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Economic & Environmental Sustainability

A week after Hurricane Irene I walked where a farm used to be in Vermont. All the topsoil had washed away, and what was left looked like the rippled sand on a beach after the tide has gone out. Scattered chunks of asphalt were all that remained of what had been a road near the river.

We are only beginning to think about the connections between environmental and economic sustainability, but I expect these connections will demand much more of our attention in the coming years.

The natural world is where we get everything we want – from such basics as oxygen and water to the rare earth metals that enable smart phones to work. Our economic system is how we get access to and distribute nearly all of these resources. We can’t have a healthy economy if its environmental base is falling apart. So if we want a viable economy, we need to aim for environmental sustainability.

Environmental issues are already affecting our economy in at least four direct ways:

(1) Climate change causes expensive damage to homes, businesses, roads, and other infrastructure. Storms, floods, and droughts have become more frequent and severe in the last decade, and there is much reason to believe this trend will continue. (See Frank McKibben’s Eaarth.)

Many insurance analysts now consider climate change the number one risk factor for their industry, which has paid a lot more claims than expected as weather extremes have grown more common and intense. (Why the insurance industry gets climate change)

For the same reasons, climate change is expensive for governments at all levels. In 2011 floods shut down the Mississippi River, fires ravaged Texas, and tornados killed more than 500 Americans. FEMA nearly exhausted its resources, and local governments continue to struggle to repair damage to roads, bridges, and other infrastructure. The Army Corp of Engineers estimated that it would cost more than $2 billion to repair damage to our levees, dams, and riverbanks just from storms in the first half of the year, which dwarfs its current budget of $150 million for such repairs.

We can usually rebuild, of course, but rebuilding is just trying to stand still. It does little or nothing to improve anyone’s life. And if we continue to rebuild near the rivers and oceans that are our economic lifeblood, chances are they will flood again.

This is what’s happening already, but no one knows what will happen in the future. A recent MIT study suggests that, under current policies, temperatures will probably rise by 9 degrees (F) by the end of this century, with enormous consequences, and there is a 5-10% chance that temperatures will rise enough to melt the permafrost, creating huge methane emissions and mass extinctions. (Probabilistic Forecast) People have honest disagreements about whether the human species would survive such a transformation (my guess is that we’re so adaptable that we would), but there’s no question that life would be completely different.

Whatever one thinks about the probabilities of a future catastrophe, the short-term changes are already with us.

(2) Natural resources are getting more expensive. As the world’s population grows, and many people emerge from poverty, competition for everything – from oil to food, steel to concrete – is rising. In a public letter titled “ Time to Wake Up : Days of Abundant Resources and Falling Prices Are Over Forever,” the investor Jeremy Grantham pointed out that commodity prices decreased at an average rate of 1.2% a year in the century to 2002, but since then price increases have wiped out the previous century’s accomplishment.

Our economy is based on the assumption that natural resources will be plentiful and will, in general, get cheaper over time. If those assumptions no longer hold true, we are in for some painful transitions.

(3) Climate change is already affecting food harvests. Scientists estimate that global wheat harvests are down 5.5% compared to what they would have been with no climate change, while corn harvests are down 3.8%. In 2010, Russia banned exports of wheat after drought decimated the country’s grain harvests. In 2011 parts of China were so dry that topsoil was blowing off the fields.

Weather affects crops in many ways. Locally, crops can be destroyed by heat and cold, floods and drought. But the effects can also be more subtle. Each day above 86 degrees, for example, decreases corn yields by 1% or more, which suggests that corn harvests in Africa will drop by 20% by the middle of this century. As weather becomes more variable, farmers no longer know how to manage their fields for optimal harvests. As winters become less cold, pests and diseases spread into new areas. Warmer winters, for example, have allowed pine beetles to take hold in Canada’s boreal forest, and the dying trees are expected to make the boreal forest a carbon source, not sink, by 2020.

