The Routledge Handbook of the Political Economy of the Environment

Éloi Laurent, Klara Zwickl

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000463002
• Edition: 1
• Topic: Économie
• Subtopic: Théorie économique

Featuring a stellar international cast list of leading and cutting-edge scholars, The Routledge Handbook of the Political Economy of the Environment presents the state of the art of the discipline that considers ecological issues and crises from a political economy perspective. This collective volume sheds new light on the effect of economic and power inequality on environmental dynamics and, conversely, on the economic and social impact of environmental dynamics.

The chapters gathered in this handbook make four original contributions to the field of political economy of the environment. First, they revisit essential concepts and methods of environmental economics in the light of their political economy. Second, they introduce readers to recent theoretical and empirical advances in key issues of political economy of the environment with a special focus on the relationship between inequality and environmental degradation, a nexus that has dramatically come into focus with the COVID crisis. Third, the authors of this handbook open the field to its critical global and regional dimensions: global issues, such as the environmental justice movement and inequality and climate change as well as regional issues such as agriculture systems, air pollution, natural resources appropriation and urban sustainability. Fourth and finally, the work shows how novel analysis can translate into new forms of public policy that require institutional reform and new policy tools. Ecosystems preservation, international climate negotiations and climate mitigation policies all have a strong distributional dimension that chapters point to. Pressing environmental policy such as carbon pricing and low-carbon and energy transitions entail numerous social issues that also need to be accounted for with new analytical and technological tools.

This handbook will be an invaluable reference, research and teaching tool for anyone interested in political economy approaches to environmental issues and ecological crises.

1
Introduction

Political economy of the environment in the century of ecological crises

Éloi Laurent and Klara Zwickl

DOI: 10.4324/9780367814533-1

What is political economy of the environment?

Before the 20th century, economics was not understood as a distinct discipline from political science. In fact, the most influential economic theorists of the late 18th and 19th century – including Adam Smith, David Ricardo, John Stuart Mill, and Karl Marx – considered themselves as political economists, emphasizing that, because economic and political processes and outcomes are closely connected, they should be studied jointly. The term “political economy” is said to have originated in France in the 17th century, a time and place where the role of the state in shaping national economies was decisive. The first book titled Traité d’économie politique was published by French mercantilist Antoine de Montchrétien in 1615, though some evidence points towards an even earlier use of the expression (Groenewegen, 1991).

Until the late 19th century, the two terms – economics and political economy – were largely used interchangeably. In his influential book Principles of Economics, published in 1890, Alfred Marshall provided a new definition of economics, separating it from other social sciences and from political processes. More specifically, Marshall (1920) introduced a theory of consumption and production based on the concepts of supply and demand and constraint optimization of households and firms. Furthermore, Marshall’s contribution served as a starting point for neoclassical welfare theory founded on the concepts of consumer and producer surplus. Society is considered as the sum of individuals, who maximize their utility subject to a budget constraint, the only power considered being purchasing power, which determines the household’s budget constraint. Political processes and distributional considerations, such as inequality in income, wealth, or influence, are no longer considered relevant for this new branch of economics.

With the development of neoclassical economics in the decades following Marshall’s principles, political, distributional and institutional factors were increasingly neglected in economic theory. In 1932, Lionel Robbins provided a general definition of economics that is still used in many textbooks today that reflected this neglect: “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (Robbins, 1972: 15). While the optimal use of scarce resources became the central focus of economic analysis, determining which groups in society were able to access these resources and at what costs to others or to the environment was gradually overlooked. Similarly, power disparities, which shape the allocation and distribution of scarce resources, were often omitted. They still are. In fact, in purely competitive markets, power dynamics become irrelevant, or to quote Paul Samuelson, “in a perfectly competitive market it really doesn’t matter who hires who”, whether capital hires labor or labor capital (Samuelson, 1957: 894).

While the perfectly competitive market serves as the baseline for neoclassical economic models, several market failures have been identified by economists, including information asymmetries, externalities, market power, principle-agent problems, and public goods. Over the last decades, a large body of theoretical and empirical literature in various fields, such as behavioral economics, environmental economics, labor economics, and public economics, has presented compelling evidence for their existence and magnitude. In fact, these market failures are increasingly viewed as of such significance that they have come to describe the baseline, not its exceptions.

Modern behavioral microeconomic theory emphasizes that market failures arise because of incomplete contracts (Bowles, 2004). In some cases, such as in labor or credit markets, information asymmetries and principal-agent problems make it difficult to set up complete and enforceable contracts. For example, while employers can hire workers, due to a lack of information and principal-agent problems, they cannot exactly determine their work effort. Public goods, such as climate change mitigation, are underprovided because no single country can decide on the level of total global carbon emissions and therefore faces strong incentives to freeride on others.

