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Evolutionary strategies in environmental policy
Ecological Economics 23 (1997) 237 – 249
ANALYSIS
Evolutionary strategies in environmental policy Irene Ring * UFZ-Centre for En6ironmental Research Leipzig-Halle, P.O. Box 2, D-04301 Leipzig, Germany Received 30 March 1996; accepted 31 January 1997
Abstract Many of today’s environmental problems can be attributed to a difference in the development of ecological and economic systems. Both kinds of systems develop over time, but so far they have followed different organizational principles with respect to the basic factors energy, matter, information, space and time. The types of environmental problems encountered pose particular difficulties because of the different temporal and spatial characteristics of markets and ecosystems. In the long run, cultural evolution, and hence economic development, cannot progress without considering fundamental laws and principles of nature. Equilibrium oriented concepts in environmental economics aiming at the internalization of externalities do not offer adequate solutions to these problems. Policy approaches favouring environmental standards, based on current knowledge and technology, equally are of little help: either the knowledge of complex interactions in natural systems is missing to exactly determine precise standards, or past and continuing processes, often time-delayed, make them obsolete. Chronic and pervasive environmental problems call for an enhancement of environmental policy that encompasses a process orientation while considering ecological principles of system development. Evolutionary strategies increasingly have to adapt economic patterns of development to ecological patterns of development. Environmental policy goals and corresponding instruments can be designed to continuously set signals for long-term structural change. The basic factor, energy, will be used to illustrate evolutionary strategies regarding direct and indirect effects. An analysis of the Scandinavian experience with carbon and energy taxes exemplifies first successful steps at implementation. © 1997 Elsevier Science B.V. Keywords: Evolution; Ecological principles; Environmental policy; Ecological tax reform
1. Introduction
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The dynamics of economic development increasingly restrict options for ecological development. Industrial society with its effects of mass
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production and consumption has led to a human influence on natural processes to a degree that has never been seen before. Massive interventions into nature change environmental conditions for living beings: the human appropriation of the terrestrial products of photosynthesis sums up to nearly 40% (Vitousek et al., 1986), and a wide array of natural nutrient and mineral cycles are significantly accelerated by human beings. More and more habitats are directly destroyed, and the regenerational capacity of ecosystems is decreased by resource consumption as well as environmental pollution. Abiotic and biotic features of habitats are altered to the extent that numerous living organisms can no longer adapt. Massive extinction of species is currently occurring on a global level (Wilson, 1988). Humans are ‘pushing biological limits’, as Gowdy and McDaniel (1995) put it. Homo-sapiens has evolved as one species within and as part of the global environment. Cultural evolution cannot be separated from physical and genetic evolution, for they have constantly been influencing each other. Change has occurred as a co-evolutionary process (Norgaard, 1994). Compared to the evolution of the biosphere (3.5 billions of years), the industrial era only counts approximately 200 years. In a comparatively short time the dimension and the effects of mankind’s activities on earth have destabilized the global environmental system. In the long run, cultural evolution, and so economic development, cannot progress without considering fundamental laws and principles of nature. Even though cultural evolution transcends natural evolution, the human mind offering fundamentally new options to evolve and to solve problems, natural laws and principles represent inherent limits for system development (Ring, 1994, p. 41). Since technologies have been developed that have the power to alter ecological life-support systems, limitations to growth will increasingly be set by biophysical constraints as opposed to limits that lie within the human realm of knowledge (Swaney, 1985). Therefore, physical, biological and ecological processes and the functioning of natural ecosystems are a constituent part of cultural evolution. However, the consequences of economic actions, originally meant to satisfy human needs, nowadays
lowers human quality of life by deteriorating environmental quality. The probability of more unstable environmental conditions in the future might lead to limited future options for cultural evolution. Pursuing existing patterns of economic development will inevitably lead to the point where cultural adaptability will cease to be able to cope with changing environmental conditions. Already today, there are countries where severe ecological stresses manifest themselves economically on a scale that has political consequences (Homer-Dixon et al., 1993; Brown et al., 1995; Dasgupta, 1995).
2. Environmental policy at a turning point
2.1. The challenge to address chronic and per6asi6e problems The dominant approach in environmental policy usually concentrates on setting standards relating to different environmental media (soil, air and water) or to maximum permissible emissions. It is recommended that environmental policy instruments ideally should be designed to be effective as close as possible to the point of emission (in the case of environmental taxes, e.g. OECD, 1996a, p. 7). The narrow focus on the point of emission favours technological solutions that often set in at the end of the cause and effect chain, promoting end-of-the-pipe solutions. In Germany, a country that is internationally respected for its environmental policy, it is common practice to prescribe state-of-the-art technology to lower emissions. Environmental policy thus relies on curing symptoms by existing knowledge and technology (Maier-Rigaud, 1988, p. 21). The emission oriented approach to environmental policy has been a proper answer for what Clarke and Holling (1984) classify as the first and second phase of perceiving environmental problems. In the middle of the 20th century, regional environmental catastrophes and local, acute pollution were the centre of attention (first phase). During the 1960s, the increasing input of synthetic chemicals into nature was a major focus of environmental concern (second phase). But in summary (third phase), ‘we are moving beyond an age
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of acute, localized, and relatively simple environmental problems reversible at economically reasonable costs and on politically realistic time and space scales. We are moving into a period of chronic, global, and extremely complex syndromes which threaten to constrain and even reverse progress in human development’ (Clarke and Holling, 1984, p. 477). The type of environmental problems to be considered now is caused by millions of individual actions, where a single action can hardly be deemed harmful. The action itself only turns out to be a problem when population density increases. In this case, certain kinds of resource use or environmental pollution lead to severe environmental degradation because natural chemical and biological recycling processes become overloaded. There is no short-term, negative feedback to the individuals, neither from the economic nor the ecological system that could bring about corrective behaviour. It takes decades, sometimes centuries until negative environmental consequences can be calculated. This category of environmental problems is characterized by its slow, almost creeping development. Bo¨hret (1990) coined the notion of ‘creeping catastrophes’. The greenhouse effect, the effects of acid rain, problems of soil degeneration and erosion, groundwater pollution and the loss of biodiversity fit into this category of slow environmental deterioration. The extremely complex nature of these problems and their slowly progressing character often make it difficult, if not impossible, to track the causes and to foresee the effects, features that exclude them from precise quantification. They are pervasive in spatial terms and chronic in temporal terms. At its early stage, the monitoring of environmental damage is almost impossible due to its hidden development caused by time-delays and the buffering capacity of natural systems. In the case of the greenhouse effect, Arrhenius (1896) warned about the extensive use of fossil fuels at the end of the last century. But it took almost another century until the scientific understanding of the problem as well as measurement techniques improved in a way that the greenhouse effect is now widely recognized as a serious environmental problem calling for international action.
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In the long run it is the incremental environmental damage, leading to severe qualitative changes or even the system’s collapse, that finally creates a negative feedback. In these cases, environmental standards are of little help: either the knowledge of complex interactions in natural systems is missing to exactly determine them, or past and continuing processes, often time-delayed, make precise standards obsolete. To encounter chronic and pervasive problems, a process oriented approach in environmental policy has to be developed. There is a need for an enlarged perspective of the interactions between ecological and economic systems, allowing for political decisions even under uncertain conditions. The corresponding strategy may be called an evolutionary strategy because it includes aspects of both economic and ecological evolution. Before we move on to make first steps in this direction, there is a need to take into account economic theorizing as it applies to environmental problems. This will be done with respect to the question, whether goals and instruments in environmental economics allow for an evolutionary strategy.
2.2. En6ironmental economics: forced to make a mo6e The complexity and global character of environmental problems and the possible consequences for life on earth contributed to a raised environmental consciousness during the last three decades. In this context, environmental economics has emerged as a discipline to tackle environmental problems from an economic perspective. Environmental economics has developed within the framework of welfare economics. Welfare economics itself represents a part of microeconomics that is dealing with problems like market failures and conditions that exclude Pareto-optimal allocations by market equilibrium. The theory of public goods and the theory of externalities represent basic theories for analysing environmental problems (Baumol and Oates, 1988; Tietenberg, 1992; Tisdell, 1993). Unlike private goods, public goods are characterized by non-rivalry of use and by the fact that
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no one can or should be excluded from its use. There is no price indicating their value on markets, thus, increasing scarcity of environmental resources is not reflected by the signal of increasing prices. Excessive use of environmental resources will inevitably lead to negative externalities, which prevents the market mechanism from reaching an efficient, Pareto-optimal allocation of resources. Externalities have to be internalized by external regulation to allow for a market equilibrium. Without any regulation from outside the market system, public goods, and thus the majority of environmental resources and goods, are not accessible to the market mechanism. In environmental economics, the internalization of external effects represents the decisive strategy to integrate environmental problems into the market system. If we differentiate between means and ends, internalization can be seen as the ultimate end in environmental economics. The absence of externalities is a prerequisite for Pareto-optimal allocation and aims at moving towards a market equilibrium. Thus, the theory of externalities represents a static approach to include environmental problems into the economic framework (Fig. 1). The level of means, unlike the level of ends, can be characterized by a differentiation between static and evolutionary approaches (Ring, 1994, p. 98). The Pigouvian strategy (Pigou, 1920) aims at the internalization of external effects within a given legal framework of property rights. Therefore, this approach to internalization is static in nature. The public good character of environmental resources calls for government intervention to get rid of the discrepancy between private and social costs and benefits. Pigouvian taxes can be
Fig. 1. The internalization of externalities in view of equilibrium and evolution.
introduced to guarantee an optimal allocation of resources. However, due to the complexity of reality and prohibitive information requirements there is usually no way to obtain a reasonable estimate of the marginal net damage (benefit), which is a prerequisite for setting the proper level of taxes. Based on the Pigouvian strategy, Baumol and Oates (1971) have developed the charges and standards approach, a pragmatic technique that aims at efficiency without optimality. By contrast, the Coase theorem (Coase, 1960) aims at the evolution of the market system itself. Exclusive property rights have to be specified for environmental resources and goods that turn their public character into a private one. Assuming specific conditions (e.g. no transaction costs), the bargaining solution among different users of the environment will result in a Pareto-optimal allocation of the environment. This evolutionary approach to internalization does not assume market failure regarding environmental problems. To the contrary, government is only in charge of adapting the legal framework that is policing a new framework of property rights. Consequently, a market for environmental resources and goods can evolve. Despite the consideration of evolutionary approaches at the instrumental level, the comprehensive goal in environmental economics is represented by the absence of externalities. Irrespective of the means envisaged, the ultimate end is oriented towards a static equilibrium theory. However, equilibrium concepts are of limited value, if there is a need for orientation towards processes and to explain aspects of development.
