Environmental credit crunch
Encyclopedia
The term environmental credit crunch refers to a crisis (which may be economic in origin) which exposes humanity's inability to indefinitely consume finite natural resources in order to sustain economic activity and a standard of living. The term is often juxtaposed with the financial credit crunch
of 2008.
allows a borrower to increase today’s standard of living at the expense of some future standard of living. Thus in financial terms, credit allows a consumer to spend a large amount of money today (raising their standard of living) while reducing their disposable income as the debt is repaid (lowering their future standard of living relative to its potential). In environmental terms, credit can be thought of as raising today’s standard of living through the consumption of finite resources (like oil
). This action will lower the future standard of living, as future consumers will be denied to opportunity to consume.
A credit crunch occurs when the act of using credit is no longer possible, normally as a result of a significant exogenous shock. A financial credit crunch
is normally the result of a sharp decline in the willingness of banks of financial markets to lend money. In environmental terms, the credit crunch comes about as finite resources are depleted significantly.
. Earth Overshoot Day
is the point in the year at which the world economy moves from generating growth with renewable resources, to generating growth with non-renewable resources. After Earth Overshoot Day
, humanity is dependent on environmental credit to sustain its standard of living. Currently just over a quarter of the year is spent living on environmental credit.
The most detailed examination of the environmental credit crunch and its interaction with the financial credit crunch occurs in “From Red to Green? How the financial credit crunch could bankrupt the environment” by Donovan and Hudson. This argues that the financial credit crunch will have both positive and negative consequences for the simultaneous environmental credit crunch. As a result, policy makers need to be more flexible in their responses to both credit problems.
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
of 2008.
The concept of credit in an environmental sense
CreditCredit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
allows a borrower to increase today’s standard of living at the expense of some future standard of living. Thus in financial terms, credit allows a consumer to spend a large amount of money today (raising their standard of living) while reducing their disposable income as the debt is repaid (lowering their future standard of living relative to its potential). In environmental terms, credit can be thought of as raising today’s standard of living through the consumption of finite resources (like oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
). This action will lower the future standard of living, as future consumers will be denied to opportunity to consume.
A credit crunch occurs when the act of using credit is no longer possible, normally as a result of a significant exogenous shock. A financial credit crunch
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
is normally the result of a sharp decline in the willingness of banks of financial markets to lend money. In environmental terms, the credit crunch comes about as finite resources are depleted significantly.
Earth Overshoot Day
The concept of an environmental credit is aligned to Earth Overshoot DayEcological Debt Day
Ecological Debt Day, also known as “Earth Overshoot Day”, is the calendar date each year in which the total resources consumed by humanity will exceed the capacity for the Earth to generate those resources that year...
. Earth Overshoot Day
Ecological Debt Day
Ecological Debt Day, also known as “Earth Overshoot Day”, is the calendar date each year in which the total resources consumed by humanity will exceed the capacity for the Earth to generate those resources that year...
is the point in the year at which the world economy moves from generating growth with renewable resources, to generating growth with non-renewable resources. After Earth Overshoot Day
Ecological Debt Day
Ecological Debt Day, also known as “Earth Overshoot Day”, is the calendar date each year in which the total resources consumed by humanity will exceed the capacity for the Earth to generate those resources that year...
, humanity is dependent on environmental credit to sustain its standard of living. Currently just over a quarter of the year is spent living on environmental credit.
Development of the concept
The use of the term “environmental credit crunch” began to emerge as academics tried to highlight the extent of the potential disruption of environmental depletion in economic terms by using language associated with the ongoing financial credit crunch. The phrase "environmental credit crunch" was used to evoke the scale of the challenge (and the need for a policy response) as early as October 2010, as the financial credit crunch was starting to take hold. The Chartered Institute of Water and Environmental Management in the UK was one of the earliest to adopt the phrase as part of their campaign for dramatic policy action. World Wild Fund for Nature Director General James Leape also used the phrase around the same time.The most detailed examination of the environmental credit crunch and its interaction with the financial credit crunch occurs in “From Red to Green? How the financial credit crunch could bankrupt the environment” by Donovan and Hudson. This argues that the financial credit crunch will have both positive and negative consequences for the simultaneous environmental credit crunch. As a result, policy makers need to be more flexible in their responses to both credit problems.