Thoughts on the course?

What topics did you find most/least useful? 
Most/least interesting?
What were your main takeaways from the course?
Was resource economics what you expected?

No need to answer all of these....

Free electricity?

Check out this interesting story from the NY Times.  Lots of economics in there. 

Bag-and-tag

This week we move into a discussion of mineral extraction and a related topic: trash and recycling.

Below are links to some examples of formal bag/tag (pay-per-throw) systems in the US.

Dover, NH,
Charles County, MD
Mount Pleasant, MI
Sunnyvale, CA
Houston, TX
Duluth, GA
Tompkins County, NY
Malden, MA
Grafton, MA
Shrewsbury, MA

This is just a few. 

Here is a link to details on the success of a bag/tag program in Worcester, MA.

Success in Maine

Variations on pay-per-throw in RI


Can anyone provide international examples of pay-per-throw systems?

Good reading on the topic of waste in NC from NCSU

The idea behind these systems is a fairly straightforward application of internalizing a negative externality:  Impose Pigouvian taxes on things that cause external damage and society will be better off, because raising marginal costs creates an economic incentive for people to reduce quantity.

Here's a writer in Washington DC lamenting the lack of pay-per-throw trash disposal.

A related issue: plastic grocery bags. 

What do you think about this approach versus this approach? 

More valuation readings

Here is a great website for additional reading on valuation: 
Ecosystem Valuation

This article by john Loomis is also a good read for the "big picture": 
Economic Values without Prices (Loomis, Choices, 2005)

Here is another good summary article from Robert Mendelsohn and Sheila Olmstead:
The Economic Valuation of Environmental Amenities and Disamenities 

Settlement with BP to Resolve Civil Claims Over Deepwater Horizon Oil Spill

This came out on Monday, while most of us were engaged in watching the storm and ensuing flooding...

Attorney General Loretta E. Lynch Delivers Remarks at Press Conference Announcing Settlement with BP to Resolve Civil Claims Over Deepwater Horizon Oil Spill

Washington, DC

United States

~

Monday, October 5, 2015

Read the full Remarks as prepared for delivery 

Here are some parts that pertain to non-market valuation:   

...  The Gulf was flooded with oil.  And the Gulf coast way of life – a uniquely American way of life – was hanging by a thread.  Over the course of nearly three months, the Gulf region was inundated with more than three million barrels of oil.  And by the time the torrent stopped, it had inflicted unprecedented harm on the economy, the environment and the population of the Gulf region.  Ecosystems were disrupted, businesses were shuttered and countless men and women lost their livelihoods and their sense of security.  

... in December of 2010, the Department of Justice filed a lawsuit against BP to hold the company accountable and to provide vital relief for the people of the Gulf region.

... we have secured a historic resolution of our pending claims against BP totaling more than $20 billion – making it the largest settlement with a single entity in American history.  The resolution includes civil claims under the Clean Water Act, for which BP has agreed to pay a $5.5 billion penalty – the largest civil penalty in the history of environmental law.  It includes natural resources damages claims under the Oil Pollution Act, for which BP has agreed to pay $7.1 billion – on top of the $1 billion it previously committed to pay for early restoration work.  And it includes economic damages claims, for which BP has agreed to pay $4.9 billion to the five Gulf states and up to $1 billion to local governments.

... In addition, BP’s payments for natural resources damages will help fund Gulf restoration projects that will revitalize damaged habitats, such as coastal wetlands and support the revival of wildlife populations, including marine mammals, sea turtles, oysters and birds.  

---

I hope you see the role of non-market valuation in natural resource damage assessment. BP caused damage and should pay a fine. Many goods and services that are not traded in markets were damaged, impaired or ruined.  In order for the fine to be commensurate with the damages, we need to do the non-market valuation work.  

 

The Oil Pollution Act is an interesting piece of legislation. Enacted in the wake of the Exxon Valdez oil spill, it combines command-and-control (e.g. mandating double-hulled tankers) with Pigouvian taxation. The Valdez spill had a big impact on the subject of non-market valuation, especially as it pertains to the estimation of non-use values via the Contingent Valuation Method. 