3. Ecological and economic development in comparison A promising approach to tackle chronic and pervasive environmental problems consists of identifying and analysing patterns of development. Patterns of ecological and economic development can be examined to pinpoint similarities and differences that might help to address the origin of the problem (Ring, 1994, p. 77 ff). In the evolutionary process, several basic factors or ele-
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ments can be distinguished (Boulding, 1992, p. 240), such as energy, matter, information, space and time. When ecological systems develop over a certain amount of time, they often seem to follow general rules relating to these basic factors.
3.1. Energy As terrestrial ecosystems develop, they move towards more and more efficient ways of using solar energy corresponding to the local conditions. Being autotrophic organisms, plants fix sun energy to produce biomass during the process of photosynthesis. They work like decentralized power plants using the actual flow of sun energy (Zwo¨lfer, 1991). The fixed energy is passed on to other organisms through food chains in a cascade-like connection. So far, economic development has been tremendously supported by discovering and exploiting additional resources of energy. Instead of relying on flow resources, that is incoming radiation, mankind has learned to exploit the accumulated solar energy of preceding ages. About 75% of primary energy use (world wide in 1987) refers to fossil energy (Hall, 1991). Current economic growth predominantly relies on stock-resource exploitation that comes at the expense of future generations (Georgescu-Roegen, 1975; Norgaard, 1984). Energy consumption can be seen as one of the major prerequisites for economic growth during the industrial era as well as one of the major causes for global change. The greenhouse effect and the effects of acid rain are strongly related to the use of fossil energy. The exploitation of fossil energy has led to environmentally wasteful ways of energy use being pervasive in the industrial societies of today. The economic focus has been set on meeting a growing energy demand instead of promoting saving strategies and the more efficient use of energy.
3.2. Matter Organisms permanently take in material resources from the environment and excrete them to the environment. There are smooth transitions
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between and within the abiotic and the biotic sphere. Over long periods of time and without any major disturbances from outside the system, ecosystems develop material cycles (Odum, 1983, p. 415). Based on the efficient interaction between the habitat and its populations, ecosystems tend to keep most vital nutrients within the system. Economic systems, by contrast, are still characterized by a throughput mentality (Daly, 1991, p. 35). Resources are used to produce goods. After consumption, most material goods are dumped as garbage instead of being reused. Furthermore, contemporary land use patterns lead to irreversible losses of base minerals, nutrients and organic material from landscapes to the sea (Ripl, 1995). As in the case of energy, material resources are dealt with in an environmentally wasteful rather than efficient way. There is a strong reliance on stock-resource exploitation. Existing natural material cycles are increasingly opened instead of keeping vital matter within the system. Problems of soil erosion and degeneration, groundwater pollution and the accelerated aging of landscapes belong to this category.
3.3. Information The diversity of life represents a certain kind of information kept in living systems. Due to its genetic information, any living organism, population or species is a specific carrier of information. Depending on the variety of environmental conditions, ecosystems are usually characterized by an increase of biodiversity over time (Remmert, 1992, p. 229). By allowing high flexibility and adaptability, the existence of diversity can be seen as a long-term survival strategy as a consequence of permanently changing environmental conditions. High diversity can also be seen as an optimization strategy for systems with almost no change in environmental conditions, but with a severe resource constraint: this is the case for the most diverse systems on the Earth, coral reefs and tropical rain forests. Biodiversity represents a value that has multiple dimensions (Busch-Lu¨ty and Du¨rr, 1993). The biosphere and environmental goods and services are characterized by a
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fundamental complexity and multiple attributes (Vatn and Bromley, 1994). Economic development has brought along a diversity of goods to satisfy diverse human needs. Any value of goods and services is ultimately transformed into a price signal that is the central steering mechanism in market economies. Prices, in their function to reduce diverse values to a monetary value, make it possible to compare different kinds of goods and services on one scale. Human interventions into ecosystems often aim at selected aspects and therefore, the diversity of the system is usually reduced (Remmert, 1992, p. 232). A comprehensive evaluation of interventions into natural systems is very difficult, because a lack of information exists as to the complete value of biological resources (Gowdy and McDaniel, 1995). Whenever societal decisions concerning the environment are based on traditional economic rationalizing, a monetary, and therefore onedimensional value is applied to problems of multidimensional scale. The process of compressing environmental complexity into a single metric of monetary values will usually result in a non-trivial loss of information (Vatn and Bromley, 1994). The global losses in biodiversity can be seen as an indicator of this development. 3.4. Space Especially terrestrial ecosystems are organized in spatial compartments. There are natural boundaries caused by changing environmental conditions or the kind of self-organization of the system itself (e.g. mosaic-like structure of forests: Remmert, 1992, p. 220 ff). Therefore ecosystems have developed more and more efficient ways of using locally available resources. Spatial limits favour increases of the internal efficiency of the system with respect to the local environment and represent naturally set limits to growth. There is a continuous trend to the globalization of the economy. Markets are eliminating spatial distinctions (Altvater, 1994). Resources can be used from any place in the world and products can be sold all around the world. Present economic systems are characterized by the international division of labour and trade on expanding world markets.
The ability to cross spatial boundaries for economies helps to neglect internal efficiency as far as the local environment is concerned. The non-regenerational use of local resources and the destruction of natural habitats is more probable as long as there are resources and habitats left in other places. International companies often choose countries with less restrictive environmental regulation for new factories to avoid costly pollution abatement technology. As long as economic activities and international trade are based on improper valuation of natural resources and environmental effects, there is a high risk of these activities and trade being environmentally detrimental (Daly and Goodland, 1994).
3.5. Time Many important natural processes are characterized by relatively slow time rates. Generation and regeneration times of soil and groundwater, for example, run into hundreds and thousands of years. Biological evolution depends on the variation of genetic material and it takes many generations of organisms until a new species is formed. The stability of ecosystems can be seen as a stability of processes: processes of production, consumption and decomposition balance each other. Natural ecosystems such as rain forests show a mosaic-cycle pattern of growth and decline (Remmert, 1992, p. 221). The characteristics of mankind have brought along a huge acceleration of cultural evolution compared to the evolution of nature (Osche, 1987, p. 520 f). Irrespective of a finite planet Earth, economic systems strive for indefinite growth (e.g. in many economic theories, human needs are unlimited by definition). Growth is often identified with development and it is seen as a precondition for stability. Time scales differ between natural and cultural systems. Economic decisions often do not respect natural time scales. Furthermore, the process of discounting future values to the present can easily lead to the decline or destruction of natural resources (Gowdy and McDaniel, 1995). The economic system as part of the overall global system cannot indefinitely grow without endangering the
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global environment. Finally, by continuously changing environmental conditions, it puts its own existence at risk. Therefore, economic activities must be seen in context with a sustainable scale that ensures the environmental carrying capacity and does not sacrifice ecosystem services (Daly, 1992). The economic system as part of the global environmental system needs a frame that constrains effects to the environment and ensures the sustainability of the ecosphere.
3.6. The importance of ecological principles Looking at the development of ecosystems, we can identify ecological principles that contribute to the sustainability and regenerational capacity of the system. An important part of solving environmental problems consists in reconciling contemporary patterns of economic development with ecological principles of system evolution (Fig. 2). This might be realized by orienting economic activities towards ecological principles of system organization. Such a directional goal needs a long-term perspective where current patterns of economic behaviour are subject to structural change. The crucial difference between ecological and economic principles lies in the way of using energy and material resources. The ability of the human species to produce tools or exosomatic organs has contributed to a dependence on the use of available energy and matter (GeorgescuRoegen, 1975). Technical progress and the evolution of new forms of social organization have added to an ever increasing amount of economic goods to satisfy human needs. The exploitation of additional energetic resources resulted in a continuously growing material throughput in industrial societies. The problems encountered within these two categories are relatively well recognized. Compared to the next three categories, they are better suitable for quantification. The categories of information, space and time are not that easy to grasp. Their quantification is rather difficult and so far, not sufficiently developed. But nonetheless, their consideration bears valuable information and has to be integrated in
Fig. 2. Ecological and economic principles of system development.
an encompassing concept of natural and cultural coevolution.
