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The Difference Between Neoclassical Environmental Economics, Ecological Economics and Natural Resource Economics

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Explain the difference between Neoclassical Environmental Economics, Ecological Economics, and
Natural Resource Economics.
The three approaches originate from three different schools of thought. Broadly, Neoclassical
Environmental Economics (NEE) is the opposite of the Ecological Economics (EE), and Natural
Resource Economics (NRE) lies somewhere between them. Let’s begin with the opposing views.
Field states, ‘Environmental Economics is the application of the principles of economics to the study of how environmental resources are managed. (Field & Field 2013:2). In gist, NEE is an
Anthropospheric view of the environment through micro and macro-economic principles and sociopolitical influences that ignores the other spheres of life. The environment, is a subsystem of economics and has no intrinsic value. It is merely a factor of production, and only manufactured goods/services have an intrinsic value. EE, on the other hand, is a holistic approach, broader in scope, concerned with the supply and demand of energy and matter within the biosphere, hydrosphere, lithosphere and atmosphere - where contrastingly, the Anthroposphere is the subsystem. EE claims that NEE is totally dependent on the environment and that residuals and pollution are disruptive to natural processes and diminishes the earth’s bio-capacity.
Environmental Economics’ primary focus is to manage the environment to supply services and goods in exchange for money (MO 2015 quoting Tietenberg 2014:7) whereas EE serves a broader spectrum of life and its non-living components (e.g. a river) and the processes that support life (e.g. oxygen cycle). NEE is positive economics. It is unsustainable and short-run oriented. Supporters believe that technology and innovation will overcome diminishing resources which has raised strong opposition among Deep Ecology supporters. EE is normative economics and less supported – not out of choice the reality is that the majority of global consumers are helplessly trapped in status quo of NEE.
However, the benefit of quantifying ecological capital and services as a monetary figure allows all economic stakeholders at all levels, and from every school of thought to properly understand its value, in human terms. Robert Costanza, for instance, calculated that 17 eco-services in 16 biomes across the USA was valued at between US$16 Trillion to 54 Trillion per year. (Costanza et al., 1997:1)
Another fundamental difference between the two approaches is that the systems operate differently. EE is a circular, closed system, successful because it returns output waste as an input whereas NEE represents an open, linear system, where output waste piles up, is rarely recycled or reused and often locked in an unusable, non-biodegradable state after the manufacturing process.
Matter, is finite, a fixed amount that cannot be created or destroyed and if it is trapped in the form of non-biodegradable plastic or tyres, the natural capital of matter reduces globally. Furthermore, the processes of NEC leads to the reduction of biodiversity as we favour certain commercial species, and kill off competitors for resources, deliberately and as a consequence of our actions. EE actively supports biodiversity.
NRE compromises between NEE and EE. It acknowledges and lists the ways in which economic activity relies on extraction and utilisation of resources, but goes further to clarify the importance of renewable and non-renewable resources. Still, NRE seems to place human needs at the forefront of its purpose. It utilises information drawn from empirical findings to support the intertemporal nature of renewable and non-renewable resources and raises awareness for the need of proper management. NRE has made Sustainability a major focus and has also raised awareness about rates of resources use and how it will affects the future generations’ ability to survive.

Most importantly, NRE and EE do call for a re-examination of human culture while NEE gives the impression that a paradigm shift is unnecessary and humans can continue as we are. Based on continued unsustainable development, the latter is the more common practice among the global majority. Bibliography
Field, B.C. & Field M.K. 2013. Environmental Economics: An Introduction, Sixth Edition. McGraw-Hill:
New York
Lotter, J.C. & Gameda N.W. & van de Merve A. 2015. Environmental Economics Module Online
Guide. University of South Africa: Pretoria
Costanza, R. et al. 1997. The Value of the World’s Ecosystem Services and Natural Capital. Accessed online: Date access: 31/01/2016

