Posts Tagged ‘environmental economics’

If you want to give your children nightmares tonight, maybe reading the summary of the IPCC report that was released last month would be a good idea.

The report states that, ‘it is extremely likely’ that humans have been the dominant influence on observed warming since the mid-20th century. But whether you believe that the effects are man-made or not, the effects are real:

  • The rate of sea level rises have been faster since the mid-19th century than at any point in the previous 2,000 years;
  • 75% (high confidence) of the rise is due to glacier loss and ocean thermal expansion;
  • Global average sea levels rose by 0.19m between 1901-2010 and is expected to rise by 0.26m to 0.98m by 2100 (depending on which concentration path we follow);
  • It is very likely that there will be an increase in heavy precipitation events over most land areas.
  • Most aspects of climate change will persist over centuries, even if we stop CO2 emissions immediately.
  • Both rich and poor nations will be negatively affected.

Given that the effects will happen regardless of our emission path, a policy of adaptation is necessary alongside mitigation strategies.

It is often the case that any type of change brings about new markets – climate change is no different. When so many people see a problem, some people see an opportunity. Welcome to the era of environmental capitalism.

A recent Radio 4 programme called, The Great Global Warming Gold Rush, highlights a few of these entrepreneurs and companies who are making money off climate change. The Dutch water management department of Arcadis are set to benefit greatly from future flood protection schemes; they received $200m in contracts after Hurricane Katrina to prevent another flood happening in New Orleans.

Another Dutch company, Delta Sink is developing amphibious buildings and floating roads. With over 2.5bn people expected to live in coastal cities in the next hundred years, even a minute portion of the market will allow this company to have a pretty secure future.

Essentially, the Dutch have transformed a national vulnerability into a comparative advantage; they have the knowledge, the technology and the skills that they export – and will be exporting – around the world.

The programme also highlighted an example of how we can work with nature for a profit. Jason Drew grows and breeds around 8bn flies that recycle nutrients from waste (that they get paid to take!) and transform it into a cheaper substitute for fishmeal.

Entrepreneurs are by definition those that move faster than the rest of society, and their innovations can help us all adapt to climate change. But Governments need to implement policies that can steer these entrepreneurs to identify the best long term outcomes for us all, rather than just short-term fixes that make a quick buck. 

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UK waters are some of the most ecologically diverse on the planet. On the 21st of November, 27 Marine Conservation Zones (MCZ) were created – the 1st of three designation phases planned to occur over the next three years. These new sites form part of a developing network of marine protected areas, equivalent to around 9% of the UK’s water.

Available scientific knowledge for sites’ ecological and biological features determines whether a site is designated as a MCZ. Essentially, the science draws the line on the map, rather than allowing social reasons to influence the decision process. Restrictions differ depending on what the site is trying to protect; for example, fishing will not be restricted if it does not harm the features being conserved.

Despite the fact that science is the main factor in identifying sites, Impact Assessments are required by law to accompany the designation decisions. An Impact Assessment attempts to identify and quantify/monetise the actual or anticipated social, economic an environmental effects of a decision.

There are 2 important reasons why they are undertaken:

  1. It is important to determine the costs to society of protecting these areas – society should know the implications and costs of protection; and
  2. IAs can help determine management measures within the MCZs i.e. they can highlight a range of available choices on how to manage the area and the strictness of the protection.

Impact Assessments help assess whether the ecosystem offers a valuable service to society (such as offering a safe breeding ground for fisheries) or what the costs of protection are. This information can then feed back in to conducting more scientific research to justify or amend the way sites are managed. For example, if the cost of protecting a certain area of water results in access to a port being severely compromised, there will be a large societal cost. Therefore, makes sense to gather more scientific evidence to identify a scientifically important sub-section to be protected that doesn’t compromise the port.

Although economics doesn’t dictate whether a site is created, it plays an important role in terms of how it is managed; eftec has many years of experience in completing, and contributing to, Impact Assessments concerning the marine environment. In 2011, eftec completed an analysis of the potential impacts of creating a marine protected area around the Pitcairn Islands (see previous blog post on this). We have also created Impact Assessments for the Joint Nature Conservation Committee – enabling a sounder understanding of decisions to nominate marine Special Conservation Areas (2007, 2009 and 2013).

eftec are currently developing economic evidence for Defra on the gains to society of meeting government targets concerning seabed habitats in UK waters. We are also excited to be working with the Marine Management Organisation to help value the marine environment by attempting to quantify the benefits that certain ecosystems offer to society. Finally, we are part of a team to assess the social, economic and environmental impacts of achieving a good ecological status in certain French waters. This project will help determine which measures should be prioritised as part of the French government’s commitment to the Marine Strategy Framework Directive.

