Economics 101

Think about the last time you spent money on something or considered spending money on something, even if it was something small and seemingly inconsequential. Then I want you to think about why you made the decision you did. Did you spend the money or not? What was your motivation? What factor(s) did you take into consideration? I’ll do the same.

As I write this, the last thing I thought about spending money on was a small table at a used furniture store (true story). I have been needing (okay, wanting) a small table for my front porch for a little while now. I thought this table looked nice and was kind of unique. I also liked that is was a used item, and the purchase supported a non-profit organization. I considered the fact that I was on my way somewhere else and had my dog in the car and had to be able to fit the table in the car without crowding the dog too much or making it dangerous for him to be in the car. I also considered whether or not the rest of my family would like it, in particular, my wife. Of course, I also considered how much money it would cost ($10). After taking all of this into consideration, I purchased the table.

Not the most interesting story, I know. But this is a small illustration of the fundamental theory behind the system of economics that we’ve been using for the past 150+ years. Namely, that people make purchases based on weighing the personal costs and benefits given the information they have available to them. In a perfect world, consumers know everything about a product, the benefits they will receive from it, and how it compares to similar products. (This is generally not a reasonable set of assumptions, but that’s another story that we will address later in this course.) All of these combined add up to the private benefit - which economists call the private utility, or simply utility - of the good. They also consider the private cost, which includes at least the price, but could also include other factors such as inconvenience. This process would appear to most people to simply be common sense, and most likely this system of thought is what led you to buy or not buy whatever it is you were considering in the thought experiment above.

There is another side to this transaction. Whoever offered to sell you the good almost certainly decided on a price based at least on how they could maximize their profit (or at least make a profit). Again, this makes sense and is how most businesses run. There is a balancing act between what consumers want, what the "going price" is, how much it costs the business to procure and sell it, and so forth. Nothing wrong with being motivated at least in part by profit – if a business does not make money, they will not be in business for very long, after all! The merchant from whom I purchased the table was able to offer a very low price because the item was donated, the business was partially staffed by volunteers, it gets tax breaks from being a non-profit, and so forth.

You’re probably wondering if there is a point to all of this. Well, can you think of anything missing from this equation? Are there any costs or benefits missing from this decision-making process? Think about it, then hold that thought and watch the video below. You are required to watch the first 3:20 of the video (intro and negative externalities), as well as 5:06 - 6:22 (positive externalities). A summary of the key points can be found below. The rest of the video is optional.

Externalities

The OECD offers a reasonably good, concise definition of externalities:

Externalities refers to situations when the effect of production or consumption of goods and services imposes costs or benefits on others which are not reflected in the prices charged for the goods and services being provided

As noted in the video, there are usually external costs and/or external benefits to transactions. External costs and benefits are borne by people or other entities that had no input on the transaction and were not fully included in the price. A negative externality occurs when an external cost occurs, and a positive externality occurs when an external benefit occurs.

Pollution is a classic example of a negative externality, as noted in the reading (and later in the video). Most pollution - particularly air pollution - is emitted without the emitter paying for any negative consequences of the pollution. These costs could be in the form of respiratory problems caused by power plant particulates, loss of beautiful vistas because of smog from car exhaust, the climate change impact of carbon dioxide from a home furnace, or any number of problems. The reading from the OECD notes that roads may have positive externalities (making it easier to get to work or school, etc.), but keep in mind that they usually have some negative externalities as well, such as air pollution, noise pollution, possibly extra traffic, and more. The point is that many of these costs and benefits happen to actors that were not involved in the decision to emit the pollutants, but that they were not compensated for (or did not have to pay for them, in the case of benefits), and were not included in the price of the good (e.g., the cost to build the road), thus making them externalities.

Dr. Paul M. Johnson of Auburn University provides a little more specificity to this definition:

An externality is "a situation in which the private costs or benefits to the producers or purchasers of a good or service differs from the total social costs or benefits entailed in its production and consumption."

The narrator in the video also points this out when she says that a negative externality occurs when social cost exceeds private cost, and a positive externality occurs when the social benefit exceeds the private benefit. If an external cost is incurred by someone outside of the transaction, and that cost is fully integrated into the cost of the product, then by definition no positive or negative externality occurs. (Note that it is nearly, if not completely, impossible to fully integrate all costs and benefits into an action. But if they could be integrated, some economists still consider them externalities because they are "external" to the transaction. They would just be neither positive nor negative.)

Air pollution from a factory is considered an externality because certain costs to others that may be incurred - such as people getting sick from the pollution and missing work and paying for doctor's bills - are not paid by the factory. Even if the factory owner gets a small fine, if that fine is less than the external cost, then it is still an externality. It's difficult to imagine an external benefit to air pollution, but maybe there are people out there that enjoy asthma attacks and diminished lung capacity. (Who am I to judge?) If a state builds a road, neither all of the negative (e.g., noise and air pollution) nor the positive (e.g., decreased commute time, increased economic activity) are fully integrated into the cost of the road, and externalities abound.

Back to my table. Can you think of any externalities that may have resulted from it? It is probable that the steel, which is mostly iron, was mined somewhere. There may have been some chemical runoff from the mine that affected local people or wildlife. Manufacturing steel requires a lot of energy, usually from coal. This causes emissions, including carbon dioxide, that can affect local people and wildlife, and likely contributing to climate change. Even if there is a small effect on climate change, it is still an externality. Perhaps the coal mine acidified the local water supply, compromising the local fish supply. The table was probably shipped somewhere, which would have caused emissions. There are more, but you get the point. It is very important to remember that for purposes of this course, these costs are negative externalities if they are not fully integrated into the cost of making, and therefore buying the product. For example, if the company that mined the steel paid a fine equivalent to the damage from the pollution, then it was likely included in the cost. That is possible, though unlikely. If nothing else, the emissions that resulted from this whole process are almost certainly not integrated into the cost (more on this later), and so there are some externalities involved.

There are likely positive externalities as well. Perhaps the iron mining company brought jobs to the local economy, and the people earning wages spent the money on other businesses. These other businesses indirectly benefited from the mining of the iron. Perhaps the mining company built some local roads that facilitated business and allowed people to more easily visit family. Closer to home, my beautiful table is sitting on my front porch and makes my neighbors happy when they see it (I might have made that up), which is a positive externality. But if it makes them jealous, that is a negative externality (also not likely).

Figure 2.2: Who would have thought this table had so many economic and sustainability implications?

Photo credit: D. Kasper

One more thing: As mentioned in the video, goods/actions with negative externalities are usually overproduced. This means that more of it is produced/done than is socially optimal. In other words, if there were no externalities, every impact would be reflected in the price, and less of the good/action would happen because it would be more expensive than it would be otherwise. For example, if all of the negative impacts from pollution were added to the cost of generating the pollution, then it would be more expensive to pollute, and less of it would occur. Conversely, things with positive externalities tend to be underproduced. An example of each follows:

• If the producer of the steel for the table was forced to pay the external costs associated with pollution, then the cost to manufacture them would go up and they would probably sell fewer tables. But, if they do not have to pay the external costs, they could produce and sell more, because they would be cheaper. Thus, the table is overproduced (more are made than is best for society) if external costs are not accounted for. In short, society is forced to endure these external costs because they are essentially free to the steel producer.
• Education is the classic example of an underproduced good. There are many societal benefits to having an educated populace - lower crime rates, better economic competitiveness, more innovation, etc. (The External Benefits of Education is one study that provides a description of these and more.) Often, these benefits are not fully included in the cost of education. If all of these benefits were included in the cost, the cost of education would be lower than it is, and more people would pursue it. Thus, less education is provided than would be best for society.

Good to Know: The True Cost of Fossil Fuel Combustion

The climate benefits of reducing fossil fuel combustion are essential sustainability considerations. However, there are many other negative externalities associated with fossil fuel use. There is increasing awareness of the negative health impacts of fossil fuel use, in particular due to PM 2.5 (particulate matter less than 2.5 microns in diameter) because they are small enough to get into lung sacs and even the bloodstream. The following are examples of recent research related to this. These are negative externalities because the costs are not included in the price of fossil fuels:

• "...researchers from Harvard University and the Universities of Birmingham and Leicester in the U.K., found that, worldwide, 8 million premature deaths were linked to pollution from fossil fuel combustion, with 350,000 in the U.S. alone." They found impacts on rates of "cancer, heart attacks, asthma, and dementia, as well as higher death rates from COVID-19." (Source: Harvard T.H. Chan School of Public Health.)
• The Energy Policy Institute of Chicago estimates that air pollution "take 2.2. years off of global life expectancy." Most of this pollution comes from fossil fuels. This reduces more life expectancy than smoking, alcohol use, HIV/AIDS, and malaria. See image below for specifics. (Source: CNBC)

Life expectancy of air pollution comapred with other causes of harm to human health

Click Here for Text description of the image above.

This image is a bar chart titled "Life Expectancy Impact of PM₂.₅ and Unassociated Causes/Risks of Death, Global."It visually compares the average years of life lost due to various global health risks, with a focus on fine particulate air pollution (PM₂.₅).

The x-axis lists eight causes or risk factors:

• PM₂.₅ Relative to WHO
• Smoking
• Alcohol Use
• Unsafe Water and Sanitation
• Road Injuries
• HIV/AIDS
• Malaria
• Conflict and Terrorism

The y-axis measures the years of life expectancy lost, ranging from 0 to 2 years.

The chart shows that:

• PM₂.₅ pollution causes the greatest reduction in life expectancy, at approximately 2 years, exceeding all other listed causes.
• Smoking follows closely, with just under 2 years lost.
• Alcohol use results in about 0.75 years lost.
• Unsafe water and sanitation contribute to around 0.6 years lost.
• Road injuries account for about 0.5 years lost.
• HIV/AIDS causes a loss of approximately 0.4 years.
• Malaria results in about 0.3 years lost.
• Conflict and terrorism have the smallest impact, with less than 0.1 year lost.

A caption below the chart reads:
"Life expectancy of air pollution compared with other more well-known causes of harm to human health, like smoking and terrorism. Chart courtesy the Energy Policy Institute at the University of Chicago (EPIC)."

Source: CNBC

Quantifying Externalities

Hopefully, this makes sense to this point. Most, if not all, economic transactions have externalities, which may be positive or negative. These externalities may have a direct economic cost/benefit associated with them (e.g., hospital bill from an asthma attack that occurred because of car exhaust fumes) or a non-economic cost/benefit (e.g., the sense of freedom I got while driving the car that contributed to the asthma attack). These are real impacts on real people that are not included in the cost of the transactions that led to the externalities. You could probably list a few more externalities from driving, but that's really the easy part. Think about this for a minute: How would you go about quantifying the externalities? More specifically from the example above, how would you quantify the external costs of one gallon of gasoline burned in a car engine? How about the total external cost of generating electricity with a coal-fired power plant? Think about all of the complex calculations you would need to perform, and also how many assumptions you would have to make. Fortunately, I will not ask you to do that, because it goes well beyond the scope of this course. Also, this is actually a major avenue of research, and so numbers are available.