4. Towards an evolutionary paradigm in environmental policy Many of today’s environmental problems result from a long-term development process. They are an outcome of mankind dealing with natural resources during the last few centuries. Presumably, a long-term learning process is needed to reach a more sustainable way of living. It is an open process of change where we cannot foresee the outcome yet. Nevertheless, there is a need to grasp this process, to understand it in theory and to promote it in practice. Aspects of development and the explanation of changing reality are at the centre of interest of evolutionary theories. Evolutionary approaches generally endorse methodologies that characterize biology or natural history. They reject methodologies represented by classical physics, or mechanics, that are implied by conventional paradigms in the social sciences, particularly in neoclassical economics (Modelski and Poznanski, 1996).
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Evolutionary theories in economic science are mostly discussed in close relation to corresponding theories in biology, from where the basic ideas are usually borrowed (Ro¨pke, 1977; Nelson and Winter, 1982; Gowdy, 1985; Witt, 1987). Evolutionary theorizing in economics concerns processes of long-term and progressive change (Nelson and Winter, 1982, p. 10). The theories are dynamic in temporal terms. They are based on a time concept that is irreversible and historic in character, and they try to explain the origin and effects of novelties (Witt, 1987, p. 9 ff). However, despite the rather long tradition of evolutionary theories both in economics and in biology (Nelson, 1995), the link to environmental problems has only been made recently in context with the emerging discipline of ecological economics (Costanza, 1991; Boulding, 1992). In this respect, there is a need for the development of an evolutionary paradigm in environmental policy where ends and means belong to the same evolutionary framework. The evolutionary paradigm has to be oriented towards processes and structural change rather than equilibria or defined states of the environment. Structural change as the most basic consideration in social (economic, political or societal) evolution is closely related to innovation, and the study of both requires a long-term perspective (Modelski, 1996). These are prerequisites we have identified earlier as essential to tackle chronic and pervasive environmental problems. Environmental goals have to consider ecological principles of system evolution and environmental policy instruments should be designed to encourage innovations over a long period of time, heading for the reconciliation of economic activities with ecological principles. This broadening of perspective in environmental policy in context with economic theories will complement the equilibrium oriented existing theory and its practical recommendations. What would a process oriented aim in environmental policy look like (Ring, 1994, p. 145)? So far, environmental economists have asked experts from other disciplines to set environmental standards. Environmental scientists, e.g. should investigate the regenerational capacity of ecosystems and recommend appropriate environmental stan-
dards. Environmental policy would then make the environmental standards obligatory for all members of a society. The task of environmental economists has predominantly been seen as studying the most efficient, that is cheapest, ways to reach targets set by others (Endres, 1985, p. 19). In this sense, environmental policy has chosen the following economic efficiency criterion: a given target or output has to be achieved by a minimum input and minimum costs. However, this principle is only useful in cases where a clear standard can be defined. But many of our environmental problems elude such clear definition. It is often not possible to determine exactly which interventions into nature are environmentally sound. The relationships between ecological and economic systems from the local up to the global level are too complex to set proper standards for many pollutants. Looking at chronic and pervasive problems like the greenhouse effect and acid rain, it is clear that current levels of fossil energy use have to be cut down, but there is no precise estimate of a long-term sustainable level of intervention. As has been argued before, an additional aim of environmental policy has to consist of adapting economic behaviour to principles of ecological system development. Instead of trying to determine exact levels of pollution where they are not suitable, environmental policy should aim at giving continuous incentives to encourage this kind of adaptation for precautionary reasons. Firstly, the still continuing increase of interventions into nature should be stabilized, then a decrease of interventions should be envisaged according to ecological principles. Applied to the basic factor, energy, the reliance of economic activities on fossil fuel as a stock resource has to be continuously reduced to approach the ecological principle of reliance on solar energy as a flow resource. The precautionary approach demands to consider our knowledge of ecological principles of system development. In practice, it means political action before rising carbon dioxide levels exceed the buffering capacity of natural systems and climate change will be clearly measurable.
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The level of a continuous incentive depends on the political will to change present economic behaviour, and it is based on long-term ecological and economic aims. In the light of this method, the short-term aim is always an intermediary one; in fact it is subject to the level of the incentive one can agree upon. Thinking in terms of economic efficiency criteria, this way of putting the problem means: With a given input (a permanent incentive) one tries to reach a maximum output. The focus is not on a specific aim that has to be efficiently reached, but on a specific incentive that will change economic patterns of development. The task is to maximize performance of economic adaptations to ecological principles in those cases where environmental problems arise from economic activities. This adaptation will not be realized today or tomorrow, and maybe it will never be fully achieved. Therefore, the realistic goal has to be to increasingly reconcile economic activities with ecological principles. Increasingly does mean that a long-term process has to be set off where clear goals in terms of precise standards are missing, but where the necessary direction of action is clear and sufficient to reduce interventions into nature.
5. Putting evolutionary strategies into practice
5.1. Economic instruments as continuous incenti6es What kind of novel strategy is suitable to achieve such a goal? The characteristics of the strategy should be in line with the social and economic system to facilitate acceptance. According to Ro¨pke (1970), a gradual technique should be favoured to address planning aspects of development. Gradualism does allow for first steps without precise knowledge of facts far in the future. Errors and their unintentional effects will not accumulate and do allow for corrections. The dynamic process, just like the emission standards approach, has to be enforced by appropriate environmental regulation. But the design of environmental regulation in a dynamic context has to follow some specific rules (Porter and van
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der Linde, 1995): regulation should encourage innovation and create opportunities for continuous improvement rather than locking in any particular technology. Despite the orientation towards processes, the design of the regulation should leave as little room as possible for uncertainty at every stage. Given these prerequisites for an evolutionary strategy, the special task of environmental economists lies in investigating the possible organization of continuous incentives. What kinds of continuous incentives could be introduced and what level is deemed to be sensible to actually trigger the desired adaptation process? Evolutionary strategies open up a field for the exploration of new instruments, but the incentives can also include traditional economic means, such as permits, charges and taxes. They should be examined for their suitability to solve our problem. So far, these instruments have been used or recommended to efficiently meet a specific environmental standard as exactly as possible (Baumol and Oates, 1988; Siebert, 1992). However, economic instruments in environmental policy are not limited to use within a static framework. Their application can as well be further developed to suit the evolutionary paradigm (Ring, 1994, p. 147 ff). This is done, e.g. in the case of permits, by continuously decreasing the total amount of available permits (or devaluation of the permits) year by year. In the case of charges or taxes, their level typically has to be increased year by year to promote the desired adaptation process. Both strategies will lead to a continuously increasing price signal for environmental resources and goods on markets. The evolutionary use of economic instruments will result in supporting a structural change of industrial societies towards a continuous improvement of environmental performance. The idea of progressively increasing environmental charges or taxes has already been introduced elsewhere (Mu¨ller-Witt, 1989; von Weizsa¨cker, 1992). Despite their orientation towards a necessary structural change of industrial societies, that means intending a continuous process of adaptation, the authors refer to the inter-
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nalization of external effects as an ultimate goal. The estimated level of negative externalities serves as a justification to the approach offered. However, since the strategy of internalization originates from a background that is predominantly static in nature, it is not sufficient to justify evolutionary approaches. The promotion of structural change and the internalization of externalities belong to two different conceptual frameworks (Fig. 3). This distinction applies to all proposals for ecological tax reform, aiming at implementing green taxes over a several year period (Repetto et al., 1992; von Weizsa¨cker et al., 1992; Costanza, 1994; Bernow, 1996). Their theoretical foundation has to be seen in the light of an evolutionary paradigm.
5.2. Addressing the energy sector: direct and indirect effects In view of the serious environmental damage accompanying its use, the reduction of fossil energy use may represent one of the first and most important fields of applying evolutionary strategies. Following a strategy of quantities, the present level of fossil energy consumption could be frozen by selling a certain amount of permits. These permits will later be devaluated year by year to continuously reduce consumption. If a price strategy is chosen, charges or taxes would increase current energy prices year by year to encourage long-term innovations for reduced use of fossil energy (Fig. 4). Either strategy will lead to increasing prices for the use of fossil fuels with considerable effects relating to the realization of ecological principles. Concerning the basic factor energy itself, a shift from fossil fuel use to regenerative energy re-
Fig. 3. An enhanced perspective of environmental policy.
Fig. 4. Evolutionary strategies as an incentive to reduce fossil energy use.
sources can be expected due to increased competitiveness of the latter. Reliance on stock resources will be reduced while flow resources will be relatively favoured by price signals. Direct environmental effects consist in a decrease of carbon dioxide emissions as well as other emissions related to the burning of fossil fuels. Due to the importance of fossil energy for numerous processes in industrialized societies, indirect effects on other basic factors are plausible. Ka˚berger et al. (1994) discuss the influence of an environmental tax-shift, that is the increase of the relative price of energy compared to labour, on other sectors of the economy. Especially energy and material intensive sectors like e.g. the mining and many manufacturing sectors, will be strongly affected by higher energy prices. Reduced material turnover, less waste production and a relative advantage of maintenance versus new production may be expected. Higher energy prices will therefore contribute to saving material resources as well. Higher prices for fossil fuels will also affect the basic factor space by influencing transportation that is almost completely dependent on oil (Gudmundsson and Ho¨jer, 1996). If the transport of goods and materials becomes more expensive, the elimination of spatial distinctions by markets may be slowed down. Regional markets as spatial compartments of the economy will then become more attractive. A competitive advantage for regenerative energy resources will even influence the basic factor time in a positive way. An increasing reliance of the economy on flow resources will bring society’s time scale of energy use nearer to nature’s time scale of energy use.