I was an undergrad at UNCW when Valdez happened in March of 1989. Like the 2010 BP spill, it was big news.  You can see some of the images here at the Atlantic.  26 years later, while some of the natural resources in Prince William Sound have recovered, many have not. 

Costa Rica and PES

Re-post:

One of the things we learn in natural resource economics is to look at problems in terms of their costs and benefits.  By asking questions about who gains and who loses (and when, and how) we can gain an important perspective on the causes of natural resource problems. 

When given access to private benefits from natural resources, people tend to take actions that promote their own well-being. This access comes in the form of our daily contact with open-access and common property resources as well as extraction and habitat conversion on private lands. We all pollute in numerous ways to promote our own benefits (comfort, convenience, standard of living), because it’s cheap and easy to do so. As individuals, the costs we pay for access to the world’s resources are low because they are shared by everyone. 

How do we change the calculus?  Let’s try everything and see what works. Education, an appeal to “do the right thing”, and legal mandates on acceptable use, all serve important roles.  Monetary incentives that affect individual costs and benefits also can be an effective tool in many situations. These incentives come in several forms, most of which we discuss in this course.

One incentive-based method that seems to be gaining favor in developing nations is PES. PES stands for Payments for Environmental Services. The basic idea of PES is to create incentives for conservation of natural resources by transferring dollars from those that benefit from conservation to those who bear the (opportunity) costs of conservation.  

In some PES arrangements government and/or NGOs pay landowners to engage in activities to conserve or restore biodiversity. This can be as simple as letting a cow pasture revert back to its natural state or setting aside lands that would otherwise be used for another purpose. 

Costa Rica is a leader in PES and a great example of the power of this approach. From the 1940s through the 1980s, Costa Rica had one of the highest rates of deforestation in the world.  As recently as 1987, forest cover in Costa Rica was as low as 21 percent of national territory, down from over 85 percent in the early 1900s. The principle causes of deforestation were incentives for the conversion of land to agricultural uses, such as preferable tax treatment for lands used to cultivate crops and support cattle, and heavier tax burdens for “unproductive” lands (i.e. lands not used to produce market benefits). People responded to the incentives they faced. Given the costs and benefits of land use it made sense to convert lands to other uses. 

In 1996, leaders in Costa Rica decided to try to reverse this path of biodiversity loss. The main idea was simple: reward landowners for conservation rather than rewarding them for land conversion. A series of forest laws were enacted, which gave favorable tax treatment to conservation and reforestation, banned the export of primary forest products, mandated that banks provide low-interest loans for reforestation, created a system of national parks and forest reserves and, in 1997, enacted a PES system.  

Costa Rica’s PES system involves direct payments to landowners in exchange for the adoption of land uses and management techniques that provide one or more of four services:  Greenhouse gas mitigation, provision of water or other hydrological services, conservation of biodiversity or provision of scenic beauty for recreation and tourism. Payments are provided by government. Revenues from a fuel tax (ala Pigou) are a primary source of funding. Other sources of funds include sale of carbon credits to other nations and international loans. Between 1997 and 2005, a half-million hectares of forest lands were enrolled in the program. Forest cover is now over 60 percent and rising.

While this progress is exemplary, the Costa Rican Minister of the Environment recently stated that it is getting increasingly difficult to conserve. Without a system of international carbon markets, such as that which might take place through large scale adoption of REDD and REDD+ schemes, he suggested that the Costa Rican path of conservation will soon be unsustainable.

Read more about Costa Rica’s PES experience here at PaxNatura.

Read more about PES here at UNEP and at Ecology and Society.

Welcome CERMES, UWI students!

Starting this week we will be joined by 15 masters students at the University of the West Indies - Cave Hill.  These students are enrolled in the MSc in Natural Resource and Environmental Management program at The Centre for Resource Management and Environmental Studies (CERMES), and hail from 9 different countries:  Antigua and Barbuda, Barbados, Dominica, Grenada, Guyana, Italy, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago.

The CERMES students will be with us until around Thanksgiving. Their course follows the same basic outline and topic coverage. 