Many things affect food prices, including political decisions and the condition of transport systems. But climate change will almost certainly increase food prices around the world.

(4) Physical insecurity has political and geopolitical consequences. When people are hungry or thirsty, they are more likely to get into conflict with their neighbors. A recent study found, for example, that the weather disruptions caused by El Nino, a natural fluctuation in ocean temperatures, are correlated with a higher risk of civil war. A UN report suggested that desertification was a root cause of the bloodshed in Darfur, where rainfall has decreased by a third in the last 80 years. As weather becomes more unstable, such conflicts are likely to increase.

The United States may be able to stay out of direct involvement in such conflicts, but turmoil anywhere tends to have ripple effects.


So what should we do?

We need, I believe, to start thinking about environmental issues in a more hard-headed way. Environmentalism isn’t just a warm fuzzy ethic of saving the polar bears. It’s taking care of the complicated networks that have made our lives possible.

One of the first really solid books I’ve seen that integrates an environmental perspective into its economic analysis is Robert Frank’s The Darwin Economy: Liberty, Competition, and the Common Good (2011). I highly recommend this book, not just because it explains the importance of a carbon tax, but also for its very useful perspectives on competition, freedom, income inequality, government regulation, and tax policies.

The two key issues, it seems to me, are energy and food. Energy is needed for just about everything, and fossil fuels are the biggest force driving climate change. And food … well, I don’t have to explain why food is important.

I therefore believe the following two policy changes are essential:

(1) A carbon tax (more precisely, a tax on all climate-warming emissions) that starts small but noticeable and increases every year for the next twenty years.

The Economist recently posted an article titled Do All Economists Favor a Carbon Tax? Some economists believe that all serious economists support a carbon tax, for the reasons outlined in this article. Others believe that there might be a small minority of economists who disagree. In either case, the consensus among professional economists is clear.

Price signals are the best way to change complicated systems. History shows us that governments aren’t good at micro-managing economies. Furthermore, if governments mandate the use of specific technologies then companies have too much incentive to put their energies into lobbying, and opportunities for outright corruption grow. It’s much better to create a predictable framework and let individuals and companies figure out how to change their practices.

A carbon tax is not currently part of the American political dialogue. That needs to change if we want an economy that is not vulnerable to short-term price shocks, inevitable long-term deterioration, and possible long-term catastrophe.

(2) Farm policies that foster soil fertility and long-term food sustainability.

Our current agricultural system is highly dependent on oil not just for transportation, but also for the crops themselves. Just growing a bushel of corn, for example, can take as much as 1.2 gallons of oil. Commercial agriculture generally leads to soil depletion and makes farmers even more dependent on chemical additives. Sooner or later, however, fertilizers and pesticides become less effective, and harvests begin to fall.

Our current farm policies favor large commercial farms. At the very least, we should stop preferentially subsidizing oil-intensive agriculture and allow small farms and organic and biodynamic farms to compete on an equal basis. At best, we would fund research into effective sustainable practices, educate farmers about the results of that research, and help them shift their practices to preserve soil fertility, access to clean water, pollinators, and other essentials of food production.


Other policies are also useful. Clean water and clean air pay for themselves in longer and healthier lives. Requiring electrical utilities to include in their mix an ever-increasing percent of electricity from renewable sources has been useful in developing renewable technologies. (Requiring gas to include ethanol has, in contrast, mostly enriched the ethanol producers, as it takes nearly a gallon of gas – or more – to produce a gallon of ethanol. The more policies favor one particular industry, the more likely they are to be misguided.)

Some people complain that a carbon tax would be expensive, but the current policies are expensive too. Just ask the tens of thousands of Americans who lost their homes and businesses to severe weather in 2011. Or that former farmer in Vermont who used to have topsoil.

Does anyone really want to risk seeing what will happen if the permafrost melts? Or, short of that, if the strains of climate change mean the earth can sustain only, say, two billion people, rather than the more than seven billion people who are here now?


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