where poor people live. This is an example of social ecological
distribution (Martinez-Alier and OʼConnor,1996).
In the following sections we will examine how traditional neo-classical en-
vironmental economics and ecological economics differ in tackling the issue of
sustainable development. In particular, the difference between weak and strong
sustainability will be stressed.

3. NEO-CLASSICAL ENVIRONMENTAL ECONOMICS

3.1. Basic Principles

Environmental economics can be considered as a particular specialisation of
neo-classical economics studying two fundamental questions:
(i) the problem of environmental externalities; and
(ii) the correct management of natural resources (in particular, the optimal inter-
generational allocation of non-renewable resources).
From an epistemological point of view, economists belonging to the Neo-
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classical school take inspiration from Newtonʼs mechanics. They tend to believe
in value neutrality and objectivity and regard their arguments as ʻscientificʼ.
Rational decisions are connected with the existence of optimal solutions based
on calculations in monetary or other unidimensional terms (the assumption of
complete commensurability). It has to be noted that to put a precise monetary
value to an environmental externality implies the solution of very important
problems, e.g., uncertainty connected to the environmental impact, correct time
horizon and correct discount rate.
Neo-classical economists have a quite optimistic view of technological
progress and economic growth. They generally recognise that even if the pro-
duction technologies of an economy can potentially yield increases in output
commensurate with increases in inputs, overall output will be constrained by
limited supplies of resources (growth theory with exhaustible resources). But these
limits can be overcome by technological progress: if the rate of technological
progress is high enough to offset the decline in the per capita quantity of natural
resource services available, output per worker can rise indefinitely. A stronger
statement is the following: even in the absence of any technological progress
exhaustible resources do not pose a fundamental problem if reproducible man-
made capital is sufficiently ʻsubstitutableʼ for natural resources (Dasgupta and
Heal, 1979; Hartwick, 1977, 1978; Solow, 1974a and 1974b; Stiglitz, 1979).
This concept of substitution of more productive man-made capital for natural
capital can be criticised from many sides.
(i) If capital depreciates by a constant proportion, the exhaustible resources
are essential, since consumption should eventually fall to zero (assuming
no technical change).
(ii) Man-made capital is not independent of natural capital; since resources are
required to manufacture capital goods the success of any attempt to substi-
tute capital for resources will be limited by the extent to which the increase
in capital requires an input of resources. ʻThe idea of substitution might be
rescued if we can demonstrate that the extra productivity in KM (man-made
capital) outweighs the extra natural resources that get used up in the produc-
tion of KM. At this stage all we can say is that this is not obviousʼ (Pearce
and Turner, 1990, p. 49).
(iii) A limit to the substitutability between man-made capital and natural
capital is that natural capital has the feature of multifunctionality (all the life
support functions), such a feature is not shared by man-made capital (Pearce
and Turner, 1990).
The so called weak sustainability concept (Pearce and Atkinson, 1993) states that
an economy can be considered sustainable if it saves more than the combined
depreciation of natural and man-made capital. ʻWe can pass on less environment
so long as we offset this loss by increasing the stock of roads and machinery, or
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other man-made (physical) capital. Alternatively, we can have fewer roads and
factories so long as we compensate by having more wetlands or mixed woodlands
or more educationʼ (Turner et al., 1994, p. 56). Weak sustainability is based on
a very strong assumption, perfect substitutability between the different forms
of capital, so all the criticism presented above also applies in this case.
Under weak sustainability conditions, sustainability is equivalent to leav-
ing future generations with a total stock of capital not smaller than the one
enjoyed by the present generation. Cabeza (1996) notes that the concept of
weak sustainability is nothing but a by-product of growth theory with exhaust-
ible resources when:
(i) the definition of inter-generational equity is restricted to a non-declining
level of consumption per capita; and
(ii) the environment-economy relationship is restricted to the introduction of an
aggregate input called natural capital into the production function.
Indeed, weak sustainability is simply a different statement of the so called
Hartwick-Solow rule (Hartwick, 1977, 1978; Solow, 1974b, 1986), stating that
in order to have a stream of constant level of consumption per capita to infinity,
society should invest all current returns from the utilisation of the flows from
the stock of exhaustible resources. Criticism of the empirical results of Pearce
and Atkinsonʼs calculations can be found in Martinez-Alier (1995).