Creating networks of ecosystems in seawaters is important due to the mobility of life within the marine environment. It is important to look at marine sites as a network, as the value of a network can be larger than the sum of the parts. Therefore, when conducting Impact Assessments, we attempt to know how different sites link with one another so that a realistic value can be determined. Cumulative assessments should account for network effects and we should not have a narrow mind when performing these studies.

We really appreciate comments. Please think about these questions and offer any thoughts.

Do you value an individual site more if you know it is part of a network?

What kind of information would you regard as most important when designating a marine site? 1. The effect of the site on other species; or 2. The effect of the site on humans? 

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The recently-finished Medmerry managed realignment scheme, on the South Coast, is an excellent example of how society can work with nature for the benefit of all parties.

The £28m scheme involved building 7km of sea walls up to 2km inland and then  ‘making a hole’ in the existing sea wall, thus allowing the seawater to naturally come into the land. This will now protect over 300 homes, local caravan parks and businesses, a water treatment plant and a main road from a once-in-a-thousand year flood. This area was previously prone to flooding; therefore the avoided damage from this scheme will be valuable.

An important reason for the water being allowed to come inland was to create a 180Ha saltwater marshland, thus offsetting the habitats that were lost in the flood protection projects of larger cities such as Southampton and Portsmouth. The creation of this rare saltwater marsh will bring in numerous species. As well as the wildlife reserve, footpaths, cycle paths and bridleways will be opened. As a result, nature-based tourism in the area is hoped to increase, which will benefit the local economy.

By working with nature, rather than against it, the project has benefited both humans and the environment. The scheme has given a home, or resting spot, to wildlife, whilst providing recreational, protection, participation, and tourism benefits to the local community. It is an excellent example of how incorporating nature-based values into decision making can improve society as a whole.

This is the biggest scheme of its kind in the UK to date and it will be observed closely to see if it can be applied to other regions that are threatened by rising waters.

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The Pitcairn Islands are a British Overseas Territory, comprising of four small islands in a remote area of the Pacific Ocean. The permanent population of around 50 people all reside on Henderson Island. It is most famous for being the last settling point where mutineers on the Bounty settled in the 1780s; the current inhabitants are direct descendants of these hardy few.

At the 3rd International Marine Protected Areas Congress in Marseille, France, this week and on the PEW Charitable Trusts website, is the proposed Pitcairn Marine Reserve- which plans to establish one of the World’s largest protected marine reserves. Based on its 2012 report, on the economics of the proposed Pitcairn Reserve, eftec has contributed to this discussion.

The conclusions from the report helped lay the foundation for the current proposal, Protect Pitcairn: An Underwater Bounty.

In our report, we devised and compared 3 development options open to Pitcairn.

  1. The Baseline: where the current situation continues (no marine reserve and no fishing licenses).
  2. Marine reserve: the waters up to 200 miles off-shore, equating to 836,000km2 (or the size of Alaska and California combined) is established as a reserve and only local artisanal fishing is allowed.
  3. Exploitation: no reserve is created. Instead, a fishing license regime develops, thereby allowing commercial access to Pitcairn’s waters.

Currently, the islanders fish in a traditional fashion for subsistence and local trade, and there are very few commercial fishing vessels in the proposed area due to its remoteness.

The report estimated that if Pitcairn were to open their waters to fishing, and sell fishing licenses, it could only generate around $(US) 32,000 p.a.

eftec’s report argued that it is likely that the benefits of establishing the marine reserve would far outweigh this revenue.

The proposed marine reserve would significantly enhance Pitcairn’s image on the global stage. The resulting increase in tourism, particularly in numbers of cruise ships visiting, could generate significant revenue for such a small economy. Furthermore, branding itself as one of the World’s largest marine reserves would enable the island to increase the price of existing products.

As well as monetary benefits, there would be substantial non-market values from establishing the marine reserve. The National Geographic expedition in 2012 claimed that the ocean around Pitcairn is how it was a thousand years ago, with pristine reefs and clear waters, visibility is 75 metres- the highest in the Pacific. The team’s 16 underwater cameras, each covering a few square metres for 5 hours, saw 57 species of fish- 8 of which were new to science! Imagine how many more are lurking in the 836,000km2 of water that could be protected.

Therefore, the unexploited marine ecosystem may provide essential services of great value to the World, beyond what we can currently monetise. The islanders voted unanimously in favour for the ‘Protect Pitcairn: An Underwater Bounty’ to be presented to the British government for approval.