Welcome!

Standards and Incentives

As we move into discussion of correcting market failures, it’s important to have different perspectives and examples. Below are some links to excellent sources of information regarding standards (command and control) and incentive-based systems.

Here is some excellent reading from the US EPA on standards vs. incentives.

More detail is provided in this document (also from EPA. Note that Coase is covered on page 4-4). 
Here is a nice paper on the topic from the World Resources Institute.

Here is a link to a report on the use of economic incentives for pollution control in the US. You can use the "quick links" on the right to navigate the document.

Environmental Defense Fund has a short piece on how the use of incentives was a powerful solution to addressing acid rain.

The Environmental Literacy Council has a nice short article on standards vs. incentives.
Here's more from the World Bank.

Here is a short article on economic incentives for water quality management from the WHO.

Here is a great article by Robert Stavins on the topic.

Lots of great information in this report on Economic Incentives for Pollution Control from UNEP.


Finally, the other day in class I mentioned CAFE standards (which set minimum miles-per-gallon averages for automobiles).  Here is a site with some of the basics from the USDOT.  More here (including history of CAFE standards) from the UCS.

What are some success stories where economic incentives have been used to reduce pollution?

If incentive-based systems are superior, why do we rely so heavily on standards?

The real costs of gasoline (and electricity)

We're studying negative externalities. Externalities are an example of market failure and in the case of negative externalities are  situations where a market creates a cost that is paid by someone else.  The outcome is inefficient:  society would be better off if less of these goods were produced.

In class I mentioned pollution from automobiles as an example and suggested that the "real cost" of a gallon of gasoline is more than just the production and distribution costs, but includes higher mortality and morbidity, loss of productivity, congestion and resource depletion.  

Here is some reading on the topic:

An interview at NPR regarding a study by the IMF

A summary of a study from Duke University at ecomento (an electric car blog)

More on the Duke U. study here at Forbes

Here is the full study at Climatic Change

Are electric cars better?  It depends on where you live.

Welcome fall 2015 UNCW students

Hello class! Welcome to the Natural Resource Economics blog.
I'll use this blog to post links to readings that are relevant to our course.  Please respond with comments, links and questions.  More coming soon...

Happy Summer!

I hope you enjoyed the course. Please feel free to post your favorite or least favorite topics here. Did you learn some new and useful stuff?  What topics would you say are essential for EVS majors to understand? How about ECN majors? I enjoyed the course and our discussions very much. I hope the rest of your summer is great. 

What works in fisheries management?

Here is a great article by J. Sutinen illustrating the historical failure of command-and-control approaches to fisheries management.

ITQ systems (aka: "catch share systems") are basically cap and trade for fishing, and look like a very promising policy solution.  Here is an article from EDF on the basics.  More here from the Fish Project (Oregon Institute of Marine Biology).  Here is a nice summary from the South Atlantic Fishery Management Council.

Here is another article from EDF regarding improved fisher safety under ITQs.   

Here is a map and list of ITQ managed fisheries in the world (old data, there are a lot more now).

Read about success in Iceland (from EDF). 

Are there downsides and complications to this approach to fisheries management? Yes, of course. No policy will be a panacea.  Perfect solutions do not exist. 

Dismissal of promising policy solutions?

Cap and trade is a policy solution that works to reduce pollution faster and at lower cost than standards. We know it can work because it has been used successfully to reduce SO2 and NOx emissions from power plants under the US Acid Rain Program (trading has taken place since 1994).  It worked to expedite the removal of lead from gasoline (read pages 82-83), it worked to phase-out CFCs and halons, it worked to reduce smog in Los Angeles under the RECLAIM program, and it worked to significantly reduce emissions in the EU.  Can it work on a global scale with C02?  It seems promising. Will it be complicated? Yes. Will there be opposition? Yes. Will there be unintended consequences? Yes. Should we therefore dismiss it?

Read more here at Forbes
Here at C2ES 

REDD and REDD+

What policies can be implemented to slow deforestation?  Your first answer might be "make it illegal", via command-and-control (standards).  The problem with this approach is that it does not recognize that people lives depend on earning money from the forests.  What if poor nations could profit from NOT cutting trees rather than profiting from cutting trees?   