2. All of the three concepts attempt to quantify the impact of human economic activity and serves to quantitatively demonstrate the effects and results of our impact.
Ecological Footprinting (EF) calculates the amount of land required to satisfy human demand as a central focus (MO 2015: 15). Human demand comprises many aspects of the economy. The production of goods and services are the most obvious, and depends on the natural environment for all of its inputs. EF also includes the built up environment that humans live in – our urbanized and rural developments and alterations we have made to the natural environment for shelter and entertainment, sewerage and waste systems and our entertainment. Furthermore, EF includes the land necessary to absorb the waste and pollution these activities create (MO 2015:15). Land provides a combination of physical and chemical process, including micro and macro organisms that live on this land to recycle natural waste and pollution. This is broadly termed bio-capacity (MO
2015:15). Human activity has exponentially increased residue and pollution in forms that are biodegradable and non-biodegradable. EF was instrumental in identifying that in 2008, earth’s biocapacity was 50% over its threshold.
Carbon Footprinting (CF) is the measure of carbon dioxide emitted directly and indirectly during an activity or over the lifespan of the product (MO 2015: 16). Carbon has the ability to absorb heat, like methane and water vapour and thus, carbon dioxide acts like the earths thermostat – too little and the earth gets too cold, too much and it gets too hot. Earth’s processes naturally regulate carbon content in the atmosphere. Photosynthesis traps carbon and recycles it into carbohydrates.
Deforestation slows this service. When animals/ vegetation dies, carbon is stored in earth’s reservoir
– fossil fuel. Human activities release the carbon into the atmosphere where it retains heat and adds to global warming. Global warming has knock on effects that disrupt temperature, climates, water cycles, soil health, and these problems act interdependently and synergistically, multiplying the negative effects on every living organism, including man. The direct affect is food shortage, excessive heat and cold, lack of water and polluted air and indirectly through the negative impact on the bioresources we depend on like food production – agriculture, aquaculture and fisheries.
Water Footprinting (WF) is like EF only it measures the amount of water, not land, needed to produce a product or sustain a region (MO 2015: 17) . The hydrologic cycle is physiologically crucial to life on earth and also flows through non-living systems. Other cycles of water soluble, life sustaining nutrients like Carbon, Hydrogen, Oxygen and Nitrogen depend on water. WF is divided into categories of blue, green and grey water. Blue water includes the sea, dams, aquifers and rivers
– all bodies that can be harvested for economic use like fresh water, fish and man’s entertainment – like water skiing and boating. Green water is water that infiltrates the soil and is used by plants for the production of food. Plants are producers - crucial food factories for the entire food web. Grey water is the amount of water needed to dilute any harmful pollutants in water and this is a natural process that has been exhausted by effluent from manufacturing, housing developments and mining. In the Sahel, for instance, the water footprint is vital. Lake Chad has reduced from 45 000sq. km in 1960 to under 550 sq. km in June 2002 (Global Policy Reform)
Without EF, CF and WF, we are completely in the dark about where we stand and how we can manage the effects of our activities. Many more people in society are more Conservation and
Preservation conscious because of the figures produced by these studies. And if they are part of the solution, they add less to the problem.

Lotter, J.C. & Gameda N.W. & van de Merve A. 2015. Environmental Economics Module Online
Guide. University of South Africa: Pretoria
Global Policy Reform. 2006. Shrinking of Lake Chad. Accessed online: Date Accessed: 28/02/2016