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Table 1 Total charge rate on fuels: Denmark Fuels
Unit
1993
1994
1995
1996
1997
1998
Gasoline, leaded Gasoline, unleaded Diesel, ordinary Of which CO2 tax Diesel, light Of which CO2 tax Electricity Of which CO2 tax Electricity, heating Of which CO2 tax Coal Of which CO2 tax
DKr/l DKr/l DKr/l DKr/l DKr/l DKr/l DKr/kWh DKr/kWh DKr/kWh DKr/kWh DKr/t DKr/t
3.63 2.81 2.55 0.34 2.43 0.34 0.46 0.13 0.42 0.13 1165 303
3.88 3.06 2.55 0.34 2.43 0.34 0.50 0.13 0.46 0.13 1165 303
4.44 3.63 2.84 0.34 2.71 0.34 0.54 0.13 0.49 0.13 1265 303
4.66 3.85 2.86 0.34 2.74 0.34 0.58 0.13 0.53 0.13 1378 303
4.73 3.91 2.99 0.34 2.86 0.34 0.63 0.13 0.58 0.13 1490 303
4.79 3.98 2.99 0.34 2.86 0.34 0.70 0.13 0.62 0.13 1603 303
All values inclusive of VAT, 25% (OECD, 1996b, p. 30).
5.3. First steps to implementation: the Scandina6ian experience The Scandinavian countries, Denmark, Norway, Sweden and Finland, cooperate on policy issues regarding energy and environment. Within the framework of the Nordic Council of Ministers, two of the common aims of these countries are to ensure a secure supply of energy and that energy supply and consumption are in accordance with sustainable development. To promote an increase in energy efficiency and a decrease in polluting emissions from energy sources, all of these countries have introduced carbon taxes and taxes or excise duties on energy (Olivecrona, 1995; OECD, 1996b). All countries either intend to stabilize (Finland, Norway) or even reduce (Denmark, Sweden) carbon dioxide emissions over a certain period of time with gradually increasing taxation on fossil fuels. Table 1 shows the development of the total charge rate on fuels in Denmark before and after the 1994 tax reform (OECD, 1996b). The Scandinavian experience is a clear step towards evolutionary thinking. There is no more equilibrium orientation in an economic sense like the ideal tax that should be ‘set at the point at which the benefits from the last ton of carbon removed equal the added cost of eliminating that ton’ (Repetto et al., 1992, p. 56). The environmen-
tal target to stabilize and reduce emissions is sufficient to cause political action, without claiming precise environmental standards relating to carbon dioxide emissions. International environmental agreements have been an important motivating factor to implement taxes on energy and carbon dioxide (Gale and Barg, 1995). Especially Denmark and Sweden intend to demonstrate leading practices with their environmental policy development and have a good international demonstration effect (Olivecrona, 1995). It is noticeable that Sweden as the country with the highest carbon dioxide tax in the world has chosen the path of a comprehensive ecological tax reform. For fiscal years 1993/94, the carbon dioxide tax raised Skr 11.3 billion, total tax revenue from excises on fuels (including petrol) and electricity was Skr 38.7 billion (OECD, 1996b, p. 36). Income tax rates and taxes on labour have been lowered to gain public acceptance for such a substantial revenue. According to Gale and Barg (1995), the government’s annual budget represents the most compelling instrument to have direct, long-term and structural impacts on a country’s social and economic development from a sustainability perspective. The Scandinavian experience and its success strengthen this assessment. Public sector spending and taxation may therefore play an important role in implementing evolutionary strategies.
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6. Concluding remarks An enhanced understanding of environmental policy encompasses both static and evolutionary approaches depending on the specific characteristics of the environmental problem. Especially the chronic and pervasive type of environmental problems cannot be encountered without addressing aspects of economic and ecological development. Consequently, a comprehensive theoretical framework in environmental economics has to include optimization problems like the internalization of external effects as well as evolutionary strategies to continuously adapt economic patterns of development to ecological patterns of development. Economic instruments like permits or charges and taxes can be applied with respect to the static or the evolutionary paradigm. So far, existing proposals for using evolutionary strategies (e.g., ecological tax reform) are insufficiently justified by theories with predominantly static concepts. They have to be integrated in a framework that can explain and promote processes of development.
Acknowledgements I wish to thank John M. Gowdy, Gerhard Maier-Rigaud, Bengt Ma˚nsson, Hans Nutzinger, Timothy O’Riordan, Wim van der Steen and three anonymous reviewers for their helpful suggestions on earlier drafts of this manuscript.
References Altvater, E., 1994. Ecological and economic modalities of time and space. In: O’Connor, M. (Ed.), Is Capitalism Sustainable? Political Economy and the Politics of Ecology. The Guilford Press, New York, pp. 76–90. Arrhenius, S., 1896. On the influence of carbonic acid in the air upon the temperature of the ground. Phil. Mag. 41, 237. Baumol, W.J., Oates, W.E., 1971. The use of standards and prices for protection of the environment. Swedish J. Econ. 73, 42 – 54. Baumol, W.J. and Oates, W.E., 1988. The Theory of Environmental Policy, 2nd ed. Cambridge University Press, Cambridge.
Bernow, S., et al., 1996. Ecological Tax Reform. Statement. Workshop on ecological tax reform held March 18 – 19, 1996, College Park, Maryland. Bo¨hret, C., 1990. Folgen. Entwurf fu¨r eine aktive Politik gegen schleichende Katastrophen. Leske und Budrich, Opladen. Boulding, K., 1992. Towards a New Economics. Critical Essays on Ecology, Distribution and Other Themes. Edward Elgar, Aldershot. Brown, L.R., et al., 1995. State of the World 1995. A Worldwatch Institute Report on Progress Toward a Sustainable Society. Earthscan, London. Busch-Lu¨ty, C., Du¨rr, H.P., 1993. O8 konomie und Natur: Versuch einer Anna¨herung im interdisziplina¨ren Dialog. In: Schriften des Vereins fu¨r Socialpolitik. Gesellschaft fu¨r Wirtschafts- und Sozialwissenschaften, Neue Folge Band 224. Umweltvertra¨gliches Wirtschaften als Problem von Wissenschaft und Politik, pp. 13 – 44. Clarke, W.C., Holling, C.S., 1984. Sustainable development of the biosphere: human activities and global change. In: Malone, T.F., Roederer, J.G. (Eds.), Global Change. Cambridge University Press, Cambridge. pp. 474 – 490. Coase, R.H., 1960. The problem of social cost. J. Law Econ. 3, 1 – 44. Costanza, R. 1991. Ecological Economics. In: Costanza, R. (Ed.), Ecological Economics: The Science and Management of Sustainability. Columbia University Press, New York. Costanza, R., 1994. Three general policies to achieve sustainability. In: Jansson, A.M., Hammer, M., Folke, C., Costanza, R. (Eds.), Investing in Natural Capital: The Ecological Economics Approach to Sustainability. Island Press, Washington, DC, pp. 392 – 407. Daly, H.E., 1991. Steady-State Economics, 2nd. ed. Island Press, Washington, DC. Daly, H.E., 1992. Allocation, distribution and scale: towards an economics that is efficient, just, and sustainable. Ecol. Econ. 6, 185 – 193. Daly, H.E., Goodland, R., 1994. An ecological economic assessment of deregulation of international commerce under GATT. Ecol. Econ. 9, 73 – 92. Dasgupta, P.S., 1995. Population, poverty and the local environment. Sci. Am. 272, 40 – 45. Endres, A., 1985. Umwelt und Ressourceno¨konomie. Wissenschaftliche Buchgesellschaft, Darmstadt. Gale, R.J.P., Barg, S.R., 1995. The greening of budgets: the choice of governing instrument. In: Gale, R., Barg, S., Gillies, A. (Eds.), Green Budget Reform. An International Casebook of Leading Practices. Earthscan, London, pp. 1 – 27. Georgescu-Roegen, N., 1975. Energy and economic myths. South. Econ. J. 41 (3), 347 – 381. Gowdy, J.M., 1985. Evolutionary theory and economic theory: some methodological issues. Rev. Soc. Econ. XLIII (3), 316 – 324. Gowdy, J.M., McDaniel, C.N., 1995. One world, one experiment: addressing the biodiversity-economics conflict. Ecol. Econ. 15, 181 – 192.