3.2. The Pearce-Turner Constant Natural Capital Rule

Pearce and Turner (1990) although they are inside the framework of conventional
economics,2 have a ʻdifferent positionʼ in approaching environmental problems.
They devote their attention to the desirability and meaning of maintaining the
natural capital stock as a condition for sustainable development. Maintaining
the natural capital stock is considered desirable mainly because the role which
natural environments play in supporting and sustaining economic systems is
covered by scientific uncertainty. Since uncertainty exists about the way in which
environments function, either internally or in terms of their interactions with
the economy, a trade-off of the benefits of substituting man-made capital for
natural capital is not a realistic one. Moreover, most environmental decisions
are characterised by irreversibility: if a mistake is made, it is not possible to
correct it afterwards (it is quite difficult to create a tropical forest again). Thus
the presence of uncertainty and irreversibility together should make human
beings more circumspect about giving up natural capital.
But what does a constant natural capital stock mean? Pearce and Turner
(1990, p. 53) give four possibilities:
• the physical quantity of natural resource stocks should remain unchanged;
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• the total value of the natural resource stocks should remain constant in real
terms (standard economic approach);
• the unit value of the services of the natural resources, as measured by the
prices of natural resources, should remain constant in real terms; and
• the value of the resource which flows from the natural resource stock should
remain constant in real terms. Where resource flow is the product of price
and quantity used, it is possible to allow quantity to decline but the price to
rise, keeping value constant.
Pearce and Turner recognise some of the shortcomings of each of these definitions
of a constant stock of natural capital, and other weak points have been indicated
by Victor (1991). Measurements of natural capital stock made exclusively in
physical terms are problematic, according to these authors, because of the dif-
ficulty in adding up different physical quantities expressed in different units. For
this reason the second interpretation is offered. By valuing each resource stock
in money terms, the total value of natural capital can be measured. One obvious
problem here is that many natural resources (e.g., air, water, wilderness) do not
have observable prices. Thus one would need to find implicit or shadow prices
in some way. Even those prices that do exist may not be useful; they may be
affected by market imperfections and taxes, and they may exclude externalities
involved with the production and use of the resource.
There are additional problems in using market prices to value the aggregate stock of
natural capital. Resource prices or net prices reflect conditions at the margin and to
use these to value entire stocks can give perverse results. For example, it is possible
for the real price or net price of a resource to rise over time at the same rate as (or
faster than) the rate of decrease in the physical stock of the resource..... This possibil-
ity is of more than theoretical interest. If price or net price rises as resource quantity
is declining, the value of resource stocks as an indicator of sustainability can give
precisely the wrong policy signal to government. As long as the value of the stock
remains constant or rises, the government, through this indicator, will not perceive
a problem even though the flow of resource is becoming increasingly valuable (as
measured by price) and the physical stock is declining. (Victor, 1991, p. 204)

Pearce and Turnerʼs third and fourth interpretations of a constant stock of natu-
ral capital also utilise market prices and so similar criticisms made in relation
to keeping the value of the capital stock constant apply. Although the idea of
a constant natural capital stock is quite important and desirable (maintaining
natural capital is an important prerequisite for sustainability), one has to admit
that the above considerations demonstrate that the development of relevant
indicators of sustainable development connected to this idea is quite difficult.
This is mainly because it is based on the assumption of complete monetary
commensurability.
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4. ECOLOGICAL ECONOMICS

The linkages between ecosystems and economic systems are the focus of eco-
logical economics. A good definition of what is meant by Ecological Economics
is the following.
Increasing awareness that our global ecological life support system is endangered,
is forcing us to realise that decisions made on the basis of local, narrow, short-term
criteria can produce disastrous results globally and in the long run. We are also be-
ginning to realise that traditional economic and ecological models and concepts fall
short in their ability to deal with global ecological problems. Ecological economics
is a new trans-disciplinary field of study that addresses the relationships between
ecosystems and economic systems in the broadest sense..... Ecological economics
(EE) differs from both conventional economics and conventional ecology in terms
of breadth of its perception of the problem, and the importance it attaches to envi-
ronment-economy interactions. (Costanza et al., 1991, pp. 2-3)

A simplified scheme of the possible scientific approaches to environment-

economy interactions can be found in Figure 1. The left half concerns those ap-
proaches using several evaluation criteria for analysing the interactions between
ecological and economic systems, and the right half those using a common
denominator for this evaluation, such as money or energy. Ecological economics
explicitly refuses the complete commensurability paradigm and recognises the
existence of incommensurability between economic and environmental aspects.
Thus a new scientific paradigm is needed.
MULTIPLE SINGLE
DENOMINATOR DENOMINATOR
EVALUATION EVALUATION

