Environmental policy and industrial innovation: integrating environment and economy through ecological modernisation

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1 Environmental policy and industrial innovation: integrating environment and economy through ecological modernisation GABRIELA POPA Department of Management CRISTIANA-ZIZI RIZESCU Department of Material Sciences OFELIA-VALENTINA ROBESCU Department of Environmental Engineering CEZARINA NECULA Department of Environmental Engineering Abstract: - It is not possible to consider sustainability only from an economic or ecological point of view; issues such as economic-ecological integration, inter-generational and intra-generational equity are considered of fundamental importance. Two different economic approaches to environmental issues, i.e. neo-classical environmental economics and ecological economics, are compared. Some key differences such as weak versus strong sustainability, commensurability versus incommensurability and ethical neutrality versus different values acceptance are pointed out. The wild facts of today and their conflict with standard economic theory both have a well-known history. During the past two centuries, the economy has transformed the character of the planet and especially of human life. It has done so chiefly by industrialization. Industry has vastly increased the productivity of workers, so vastly that in spite of the great population increases in industrialized nations, the goods and services available to each have increased still. Ecological modernisation theory has been offered as a possible solution to the environmental problems currently facing advanced industrial countries. It suggests that regulation can help to solve environmental problems whilst at the same time making industry more competitive. In theory this can be achieved if regulation encourages the development and application of innovative technologies and production techniques. An understanding of how innovation takes place suggests that to some extent regulation can achieve what is suggested by ecological modernisation theory. This is particularly the case if it helps companies to overcome the considerable barriers to innovation which prevent them from moving beyond control technologies to consider clean technologies, from complementing technological change with organisational change and from exploring the strategic as well as the operational opportunities for improvement. This argument is assessed empirically through an examination of the implementation and impact of integrated pollution control (IPC). It should be combined economic and environmental improvement in industry as a result of the implementation of IPC, particularly where pollution ISSN: ISBN:

2 inspectors have helped to develop the capacity of regulated firms to respond to the regulation. However, it is also shown that IPC fails to fully establish the imperative for action on environmental issues. Thus, whilst encouraging technological and organisational changes, it fails to establish the environment as a strategic concern in industry and as a result it is unlikely to promote the radical innovations that are associated with ecological modernisation in the longer-term. Key-Words: - economic-ecological integration, economic-ecological integration, inter-generational, intragenerational clean technologies, solve environmental problems, Joint production 1 Introduction Ecological economics is a policy-oriented perspective that addresses the interdependence and co-evolution between human economies and their natural ecosystems. Interest in this area has been prompted by concerns for the adverse impacts of human economic growth processes on natural systems. Ecological economics is positive, in its development of understanding of the physical, biological and social structural and functional relations between economies and natural ecosystems. Ecological economics is also normative in addressing appropriate roles of human economies within natural ecosystems. The guiding norm is the somewhat operationally vague notion of jointly sustainable human and natural ecosystems. Finally, ecological economics is prescriptive, in proposing institutions and behaviors compatible with sustainability norms. Its position as a discipline is on the boundary of economic and natural systems, focussing on impacts of each system on the other. 2 The perspective of ecological economics Ecological economics recognizes that humans and their economies are parts of larger natural ecosystems and coevolve with those natural systems. There is a material and energy basis for the relations between human economies and their ecosystems, defining not only economic, but social, structures and processes. Economies possess general ecosystem properties, such as dynamism, evolution, integrity, stability and resilience. Economies are inextricably embedded in larger natural ecosystems, and exchange flows of materials and energy with natural systems. What makes humans and their economies unique as a sub-ecosystem is their ability, through willful effort, ignorance and human designed tools, to dramatically restructure and reform processes in ecosystems of which they are a part; and to such a magnitude that human welfare can be diminished or enhanced by those original actions. There are many factual examples (World Commission on Environment and Development, 1987; Goudie, 1994). Some types of economic activities, and the welfare that originates from them, would not be sustainable if they substantially adversely impact natural systems. The willful effort to extract useful things from natural systems is motivated by the satisfaction of basic biological needs and the seemingly limitless search for pleasure through consumption of goods and through social associations. The magnitude of potential impact on their own welfare through effects on natural systems requires that human decisions be guided by some notion of the value of their actions and the value of their impacts on ecosystems, either in terms of benefits of use or costs of abuse. Some concept of value is required for rational activities of human economies within their natural systems (Page, 1992). Both the structures and processes of natural systems have identifiable instrumental value to the human economy. These narrow use values may be reflected by the summation of individual values, to the extent they are private. However, natural systems also have aesthetic, moral and cultural values (Sagoff, 1988). These values are more intrinsic and unmeasurable using traditional human preferences. They may not be reflected in the simple summation across social members of individual values, since they are social and not wholly private. Valuation is made more complicated by the fact that our natural environment is highly likely to shape values through establishing social and economic relations, aesthetic standards and culture. If so, our decisions now about the natural environment will shape future value systems, making values endogenous and, therefore, a poor guide to behavior. A way out of this dilemma is to make valuations of natural systems based on "What we would like to see society become," rather than to ask what current valuations are (Page, 1992). The value of natural systems is then based on their ability to assist us in becoming what we wish to be. The management dilemma is to organize a method for establishing what society wishes to see itself become, then assist in attaining that wish through knowledge of ISSN: ISBN:

