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Currently, our market economy as embedded in a capitalist system does not account for the sustainability of the environment on which scarce resources it relies beyond their market value. The environmental throughput in the form of CO2 emissions as a consequence of the energy consumed by the market for its economic growth is considered an externality for which the market does not account. This has led to a situation of overshooting the Earth’s environmental capacity to the extent that our human society risks collapse within this century. This paper researches the question of how our mainstream economic theory must change to ensure a sustainable way of life for the current and future generations under the environmental boundaries.
According to mainstream economic theory, a price on externalities like CO2 emissions lowers their consumption, and substitutes are found. Although this might reduce CO2 emissions, it does not prevent other environmental damages, like biodiversity loss. The price of the Social Cost of Carbon (SCC) is currently calculated by governing bodies via Integrated Assessment Models (IAMs) which in this paper is represented by the work of William Nordhaus and his Dynamic Integrated Climate-Economy (DICE) model.
Contrary to the neoclassical economic theory we research the transdisciplinary field of ecological economics, represented by Kate Raworth and her Doughnut model. This paper explores the shortcomings of mainstream economic theory to develop economic thinking beyond the management of scarce resources in a limited market economy towards the sustainable management of our planetary household and its species well-being. The research method in this paper is the analysis of secondary sources, more specifically academic literature, reports, journalistic articles, and results of climate models.
It is concluded that ecological economics sufficiently extends mainstream economic theory around environmental accountability to constrain economic growth and mitigate harm to the Earth’s system. IAM modelling is highly arbitrary and must be seen as one of many tools of political-environmental decision making. A high carbon emissions price is nonetheless required to reduce carbon emissions. The question, if the political mainstream adopts the principles of ecological economics fast enough to avert the worst climate consequences, remains unanswered. The current level of green policy implementation is not analysed.