3. Generally, affluence, or lack of, influences an individual’s and a countries behaviour. Affluence is synergistically interdependent on two other factors; population and technology.
Higher income earners generally use more resources. A wealthy family owns luxury, big engine vehicles, their home/s, clothes and furniture/appliances are also ‘resource and energy expensive’ to produce and operate. They live longer due to improved medical and healthier food. However, even though they have fewer children, the longer living, ‘resource expensive’ keystone species is extremely taxing on the environment. A poor person walks, cycle, takes public transport or would probably own one smaller engine, less expensive car to carpool his family of colleagues (MO
2015:21). Homes and household appliances are modest and thus, the poor, per capita, uses less recourses and energy. However, a Chinese person may have a smaller ecological footprint, however their population makes the biggest Ecological footprint. (Global Footprint Network:2)
The wealthy buy manufactured products made in high residue producing, technologically advanced factories which indirectly impacts the environment. The wealthy can afford the initial expense of solar, poor people cant. Solar may reduce environmental impact when used, and save money, however it creates more CO2, SO2 and toxic silicon tetrachloride when manufactured. Poorer people are more directly detrimental than the wealthy. They use biofuels like wood and coal for cooking and heating. Not only does the burning of biomass directly add to atmospheric carbon, but it also increases incidences of lung complications. The poor live in the midst of the demise they create through deforestation, erosion and habitat reduction of biodiversity and cannot choose to live elsewhere. The poor depend on less nutritional staples grown on monoculture farms which deplete nutrients, degrade soils and aggravate diversity loss of non-commercial animal/plant species. Thus, poorer people often have a lower life expectancy. Little/no education, lack of financial, technological and medical securities mean that the poor tend to have many children to alleviate poverty and increase the work force in the rural setting. The result is dense populations and greater strain the environmental bio-capacity.
Developed countries have a greater percentage of wealth over a smaller population than in underdeveloped countries. Still, developed countries constitute 12% of the world’s population, consume 88% of the world resources and create 75% of the world pollution and waste. (Miller and
Spoolman:11). Often these resources are extracted from poorer countries – a symptom of NeoColonialism. Wealthy countries move dirty industries (and toxic waste) to underdeveloped countries who welcome the promise of economic growth through industrialisation. Developing countries ‘slash and burn’ forests to grow commodity crops and degrade prime land which could feed their poor. For instance, Brazilian grown coffee and is sold in Australia for R35 per (small) cup.
In post industrialist Developed Countries, a higher standard of ‘cleaner energy’ living exists today due to access to newer technologies. However, dense populated cities and the increasing suburban sprawl concentrates effluent, pollution and waste and reduces bio-capacity. Also, soils and aquifers become polluted. Water runs off developed surfaces (rather than infiltrating and percolating in soils to replenish aquifers) resulting in greater amounts of water running faster to the sea, and also causing flooding in developed areas. This alters the hydrologic cycle. Urban litter is also deposited in seas. Nutrients and pesticides from runoff of farms and lawns cause eutrophication and dead zones off the coasts. Developers drain and build in wetlands designed to cope with excess water further reduces ecosystem diversity and species diversity.
From an environmental perspective, Affluence, or lack of, is an advantage and a disadvantage. Either way, the environment suffers exploitation and degradation. When natural capital becomes scarce, the possibility of war exists, and the wealthy countries are most probable to grab the lion’s share.

Lotter, J.C. & Gameda N.W. & van de Merve A. 2015. Environmental Economics Module Online
Guide. University of South Africa: Pretoria
Global Footprint Network. Year unknown. Report on Ecological Footprint in China. Accessed online:>download. Date Accessed: 28/02/2016
Miller, G.T. & Spoolman S.E. 2011. Our Living Earth, Custom Edition. Cengage Learning EMEA: United