The Social Cost of Carbon

Without getting into the specifics about the causes of climate change (that will be covered in the next lesson), let's take a look at climate change as an externality. As you will see in the next lesson, if the climate continues to change, the impacts will be overwhelmingly negative. Quantifying these costs is an active area of research, but many countries - including the U.S. - have placed an "official" cost on the emission of carbon dioxide (this is used to calculate the cost of new legislation). Under the Obama administration, the U.S. federal government used a social cost of carbon (SCC) of $42 per ton of carbon dioxide. (Not surprisingly, the first Trump administration lowered the SCC less than $5, and the Biden Administration had initially set it at $51/ton, but increased it to $190/ton in 2023. Not to be outdone the second Trump Administration is proposing to eliminate it entirely.) A 2015 study out of Stanford University found that the SCC should be closer to 220 dollars/ton and research published in 2022 foudnt hat it should be $185 per metric ton. In 2013, major corporations integrated the cost of carbon emissions into their projects (between 6 dollars and 60 dollars/ton), though they use some different considerations than SCC, and by early 2021, over 500 companies worldwide had integrated SCC internally, with almost as many more planning on integrating one within the following two years.

Calculating the Social Cost of Carbon

Please note that you are not required to fully understand the calculation below, but you do need to understand how assumptions regarding SCC could impact the cost of electricity in general, as well as the implications for using natural gas vs. coal to generate electricity. This technique could be applied to anything that causes carbon dioxide emissions.

Are you wondering how much CO₂ is emitted by various energy sources, so you can calculate the SCC? For example, how much would each kilowatt hour of electricity cost if the cost to society (read: externalities) were included? If you have, you've come to the right place! The carbon dioxide emissions that result from electricity generation vary significantly by energy source, so we'll start there, then apply the assumptions for actual financial cost of carbon as outlined by the two sources referred to above. Note that the information in the table below takes into consideration the average efficiency of each type of power plant (the same power plant efficiencies from Lesson 1, by the way):

Figure 2.3: Average carbon dioxide emissions per kWh generated by various fuel sources in the U.S. click for a text description

Average carbon dioxide emissions per kWh generated by various fuel sources in the U.S.

Fuel	Pounds of CO2 per Million Btu	Heat rate (Btu per kWh)	Pounds of Co2 per kWh
Bituminous Coal	205.300	10,089	2.07
Sub-bituminous Coal	212.700	10,089	2.15
Lignite Coal	215.400	10,089	2.17
Natural Gas	117.080	10,354	1.21
Distillate Oil (No. 2)	161.386	10,334	1.67
Residual Oil (No. 6)	173.906	10,334	1.80

Credit: U.S. EIA (public domain)

What is the SCC of a kWh of bituminous coal vs. natural gas at different SCC rates (37 dollars/ton vs. 220 dollars/ton)? In other words, based on the number of pounds of CO₂ are emitted when burning coal and natural gas, and assuming that the total cost to society of one ton of CO₂ is either $37 or $220, how much more would we pay per kWh if these external costs were integrated into the price of that kWh?

As you can see, there is a huge difference in the social cost of electricity, based on the social cost of carbon assumption used. And also note that less carbon-intensive fuel sources would cost less than higher-intensity sources. (This is the basis of a carbon tax, by the way!)

The point of all of this discussion of different social costs of carbon is not that one calculation is better than the other, but that climate change is increasingly being recognized as having a real cost, but much of that cost will be borne in the future and is thus an externality. Even current external costs are largely borne by people that did not make the decision to pollute. This all, of course, ignores the noneconomic costs of climate change, which could be substantial.

Summary

Almost everything that is bought and sold has externalities. Some are more impactful than others. Externalities – negative externalities in particular – are very important considerations in sustainability. By definition, they are not included in the cost of goods. The cost of goods drives our economy, and our economy is a (and many would argue the) dominant force in society. It’s easy to see that if the dominant force in society is not accounting for all costs to society, we might have some problems. Many of the issues discussed in this and the next lesson are the results of externalities - climate change included.

There is a lot of material on this page, so here is a summary of the key points:

• An externality is a cost or benefit of the production or consumption of a good or service that is not included in the private cost/benefit of that good or service.
• An external cost (e.g., damage from pollution) not included in the price is a negative externality. An external benefit (e.g., social benefits of education) that is not included in the price is a positive externality.
• If all external costs and/or benefits are included in the price, then most economists believe that no externality has taken place. Everyone that is impacted is properly compensated. (This is very rare!)
• Goods and services with negative externalities tend to be overproduced, meaning that more are produced than is socially optimal. This is because the private cost of the good/service is less than the total (social) cost, i.e., it is cheaper than it should be.
• Goods/services with positive externalities tend to be underproduced because the total (social) benefit is higher than the private cost, i.e., it is more expensive than it should be.
• The direct short-term external costs of energy generation can be significant, due to health problems and other issues. In other words, if external costs were included in the price of fossil fuels, they would be more expensive. However, in some emerging economies, these external costs may be overcome by the positive benefits of having more energy.
• Climate change is considered a negative externality, because the impacts of emissions are felt by people that did not cause the emissions. Most of these costs are in the future.
• The social cost of carbon (SCC) is an attempt to quantify the external cost of emitting CO₂. This is very difficult to do but has been quantified in terms of dollars per ton of emissions. By using dollar per ton, the cost of a kWh of electricity, gallon of gasoline, ccf of natural gas, etc. can be calculated.
• The intent of using SCC is to integrate the external cost of carbon emissions into the price of things that cause these emissions. This would make them more expensive but could more accurately reflect the true cost.

In simple terms, there are two fundamental quantities a business (or individual) needs to know to determine if they are making or losing money: how much money is going into the budget (revenue) and how much is going out (expenses). If revenue exceeds expenses, then the business makes money. If costs exceed expenses, the business loses money. A business cannot lose money forever. Eventually, it will not be able to sustain itself.

The same principle applies to most natural resources in two fundamental ways:

1. I think we can all agree that the earth has a limited ability to produce natural resources such as trees, fish, crops, meat, fresh water, and so forth. If we harvest resources faster than they are replenished, the supply will diminish. You've probably seen images of clear-cut forests, read about places that are running out of fresh water, and heard about crop shortages, as well as other symptoms of overuse of resources.
2. The earth also has a limited capacity to absorb carbon dioxide and other wastes/emissions. We can see the immediate result of exceeding that limit because we know that the concentration of CO₂ in the atmosphere is increasing. But the bottom line is that if we emit wastes faster than they can be reabsorbed, they will accumulate in the environment.

Lesson 3 provides a lot of examples of the symptoms of overuse of natural resources, but for now, I'd like you to reiterate these two following basic truths:

1. When a resource has a limited capacity to be replenished, if it is harvested faster than it is replenished, it will diminish.
2. When waste is emitted faster than it can be absorbed, it will accumulate in the environment.

Figure 2.4: The concentration of carbon dioxide in the atmosphere has been directly measured since 1958, increasing from just above 315 parts per million (ppm) in 1958 to over 420 ppm currently. At a fundamental level, this increase is due to more carbon being emitted into the atmosphere than pulled from it.

Click Here for Text Alternative for Carbon dioxide Chart

This image is a scientific graph titled "Atmospheric CO₂ at Mauna Loa Observatory," which presents a detailed record of atmospheric carbon dioxide (CO₂) concentrations over a 60-year period, from 1960 to 2020. The data is plotted as a continuous red line that shows a clear upward trend, indicating a steady increase in CO₂ levels in the Earth's atmosphere over time.

The y-axis of the graph represents CO₂ concentration in parts per million (ppm), ranging from 320 ppm to 420 ppm. The x-axis spans the years from 1960 to 2020, marking each decade. The red line not only trends upward but also displays seasonal oscillations, which are small, regular fluctuations caused by natural seasonal cycles—primarily the growth and decay of vegetation in the Northern Hemisphere.

The graph is based on data collected at the Mauna Loa Observatory in Hawaii, a key site for long-term atmospheric monitoring. The data sources are credited to the Scripps Institution of Oceanography and the NOAA Earth System Research Laboratory, both of which are prominently listed below the title. In the bottom right corner, the logos of both institutions are displayed. Additionally, the date "August 2019" is printed vertically along the right edge of the graph, indicating the most recent data point or the publication date of the chart.

Image Credit: National Oceanic & Atmospheric Administration

Just as a business that loses more money than it makes runs a deficit, when humans overuse the capacity of the earth to replenish resources, it could be said that these places are running an ecological deficit. It stands to reason that if we could figure out our planetary capacity to generate natural resources (aka our "budget" or "revenue" of natural resources) and compare it to how much of that capacity we use (aka our "costs"), we could determine if we are losing or gaining ecological capacity. Luckily for us, some people have been working on this for the last decade or so and have come up with the concept of ecological footprint.

Figure 2.5: Overharvesting of natural resources. This is a simple example of how renewable but limited resources can be diminished. If you start with five trees and harvest three of them while one grows back, you are left with three trees. If you then harvest three more of them while one grows back, you are left with one tree. This is obviously not sustainable, regardless of the scale or resource, as long as that resource has a limited capacity to regenerate itself.

Image Credit: D. Kasper, tree images courtesy of GoodFreePhotos

"Ecological Footprints estimate the productive ecosystem area required, on a continuous basis, by any specified population to produce the renewable resources it consumes and to assimilate its (mostly carbon) wastes."
~Jennie Moore and William Rees, "Getting to One-Planet Living", p. 40

Dr. Wackernagel sums up the goal of ecological footprint analysis by asking a simple question: "How will we be able to maintain the success (of our society) in the future?" The ecological footprint is based on the recognition that humans depend on the earth's natural resources for survival, and that our "success" is predicated on the ability of the earth to replenish natural resources through time. In the simplest terms, the question we need to answer is:

• "How many resources do we have that renew itself...and how many do we use?" as Dr. Wackernegel mentions.

We only have one earth, and this one earth can only regenerate so many resources in a given year (produce food, filter water, pull carbon dioxide out of the atmosphere, etc.) - this is our stock of resources. How can we use this information to determine whether or not we are overusing natural resources? In principle, it's relatively simple: If we compare the number of resources that are provided each year by the earth (one "earth") to the amount we use (our global ecological footprint), we can determine whether or not we are living within our ecological budget.

