Sunday, June 7, 2015

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.... 

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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.

13 comments:

Morgan Hoy said...

I think Costa Rica has set an incredible standard that the world at large should follow. Yes they are a small nation when compared to the geographic size and population of other but if they can come together and form a system in which to rebuild their environment, then why can't the rest of the world? This is yet another reason why we need to come together and adopt the Carbon Tax instead of ignoring it in hopes of an easier option. Oil is not the future, it needs to be phased out in order for our environment to survive. No matter what way I view most environmental degradation issues, they all somehow relate back to our addiction to oil.

McLeod Brown said...

I was not aware of PES before this posting, but am intrigued by since reading up on it. I'm fairly surprised Costa Rica was able to so quickly and successfully revert much of its land to its original states and cut down on its deforestation. It would appear to me that lower-income countries would have a more difficult time employing PES or at least seeing its results quickly. This makes me think that Africa would be a good place to instill PES and other incentive-based options to try and persuade them to not use all of their natural resources. Reverting back to last week's studies, this would then affect their time value of money positively for the future, and help them possibly create a better socioeconomic standing in the coming years. However, this is easier said than done as some countries are much more advanced, socially, technologically, and economically, than other countries. However, the idea still exists and it'd be interesting to perhaps try some choice modeling to see how successful PES would be in other lower-income countries.

Dr. Peter Schuhmann said...

In response to Morgan ... are we addicted to oil or are we addicted to energy? I think its energy. Oil just happens to be one of the cheapest options, and we have built a lot of infrastructure around using oil for energy as a result. I don't think anyone prefers oil as an energy source, all else equal. A carbon tax (Pigou) will certainly move the transition forward, but I'm not optimistic about it. People see the word "tax" and freak out. People and politicians also often fail to realize that environmental regulations can actually help economic growth rather than hinder it. The "environment vs. the economy" dichotomy is most often false. While the logic and economic analysis are often clear, the politics continue to get in the way.

In response to McLeod ... Costa Rica's success is indeed amazing, given their lack of resources. The government was proactive, thinking that the world would soon institute a system of carbon trading, where they would benefit from being able to sell carbon offsets to developed (polluting) nations. Unfortunately, such a system has yet to come to pass, leaving Costa Rica without a revenue stream to continue PES. When I was there last year, the Minister of the Environment stated that if the world does not start carbon trading soon, Costa Rica's conservation efforts will stall.

I agree that this solution changes the discount rate calculus entirely. That's why it can be so effective. Poor nations will be able to profit from conserving natural resources rather than profiting from destroying natural resources. With an income stream from selling carbon offsets, they will have lower discount rates and will be able to think long-term. As for Africa, I agree that the potential is great, but I'm less optimistic about the possibility for results. Instituting a PES system takes strong political will, something that many African nations currently lack. Also, forest cover only exists south of the Sahara. Of course, these are the nations that need the most help, so again, the potential is there.

Victoria Deluise said...

I took a tropical ecology class with Dr. Rotenberg a few semesters ago and this relates to what we learned about cacao farms in places like Africa and South America. A lot of land is deforested to be converted to cacao farms in these areas. There is now a large effort to introduce agroforestry to these cacao farmers which is simply sustainable forestry. In doing this, the adverse effects on the environment are lessened and there is potential for cacao production to increase based on developed agroforestry techniques. When governments invest in sustianabile decisions for natural resources the benefits of those decsions will outweigh the cost of any other use of the resource.

Christina Leeds said...

I agree with McLeod, I was surprised as well at the quickness of turnaround in Costa Rica. Dr. Schuhmann mentioned that their conservation efforts will stall due to the lack of carbon trading. I found this article that brought up a few stats about the efforts of beginning carbon trading. I never knew there was such an urge to begin pricing but upon further reading this has many impacts around the world, including Costa Rica’s case.
http://in.reuters.com/article/2015/06/03/us-carbontrading-factbox-idINKBN0OJ24Q20150603
Also, a recent article from Bloomberg mentioned the implications of a possible new global climate treaty in 2020 with the Kyoto Protocol pact ending.
http://www.bloomberg.com/news/articles/2015-05-29/un-encourages-use-of-pre-2020-emission-credits-for-climate-plans

Olivia Setser said...

Having been to Costa Rica and going through the rainforests, cloud forests, the main river that runs through Nicaruaga, through the mountains and etc.- basically all throughout the inland, their plan has worked extremely well. The land is beautiful and it's really breathtaking. The PES system has worked because it's instilled pride of the residents in their land and the quality of their land that they WANT to keep pristine. Costa Rica also disbanded their military in the 1940s after WWII, i think nobody quote me on that please, and I know that even if we zeroed the US military budget we still would have massive debt, but Costa Rica is a much smaller country, has less political influence globally, and has values that aren't purely economic. The value of the land and it's quality is extremely important to the Costa Ricans. Although the PES is, what I believe, the optimal method of conservation, it would have to be a compliment to another US policy, if it were to work.

James Glenn said...

I agree with REED after reading their statement and reading about Costa Rica. As we are in the sixth greatest extinction and it is obvious that most people or maybe the rich percent of the world does not care that we are destroying cure to cancer found in the rainforest and species that will go extinct everyday the destruction of our environment continues. incentive such a subsides or taxes maybe the only way to stop this problem. So many people are more concerned about how much money they make than the world we are killing making this money. Environmental Economics can be used to solve these problems through programs like REED, and hopefully Costa Rica will not be a victim of these foreseeable future.

James Glenn said...

This comment was meant for The REED blog because I read this woo blogs at the same time. Sorry for the confusion.

James Glenn said...

Well I fell stupid now that I see REED is in this blog to. Again sorry for the confusion.

Jawad Dughmush said...

The minister stated that Costa Rica's plans will not be sustainable. I believe governments are capable, with or without help, of finding innovative solutions for sustainability. Maybe things are more expensive to maintain but I believe with the right effort, time, and intentions issues will always be solved.

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