Ecological Economics

Pedro L. Lomas 

Ecological Economics is a discipline that seeks to reconcile economic reasoning with biogeophysical reality, or, in other words, Economics with Ecology (Economics of Nature, as conceived by some authors). Its approaches range from Environmental and Natural Resource Economics, whose critique constituted a first step in the critique of the conventional economic model; to Sustainability Science, where it is conceived as an interdisciplinary entity with a transdisciplinary vocation; or even as a form of Postnormal Science, which aims to articulate economic research around sustainability within a framework of uncertainty and contested values ​​when the risks of action/inaction are high and decisions are urgent. 

From a conventional economic perspective, Economics is usually defined as the study of the allocation (optimization) of scarce resources (relative scarcity) to alternative ends, and the economic system as a relationship between different forms of Homo economicus (producers and consumers) mediated by the market, whose objective is to obtain maximum profit or utility. The relationship between producers and consumers is defined as a closed and self-sufficient system, in which an endless flow of goods and services (products and labor) corresponds to an equally infinite economic flow in the opposite direction (prices and wages), systematically ignoring the role of biophysical reality in the economic process. This reality, its nature, and its lack of reflection in economic reasoning generated great interest and, at the same time, dissatisfaction among many authors of classical economics during the 18th and 19th centuries, such as S. Jevons, A. Smith, J.S. Mill, T. Vleben, and K. Marx, various authors in the field of science (for example, S. Podolinski and F. Soddy), and many other modern economists (K.W. Kapp, K. Polanyi, and J.K. Galbright, among others). This dissatisfaction with the conventional economic system, which did not allow for addressing its relationship with the growing environmental problems already observed in the 1960s and 70s, led to further research into the biophysical reality. In the 20th century, as well as from the critique of theoretical developments in Environmental and Natural Resource Economics, which were considered too aligned with this conventional view, Ecological Economics emerged (Martínez Alier and Schlüpmann, 1991; Naredo, 2015). In this context, various disciplines influenced this early Ecological Economics, especially, though not exhaustively, the following: 

• Physics (Thermodynamics). The Second Law of Thermodynamics formalizes the irreversibility of physical processes (time arrow, increase in entropy) and the energy costs of energy transformation and use. The Romanian economist N. Georgescu-Roegen (1971) theorized about the consequences of this law on economic processes and used it to try to provide a biophysical foundation for economics. The result was a view of the economy as a linear (not circular) process involving funds and flows, based on specific environmental conditions (in terms of natural resources and ecosystem functioning), with energy that degrades (loses its potential to perform the same work), proposing horizons of absolute scarcity (inevitable degradation of energy and matter) and the impossibility of unlimited growth, and identifying the economy as a subsystem of the biosphere, among other contributions (Carpintero, 2006). Some of his students have become important authors in Ecological Economics, such as K. Mayumi or H.E. Daly. 

• Systems ecology and energy studies. Systems Ecology and Theoretical Ecology, based on the concept of ecosystem metabolism, were highly influential in Ecological Economics when the system originally studied (ecosystems) was expanded to include socio-economic systems. Ecology considered the study of ecosystems and humans as isolated spheres unsatisfactory (see Social Metabolism). Besides social metabolism itself, several relevant concepts emerged from studies on energy flows (energetics), such as net energy, exergy, emergy, and EROI (Hall, 1992; Odum, 1996; Sciubba, 2019). Several ecologists and their students have been highly influential within Ecological Economics (H.T. Odum, E.P. Odum, C.A.S. Hall, R. Costanza). 

• Heterodox Economics. Several authors in the fields of agricultural economics, economic history, and institutional economics, to name a few, made highly innovative contributions in terms of metabolism, energy balances of economic activities, etc. (J. Martínez Alier, J.M. Naredo, K.W. Kapp, etc.). Likewise, several authors from the field of Environmental and Natural Resource Economics, more aligned with conventional economics (P. Dasgupta, K. Arrow, D. Pearce, R. Solow, etc.) began to focus on lines of inquiry that would later become highly relevant to the critique and work carried out, such as: (1) the scarcity of natural resources as inputs for the production process and social reproduction (limits to growth, intergenerational equity, etc.) or (2) the characterization of nature in terms of environmental externalities or natural capital (ecosystem services, pollution, etc.) (see Externalization/Internalization). 

The theoretical foundations and applications of Ecological Economics go beyond mere reasoned critique of conventional Economics and encompass a broad range of topics (Padilla Rosa and Ramos-Martín, 2023). 

One of these fundamental topics that define Ecological Economics is the consideration of the Economy as an open subsystem of the Biosphere. This has numerous consequences, including, for example, the non-existence of environmental externalities, which would simply be a transfer of structural costs (environmental, economic, etc.) onto the economic process itself (Kapp, 1950); the idea that the structure and functioning of the biosphere impose a limit on economic growth (see ecodependence); and the notion that sustainability can be operationalized in terms of the relative size of the economy with respect to the biosphere (see social metabolism). 

