Environment and income

The relationship between income and the environment is an interesting topic to consider on many levels.

In terms of per capita income, we might associate higher income with higher concern for the environment for a couple of reasons.  Countries with higher per capita income have already progressed through a long period of economic growth and development, have witnessed loss of environmental quality and may develop preferences for higher environmental quality.  People may develop a sense of environmental awareness only after they've seen damage first hand.  Further, "green" goods and services are often more expensive than goods that create more environmental harm.  In short, wealthier households 1) may have a preference for and 2) can afford to buy organic products, solar panels and electric vehicles.

There is a lot of data that you could use to support these arguments, including time series analysis of polls addressing concern for the environment (note that the dips in the green line are highly correlated with recessionary periods. Also note the spike during the Deep Water Horizon spill), cross section analysis of spending on "green" products by income levels, or membership in environmental organizations by income levels. 

In terms of aggregate income measures, economic growth tends to result in a structural shift away from activities that create a lot of pollution.  In the initial stages of growth, economies tend to transition from the production of raw materials to agricultural products and then to manufacturing (all of which are relatively "dirty" endeavors). Once "developed", nations tend to outsource these activities to nations with lower wages (following the principle of comparative advantage) and focus production on services and high-tech activities which are relatively clean. We can look at growth in emissions, pollution or rates of deforestation to support these claims. Over the course of this semester, we've seen numerous examples of the association between high discount rates and overuse of natural resources.  

The above two lines of thought provide support for the Environmental Kuznets Curve (EKC) hypothesis, which suggests an inverted u-shape relationship between pollution (on the vertical axis) and aggregate income (on the horizontal axis).  Overall however, the evidence is mixed at best.  There is little doubt that richer countries use significantly more energy and have higher ecological footprints on a per capita basis than poorer countries.  Aside:  Here is a fun little quiz to measure your ecological footprint. Mine is pretty bad (144 basketball courts, yikes!), largely due to a lot of international travel, two cars and a fairly large house. 

Why does the relationship between income and the environment matter? What are some research questions that could be addressed on these topics? How might a better understanding of this relationship (at the household or national level) lead to better policy?

Valuation

As we move on to new topics, let's continue to consider the importance of 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

Wetlands 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. 

Incentives, Costa Rica and PES

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. 

While it is certainly true that people behave in ways that we can’t always predict, 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. Individually it does not feel like we’re doing much, but in the aggregate our actions often have significant adverse effects on the environment. 

Yes, some people act in ways that benefit the environment some of the time, but 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 an important role.  Monetary incentives that affect household-level costs and benefits also can be an effective tool in some situations. These incentives come in many 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 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.

Command-and-control vs. Incentives

More reading on command-and-control vs Incentive-based policies:

Harrington, W., & Morgenstern, R. D., 2007. Economic incentives versus command and control: What’s the best approach for solving environmental problems? In: Acid in the Environment (pp. 233-240). Springer US.

 

Austin, D. 1999. Economic Instruments for Pollution Control: A Brief Overview, World Resources Institute, Washington DC.

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. 
Read about international experience with incentives here

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.

Costs and benefits of fracking

A new study in the journal Annual Review of Environment and Resources summarizes the environmental costs and benefits of fracking, based on a review of 165 academic research articles and databases.  Read a summary here at Science Daily.  The full article is available here.

The article highlights some important tradeoffs, and does a nice job dispelling some myths. Perhaps the most important point is that there is still a lot that we don't know about this controversial procedure.

What do we know?  Fracking uses a lot of water, but the use of natural gas instead of coal, nuclear or ethanol saves a lot of water.  Groundwater contamination is possible (and not as likely as you might think according to the study), but contamination of the air with C02 is decreased significantly.

Fracking will most certainly continue. A massive source of energy is not going to be ignored. Basic supply and demand tells us that this will delay the transition to renewables, perhaps for a long time. The principle questions are what to do with the waste water and whether research into the costs and benefits can take place at a rate that parallels the growing demand for cheap energy.

Welcome fall 2014 students

Welcome to the Natural Resource Economic blog!

This blog is used almost exclusively by my students and former students for the purposes of discussing current events related to topics in natural resource econ.

This semester there are about 50 students at UNC Wilmington and 9 students from CERMES UWI- Cave Hill.

I hope that you find my posts interesting and relevant. Your contributions should be well thought-out and objective. I hope you also can provide links to additional reading when you see the opportunity.

