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.... 

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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.

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? 

Last chance

What were your favorite topics? Least favorite?
What did you gain from the course? 
If you could change the course, what modifications would you make?