When contracts are incomplete, it is power and norms that drive economic outcomes (Bowles, 2004). For example, the distribution of power between plant operators and local residents will decide on the magnitude of externalities resulting from industrial pollution in the neighborhood. In many cases, property rights can be reallocated so that negative externalities are internalized and public goods are no longer underprovided. Furthermore, plant operators can be mandated to install pollution mitigation equipment to improve local air quality. Another illustration is the “Tragedy of the Commons”, in which elusive or non-existant property rights lead to an overexploitation of a local environmental good. If an appropriate institutional structure can be set up, access to the good can be regulated and the resource can be preserved. Again, the distribution of power will decide if and how property rights are altered: the local environmental good either could be privatized or publicized and resource use determined by its owner or could be turned into a common where parties decide on its access and governance structure. The property rights of global climate could also be changed to solve the public goods problem, most obviously through a binding international agreement, but also, as the next best alternative, through measures such as carbon border adjustment, which as a first step would prevent carbon leakage to countries with no climate policy. Which policy measures will be taken is decided by power disparities within and between countries.

Because power is so central in determining not only political, economic, and social but also environmental outcomes, political economy is experiencing a revival. Over the last decades, numerous publications on “the political economy of” different subjects have emerged aiming at including power and political processes back into economic analysis. This handbook aims at contributing to this revival.

The notion of political economy of the environment was largely shaped by James K. Boyce’s landmark book (Boyce, 2002). The novelty of his approach is to investigate both current environmental challenges (such as climate change or air pollution) and current economic issues (such as development and globalization) through the lens of power inequality. He identifies the winners and losers from environmental degrading activities, as well as the dynamics between the two, by revealing how the winners are able to pursue their activities and what the consequences are for the losers. He distinguishes between five different dimensions of power: purchasing power, decision power, agenda power, value power, and event power. Purchasing power is defined, as in most economics textbooks, as the ability to purchase goods and services produced in the economy. Decision power refers to the ability to decide on more or fewer environmental regulations. The distribution of agenda power refers to the capacity to determine which topics receive attention by politicians and the media, while value power affects how people’s values and beliefs are shaped and shifted. Finally, event power refers to the ability to influence the events under which people then have to make decisions (Boyce, 2002: 8f, see Boyce 2019a for an updated synthesis on those themes and contemporary issues).

We define the political economy of the environment along these “Boycian” lines – as the field that analyzes the economic and social impacts of environmental degradation, the uneven distribution of environmental resources, benefits and damage, the social dynamics behind environmental outcomes, and the determination and implementation of environmental policy in the context of incomplete and imperfect information in economies where power inequalities abound. Political economy of the environment is thus concerned on the one hand with the effect of economic and power inequality on environmental dynamics, investigating how higher wealth and power disparities affect the distribution of environmental costs and benefits, as well as overall environmental outcomes. On the other hand, it examines the economic and social impact of environmental dynamics, analyzing differential vulnerability to environmental hazards and degradation along a plurality of justice criteria, both within and between countries. These topics are emerging as critical concerns in the current “decisive decade” of environmental policy, where the quest for sustainability and social justice are intertwined and interdependent.

Economic, social, and environmental inequality and their interactions are the core drivers and outcomes of the political economy of the environment and will therefore logically be the key focus of this volume, while its general framework is an integrated view of inequality and the environment, a view that standard economics has yet to acknowledge.

Inequality and the environment: from blind spots to linkages

In his General Theory, a book that laid the foundations of modern macroeconomic analysis and revolutionized economic policy, John Maynard Keynes made no mystery of his attachment to equality: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes” (Keynes, 1936: 331). In making this forceful argument, Keynes found himself in a rare agreement with Arthur Cecil Pigou, who a few years earlier had highlighted the centrality of injustice in economic thinking: “Wonder, Carlyle declared, is the beginning of philosophy. It is not wonder, but rather the social enthusiasm which revolts from the sordidness of mean streets and the joylessness of withered lives, that is the beginning of economic science” (Pigou, 1920). Pigou and Keynes, together, echoed David Ricardo or John Stuart Mill, who, along with scores of their colleagues, thought that inequality was the key issue of economic analysis. Yet they were at odds with the evolution of their discipline, which, as aforementioned, was shifting away from distributional considerations, dis-embedding itself from its ethical cradle.