In the news part 3: SB 729

State Bill 729 is the Coal Ash Management Act of 2014, which calls for Duke Energy to remove or close all of its 33 coal ash dumps ("ponds") by 2029. The bill, currently making its way through the State Senate, also requires several "high risk" sites (including the local Sutton Lake site and the Dan River site) to be removed within 5 years.  Intermediate-risk sites will have to be removed within 10 years and low-risk sites will have to be removed or "closed" within 15 years. "Closing" a coal ash dump means that the site is capped and left in place.

Duke Energy, the largest power company in the U.S, has suggested that they need 30 years to close or remove all the sites and that this will be a very expensive venture, given that there is roughly 100 million tons of coal ash to be dealt with across the state. The bill prohibits the costs from being passed to taxpayers, but leaves room for Duke to increase utility rates to offset the costs. I think we can all expect to pay more for electricity soon.

Environmental groups are saying that this is a step in the right direction, but it could still allow for pollution of ground water, given that all of Duke's14 power plants and all 33 coal ash ponds are located near rivers or lakes that supply drinking water to municipalities. The bill allows some coal ash to be stored in unlined landfills or stored on site.

Coal ash contains numerous toxins, including arsenic, selenium, chromium, lead and mercury. Selenium pollution from coal ash in Sutton Lake has been linked to fish deformities and premature mortality according to a study by Wake Forest University Professor Dennis Lemly. More on that story here. Note the economic values attributed to the fish loss, and the use of "replacement cost" values as an indicator of opportunity cost.

As many of your are aware, all of this action was prompted by a spill of 39,000 tons of coal ash and 27 millions of gallons of coal ash waste water into the Dan River in Eden NC in February of this year.

This could all get much more complicated in the coming months, because the EPA will issue new national coal ash standards in December 2014. 

What works in fisheries management

Repost:

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

You don't have to take an economist's word for it.  Read more here and here and here and here.

In the news part 2: Preservation via command-and-control

Related to the topic of land rents, last month the Obama administration proclaimed nearly a half-million acres of land in south-central New Mexico as a national monument. The area is called the Organ Mountains-Desert Peaks National Monument and will managed by the Bureau of Land Management as part of the US system of national conservation lands.

Read about it here at the Whitehouse.gov

Here is an editorial on the topic in the Tampa Tribune that also appeared in today's Wilmington paper

Related to topics this week, today, the Obama administration will announce the creation of the world's largest marine sanctuary. The Pacific Remote Islands Marine National Monument will protect 782,000 square miles (for perspective, that's about 3 times the size of Texas) from all human activity.

Read about it here at the Washington Post

Note that all 3 stories cite economic value as a benefit of conservation!

In the news, part 1

There has been a lot of environmental news lately.

At the national level, last week the White House unveiled a new plan to cut carbon emissions from power plants. The target for the emissions reductions is 30 percent below 2005 levels, but each state has its own target (performance standard) based on current emissions.  Emissions from power plants are the largest single source of CO2 in the U.S., and most of the existing power plants are more than 40 years old. It's important to note that U.S. emissions have been declining since 2005, so some of the reductions have already been met. 

This was interesting on a couple of levels. First, because of a 2007 Supreme Court ruling that gave the EPA authority to regulate CO2, coupled with a 2009 "endangerment finding" the President did not need approval of Congress for this new measure.

Second, the rules allow each state flexibility in terms of how they reach their target. States and power plants can use technology to directly reduce emissions (e.g. better scrubbers), they can covert coal plants to natural gas, they can subsidize or otherwise promote renewable energy sources, or they can engage in cap-and-trade systems.  Combining a standard with this flexible approach should offset some of the efficiency loss, but we can probably expect energy prices to rise. However, the EPA suggests that the benefits will be 8-12 times greater than the costs. The benefits of the new rules are estimated to be between $55 and $93 billion, which includes avoiding thousands of premature deaths and over 100,000 asthma attacks per year, in addition to slowing climate change, enhancing agricultural productivity and reducing ecosystem and species loss.

Finally, one day after the announcement, China announced a plan to place a cap on CO2 emissions as part of its next 5-year plan.

Questions to consider: 
Who is against the new regulations and why?
Who is in favor of the new regulations and why?
How will cap-and-trade work in this situation?
Will Pigouvian taxes or subsidies play a role?
What non-market costs and benefits might be affected?
What are the implications of China's announcement?

Objective responses please.