Why Ethics?

1. Why Ethics? • Sustainability research is about the allocation, distribution and use of resources • Some of these questions are positive, many are normative • Mainstream economics is based on a utilitarian ethic • Utilitarianism is not universally accepted, applied environmental economists are constantly confronted with this

2. Foundations • Naturalist moral philosophy • Humanist moral philosophy • Libertarianism • Utilitarianism

3. Naturalism • Most ethics reason from a human perspective, either attributing values to humans only or letting humans be the only source of value • Naturalist moral philosophy extends moral rights to other species • Higher animals • Sentient beings • Living beings • Beings in existence

4. Libertarianism • Individual rightsandliberties • Primacyofprocess • Locke: Original propertyis just ifacquiredthroughlabour • Nozick: Property is just ifobtainedthroughfreeconsent • Noconceptofconsequentialjustice • Norolefor distributional policy • Governmenthas a role in: • Unjustholdings • Open access, commonproperty • Externalities

5. Utilitarianism • Individual pleasure, happiness, well-being • Individual utility and social welfare • Primacy of outcome • No concept of procedural justice • Government policy should strive for the greatest good for the greatest number • Narrow: utility is individual, human utility; welfare is sum of utilities • Broad: utility includes altruism and non-humans; welfare is some function of utilitities

6. Discounting

7. Numerical Values? • There is no ethical position that defends ρ > 0 • Indeed, Ramsey, Harrod, and Koopmans said ρ = 0 • Yet, market and government behaviour suggest otherwise ... • It would not be wise to set different discount rates for different projects

8. Sustainable Development • Adjust social welfare function • Solow, Pezzey, Chichilnisky • Impose constraints • Capital, natural capital, utility • Adjust discount rate • Lower exponential discount rate, non-exponential discount rate

9. Alternative Social Welfare Functions • Solow: Intergenerational equity a la Rawls  equate utility over time • Pezzey: Change the arguments in the utility function • Chichilnisky: Axiomatic approach • No dictatorship of the present generation • No dictatorship of any future generation

10. Alternative Discount Rates • Lind, Rabl, Schelling: Discounting is only allowable within the life-time of a single decision maker, as the presumed capital transfers are not possible between generations • Heal: Observations in psychology show that people use lower discount rates for problems with longer time horizons

11. Environmental Accounting

12. Environmental Accounting • Companies increasingly report on their environmental performance • In some countries, this is a legal requirement • Elsewhere, there is a variety of reasons • Some CEOs are truly interested in the environment, and seek to improve their performance • In other companies, (prospective) employees demand a responsible attitude to the environment

13. Environmental Accounting -2 • Elsewhere, there is a variety of reasons • Consumers are increasingly aware, would prefer to buy from green companies • Consumer boycotts can be very expensive • Investors may be lured by the „Porter hypothesis“: Green companies grow faster, although more careful analysis shows that it is progressive companies that grow faster • Tax incentives for green investments

14. Beautiful Words We must deliver, and be seen to deliver in two ways. [...] Shell companies also accept the responsibility to help deliver the economic, social and environmental requirements of sustainable development. Sustainable development underlies our strategy and is being integrated into everything Shell companies do [...] We are committed to delivering excellent returns and building value for the future – for the planet and ist people Sir Mark Moody-Stuart

15. Schöne Wörter Ziel muss es doch sein, den Umweltschutz in den Köpfen und Herzen der Menschen so zu verankern, dass tagtägliches Handeln daraus entsteht Ich habe mich schon in den 70er Jahre mit den Gedanken des Club of Rome beschäftigt. Mir war schnell klar, dass wir zu Lasten künftiger Generationen leben [...] dass Wissen allein nicht reicht, sondern Handeln gefragt ist. Dr. Michael Otto

16. Oil Majors • Comparedto BP and Shell, ExxonMobilhasbeenthebadguy • ThisseemstobemostlybecauseofExxon‘sposition in climatechange, andperhaps a memoryofthe Exxon Valdez • Exxon‘soperationsarecomparatrively clean • BP and Shell invest in alternative energy, andareactive in emissionstrading • Shell‘schangeofimageisremarkable • The Brent Spar was only 1996 • Beforethat, Nigeria and South Africa

18. Principle 6: Health, safety and the environment • Climate change remains on the most important environmental issues of our time. We are acting to reduce our own emissions and supporting our customers, partners and suppliers to reduce theirs. We strive to continuously reduce negative environmental impacts across our operations. Our environmental expectations set minimum standards worldwide, which form the platform for further improvement. Over 90% of our major installations have achieved ISO14001 certification.

19. Principle 6: Health, safety and the environment -2 • Reducing emissions to air, water and land is critical to our business success and our contribution to sustainable development. We set tough targets to promote improvement. • Greenhouse gas emissions 11% below 1990 levels • Volume of oil spills halved • Cost of carbon included in major project decisions • Global biodiversity expectations set

20. Foresty & Resources Policy

21. Foresty & Resources Policy • Forestry • Single rotation • Faustmann‘s rule • Resources Policy • Information • Property rights • Tradable permits • Taxes

22. Fish Stocks & Forests • Forests serve many purposes • Trees live much longer than fish • The entire stock of trees is harvested in one go • Forest dynamics are simpler • Trees do not migrate • Forest land has an opportunity cost • Both are productive capital assets • Forests and fish stocks grow

23. Resources Policy -1 • Information • Better information may lead to better management • For instance, understanding soil erosion or the dynamics of fish stocks would allow for better tuning of practices • Labelling allows consumers to express green preferences • However, new knowledge may also allow for better exploitation – e.g., satellites and GPS make it possible to track fish shoals

24. Resources Policy -2 • End open access • If property rights are not guaranteed, there is less reason to conserve for next year‘s harvest • In fact, there is double discounting of the future: one for time, and two for the chance that someone else mines, fishes or cuts the resource • Establishing property rights does not neccessarily lead to conservation, as owners may decide it is better to exhaust the resource

25. Resources Policy -3 • Tradablepermits • Onewayofestablishingpropertyrightsistogive out harvestinglicencesthatextendoveryears • Oneadvantageisthatthe total harvestisfixed (enviromentalcertainty) • Ifpermitsaretradable, thenthisflexibilityshouldlowercosts • Also, derivative markets (e.g., futures) canbecreated, expressingconservationvalues

26. Resources Policy -4 • Taxes • Market: Restore market price to royalty plus marginal cost of harvesting • Open access: Tax equals royalty minus the difference between average and marginal extraction costs • Royalty taxes do not change behaviour, as the time evolution is driven by relative royalties; taxes on gross prices do change behaviour

28. Gamma Discounting • Weitzman: The certainty equivalent of an uncertain discount rate resembles a discount rate that declines over time

30. Numerical Values? • r=ρ+ηg • ρ is the utility discount rate, measures who much we care about the future • ηg reflects that future consumers are better off • η is usually assumed to lie between 1 and 2 • g can be observed • ρ is controversial

31. Utility and Consumption

32. Utility and Consumption (2)