This article gives a very basic primer into concepts within ecological economics.  It is intended to edit this to improve it in the future.  A further basic information on both ecological economics and the concept of a steady state economy can be found through the Centre for the Advancement of the Steady State Economy (see links).

Do you remember your high school science?  Can you remember why the sun is hot, or what photosynthesis is, or the first and second laws of thermodynamics?  What’s this got to do with economics?  Everything.

For those of you who can’t instantly recall the first and second laws of thermodynamics they are as follows:

  • 1st Law:  Energy cannot be created or destroyed. It can only change forms.
  • 2nd Law: Entropy in an isolated system will increase over time.

Entropy can be seen as the level of disorder in an object or system.  For example a lump of coal can be seen as having low entropy; it has a high degree of energy potential.  If the coal is burnt it releases its embedded energy as heat which can be usefully directed.  However not all the energy released can be used and while I may have decreased the entropy of another object (for example by refining iron), the overall disorder in the universe is increased.  No transformation of energy is completely efficient.  Fundamentally the universe is proceeding towards a time when energy is evenly spread across it and there is no potential for any energetic transformations to occur.

Life is an ordering force in the universe.  Plants and animals transform the energy in their environment and order the matter of the universe.  Trees for example use the passing energy from the sun and the elements in the air and soil to create leaves and wood – matter which has lower entropy than the source matter.  Animals make use of the energy potential in these objects as their energy source creating another lower entropy creation.  Another animal (such as an economist) may take advantage of this low entropy energy source by eating the first animal.

The earth is not an isolated system; it receives constant input of energy from the sun.  The corresponding disorder (higher entropy) in the universe which allows life on earth to exist is occurring due to the sun’s hydrogen combining in a fusion reaction to form helium releasing considerable energy in the process.  This increased entropy in the sun is however a) outside our immediate system of the earth b) completely beyond our ability to influence.

The universe is ordered into systems and sub-systems.  Our planet is a sub-system of the greater solar system.  We think of the worlds ecosystems broken down into sub-systems (forests, grasslands, rivers etc.) and of these further broken down.  Eventually we get to animals and plants which are systems with subsystems (muscles, hearts, kidneys).  All these sub-systems of greater super-systems are constantly changing energy from one form into another.  As these transformations are not perfect the systems will degrade if they do not have a sufficient input supply of energy to regenerate themselves.  The supply of this energy always comes from the super-system of which a system is part.

Humans like every other creature on the planet are using energy to order matter.  This matter is organised into systems and sub-systems; cities and neighbourhoods and buildings, firms and departments and workers.  We call this system “the economy” and refer to the transformations of matter and energy we make “economic activity”.  In this way the economy can be seen as the ecosystem of humans.

There are two key insights into the economy which this understanding gives us:

  • The economy is a physical system which transforms matter using energy.
  • The economy is a sub-system of the greater global ecosystem.

The economy as a physical system requires energy to maintain itself.  This energy has come from a variety of sources.  The most basic source of energy is food either gathered or hunted from the wild or grown or husbanded through agriculture.  This energy allows useful work to be done through muscle power either human or animal.  Another form of energy comes from harnessing the kinetic energy of wind or water to drive machinery.  Recently fossil fuels have been used releasing energy captured by the ecosystem in previous ages.

The available and usable supply of energy into a system is finite.  The quantity of energy reaching the earth from the sun is enormous but the ability of nature to capture this energy by using it to convert matter into a lower entropy state is far more limited.  This conversion by nature of sunlight into ordered matter is captured the concept of primary production.

The economy removes low entropy matter from natural systems as energy sources.  To replace these natural systems need sufficient energy and inputs of other materials from the environment.  If these are constrained the system may not be able to regenerate as quickly as matter is removed.  In this case the system will physically shrink – it will contain less potential energy and be a less rich store of ordered material.

As a physical subsystem of the greater world ecosystem the physical size of the economy is limited.  It grows only by removing matter and energy from wild systems.  This appropriation of energy in the global ecosystem into the economy limits the energy available to and by extension the size of natural ecosystems.  This results in ecosystems having lower biodiversity and in general being less productive.  They capture less energy in a given time period and provide fewer ecosystem services.

Ecosystem services are the myriad outputs of the ecosystem that we gain benefit from.  These include input materials, fresh water, and air to name but three.  The flow of ecosystem services is related to the size of the ecosystems that produce them.  If the growth of the economy reduces their size then the flow of ecosystem services, which are vital to human survival and the maintenance of the economy, are also reduced.

The ecosystem does not only provide the economy with inputs of matter and energy.  It also provides a sink into which the waste products of the economy can be deposited.  The ecosystem breaks down many of these wastes over time.  However these wastes often reduce the capacity of the ecosystem to produce new low entropy inputs to the economy or to provide us with other ecosystem services.  A key category of wastes which reduce the ability of the ecosystem to capture energy are green house gases.  A hotter planet is less ecologically productive than a cooler one.

The above gives the most basic reasoning behind ecological economic thinking.  This rejects that the economy can be “decoupled” from the global ecosystem.  The economy is a sub-system of the global ecosystem.  It is entirely housed by it and without it the economy simply could not exist.  In recognising that both the economy and ecosystems are physical systems reliant on energy the fundamental conflict between economic growth and ecosystems is apparent.  On a finite planet one grows only at the expense of the other.  Since the ecosystem can exist without the economy but not visa versa, the relationship between the economy and the ecosystem can be described as one of parasite and host.  When viewed in this perspective it is clear that the economy cannot grow indefinitely.  If the economy grows too large it will irrevocably harm the host and impair its own success.

This leads to the recognition that there are limits to economic growth (in a physical sense) and that at some point if the economic system grows too large it will be forced to contract.  In nature when populations of grow beyond the capacity of their environment to sustain them they crash.  If we recognise the economy as simply the ecosystem of humans we also have to recognise that we are not immune from this effect.