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A shipping lane is being proposed which would go through the Great Barrier Reef so as to improve access to a mining complex.

We must ask some questions that help decide whether the proposed lane should go through the reef or not. Who will benefit or lose out in each scenario, when, and for how long, and by how much?

In economic analysis, as £1 now is worth more than £1 in the future, future costs and benefits are discounted to create a Present Value for each impact, which you can then weigh against each other.  For a project to be recommended on economic analysis grounds only, its benefits over time need to outweigh its costs. In economic terminology Net Present Value (benefits minus costs) > 0 or Benefit Cost Ratio > 1. There are of course many other considerations in making a decision about a project that economic analysis can capture. But let’s see how we can think about this project if we were attempting to do an economic analysis (cost benefit analysis in this case).

Let’s briefly look at the case where the shipping lane does go through the reef. This will not cost the company anything extra than they had already planned. It may, however, have an economic cost to society (a negative externality); reef damage, caused by the ships, will reduce tourism in the area- a huge source of local GDP and employment in Queensland.

We can also look at the case where the shipping lane is diverted to avoid the reef. The tourist numbers and revenues don’t change, but the diversion would cost extra money to the mining and shipping companies in the form of fuel and time.

The comparison of cost of diversion and avoided damage (benefit of diversion) to the reef can conclude:

(a)    if the cost of diverting ships is less than the lost money from tourism and other marketable impacts, the shipping lane should be diverted.

(b)   if the cost of diverting ships outweighs the lost money from tourism and other marketable impacts; the direct lane should go ahead on efficiency grounds.

But hang on a minute, it’s not that simple!

We have to think about the characteristics of the reef that generate values other than the market price and revenues. It’s these social values that are not paid for in a market that are often most important to people and are what make the Great Barrier Reef, well, GREAT.

It’s not that different to what people care about when their house burns down. Do people care about the games console or the expensive pair of new jeans? No, it’s the family photos, the postcards from friends, and the paintings your son made when he was 4 years old that hang in the kitchen.

The same goes for the reef; it’s the bio-diversity, cultural heritage, national pride, the wonder and mystery, and the sheer size of it that are the most ‘valuable’.

These characteristics lead to types of value that cannot be bought, such as: Option value (I may be willing to pay to have the option to see the Reef in the future, even though I have no intention going now); Existence value (I may be willing to pay for the knowledge that the Reef exists without any intention to ever see); and Bequest value (I may be willing to pay so that my descendants can see the Reef).

By including these values, we can build a better understanding of the Total Economic Value of the Reef. ‘But how do you measure them if we can’t buy or sell them?’ I hear you cry. This is where environmental economists earn their money; they realise that these values may be hidden within the price of another good/service that is bought and sold and thus can extract it. Another method is to survey people’s preferences of different scenarios regarding the environmental asset and their associated income in each scenario.

By eliciting these values, we can monetise damage done to the reef that isn’t seen through the market and incorporate it into the decision process.

Accounting for some leeway either side, if the true cost of having a lane directly through the reef i.e. losing all values associated with reef damage, is more than the cost to companies of circumventing the reef, then there is a compelling argument that the direct lane should be shelved.

So what if, even after including these non-marketed values, the damage to the reef is less costly than the cost to the companies of bypassing it?

In reality, we can’t monetise everything and we are never 100% certain what the consequences of reef damage is in the long term; perhaps, with data only available in the future, the costs are found to be so much more than previously thought. In that case, instead of attempting to put a market value on certain attributes, we could just say that, ‘some things are critical for nature and for the people, both now and in the future, and should be protected’.

Yes, economic development may bring us monetary wealth, but perhaps we lose immaterial wealth in the process in terms of wellbeing, morals and principles. Some things are irreplaceable, and should remain that way.

Here is a link to the online petition against the lane.

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I was watching an old Big Bang Theory episode the other day; it was the one where Penny buys Sheldon and Leonard (Star Trek enthusiasts) a Spock Transporter each from the comic book store.

Penny wants to open them up and play with them, which stuns the boys; Leonard says, ‘Once you open the box, it loses its value.’ (Watch the 2 minute clip here)

Here, Sheldon and Leonard realise that things don’t always have a ‘use’ value in the traditional sense of consuming them. They recognise that the toys have an embedded value in leaving them in the box untouched i.e. mint in box. Neither of them may even consider selling them in the future, despite the toys being ‘worth’ more.

Instead, they enjoy looking at them in their pristine condition (a non-consumptive direct use value) and, also, may want to pass them on to their children – if Sheldon knows how to make a child – or donate them to a museum so that others can see them in their original state (a bequest value).

