Co-evolutionary Economics: How Economy and Environment Adapt Together

The economy and the environment are not separate systems operating in isolation. They are deeply intertwined, continuously shaping and reshaping each other in a process that has been unfolding for thousands of years. Co-evolutionary economics is the field that studies this dynamic relationship – how economic activities alter natural systems, and how those altered natural systems, in turn, force economies to adapt. It is a perspective that treats the economy not as an independent machine but as an embedded component of human culture evolving alongside its environment.

What is co-evolutionary economics? 🔗

At its core, co-evolutionary economics rejects the idea that the economy operates above or outside the natural world. Traditional economic models tend to view the environment as a passive resource pool – something to extract from and dump waste into. Co-evolutionary economics takes a fundamentally different view. It recognises that economic and ecological systems interact and evolve together, much like species in a biological ecosystem adapt to each other over time.

Here is how the cycle works: economic activities – farming, manufacturing, energy production – change the natural environment. Those environmental changes then create new conditions that force economic systems to adapt. This adaptation, in turn, changes the environment again, and the loop continues. The process is ongoing, without a fixed endpoint. Economies and environments are locked in a perpetual dance of mutual transformation.

This framework has deep roots. John M. Gowdy’s foundational work on co-evolutionary economics examined this relationship across three broad types of societies: hunter-gatherers, agriculturalists, and modern market economies. Each of these transitions illustrates how profoundly human economic behaviour and the environment have shaped one another.

From hunter-gatherers to agricultural settlements 🔗

The earliest human societies provide a powerful example of co-evolution in action. For roughly 300,000 years, humans lived as hunter-gatherers in small, mobile groups that moved with the seasons and the availability of food. Their economic activity – hunting, fishing, gathering – was shaped entirely by the natural environment. The environment dictated what was available, and humans adapted their behaviour accordingly.

Then, about 12,000 years ago, something changed. The Holocene epoch brought a period of climate stability and warmer temperatures. This made wild grains more reliable and abundant in certain regions. Humans began depending more heavily on these grains, and that growing dependence gradually led to the development of agriculture.

The shift to permanent settlements 🔗

As humans learned to cultivate crops and developed food storage technologies – drying, smoking, sealing – they no longer needed to follow migrating herds or seasonal plant cycles. Permanent villages and towns emerged. Pre-industrial agricultural societies reached population densities roughly 100 times higher than those of even the most abundant hunter-gatherer groups, even without fossil fuels.

But this economic shift did not happen in a vacuum. Settled agriculture transformed the environment in profound ways. Forests were cleared for farmland, water systems were diverted for irrigation, and concentrated populations produced waste that local ecosystems had to absorb. These environmental changes then fed back into the economic system – soil exhaustion forced communities to develop new farming techniques or relocate, water scarcity prompted the construction of irrigation infrastructure, and deforestation created resource shortages that drove innovation.

This is co-evolution at work. The economic shift to agriculture changed the environment. The changed environment then demanded further economic adaptation. Neither system remained static.

The rise of energy dependence 🔗

If the transition from hunting and gathering to farming was the first great co-evolutionary shift, the Industrial Revolution was the second – and arguably the more dramatic one.

Coal and the beginning of fossil fuel dependence 🔗

Until the mid-18th century, agriculture and the broader economy relied almost entirely on solar energy stored in organic systems – wood, animal power, human labour. After 1750, new energy systems based on coal and steam production emerged, fundamentally reshaping the relationship between economy and environment. Coal-powered factories enabled mass production, urbanisation, and a dramatic expansion of economic output.

But coal dependence also transformed the environment at an unprecedented scale. Air pollution from burning coal darkened skies over industrial cities. Landscapes were scarred by mining operations. Rivers became conduits for industrial waste. The environment, in response, pushed back – respiratory diseases, water contamination, and resource depletion forced societies to develop new regulations and technologies.

The shift to oil and exponential energy growth 🔗

By the mid-19th century, oil began to surpass coal as the dominant energy source. This accelerated the jump in human population from one billion in 1800 to over six billion within a single lifetime. The energy available per person grew enormously. During hunter-gatherer times, each person had access to roughly one unit of energy equivalent (their own muscle power). By the late 20th century, the global average had risen to approximately 20 human energy equivalents, and in the United States, that figure reached about 93.

This massive growth in energy consumption has been made possible by drawing down vast stocks of non-renewable resources. But the environmental consequences have been equally massive – greenhouse gas accumulation, biodiversity loss, soil degradation, and ocean acidification. None of these trends is reversible through any currently known technological intervention, which makes the co-evolutionary dynamics of our current economic system particularly urgent.

Joint production and ecological evaluation 🔗

One of the most practical contributions of co-evolutionary thinking to economics is the concept of joint production. This idea has fundamentally changed how ecological and environmental economists evaluate industries and manufacturing processes.

What is joint production? 🔗

Joint production refers to the fact that several outputs necessarily emerge together from a single productive activity. When a factory produces a desired good, it also inevitably produces by-products – some useful, many harmful. This is not an accident or a failure of engineering. It is a physical necessity rooted in the laws of thermodynamics.