4.Contingent Valuation (CV) is a method used to calculate an economic value or a consumer’s stated willingness-to-pay for an environmental good, service or outcome (Field & Field: 140). Field states that CV is based on responses to a questionnaire and therefore is a stated human preference about their willingness to pay for an environmental feature. The method is used in two ways. Firstly, it estimates valuations of specific features of the environment (Field & Field:148) where a monetary cost is easier to estimate, e.g. the value of a natural recreation area (and wildlife) can be calculated by tourism revenue, or the cost to clean up the human pollution and degradation. The second tries to estimate the valuations people place on outcomes that are related to environmental quality (Field
& Field 148), e.g. the ‘priceless’ emotional satisfaction that a smog free sunset over a sea without floating oil/litter in Table Bay. One can however, link the effects of pollution on human health, and the animals/vegetation humans consume to a currency value. CV follows basic steps in order to eliminate error (Field & Field:148) It identifies and describes an environmental characteristic/health outcome, identifies respondents and the sampling procedures to be used. Personal, phone or mail interviews and focus groups supply to data from which individual responses are aggregated and a value is determined.
The problems with CV are mostly related to the second step – the human factor because CV is heavily dependent on what various humans perceive as valuable instead of its intrinsic value. If a plant/animal is found on a store’s shelf or it’s traditional, it has a value, however, Bidens Pilosa, the seemingly useless ‘weed’ seed that your socks attract during a hike, grows leaves used as a cure for many ailments (Earth Medicine Institute) So many rainforest species don’t have a value because we don’t know their use yet. We will never know the uses of the species we didn’t care to save from extinction when we deforest. Contrarily, we also create a use - like the fallacy that Rhino horn improves sexual prowess (Inquisitr). However, value isn’t confined to eating, using or selling. Bees and ants have no direct value to us, however they play a crucial role in ecosystem processes. Man is also ungrateful. Most developed countries take for granted the physiological value of a basic natural good/service for e.g. water, which technologies and highly developed infrastructure make second nature. Contrarily, in rural Africa, in-house running water is worth many lives, and more valuable to the woman than a man because she has to travel distances to collect it.
CV outcomes may be unrealistic because the questionnaire uses hypothetical situations for answers, but respondents may act differently in real life. Also that future situation have no immediate consequences and are therefore unimportant to the present generation. And people are disconnected from nature. ‘If we use all fossil fuels, I’ll buy an electric car’ would result in an excess of atmospheric carbon and increase global warming.
An effective CV relies heavily on an informed answer. In the modern culture, even graduated specialists cannot guarantee common sense. My doctor (also a Pastor) knew that the Perineal Raphe on a scrotum was a fused vagina, but did not connect this as proof that male form is a modified female form – if God made humans, surely he would know he did not make Eve from Adam as stated in Gen 2:22. His understanding of an economic blunder like unsustainable development was nonexistent.
Furthermore, interviewees may answer in favour of their desires. ‘if they know their personal preferences, they may have incentives to misrepresent them to the investigator.(Field & Field) The extinction of Bluefin Tuna isn’t as important as consuming it in Asia. Or how about red meat culture countries that have no incentive to care. And it’s naïve to assume everyone has a conscience.

Ultimately, the fundamental flaw of CV depends on the human perception. Unfortunately, there are far too many influences from history, culture, religion, gender, borders, wealth, class, language etc. etc. and even then there are splinter groups within the few I’ve mentioned.

Field, B.C. & Field M.K. 2013. Environmental Economics: An Introduction, Sixth Edition. McGraw-Hill:
New York
Inquisitr. 2013. Rhino Horn Bad medicine says new WWF ‘Toenails for Cancer’ Campaign. Accessed online: -for-cancercampaign/
Earth Medicine Institute. Year unknown. Bidens Pilosa. Accessed online: Date Access:
Various. 1999. The Holy Bible King James Version. New York: American Bible Society


*This entire explanation and graph is based on the book cited below on page 60

The two graphs above represent two plants belonging to the same company – Moonraker - that produce Product x (Px). Due to variable factors, the two plants have different production yields. In this example, let’s assume the factor is that Plant A was built in the 1950’s and Plant B was built in
1990, and therefore have different technology and equipment, which will also influence the production techniques.
Plant A’s technique is more labour intensive and the marginal cost of production starts off low, but then cost begins to rise dramatically as the quantity of goods increase. Thus, at Plant A low quantities of production costs Moonraker less. In Plant A, the use of newer technologies mean that cost starts high, however Moonraker benefits as machines start running more quantity because the marginal cost of producing Px reduces.
Moonraker makes a decision to meet demand and supply 100 units of Px. However, when the assumption that splitting the total in half between the plants is tested, it is found that Plant A will produce 50 units at $12 per unit which costs $600. At Plant B, 50 units cost $8 which costs $400. The total cost is (a + b + c) + (d) = $1000.
Moonraker thus has to take advantage of the pro’s from Plant A and Plant B. It thus reallocates production. If it takes one unit of Px from Plant A’s 50 and gives it to Plant B where greater quantities reduce cost, we can actually save the company $4. In other words, the Plant A cost per unit subtract Plant B’s cost per unit.
As the diagram depicts, the quantities change at both plants - Plant A produces 38 and Plant B 62.
Now both Plants are producing at maximum quantity but at the lowest cost. Let’s assume that the new cost per unit is $9. This means that (a) + (b +c) = $900, saving the company $100 just by implementing the Equilibrium Principle.
*This entire explanation and graph is based on the book cited below on page 60

Field, B.C. & Field M.K. 2013. Environmental Economics: An Introduction, Sixth Edition. McGraw-Hill:
New York…...

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Difference Between Islamic Economics and Conventional Economics?

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