On the Practical Limits to Substitution

Ayres, R.U. (2005). On the Practical Limits to Substitution. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-05-036

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Abstract

This paper began as a commentary on a draft paper by Pezzey and Toman on the economics of sustainability (Pezzey and Toman 2002), although it has evolved considerably since then. The authors characterize economists' views on the potential for substitution of man-made capital for natural capital as a continuum between the strongly neoclassical positions of Solow and Weitzman, at one extreme and the "entropy pessimists", notably Georgescu-Roegen and Daly, at the other. Solow has argued that man-made capital can, in principle, replace all natural capital except for unique places such as the Grand Canyon (Solow 1992). He has support from some scientists, such as Goeller and Weinberg, who argued (using mercury as an example) that there is a substitute for any and all scarce materials (Goeller and Weinberg 1976). On the other hand, the entropy pessimists and "strong sustainability" advocates in general, argue that the natural resource stock of fossil fuels -- representing millions of years of accumulations of solar energy, as well as many natural ecological functions are irreplaceable. In the following, I will argue that both extremes are demonstrably inconsistent with both facts "on the ground" and -- in some particulars -- with the laws of physics. Hence the debate -- if any -- should not be framed as a contest between the two extremes. There is room for debate, but I hope to show that it is considerably narrower.

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