NATURAL
SCIENCES SYSTEMS
BIOPHYSICAL
ECOLOGICAL

ECOLOGY
AND
ECONOMY

INSTITUTIONAL
AND OTHER
SOCIAL NEO-CLASSICAL
ECONOMIC
SCIENCES PERSPECTIVES

FIGURE 1. A simplified conceptual model of ecological and economic per-

spectives
Figureand
1 approaches to environmental
A Simplifiedissues (from
Conceptual Folke
Model and Kaberger
of Ecologi
Perspectives and Approaches to Environmental Issues
1991,
((from Folke & Kaberger, 1991, p. 275)
p. 275)
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ENVIRONMENTAL ECONOMICS

4.1. Epistemological Foundations of Ecological Economics

4.1.1. Post-normal science and institutional economics
In any science a paradigm or pre-analytic vision exists; research has to start
somewhere, thus something is given by a pre-analytic cognitive act. Everybody
starts his own research from the work of his predecessors. According to Kuhn
(1962), scientists normally are just ordinary people (so neither the impeccable
truth-gathers of the positivist tradition, nor the heroic conjecturalists of Popper)
concerned only in solving research puzzles within an unquestioned framework
of concepts and methods.
Global environmental issues present new tasks for science: scientists now
tackle problems introduced through policy issues where typically, facts are
uncertain, values in dispute, stakes high, and decisions urgent (Funtowicz and
Ravetz, 1990, 1991, 1994). Thus Funtowicz and Ravetz have developed a new
epistemological framework called ʻpost-normal scienceʼ, where it is possible
to make use of two crucial aspects of science in the policy domain: uncertainty
and value conflict. The name ʻpost-normalʼ indicates that the puzzle-solving
exercises of normal science, in the Kuhnian sense, which were so successfully
extended from the laboratory of core science to the conquest of nature through
applied science, are no longer appropriate for the solution of environmental
problems.
Neo-classical economics has traditionally been able to maintain its credibility
by relegating uncertainties in knowledge and complexities in ethics firmly to the
sidelines. But, uncertainties in input information produce irreducible uncertainty
in conclusions; the relevant question of quality is the degree to which the recom-
mended policy choices are robust against those underlying uncertainties. As a
post-normal science, ecological economics recognises the presence, importance
and legitimacy of different value-commitments for the appropriate management
of uncertainty. It does not claim ethical neutrality, nor an indifference to the
policy consequences of its arguments.
As science became used in policy, it was discovered that lay-persons (e.g.
judges, journalists, scientists from another field, or just citizens) could master
enough of the methodology to become effective participants in the dialogue. A
basic principle of post-normal science is that these new participants are indis-
pensable. This extension of the peer community is essential for maintaining the
quality of the process of resolution of complex systems. Thus the appropriate
management of quality is enriched to include this multiplicity of participants
and perspectives. The criteria of quality in this new context will, as in traditional
science, presuppose ethical principles. But in this case, the principles will be
explicit and will become part of the dialogue.
According to Funtowicz and Ravetz (1994), the traditional analytical
approach, implicitly or explicitly reducing all goods to commodities, can be
recognised as one perspective among several, legitimate as a point of view and
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as a reflection of real power structures, but not the whole story. To choose any
particular operational definition for value involves making a decision about
what is important and real; other definitions will reflect the commitments of
other stakeholders.
One should note that the view that, concerning environmental issues, con-
flicts between interests and interested parties are the normal state of affairs is
also shared by institutional economics (Bromley, 1989, Myrdal, 1973, 1978).
ʻInstitutional economics focuses on actors, their world views, habits, etc., and on
institutional arrangements. The latter term refers to organisation, rules of game,
power relationships, entitlements and other types of control over resourcesʼ
(Söderbaum, 1992, p. 131).
Some relationships between ecological economics and institutional economics
have been investigated by Aguilera-Klink (1994; 1996), Klaassen and Opschoor
(1991), Opschoor and van der Straaten (1993) and Söderbaum (1992). The main
common points are recognition of the impossibility of a value free science,
emphasis on the importance of the distribution of property rights, and strong
criticism of monetary reductionism. How much is a songbird worth? To answer
this question represents a new problem of valuation, one where measurements
cannot pretend to be independent of methodology and ethics.
The issue is not whether it is only the marketplace that can determine value, for
economists have long debated other means of valuation; our concern is with the as-
sumption that in any dialogue, all valuations or ʻnumerairesʼ should be reducible to
a single one-dimension standard. (Funtowicz and Ravetz, 1994, p. 198)

