Chapter 3: The Relationship between the Environment and the Economy
In recent years, ignoring the environmental forecasting perspective in classical economics could be seen as going against the times. If classical economics is to be progressive to any degree, it must go to an economic theory that incorporates environmental forecasting, namely classical environmental economics.
The most important characteristic of such a classical environmental economics theory is that it makes the market economy self-evident. Thus, for example, even in the case of regulatory measures for carbon dioxide, which is regarded as the main cause of climate change, it is left to random market principles such as emission trading.
However, recent environmental projections have called for specific numerical targets for global average temperatures to be set and measures to be taken. For example, the Paris Agreement, the latest climate change framework treaty, calls for limiting the global average temperature increase from pre-industrial times to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above levels.
Emissions trading is an environmental version of the market economy approach, in which the adjustment of supply and demand is left to random market transactions, but this unplanned approach makes it impossible to achieve specific numerical targets and only creates a new commodity: emissions credits.
In the classical school of environmental economics, another more advanced theory tries to step into the introduction of indirect production regulations such as environmental taxes. However, as long as capitalism is assumed, it is impossible to impose such a high tax rate that would significantly reduce the profits of capital enterprises, and many capitalist enterprises will maintain the conventional production system even if they have to bear a lukewarm environmental tax.
In this respect, the Stern Review submitted in 2006 by British economist Nicholas Stern in response to a consultation by the British government advocates changes in the energy system and technology in general based on environmental forecasting models, which is a step beyond classical environmental economics theory.
Because of its in-depth content, the Stern Review has the influence of an international guiding document that goes beyond a government report. At the same time, it has been criticized by many traditional environmental economists, including William Nordhaus, the first person from the field of environmental economics to win the Nobel Prize in Economics (2018). From the point of view of our concern here, the Stern Review has at least three limitations due to its classical framework.
First, although unavoidable given the nature of the report as a response to a government consultation on climate change issues, it is limited to climate change and does not cover biodiversity, hazardous industrial waste, and other issues that cannot be reduced to climate change.
The very measures taken to combat climate change are limited to the transformation of energy systems and technologies, and do not go into the quantitative and qualitative management of production. This is an inevitable consequence of classical economics, which is based on a market economy and does not envision a planned economy.
Furthermore, there is the limitation of the cost-benefit-effect theory that it uses as its methodology. Cost-benefit effects, which is essentially a capitalist profit calculation technique, naturally excludes high-cost measures that reduce profits. It is also a logic that prioritizes economic calculation over environmental ethics, especially impact on GDP, the most important macroeconomic indicator in capitalism.
The fact that even the Stern Review, which is quite progressive for a classical school, has these limitations is precisely a manifestation of the limitation of classical environmental economics itself. As long as the capitalist market economy is assumed, it is impossible to combine the economy and the environment in an intersectional manner.
๐The papers published on this blog are meant to expand upon my On Communism.