Consider crude oil refining. The process yields gasoline, kerosene, and heating oil – all desired products. But it also unavoidably generates sulphurous wastes and carbon dioxide emissions. Or take electricity generation from coal: producing one kilowatt hour necessarily creates 68 grams of ash, 0.8 litres of waste water, and 5.4 cubic metres of waste gases. There is no way to produce the electricity without also producing the waste.

Why joint production matters for environmental economics 🔗

The significance of this concept lies in its ex ante nature. Traditional mainstream economics uses the theory of external effects to deal with environmental damage. In that framework, environmental harm is only recognised and addressed after it has already occurred – it is an ex post approach. A factory pollutes a river, people get sick, and then regulations are enacted.

The joint production framework, championed by ecological economists like Stefan Baumgärtner, Malte Faber, and Johannes Schiller, flips this logic. Because we know that every production process necessarily generates waste and by-products, we can anticipate environmental problems before they occur. Environmental impact assessment becomes part of the production design, not an afterthought.

The soda-chlorine industry: a cautionary tale 🔗

The history of the soda-chlorine industry powerfully illustrates this co-evolutionary dynamic. In the late 18th century, the textile industry needed potash for bleaching, which was derived from burning wood. Producing one ton of potash required approximately 1,400 tons of birchwood. This quickly led to deforestation – a classic environmental response to economic activity.

Resource scarcity then drove innovation. The Leblanc process for synthetic soda production was introduced in 1822. But manufacturing 100 kg of soda also produced 69 kg of toxic hydrogen chloride gas, 68 kg of calcium sulphide, and 83 kg of carbon dioxide – all joint products. The poisonous emissions caused severe health problems in surrounding communities for decades before the Chlorine Alkali Bill of 1864 forced manufacturers to address the issue.

New technologies were then developed to convert hydrogen chloride into useful chlorine products. Over time, demand for chlorine grew so much that soda became the by-product rather than the primary product. What was once an unwanted waste became a valued commodity – an example of how joint products can shift from undesirable to desirable depending on economic circumstances.

But the story does not end there. Chlorine-based compounds eventually led to the development of CFCs (chlorofluorocarbons), which were widely used in refrigeration and insulation. It was not until 1974 that scientists discovered CFCs were destroying the ozone layer. The environmental damage required a global response – the Montreal Protocol of 1989 – and projections suggest the ozone layer will not fully recover until around 2050. The entire story spans nearly three centuries of co-evolutionary interaction between economic innovation and environmental consequence.

Why co-evolutionary economics matters today 🔗

The co-evolutionary perspective is not just an academic exercise. It has concrete implications for how we think about current economic and environmental challenges.

Rethinking economic evaluation 🔗

Co-evolutionary economics has pushed ecological and environmental economists to adopt joint production frameworks when evaluating industries. This means that when assessing the true cost of a product, economists now consider the full range of outputs – not just the desired goods but also the waste, emissions, and ecological disruption that inevitably accompany them. This is a more honest and comprehensive accounting of economic activity.

Understanding lock-in effects 🔗

The co-evolutionary framework also helps explain why transitioning away from environmentally damaging systems is so difficult. The co-evolution of technologies and institutions has led to the lock-in of current high-carbon energy systems. Fossil fuel infrastructure, regulatory frameworks, financial systems, and consumer habits have all evolved together over centuries. Changing one element requires changing all of them simultaneously, which explains why energy transitions are so slow and politically contentious.

Informing policy with a long-term view 🔗

Perhaps most importantly, co-evolutionary economics encourages a long-term perspective. The soda-chlorine example shows that the consequences of an economic innovation can unfold over centuries. Today’s decisions about energy systems, agricultural practices, and manufacturing technologies will have environmental consequences that may not be fully apparent for generations. Policies designed with a co-evolutionary understanding are more likely to anticipate these long-term feedbacks rather than simply reacting to crises after they occur.

The economy as an embedded system 🔗

The central insight of co-evolutionary economics is both simple and profound: the economy is not separate from the environment. It is embedded within it. Economic systems are components of human culture that constantly evolve in response to the natural world – and the natural world constantly evolves in response to economic activity. This mutual adaptation has been the defining feature of human civilisation, from the earliest hunter-gatherer bands to today’s globalised industrial economies.

Recognising this co-evolutionary relationship does not automatically solve our environmental problems. But it does change how we frame them. Instead of asking how to minimise the environmental damage caused by an otherwise fixed economic system, co-evolutionary economics asks a more fundamental question: how can economic and ecological systems evolve together in a way that sustains both?

What do you think? If the economy and environment are truly co-evolving systems, can market-based solutions alone drive a sustainable transition, or do we need fundamentally new institutional frameworks? And given that the consequences of today’s economic decisions may not be fully visible for decades, how should policymakers weigh short-term economic benefits against long-term ecological risks?

References

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