I. Ring / Ecological Economics 23 (1997) 237–249 Gudmundsson, H., Ho¨jer, M., 1996. Sustainable development principles and their implications for transport. Ecol. Econ. 19, 269 – 282. Hall, D.O., 1991. Biomass energy. Energy Policy 19, 711–737. Homer-Dixon, T.F., Boutwell, J.H., Rathjens, G.W., 1993. Environmental change and violent conflict. Sci. Am. 268, 38– 45. Ka˚berger, T., Holmberg, J., Wirsenius, S., 1994. An environmental tax-shift with indirect desirable effects. Int. J. Sustain. Dev. World Ecol. 1, 250–258. Maier-Rigaud, G., 1988. Umweltpolitik in der offenen Gesellschaft. Westdeutscher Verlag, Opladen. Modelski, G., 1996. Evolutionary paradigm for global politics. Int. Stud. Quart. 40 (3), 321–342. Modelski, G., Poznanski, K., 1996. Evolutionary paradigms in the social sciences. Int. Stud. Quart. 40 (30), 315–319. Mu¨ller-Witt, H., 1989. O8 kosteuern als neues Instrument in der Umweltpolitik. ifo-Studien zur Umwelto¨konomie, Nr. 10, Mu¨nchen. Nelson, R.R., 1995. Recent evolutionary theorizing about economic change. J. Econ. Lit. 33, 48–90. Nelson, R.R., Winter, S.G., 1982. An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge. Norgaard, R.B., 1984. Coevolutionary development potential. Land Econ. 60, 160 –173. Norgaard, R.B., 1994. Development Betrayed. The End of Progress and a Coevolutionary Revisioning of the Future. Routledge, London, New York. Odum, E.P., 1983. Grundlagen der O8 kologie. Bd. 1, 2. Aufl., Thieme, Stuttgart. OECD, 1996a. Implementation Strategies for Environmental Taxes. Paris. OECD, 1996b. Environmental Taxes in OECD Countries. Paris. Olivecrona, C., 1995. The carbon dioxide taxes in Scandinavia. In: Gale, R., Barg, S., Gillies, A. (Eds.), Green Budget Reform. An International Casebook of Leading Practices. Earthscan, London, pp. 173–184. Osche, G., 1987. Die Sonderstellung des Menschen in biologischer Sicht: Biologische und kulturelle Evolution. In: Siewing, R. (Ed.). Evolution. 3. neubearb. Aufl., Fischer, Stuttgart, New York, pp. 499–523. Pigou, A.C., 1920. The Economics of Welfare. Macmillan, London.
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Porter, M.E., van der Linde, C., 1995. Toward a new conception of the environment competitiveness relationship. J. Econ. Perspe. 9, 97 – 118. Remmert, H., 1992. O8 kologie. 5. Aufl., Springer, Berlin. Repetto, R., Dower, R.C., Jenkins, R., Geoghegan, J., 1992. Green fees: How a Tax Shift Can Work for the Environment and the Economy. World Resources Institute, Washington, DC. Ring, I., 1994. Marktwirtschaftliche Umweltpolitik aus o¨kologischer Sicht: Mo¨glichkeiten und Grenzen. Teubner, Leipzig. Ripl, W., 1995. Management of water cycle and energy flow for ecosystem control: the energy transport reaction (ETR) model. Ecol. Modelling 78, 61 – 76. Ro¨pke, J., 1970. Primitive Wirtschaft, Kulturwandel und die Diffusion von Neuerungen. Mohr, Tu¨bingen. Ro¨pke, J., 1977. Die Strategie der Innovation. Mohr, Tu¨bingen. Siebert, H., 1992. Economics of the Environment. Theory and Policy, 3rd ed. Springer, Berlin, Heidelberg. Swaney, J.A., 1985. Economics, ecology, and entropy. J. Econ. Issues XIX, 853 – 865. Tietenberg, T. 1992. Environmental and Natural Resource Economics, 3rd ed. Harper Collins Publishers, New York. Tisdell, C., 1993. Environmental Economics. Policies for Environmental Management and Sustainable Development. Edward Elgar, Aldershot. Vatn, A., Bromley, D.W., 1994. Choices without prices without apologies. J. Environ. Econ. Manage. 26, 129 – 148. Vitousek, P.M., Ehrlich, P.R., Ehrlich, A.H., Matson, P.A., 1986. Human appropriation of the products of photosynthesis. BioScience 36, 368 – 373. von Weizsa¨cker, E.U., 1992. Erdpolitik. O8 kologische Realpolitik an der Schwelle zum Jahrhundert der Umwelt. 3. Aufl., Wissenschaftliche Buchgesellschaft, Darmstadt. von Weizsa¨cker, E.U., Jesinghaus, J., Mauch, S., Iten, R., 1992. O8 kologische Steuerreform. Europa¨ische Ebene und Fallbeispiel Schweiz. Ru¨egger, Chur, Zu¨rich. Wilson, E.O. (Ed.), 1988. Biodiversity. National Academy Press, Washington, DC. Witt, U., 1987. Individualistische Grundlagen der evolutorischen O8 konomik. Mohr, Tu¨bingen. Zwo¨lfer, H., 1991. Das biologische Modell: Prinzipien des Energieflusses in o¨kologischen Systemen. In: SAECULUM, Jahrbuch fu¨r Universalgeschichte, Bd. 42, H. 3 – 4, 225 – 238.
ANALYSIS
Evolutionary strategies in environmental policy Irene Ring * UFZ-Centre for En6ironmental Research Leipzig-Halle, P.O. Box 2, D-04301 Leipzig, Germany Received 30 March 1996; accepted 31 January 1997
Abstract Many of today’s environmental problems can be attributed to a difference in the development of ecological and economic systems. Both kinds of systems develop over time, but so far they have followed different organizational principles with respect to the basic factors energy, matter, information, space and time. The types of environmental problems encountered pose particular difficulties because of the different temporal and spatial characteristics of markets and ecosystems. In the long run, cultural evolution, and hence economic development, cannot progress without considering fundamental laws and principles of nature. Equilibrium oriented concepts in environmental economics aiming at the internalization of externalities do not offer adequate solutions to these problems. Policy approaches favouring environmental standards, based on current knowledge and technology, equally are of little help: either the knowledge of complex interactions in natural systems is missing to exactly determine precise standards, or past and continuing processes, often time-delayed, make them obsolete. Chronic and pervasive environmental problems call for an enhancement of environmental policy that encompasses a process orientation while considering ecological principles of system development. Evolutionary strategies increasingly have to adapt economic patterns of development to ecological patterns of development. Environmental policy goals and corresponding instruments can be designed to continuously set signals for long-term structural change. The basic factor, energy, will be used to illustrate evolutionary strategies regarding direct and indirect effects. An analysis of the Scandinavian experience with carbon and energy taxes exemplifies first successful steps at implementation. © 1997 Elsevier Science B.V. Keywords: Evolution; Ecological principles; Environmental policy; Ecological tax reform
1. Introduction
* Tel.: +49 341 2352480; fax: + 49 341 2352511; e-mail: [email protected]
The dynamics of economic development increasingly restrict options for ecological development. Industrial society with its effects of mass
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production and consumption has led to a human influence on natural processes to a degree that has never been seen before. Massive interventions into nature change environmental conditions for living beings: the human appropriation of the terrestrial products of photosynthesis sums up to nearly 40% (Vitousek et al., 1986), and a wide array of natural nutrient and mineral cycles are significantly accelerated by human beings. More and more habitats are directly destroyed, and the regenerational capacity of ecosystems is decreased by resource consumption as well as environmental pollution. Abiotic and biotic features of habitats are altered to the extent that numerous living organisms can no longer adapt. Massive extinction of species is currently occurring on a global level (Wilson, 1988). Humans are ‘pushing biological limits’, as Gowdy and McDaniel (1995) put it. Homo-sapiens has evolved as one species within and as part of the global environment. Cultural evolution cannot be separated from physical and genetic evolution, for they have constantly been influencing each other. Change has occurred as a co-evolutionary process (Norgaard, 1994). Compared to the evolution of the biosphere (3.5 billions of years), the industrial era only counts approximately 200 years. In a comparatively short time the dimension and the effects of mankind’s activities on earth have destabilized the global environmental system. In the long run, cultural evolution, and so economic development, cannot progress without considering fundamental laws and principles of nature. Even though cultural evolution transcends natural evolution, the human mind offering fundamentally new options to evolve and to solve problems, natural laws and principles represent inherent limits for system development (Ring, 1994, p. 41). Since technologies have been developed that have the power to alter ecological life-support systems, limitations to growth will increasingly be set by biophysical constraints as opposed to limits that lie within the human realm of knowledge (Swaney, 1985). Therefore, physical, biological and ecological processes and the functioning of natural ecosystems are a constituent part of cultural evolution. However, the consequences of economic actions, originally meant to satisfy human needs, nowadays
lowers human quality of life by deteriorating environmental quality. The probability of more unstable environmental conditions in the future might lead to limited future options for cultural evolution. Pursuing existing patterns of economic development will inevitably lead to the point where cultural adaptability will cease to be able to cope with changing environmental conditions. Already today, there are countries where severe ecological stresses manifest themselves economically on a scale that has political consequences (Homer-Dixon et al., 1993; Brown et al., 1995; Dasgupta, 1995).