REDD stands for Reducing Emissions from Deforestation and forest Degradation. Think of it as a global PES system. 

The system works as follows:

The carbon stored in standing trees in a country is estimated.  Carbon losses from continued "business as usual" (BAU) deforestation and forest degradation are also estimated. The country then undergoes conservation activities to reduce deforestation below the projected BAU level.

The carbon "saved" via conservation activities is credited to the country and made available for sale in international carbon markets.  (Developed) countries (or states) that face carbon reduction requirements can reduce their own emissions and/or purchase credits on the international market.

This provides a monetary incentive to preserve standing forests as long as the profit that can be earned by selling carbon credits exceeds the profit that can be earned from various forms of development that require deforestation.

Sounds good. The skewed intertemporal and international distribution of costs and benefits are a big reason for tropical deforestation.  The benefits of deforestation are realized by current generations, but the costs of deforestation are "paid" by future generations (in large part by developing nations).  You're thinking about Hardin's Tragedy here I hope.

If developed countries buy carbon credits from developing nations, forests are preserved for future generations. Obviously there are a lot of complications and concerns. This will be true for any policy.

Read more about the basics of REDD and REDD+ here at the UN. 

FAQs here. 

Some cool videos here.

Are there problems and unintended consequences? Yes, of course.

Read more here and here.

Can these problems be overcome? 

P.S. I have a former student who is working on this REDD project.

Bag and tag in the US

Below are links to some examples of formal bag/tag systems in the US.

Dover, NH,
Charles County, MD
Mount Pleasant, MI
Sunnyvale, CA
Houston, TX
Duluth, GA
Tompkins County, NY
Malden, MA
Grafton, MA
Shrewsbury, MA

This is just a few. 

Here is a link to details on the success of a bag/tag program in Worcester, MA.

Success in Maine

Variations on pay-per-throw in RI

Good reading on the topic of waste in NC from NCSU 

 

Some reading on the economics of recycling

Here is a good read from US EPA regarding the economics of recycling in the southeast US.

Here is an excellent article from The Economist (a little long and a little dated, but well worth the read).

Here is an interesting article from CBS News that shows how much recycling depends on oil prices and the prices of recycled raw material.  

Here is a cool article from Slate that provides useful history and perspective on trash and recycling.

How to capture environmental land rents?

One of the topics for this week is land rent.  For a given parcel of land, land rent is the net gain derived from the land. The "net" in net gain pertains to benefits received from using the land for a particular purpose in excess of the costs associated with using the land for that purpose, including opportunity costs. These benefits can accrue to the property owner or to society at large.  Land tends to be allocated to the use that provides the highest rents.  Because rents from environmental uses of land tend to be non-rival and non-excludable, the market mechanism is unlikely to provide the optimal amount of land set aside for environmental purposes.  What types of policies can promote environmental uses of lands?  You might think of command-and-control approaches like zoning laws or limits on development. You might also think about incentive-based mechanisms like taxing certain uses that have deleterious effects on ecosystem services.  Below is a repost of another option.... 

--------

 

One incentive-based method that seems to be gaining favor in developing nations is PES. PES stands for Payments for Environmental Services. The basic idea of PES is to create incentives for conservation of natural resources by transferring dollars from those that benefit from conservation to those who bear the (opportunity) costs of conservation.  

In some PES arrangements government and/or NGOs pay landowners to engage in activities to conserve or restore biodiversity. This can be as simple as letting a cow pasture revert back to its natural state or setting aside lands that would otherwise be used for another purpose. 

Costa Rica is a leader in PES and a great example of the power of this approach. From the 1940s through the 1980s, Costa Rica had one of the highest rates of deforestation in the world.  As recently as 1995, forest cover in Costa Rica was as low as 25 percent of national territory, down from over 85 percent in the early 1900s. The principle causes of deforestation were incentives for the conversion of land to agricultural uses, such as preferable tax treatment for lands used to cultivate crops and support cattle, and heavier tax burdens for “unproductive” lands (i.e. lands not used to produce market benefits). People responded to the incentives they faced. Given the costs and benefits of land use it made sense to convert lands to other uses. 