Perhaps, then, we can learn something from comic book enthusiasts and apply their ‘mint in box’ mentality to the environment. Policy-makers now take into account these direct and indirect use and non-use values into project appraisal by considering a project’s total economic value.

People wouldn’t pay as much to visit Yosemite National Park if it wasn’t kept looking beautiful, as they would not derive as much value. Therefore, it makes sense to keep it looking beautiful (see picture below).

Another non-consumptive direct use value that can be compared to the Big Bang Theory example would be improving bathing water standards. People don’t go to beaches to drink the sea water, which would be a consumptive use value. Instead, they derive value from playing in the water. If the water is not safe, then people cannot play in it; therefore there is a benefit (amongst many others) from improving it that doesn’t have a market price.

Later on in the episode, Spock comes to Sheldon in a dream and asks him what the purpose of a toy is. Sheldon replies by saying, ‘to be played with’ and thus comes to the conclusion to open it and play with it. Therefore, we need to think about what the purpose of the environment is before making decisions to change it.

The herd has done some head-scratching over this topic, and we would appreciate your input- do you agree or disagree, can you think of other analogies?


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We are in a global race….. at least if David Cameron’s twitter feed is anything to go by. We must pick up the pace, run, run, run, and to the winner the spoils.

It may seem a flippant metaphor. The problem is that it is complete nonsense, dangerous nonsense.

I will leave an explanation of the dire economic thinking to the IEA.   I will turn to the implications.

A race is a panic. An aggressive, exhausting panic. So dig deep and feel the burn, pick up the pace (I think the ‘pace’ is GDP but I am not sure how far they have thought through the metaphor).

Keep running, the 2015 election is in sight, that’s the finish line….wait we have to keep going…and going….what do you mean never stop? Wish I hadn’t chucked my water away….at least the sponsors will pay up…what no sponsors..

We are not in a race, economies are not zero sum games, your loss is not my gain. Most importantly there isn’t a finish line. We need to be making policies which aren’t going to compromise the quality of life  (within certain limits) of any person 50 or 500 years down the line, no matter if they fit neatly within our national borders.  We are not doing this at the moment, and a fixation on our pace of growth damages us and the next generations.

We need to grow right and some question if at all. But while the political and financial system is wedded to narrow indexes of prosperity and this rhetoric, this may be a race we wish we hadn’t entered.

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Lately, I can be found in my lunch hour to be taking a break from environmental economics and exploring the literature of the Beat Generation. In the last 8 weeks I have finished 8 books by Jack Kerouac, whose descriptions of solitude and self-discovery have left me contemplating my own relationship with tranquility and what exactly produces it. I now find myself on an uncertain road having just finished university, and I seek tranquility to help me come to terms with this fact, whilst also using it to fuel my own reading and writing hobbies.

The Campaign to Protect Rural England (CPRE) has created a national tranquility map, making it possible to assess the likelihood of finding tranquility in the UK. The CPRE’s tranquility map is made up of layers of information based on what people say adds to and detracts from finding tranquility. Surveys were used to determine what tranquility means to people, and the different factors which determine ‘tranquility’. For example, the top survey responses to defining tranquility include seeing a natural landscape, hearing birdsong (as we discovered at envecon 2013 this year) and seeing the sea.

The search for tranquility is why 49% of us visit the countryside, according to the same survey. In fact, many people in the UK pay hundreds and even thousands of pounds to escape on holiday and to find tranquility. I have enjoyed many holidays in Cornwall and would describe my experiences as tranquil and happy. In Cornwall I can find peace and quiet and I can see and smell the sea every day. I can’t find phone signal however, but this all adds to the flavour of finding tranquility in what is a beautiful part of the UK.

On the contrary, the CPRE’s tranquility map suggests that seeing towns, cities, airplanes and light pollution deters tranquility. This would suggest that investment in Green Infrastructure could be a waste of time as tranquility cannot be found in urban locations. I argue the opposite however. Since finishing my exams, three friends and I recently scaled Nunhead reservoir, an abandoned green space in Peckham which provides a view over London more beautiful than that from Primrose Hill. We sat to watch the sunset, seeing the city’s lights come on and followed airplane contrails for miles. It was one of the happiest feelings I have experienced and despite what the CPRE tranquility map suggests I had found tranquility in a place which according to the map should really detract from tranquility.

I argue that tranquility, however you imagine it and wherever you find it is an invaluable experience. It is a very personal moment and cannot simply be standardised or measured by the characteristics of the surrounding environment. It can be found and experienced anywhere. The value of tranquility is how it makes you feel and what it inspires you to do and think. Whilst desolation is a strong term to describe my current life phase, I found myself coming down from my education peak in Peckham smiling from ear to ear and happier than ever.