William Kapp, probably the first institutional economist with environmental

interests, wrote in 1970:
To place a monetary value on and apply a discount rate (which?) to future utilities or
disutilities in order to express their present capitalised value may give us a precise
monetary calculation, but it does not get us out of the dilemma of a choice and the
fact that we take a risk with human health and survival. For this reason, I am inclined
to consider the attempt at measuring social costs and social benefits simply in terms
of monetary or market values as doomed to failure. Social costs and social benefits
have to be considered as extra-market phenomena; they are borne and accrue to
society as a whole; they are heterogeneous and cannot be compared quantitatively
among themselves and with each other, not even in principle.

From a philosophical perspective, it is possible to distinguish between the

concepts of strong commensurability (common measure of the different con-
sequences of an action based on a cardinal scale of measurement), weak com-
mensurability (common measure based on an ordinal scale of measurement),
strong comparability (there exist a single comparative term by which all different
actions can be ranked) and weak comparability (one has to accept the existence
of conflicts between all different consequences of an action) (OʼNeill, 1993).
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Clearly, traditional cost-benefit analysis is based on the assumption of strong

comparability, whereas weak comparability can be considered the philosophical
foundation of multicriteria evaluation (Martinez-Alier et al., 1996; Munda et
al., 1994; Munda, 1995).
The methods used in multicriteria evaluation are based on (necessarily re-
strictive) mathematical assumptions as well as on information gathered from
the decision-maker. Thus the concept of ʻdecision processʼ has an essential
importance. According to Simon (1972, 1978, 1983), a distinction must be made
between the general notion of rationality as an adaptation of available means to
ends, and the various theories and models based on a rationality which is either
substantive or procedural. This terminology can be used to distinguish between
the rationality of a decision considered independently of the manner in which
it is made (in the case of substantive rationality, the rationality of evaluation
refers exclusively to the results of the choice) and the rationality of a decision
in terms of the manner in which it is made (in the case of procedural rational-
ity, the rationality of evaluation refers to the decision-making process itself)
(Froger and Munda, 1997).
To be sure, the analyst can greatly influence the results of a decision analysis,
but the advantage of multicriteria evaluation is that the black-box effects are
reduced to a minimum level: thus in principle it is always possible to justify or
defend the decisions taken. Of course a defensible decision is not the same as
the best possible decision, but at least it is a transparent decision. The analyst
is generally subject to pressures of politicians or stake holders who want to
influence the outcome of the evaluation process.

4.1.2. The coevolutionary paradigm

There is a constant and active interaction of the organisms with their envi-
ronment; organisms are not simply the results but they are also the causes of
their own environments: this is the main thesis of the coevolutionary paradigm
(Norgaard, 1994; Gowdy, 1994). Economic development can be viewed as a
process of adaptation to a changing environment while itself being a source
of environmental change. However, coevolution does not imply change in a
particular direction (i.e., progress).
In biology, coevolution refers to the pattern of evolutionary change of two
closely interacting species where the fitness of the genetic traits within each
species is largely governed by the dominant genetic traits of the other. So-called
ʻcoevolutionary biologyʼ was started with a study on the reciprocal adaptation
of butterflies and plants (Ehrlich and Raven, 1964).
In real world societies,
people survive to a large extent as members of groups. Group success depends on
culture: the system of values, beliefs, artifacts, and art forms which sustain social
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organisation and rationalise action. Values and beliefs which fit the ecosystem survive
and multiply; less fit ones eventually disappear. And thus cultural traits are selected
much like genetic traits. At the same time, cultural values and beliefs influence how
people interact with their ecosystem and apply selective pressure on species. Not only
have people and their environment coevolved, but social systems and environmental
systems have coevolved. (Norgaard, 1994, p.41)

