Author: rolfgroeneveld

Yes, sometimes I agree with the critics of PES – but not always

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Richard Conniff puts some question marks over PES in this piece. Most of it draws from an earlier article by Kent Redford in Conservation Biology, so let me go over the arguments laid out (rephrased in my own words – hoping I get it right) in this article. Be prepared: I actually agree with most of it, although I wholeheartedly disagree with some of it.

PES risks crowding out moral justifications for conservation
This is a risk. The risk is similar to the risk associated with social cost-benefit analysis, namely that the difference between monetised costs and benefits will become the only decision criterion so that non-economic arguments lose their voice in the political debate. This was the case when the USA (under Reagan) adopted its notorious Executive Order 12291, which stated that “Regulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society.” No wonder this put a stop to a lot of environmental policy, the benefits of which are most difficult to quantify. So yes, we should keep reminding our students, including economics students, that money is not the only argument in public decisions.

Pro-PES conservationists wrongly believe that all ecosystem services are good
Let me add to that: they even believe ecosystem services are good enough, i.e. good enough to justify conservation. But ecosystem services might not be good enough, and in that sense pro-PES conservationists should be careful what they wish for. But there the article makes an interesting statement (and now I do quote):

Nevertheless, not all ecosystem processes sustain and fulfill human life. Processes such as fire, drought, disease, or flood work against this goal, yet they are vital for ecosystem function, structuring landscapes, and providing vital services and regulatory functions to nonhumans. There is a danger that an economically driven focus on those “services” that are valuable to humans in their nature, scope, and timing may lead to calls to “regulate” ecosystem services to times and in flows that match human needs.

I would like to see Mr Redford explain to Zimbabwean farmers why they should learn to live with themselves, their children, and their cattle getting sick or even dying from sleeping sickness. I’m sure tse tse flies are valuable for some reptile species I should have heard of, but in this case my sympathy is with Homo Sapiens.

Some services may be better provided by species with nasty side-effects
Of course you should take into account nasty side effects, and then the outcome may be that you should still, or should not, use that exotic turbo species to provide the service. Indeed, you may not know the side effects, so precaution is mostly warranted in such cases.

PES may become an incentive to engineer ecosystems towards service provision, which may have nasty side effects
See above. Engineering an ecosystem towards provision of a single service can indeed increase the ecosystem’s brittleness, like monoculture is efficient on the short term but very vulnerable to disease on the long term.

The methods currently used to establish monetary value are problematic
Tell me about it: the economic literature is rife with reasons why putting a price tag on nature can go wrong. But here is another interesting quote from the article:

Where markets do exist, the value of the services from different ecosystems will not reflect their diversity, but their desirability to human consumers.

Now we get to the hidden assumption made by a lot of biologists: ecosystem value = ecosystem diversity. This is a gap between biology and not just economics, but all of social science: social scientists argue that ‘value’ is, well, a value judgement – something that cannot be established objectively, period. Conservationists like to say we should preserve nature because it has ‘intrinsic value’, but what they should really be saying is that they think, or feel, or find that nature has intrinsic value. I hate to say this, but nature having intrinsic value is not a fact; it’s an opinion. A very valid opinion, but there are many others in this whole conservation debate and the way it is being pushed by conservationists smacks of a dictatorial sort of self-righteousness.

PES can have terrible repercussions for (mostly poor) locals
Absolutely. One of the driving forces of deforestation is that nobody knows who owns the forest: is it the state, is it the logging company, or is it the native tribe living in it? Assign any of these three the property rights over the forest and this new rightful owner has the right to exclude all the others. And he will do so, especially when there is money to made! The new allocation may be efficient according to our economics textbooks but it may come at the price of unimaginable social disruption in the lives of local communities.