There are many implications of this, but there are two fundamental ones:

1. If our global ecological footprint is one earth or less, we are living sustainably from the perspective of ecological footprint (note that this says nothing about the quality of life of people on the planet or the survival of specific species).
2. If the global ecological footprint is greater than one earth, then the stock of biocapacity will diminish over time.

If biocapacity diminishes, eventually ecosystem collapse will occur, and ultimately societal collapse as well. This is what scientists refer to as a "very bad thing."

The bad news is that according to the Global Footprint Network, humans have been living beyond their ecological means for about 40 years now, as the chart below shows. The good news is, uh <checking notes>, well unfortunately in terms of global ecological footprint, there is very little good news. Just about every country across the world has an increasing ecological footprint.

Figure 2.6: Global ecological footprint through time. According to the Global Footprint Network, humans began to use more than one earth's worth of resources in the 1970s. The horizontal red line indicates an ecological footprint of 1 earth. Under current levels of consumption, we would need about 1.8 earths to sustain ourselves indefinitely. Note that this image indicates the contribution of various sectors to ecological footprint with color-coding. You can visualize and download the data here.

Click here for a text description

This image is a multi-layered area graph titled "World Ecological Footprint by Land Type." It visually represents how humanity’s demand on Earth’s ecosystems—measured in terms of the number of planet Earths required to sustain human activities—has changed over a 50-year period. The x-axis spans from 1961 to 2019, while the y-axis quantifies the ecological footprint ranging from 0 to 25 billion hectares. There is a horizontal red line showing .

The graph is composed of stacked colored layers, each representing a different component of the ecological footprint:

• Light purple: Carbon
• Blue: Fishing grounds
• Yellow: Cropland
• Orange: Built-up land
• Dark green: Forest products
• Light green: Grazing products

A horizontal red line is drawn at the 12 billion hectares mark on the y-axis, symbolizing the ecological threshold—i.e., the point at which humanity’s resource consumption matches Earth’s capacity to regenerate those resources in a year.

The graph shows that in 1961, humanity was using less than one Earth’s worth of resources. Over time, the total ecological footprint steadily increased, surpassing the one-Earth threshold in the early 1970s. By 2019, the footprint had grown to nearly 1.8 Earths, indicating that humanity was consuming resources at a rate 80% faster than the planet could regenerate.

The carbon component, shown in light purple, is the most dominant and fastest-growing segment, making up 60% of the total ecological footprint by 2019, according to the Global Footprint Network (2025). Other components such as cropland, forest products, and grazing land remain relatively stable, while built-up land and fishing grounds show modest increases.

Image Credit: Global Footprint Network, 2025

The Global Footprint Network (GFN) created another way to illustrate the same phenomenon by publishing the annual "Earth Overshoot Day." Earth Overshoot Day indicates the date in a given year after which humanity starts using more than a sustainable level of natural resources. As the GFN puts it: Earth Overshoot Day is when "we began to use more from nature than our planet can renew in the whole year." So, an earlier Earth Overshoot Day means that we are using up our resources faster. In 1972 it was on December 31st, but has been slowly creeping backward, almost without exception, since then. Fast forward to 2016, this happened on August 8th. Pretty sad, right? Well, unfortunately in 2017, this occurred on August 2nd, and in 2019 it was July 29th! This is not the kind of downward trend sustainability-types like yourselves want to see. For the first time in decades, Overshoot Day moved back about two weeks (to August 9th) in 2020, but it was at the cost of millions of deaths and countless lives ruined. The good-ish news is that we have been "stuck" around July 24th/25th since 2022, including in 2025. To see Earth Overshoot Day since 1971, see this page from the Global Footprint Network. 

Unfortunately, an Overshoot Day of late July means that our global ecological footprint is 1.8 earths. See the image below for a graphic of the Earth Overshoot Day over time.

Figure 2.7: Earth Overshoot Day since 1971. The red areas indicate how long we are in overshoot for the year. Note also the indication that we use 1.8 "earths" of resources each year.

Image Source: Global Footprint Network

Sustainable Yield Natural Resource Management

While humans are unfortunately overusing resources on a global scale, it is not all bad news. If the natural replenishment rate of a renewable resource is known, then it is possible to harvest them at a sustainable rate. How can this be done? I want you to think about this for a minute before moving on. (Maybe take a look at Figure 2.4 for some inspiration.) 

Okay, here's the oh-so-elusive secret: If you want to maintain a supply of renewable natural resources, don't harvest them any faster than they can be naturally replenished. This practice is generally referred to as the principle of sustainable yield (you might also see it referred to as "maximum sustainable yield" or "sustained yield"). This is a pretty self-descriptive term, but Encyclopaedia Britannica provides a concise definition:

Sustainable yield "can in principle be maintained indefinitely because it can be supported by the regenerative capacities of the underlying natural system."

This can in theory be done for any renewable natural resource in order to maintain a steady supply over time. This is most often thought of in forest management and fisheries management but can be applied to any resource (e.g., soil, water, animal populations, plant populations). There are numerous examples of this in practice. For example, most of Sweden's forests are harvested using sustainable yield practices, and in fact, the total amount of forest has been increasing since at least the 1950s. Some forest areas under U.S. federal jurisdiction are required to be managed using sustainable yield practices, and the Maine lobster industry has been maintained for well over 100 years because of sustainable yield practices.

Please also keep in mind that - as indicated above - the same principle applies to emissions/pollution. If pollution is emitted faster than it can be safely absorbed, it will build up in the environment and/or cause damage to the environment. Rising CO₂ levels are one example of this.

Figure 2.8: Sustainedyield forestry. If the rate of regeneration is known, and resources are harvested no faster than that, the resource can be sustained over time.

Click for a text description of figure 2.8.

Unsustainable Forest Management: Illustration showing that if you cut 3 out of 5 trees down and 1 grows back, you have 3 trees left, then if you cut 3 more down and 1 grows back, you have 1 left.

Sustained Yield Forest Management: Illustration showing that if you cut down 1 of 5 trees and 1 grows back, you have 5 trees left. Then, if you cut down one more and 1 grows back, you still have 5 trees left.

Image Credit: D. Kasper, tree images courtesy of GoodFreePhotos

It is very important to note a few caveats regarding sustained/sustainable yield management:

• It can be very difficult to determine exactly how much of a resource is regenerated in a given time period. It is particularly difficult for large, dispersed resources such as fish and wild animals.
• Even if the rate of replenishment is known, it can be very difficult to make sure everyone respects that limit. Again, open ocean fishing is a good example of this because there are thousands of fishing boats spread across the world, and not one single entity oversees them.
• Even if a given resource is harvested at a sustainable rate, there may be other problems associated with that harvest. For example, industrial fishing operations - whether or not they take out too many fish - often cause incredible damage to wildlife and the ocean bottom. Here is a paper that describes some of these issues in fisheries management.

Overshoot and Collapse

How much longer can we continue to live beyond our ecological means? Unfortunately, there is no way to know. As Moore and Rees put it in the optional reading: "System collapse is a complicated process...We may actually pass through a tipping point unaware because nothing much happens at first" (p. 41). There is a phenomenon, most often used in biology/ecology, called overshoot and collapse that can help us understand some of the risks involved with overusing renewable resources and passing through such "tipping points."

Overshoot and collapse can occur when there is insufficient immediate or short-term feedback to prevent an organism from acting against its own self-interest. If widespread human suffering occurred because of ecological overuse and it could be proven that resource overuse was the cause, it is likely that we would try to do something about it.

Of course, suffering is happening now, some of which is due to resource scarcity, but apparently not enough for us to address it. Regardless, it is possible to use more than our allotted biocapacity and survive, at least for a while. What's scary is that no one knows exactly how long we can keep using resources at this rate without reaching a tipping point. It may be 10 years, maybe 20 years, maybe even 50 years (very unlikely). It depends on a lot of factors, but one of the main problems is that by the time we realize collapse is occurring, it may already be too late to do anything about it. That is the "collapse" part of "overshoot and collapse." On St. Matthew Island, by the time the deer started running out of lichen to eat, it was too late. Humans are of course much more resourceful than reindeer (one would hope so, anyway), but there are likely tipping points that are points of no return. Chief among these are climate change and biodiversity loss, which will both be addressed in future lessons.

If you haven't done this already, the next time you hear or read an economic report, or hear a politician discuss economic policy, pay attention to how much focus is on growth. The Covid relief bill a few years ago is a prominent example. "Economic growth" was cited as one fo the primary reasons for the bill. One of the major economic concerns expressed with regards to the Covid-19 pandemic wa "contraction," i.e. negative growth. This is not an aberration! We hear the phrase "economic growth" so much that the attempt to achieve it is taken as a given. This cuts across political (Republican, Democrat, Independent, etc.) and international boundaries, by the way.

But have you ever thought about what the implications of a permanent state of economic growth are, or if it is even possible? Renowned economist Herman Daly - who, among other accolades received the prestigious Right Livelihood Award, aka "the alternative Nobel prize", in 1996 - provides a concise explanation of the inadequacies of the notion of "sustainable growth" in the article below.

The Steady State Economy

There are a lot of good points made in the article, but the overarching one is:

"An economy in sustainable development...stops at a scale at which the remaining ecosystem...can continue to function and renew itself year after year" (p. 45)

This should sound very familiar! It coincides neatly with the concept of ecological footprint. (I'll leave you to think about what this means in terms of global ecological footprint, i.e. 1 earth, less than 1 earth, etc.) He describes this point (an economy in sustainable development) as the optimal scale for the economy, and that optimal scale is never addressed when discussing macroeconomics(p. 46). In other words, economists (and by extension, politicians) do not discuss the best (optimal) size of the economy, only focusing on growing it as large as possible. Think about this next time you read or hear a story regarding economic growth.

Another essential concept is that Daly is careful to point out the difference between growth (getting "bigger") and development (getting "different"). The economy and society can develop forever, but cannot grow forever. A developing economy is not stagnant, even if it is not growing. Money will change hands, services will be provided, goods will be made, etc. An economy cannot grow forever, however, because it is a subset of the earth, and is subject to the physical limitations that the earth's biocapacity provides. This is a fundamental principle that should be considered when discussing economic growth and economic sustainability, and it also aligns closely with the notion of ecological footprint.

