Economics of Sustainability Research Program

The HARC’s Economics of Sustainable Development Program (ESDP) focuses on practical economic tools implemented according to basic principles of sustainability in order to develop valuable insights for decision- and policy-making regarding the allocation and management of scarce resources. These insights provide policy makers, the public, academics, and businesses with a fuller understanding of potential and likely impacts including:

• Total costs and benefits to be realized, including non-market costs and benefits;
• Impacts on natural resources, the environment and ecosystems, including the stock and flow of costs and benefits from these natural assets;
• Distribution of costs and benefits among people, groups and geographic areas; and,
• Intergenerational impacts of decisions.

 

MISSION

 

The Economics of Sustainability Research Program aims to develop valuable economic insights for decision- and policy-making regarding the allocation and management of scarce resources.

 

PRINCIPLES

 

ESDP avoids attempts to develop a concrete definition of sustainable development, instead emphasizing a core set of principles. These include:

• Analysis and options must simultaneously, and in an integrated manner, consider economic, social and environmental elements of development issues.
• Development is assessed in terms of both quality and quantity.
• Analysis must make explicit consideration of distribution of impacts across time, generations, social groups, and geographic areas.
• Analysis must make explicit consideration of impacts from and on scale.
• Integration of environmental, resource, and ecological economics.
• Acceptance of complexities and uncertainties inherent in the functioning of ecological systems.
• Acceptance of complexities and uncertainties inherent in the functioning of social systems.
• Systems science approach should be applied to the analysis of development problems, which will help to illuminate problems of both production and consumption processes.
• Multidisciplinary approaches will be necessary in most cases for analysis.
• Stakeholders must be actively engaged in formulating problem statements, identifying study questions, developing models for analysis, and identifying important inputs and outputs of analysis.

 

It will not be possible to perfectly apply these principles in every case, but explicitly acknowledging them will make the economic research more transparent, relevant and useful to decision makers.

 

TOOLS

 

The tools of the Economics of Sustainability include benefit-cost analysis, ecosystem services valuation, life-cycle analysis and resource balance analysis

 

Benefit-cost analysis is an economic tool that has generally been applied to project analysis. With its basis in Social Welfare theory, it seeks to assess the aggregate impact of investment decisions. In general, benefit-cost analysis has the ability to determine whether a given investment decision will make society better off. That is, the returns from investment are greater than the costs. Economic BCA is similar to, but distinctly different from, financial analysis. Whereas financial analysis deals strictly with real cash flows, BCA considers both monetary and non-monetary costs and benefits, although in practice the scope of analysis can be quite limited.

 

Ecosystem Services Valuation is the current classification for the economic accounting of natural assets. Ecosystem Services are defined as the benefits people receive from a functioning ecosystem. This tool was developed in recognition that many of the value that people receive from ecosystems is typically unknown and often not considered in decisions that can impact both the ecosystem and the benefits arising from its existence. This results from the public goods nature typical of these benefits in that they are non-excludable and non-rival. Non-excludable means that it is difficult or impossible to keep people from enjoying the benefits from an ecosystem service. For example, storm surge mitigation from a coastal wetland will be realized by everybody in the vicinity and cannot be allocated only to specific households. Non-rival is the condition where one person’s consumption does not not diminish the ability of another person to enjoy that benefit. Therefore, the benefits from public goods cannot be easily captured and traded as typical with most goods bought and sold in a market.

The Economic Valuation of Ecosystem Services is an attempt to estimate values in monetary terms in order to develop information on how various states of a given ecosystem will affect the beneficial flow of ecosystem services. More importantly, this information can be developed in comparison to alternative investment and management decisions. Additional analysis can be undertaken to assess issues of distribution of benefits – by different social groups, different geographic areas, and different generations.