Property rights may not be able to deal with climate impacts
The argument is like this: if you assign property rights over some species to some owner, this owner may have a strong incentive to stop the species from wandering off when its climate zone starts shifting. Of course, in a well-working market, this owner would be better off buying land elsewhere to let his species neatly follow the change in climate zones, blah blah blah. But land markets are notorious for their institutional problems. Land use regulations, spatial externalities, transaction costs, and all kinds of other problems will throw sand in the machine. This is an interesting issue I hadn’t thought of before. It reflects an interaction between institutional-economic problems and ecological dynamics I might want to look deeper into.

One on the house: paying people not to do nasty stuff
I didn’t find the argument in the article, nor in Conniff’s piece, but it is a problem: a lot of PES is actually paying people not to be nasty. For instance, Conniff gives an example of Vittel-Nestlé paying farmers to not pollute the environment. But pollution is a negative externality: it is a cost imposed by farmers on Vittel. Paying farmers to stop polluting may solve Vittel’s problems on the short term, but it still artificially boosts the farming sector to a size bigger than optimal. The whole world might be better off with farmers doing their business in places where they do less damage, but this solution will actually draw farmers to this area: they get paid not to pollute, what more do you want?

PES is a neoliberal sellout of our democracy to big business
Of course I save the best for last: it is the remark made by the man I would love to see in a cage fight with James Delingpole. Of course I am talking about George Monbiot:

When governments and PES proponents talk about employing marketplace solutions instead of traditional regulatory approaches, [Monbiot] says, “what they are really talking about is shrinking democracy, shrinking public involvement in decision making, shrinking transparency and accountability. By handing it over to the market you are in effect handing it over to corporations and the very rich,” and to “a very plutocratic” decision-making process.

There you have it: more market inevitably means less democracy. Of course, everybody knows you can only have a fully functional democracy under socialism, isn’t it?

Why economists argue with ecologists (5): The Suzuki fallacy

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I quit smoking when I was about 30 years old. It is an unhealthy habit, of course, but I also disliked the idea of being dependent on my stock of tobacco. One of the few things I miss about smoking, however, is the excuse to go outside during a break and have a fag and a chat with a few likeminded nicotinists. So occasionally I go outside with the addicts and have the chat without the fag.

I did this a while ago with an ecologist who started a long complaint about economists’ ignorance of the limits of our planet. Economists, he claimed, refer to environmental problems as ‘externalities’: they think the environment is external, i.e. irrelevant, to the economy. I tried to convince him how he misunderstood what externalities are, pointing to his sigarette. It may be his own choice to light a cigarette, or something between him and his dealer to buy a pack of cigarettes, but I also had to inhale his smoke. The damage that he thus inflicted on me was a negative externality: a cost that did not show up on his mental ‘balance sheet’. Perhaps, if he had to pay a tax for each of my lost lung cells he would have made a different choice. (You know what they say: nobody is purer than an ex-prostitute.)

I doubt whether I convinced him, but in any case his comment had me thinking. Where did he get this ludricous idea that the economic term ‘externality’ means ‘irrelevant’? After all, every introductory microeconomics book has a chapter on how externalities are a form of market failure. Then I saw this clip.

My toes still cringe when I watch this – it’s just too embarrassing. When he talks about ecosystem services:

All of the things that nature does for us, for nothing. Pollination, for example, or a forest that takes carbon dioxide out of the air and puts oxygen back in, or that holds the soil and prevent erosion.

That’s the point where I would have expected an explanation that these services are unpriced, and that we should make those services visible in the market place. For instance, by putting a price on them in public decisions, or by levying environmental taxes, or through paying the owners of the ecosystems for the services they provide. But somehow he got it into his head that

All those services that nature performs, economists call them “externalities”. And what that means is: “they got nothing to do with the economy. We don’t put a price on them, they are irrelevant.”

The speaker, David Suzuki, is a famous environmentalist. He should know his stuff, but he is making these statements without a single speck of irony, and apparently he has been doing this for years. Of course there is lots of nonsense spouted on the internet and you don’t have to react to everything, but people like my smoking ecologist listen to David Suzuki. I don’t mind criticism of economic theory, in fact I think a lot can be improved. The nice thing about interdisciplinary work is that you learn not just about the contents of other disciplines, but also their way of doing science. And this reflects back on your own discipline. But such cooperation is not helped if people start spreading this kind of prejudice and misunderstanding about one of the fields involved.