The whole article is important, but a few other highlights I'd like to point out are:

• He states from the outset that "sustainable growth is impossible" (p. 45). Simply put, as long as the economy is based on the unsustainable use of natural resources, economic growth cannot be sustained indefinitely.
• Sustainable development is possible only if it exists within a system that is "maintained in a steady state by a throughput of matter-energy that is within the regenerative and assimilative capacities of the ecosystem" (p. 45). I.e. (again, this should sound familiar), we can only use resources at a rate no faster than they can be replenished, and cannot emit wastes any faster than they can be safely absorbed into/assimilated by the natural environment.
• He notes that growth has "almost religious connotations of ultimate goodness" (p. 45). This was addressed above. It is beyond rare to hear someone publicly state that growth is not necessary.
• On p. 46, he is clear that one of the primary goals of the economy should be to alleviate poverty, but that simply growing GDP (or GNP) will not make that happen without some guidance and/or policies.
• He offers a few relatively straightforward policy solutions on pp. 46 - 47:
  • Tax resource extraction and use the money to reduce income tax, particularly at lower income levels. (Side note: This is referred to as a revenue-neutral tax because all of the revenue is given back to the people, not the government. A revenue neutral carbon tax has been proposed by more than one bipartisan group. See the link to the Citizens' Climate Lobby, and this one to the Climate Leadership Council, if you are interested in learning more.)
  • "Renewable resources should be exploited in a manner such that: (1) harvesting rates do not exceed regeneration rates, and (2) waste emissions do not exceed the renewable assimilative capacity of the local environment" (p. 47). Sorry to sound like a broken record, but these should sound familiar.
  • Finally, he proposes that: "Non-renewable resources should be depleted at a rate equal to the rate of creation of renewable substitutes" (p. 47). For example, for every 1,000,000 Btu's of fossil fuel used, we should find a renewable source of 1,000,000 Btu's. He suggests supporting this by taxing non-renewables and using the funding to develop renewable substitutes.

All of the above summarizes the concept of the steady state economy.

There are a few important/interesting things I'd like to note from the reading and video:

• First, a steady state economy is an "economy of stable or mildly fluctuating size...[and]& entails stabilized population and per capita consumption." Also, that: "To be sustainable, a steady state economy may not exceed ecological limits."
• They note that: "GDP is not a good indicator of well-being, but is a solid indicator of economic activity and environmental impact." They recognize that GDP is limited in its usefulness. They indicate in a briefing paper many of the reasons GDP is inadequate and offer alternatives. Overall, they are very skeptical of the viability of GDP as an true economic and quality of life indicator. This is something we will discuss in a future lesson.
• As Daly does, they differentiate between growth and development. "Economic growth is distinguished from economic development, which refers to qualitative change independent of quantitative growth. For example, economic development may refer to the attainment of a more equitable distribution of wealth, or a sectoral readjustment reflecting the evolution of consumer preference or newer technology."
• "Theoretically and temporarily, a steady state economy may have a growing population with declining per capita consumption, or vice versa, but neither of these scenarios are sustainable in the long run...It also has a constant rate of throughput; i.e., energy and materials used to produce goods and services." the economy and resource use are able to grow until a certain point. There is a maximum size at which a steady state economy may exist based on the capacity of the earth to supply natural resources. Once this maximum is achieved, growth must stop, lest natural resource capacity be diminished.
• They point to technology as a source of efficiency that can reduce the physical resources needed to produce goods and services. Efficiency is an essential component of steady state economics because it allows us to reduce our ecological impact. However, there are physical limits to this. As the economy converts raw natural resources into other products, some waste is generated along the way. The waste is usually difficult, if not impossible, to convert back to its original form. Think of how difficult it would be to make sawdust back into a tree; carbon dioxide, water vapor, and heat back into coal; plastic back into oil; and a silicon microchip back into grains of sand. As the economy chugs along using resources faster than they can be replenished, the natural system degrades. This imposes limits on what we can do in an economy.
• As Daly says in the video, achieving a steady state economy does not mean the quality of life must decrease, or even stay the same at a certain point. Qualitative (type; character; quality) improvements can continue while quantitative (amount; quantity) increase stops. In fact, as you explore the CASSE website, you find out that they believe that achieving a steady state economy will improve the quality of life for current and future generations and that quality of life is a major goal of the steady state economy.
• Proponents of the steady state economy have poverty alleviation as a primary concern, as well as ecological overshoot. The three main concerns of a steady state economy are "sustainability, equity, and efficiency."
• They note that: "Neither economic growth nor economic recession are sustainable; therefore, the steady state economy remains the only sustainable prospect and the appropriate policy goal for the sake of sustainability." They view the steady state economy as the only sustainable way to organize an economy.

Some other points that are important to note about the steady state economy. (This is from a reading by CASSSE that has unfortunately disappeared from the internet, but the points are important.)

• The authors are clear that a steady state economy can only be reached by regulating of the market, which is a primary reason that many economists are critical of them. BUT they also state that "ecological economists support many market strategies to accomplish efficient allocation of resources". They recognize that markets are very good at efficient resource use, but are only useful "after achieving sustainable scale and fair distribution."
• To reiterate an earlier point, note that Daly and CASSE are not saying that economic growth has to stop now, but that it must stop at a point at which the earth is capable of renewing its natural resources indefinitely. If we can grow the economy while maintaining a steady state of natural resources, then hey, have at it! But at this point, all we have is one earth to pull resources from, so we must obey its laws.
• (Optional) The "history" section mentions more than a few well-known figures in the history of economics, including Adam Smith, John Stuart Mill, John Maynard Keynes, Nicholas Georgescu-Roegen, and E.F. Schumacher. Some of them are seen as controversial in some circles, but all of them are notable. Worth looking into if you are interested in economic history and ideas.

Make no mistake: being on record as saying that the economy must stop growing at some point is anathema to the core of mainstream thinking about how economies should work. It will not win you many friends in the policy or economic world, and certainly won't get you elected to public office (in the U.S., anyway). But the logic is hard to argue with.

Free Market Environmentalism

It should not be difficult to recognize that humans are subject to the physical constraints of planet earth. But how we make sure that we do not exceed our limit to the point of collapse (e.g., overshoot and collapse mentioned previously) is something that is debated, even by people with seemingly the same end goals. There is a branch of environmental (well, it's primarily economic) thought that is based on the power of free markets to most efficiently manage resources. This is often called free market environmentalism (FME). Those who advocate for FME believe that free markets (economic systems that are free from government regulation) are the best way to solve environmental problems. And, just as important, they believe that the government is much worse at managing resources than the market. This article from the Library of Economics and Liberty (a free-market think tank) summarizes the school of thought pretty well.

As outlined in this article, this school of thought rests on three assumptions in order for markets to work for any environmental good (e.g., a forest, clean water, clean air, etc.): "Rights to each important resource must be clearly defined, easily defended against invasion, and divestible (transferable) by owners on terms agreeable to buyer and seller" (source: Library of Economics and Liberty). In other words, if a piece of property has:

1. clear ownership, and
2. those ownership rights are defensible in court (or elsewhere), and
3. it can be bought and sold freely, it will be preserved.

I would add that (4) the author (and this is typical of FME) also assumes that the owner of the property is motivated to protect the property in anticipation of future profits.

For example, if I own a lake and someone pollutes it, if the courts are just, the polluter will end up paying me because (s)he compromised my ability to enjoy my property. If these conditions are known, then the polluter, in theory, will decide not to pollute in order to avoid the extra cost. As you can see, all of this relies on using money as the motivating factor.

This is a very sound argument as long as those conditions are met, at least in terms of environmental protection. This situation, and variations of it, have been proven effective in a wide array of applications. It worked for water conservation in the Western U.S. And here are a number of case studies demonstrating that these principles can work.

But what if those four conditions are not met? With climate change, a fundamental question is: "Who owns the atmosphere?" (The answer: no one does.) If there is no clear ownership, the system may not work. Let's go back to my lake that got polluted, and think about a few plausible scenarios.

• What if it was impossible to prove where the pollution came from? If it was airborne pollution that is impossible to trace, I am out of luck. I have no one to sue. This is, unfortunately, the case for a lot of types of pollution.
• Even if I had a pretty solid case that the pollution came from a specific source, the owner of that source can probably afford better lawyers than me and could win a case.
• What if I can make more money destroying my lake than preserving it? I could fill it in and build an apartment on it. Or sell it to a chemical company to use as a dumping ground. If I place a certain economic value on my lake, then it stands to reason that I would be willing to destroy it if I could make more money by doing so. I could use the money to move on and buy more property. The case studies noted above hinge on a party or parties agreeing that conservation is necessary.
• This type of system is based on perceived value being real value, which can also cause problems. Biodiversity (which we will go over in the coming lessons) is something that very few people place value on, but is essential for human survival. Also, there are certain goods that are nearly impossible to accurately price, even using Willingness to Pay analysis. Negative impacts on future generations is one that is particularly sticky in this regard. (Remember intergenerational equity?)
• Finally, by basing everything on money, those without money will have less access to the resource. If you recall from Lesson 1, this fits squarely with one of the fundamental sustainability principles (social equity). If I charge people a lot of money to fish in my lake, that may help preserve the lake, but at the expense of equity.

This article from the Property and Environment Research Center - also an advocate for free market environmentalism - goes over a few of these and other examples where the system breaks down.

What is the Solution?

This is a really dense, complicated topic that would take a very long time to fully flesh out. But determining the solutions to critical energy and sustainability problems is not one of the goals of this course, however, recognizing the planet's ability to support life is. One of the main points that I want you to walk away with from this page is that our economy has physical limitations that we must adhere to. The steady state economy is a precondition for environmental sustainability. But it is useful for you to know - especially in terms of critical analysis - that there are multiple possible ways to address this goal. Many - Herman Daly among them - advocate for government policy to solve this problem. Many - like the free market environmentalists - believe that markets and private property are the answer. I am not here to say which school of thought is correct, but my belief based on the evidence is that it is somewhere in between. Perhaps this could be done by having the government cap consumption at sustainable levels and allowing the market to work from there ("cap and trade"), or by using some of Daly's suggestions regarding subsidies and taxes. Cap and trade worked well for the acid rain problem in the early 1990s, for example, and is often cited as a solution to carbon emissions.

There are pros and cons to each approach. Markets are really great at efficiently managing resources that can have economic value attached to them (e.g., copper, oil) but even the most devout free market believers realize that they don't always work. Externalities are a good example of this (e.g., environmental destruction from copper and oil mining, air pollution from burning gasoline). And placing an economic value on something is a double-edged sword - it can, and often does, lead to preservation because of its expense (e.g., private nature parks), but it can lead to destruction if it is not perceived as worth enough (e.g., converting rainforest into pasture land). Private ownership often leads to inequity as well, as those without means are priced out of the access to goods (private education being a prime example of this). But government is generally not good at efficiently managing resources (e.g., the federal government of the U.S.). Overall, it is very difficult to believe that the market, left to its own devices, will achieve the Steady State Economy, especially if history is any guide. This is evidenced by the fact that the global ecological footprint is already at unsustainable levels.