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Is that blood on my hands? No, it is just blackberry juice staining my skin.

Everybody loves a nice walk in the country, especially when there are some blackberry bushes to pick at (being careful not to pick any within a dog’s reach).

Years ago, along my usual walk, I detoured down a small hidden pathway that I knew nobody else took- as the entrance was covered by stinging nettles. This secret path led to some blackberry bushes. When the season was right, I would take berries home to enjoy, ensuring that I only picked the ripest blackberries off the bushes. This went on for years; I would pick ripe berries and leave those that were not ready to pick for the following evenings.

However, this all changed one evening last year when the nettles covering the entrance were removed.

On my usual detour, I saw, to my horror, other people ‘trespassing’ on my secret path- how dare they?! Not only that, they were plundering berries from my usual stash. By the time I arrived to the bush, I found that there were very few ripe berries to be had.

I gathered the remaining ripe berries and went, not-so merrily, on my way.

The following day, I found there to be no ripe blackberries at all. I picked the berries that were as close to being ripe as possible, however I found that these were not as enjoyable. The following day, there were even fewer of these berries; therefore I picked even less-ripe ones, which were definitely not to my satisfaction. This, unfortunately, has been the case ever since.

The fact is, these bushes have enough berries for me (and even a few others, if I’m not being selfish) to be sustainable and replenish each evening with ripe berries. However, as there is nothing stopping the rest of the public accessing these bushes, my efforts to limit myself to only picking the ripest berries is useless because anybody else can pick the ones that I restrained from taking.

People take unripe berries, just because they know that if they don’t, somebody else will and there won’t be any by the time the blackberries would have been ripe. Therefore, it makes sense to the rest of the public to take them now, even if they are not ripe.

My experience here is a trivial example of the ‘tragedy of the commons’. My once-private supply of blackberries was opened up to the rest of the public, whom gladly took the opportunity to pick the berries I had once enjoyed- leaving the resource depleted. As no-one owns this resource, boundaries or exclusion zones cannot be created…and I (usually) have better things to do than to stand guard counting how many blackberries people take.

Nevertheless, I may not have to go searching for a new secret blackberry bush just yet.

Ostrom’s critique of the subject argues that the tragedy of the commons is less prevalent and less difficult to solve than initially thought when a community owns the resource. This is because communities are able to solve the problem amongst themselves. This is promising as I live in a tight-knit, community-orientated, village where few ‘outsiders’ will come walking through. Therefore, if I cross paths with the other foragers, I shall voice my concerns to them and perhaps we can come to some kind of agreement. I may also bring up my issues to the parish council, which will be able to email information to its mailing list or mention it in the local newsletter; however, this may attract people to the blackberry bushes who previously did not know about them, thus potentially exacerbating the problem. Perhaps, then, I will stick to a good old-fashioned sign tied to the bushes explaining the situation and rely on people’s good nature to pick sustainably.

Despite some potential free-riders, this solution could benefit everyone involved as we will have ripe berries to enjoy once again…but maybe just a few less than we’d ideally like.

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This week the UK Natural Capital Committee (more info here) released its first State of Natural Capital report with little fanfare.  It achieved a small amount of press attention, with only four environmental news outlets covering the report (according to Google News). A damp squib in terms of press coverage, which was depressing to those immersed in these concepts and convinced this is the right way forward.

It may be healthy to take a step back and a realistic view on the popularity of Natural Capital as a concept. I used Google Trends to gauge public awareness and interest in the concept.  In order for a fair comparison I compared “Natural Capital” against “Ecosystem Services”  – another environmental economics buzz word.

The Google Trend graph is presented below, with Natural Capital represented in blue and Ecosystem Services  in red:Image

Ecosystem services appears to be getting more ‘heat’ than Natural Capital, despite being around as an idea for less time. Interest in ecosystem services are increasing, while interest in Natural Capital has been flat (or even declining) over the past seven years or so.

Possible reasons for this trend are that ecosystem services as a concept is mutli-disciplinary friendly and less contentious. Consequently it has been adopted across the environmental sector.  Natural Capital, although intertwined with the ideas of ecosystem services, is more difficult to define, and although popular with business may not be popular across the environmental sector.

Perhaps the difference in adoption and interest has its source in concepts themselves. Ecosystem services as a term seeks to capture the benefits flowing from nature without trying to define nature itself. Natural Capital as a concept, shoehorns the matter that makes up nature into a bleak financial framework. For the lay person and those nervous about the ‘commodification’ of nature, Natural Capital is perhaps a step too far.

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