Agriculture began between five and ten thousand years ago when there
were approximately five million people in the world. The incredible increasing
of population was only possible through an increase in the effectiveness with
which people interacted with their environment through changes in knowledge,
technology and social organisation. According to Norgaard, the increase in
material well-being and in the rate of population during the past century can be
understood as a process of coevolution. With industrialisation, social systems
evolved to facilitate development through the exploitation of coal and petro-
leum.3 Social systems no longer coevolved to interact more effectively with
environmental systems.
Hydrocarbons freed societies from immediate environmental constraints but not from
ultimate environmental constraints – the limits of the hydrocarbons themselves and
of the atmosphere and oceans to absorb carbon dioxide and other greenhouse gases
associated with fossil fuel economies. (Norgaard, 1994, p.44)

From the coevolutionary paradigm the following lessons can be learned:

(i) A priori, different models of coevolution are possible, then no unique optimal
development path exists. The spatial dimension is a key feature of sustain-
able development.
(ii) The respect of cultural diversity is of a fundamental importance. In envi-
ronmental management local knowledge and expertise (being the result of
a long coevolutionary process) sometimes are more useful than expertsʼ
opinions.
(iii) Coevolving systems have parts and relations which change in unfore-
seeable ways. At any point in time, they can be described like an ecosystem,
but over time they are as unpredictable as the evolution of life itself.
It has to be noted that the principles of the coevolutionary paradigm, institutional
economics and post-normal science reinforce one another. They share the issues
of value conflicts, democratisation of science and uncertainty. Post-normal sci-
ence and institutional economics emphasise the importance of incommensur-
ability and decision making processes; coevolution underlines the importance
of economy-environment interactions.
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4.2. Economy-Environment Interactions

4.2.1. The issue of scale
Systemic approaches to environmental issues consider the relationships between
three systems: the economic system, the human system and the natural system
(Passet, 1979). The economic system includes the economic activities of man,
such as production, exchange and consumption. Given the scarcity phenomenon,
such a system is efficiency oriented. The human system comprises all activities
of human beings on our planet. It includes the spheres of biological human ele-
ments, of inspiration, of aesthetics, and of morality which constitute the frame
of human life. Since it is clear that the economic system does not constitute the
entire human system, one may assume that the economic system is a subsystem
of the human system. Finally, the natural system includes both the human system
and the economic system (Nijkamp and Bithas, 1995).
From the ecological economic perspective, the expansion of the economic
subsystem is limited by the size of the overall finite global ecosystem, by its
dependence on the life support sustained by intricate ecological connections
which are more easily disrupted as the scale of the economic subsystem grows
relative to the overall system. Since the human expansion, with the associated
exploitation and disposal of waste and pollutants, not only affects the natural
environment as such, but also the level and composition of environmentally
produced goods and services required to sustain society, the economic subsystem
will be limited by the impacts of its own actions on the environment (Folke,
1991). A central issue then is: does any ʻoptimalʼ scale exist for the economy?
This point has especially been tackled by Daly.
The term ʻscaleʼ is shorthand for ʻthe physical scale or size of the human
presence in the ecosystem, as measured by population times per capita resource
useʼ (Daly, 1991b, p. 35). The standard economics point of view about economic
growth seems quite optimistic. But as an economy grows, it increases in scale.
Scale has a maximum limit defined either by the regenerative or absorptive
capacity of the ecosystem, therefore ʻuntil the surface of the earth begins to grow
at a rate equal to the rate of interestʼ (Daly, 1991b, p. 40), one should not take
this optimistic attitude too seriously. Thus the concept of ʻstrong sustainability
ʻis needed. Such a definition is based on the assumption that certain sorts of
natural capital are deemed critical, and not readily substitutable by man-made
capital (Barbier and Markandya, 1990). In particular, the characterisation of
sustainability in terms of the ʻstrongʼ criterion of non-negative change over time
in stocks of specified natural capital provides a strong justification for devel-
opment of non-monetary indicators of ecological sustainability based on direct
physical measurement of important stocks and flows (Faucheux and OʼConnor,
1997; Faucheux and Noël, 1995).
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GIUSEPPE MUNDA

By means of this concept, we are left with bio-physical indicators, or ʻsatel-

lite accountsʼ of variations in natural patrimony, not integrated in money terms
within national income accounting. However, behind a list of indicators there
would always be a history of scientific research and political controversy. Moreo-
ver, one should note that a list of indicators is far from being a list of targets or
limits for those indicators. Also, a question arises, how could such indicators
be aggregated? Often, some indicators improve while others deteriorate. It has
to be noted that this is the classical conflictual situation studied in multicriteria
evaluation theory, in particular noncompensatory methods are quite relevant,
since compensability implies substitutability between different types of capital
(Faucheux et al. 1994; Munda, 1996).