One of the goals of this course is to help you think critically about these issues, so my hope is that when thinking about the information presented here you do so with "clarity, accuracy, precision, consistency, relevance, sound evidence, good reasons, depth, breadth, and fairness" as you will read in the critical thinking section at the beginning of the next lesson (source: The Foundation for Critical Thinking). To do this, you must look at the evidence and use sound logic, minimizing the influence of ideology as much as possible. But as we will also go over in the critical thinking lesson, the more you know about these topics, the better you are able to make a sound critical analysis.

Clearly, there are a lot of ways to think about and measure whether or not we are living sustainably, and we've only scratched the surface in this course. So far, we've primarily examined how to be environmentally sustainable. But what about the other two "E's" of sustainability that were discussed in Lesson 1? If you can't remember what they are, I suggest clicking back to Lesson 1 to refresh your memory.

Remember that one of the overarching goals of this course is to address issues from a humanistic perspective, which, among other things, means that we are concerned about the plight of all human life. And the discussion of equity made it clear that access to resources is an essential component of sustainability. Achieving environmental sustainability is a precondition for establishing this - humans live on the earth and need its resources to survive - but if we fail to address the quality of life of the people living on the planet, we've only won a partial victory. What good is a nice planet if all of the people on it are miserable?

The Inadequacy of GDP

GDP is the most oft-used metric to indicate how a country's economy is doing. But it is also widely used as a general indicator of how a country's people are doing. There is some usefulness to this, as you will see below. But GDP obscures a lot of possible problems (economic, social, environmental, etc.), and does not indicate all of the good things about a society. In short, there are some things that are good for GDP that are bad for people, and there are some things that are good for people that are not necessarily good for GDP. This problem was eloquently described by Robert F. Kennedy in 1968. (No, not that RFK!). It is as relevant today as it was nearly 60 years ago. Hopefully, this will give you some pause when you hear the latest GDP numbers as an indicator of how well a country is doing. Watch his speech below (2:11 minutes)

Good to Know: The Invisibility of Household (Especially Female) Labor

One of the major inadequacies of GDP as an indicator of how society is doing is the invisibility of household labor, which is primarily done by women. According to the OECD, men in the U.S. spend an average of 17.5 hours per week doing unpaid household labor, while women spend (wait for it) 28.4 hours per week! None of this is counted towards GDP. (Related note: If any parent or spouse is a "stay-at-home" mom or dad, please never say that they "don't work." They just don't get paid to work.)

This article from the New York Times provides some interesting visualizations of the gender-based household labor gap across the world, and found that even at minimum wage women across the world would have made 10.9 trillion (!) dollars in 2019 alone. To provide some context, the total global GDP in 2020 was a little under 85 trillion, according to the World Bank. A few other problems with GDP include:

• GDP/cap says nothing about the distribution of income in country.
• GDP/cap ignores the informal economy. (Even Facebook Marketplace doesn't count!)

Figure 2.9: Household labor - such as raising children, gathering firewood, and gathering water - heavily burdens women across the world. According to the United Nations, women in Sub-Saharan Africa spend 40 billion hours a year collecting water.

Credit: SZappi, Simplified Pixabay License

Quality of Life

Quality of life is another one of those terms that is thrown around liberally but has no specific definition. We all want a high quality of life, but what does that mean exactly? I am not here to settle the debate, but I do like the definition from this website: Quality of life is "the extent to which people's 'happiness requirements' are met." I'd add the term "satisfaction" in there as well, as in "are people's 'satisfaction' requirements met?" The same site also notes that "[Quality of life] may be defined as subjective well-being." Nothing is universally regarded as necessary for happiness, life satisfaction, or well-being. For example, I have friends who LOVE to hunt for deer and will sit for hours in a tree stand in the freezing cold, silently waiting for one to walk by. I can think of 1,000 things that I'd rather do than that (all numbers approximate). But to them, that is an important part of their quality of life. Nothing wrong at all with that, by the way - it's just not for me.

Hunting is something that is obviously not universally required for a high quality of life. But I'm sure there are thousands, if not millions, of people who count it as important. But if you think about it, there is nothing that everybody loves to do, so it wouldn't matter which activity I used as an example. So, if we want to measure the quality of life, how do we do it?

Let's go through a quick thought experiment.

• If you could ask everyone in the world up to 3 questions and were guaranteed a response for each one, what would you ask them? All that you want to know is whether or not they have a high quality of life.
• Now, assume you can get up to 5 pieces of data for everyone in the world (e.g., income, how many meals a day they eat, what living conditions they have, etc.). What 5 data points would you obtain?

Development

We have used the word "development" solely with respect to "sustainable development" so far, though Herman Daly addressed development to some degree. The word development is used a LOT in economics, politics, and particularly in international studies. "Development Studies" is considered its own discipline and many schools offer Development Studies degrees.

But how do we know if a society or country is "developed?" Or better yet, how can we compare how well "developed" one country is relative to another? You probably have heard the term "undeveloped countries" or "underdeveloped countries" used in political or economic discourse. But have you ever stopped to think what that actually means? Clearly being "undeveloped" is a bad thing, so by using that term judgment is being passed. Most commonly, it is indicative of the relative income of a country and whether or not they've embraced the modern economic system. But as RFK pointed out (and as I'm sure your surveys will attest) income is not the only thing required to make life worth living.

A few important points from this reading:

• They state from the outset that "indicators of wealth...provide no information about the allocation of...resources" and that "countries with similar average incomes can differ substantially when comes to people's quality of life." They are clearly indicating that GDP is not the best way to measure development, which is particularly striking coming from an organization that so strongly advocates for economic growth.
• That stated, the World Bank understands that money is usually an important factor in achieving quality of life ("economic growth, by increasing a nation's total wealth, also enhances its potential for reducing poverty and solving other social problems"), but that there are many other factors as well. They mention income distribution, access to education and healthcare, environmental quality, employment opportunities, lack of crime, literacy rate, political freedom, and more.
• They quote the United Nations as saying that "human development is the end - economic growth a means." It is important to note that they say "a" means, not "the" means. Again, having at least a reasonably high income is an important factor in achieving some quality of life, but human development is the true goal.
• They note that not only can economic growth be good for development, but that development is good for economic growth. It is notable that they state that economic growth is "sustainable," if it comes with human development. Unlike Daly, they believe that sustainable growth is possible.
• They also mention the notion of social justice, which they define as "equality of opportunities for well-being, both within and among generations of people." This is not the only definition but is an important way to think about it. We'll delve more deeply into social justice in a minute. As noted previously, the term intergenerational equity is often used to describe the equity impacts between generations. This is a key consideration with regards to climate change and many other issues that will impact future generations.
• They advocate for systems thinking when they state that part of social justice is to consider how "the economic activities of some groups of people continue to jeopardize the well-being of people belonging to other groups or living in other parts of the world." Remember that systems thinking involves thinking about connections between one action and others.

Quality of Life Metrics

It should be clear by now that there are many possible factors that contribute to quality of life, or lack thereof. Back to our original question: How do we measure quality of life? For that, we need a quality of life metric. These are often referred to as development indices. Recall from Lesson 1 that it is important to be able to measure aspects of sustainability? Development indices are one aspect of this.

There are two approaches to this:

• on the one hand, we could try to directly measure quality of life itself;
• conversely, we could try to quantify the conditions that lead to a high quality of life.

There have been many attempts to do the latter and a few that have tried to do the former. It would be impossible to research all of these, but some of the most-used and/or most useful ones are listed below. The first two (HDI and Inequality-Adjusted HDI) measure things that lead to a high quality of life, the third one (Happiness Index) attempts to measure it directly, and the fourth (Multidimensional Poverty Index) measures things that indicate a lack of quality of life. The last one (Happy Planet Index) - which is optional - is a mixture of the two plus ecological footprint.

Please note that even the best metric cannot create a full picture of development, however it is measured. Even the most "developed" country - regardless of how you define development - will have people who are living in poor conditions. Also keep in mind that this is not a comprehensive list of development indices.

Human Development Index (HDI)

The Human Development Index is the most well-known quality of life metric. It was created by the United Nations (UN), who assesses it every year. It measures three things to determine quality of life, as you will see below: living a "long and healthy life, being knowledgeable, and hav(ing) a decent standard of living." The HDI scale goes from 0 (the worst possible) to 1 (the best possible).

HDI combines three indicators to evaluate the level of development in a country:

1. Life expectancy
2. Education (mean years of schooling achieved by adults 25+, expected years of schooling for children entering school age)
3. Income per capita

This is intended to provide a fuller picture of human development. They do recognize some inadequacies of HDI, though, as they state: "The HDI simplifies and captures only part of what human development entails. It does not reflect on inequalities, poverty, human security, empowerment, etc." Some of this is addressed in the Inequality-Adjusted HDI, which is addressed below.

Figure 2.10: This map shows HDI by country in 2019. A higher HDI means a higher development score. Data from 2020 Human Development Report

Click Here for Text description for Figure 2.10

This image is a choropleth world map that visually represents the Human Development Index (HDI) of countries and territories using data from the 2019 Human Development Report. Each country is shaded according to its HDI score, with a color gradient ranging from dark green to red-orange. The legend indicates that dark green represents the highest HDI values (≥ 0.900), while red-orange represents the lowest (≤ 0.399). Intermediate shades—such as green, yellow, and orange—represent varying levels of human development between these extremes.

Countries in North America, Western Europe, Australia, and parts of East Asia are shaded in dark green and green, indicating very high human development. In contrast, many countries in Sub-Saharan Africa and parts of South Asia are shaded in orange and red-orange, reflecting lower HDI scores. Regions like Latin America, Eastern Europe, and Southeast Asia display a mix of yellow to light green, suggesting medium to high development levels. This map provides a clear visual comparison of global disparities in health, education, and income, highlighting areas of both progress and need.

Credit: JackintheBox, CC BY-SA 4.0 (direct link)

Inequality Adjusted HDI

The UN also publishes Inequality-Adjusted HDI (IHDI), which takes HDI and discounts it according to how equally the individual development metrics are spread across the population. If the Inequality-Adjusted HDI is lower than a country's HDI, then there is some inequality. For example, let's say two countries both have the exact same HDI scores and score components. Let's say they both have an average life expectancy of 74 years. But if in country A the wealthy people are living much longer than the low-income folks, and in country B pretty much everyone has the same average lifespan regardless of wealth, country B would be higher on the Inequality-Adjusted HDI rankings, even though their HDI scores were identical.

