MARM: Multidisciplinary Ocean Studies 1

Part I: Environmental Economics 1 Economic role of the oceans 1.1 Coastal population explosion and sustainable growth Economics is the field that studies the mechanisms and procedures by which society uses resources (both tangible such as ore and petroleum and intangible such as human labor) to provide goods and services in the face of demands for them. Although conventional economics (i.e. neoclassical economics) tend to view the environment only in terms of “factor of production” that help enable the production of goods, environmental economics view the human economy as existing within the natural environment. Recent studies have shown that there is a strong link between natural environment and economic development (more on economics and environmental systems will be explored at the end of this lecture). Of course, one link that comes to mind is the availability and abundance of natural resources (mining, fossil fuels, agriculture, fisheries) that help fuel such economic development. Another link made recently by a group of researchers at Harvard and Columbia showed that coastal environments (or large rivers) can spur the economy of whole countries as it facilitates getting products to outside markets while lowering trade costs. Indeed, historic patterns of economic development that fueled the first industrial revolution and transformed coastal cities into international centers of trade and commerce have been augmented since the end of the Second World War by a massive population shift from the hinterlands to coastal areas. These environments, with their boundless economic opportunities and attractive quality of life, are increasingly attracting new “settlers” to live, work, play, and retire. For example, by the end of the 20th century, over half of the population of the planet lived and worked within less than 120 miles from the sea. On average, coastal zones have the highest population density of all other ecosystems on the planet (175 people/km2 vs. 45 people/km2 for the planet’s average; Figure 1). In the United States for example, nearly 75% of Americans are expected to live in coastal counties by 2025. These counties already contain 14 of the country’s 20 largest cities.

Figure 1. Human population within 100 kilometers from the coast (Source: Center for International Earth Science Information Network - CIESIN).

MARM: Multidisciplinary Ocean Studies 2

Worldwide, eight of the top ten largest cities are located by the coast: 1. -Tokyo, Japan - Coastal 2. Mexico City, Mexico - Inland 3. Mumbai, India - Coastal 4. Sáo Paulo, Brazil - Inland 5. New York City, USA - Coastal 6. Shanghai, China - Coastal 7. Lagos, Nigeria - Coastal 8. Los Angeles, USA - Coastal 9. Calcutta, India – Coastal 10. Buenos Aires, Argentina - Coastal

This continued growth leads to the obvious question: “how many humans can coastal systems (and the earth in general) sustain”? The notion of sustainability has been addressed in depth in the recent decades ever since the Brudtland report (1987) defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. That definition, however, is so vague that it is impossible to quantify let alone implement. In conventional economics, sustainability may be seen as a more restricted goal to sustain profits based on ever increasing consumption of limited natural resources or sustaining rapid economic growth indefinitely. In terms of human affairs, sustainability may more effectively be understood and dealt with in terms of a two-dimensional carrying capacity concept, which considers not only raw economic growth (defined by numbers such as the Growth Domestic Product – GDP), but also per capita impact at the ecosystem and ecosphere levels. In that frame of mind, carrying capacity is concerned not only by the number of human that could be sustained in any given space (coasts, the earth) but as well on by their per capita demands. From an ecological perspective, for example, carrying capacity is surpassed when respiration exceeds production. Similarly, if energy, money, or technology available to maintain an economic system is inadequate, then the system may become disorderly (if, as will be seen later, other resources cannot be substituted for the missing ones) and soon default.

Overshoot patterns followed by default do occur in natural ecosystems creating “boom and bust” patterns (i.e. a particular population over breeding and over exploiting their environment). Human systems are recognized as well for their potential to overshoot their sustainable limits (optimum carrying capacity). For example, large-scale urban development tend to overshoot their unsustainable limits due to: a) detrimental self-crowding effects (i.e. pollution, congestion and rising cost of schools, taxes, and police protection) are not felt until sometime after the optimum density has been exceeded; b) money is seldom made available for growth management or land-use planning until congestion and traffic become major problems; c) not all groups benefit equally from growth in size; and d) the mystique of growth persists from the early periods when growth and development were necessary and desirable (Barrett and Odum, 2000). In reality, such large urban systems have overshot not only their economic base but also their regional life support base. This is particularly striking for the new megacities (cities with more than 8 million people) of the late 20th to early 21st century. Even for regular size cities such as Vancouver (Canada), the footprint can be as large as 20 times the size of the city itself. For megacities this footprint is even much larger. The “footprint” idea is one that was developed in the 1990s by Wackernagel and Rees to assess the environmental impact of human demands on capital stocks, physical flows, and corresponding ecosystems areas to support the economy. What resulted was a term called ecological footprint (EF), which is a measure of the consumption of renewable natural resources by a human population.