4.2.2. The entropy law and the economic process

Energy analysis is very important for studying the relationships between economy
and environment. Energy-based valuation may appear to be a newcomer in the
field of economics: some people would find its origins in the 1973 energy crisis;
others identify it with Georgescu-Roegenʼs The entropy law and the economic
process. Yet in actual fact, attempts to base theories of economic measurement
or value on various concepts of energy have a long history behind them. Mar-
tinez-Alier (1987) shows that there is a tradition of cross-fertilisation between
economics, thermodynamics and ecology, due to the work of scientists such as
Jevons, Clausius, Podolinski, Geddes, Soddy and others. However, energy is
not a substitute for money in order to reach a new concept of commensurability,
as it was theorised by the ʻenergy theories of valueʼ in the seventies and in the
eighties (on this point see Faucheux and Pilet (1994); Mirowski (1989)).
Since the meaning of the entropy law for the economic process is a much
discussed subject, here we will follow closely Georgescu-Roegenʼs terminology.
Classical thermodynamics deals with energy but only with energy in bulk. No
thermodynamic concept makes any sense if applied to a microscopic element. An
electron has no heat, no temperature, no pressure, and no entropy. The entropy
concept can be defined as follows: ʻin an isolated thermodynamic system the
available energy continuously and irrevocably degrades into an equal quantity
of unavailable energy, so that the total energy remains constant while the una-
vailable energy tends to a maximumʼ (Georgescu-Roegen, 1993, p. 187), where
available energy is the one that humans could use for their purposes; unavailable
energy is energy that humans cannot use in any way; and an isolated system is
the one that can exchange neither energy nor matter with its environment. The
entropy law can be applied neither to a closed system that can exchange only
energy with the environment nor to an open system that can exchange both
energy and matter with its surroundings.
As matter exists, like energy, in two states: available and non-available, and
since matter-energy enters the economic process in a state of low entropy and
 227
ENVIRONMENTAL ECONOMICS

comes out of it in a state of high entropy, Roegen states his controversial fourth
law as follows: ʻin a closed system (as the Earth practically is) mechanical work
cannot proceed at a constant rate foreverʼ (Georgescu-Roegen, 1993, p. 198),
or more simply, matter cannot be completely recycled. A consequence of this
law is that a programme based on the substitution of terrestrial energy by solar
energy such as Dalyʼs steady state, cannot work. Interesting discussions of the
meaning and consequences of the so-called fourth law can be found in Mayumi
(1991, 1992, 1993).
Regarding technological progress, Georgescu-Roegen is quite pessimistic.
He defines ʻPromethean techniquesʼ as those that allow obtaining a surplus of
accessible energy (getting more accessible energy than that used in the operation).
A new technology requires a new Promethean technique, not just one already
familiar alternative. The Promethean technique that saved the wood crisis was
the steam engine, but nowadays neither controlled fusion nor direct harmessed
solar energy have the characteristics of a Promethean technique.
According to Georgescu-Roegen (1984), a technology is viable if and only if
it can maintain the corresponding material structure which supports its resource
and sink functions, and consequently the human species.
A technology that draws down irreplaceable stocks, or generates irreducuble pol-
lution, or violates the ability of funds to provide assimilative and restorative services,
is not viable. The relevance of all this to weak sustainability is that all production
processes are characterised by inflows fron Nature and outflows of waste to Nature
which are limitational. (Gowdy and OʼHara, 1996)

Figure 2 illustrates the ecological economics conception of the economic

system as a part of the overall ecosystem.

solar
energy
recycling
degraded
natural property
resources rights, power resources

economic
system thermal
energy
solar & and income degraded
industrial distribution energy
energy

Figure 2 The Economy embedded in Social

FIGURE 2. The
Institutions and economy embedded in social institutions and in the
in the Ecosystem
ecosystem (Source: discussions with J. Martinez-Alier)
228
GIUSEPPE MUNDA

5. CONCLUSIONS

From the above discussion, the following conclusions may be drawn:

