www.ceners.org
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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 distributed and consumed.
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
Approaches to energy resources (or any
environmental services)
• Technology-based substitution
Approaches to energy resources (or any
environmental services)
• Thermodynamics argumentation:
• Energy can neither be created nor destroyed.
• Energy transformation always losses at least a little
energy in the form of diffuse 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 (or any
environmental services)
• 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 (or any
environmental services)
• New energy source
• „Are there any?“
• Path dependence
Environmental economics
• Scarcity of resources, limited supply of environmental
services.
• 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.
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“?
Sources
• Andersen, P.: Environmental Science, Bozeman
Science.
• Erickson, J.: Ecological Economics, GundIndistute.
• NASA: Third of Big Goundwater Basins in Distress.