The Inequality-Adjusted HDI also uses a scale of 0 to 1, with 1 being the highest. Note that all countries have some inequality, so all IHDI scores are at least a little bit lower than the HDI score for that country.

As noted by the UN, the IHDI represents "the loss to human development due to inequality." The more inequality, the more the HDI score drops when adjusted for inequality. Note that the pattern in the map below is similar to the HDI map above, but the raw values are a little bit lower.

Suggested Reading

The short reading below from the UN provides a description of IHDI.

• Inequality-Adjusted HDI, United Nations Development Programme

Figure 2.10: This map shows Inequality-Adjusted HDI by country in 2019. Again, a higher score means a higher level of development. Data from 2020 UN Development Report.

Click Here for Text description for Figure 2.10

This image is a color-coded choropleth world map that visually represents a global index using a gradient scale from dark green to dark red, with each color corresponding to a specific numerical range. The map includes all continents and most countries, with clear national boundaries, and is designed to highlight disparities in the measured variable—likely related to development, well-being, or access to resources.

Countries in North America, Western Europe, and parts of East Asia are shaded in green tones, indicating higher values or more favorable conditions. In contrast, many countries in Sub-Saharan Africa and parts of South Asia are shaded in orange to red, reflecting lower values or more challenging conditions. Regions like Latin America and Southeast Asia show a mix of colors, suggesting moderate levels.

The accompanying legend provides a detailed breakdown of the color scale:

• 0.850–0.899 – Dark green
• 0.800–0.849 – Green
• 0.750–0.799 – Light green
• 0.700–0.749 – Yellow-green
• 0.650–0.699 – Yellow
• 0.600–0.649 – Light yellow-orange
• 0.550–0.599 – Orange-yellow
• 0.500–0.549 – Orange
• 0.450–0.499 – Dark orange-red
• 0.400–0.449 – Red-orange
• 350–399 – Deep red
• 300–349 – Darker red
• 250–299 – Very dark red
• 200–249 – Deepest red
• Data unavailable – Grey or neutral color

Credit: Asus2004, CC BY-SA 4.0

World Happiness Index/Report

The Sustainable Development Solutions Network, an organization with esteemed members from throughout the world, has published the World Happiness Report since 2012 (the 2025 version of the World Happiness Report is available). This reporting effort is a partnership of multiple esteemed universities and other bodies, led by Oxford University.

The World Happiness Report asks people to indicate on a scale of 0 - 10 their quality of life now and their expected quality of life in the future (see World Happiness Report details here, if you'd like). The basic premise behind this is that if you would like to determine how happy or satisfied someone is with their life, just ask them. This is a type of self-reported quality of life and results in a score of 0 - 10. This is sometimes referred to as the Happiness Index.

Pretty simple, right? Though it does beg some important questions. For example, if someone lives a short life with little education, but they are happy, does it matter? What about someone that has very little freedom, but is happy? What if they have almost no money, but are happy? What if others in their country lead much "better" lives, but they do not know it? I do not have the answers, but they are important questions to think about.

A few things worth noting from the readings:

• The rankings are based on a 3-year average of scores, which limits some year-to-year variability.
• The top end of the list is dominated by Nordic and Central European countries (all of whom are characterized by progressive political ideology, not coincidentally). Finland is the happiest, but Denmark, Switzerland, Iceland, Sweden, and Norway are all in the top 10 as are The Netherlands, Luxemborg, Costa Rica, Mexico, and (perhaps surprisingly) Israel. The U.S. is currently #24, which is its lowest ranking since the survey started.
• People are more benevolent than what others believe. Benevolence impacts happiness, but perhaps more importantly, perception of benevolence is what matters. Putting these two factors together, just making people aware that others are more benevolent than they think can increase happiness.
• As has been reported by many others, loneliness is an increasing problem, especially in young people. The percent of young adults that reported that they had "no one they could count on for social support" nearly doubled between 2006 and 2023.
• "Deaths of despair" are dropping everywhere in the world except for South Korea and the United States.
• Social factors are very important. From the article: "Human happiness is driven by our relationships with others. Investing in positive social connections and engaging in benevolent actions are both matched by greater happiness.'"
• The 2020 report co-author provided some explanation for the previous point: "A happy social environment, whether urban or rural, is one where people feel a sense of belonging, where they trust and enjoy each other and their shared institutions,” said John Helliwell. “There is also more resilience, because shared trust reduces the burden of hardships, and thereby lessens the inequality of well-being.'"

Multidimensional Poverty Index

The Multidimensional Poverty Index (MPI) is another UN metric. The premise of the MPI based on the recognition that (lack of) income is not the only way to measure poverty. For example, if a family is above the income-based poverty level but does not have access to adequate health care or education, they are stilll "poor" in quality of life terms.  

The United Nations Development Programme(UNDP) summarizes the MPI thusly: "The MPI looks beyond income to understand how people experience poverty in multiple and simultaneous ways. It identifies how people are being left behind across three key dimensions: health, education and standard of living, comprising 10 indicators. People who experience deprivation in at least one third of these weighted indicators fall into the category of multidimensionally poor."

As you can see below, the MPI provides a weighted list of measurable indicators. If someone experiences at least one third (1/3) of these factors, they are considered "multidimensionally poor." For example, if a family has a child that died in the last five years (1/6 weight) and one child does not attend school up to class eight (1/6 weight), they would be multidimensionally poor (1/6 + 1/6 = 1/3). But if someone was undernourished (1/6) and they don't have electricity (1/18) and cook with wood (1/18) they would not be considered multidimensionally poor (1/6 + 1/18 + 1/18 = less than 1/3). You may be thinking that it is pretty callous to consider undernourishment alone as not enough to be poor. To be fair to the UN, they spend a lot of time helping undernourished people. (As you may remember, "zero hunger" is one of the UN's Sustainable Development Goals.) Just because they are not "multidimensionally" poor does not mean that they are not considered worthy of assistance! It is merely an imperfect but helpful attempt to identify the most underserved populations in the world.

Figure 2.12: The Multidimensional Poverty Index assesses various aspects of poverty. Note the weight of the indicators. Someone is considered to be "multidimensionally poor" if they experience deprivation in at least one third (1/3) of the weighted indicators. Click on the image for a screen reader-friendly version of this chart, and for more details.

Click Here for Text description for Figure 2.12

This image presents a detailed table outlining the dimensions, indicators, conditions for deprivation, and corresponding weights used to measure multidimensional poverty. The table is structured into three primary dimensions of poverty: Health, Education, and Standard of Living. Each dimension includes specific indicators that define what constitutes deprivation, along with a weight that reflects the indicator’s contribution to the overall poverty measure.

Health

• Nutrition: A household is considered deprived if any adult under 70 years of age or any child for whom nutritional information is available is undernourished.
• Weight: 1/6
• Child Mortality: A household is deprived if any child under the age of 18 has died in the five years preceding the survey.
• Weight: 1/6

Education

• Years of Schooling: Deprivation occurs if no household member aged school entrance age + six years or older has completed at least six years of schooling.
• Weight: 1/6
• School Attendance: A household is deprived if any school-aged child is not attending school up to the age at which they would complete class eight.
• Weight: 1/6

Standard of Living

• Cooking Fuel: The household is deprived if it cooks with dung, wood, charcoal, or coal.
• Weight: 1/18
• Sanitation: Deprivation is defined as having a non-improved sanitation facility (per SDG guidelines) or an improved facility that is shared with other households.
• Weight: 1/18
• Drinking Water: A household is deprived if it lacks access to improved drinking water (per SDG guidelines) or if the improved source is at least a 30-minute round trip from home.
• Weight: 1/18
• Electricity: The household is deprived if it has no electricity.
• Weight: 1/18
• Housing: Deprivation occurs if any one of the three housing materials (roof, walls, floor) is inadequate—e.g., the floor is made of natural materials, or the roof/walls are made of natural or rudimentary materials.
• Weight: 1/18
• Assets: A household is deprived if it does not own more than one of the following assets: radio, television, telephone, computer, animal cart, bicycle, motorbike, refrigerator, car, or truck.
• Weight: 1/18

This table is part of the methodology used in calculating the Multidimensional Poverty Index (MPI), which goes beyond income to assess poverty through multiple overlapping deprivations in health, education, and living standards. Each indicator’s weight contributes to a composite score that determines whether a household is considered multidimensionally poor. 

Source: United Nations Development Programme

OPTIONAL - Happy Planet Index

The Happy Planet index takes into account both well-being (they use the same metric as the Happiness Index), life expectancy (like the HDI), and inequality of outcomes. The higher your well-being and life expectancy, the higher your score. Inequality is expressed as a percentage, with a higher percentage meaning more equal outcomes. But what is unique about the Happy Planet Index is that it divides by the ecological footprint, so a higher ecological footprint will result in a lower score, and vice-versa. Nic Marks created this index. He describes it in the short (1:54) video below.

Social justice is considered by many to be a controversial topic. Go ahead and Google "social justice" and you'll probably see as many negative than positive stories and videos. However, the concept itself is actually not very controversial - it is the application (or at least proposed application) that is. There is no single definition for social justice, but take a moment to think about the definition of social justice from the National Association of Social Workers, who provide a good, concise definition:

Social justice is the view that everyone deserves equal economic, political and social rights and opportunities.

Ultimately then, social justice is about equal rights and opportunities, which is a near-universal ideal of democratic and moral societies, including in the U.S. Not so bad, right? But let's unpack that definition a little before we move on.

First, it is important to point out that they use the word everyone. This seemingly innocuous word actually lies at the core of social justice! I'm sure you can think of many historical and contemporary examples of unequal rights being granted to groups of people. Examples abound of discrimination against people of certain ethnicities, races, religious beliefs, sexual orientations, income levels, genders, and more. Social justice requires such characteristics and qualities have no bearing on rights and opportunities.

Political Rights and Opportunities

Alright, so let's start with the easiest of the three components: political rights and opportunities. The most obvious aspect of this is having the right to vote. In the U.S., almost every citizen has the right to vote. There are exceptions to this, such as some states not allowing convicted felons to vote. However, keep in mind that black American men were only granted the right in 1869 (though things such as poll taxes prevented them from fully participating for decades), and women were not afforded this right until 1920 (seriously!).