(i) Natural life-supporting ecosystems are negatively affected by the disposal of
wastes from the economic system. If the economy-environment interactions
are taken into account, immediately a broad question about the capability
of the natural environments to sustain the economy arises.
(ii) Substitution of more productive man-made capital for natural capital is not
an acceptable answer to environmental problems.
(iii) The idea of maintaining the natural capital stock is important and de-
sirable; unfortunately it is very difficult to operationalise. Its main problem
is connected with the possibility of valuing environmental goods in money
terms (strong commensurability).
(iv) Environmental problems are very complex and characterised by scientific
uncertainty. Any method trying to operationalise the concept of sustainable
development is necessarily a second best approach.
(v) In economic theory, three main conflictual values can be identified: allo-
cation, distribution and scale. In an operational framework, this means that an
exhaustive analysis has to take into consideration efficiency criteria, ethical
criteria and ecological criteria, so a multidimensional paradigm is needed.
(vi) Ecological economics recognises that ecological and economical ra-
tionality are not sufficient to lead to correct decisions, thus environmental
decisions must be taken by using a democratic scientific-political decision
process.
We can identify the main differences between conventional environmental
economics and ecological economics in relation to the concept of sustainable
development as follows:

ENVIRONMENTAL ECONOMICS ECOLOGICAL ECONOMICS

pretends to be value free values are always inherent
interdisciplinarity and transdisciplinarity
are key principles
there is a precise world-wide meaning of co-evolution and diversity are the key
economic development issues of sustainability
strong comparability based on weak incommensurability, multidimensionality
or strong commensurability is a key and weak comparability are key guiding
principle principles
weak sustainability is the only possible strong sustainability operationalised by
operationalisation of the concept of means of bio-physical indicators
sustainable development
 229
ENVIRONMENTAL ECONOMICS

Traditional monetary evaluation methods such as cost-benefit analysis are

based on phenomena such as consumerʼs surpluses, market failures, demand
curves which are just a partial point of view, since connected with one institution
only: markets. From an ecological economics point of view, issues connected
with actions outside of markets and behaviour of people different from the class
of consumers should be taken into account. (Duchin and Lange, 1994)
In a post-normal science framework, any recommendations which emerge
should be defensible to the technical expert, but also to politicians, the media
and the various stakeholders. This does not imply that a consensus will be
reached. Indeed, the possibility of irreconcilable differences is recognised and
catered for by promoting a plurality of approaches. Ecological economics may
be understood as cross-disciplinary in the horizontal axis, integrating disciplinary
perspectives on the issue at stake, and as pluri-participatory on the vertical axis,
integrating the evenly legitimate perspectives of the different stake-holders and
social actors concerned by the issue (see Figure 3).

Social (policy-makers, NGOs, citizens, etc.)

Actors

Disciplines
(economics, ecology, physical sciences,
philosophy, etc.)

FIGURE 3. Vertical and Horizontal Integration in Ecological Economics

(Source: Castells and Munda, 1996)

One should note that the issue of ʻvalue-free scienceʼ is important in real-
world environmental policy. For example, David Pearce claims that his work for
the intergovernmental Panel on Climate Change (IPCC), where lives of people
in rich nations are valued up to fifteen times higher than those in poor countries,
is a matter of scientific correcteness versus political correctness! (New Scientist,
19 August, 1995). Is it really a matter of value-free scientific correctness to use
valuations based on assessments of a communityʼs willingness and ability to
pay to avoid risks of death? The impossibility of eliminating value conflicts in
environmental policy and the call for a plurality of approaches creates a clear
need for environmental philosophers and ethicists to play an important role in
ecological economics.
230
GIUSEPPE MUNDA

NOTES

Comments by Joan Martinez-Alier and two anonymous referees are gratefuly acknowl-
edged.

1
Here we do not enter in details regarding the so called ʻgrowth debateʼ. The interested
reader can refer to: Galbraith, 1959; Hirsch, 1977; Hueting, 1980; Meadows et al., 1972;
Mishan, 1967 and 1976; Nordhaus and Tobin, 1972; Scitovsky, 1976.
2
ʻIn this textbook we show how we can use the main body of economic thought to derive
important propositions about the linkages between the economy and the environment.
Rather than looking for some “different economics”, we are seeking to expand the ho-
rizons of economic thoughtʼ (Pearce and Turner, 1990, p. 30).
3
Martinez-Alier (1987) shows that the increase in productivity of modern agriculture
depends on the underestimation of energetic inputs from fossil fuels, the low value given
to the contamination caused by pesticides and the loss of biodiversity.

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