2. Environmental policy at a turning point
2.1. The challenge to address chronic and per6asi6e problems The dominant approach in environmental policy usually concentrates on setting standards relating to different environmental media (soil, air and water) or to maximum permissible emissions. It is recommended that environmental policy instruments ideally should be designed to be effective as close as possible to the point of emission (in the case of environmental taxes, e.g. OECD, 1996a, p. 7). The narrow focus on the point of emission favours technological solutions that often set in at the end of the cause and effect chain, promoting end-of-the-pipe solutions. In Germany, a country that is internationally respected for its environmental policy, it is common practice to prescribe state-of-the-art technology to lower emissions. Environmental policy thus relies on curing symptoms by existing knowledge and technology (Maier-Rigaud, 1988, p. 21). The emission oriented approach to environmental policy has been a proper answer for what Clarke and Holling (1984) classify as the first and second phase of perceiving environmental problems. In the middle of the 20th century, regional environmental catastrophes and local, acute pollution were the centre of attention (first phase). During the 1960s, the increasing input of synthetic chemicals into nature was a major focus of environmental concern (second phase). But in summary (third phase), ‘we are moving beyond an age
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of acute, localized, and relatively simple environmental problems reversible at economically reasonable costs and on politically realistic time and space scales. We are moving into a period of chronic, global, and extremely complex syndromes which threaten to constrain and even reverse progress in human development’ (Clarke and Holling, 1984, p. 477). The type of environmental problems to be considered now is caused by millions of individual actions, where a single action can hardly be deemed harmful. The action itself only turns out to be a problem when population density increases. In this case, certain kinds of resource use or environmental pollution lead to severe environmental degradation because natural chemical and biological recycling processes become overloaded. There is no short-term, negative feedback to the individuals, neither from the economic nor the ecological system that could bring about corrective behaviour. It takes decades, sometimes centuries until negative environmental consequences can be calculated. This category of environmental problems is characterized by its slow, almost creeping development. Bo¨hret (1990) coined the notion of ‘creeping catastrophes’. The greenhouse effect, the effects of acid rain, problems of soil degeneration and erosion, groundwater pollution and the loss of biodiversity fit into this category of slow environmental deterioration. The extremely complex nature of these problems and their slowly progressing character often make it difficult, if not impossible, to track the causes and to foresee the effects, features that exclude them from precise quantification. They are pervasive in spatial terms and chronic in temporal terms. At its early stage, the monitoring of environmental damage is almost impossible due to its hidden development caused by time-delays and the buffering capacity of natural systems. In the case of the greenhouse effect, Arrhenius (1896) warned about the extensive use of fossil fuels at the end of the last century. But it took almost another century until the scientific understanding of the problem as well as measurement techniques improved in a way that the greenhouse effect is now widely recognized as a serious environmental problem calling for international action.
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In the long run it is the incremental environmental damage, leading to severe qualitative changes or even the system’s collapse, that finally creates a negative feedback. In these cases, environmental standards are of little help: either the knowledge of complex interactions in natural systems is missing to exactly determine them, or past and continuing processes, often time-delayed, make precise standards obsolete. To encounter chronic and pervasive problems, a process oriented approach in environmental policy has to be developed. There is a need for an enlarged perspective of the interactions between ecological and economic systems, allowing for political decisions even under uncertain conditions. The corresponding strategy may be called an evolutionary strategy because it includes aspects of both economic and ecological evolution. Before we move on to make first steps in this direction, there is a need to take into account economic theorizing as it applies to environmental problems. This will be done with respect to the question, whether goals and instruments in environmental economics allow for an evolutionary strategy.
2.2. En6ironmental economics: forced to make a mo6e The complexity and global character of environmental problems and the possible consequences for life on earth contributed to a raised environmental consciousness during the last three decades. In this context, environmental economics has emerged as a discipline to tackle environmental problems from an economic perspective. Environmental economics has developed within the framework of welfare economics. Welfare economics itself represents a part of microeconomics that is dealing with problems like market failures and conditions that exclude Pareto-optimal allocations by market equilibrium. The theory of public goods and the theory of externalities represent basic theories for analysing environmental problems (Baumol and Oates, 1988; Tietenberg, 1992; Tisdell, 1993). Unlike private goods, public goods are characterized by non-rivalry of use and by the fact that
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no one can or should be excluded from its use. There is no price indicating their value on markets, thus, increasing scarcity of environmental resources is not reflected by the signal of increasing prices. Excessive use of environmental resources will inevitably lead to negative externalities, which prevents the market mechanism from reaching an efficient, Pareto-optimal allocation of resources. Externalities have to be internalized by external regulation to allow for a market equilibrium. Without any regulation from outside the market system, public goods, and thus the majority of environmental resources and goods, are not accessible to the market mechanism. In environmental economics, the internalization of external effects represents the decisive strategy to integrate environmental problems into the market system. If we differentiate between means and ends, internalization can be seen as the ultimate end in environmental economics. The absence of externalities is a prerequisite for Pareto-optimal allocation and aims at moving towards a market equilibrium. Thus, the theory of externalities represents a static approach to include environmental problems into the economic framework (Fig. 1). The level of means, unlike the level of ends, can be characterized by a differentiation between static and evolutionary approaches (Ring, 1994, p. 98). The Pigouvian strategy (Pigou, 1920) aims at the internalization of external effects within a given legal framework of property rights. Therefore, this approach to internalization is static in nature. The public good character of environmental resources calls for government intervention to get rid of the discrepancy between private and social costs and benefits. Pigouvian taxes can be
Fig. 1. The internalization of externalities in view of equilibrium and evolution.
introduced to guarantee an optimal allocation of resources. However, due to the complexity of reality and prohibitive information requirements there is usually no way to obtain a reasonable estimate of the marginal net damage (benefit), which is a prerequisite for setting the proper level of taxes. Based on the Pigouvian strategy, Baumol and Oates (1971) have developed the charges and standards approach, a pragmatic technique that aims at efficiency without optimality. By contrast, the Coase theorem (Coase, 1960) aims at the evolution of the market system itself. Exclusive property rights have to be specified for environmental resources and goods that turn their public character into a private one. Assuming specific conditions (e.g. no transaction costs), the bargaining solution among different users of the environment will result in a Pareto-optimal allocation of the environment. This evolutionary approach to internalization does not assume market failure regarding environmental problems. To the contrary, government is only in charge of adapting the legal framework that is policing a new framework of property rights. Consequently, a market for environmental resources and goods can evolve. Despite the consideration of evolutionary approaches at the instrumental level, the comprehensive goal in environmental economics is represented by the absence of externalities. Irrespective of the means envisaged, the ultimate end is oriented towards a static equilibrium theory. However, equilibrium concepts are of limited value, if there is a need for orientation towards processes and to explain aspects of development.
3. Ecological and economic development in comparison A promising approach to tackle chronic and pervasive environmental problems consists of identifying and analysing patterns of development. Patterns of ecological and economic development can be examined to pinpoint similarities and differences that might help to address the origin of the problem (Ring, 1994, p. 77 ff). In the evolutionary process, several basic factors or ele-
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ments can be distinguished (Boulding, 1992, p. 240), such as energy, matter, information, space and time. When ecological systems develop over a certain amount of time, they often seem to follow general rules relating to these basic factors.
3.1. Energy As terrestrial ecosystems develop, they move towards more and more efficient ways of using solar energy corresponding to the local conditions. Being autotrophic organisms, plants fix sun energy to produce biomass during the process of photosynthesis. They work like decentralized power plants using the actual flow of sun energy (Zwo¨lfer, 1991). The fixed energy is passed on to other organisms through food chains in a cascade-like connection. So far, economic development has been tremendously supported by discovering and exploiting additional resources of energy. Instead of relying on flow resources, that is incoming radiation, mankind has learned to exploit the accumulated solar energy of preceding ages. About 75% of primary energy use (world wide in 1987) refers to fossil energy (Hall, 1991). Current economic growth predominantly relies on stock-resource exploitation that comes at the expense of future generations (Georgescu-Roegen, 1975; Norgaard, 1984). Energy consumption can be seen as one of the major prerequisites for economic growth during the industrial era as well as one of the major causes for global change. The greenhouse effect and the effects of acid rain are strongly related to the use of fossil energy. The exploitation of fossil energy has led to environmentally wasteful ways of energy use being pervasive in the industrial societies of today. The economic focus has been set on meeting a growing energy demand instead of promoting saving strategies and the more efficient use of energy.
3.2. Matter Organisms permanently take in material resources from the environment and excrete them to the environment. There are smooth transitions
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between and within the abiotic and the biotic sphere. Over long periods of time and without any major disturbances from outside the system, ecosystems develop material cycles (Odum, 1983, p. 415). Based on the efficient interaction between the habitat and its populations, ecosystems tend to keep most vital nutrients within the system. Economic systems, by contrast, are still characterized by a throughput mentality (Daly, 1991, p. 35). Resources are used to produce goods. After consumption, most material goods are dumped as garbage instead of being reused. Furthermore, contemporary land use patterns lead to irreversible losses of base minerals, nutrients and organic material from landscapes to the sea (Ripl, 1995). As in the case of energy, material resources are dealt with in an environmentally wasteful rather than efficient way. There is a strong reliance on stock-resource exploitation. Existing natural material cycles are increasingly opened instead of keeping vital matter within the system. Problems of soil erosion and degeneration, groundwater pollution and the accelerated aging of landscapes belong to this category.