In 1996, leaders in Costa Rica decided to try to reverse this path of biodiversity loss. The main idea was simple: reward landowners for conservation rather than rewarding them for land conversion. A series of forest laws were enacted, which gave favorable tax treatment to conservation and reforestation, banned the export of primary forest products, mandated that banks provide low-interest loans for reforestation, created a system of national parks and forest reserves and, in 1997, enacted a PES system.  

Costa Rica’s PES system involves direct payments to landowners in exchange for the adoption of land uses and management techniques that provide one or more of four services:  Greenhouse gas mitigation, provision of water or other hydrological services, conservation of biodiversity or provision of scenic beauty for recreation and tourism. Payments are provided by government. Revenues from a fuel tax (ala Pigou) are a primary source of funding. Other sources of funds include sale of carbon credits to other nations and international loans. Between 1997 and 2005, a half-million hectares of forest lands were enrolled in the program. Forest cover is now over 60 percent and rising.

While this progress is exemplary, the Costa Rican Minister of the Environment recently stated that it is getting increasingly difficult to conserve. Without a system of international carbon markets, such as that which might take place through large scale adoption of REDD and REDD+ schemes, he suggested that the Costa Rican path of conservation will soon be unsustainable.

Read more about Costa Rica’s PES experience here at PaxNatura.

Read more about PES here at UNEP and at Ecology and Society.

Today is World Environment Day

World Environment Day is today, June 5.  This year's WED has an economic theme:  "Seven Billion Dreams. One Planet.  Consume with Care".  The theme of sustainable consumption sounds great, and I agree that environmental degradation does not have to be a by-product of economic growth, but I worry about the free rider problem.

Read about it here at UNEP and  here at IBT (with lots of great but depressing pictures). Cool video from UNEP here. 

New EPA fracking study - the debate continues

Yesterday the US EPA released a draft report regarding the effect of fracking on drinking water.  EPA states that this report is the most complete compilation of scientific data to date on the impacts of fracking on drinking water.  Here is the executive summary for those who don't want to read the whole report.


The bottom line is twofold:

1. "hydraulic fracturing activities in the U.S. are carried out in a way that have not led to widespread, systemic impacts on drinking water resources"

2. "there are potential vulnerabilities in the water lifecycle that could impact drinking water."

Basically, EPA found that fracking has led to some damage to groundwater supplies , but the damage is not systematic and it is not widespread.  The number of incidents where groundwater is affected is described as "relatively low" given the number of wells that have been drilled.   In terms of potential impacts, the study suggests that handling the wastewater from fracking will pose more problems than the fracking activity itself.

Given the mixed news, anti-fracking and pro-fracking sides are declaring victory.  

Read about it:

Article at the WP
Article at the NYT
Article and voice-cast at NPR 
Article at the N&O



 

Valuation

The main topic for this week is non-market valuation.

Here are links to some good sources:

Why Economics Matters for Endangered Species Protection (Shogren et al., 1998)

The Role of Economic Valuation in the Conservation of Tropical Nature (Naidoo, 2008)

Conservation Pays (Yuskavitch, 2007, Defenders of Wildlife)

Marine Conservation: How Economic Valuation of Ecosystem Services Can Help (Environment Matters, 2008)

Can Environmental Economic Valuation Techniques Aid Ecological Economics and Wildlife Conservation? (Loomis, 2000, Wildlife Society Bulletin)

Of additional interest:

Economic Incentives and Wildlife Conservation (Bulte et al., 2003)

Tons of references and links here:  Economic Valuation References WRI

Reefs here and here and here

Valuation and the endangered species act here.

This is a tiny fraction of what's out there. What are your thoughts on valuation?  I'd especially like to see if students from different backgrounds look at valuation differently. When you post a reply, let us know your primary field of study. 

