Civil Engineering Reference
In-Depth Information
Neoclassical Versus Environmental Economics
Mainstream
neoclassical economics
suggests that market forces determine the
specific resources allocated to construction. We introduced these ideas in
Chapter
3,
where we explained how freely adjusting prices provides an efficient signalling
system that determines what is made, how it is made and for whom. (Some readers
may wish to review
Key Point 3.1.
) From this perspective, economists can easily
account for why energy intensive, man-made substitutes might be used in place
of more environmentally friendly products. Using neoclassical analysis, if inputs
become scarce, the price rises; this, in turn, creates an incentive for an enterprising
person to identify a gap in the market and produce a substitute. These substitutes
often depend upon the clever use of technology and, as time goes on, more natural
products are replaced (or substituted) by these man-made equivalents. So, for
example, the sharp increases in oil prices during recent decades, which are outlined
briefly in
Chapter 14
as a cause of global inflation, have highlighted the increasing
problem of demand for oil outstripping its supply. Indeed, the price of a barrel of oil
reached an all time high in 2012. These significant and persistent price hikes push up
the price of petrol and heating, and signal a need to substitute energy derived from
oil with energy derived from other sources and to utilise developments in technology
to improve energy efficiency. The reason we have presented this seemingly stark
simple scenario, in which no explicit account is paid to the environment, is to
stress that in traditional economic analysis the whole system is self-determining. In
neoclassical terms, there is no need to resort to any form of government intervention
to achieve a low-carbon economy, as given time the freely operating forces of the
market will make it an economic inevitability.
In direct contrast,
environmental economics
does not accept that the ecosystem,
or nature, is merely another sector of the economy that can be dealt with by market
forces. Environmental economists proceed from the basic premise that there is an
extensive level of interdependence between the economy and the environment; and
there is no guarantee that either will prosper in the long term unless governments
enforce measures that make firms acknowledge the complete life cycle costs arising
from their economic activity. Daly (1999: 81) has crudely characterised the ideas
of the neoclassical school: 'The economic animal has neither mouth or anus - only
a close loop circular gut - the biological version of a perpetual motion machine.'
The important concept that Herman Daly and his environmentally conscious
contemporaries bring to economics is the greatly undervalued contribution that
the environment makes to the economic system. Indeed, the environment provides
all the natural resources and raw materials needed to start any process of building
or infrastructure, such as land, fuel and water. The environment also provides
mechanisms for absorbing the emissions and waste. In short, in this modern view,
the economy is viewed as a subsystem of the environment!
In discussions of sustainability the environmental dimensions cannot be ignored,
yet traditional mainstream economic textbooks do not refer to life cycle analysis or
any of the equivalent auditing systems that measure environmental impacts. The sole
reference point is money and the economy is presented as a linear system - similar