3.3. Information The diversity of life represents a certain kind of information kept in living systems. Due to its genetic information, any living organism, population or species is a specific carrier of information. Depending on the variety of environmental conditions, ecosystems are usually characterized by an increase of biodiversity over time (Remmert, 1992, p. 229). By allowing high flexibility and adaptability, the existence of diversity can be seen as a long-term survival strategy as a consequence of permanently changing environmental conditions. High diversity can also be seen as an optimization strategy for systems with almost no change in environmental conditions, but with a severe resource constraint: this is the case for the most diverse systems on the Earth, coral reefs and tropical rain forests. Biodiversity represents a value that has multiple dimensions (Busch-Lu¨ty and Du¨rr, 1993). The biosphere and environmental goods and services are characterized by a
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fundamental complexity and multiple attributes (Vatn and Bromley, 1994). Economic development has brought along a diversity of goods to satisfy diverse human needs. Any value of goods and services is ultimately transformed into a price signal that is the central steering mechanism in market economies. Prices, in their function to reduce diverse values to a monetary value, make it possible to compare different kinds of goods and services on one scale. Human interventions into ecosystems often aim at selected aspects and therefore, the diversity of the system is usually reduced (Remmert, 1992, p. 232). A comprehensive evaluation of interventions into natural systems is very difficult, because a lack of information exists as to the complete value of biological resources (Gowdy and McDaniel, 1995). Whenever societal decisions concerning the environment are based on traditional economic rationalizing, a monetary, and therefore onedimensional value is applied to problems of multidimensional scale. The process of compressing environmental complexity into a single metric of monetary values will usually result in a non-trivial loss of information (Vatn and Bromley, 1994). The global losses in biodiversity can be seen as an indicator of this development. 3.4. Space Especially terrestrial ecosystems are organized in spatial compartments. There are natural boundaries caused by changing environmental conditions or the kind of self-organization of the system itself (e.g. mosaic-like structure of forests: Remmert, 1992, p. 220 ff). Therefore ecosystems have developed more and more efficient ways of using locally available resources. Spatial limits favour increases of the internal efficiency of the system with respect to the local environment and represent naturally set limits to growth. There is a continuous trend to the globalization of the economy. Markets are eliminating spatial distinctions (Altvater, 1994). Resources can be used from any place in the world and products can be sold all around the world. Present economic systems are characterized by the international division of labour and trade on expanding world markets.
The ability to cross spatial boundaries for economies helps to neglect internal efficiency as far as the local environment is concerned. The non-regenerational use of local resources and the destruction of natural habitats is more probable as long as there are resources and habitats left in other places. International companies often choose countries with less restrictive environmental regulation for new factories to avoid costly pollution abatement technology. As long as economic activities and international trade are based on improper valuation of natural resources and environmental effects, there is a high risk of these activities and trade being environmentally detrimental (Daly and Goodland, 1994).
3.5. Time Many important natural processes are characterized by relatively slow time rates. Generation and regeneration times of soil and groundwater, for example, run into hundreds and thousands of years. Biological evolution depends on the variation of genetic material and it takes many generations of organisms until a new species is formed. The stability of ecosystems can be seen as a stability of processes: processes of production, consumption and decomposition balance each other. Natural ecosystems such as rain forests show a mosaic-cycle pattern of growth and decline (Remmert, 1992, p. 221). The characteristics of mankind have brought along a huge acceleration of cultural evolution compared to the evolution of nature (Osche, 1987, p. 520 f). Irrespective of a finite planet Earth, economic systems strive for indefinite growth (e.g. in many economic theories, human needs are unlimited by definition). Growth is often identified with development and it is seen as a precondition for stability. Time scales differ between natural and cultural systems. Economic decisions often do not respect natural time scales. Furthermore, the process of discounting future values to the present can easily lead to the decline or destruction of natural resources (Gowdy and McDaniel, 1995). The economic system as part of the overall global system cannot indefinitely grow without endangering the
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global environment. Finally, by continuously changing environmental conditions, it puts its own existence at risk. Therefore, economic activities must be seen in context with a sustainable scale that ensures the environmental carrying capacity and does not sacrifice ecosystem services (Daly, 1992). The economic system as part of the global environmental system needs a frame that constrains effects to the environment and ensures the sustainability of the ecosphere.
3.6. The importance of ecological principles Looking at the development of ecosystems, we can identify ecological principles that contribute to the sustainability and regenerational capacity of the system. An important part of solving environmental problems consists in reconciling contemporary patterns of economic development with ecological principles of system evolution (Fig. 2). This might be realized by orienting economic activities towards ecological principles of system organization. Such a directional goal needs a long-term perspective where current patterns of economic behaviour are subject to structural change. The crucial difference between ecological and economic principles lies in the way of using energy and material resources. The ability of the human species to produce tools or exosomatic organs has contributed to a dependence on the use of available energy and matter (GeorgescuRoegen, 1975). Technical progress and the evolution of new forms of social organization have added to an ever increasing amount of economic goods to satisfy human needs. The exploitation of additional energetic resources resulted in a continuously growing material throughput in industrial societies. The problems encountered within these two categories are relatively well recognized. Compared to the next three categories, they are better suitable for quantification. The categories of information, space and time are not that easy to grasp. Their quantification is rather difficult and so far, not sufficiently developed. But nonetheless, their consideration bears valuable information and has to be integrated in
Fig. 2. Ecological and economic principles of system development.
an encompassing concept of natural and cultural coevolution.
4. Towards an evolutionary paradigm in environmental policy Many of today’s environmental problems result from a long-term development process. They are an outcome of mankind dealing with natural resources during the last few centuries. Presumably, a long-term learning process is needed to reach a more sustainable way of living. It is an open process of change where we cannot foresee the outcome yet. Nevertheless, there is a need to grasp this process, to understand it in theory and to promote it in practice. Aspects of development and the explanation of changing reality are at the centre of interest of evolutionary theories. Evolutionary approaches generally endorse methodologies that characterize biology or natural history. They reject methodologies represented by classical physics, or mechanics, that are implied by conventional paradigms in the social sciences, particularly in neoclassical economics (Modelski and Poznanski, 1996).
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Evolutionary theories in economic science are mostly discussed in close relation to corresponding theories in biology, from where the basic ideas are usually borrowed (Ro¨pke, 1977; Nelson and Winter, 1982; Gowdy, 1985; Witt, 1987). Evolutionary theorizing in economics concerns processes of long-term and progressive change (Nelson and Winter, 1982, p. 10). The theories are dynamic in temporal terms. They are based on a time concept that is irreversible and historic in character, and they try to explain the origin and effects of novelties (Witt, 1987, p. 9 ff). However, despite the rather long tradition of evolutionary theories both in economics and in biology (Nelson, 1995), the link to environmental problems has only been made recently in context with the emerging discipline of ecological economics (Costanza, 1991; Boulding, 1992). In this respect, there is a need for the development of an evolutionary paradigm in environmental policy where ends and means belong to the same evolutionary framework. The evolutionary paradigm has to be oriented towards processes and structural change rather than equilibria or defined states of the environment. Structural change as the most basic consideration in social (economic, political or societal) evolution is closely related to innovation, and the study of both requires a long-term perspective (Modelski, 1996). These are prerequisites we have identified earlier as essential to tackle chronic and pervasive environmental problems. Environmental goals have to consider ecological principles of system evolution and environmental policy instruments should be designed to encourage innovations over a long period of time, heading for the reconciliation of economic activities with ecological principles. This broadening of perspective in environmental policy in context with economic theories will complement the equilibrium oriented existing theory and its practical recommendations. What would a process oriented aim in environmental policy look like (Ring, 1994, p. 145)? So far, environmental economists have asked experts from other disciplines to set environmental standards. Environmental scientists, e.g. should investigate the regenerational capacity of ecosystems and recommend appropriate environmental stan-
dards. Environmental policy would then make the environmental standards obligatory for all members of a society. The task of environmental economists has predominantly been seen as studying the most efficient, that is cheapest, ways to reach targets set by others (Endres, 1985, p. 19). In this sense, environmental policy has chosen the following economic efficiency criterion: a given target or output has to be achieved by a minimum input and minimum costs. However, this principle is only useful in cases where a clear standard can be defined. But many of our environmental problems elude such clear definition. It is often not possible to determine exactly which interventions into nature are environmentally sound. The relationships between ecological and economic systems from the local up to the global level are too complex to set proper standards for many pollutants. Looking at chronic and pervasive problems like the greenhouse effect and acid rain, it is clear that current levels of fossil energy use have to be cut down, but there is no precise estimate of a long-term sustainable level of intervention. As has been argued before, an additional aim of environmental policy has to consist of adapting economic behaviour to principles of ecological system development. Instead of trying to determine exact levels of pollution where they are not suitable, environmental policy should aim at giving continuous incentives to encourage this kind of adaptation for precautionary reasons. Firstly, the still continuing increase of interventions into nature should be stabilized, then a decrease of interventions should be envisaged according to ecological principles. Applied to the basic factor, energy, the reliance of economic activities on fossil fuel as a stock resource has to be continuously reduced to approach the ecological principle of reliance on solar energy as a flow resource. The precautionary approach demands to consider our knowledge of ecological principles of system development. In practice, it means political action before rising carbon dioxide levels exceed the buffering capacity of natural systems and climate change will be clearly measurable.
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The level of a continuous incentive depends on the political will to change present economic behaviour, and it is based on long-term ecological and economic aims. In the light of this method, the short-term aim is always an intermediary one; in fact it is subject to the level of the incentive one can agree upon. Thinking in terms of economic efficiency criteria, this way of putting the problem means: With a given input (a permanent incentive) one tries to reach a maximum output. The focus is not on a specific aim that has to be efficiently reached, but on a specific incentive that will change economic patterns of development. The task is to maximize performance of economic adaptations to ecological principles in those cases where environmental problems arise from economic activities. This adaptation will not be realized today or tomorrow, and maybe it will never be fully achieved. Therefore, the realistic goal has to be to increasingly reconcile economic activities with ecological principles. Increasingly does mean that a long-term process has to be set off where clear goals in terms of precise standards are missing, but where the necessary direction of action is clear and sufficient to reduce interventions into nature.