3 economic and ecological systems, and then to prescribe methods of attainment. Unless there is evidence to the contrary, an initial working presumption about human society is that any society would like to see the welfare of its members exceed some minimal level, and would like to provide the opportunities to meet the aspirations for a better life (World Commission on Environment and Development, 1987). Such a society would seek to have welfare sustainable above minimum levels and to have a sustainable development toward welfare enhancements, where the latter is interpreted more broadly than growth in material things and includes educational attainment, health, and increases in basic freedoms (Pearce, et al., 1990). The ecological economic problem When including a subsection you must use, for its heading, small letters, 12pt, left justified, bold, Times New Roman as here. Tools, insatiable wants and the potential danger of ignorance place humans in a unique position of being able to alter their ecosystems in ways that jeopardize their own social and economic structures and processes. While any species could exceed its own natural ecosystem's carrying capacity or diminish that capacity to the point of self-extinction, only the human species has both the will and capacity to jeopardize itself, as well as the will and capacity to avoid it. Furthermore, our understanding of ecosystems is primitive. It is known that structures change through normal succession and evolution, that processes are altered as the structures through which they occur change, that processes have various temporal and spatial scales, and that catastrophic changes can occur without much evident alteration of structures and processes. However, beyond this abstract knowledge and except for a finite number of circumstances, it is known too little about ecosystems to be confident that it can be predicted the full range of impacts of human economies on ecosystems. Finally, moral systems in human society may be incompatible with what a society would like to see itself become; e.g., individualism and instrumental valuation may be inconsistent with sustainable welfare norms. Social morality is embodied in an entire set of institutions, social relations and views of natural systems. The ecological economics problem is to address the potential willful capacity of humans to alter their own relatively unknown environment to such an extent that they can adversely impact their own current or future welfare. This means monitoring for instances where this is a serious problem and informing through meaningful communication. It also means making suggestions for altering human behaviors or moral systems that appear incompatible with the sustainability of economic and natural systems, or that are incompatible with what society wishes to become. 2.2 Tasks required for ecological economics The ecological economics problem, outlined above, is addressed through five tasks: 1. Modelling and Science - understand the interdependence between economic and natural systems, particularly between the structures, processes, and fluxes of material and energy upon which each system depends. This includes understanding the tolerances of ecosystems to human induced changes as well as the tolerances of economies to ecosystem changes. 2. Conditions for Sustainability - establish conditions on human economies that would allow for the sustainability and growth of human welfare, conditioned upon the sustainability of the economy's supporting ecosystem. 3. Indicators and Signals - establish indicators reflecting the current status of economies and ecosystems relative to the norm of sustainability, and include measures of ecosystem and economic health. Also, they establish signals reflecting potential impacts of human activity on welfare insofar as those impacts result from alterations in ecosystem structures and processes. 4. Instruments, Laws and Institutions - develop necessary regulatory instruments, laws and associated institutions that assist human economies in attaining sustainable welfare development goals. 5. Moral Systems - examine the implications of various moral systems for the sustainability of human welfare, and place in bold relief those instances where there are apparent incompatibilities between moral systems and sustainability norms. 2.3 The contrast between the prevailing management paradigm and that proposed by ecological economics In order to understand the management implication of the ecological economics framework, it would be useful to contrast it to a characterization of the current management paradigm. The two paradigms differ primarily on the primacy given to human economies versus natural ecosystems. The Prevailing Management Paradigm focuses on how humans can manage ecosystems for instrumental ISSN: ISBN:

