The Subject and Methodology of Environmental Economic Analysis 157

Environmental economics is the study of border offenses in the interactions between society and the environment. When the starting point and the end result of an interaction, as well as all elements and effects of the process, remain within the ecosystem, these phenomena constitute the subject of bi-ology, ecbi-ology, and natural sciences in general. If the interactions take place within the society, they will be studied by social sciences, such as economics.

However, there are processes in which the society and the natural environ-ment are connected as a result of our activities.

Input-side connections occur when the society uses the elements of nature as raw materials, resources, and the material flow goes from nature towards so-ciety. Environmental economic analysis, therefore, considers nature as a cap-ital and the yields of this capcap-ital as an ecosystem service. This analytical part is called the economics of natural resources. It also addresses issues that con-stitute a major problem today, such as: To what extent does the practice of intensive agriculture exhaust soil fertility? How many trees in a forest can be felled? Can the forest coverage of the Earth be reduced? (Let us think, for example, of the protests against forest burning in Brazil in 2019.) Will the lithium stocks of the Earth be sufficient to allow for a total transition of mo-bility to electric vehicles using batteries?

Output-side connection occurs when the material flow goes from society to-wards nature. This part of environmental economics is called the economics of pollution. Should climate change be stopped? On what scale and at what speed should greenhouse gas emissions be reduced? What kind of deteriora-tion of health is caused by high levels of nitrogen oxide or solid particles in urban air? What are the risks of high-level radioactive waste (spent fuel of nuclear power stations), i.e. what is the reasonable cost of building an appro-priately safe depot for such waste?

8.1.1. Environmental Economic Analysis

Environmental economics studies the connections between the economy and its environment (use of natural resources in the economy, discharge of the by-products and waste of the economy into the environment) and analyses them on the basis of the axioms and with the analytical methods of econom-ics.²¹¹

Characteristics of environmental economics

Environmental economics

As a discipline part of the paradigm of economics; extension of the methodology and theses of economics to the relation-ship between the economy and the environment Methodology methodological individualism, analytical approach

(marginal analysis, equilibrium models) Management of

natu-ral resources

the conservation of resources is necessary to improve and maintain the welfare of individuals

Assessment based on individual preferences, anthropocentric, in-strumental

211 G. Bartus and Á. Szalai (2014): Környezet, jog, közgazdaságtan [Environment, Law, Econom-ics], Pázmány Press.

Scarcity Ricardian relative scarcity Maintenance of the

natural capital

‘weak’ sustainability: the natural and human capital can generally be substituted

Biogeochemical limits of the economy

marginal role Technological

devel-opment

innovational optimism: technical progress contributes to the solution of environmental problems

Source: Venkatachalam, 2007212, in: Bartus-Szalai 2008.

8.1.2. The Approach of Ecological Economics

Ecological economics is a methodologically and normatively separate ap-proach to the economic analysis of environmental issues. In many respects, it can be regarded as a part of environmental economics, while from another perspective, it can be viewed as a school that is in dispute with the approaches of environmental economics.²¹³ The initial aim of ecological economics was to create an integrated theory providing a framework for describing and ex-plaining the phenomena of the economy in their context, taking into account all their interplays with the environment. In other words, ecological econom-ics intended to achieve a systematic integration of ‘traditional’ economeconom-ics, the economics of pollution, the economics of natural resources, and ecol-ogy.²¹⁴ According to ecological economics, these four analytical methods and theories—which have been isolated so far— should be integrated so that the issues of the economy and its environment can be considered as parts of a whole.

Ecological economics places a clear emphasis on the fact that the economy is only a part of the natural system, i.e. the truths and constraints of natural sciences necessarily apply to the economy as well. Therefore, a key issue of ecological economics is the aggregate size of the economy and the establish-ment of the maximum possible level of economic activity.

212 L. Venkatachalam (2007): Environmental Economics and Ecological Economics: Where They Can Converge?’, Ecological Economics, vol. 61, 2007, pp. 550–558.

213 Sub-chapter 3.1.2 is practically based on one of my previous articles: Bartus, 2008.

G. Bartus: Van-e a gazdasági tevékenységeknek termodinamikai korlátja? [Do Economic Activities Have a Thermodynamic Constraint?], Közgazdasági Szemle, vol. 55, November 2008, pp. 1010–

1022.

214 R. Costanza (1989): ‘What is Ecological Economics?’, Ecological Economics, vol. 1, 1989, pp. 1–7.

As the creation of a theoretical framework integrating the different sub-dis-ciplines as well as the integration of ecology and economics suffered a set-back, during the development of this methodological difference, the expres-sion of the criticism of economic growth as a normative difference was given more emphasis. The approach of ecological economics also attaches greater weight to the analysis of the links and correlations between environmental problems and inequalities in terms of income, wealth and access to natural resources.

Characteristics of ecological economics

Ecological economics

As a discipline partial rejection of the paradigm of traditional eco-nomics, intention to integrate ecology and economics Methodology methodological pluralism, holistic view,

transdiscipli-nary and horizontal approach Management of natural

resources

resources are valuable in themselves; other species have the same right to survival as man

Assessment it seeks to give an approximation of the intrinsic value of the individuals and elements of the ecosystem Scarcity Malthusian absolute scarcity

Maintenance of the natural capital

‘strong’ sustainability: the stock of natural capital cannot decrease

Biogeochemical limits of the economy

a central role in terms of analysis and theory Technological

devel-opment

technological skepticism: new technologies generate new environmental problems

Welfare and equality commitment to egalitarian views, equal access to re-sources—in addition to size and efficiency—is a fun-damental issue

Source: Venkatachalam, 2007, in: Bartus, 2008.

Ecological economics underlines that the current economic system is unable to distinguish between changes in size and growth, on the one hand, and qual-ity improvement and development, on the other. Furthermore, it is also una-ble to adequately address two fundamental issues: allocation (equality) and the establishment of the optimal size of the economy in its entirety.

In general, the representatives of the ecological school argue for interpreting sustainability in its strict sense, underlining that the substitution of natural capital goods for knowledge or technological capital leads to the devaluation of natural assets. They believe that the conservation of natural capital is a prerequisite for the proper maintenance of human capital since man cannot

live without their biological environment. Maintaining biodiversity is, there-fore, a priority. For this reason, determining the economic value of the ‘ser-vices’ provided by the environment constitutes an important area of research.