 

Life Cycle Assessment

 

Life Cycle Assessment (LCA) is a comprehensive approach for assessing products and industrial systems. LCA considers all stages involved in the life of a product ranging from raw mineral extraction to final disposal. LCA also considers factors such as energy use and pollution emissions resulting from the production process. The purpose of LCA is to allow for a complete assessment of the cumulative impacts from a product’s entire life cycle. The knowledge produced with LCA provides a more accurate picture of the trade-offs, particularly environmental, involved in the production of good. LCA is a well-developed technique that involves several specific steps including:

1. Goal Definition and scoping – This step identifies the context and sets the boundaries of analysis.
2. Inventory Analysis – This step makes an accounting of natural resource and energy use and waste and pollution production.
3. Impact Assessments – Impacts on people and environment are assessed in this step.
4. Interpretation – Outcome of previous steps is assessed to make a recommendation on the preferred option. This step should also include discussion of assumptions and uncertainty involved with the results.

LCA by itself does not identify production processes that are most cost effective or efficient. Economics methods can be used to make estimates of the value of assessed impacts, which can be used to make comparable judgments on the preferred option.

 

Resource Balance Analysis

 

Resource balance analysis is a technique that expands traditional economic analysis to focus on the use of and outputs from various resources. Typical economic analysis focuses on profit or net benefit maximization which is similar to standard financial accounting and answers questions about returns on investment or the production of benefits relative to costs. Another common metric is returns to labor – for an owner of a business supplying their own labor, this is akin to the wage rate and answers the question: How much revenue can be generated for each unit of labor input? This does not necessarily lead to the most efficient use of a scarce resource, however. For example, large farm are extremely productive relative to labor inputs, but smaller more labor intensive farms, are often more productive in terms of output per land or water unit. Resource Balance Analysis focuses on output per resource unit to determine more efficient economic uses, particularly in regards to scale of production.

 

PROJECTS

 

The Economics of Sustainability Research Program arose in response to a need to logically organize a range of research efforts into a comprehensive whole. The projects presented here include both early efforts that helped provide the foundation for this research program and current programs specifically developed to be consistent with the principles and contribute toward the achievement of the program goals.

 

Ecosystem Services Measurement and Assessment Project

 

The Arctic coastal and marine environment is a complex and diverse ecosystem characterized by weather extremes and seasonal ice formation. The Ecosystem Services Measurement and Assessment Project, funded by ExxonMobil Upstream Research Company, has the immediate objective to “document ecosystem management tools and metrics that may be used in coastal, offshore and Arctic regions and then determine which tool(s) could be most applicable.”  This project aims to identify, assess, and recommend remote sensing technologies and ecosystem services models and methodologies appropriate for the Arctic marine and ice ecosystem. The basic components of the project’s conceptual framework are the remote sensing technologies which gather data on ecosystem attributes and the ecosystem services models which evaluate the benefits received by humans from the working environment. 

 

Costs of Inaction: Impacts of Climate Change on Large Cities in Texas

 

This study examines the potential economic impacts of a warming climate on large cities in Texas under the case of inaction. The purpose of this study is to examine the potential costs incurred if the causes global warming are allowed to proceed unchecked. This study first examines the climate history and trends for five cities in Texas. A review is then made of various sectors that may be impacted by a changing climate to give a broad overview of potential impacts that large cities may face. Finally, two brief case studies are presented to attempt to quantify two of the most likely impacts, mainly water supply and electricity consumption.

 

Valuing Nature in Texas^®

 

In Texas as elsewhere, nature is often overlooked in planning and development decisions. Many of the valuable goods and services nature provides us go unrecognized because we don't have to pay for them. One of the major obstacles to more widespread recognition of many ecological goods and services is the lack of information and understanding regarding their economic value. The Valuing Nature in Texas program is a response to this challenge. Using innovative applications of a variety of non-market valuation techniques, the program seeks to provide economic representation of the ecosystem, and help decision-makers achieve more effective stewardship and preservation of some of the state's most unique natural resources.Within the Valuing Nature in Texas program, specific projects have been completed the economic value of different aspects of nature in Texas.