The Handbook for Economics Lecturers

5. Teaching an applied course on sustainability economics

The above course is one on economics of the environment, in which special attention could be put on sustainability. However, one could go a step further and construct a course specifically on sustainability economics. Courses on sustainability economics remain unusual. The course below (Table 3) is constructed based on one taught by the authors, combined with some other examples of good practice from around the world.

We feel that in a course on sustainability, starting with the problematic of a sustainable biosphere is unavoidable and desirable. It is essential that students understand the nature of the biosphere, and thence its sustainability, before moving on to consider what economic (and other) systems would be needed to achieve sustainability. One way to approach the question is to lecture about some basic concepts, but then take the main components of the biosphere: soil, marine, hydrosphere, natural forest, wetlands, etc., and divide the class into groups to report back on each part. This could be used as a model for the rest of the course.

Table 3: A course on sustainability economics

Topic Tasks or exercises
Sustainable biosphere Group reports
Complexity and systems Complexity game (see below)
Entropy and thermodynamics Energy hierarchy and its appropriate use
Circular economies and closed systems Ellen Macarthur Foundation video; materials balance
Definitions of sustainability See Box 1
Core concepts in ecol econ – scale, distribution, efficiency Ecological footprint (see REAP in Section 7)
Economic growth and physical limits Critique of Environmental Kuznets Curve (see Box 7); notion of critical resources: peak oil (see Box 8); (see LowGrow model in Section 7)
Measurement of economic activity Happiness/HPI discussion
Triple bottom line Ethics; campus walk (see Box 9)
Valuing natural capital See Box 4
Cost benefit analysis CBA builder (see Boxes 4 and 5; Section 7)
Public goods Classroom games (see Box 10)
Property rights Notions of commons; anthropo-ecological systems
Eco-product design and lifecycle analysis Biomimicry; show and tell: students bring products to discuss their design and production in terms of sustainability
Population Food; agricultural sector; diet

One of the consequences of teaching a sustainability course in this way is that students are exposed to economics of complex systems. This exposure may be of benefit in itself. Complexity economics is a relatively young discipline and shares many of its roots and much of its history with ecological economics; yet it has a broader application, and has been expounded by significant figures in economics such as Kenneth Arrow and Thomas Sargent. Complexity economics has many implications for both theory and practice. It suggests that even with simple behavioural rules (and hence it has connections with behavioural economics) purposive agents in complex systems can generate unpredictable and potentially explosive outcomes. This has implications for theory: simple rational maximisation becomes less plausible; for methods – agent-based modelling is preferred and the typical mathematics of economics is regarded as inadequate; and for policy – small policy changes can have large and unpredictable outcomes. One way to explore this is via a simple complexity game in which students are divided into small groups; each student receives a card with four rules of behaviour on them (at least one of these might be their objective) to which they must adhere. The object of the game is to show the multiplicity of possible outcomes when faced with simple rules.

Top tip

Introduce students to a delicately balanced ecosystem, so as to understand the complexity of sustainability. Example: a delicately balanced ocean floor ecosystem, whereby bacteria process organic detritus in various ways, some of which lock up carbon and some of which do not, dependent, crucially on the presence of a virus (see The Economist, 2010).

By exposing students to these concepts, complexity economics can benefit them but also alarm them. However, arguably in studying sustainability, complexity is essential because it attempts to capture interconnections and systemic effects in ways that even DSGE models do not (see, for example, Colander et al., 2008). Further, by tapping into modes of thought currently used by governments and other researchers, students are increasing their employability.

Box 8 : Non-renewable resources

Resource depletion models
The efficient allocation of resources assumes perfect information is available to assist both producers and consumers in their decision-making. One of the key problems in achieving sustainability is that finite resource costs do not necessarily reflect scarcity. This has been most evident in the case of oil and metals – it is arguable that this failure of the price of these resources to reflect scarcity is due to a combination of a lack of information about remaining reserves and a degree of monopoly power combined with short-termism on the part of certain producers and speculation (Krugman, 2009).

In the case of oil, this has resulted in long periods of relative stability at historically low prices (1985-2006) with shorter periods of extreme volatility (1972-1985 and 2007 to the present). The predictions of economic models of finite resource depletion are at odds with this reality. They assume perfect information and suggest a steadily increasing price path up to the point at which the resource is depleted and an alternative technology takes over (see, for example, Hotelling, 1931, shown graphically below).

The model assumes that exploiters of the resource act to maximise the present value of the future stream of royalties (revenue less extraction costs). This requires that the price path in the top right-hand quadrant reaches the backstop technology price Pb at the point that the resource is fully depleted. This is shown by going down through the bottom right-hand quadrant to theresource stock quadrant, bottom left. The starting price P0 relates through the demand curve to the starting stock position.

It is useful to start a discussion of the actual price path of oil in relation to the model above. Students could be asked to research the historical path of oil prices from, say, 1945, to the present and show this graphically. At first sight this empirical evidence seems at odds with the price path and the class can be asked to try and reconcile the model to reality. After discussion of the actions of OPEC in restricting supply and speculators in increasing demand, the impact of new discoveries of reserves can be introduced as shown below. This illustrates the impact of information. Information also has an important role in the sustainable harvesting of renewable resources (see Box 2).

There is increasing evidence that government economists use complexity in their own work, even if they are perhaps unsure how to do so.