4 purposes of optimizing human economic wealth. This wealth is typically measured in the value of utility enhancing things and actions, frequently measured by "willingness to pay" or "willingness to accept" monetary compensation for gains or losses, and by summing across independent individuals. Preferences are typically taken as given and immutable, and the manipulation of natural systems for human benefit addresses those preferences. This management paradigm approaches uncertainty about natural systems by either denying or opting in favor of human economies. If not denying the uncertainty, the optimistic argument is given that natural processes are either reversible with enough time and engineering skill, or economic systems can find human-made replacements for lost ecosystem materials and services. The prevailing issue for this paradigm is "How can we use the ecosystem to more effectively enhance human wealth and welfare?" An alternative to this paradigm is suggested if we weight more highly the belief that ecosystems are critical to social survival, our ignorance about how ecosystems work, our uncertainty about the full potential value of natural ecosystems to the economy, and our ignorance about preferences of future generations. Ecological economics, using what we may term an Ecological Economic Stewardship Paradigm, would ask the following management questions: 1. What does society wish to become? 2. What is the requisite health of an ecosystem relative to that social objective? 3. What set of human economic artifacts, structures and processes is feasible within that requisite healthy ecosystem? 4. How can we use the adaptability and behaviors of human economies to assure they meet their own welfare needs as well as the needs for preservation of a healthy ecosystem? This perspective first requires a social dialogue to establish what society would like itself to become. This is primary to development of ecosystem health concepts since it establishes the basic value system from which ecosystem and economic health are measured. In the presence of ignorance about ecosystems, the presumption is made that human systems are adaptable to the constraint of a healthy ecosystem and, possibly, more adaptable than the natural system itself, the latter being more slowly evolutionary and potentially susceptible to catastrophes in response to apparently minor changes. Adaptable and flexible human economic systems are seen as the key to successful long term management of ecosystems. The management focus is shifted from ecosystem manipulation under the prevailing paradigm to exploitation of the adaptability of human economies. Under the ecological economics Stewardship Paradigm, the primary issue is preserving basic properties of natural systems. Once these are established, the management problem is to develop a compatible adaptation strategy for the human economy to the constraints set by the goal of preservation of natural ecosystem health. Health is defined implicitly by what society would like to see itself and the world around it become. Preserving particular ecosystem forms would not be as important as preserving ecosystem structures and functions, such as nutrient and hydrologic cycles, and preserving the resilience of the ecosystem to dramatic external changes; and allowing ecosystems to evolve rather than face catastrophic change. Long run sustainability of the human economy is viewed within a larger context of sustaining the health and integrity of the natural ecosystem within which humans are embedded. Adaptation requires defining alternative courses of human action and increasing flexibility and resiliency of human economies. Optimal human adaptation and flexibility under the constraints of a long term, healthy, resilient natural ecosystem are the operative concepts in this paradigm. 3 Proposed solutions 3.1 Bases for decisions under uncertainty with ecological economic stewardship It can be distinguished between risk and uncertainty. Classic risk presumes that it is known some probability distribution associated with events and states of the world. The concepts of expected value or most likely states are definable. Classic uncertainty presumes there is no a prior knowledge of probabilities. As noted above, the prevailing management paradigm approaches uncertainty about natural systems by either denying or opting in favor of human economies. If not denying the uncertainty, the optimistic argument is given that natural processes are either reversible with enough time and engineering skill, or economic systems can find human-made replacements for lost ecosystem materials and services. Under Ecological Economics Stewardship, there is a presumed higher cost associated with being wrong about reversibility, remediation, and mitigation of degradations in natural system health. A precautionary (Perrings, 1991) or minimum regrets approach to decisions that may adversely impact natural system would opt in favor of ecosystem health protection. The cost of this decision rule may not be so high, particularly if ISSN: ISBN:

5 basic human needs are not at stake, since human preferences and economic structures are adaptable. 3.2 An ecological perspective on the valuation of ecosystem services Ecosystem services are the conditions and processes through which natural ecosystems and the species that make them up, sustain and fulfil human life. Ecosystem service valuation is being developed as a vehicle to integrate ecological understanding and economic considerations to redress the traditional neglect of ecosystem services in policy decisions. What role should governments play in protecting the environment and controlling the environmental impacts of industry? Do regulations benefit the environment, and how do they affect industrial innovation? Since the modern era of environmental management began in the early 1970s, regulations have been used with increasing intensity and sophistication as the main instrument in steering the behaviour of economic agents in industrial production. The purpose of environmental regulation has been to coerce producers of goods and services into internalizing the environmental costs of production. These efforts have often faced opposition on practical and ideological grounds. 4 Conclusions Developing a sustainable form of industry based on green technology will require radical technological innovation by the private sector. Stimulating innovation in green technology through public policy requires an understanding of technology, the innovation process, and how policy affects innovation of firms. This article explores how to design public policy measures to stimulate green technology innovation. The potential of current environmental policy measures to stimulate green technology innovation is assessed. Opportunities are identified to improve our understanding of the innovation process, to use policy mechanisms to more effectively stimulate green technology development, and to direct the trajectories of key environmental technologies. Universities can have the largest impact on regional economic growth by excelling in advanced research and by augmenting the region's stock of human capital. The combination of growth in the stocks of knowledge and human capital offer increasing returns in the region's knowledge production system and in the commercialisation of inventions. A survey of high technology company executives suggests that high-tech firms are drawn to quality university environments in order to gain better access to graduating students and to faculty research. An argument is presented to show that basic science research at universities is taking on added significance in the regional economic growth process, rather than being rendered obsolete by the shift in the loci of advanced research towards private research centres, corporate R&D, research hospitals, government laboratories and think tanks. References: 1. Goudie, A., The Human Impact on the Natural Environment, 4 th Edition, Paperback, UK, Gouldson A., Peter Roberts (Editor), Integrating Environment and Economy: Local and Regional Development Through Ecological Modernisation Publisher: Routledge, USA., Pearce, D., Sustainable Agricultural Development and Project Appraisal, European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 17(2) 4. Sagoff, M., On Teaching a Course of Ethics, Agriculture and Environment, Ethics 22 (1) 5. Roberts, P., Economic restructuring, regional development and the environment: ecological modernisation and the European Union's Structural Funds, International Journal of Environment and Sustainable Development, Volume 2, Number 3,Department of Civic Design, University of Liverpool, 74, Bedford Street South, Liverpool L69 7ZQ, UK, 2003 ISSN: ISBN: