EPIBuilding a Sustainable Future
Eco-Economy: Building an Economy for the Earth

Chapter 1. the Economy and the Earth: The Option: Restructure or Decline

Whether we study the environmental undermining of earlier civilizations or look at how adoption of the western industrial model by China would affect the earth's ecosystem, it is evident that the existing industrial economic model cannot sustain economic progress. In our shortsighted efforts to sustain the global economy, as currently structured, we are depleting the earth's natural capital. We spend a lot of time worrying about our economic deficits, but it is the ecological deficits that threaten our long-term economic future. Economic deficits are what we borrow from each other; ecological deficits are what we take from future generations.58

Herman Daly, the intellectual pioneer of the fast-growing field of ecological economics, notes that the world "has passed from an era in which manmade capital represented the limiting factor in economic development (an 'empty' world) to an era in which increasingly scarce natural capital has taken its place (a 'full' world)." When our numbers were small relative to the size of the planet, it was humanmade capital that was scarce. Natural capital was abundant. Now that has changed. As the human enterprise continues to expand, the products and services provided by the earth's ecosystem are increasingly scarce, and natural capital is fast becoming the limiting factor while humanmade capital is increasingly abundant.59

Transforming our environmentally destructive economy into one that can sustain progress depends on a Copernican shift in our economic mindset, a recognition that the economy is part of the earth's ecosystem and can sustain progress only if it is restructured so that it is compatible with it. The preeminent challenge for our generation is to design an eco-economy, one that respects the principles of ecology. A redesigned economy can be integrated into the ecosystem in a way that will stabilize the relationship between the two, enabling economic progress to continue.

Unfortunately, present-day economics does not provide the conceptual framework needed to build such an economy. It will have to be designed with an understanding of basic ecological concepts such as sustainable yield, carrying capacity, nutrient cycles, the hydrological cycle, and the climate system. Designers must also know that natural systems provide not only goods, but also servicesservices that are often more valuable than the goods.

We know the kind of restructuring that is needed. In simplest terms, our fossil-fuel-based, automobile-centered, throwaway economy is not a viable model for the world. The alternative is a solar/hydrogen energy economy, an urban transport system that is centered on advanced-design public rail systems and that relies more on the bicycle and less on the automobile, and a comprehensive reuse/recycle economy. And we need to stabilize population as soon as possible.

How do we achieve this economic transformation when all economic decisionmakerswhether political leaders, corporate planners, investment bankers, or individual consumersare guided by market signals, not the principles of ecological sustainability? How do we integrate ecological awareness into economic decisionmaking? Is it possible for all of us who are making economic decisions to "think like ecologists," to understand the ecological consequences of our decisions? The answer is probably not. It simply may not be possible.

But there may be another approach, a simpler way of achieving our goal. Everyone making economic decisions relies on market signals for guidance. The problem is that the market often fails to tell the ecological truth. It regularly underprices products and services by failing to incorporate the environmental costs of providing them.

Compare, for example, the cost of wind-generated electricity with that from a coal-fired power plant. The cost of the wind-generated electricity reflects the costs of manufacturing the turbine, installing it, maintaining it, and delivering the electricity to consumers. The cost of the coal-fired electricity includes building the power plant, mining the coal, transporting it to the power plant, and distributing the electricity to consumers. What it does not include is the cost of climate disruption caused by carbon emissions from coal burningwhether it be more destructive storms, melting ice caps, rising sea level, or record heat waves. Nor does it include the damage to freshwater lakes and forests from acid rain, or the health care costs of treating respiratory illnesses caused by air pollution. Thus the market price of coal-fired electricity greatly understates its cost to society.

One way to remedy this situation would be to have environmental scientists and economists work together to calculate the cost of climate disruption, acid rain, and air pollution. This figure could then be incorporated as a tax on coal-fired electricity that, when added to the current price, would give the full cost of coal use. This procedure, followed across the board, would mean that all economic decisionmakersgovernments and individual consumerswould have the information needed to make more intelligent, ecologically responsible decisions.

We can now see how to restructure the global economy so as to restore stability between the economy and the ecosystem on which it rests. When I helped to pioneer the concept of environmentally sustainable economic development some 27 years ago, at the newly formed Worldwatch Institute, I had a broad sense of what the new economy would look like. Now we can see much more of the detail. We can build an eco-economy with existing technologies. It is economically feasible if we can get the market to tell us the full cost of the products and services that we buy.

The question is not how much will it cost to make this transformation but how much it will cost if we fail to do it. Øystein Dahle, retired Vice President of Esso for Norway and the North Sea, observes, "Socialism collapsed because it did not allow prices to tell the economic truth. Capitalism may collapse because it does not allow prices to tell the ecological truth."60

This book has three purposes. The first is to make the case that we have no alternative to restructuring the economy if we want economic progress to continue in the decades ahead. The second is to describe not only the broad structure of the eco-economy, but some of its details. And the third is to outline a strategy for getting from here to there in the time available.

Building an eco-economy is exciting and satisfying. It means we can live in a world where energy comes from wind turbines instead of coal mines, where recycling industries replace mining industries, and where cities are designed for people, not for cars. And perhaps most important of all, we will have the satisfaction of building an economy that will support, not undermine, future generations.

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58. Population from United Nations, op. cit. note 25.

59. Herman E. Daly, "From Empty-World Economics to Full-World Economics: A Historical Turning Point in Economic Development," in Kilaparti Ramakrishna and George M. Woodwell, eds., The Future of World Forests: Their Use and Conservation (New Haven, CT: Yale University Press, 1993), p. 79.

60. Discussion with author at Worldwatch Briefing, Aspen, CO, 22 July 2001.


Copyright © 2001 Earth Policy Institute