Economics and Thermodynamics
Of all of the physical sciences, the one with greatest potential impact on economics, is thermodynamics. What is thermodynamics? Thermodynamics is closely related to physics, but thermodynamics is not mechanical like classical physics, but instead focuses on the efficiencies of machines and processes and also focuses on long run situation of matter and energy. Thermodynamics came to prominence with rise of the steam engine and concerns for its efficiency. So you can see that thermodynamics is as much concerned with efficiency as neoclassical economics, the economics you are studying here in environmental economics. But thermodynamics has special significance to environmental economics because of its treatment of entropy (chaos). Thermodynamics asserts that overall nature favors increasing quantities of entropy (chaos). Everyone who gets very far in chemistry runs into the Gibbs free energy equation. This equation measures to spontaneity of chemical reactions. The greater the potential heat given off and the greater the increase in entropy (chaos) the more likely the chemical reaction. To put it bluntly the world is unraveling or decaying on its own as a place fit for human habitation. This is a major way thermodynamics differs from physics. In physics processes or models are mechanical. Of course if a process is mechanical it is reversible. Economics has in fact adopted much of the philosophy of classical physics; you may not that the supply and demand models in the text are very mechanical. This is no accident.
Thermodynamics, distinct from physics, says that some process are not reversible. Nature favors increasing chaos. Another way of looking at this is the transformation of energy, particularly from fossil fuels. Consider coal burned in a steam locomotive. The energy in the coal is useful to us because it is in a free energy form, that is, it is free energy. When we burn the coal in the steam engine, we generate steam, and the locomotive does its work for us. What is left after the coal is burned is ashes. Now thermodynamics acknowledges that energy is conserved, but in the process of burning the coal the energy has gone from a free form (useful to us) to a bound form (useless to us). Chaos has increased as energy has been transformed from a free form to a bound form. This is a degradation of the environment from man's point of view. The ash cannot be reconstituted to coal, and the bound energy cannot be reconstituted to free (useful) energy. This is a ONE WAY PROCESS. IT IS NOT REVERSIBLE. In physical mechanics this is not supposed to be the case. This constitutes a major blow to physics. Keep in mind that the process of degradation continues naturally, i.e. the coal will degrade on its own if not burned in steam engines, but that process is much slower (but still one way). Man through the burning of fossil fuels has greatly sped up this process.
The existence of this one way degradation of man's environment poses some interesting (and alarming) questions to economics, but also answers a big question - why does scarcity exist? Scarcity (a favorite theme of economics) exists because of entropy. If we could reverse the process of free energy going to bound energy there would be no scarcity and there would be no economic problem.
The implications for environmental economics and the environmental movement are even more important. Do we not have an uphill battle in trying to restore the environment because of the increasing entropy principle in thermodynamics? This of course is not to say that we don't try, but clearly we've got our work cut out for us. As far as answers to the issues posed by thermodynamics, it is clearly desirable to shift from fossil fuels to solar energy. Fossil fuels are a stock, whereas solar energy is for all practical purposes a continuous flow. But there may be a "hole in the boat," i.e. how much fossil fuel energy do we have to expend to get useful solar energy recovery equipment? That I am not qualified to answer. But clearly while we try to go solar we must slow down our use of fossil fuels to the absolute minimum. The more fossil fuels we consume the more degraded our environment will be and the less time we will have to develop solar energy technology.
Georgescu-Roegen, Nicholas "The Entropy Law and the Economic Process" Harvard 1971.