MARM: Multidisciplinary Ocean Studies 3

A country's EF is the total area of productive land or sea required to produce all the crops, meat, seafood, wood and fiber it consumes, to sustain its energy consumption and to give space for its infrastructure. The EF can be compared with the biologically productive capacity of the land and sea available to that country’s population and is usually measured in number of hectares available per capita. According to UNEP (the United Nations Environmental Program) at least 12 percent of the ecological capacity, representing all ecosystem types, should be preserved for biodiversity protection. Accepting this value, one can calculate that from the approximately 2 hectares per capita of biologically productive area that exists on our planet, only 1.8 hectares per capita are available for human use. It is somewhat expected that human have overshot these conservative estimates, but by how much? Figure 1 below shows average ecological footprints for major world regions. It is not surprisig that developed countries show the highest ecological footprint (i.e. the United States appear with 3rd highest value of 9.6 hectares per capita) whereas developing nations show much lower footprints (India and China have values of 0.8 and 1.5 hectares per capita, respectively; Figure 2). Correspondingly, the ecological footprints are not spread homogeneously even within similar economies. As was mentioned before, large urban systems tend to have a much larger footprint than rural system, a concept that is illustrated in the map below (Figure 3).

Figure 2. Citizens of some nations have larger ecological footprints than citizens of others. Shown are ecological footprints for average citizens of large world regions (Source: UNEP).

MARM: Multidisciplinary Ocean Studies 4

Figure 3. Map illustrating worlwide "Footprint Intensity". The darker the color, the higher the concentration of consumption. This value can be high because of high population density (India and China; urban vs. rural), because of high consumption (North America), or because of both (Europe) (Source: Global Footprint Network and UW Madison). Coastal areas are some of the most productive and biologically diverse on the planet. Of the 13,200 known species of marine fish, almost 80% are coastal. The world's oceans play a crucial role in maintaining the health of the planet's ecosystems and serve as a valuable current and future food source for humankind. Hence, although coastal systems are critical for economic development, this latter cannot occur without consideration of the state of environmental systems and their potential for renewal (sustainability). For example, since more than two thirds of the human settlements in coastal zones are characterized as urban, some of them with population densities as high as 2,000 people/km2, the impact of human activities now has the potential to be focused on these ecologically and economically sensitive regions. 1.2 Ocean resources and use of the ocean In addition to the essential functions oceans perform in maintaining the physical and chemical environment of the earth, the oceans provide vast resources and options to support human activities, whether these are related to transport, energy, food products, or recreation/real estate. The oceans have played a substantial role in the recent past in supporting human economies particularly with respect to resource exploitation. Here we will concentrate on the two major ones: offshore fossil fuel production and fisheries. Much potential exists for the expansion of resource exploitation from the ocean (i.e. ocean mining, aquaculture, ocean energy conversion) and these economic activities will with no doubt fuel future growth and contribute more and more to supporting human activities in the future. One such activity for example is the installation of marine wind farms for the conversion of wind energy into usable electricity. At present, there are about a dozen offshore wind farms operating worldwide, mostly centering around Denmark (Figure 4), Holland, Sweden, Ireland and the United Kingdom. Although wind energy is growing fast as an alternative energy source, it still contributes but a minute amount of the energy requirements of our economy (Table 1). Future development of this source of energy is thus tied to the economic feasibility (and technological) constraints of exploiting wind farms in offshore environments. We will later explore in more detail the link between resource exploitation and technological change. In the meantime, we will focus our discussion on two “conventional” resources extracted from the oceans.

MARM: Multidisciplinary Ocean Studies 5

Figure 4. Situated 8 to 12 miles (14 to 20 kilometers) off the west coast of Denmark, the Horns Rev wind farm is the world's largest. The 80 turbines are spread across 7.7 square miles (20 square km), with blades stretching 360 feet (110 meters) into the air. Completed in 2003, the project added 160 megawatts (MW) of power-generating capacity to the country's electrical grid, and it is expected to produce nearly 2 percent of the nation's electric power. European nations have plans to add nearly 5,000 MW of wind power production in the coming years, and nearly 50 wind farms have been proposed for U.S. waters.

Table 1. The U.S. accounts for roughly 16 percent of the world’s wind power generating capacity. Although U.S. capacity is now nearly 6,400 megawatts (MW), and is being produced a competitive prices, wind power supplies less than one percent of current U.S. energy needs. (Source: U.S. Department of Energy).

1.2.1 Ocean oil and gas production The world’s production of oil increasingly comes form the ocean. Data from the last decades of the 20th century show that offshore production rose to account for up to a quarter of total production by the early 1990s (Figure 5). Offshore production constitutes now >30% of total production and still increases as deep-water deposits are increasingly being accesses and exploited (see section 2.2.2).

MARM: Multidisciplinary Ocean Studies 6

For example, the production from offshore wells in the Gulf of Mexico has increased almost exponentially since the early 1990s, thanks in large part to the rapid increase in deep-water extraction (Figure 6).

Figure 5. Total and offshore world crude oil production (offshore production, in blue, are presented as a percentage of the total production).

Figure 6. Panel a) Proportion of U.S. crude oil production that comes from the Gulf of Mexico since 1950. Panel b) Total production of crude oil Gulf of Mexico and recent proportional increase from the production that comes from deep-water wells.

Gas production from offshore is also expected to grow in the future as the demand for cleaner fuels grows. Similarly to deep-water oil exploitation, newer and more efficient drilling/extractive technologies will facilitate the recovery of natural gas from deeper and more “hostile” environments. Of particular interest will be the development of submerged production operated completely by remote control.