But just because you have the right to vote does not mean you have an equal opportunity to vote. This is an important distinction to make. A prominent example is that black Americans were not fully given the legal opportunity to vote until the Voting Rights Act of 1964. And even now there is a lot of controversy surrounding what many think are efforts to suppress votes in the U.S., particularly in low-income and minority communities, and particularly since the Supreme Court stuck down a key part of the Voting Rights Act in 2013. Even the fact that the U.S. presidential election is held on a Tuesday and is not considered a national holiday (early voting notwithstanding) is pointed to as unfair to people who don't have the job flexibility to miss work. In short, if people are not given reasonably good opportunities to vote, then social injustice may be occurring.

Figure 2.12: Lyndon Johnson signs the Voting Rights Act of 1964. Dr. Martin Luther King can be seen standing directly behind President Johnson. Note the irony that nearly everyone else in the picture is a white male. This is an indicator of political inequality.

Credit: Public Domain

But this is only voting! What about political power and influence in general? Perhaps the most obvious example is that the U.S. has never had a woman president and the first black (or any non-white person) president was elected in 2008. Obviously, this has not occurred due to complete absence of qualified female or non-white candidates. Again, they had the right to be president but it would be hard to argue that they had an equal opportunity to do so as a white male.

The influence of money in politics is an important social justice issue because generally speaking those with more money are generally granted more political power. The money spent on political lobbying alone has been more than 2 billion (yes folks, that's billion with a "b"!) dollars every year since 2003. And that does not include the money spent on advertisements and other political activity. Nowadays it costs on the order of 1 billion dollars to get elected president of the U.S., and thousands or hundreds of thousands for even local offices. The increasing power of "dark money," especially since the Citizens United Supreme Court decision in 2010, is further evidence of political injustice since people with more money have more political power. (Consider that just 10 people and their spouses contributed $1.2 billion to election spending from 2010 through 2020.) All of this results in political power being at least partially tied to how much money one has. Again, this is socially unjust.

Please keep in mind that lack of political rights and opportunities is an important international issue as well. Some extreme examples include the fact that 99.7% of all eligible voters voted for the North Korean Communist Party in 2015, that the 2013 elections in Zimbabwe were considered a total sham, and the 2017 election in Venezuela was essentially rigged. Voter intimidation can be a major problem in many parts of the world, and minorities and women are barred from voting in some areas of the world.

Economic and Social Rights and Opportunities

So what is meant by having equal economic rights and opportunities? This is a little more difficult to define, but essentially it means that everyone has reasonable access to rights and opportunities that can result in economic security and stability. This does NOT mean that everyone should have equal income! But what it does mean is that who and where you are should have no bearing on your ability to achieve at least a reasonable level of economic security. It is difficult to disentangle this from social rights and opportunities because they heavily influence each other. Social rights include things like education, safe neighborhoods, health care, legal protection, access to transportation, access to healthy food, freedom to practice religion, and more.

Economic and social rights often overlap. Without adequate education, it can be difficult to obtain a good job. But if your parents don't have a good job, then it may be difficult to access good education. In the U.S. health care is obviously a big issue, as nearly 26 million Americans lacked insurance in 2022 (down from 46 million in 2010, but still unacceptably high), and one of the major concerns about the Covid-19 pandemic (well, in the U.S., anyway, since we are one of the few industrialized countries that ties health insurance to employment) was that nearly 3 million people lost their health insurance in the spring of 2020 because of unemployment (though most subsequently enrolled in government-sponsored health insurance). Being unhealthy or sick can make it difficult to find and/or maintain a job, and not having a good job can reduce access to good health care (in the U.S. anyway). Job opportunities are usually more difficult to come by in low-income areas, as is access to healthy food.

Disparities in policing tactics have become an important topic recently in the U.S., and studies like this one from the Center for Policing Equity indicate that statistically speaking minorities are often treated differently than others. The authors note that this supports previous research. A study in 2013 found that sentences of black men were around 20% longer than those given to white men for the same crimes, and another study was done in 2017 that found it was still 20%. The U.S. (and many other countries) have very fair laws on the books, yet access to high-priced lawyers often impacts outcomes.

Please note that this is in no way an indictment of individual law enforcement or legal officials, or on their professions in general. But it does indicate that social rights and opportunities are not equal across racial and socioeconomic divisions.

Figure 2.14: Poverty rate by race/ethnicity in the U.S. The causes of poverty are complex, but the poverty rates of different ethnicities/races in the U.S. indicates that minority populations are disproportionately affected by poverty. Click on the image for a larger, clickable image.

Click here for a text description

Poverty in the United States over time

Group	Percentage 1980	Percentage 2015
All	12.2	15.6
White	8.7	10.8
Black	29.4	27.1
Latino	23.2	24.5
Asian or Pacific Islander	12.6	12.7
Native American	27.4	28.4
Mixed/Other	18.6	19.5
People of Color	26.0	23.4

United States totals to 100%

Credit: National Equity Atlas

Of course, this is a problem in many parts of the world, some examples more blatant than others. The Economist Magazine points out that women in Saudi Arabia were only allowed to become lawyers in 2012, and only in December of 2015 were they allowed to run for local office. Despite these recent rights being granted, it is still frowned upon for women to drive. They point out that banks have separate entrances for men and women, and that women are barred from certain public locations. In Russia, peaceful protesters are often intimidated and/or arrested. The Chinese government is known to discriminate against ethnic minorities, imprison political dissidents, and detain and harass other activists. And minorities are disproportionately affected by poverty throughout the world.

This is of course not meant to be a comprehensive list, but hopefully, it provides a "feel" for what social justice and injustice entail.

Environmental Justice

Environmental justice is very closely related to social justice. It can be thought of as "the equitable distribution of environmental benefits and burdens, ensuring that all communities, particularly those historically marginalised, have the right to a healthy environment. " (source: Oxford Review). Things like clean air, a safe water supply, and natural areas to enjoy are not available to all. In short, environmental benefits ("goods") and burdens ("bads") are unevenly distributed. And like almost all inequality-related issues, it is the least powerful among us that are disproportionately burdened. In the U.S. the most often happens to communities of color and low income members of society in general. The short video below does a great job of illustrating this phenomenon.

You may have caught the narrator's definition of environmental justice:

A fair distribution of environmental benefits and burdens across all groups.

This sums it up quite well, though it does leave the door open for some wiggle room in what it specifically means. Take another look at the definition. Do you see anything that might be open to interpretation? How about the word "fair"? This is most definitely open to interpretation, but perhaps that is done on purpose. Similar to the economic aspect of social justice, it is not reasonable to think that everyone will have the equal access to all environmental goods and equal exposure to all environmental bads. But what we can strive for is to try to provide equal opportunities to access for everyone. The goal should be to make sure that everyone has an equal share of the environmental benefits and burdens in society. Many in the Environmental Justice movement believe that we should try to eliminate all environmental burdens, but at least they should not be dispropotionately forced upon disempowered communities 

As indicated in the video, electronic waste (e-waste) contains toxic chemicals such as mercury, but can also contain dangerous chemicals such as lead and chromium, as well as fire retardants and other carcinogens. So what makes e-waste an environmental justice issue? It is not made explicit in the video, but as pointed out by the National Institutes for Health in a 2015 study: "Communities with primitive, informal recycling operations tend to be populated by poor people with scarce job possibilities who are desperate to feed themselves and their families, and this primary concern overrides that for personal health and safety" (emphasis added). And this is not just a problem for China! The same authors indicate that this is also a major problem in India, Pakistan, Malaysia, Thailand, the Philippines, Vietnam, Ghana, and Nigeria. Think of it this way: Can you imagine a wealthy suburb allowing toxic chemicals to be released in open fields, and next to food growing operations?

Final Note

Social and environmental justice issues are present all over the world, including in the U.S. It appears that some progress has been made, but that there is still some work to be done. Circling back to the beginning of this section, can you think of any reasons why social justice is a controversial issue? Recall that I indicated that the application of social justice is the main problem. Take a minute to review the injustices described, and think about how they could be remedied. It is important to point out that by their very nature, fixing social justice issues requires altering the power structure of a given area or society. When women and black Americans were given the right and opportunity to vote, it reduced the power of white males. If lobbying activity is restricted, the companies they work for would have less influence. If women are granted equal rights in Saudi Arabia, men have less influence. Additionally, most solutions require new government regulations. All of the solutions in the examples above require(d) new laws/regulations to be passed. The most likely solution to e-waste, for example, is a ban on the export of e-waste or the required (by law) responsible recycling of e-waste. And the list goes on.

There are other reasons that social and environmental justice solutions can be controversial, but these two lie at the core of the opposition.

• First and foremost, it is difficult to alter power structures. Those with power tend to try to hold onto it, and because they are already powerful, it can be difficult to stop them.
• There can also be a sense among some people - most recently it is mostly white males, and to a lesser extent, white women - who feel that it is unfair to provide extra resources to historically marginalized populations. This is mostly a byproduct of the rampant inequality in society. People are struggling, and they may wonder why they are not also getting assistance. Having high-profile billionaires such as Jeff Bezos and Elon Musk running around, or billionaires at all, for that matter, is not helping things in this regard. (This very much relates to the first point, if you think about it!)
• To a lesser degree, it is a restul of strong ideological resistance to new regulations, especially among those right-of-center.

Further complicating matters is that the root cause of many of these problems cannot easily be fixed, even with the best-intended policies. For example, urban and rural poverty - both in the U.S. and abroad - is a complex, deep-seated problem that does not have an easy solution. There is no "magic bullet" to fix them. It's difficult to blame businesses for wanting to locate in wealthier areas where people have more money to spend. And it's hard to blame people desperate for income for engaging in dangerous work like e-waste recycling. And what would happen if the e-waste was banned? What would the people who rely on those jobs do?

Finally, and building on one of the points above, it is very important to note that providing equal opportunity sometimes requires what some would consider "unequal" treatment. For example, many social and environmental justice organizations provide more resources to low-income individuals than those with higher incomes. This can seem unfair to those not eligible for benefits. ("Why won't the government subsidize my housing and childcare?" "Why do I pay more taxes, just because I've made more money through my hard work?") This is a complicated issue, and I don't claim to have THE answer. I can understand why people feel that way, in particular, becaue of the (oversimplified and generally incorrect) political and social narratives they may be fed (e.g. people are poor because they don't work hard enough). But, the goal of those concerned with social/environmental justice is to provide equal opportunity for all people, and there is wide recognition that many people are born at a disadvantage through no fault of their own. In general, social justice advocates err on the side of providing extra assistance and/or helping empower all who might need help, regardless of how they got into their circumstances. We live in a VERY unequal world, and those concerned with social justice want to change that.

