Sustainable Development, Energy and EnvironmentLecture 05

Paulo Ferrão Full Professor

Tiago DomingosAssistant Professor

Rui MotaResearcher

IN+, Centre for Innovation, Technology and Policy Research

Environment and Energy Scientific AreaDepartment of Mechanical Engineering

Doctoral Program and Advanced Degree in Sustainable Energy SystemsDoctoral Program in Climate Change and Sustainable Development Policies

Doctoral Program in Mechanical EngineeringDoctoral Program in Environmental Engineering

“Empty World”

Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA.

“Full World”

Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA.

Main Issues in Sustainable Development

• Scale– Ecology;

– Environmental dimension of sustainability

• Distribution – Ethics and Sociology;

– Social dimension of sustainability

• (Allocative) Efficiency – Economics;

– Economic dimension of sustainability

• Constraints– Thermodynamics

– Institutions

– Knowledge

Value and Indicators

• Economic– Valuation techniques

– National Accounting and Macroeconomic Variables

– Genuine Savings

– Green Net National Product

• Social– Human Development Index

– Index of Sustainable Economic Welfare

– Gini coefficient

• Biophysical– Ecological Footprint

– Human Appropriation of Net Primary Production

• Multi-criteria analysis

Sustainable Development in Space and Time

• Theories of growth and sustainable development– Solow growth model

– Ayres’s theory of growth (the role of energy)

– Growth accounting

– Weak vs. strong sustainability

• The network dimension: direct vs. indirect effects– Life Cycle Assessment

– Input-Output (IO) Analysis and Environmentally Extended IO

• Energy, environment and economic growth

Sustainable Development and Energy

• Energy in Portugal and the World

• Energy efficiency– New paradigms: from supply to demand

– The rebound effect

– Behavioural aspects

An Integrative Case Study

• Towards sustainable cities, an urban metabolism perspective

• “Development that meets the needs of the present without compromising the ability of future generations to meet their own need.”

– Intra- and inter-generational equity– Anthropocentric

• Sustainability of what?– non-declining aggregate output or consumption,– non-declining utility,– non-declining aggregate resources (productive base),– non-increasing pollution, …

• Weak vs. Strong Sustainability– Limits to substitution,

– Is the combined value of all assets remain constant, that is, it is possible to substitute one form of capital for another, so natural capital can be depleted or the environment degraded as long as there are compensating investments in other types of capital?

– Critical levels of natural capital.

Sustainable Development

Sustainability vs Optimality

• A Sustainable Economic path at time t is one that obeys

where is the maximum sustainable utility, defined as

• A Present Value Optimal path is one that results from the maximization of Present Value (PV):

• Future utility is being discounted with a constant discount rate

• Hicks (1946) : Individual’s income “maximum amount of money which the individual can spend this week, and still expect to be able to spend the same amount in real terms in each ensuing week".

00 tW U C t e dt ( ) : ( ( ))

Dasgupta-Heal Model

• Capital resource economy with no technological progress:

Production can be used to consume or invest:

Extraction of a non-renewable resource used in production

• Optimal Path:

Hotelling’s rule

Ramsey’s rule

• Optimal and sustainable?

subject to

F K t R t c t K t

( ), ( ) ( ) ( )

Discount RateJustification and Components

• The same monetary flow at different instants does not have the same value (time preference)

– CONSUMPTION: Uncertainty• Being alive in the future (individual vs. society)

• Preferences in the future

• Value of the benefit or the cost

– CONSUMPTION: Impatience

– PRODUCTION: Capital productivity (opportunity cost of capital)

• Under certain conditions, the discount rate is equal to the real market interest rate

consumption discount rate

per capita consumption growth rate

elasticity of the marginal utility of consumption

utility discount rate

Turner et al. (1994), pp. 102-106.

.

p L

pure time preference rate

variation in survival probability

C

Cr