Despite the advances in technology and economic incentives to explore for deeper deposits, oil production has been steadily declining since it reached its peak in the U.S. (Figure 7). Hence, as the

MARM: Multidisciplinary Ocean Studies 7

U.S. future need for oil is projected to increase steadily (particularly to sustain the growth in transportation), the “oil gap” is anticipated to widen substantially in the next decades. To resolve this issue of potential scarcity, the U.S. will have to face market pressures of price increases and/or resolve this dependency by either factor substitution and technological change. Both of these later economical concepts are explored in Section 2.2 below.

Figure 7. U.S. crude oil production showing a peak in the 1970-1990s. (Source: U.S. Department of Energy). 1.2.2 Fisheries production Fishery resource exploitation is the second most valuable use of the ocean. World wildcatch of fish and shellfish has tripled since the 1960s. In the same period, however, the farmed fish production has increased by an order of magnitude (Figure 8a). During the 1960-1970s, wildcatch production has increased at about twice the rate of the world’s population growth suggesting a shift in protein consumption towards ocean products. In contrast to fossil fuels, fish resources appears to be infinite due to its renewable nature. However, a quick analysis of per capita production (Figure 8b) shows that production has leveled off by the early 1970s suggesting that increases in fisheries have not kept pace with world population growth.

Figure 8. Panel a) Global fish production from wild catch and aquaculture sources. Panel b) Per capita global fish production from wild catch and aquaculture sources. (Source: UN-FAO).

MARM: Multidisciplinary Ocean Studies 8

Several issues exist when one considers fisheries:

- First, global fisheries statistics are maintained only by one institution, the Food and Agricultural Organization (FAO) from the United Nations, which relies on catch statistics provided by member countries. Recent research (c.f. Watson and Pauly, 2001) has questioned the validity of these latter statistics, particularly in the case of China's suspiciously high reports of fish catches in the Yellow, East China, and South China seas from 1980 to 1995. The over reporting of fish catches by China is rather intriguing because most fishers, for obvious reasons, tend to under-report their catches, and consequently countries tend to under-report their overall catches to FAO. Why should China differ from other countries in this respect? Watson and Pauly suggest that this discrepancy originates in the political structure of China in that State entities that monitor the economy are also given the task of increasing its output. Hence, because internal promotion within this political system is based (or at least until recently) on the basis of production increases, positive distortion of fish catches carries a political weight that is independent of true economics or ecological indicators. This type of distortion is problematic because, as Watson and Pauly suggest, it "may influence unwise investment decisions by firms in the fishing sector and by banks, and prevent the effective management of international fisheries".

- Second, more than 90% of fisheries exploitation occurs in the 200-mile coastal zone that usually comprises the continental shelves and margins. These environments are the most productive areas of the oceans, but at the same time they are the most vulnerable to the disruptive influence of coastal development (pollution input, diversion of freshwater inflow, oil and gas exploitation, transportation, urbanization, etc).

- Finally, many fish stocks have been overexploited leaving only a fraction of the stocks that once existed. For example, Myers and Worm (2003) have studied the impact of overfishing on the depletion rate of large predatory fish communities (i.e. tunas, sailfish and swordfish). In all cases, industrialized fisheries typically reduce the community biomass by 80% within 15 years of exploitation (Figure 9) with many large predatory biomass communities dwindling at 10% of their pre-industrial biomass levels. The issue with such a trend is twofold. Initially, fish stocks may become too depleted to even recover on their own, even if exploitation were completely banned (see for example the case of the east coast cod fisheries). Secondly, fisheries management based on recent data alone may be misleading, and provide minimum estimates for unexploited communities, which could serve as a “missing baseline” needed for future restoration efforts. A recent analysis based on fish landings data collected between 1950 and 1997 by the Food and Agriculture Organization of the United Nations (FAO) show that many world continental shelf areas have passed their peak in terms of productivity (metric tons/km² continental shelf) with a subsequent decline in multispecies catches (Figure 10). Hence, the present trend of overfishing, wide-scale disruption of coastal habitats, and the rapid expansion of non-sustainable aquaculture enterprises seem to pose a threat to the ocean food security. As demand for protein increases in the future, demand for farmed fish will increase as well, but without further adding stress to coastal systems

MARM: Multidisciplinary Ocean Studies 9

Figure 9. Modeled declines in predatory fish stocks as a function of time. The models was developed by Myers and Worm (2003) using data on fish communities from four continental shelves and nine oceanic systems. In this figure, the average results are plotted using the average and extreme values for the observed rate of decline (11 to 21%) and residual biomass proportion (8 to 14%).

Figure 10. This map illustrates the pattern of the expansion. Peak catch took place in the North Atlantic before the 1970s, and as exploitation pattern shifted towards more underexploited areas Eastern Pacific and Central Atlantic reached the peak during the 1980s. The pattern has further extended into South and Western Pacific in 1990s. The percentage in each area reflects the decline in the fish catch from the peak year to the latest catch estimates in 1997.