Figure 2.15: This cartoon should look familiar, but it is worth reposting. Social justice and equity often require redistributing resources to disadvantaged people in order to provide equal opportunity. This can be seen as controversial, but equity and social justice are primary sustainability considerations.

Credit: Community Eye Health, CC BY-NC 2.0

Charles L. Robbins said in his TEDx talk that "social justice is a place where everybody's free to achieve everything that they are capable of doing...where there's an even playing field for everybody." I think it's difficult to argue against this concept, even if the application is fraught with difficulty. There are a lot of difficult questions to answer when social and environmental justice solutions are posed. But striving to achieve this justice is an important aspect of sustainability. And please keep in mind that we have barely scratched the surface regarding these issues. I recommend exploring them further, as they are prominent topics in sustainability.

---Please note that the information below is optional. There is an extra credit quiz based on the information, but it is not required.---

Net Energy and Embodied Energy

We're on a roll, so let's continue with the "budget" theme. In Lesson 1, you learned that energy sources contain a certain amount of energy. In Lesson 1, you also learned that there are 3412 Btu in a kilowatt hour and ~125,000 Btu in a gallon of gasoline. But that only tells part of the story. Almost all energy sources require energy inputs in order to get them to the end user. Let's take that gallon of gas as an example. How was energy used to get that gallon of gas to you and your car? Think about where it came from and how it got there, and what happened in between, then read on.

Gas is a product of petroleum (oil). Most oil comes from the rocks in the ground (tar sands notwithstanding), and this oil is accessed by drilling. Drilling requires energy, as does transporting the oil to a refinery, refining the oil to make gas, and transporting the gas to the gas station. Every step in this process requires energy. The important thing to consider is that if you can determine the amount of energy required to get that gallon of gas to you, and subtract that from the energy you get from the gas, you will have net energy.

It is important to note that it does not matter which form energy is used in this process (electricity, natural gas, oil, etc.), only how much is used. (Remember that we can calculate total energy used by converting to common units!) This "invisible" energy used prior to the end use is usually referred to as embodied energy.

Embodied energy is used for most energy sources, even renewables. For example, wind turbines and solar panels must be manufactured, their components mined or otherwise processed, then they must be installed using energy, etc. Note that embodied energy can actually be stated for just about anything - remember from Lesson 1 that most food required energy to be planted, grown, shipped, and/or processed. All of this represents embodied energy.

Net energy can be calculated as follows:

• $\text{ net energy = end use energy - embodied energy }$

Net energy is a good start, but it can get confusing if you analyze different quantities of energy. This is because the net energy depends significantly on the end use energy amount, but that is not the whole story. Let's look at an example. On average you get about 20 times more energy out of gasoline (end use) than was put in (embodied). In other words, the embodied energy in a gallon of gas is about one-twentieth (1/20) of the end use energy (source: Hall, Lambert, and Balogh, 2014). The net energy for 1 gallon of gas would be (Math alert!):

• Since a gallon of gas is ~125,000 Btu, the average embodied energy is 20 times less:
  • $125 , 000 \mathrm{Btu} / 20 = 6 , 250 \mathrm{Btu} .$
• The net energy for one gallon of gas, using these assumptions, would be:
  • end use energy - embodied energy = net energy
  • $125 , 000 \text{ Btu } - 6 , 250 \text{ Btu } = \mathbf{1} \mathbf{1} \mathbf{8} \mathbf{,} \mathbf{7} \mathbf{5} \mathbf{0} \text{ Btu. }$.

But what if you get 10 gallons of gas?

• The end use energy is:
  • $125 , 000 \text{ Btu x } 10 \text{ = 1,250,000 Btu. }$
• The embodied energy is:
  • $1 , 250 , 000 \mathrm{Btu} / 20 = 62 , 500 \mathrm{Btu} .$
• The net energy for 10 gallons of gas would be:
  • $\text{ 1,250,000 Btu - 62,500 Btu = 1,187,500 Btu. }$

As you can see, net energy is highly dependent upon the end use energy amount being considered. There is a huge difference between 118,750 Btu and 1,187,500 Btu, but those numbers are actually telling the same story.

Energy Return on Energy Invested (EROI)

You can avoid this confusion by calculating the energy return on energy invested, or EROI. EROI is defined by the Encyclopedia of Earth thusly:

Energy return on investment (EROI) is the ratio of the energy delivered by a process to the energy used directly and indirectly in that process.
Credit: Encyclopedia of Earth

Here is the equation. (Note that "Quantity of energy supplied" is the same as end-use energy and "Quantity of energy used in supply process " is the same as embodied energy.):

$$\text{ EROI } = \frac{\text{ quantity of energy supplied }}{\text{ quantity of energy used in the supply process }}$$

Credit: Encyclopedia of Earth, CC BY-SA 2.5

Because it is a ratio, the end use amount does not matter, because it all balances out in the end. Let's look at the gasoline example from above using this equation:

• EROI of 1 gallon of gas: $125 , 000 \mathrm{Btu} / 6 , 250 \mathrm{Btu} = 20$
• EROI of 10 gallons of gas: $1 , 250 , 000 \mathrm{Btu} / 62 , 500 \mathrm{Btu} = 20$

No matter how much gasoline you analyze, you will come up with the same EROI if the assumptions are the same. As noted above, EROI is relevant to almost every energy source. The higher the EROI, the more energy you get out for every energy unit you put in. Calculating EROI often requires using a lot of assumptions, but since this is an important issue, many attempts have been made to calculate it. The article below indicates some of the complexities and uncertainty in calculating EROI, but the authors are able to arrive at general conclusions since they analyzed a number of peer-reviewed research papers on the topic.

When a Barrel of Oil is Not Really a Barrel of Oil

If you read the article, you should clearly see that not all barrels of oil are created equally. The figures below (from the article) indicate the average EROIs of different energy sources. Note that oil and natural gas are lumped together, because they are often extracted together. The authors are careful to point out that these values should not be taken at "face value," but that they are a good indication of the relative EROIs of different sources.

Figure 2.16: The EROI values of various energy sources, aggregated from various published studies. All else being equal, higher EROI is better.

Click for a text description

The EROI values of various energy sources aggregated from various published studies. All else being equal, higher EROI is better.

• Above 75 EROI: Hydroelectric
• Near 50 EROI: Coal
• Near 25 EROI: Oil and Gas (World), Wind
• Approximately 10-12 EROI: Oil Shale, Coal, Nuclear, Geothermal, Solar (PV)
• Near 0 EROI: Tar Sands, Ethanol from Biomass, Diesel from Biomass, Natural Gas

Image Credit: Hall, Lambert, and Balogh, CC BY-NC-ND 3.0

Why is EROI important? One of the main reasons is that EROI is more indicative of the true net energy benefit of various fuels than the end use. It takes about the energy from 1 barrel of oil to extract 20 actual barrels of "traditional" oil (it has an EROI of about 20:1), but the same amount of energy, when used to extract tar sands oil, results in only about 4 actual barrels. In other words, EROI indicates that you get about 5 times the amount of energy from traditional oil than from tar sand oil given the same amount of input.

A very interesting finding in the Hall, Lambert, and Balogh article is that oil discovery in the U.S. has decreased from 1000:1 in 1919 to only 5:1 in the 2010s, meaning we get 100 times less energy now than 90 years ago! (Essentially, we have extracted most of the "easy to get" oil, and do things like deep sea drilling now.) Getting ethanol from corn (recall from Lesson 1 that this is the U.S.'s primary source of biofuel) can require almost as much energy in as energy you get out, depending on how it is grown and processed.

EROI can help policymakers and others decide which energy source is a more efficient use of energy resources. In the context of this course, it is a particularly important consideration for non-renewable resources, because it indicates the net energy benefit of the sources.

One extremely important final thing to note: EROI only describes energy use. It says nothing about the other important impacts and factors. For example:

• Total energy available is an important consideration - if we can get something really efficiently (high EROI), but there is not a lot of it, then that may not help very much.
• Coal has a relatively high EROI but is the most polluting energy source we use.
• Hydroelectricity has a very high EROI, but if done the wrong way can have negative impacts as well.
• Tar sands, on the other hand, have both a low EROI and a very negative impact on the environment.
• Coal (like oil, natural gas, and nuclear) are non-renewable, and thus limited. (Though we are unlikely to run out any time soon for most of these, as you'll see in a future lesson.)
• All resources are available in limited locations and can be difficult to transport efficiently. Local/native resources may be more logical to use, even if they have a relatively low EROI.

In short, EROI is only one consideration to be made.

Summary

Another week of content in the books! Before you relax, make sure you complete the two required assignments listed at the beginning of this lesson. This week, we went over some of the fundamental considerations that underlie sustainability. You should be able to do the following after completing the Lesson 2 activities:

• differentiate between positive externalities, negative externalities, and non-external impacts;
• explain how externalities impact sustainability;
• analyze the impact of the social cost of carbon on economic decisions;
• identify elements of the ecological footprint;
• compare the impacts of various lifestyle choices on ecological footprint;
• analyze how ecological footprint relates to sustainability;
• differentiate between the different quality of life metrics;
• differentiate between energy return on energy invested (EROI), embodied energy, and net energy;
• examine benefits and limitations of EROI values;
• characterize the difference between growth and development;
• define steady state economy;
• analyze how establishing a steady state economy can impact sustainability;
• identify approaches to achieving a steady state economy;
• explain how Gross Domestic Product relates to development;
• identify the relationship between sustainability and various quality of life metrics;
• theorize what factors lead to a high quality of life;
• define social and environmental justice; and
• identify examples of social and environmental injustice.

The Language of Sustainability

We went over a lot of fairly heavy concepts this week. Hopefully, this list will help spark some memories of the content, both now and as we move forward:

• externalities, positive externality, negative externality, private utility, private cost, price, profit, OECD, the social cost of carbon
• ecological footprint, ecological deficit, biocapacity, overshoot, and collapse
• energy return on energy invested, net energy, embodied energy, peer-reviewed research
• sustainable growth, GDP, GNP, GDP/capita, growth, development, Herman Daly, Steady State Economy, qualitative vs. quantitative, free market environmentalism
• development, quality of life, World Bank, quality of life metrics, development indices, Human Development Index (HDI), Inequality-Adjusted HDI, United Nations, Happiness Index, Multidimensional Poverty Index, Happy Planet Index
• social justice, environmental justice, economic rights and opportunities, political rights and opportunities, social rights and opportunities

Reminder - Complete all of the lesson tasks!

You have finished Lesson 2. Check the list of requirements on the first page of this lesson and the syllabus to make sure you have completed all of the activities listed before the due date. Once you've ensured that you've completed everything, you can begin reviewing Lesson 3 (or take a break!).