An incentive-based program from Duke Energy

Today our household joined the "EnergyWise" program from Duke Energy. By signing up for this program we are agreeing to let Duke install device on our AC unit that signals the unit to use less energy during periods of peak demand (but never on weekends or holidays).  In exchange for this, we get a small monetary rebate ($25) each year and a "free" LED light bulb.  This program falls under the category of incentive-based programs, but unlike most, this one is not created by government, but by the private sector.  My question to you:  Why would Duke Energy pay customers to use less energy? Don't they make profit by selling more energy?  What's going on here? 

John Forbes Nash, 1928-2015

John Nash and his wife died in a car accident this past Saturday in New Jersey.  If you've studied economics (or math, or computers, or politics or biology....), you've been influenced by John Nash. He was awarded the Nobel Prize in Economics in 1994 for his contributions to game theory.

Here is the obituary at the NYT.

Here is a story at BBC News

Here is a story at the WP

Externalities and energy

Externalities occur when the costs or benefits of a good sold in a market are not entirely paid or received by the market participants.  Negative externalities occur when someone other than the buyer or seller incurs a cost when a good is produced or consumed. Many forms of pollution can be classified as generating negative externalities. For example, when you power your car with gasoline, you pay the price at the pump, but other people "pay" a real cost because your consumption leads to air pollution which harms human and ecosystem health.  How much is that external cost?  A new study from Duke suggests that the external cost is an additional $3.80 per gallon of gasoline and $4.80 per gallon of diesel.  These external costs include healthcare costs, loss of workforce productivity, damage to crops, lost school days and higher insurance costs. This means that the "true" price of gasoline is more than $6.00 per gallon.  Society is heavily subsiding the use of fossil fuels.  Is this really a "free market"?  What is a potential policy change that could remedy this obvious market inefficiency?   

Positive externalities occur when someone other than the buyer or seller realizes a benefit from the production or consumption of a good. The use of renewable energy sources can be seen as providing external benefits to society in the form of pollution reduction and economic growth through job creation.  We know that when a market generates positive externalities, the efficient quantity will not be provided.   What is a potential policy change that could remedy this market inefficiency?  

Economics and the environment

As students begin to study the discipline of natural resource economics, there is often confusion about what the subject is about. This is especially the case when students are coming from backgrounds with only limited exposure to economics (e.g. Environmental Studies, where most student have had only one or two econ classes before this one).

Generally speaking, economists try to solve problems using a combination of theory, empirical analysis (data, statistics, math), and intuition.  For example, macro economists try to address issues such as how to keep an economy growing without significant inflation.  Micro economists might try to find the best way to maximize profit for a particular firm or industry. Natural resource economists try to solve problems associated with scarce natural resources.

Some examples from my work include:  How to maximize fishery value while balancing the competing needs of commercial and recreational fishers and maintaining a biologically sustainable stock?  How can Caribbean tourism grow without harming coral reef quality or marine turtle populations?  How can tourism serve to enhance the livelihoods of local populations?  How can governments in coastal areas respond to changes in the quality of natural resources?  What hunting regulations would maximize the net gains to society from white tailed deer populations?  Are tourists willing to pay fees to help finance conservation efforts?  What are people willing to pay to view marine turtles in the wild? Will people pay for marine turtle conservation, even if they never see a turtle in the wild?  How can these willingness to pay values be captured and used for conservation? 

Obviously, these are complex issues that require interdisciplinary effort. One of the things that I really love about what I do is that I work side-by-side with biologists, policy makers and resource users to address these problems. 

Something that should also be obvious is that these are potentially contentious issues. It is easy to get caught up in the emotion that surrounds any debate about environmental issues. Please remember that an economists job is to provide objective analysis (i.e. without personal opinion or bias).  

Below are links to two excellent essays that provide a nice perspective on the economic view of the environment.  The second essay covers non-market valuation, which we will cover in detail later in the summer. It makes a good read now however, as it sets the stage for much of what we're covering at the beginning of the class (e.g. the economic view of value).

How do Economists Really Think About the Environment (Fullerton and Stavins, RFF, 1998)
 
Economic Values without Prices (Loomis, Choices, 2005)

What are your thoughts on economics and the environment?  At the beginning of the course, do you see a role for economics in the environmental policy debate?