The economics of inequality has made a noted comeback in the last 15 years, which stands in contrast with its eclipse from academic and policy debates between the late 1970s and early 2000s. No text better embodies this comeback of inequality economics than Thomas Piketty’s Capital in the 21st Century, which carefully and powerfully documented the contemporary rise in income and wealth inequality while achieving academic recognition and attaining global fame (Piketty, 2014). And yet, it is striking that for a book first published in French in 2013 by an economist in his early 40s, fewer than 1% of Capital’s pages are devoted to environmental issues. Piketty, who has probably contributed to educating several generations of students, academics, and policymakers on the reality of inequality, appears largely blind himself to ecological crises in plain sight (the follow up to Capital in the 21st Century, Capital and Ideology, published in 2020, has the same proportion of pages devoted to environmental issues, Piketty, 2020).

To put it simply, it seems that economics has finally opened its eyes to inequality only to close them to environmental challenges. And yet environmental economics is at least 150 years old and rich of at least three ages that have followed each other since Stanley Jevons published his founding work on the economics of energy in 1865¹: resource economics, externality economics, and sustainability economics (Laurent, 2020). We have therefore gone through three ages of environmental economics for a century and a half, eras punctuated by countless publications that have not cancelled each other out in succession but juxtaposed, superimposed, and often mutually enriched one other to shed light on the major ecological issues of our time. And yet, at the dawn of the decisive decade to preserve the biosphere, economics still largely disregard the environment.

The vast majority of professional economists ignore environmental issues, in the double sense of unfamiliarity and indifference. When they do care, it is usually to downplay their impact and to suggest remedies that might worsen environmental damage, such as accelerating economic growth or monetizing ecosystem services. There is no doubt that there are thousands of economists around the world, some writing in this handbook, who are genuinely concerned with ecological problems and are working constructively to understand and remedy them (whether in economics departments, think tanks, or organizations such as the Intergovernmental Panel on Climate Change [IPCC] or the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services [IPBES]). However, it also clear that they represent a small minority in the vast field of economic research and decision-making (a meager 4% of professional economists registered on the Ideas/RePEc database), even while humanity enters the third and critical decade of the “century of the environment” (according to the words of Harvard natural scientist Edward Wilson).

The 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, jointly awarded to William Nordhaus and Paul Romer, somewhat paradoxically illustrates this point (Laurent, 2020). Before the 2018 award, Elinor Ostrom was the only recipient to have been honored indirectly for her contribution to environmental economics (“for her analysis of economic governance, especially the commons”): a single winner, for 51 prizes awarded to 84 individuals during half a century, a century during which environmental issues (such as air pollution, climate change, degradation of ecosystems, and the destruction of biodiversity, just to name a few) have literally jumped out in the eyes of public opinion.

The 2018 award was therefore welcome in principle. William Nordhaus, widely regarded by the profession as one of the world’s two most influential climate economists,² was honored “for integrating climate change into long-run macroeconomic analysis”. However, this “integration” turns out to be seriously flawed. Boyce (2019b) demonstrates that the increase in global average temperature that would accompany the “optimal” price of carbon recommended by the Nordhaus model (known as “DICE”) is 3.5 °C by 2100 and continues to rise afterwards. The DICE model therefore recommends a temperature that is twice that of the scientific consensus patiently developed over three decades, with this recommendation being made based on a very fragile methodology, explicitly questioned by the IPCC.³ Is the unfortunate episode of the 2018 economics prize isolated or does it reflect a deeper problem? In an attempt to shed light on this question, we can first turn to the study recently published by Andrew Oswald and Nicholas Stern (Oswald and Stern, 2019) aimed at assessing the place of environmental issues in academic publications in economics. Out of 77,000 articles published in the 10 most influential journals in the discipline, exactly 57 were devoted to climate change, that is, less than 0.1%. According to another account, it appears that out of 44,000 articles published since 2000 in 50 leading journals, 11 were devoted to the decline in biodiversity, again in the order of 0.1% (Goodall and Oswald, 2019). We can then combine these bibliometric data (which relate to the volume of publications) with other indicators reflecting their degree of recognition or disciplinary impact.

Of the 20 articles considered in 2011 as the most important in a century of existence of the American Economic Review by eminent representatives of the discipline, none deals with environmental issues (Arrow et al., 2011). Of the 100 most cited economists listed by Ideas/RePEc, not one is an environmental economist. Of the 1...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of contributors
• 1 Introduction: political economy of the environment in the century of ecological crises
• 2 Political economy of the environment James K. BoycePoli : a look back and ahead
• Part 1 Inequality and the environment
• Part 2 From analysis to modelling and policy
• Index