Taking this into account, ecological economics does not conceive of the economy as a win-win exchange game (in terms of money or utility), but rather as a zero-sum game, where there are both winners and losers. Heir to the various versions of Dependency Theory, Ecological Economics theorizes an ecologically unequal exchange (Hornborg, 2019), in which countries with large quantities of natural resources are the ones that suffer, since they bear all the ecological costs of extraction geared towards the metabolism of other countries and, moreover, due to the so-called notary’s rule (Naredo and Valero, 1999), they suffer the asymmetry between the physical cost of said extraction and its monetary valuation (see Green Colonialism). 

Another key principle is the weak comparability of values, meaning that the different biogeophysical dimensions are not reducible to a single unit. Unlike conventional economics, where everything is reducible to monetary units, Ecological Economics is structured around incommensurability, that is, the non-existence of a single common unit of measurement and, therefore, a permanent plurality of values ​​and modes of evaluation. This leads to the practical impossibility of a weak sustainability model, such as that defended by conventional and environmental economists (substitutability between forms of capital), and results in a strong sustainability model (Cabeza Gutés, 1996; Martínez Alier et al., 1998). 

In contrast to a macroeconomic model focused on growth (symbolized by GDP growth), Ecological Economics advocates for the physical and social sustainability of the economy. From this perspective arise proposals such as the Steady State Economy (Daly, 1991), which theorizes a model based on maintaining the reserves of different forms of capital in constant terms (growing when necessary and replacing what deteriorates), prosperity without growth (Jackson, 2009), and degrowth (Kallis, 2018), among others. 

Over the decades that Ecological Economics has developed, various schools of thought have emerged within its field. In the Anglo-Saxon world (UK, USA, India, etc.), the enduring influence of orthodox economists on the theoretical framework of Ecological Economics has been much greater, and the separation from conventional economics has been less pronounced, focusing heavily on the concept of Natural Capital, Ecosystem Services and their valuation, etc. In contrast, in Europe, where the tradition of Political Economy has been more established, Ecological Economics seems to have been able to articulate a more heterodox economic thought, embracing other aspects such as social metabolism. However, the influence of conventional economics appears to remain highly significant. This is why some authors consider that Ecological Economics has been a failed experiment, that it has fallen into the hands of an environmental pragmatism and methodological eclecticism that have distorted its nature and that, therefore, it is necessary to generate a new attempt based on the lessons learned and new assumptions more in line with the critical origins of Ecological Economics, a true Ecological and Social Economy (Spash, 2020). 

Bibliography: 

Cabeza Gutés, M. (1996). The concept of weak sustainability. Ecological Economics, 17: 147-156.   

Carpintero, Ó. (2006). La Bioeconomía de Georgescu-Roegen. Ed. Montesinos.  

Daly, H. E. (1991). Steady-State Economics. Island Press.   

Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Harvard University Press.  

Hall, C. A. S., Cleveland, C. J. & Kaufmann, R. (1992). Energy and Resource Quality: The ecology of the economic process. University Press of Colorado.  

Hornborg, A. (2019). Nature, society, and justice in the Anthorpocene: Unraveling the Money-Energy-Technology complex. Cambridge University Press.  

Jackson, T. (2009). Prosperity without Growth – Economics for a Finite Planet. Earthscan.  

Kallis, G. (2018). Degrowth. Columbia University Press.   

Kapp, K. W. (1950). Los costes sociales de la empresa privada. Oikos-Tau.   

Martínez-Alier, J. & Schlüpmann, K. (1991). La ecología y la economía. Fondo de Cultura Económica.  

Martínez-Alier, J., Munda, G. & O’Neill, J. (1998). Weak comparability of values as a foundation for Ecological Economics. Ecological Economics, 26(3): 277-286.    

Naredo, J. M. & Valero, A. (1999). Desarrollo económico y deterioro ecológico. Fundación Argentaria.  

Naredo, J. M. (2015). La Economía en evolución: Historia y perspectivas de las categorías básicas del pensamiento económico. 4ª edición. Siglo XXI.   

Odum, H. T. (1996). Environmental Accounting: Emergy and Environmental Policy Making. John Wiley and Sons.  

Padilla Rosa, E. & Ramos-Martín, J. (Eds.). (2023). Elgar Encyclopedia of Ecological Economics. Edward Elgar.  

Sciubba, E. (2019). Exergy-based ecological indicators: from thermo-economics to cumulative exergy consumption to thermo-ecological cost and extended exergy accounting. Energy, 168: 462-476.  

Spash, C. L. (2020). Fundamentos para una economía ecológica y social. FUHEM Ecosocial/La Catarata.