5. Putting evolutionary strategies into practice
5.1. Economic instruments as continuous incenti6es What kind of novel strategy is suitable to achieve such a goal? The characteristics of the strategy should be in line with the social and economic system to facilitate acceptance. According to Ro¨pke (1970), a gradual technique should be favoured to address planning aspects of development. Gradualism does allow for first steps without precise knowledge of facts far in the future. Errors and their unintentional effects will not accumulate and do allow for corrections. The dynamic process, just like the emission standards approach, has to be enforced by appropriate environmental regulation. But the design of environmental regulation in a dynamic context has to follow some specific rules (Porter and van
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der Linde, 1995): regulation should encourage innovation and create opportunities for continuous improvement rather than locking in any particular technology. Despite the orientation towards processes, the design of the regulation should leave as little room as possible for uncertainty at every stage. Given these prerequisites for an evolutionary strategy, the special task of environmental economists lies in investigating the possible organization of continuous incentives. What kinds of continuous incentives could be introduced and what level is deemed to be sensible to actually trigger the desired adaptation process? Evolutionary strategies open up a field for the exploration of new instruments, but the incentives can also include traditional economic means, such as permits, charges and taxes. They should be examined for their suitability to solve our problem. So far, these instruments have been used or recommended to efficiently meet a specific environmental standard as exactly as possible (Baumol and Oates, 1988; Siebert, 1992). However, economic instruments in environmental policy are not limited to use within a static framework. Their application can as well be further developed to suit the evolutionary paradigm (Ring, 1994, p. 147 ff). This is done, e.g. in the case of permits, by continuously decreasing the total amount of available permits (or devaluation of the permits) year by year. In the case of charges or taxes, their level typically has to be increased year by year to promote the desired adaptation process. Both strategies will lead to a continuously increasing price signal for environmental resources and goods on markets. The evolutionary use of economic instruments will result in supporting a structural change of industrial societies towards a continuous improvement of environmental performance. The idea of progressively increasing environmental charges or taxes has already been introduced elsewhere (Mu¨ller-Witt, 1989; von Weizsa¨cker, 1992). Despite their orientation towards a necessary structural change of industrial societies, that means intending a continuous process of adaptation, the authors refer to the inter-
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nalization of external effects as an ultimate goal. The estimated level of negative externalities serves as a justification to the approach offered. However, since the strategy of internalization originates from a background that is predominantly static in nature, it is not sufficient to justify evolutionary approaches. The promotion of structural change and the internalization of externalities belong to two different conceptual frameworks (Fig. 3). This distinction applies to all proposals for ecological tax reform, aiming at implementing green taxes over a several year period (Repetto et al., 1992; von Weizsa¨cker et al., 1992; Costanza, 1994; Bernow, 1996). Their theoretical foundation has to be seen in the light of an evolutionary paradigm.
5.2. Addressing the energy sector: direct and indirect effects In view of the serious environmental damage accompanying its use, the reduction of fossil energy use may represent one of the first and most important fields of applying evolutionary strategies. Following a strategy of quantities, the present level of fossil energy consumption could be frozen by selling a certain amount of permits. These permits will later be devaluated year by year to continuously reduce consumption. If a price strategy is chosen, charges or taxes would increase current energy prices year by year to encourage long-term innovations for reduced use of fossil energy (Fig. 4). Either strategy will lead to increasing prices for the use of fossil fuels with considerable effects relating to the realization of ecological principles. Concerning the basic factor energy itself, a shift from fossil fuel use to regenerative energy re-
Fig. 3. An enhanced perspective of environmental policy.
Fig. 4. Evolutionary strategies as an incentive to reduce fossil energy use.
sources can be expected due to increased competitiveness of the latter. Reliance on stock resources will be reduced while flow resources will be relatively favoured by price signals. Direct environmental effects consist in a decrease of carbon dioxide emissions as well as other emissions related to the burning of fossil fuels. Due to the importance of fossil energy for numerous processes in industrialized societies, indirect effects on other basic factors are plausible. Ka˚berger et al. (1994) discuss the influence of an environmental tax-shift, that is the increase of the relative price of energy compared to labour, on other sectors of the economy. Especially energy and material intensive sectors like e.g. the mining and many manufacturing sectors, will be strongly affected by higher energy prices. Reduced material turnover, less waste production and a relative advantage of maintenance versus new production may be expected. Higher energy prices will therefore contribute to saving material resources as well. Higher prices for fossil fuels will also affect the basic factor space by influencing transportation that is almost completely dependent on oil (Gudmundsson and Ho¨jer, 1996). If the transport of goods and materials becomes more expensive, the elimination of spatial distinctions by markets may be slowed down. Regional markets as spatial compartments of the economy will then become more attractive. A competitive advantage for regenerative energy resources will even influence the basic factor time in a positive way. An increasing reliance of the economy on flow resources will bring society’s time scale of energy use nearer to nature’s time scale of energy use.
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Table 1 Total charge rate on fuels: Denmark Fuels
Unit
1993
1994
1995
1996
1997
1998
Gasoline, leaded Gasoline, unleaded Diesel, ordinary Of which CO2 tax Diesel, light Of which CO2 tax Electricity Of which CO2 tax Electricity, heating Of which CO2 tax Coal Of which CO2 tax
DKr/l DKr/l DKr/l DKr/l DKr/l DKr/l DKr/kWh DKr/kWh DKr/kWh DKr/kWh DKr/t DKr/t
3.63 2.81 2.55 0.34 2.43 0.34 0.46 0.13 0.42 0.13 1165 303
3.88 3.06 2.55 0.34 2.43 0.34 0.50 0.13 0.46 0.13 1165 303
4.44 3.63 2.84 0.34 2.71 0.34 0.54 0.13 0.49 0.13 1265 303
4.66 3.85 2.86 0.34 2.74 0.34 0.58 0.13 0.53 0.13 1378 303
4.73 3.91 2.99 0.34 2.86 0.34 0.63 0.13 0.58 0.13 1490 303
4.79 3.98 2.99 0.34 2.86 0.34 0.70 0.13 0.62 0.13 1603 303
All values inclusive of VAT, 25% (OECD, 1996b, p. 30).
5.3. First steps to implementation: the Scandina6ian experience The Scandinavian countries, Denmark, Norway, Sweden and Finland, cooperate on policy issues regarding energy and environment. Within the framework of the Nordic Council of Ministers, two of the common aims of these countries are to ensure a secure supply of energy and that energy supply and consumption are in accordance with sustainable development. To promote an increase in energy efficiency and a decrease in polluting emissions from energy sources, all of these countries have introduced carbon taxes and taxes or excise duties on energy (Olivecrona, 1995; OECD, 1996b). All countries either intend to stabilize (Finland, Norway) or even reduce (Denmark, Sweden) carbon dioxide emissions over a certain period of time with gradually increasing taxation on fossil fuels. Table 1 shows the development of the total charge rate on fuels in Denmark before and after the 1994 tax reform (OECD, 1996b). The Scandinavian experience is a clear step towards evolutionary thinking. There is no more equilibrium orientation in an economic sense like the ideal tax that should be ‘set at the point at which the benefits from the last ton of carbon removed equal the added cost of eliminating that ton’ (Repetto et al., 1992, p. 56). The environmen-
tal target to stabilize and reduce emissions is sufficient to cause political action, without claiming precise environmental standards relating to carbon dioxide emissions. International environmental agreements have been an important motivating factor to implement taxes on energy and carbon dioxide (Gale and Barg, 1995). Especially Denmark and Sweden intend to demonstrate leading practices with their environmental policy development and have a good international demonstration effect (Olivecrona, 1995). It is noticeable that Sweden as the country with the highest carbon dioxide tax in the world has chosen the path of a comprehensive ecological tax reform. For fiscal years 1993/94, the carbon dioxide tax raised Skr 11.3 billion, total tax revenue from excises on fuels (including petrol) and electricity was Skr 38.7 billion (OECD, 1996b, p. 36). Income tax rates and taxes on labour have been lowered to gain public acceptance for such a substantial revenue. According to Gale and Barg (1995), the government’s annual budget represents the most compelling instrument to have direct, long-term and structural impacts on a country’s social and economic development from a sustainability perspective. The Scandinavian experience and its success strengthen this assessment. Public sector spending and taxation may therefore play an important role in implementing evolutionary strategies.
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6. Concluding remarks An enhanced understanding of environmental policy encompasses both static and evolutionary approaches depending on the specific characteristics of the environmental problem. Especially the chronic and pervasive type of environmental problems cannot be encountered without addressing aspects of economic and ecological development. Consequently, a comprehensive theoretical framework in environmental economics has to include optimization problems like the internalization of external effects as well as evolutionary strategies to continuously adapt economic patterns of development to ecological patterns of development. Economic instruments like permits or charges and taxes can be applied with respect to the static or the evolutionary paradigm. So far, existing proposals for using evolutionary strategies (e.g., ecological tax reform) are insufficiently justified by theories with predominantly static concepts. They have to be integrated in a framework that can explain and promote processes of development.
Acknowledgements I wish to thank John M. Gowdy, Gerhard Maier-Rigaud, Bengt Ma˚nsson, Hans Nutzinger, Timothy O’Riordan, Wim van der Steen and three anonymous reviewers for their helpful suggestions on earlier drafts of this manuscript.
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