The course contains several elements which could be applied to any of the other models above. For instance, the concept of ecological footprint captures the notion of sustainability quite well; and it is empirical and can be evaluated using the REAP software (see Section 7). Under the heading of growth, the macroeconomic consequences of low growth (or even de-growth) could be explored via the LowGrow computer simulation model (Victor, 2008) (see Section 7). A discussion of growth as an objective creates the potential for a discussion of happiness literature, which has much contemporary currency. The literature is varied but includes large econometric analyses so can be a valuable way to explore empirical issues as well as those associated with utility maximising consumers. The issues of valuation and CBA were discussed above, but clearly are important here. A show and tell session, in which students bring in examples of products into class for critical analysis, using life cycle analysis, might be an effective way to discuss that analysis but also asks the students to explore everyday objects from a new perspective.

In a discussion of ethics, following on from definitions of sustainability, is the notion of clashing ethical bases and contesting needs. This clash is captured well by the concept of the Triple Bottom Line (see Section 2.1). One way to explore this concept is via a campus walk, to demonstrate that each part of the university campus has on it competing demands which must be resolved. Obviously each one would be different and would need to be investigated beforehand.

Box 9: Campus walk

It is essential that students see concrete examples of sustainable and non-sustainable design and practice. Case studies can be useful in this regard, as can an assessment that requires the students to go out to evaluate actual organisations. A useful place to start is on one’s doorstep: the campus. Many educational institutions have made recent efforts to be more sustainable, often through energy efficiency measures which can generate financial savings. So one would expect to be able to find many examples of sustainable buildings and processes on university campuses. Start in the classroom. Ask students to look around and identify sustainable and non-sustainable objects or design features. Students will note double-glazed windows, motion sensors, thermostats and even carbon dioxide sensors, the amount of natural light entering the room, and the number of electrical appliances, for example. Leaving the classroom, students can observe how corridors are lit and heated, whether doors and windows are closed, and how frequently they spot a recycling centre, for example. A campus with some design innovations assists in this task, as students may see – or be invited to see – smart heating and lighting systems, electricity generation or water heating from solar panels, integrated drainage systems, improvised wildflower and wildlife areas, and innovative spaces that are naturally lit and also facilitate social activities that enhance social sustainability. All of these are potential cases for cost benefit analysis.

Pedagogically these campus walks are also valuable. There is a significant element of active learning present. Clearly the tutor must act as a guide, and plan a route that is likely to have items of interest on it. The instructor must also be open to surprise finds and consequently odd questions. The students must be sufficiently knowledgeable to be able to spot relevant features; so it may not be advisable to schedule the campus walk early in the year. However, as part of a PBL approach, students may be directed to a feature of the campus with particular sustainability issues. Instead, or as well, the university or campus itself could be the problem object to be studied. Such an approach allows students to be more engaged with the topic, and with their campus. It may be that an unforeseen consequence of this activity is that students do things on campus that they otherwise would not. If there is flexibility in assessment, these new student activities could themselves become objects for analysis. For example, students could film their own campus walks, perhaps as group activities, and then show them to their peers.

Box 10: Classroom games

Classroom games have been identified as a way of engaging students with economic concepts. Some existing Economics Network resources explicitly address sustainability issues. Others can be adapted.

Copestake (2010) discusses a climate change game that can be played in different formats to allow for different levels of economic knowledge and different levels of complexity in the game. The game explores concepts such as public goods and the iterated Prisoner’s Dilemma to explore some of the economic issues connected to climate change negotiations and compliance. The game can also enhance students’ transferable skills by employing Excel spreadsheets. As always, such games can be adapted to take into account different theoretical frameworks. In this case, the game rests on theoretical presuppositions, such as the simple self-interest of nations. Tutors might wish to explore that presupposition and the consequences of abandoning it. On the same topic, the BBC has designed a climate change game, which could be used to explore the issues around climate change negotiations and compliance.

Sloman (2002) discusses an international trade game in which some countries are natural resource rich and others may have more manufactured capital. That allows for the immediate discussion of types of capital and their substitutability. The purpose of the game is then for each country to engage in trade to its national advantage. The game is designed to allow ‘shocks’ to occur, so it is an easy adaptation to introduce into the game ecological shocks, perhaps through the forms of resource price spikes, and to investigate their consequences. Guest (2007) discusses a set of games with implications for sustainability, including on public goods, auctions and trading. These latter two are important in a sustainability context because of the growing importance of emissions trading, carbon permits and other market-based carbon reduction schemes.

The Economics Network resources also contain several games that are more general but again have uses in courses on sustainability. Sloman (2009) discusses an expected value game based on the television programme Deal or No Deal. Clearly this game has applications for sustainability, for example in the notion of risk. This can be extended to discuss non-probabilistic risk and the concept important in sustainability of the precautionary principle. Sutcliffe’s (2002) press briefing game and Pigott’s (2002) journalistic writing assignment are useful in the context of sustainability given its inevitable political dimension and the importance of communicating findings on sustainability effectively to the public.

The paper aeroplane game, discussed by Mearman (2007), has some similarities to the tennis ball game discussed by Guest (2007) and by Hedges (2004). This is a game originally designed to illustrate diminishing marginal returns in production, but is easily adapted to explore aspects of sustainability. The game asks students to make paper aeroplanes in groups in which increasing numbers of students are involved in production. In the basic form of the game, it is expected that marginal productivity would eventually stop increasing. Students can explore how design of the product and of the production process can affect productivity. There are several sustainability angles on this. Students may consider how efficient the process may appear if energy use is taken into account. Students may also debate the extent to which waste is produced in the process. Students could discuss the likely sources of raw materials and the associated sustainability issues. They might also consider product design and the potential for remanufacture and maintenance of the product. One of the principles of cradle-to-cradle production (McDonough and Braungart, 2002) is that the product should be produced where possible from recycled materials, and that there should be no waste from the production process.