Mapping marine economics (1): A planet walks into a doctor’s office

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Somewhere in the near future the wise men and women in Wageningen University’s tenure track Advisory Committee will decide whether I’m doing a good enough job to keep it. One of the things they may possibly ask is what my research will focus on in the coming, say, 15 years. So I’ve been thinking a lot lately about questions like “what on Earth am I doing?” and “where the Hell am I going?”

If you go to the doctor with a problem, the doctor will generally do four things. First, he will assess the seriousness of your problem. Second, he will try to identify the cause of your problem. Third, he will decide on the objective to be pursued by any therapy he may prescribe. Fourth, he will prescribe a therapy, which may be a pill, an operation, or something else. Economics of coastal and marine ecosystems is not much different:

  1. Economists assess how well or how badly coastal and marine ecosystems are doing, and how important they are to us. Should we worry about, say, disappearing mangrove forests? Who should be worried? (Ecologists hate these questions, but somebody has to ask them.) To answer these questions, economists try to put a price on ecosystem services, develop environmental indicators, or correct GDP for environmental degradation.
  2. Economists also investigate the fundamental reasons why we deplete, pollute, or overexploit ecosystems. If we all know how important fishery resources are to us, why are some stocks so terribly overfished? So economists develop theories of open access resources, of enforcement problems, corruption, and other forms of market failure or government failure.
  3. A lot of economic research is done to set the right policy objectives. How do we trade off the profits of a large-scale distant-water fishery against the interests of small-scale local fishers in a developing country? How do we trade off our own welfare against that of future generations? So economists have developed many applied optimisation models, and concepts such as Maximum Economic Yield.
  4. Lastly, economists also investigate how we can attain our policy objectives. Should we introduce restrictions on days-at-sea or Individual Transferable Quota to keep catches at an efficient level? Should we freely distribute fish quota, or auction them off? If we pay land owners not to cut a mangrove forest, will it really save that forest or will they simply cut another forest?

In future posts I’ll share my thoughts on each of these four issues.

Stuff I do: Pacific tuna

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Chances are you’ve thrown one of these on your barbecue this summer:

 Tuna is massively important for many Pacific island nations. Kiribati, a country whose land mass is only 0.02% of its total area (the rest is sea), gets about 30% of its GDP from tuna fishing. Not that the I-Kiribati (people from Kiribati, that is) catch much of that themselves: most of it is caught by fishers from other countries, like Japan, Spain, and the United States, who pay Kiribati for the right to fish in its national waters.

Actually, to just call it “tuna” is misleading, because there are several species of it. If you have ever had a tuna sandwich you will probably have eaten skipjack tuna. It is the cheapest, least tasty, but also the most abundant tuna species: the IUCN is not particularly concerned about it, and the FAO assesses we can catch some more of it without depleting its stock (pdf). The species in the pack in the picture, yellowfin, is doing less well: the IUCN labels the species “near threatened”, and the FAO argues against catch increases of this species. Other species are doing worse or much worse than that: bigeye tuna, for instance, is labelled “vulnerable” 1.

Save the apples, don’t eat pears
So we should all eat skipjack instead instead of yellowfin and bigeye, right? If only life were that simple. Yellowfin and bigeye are often caught as so-called bycatch of skipjack tuna. Many fishers use Fish Aggregating Devices (FADs) that attract all kinds of fish, starting from small fry all the way up the food chain to several species of tuna. When this includes a school of tuna, fishers draw a purse seine net around the FAD and haul in their bounty. Fishing this way, you are likely to catch a lot of skipjack, yellowfin and bigeye at once, where the yellowfin and bigeye you catch is probably still young and difficult to separate from the adult skipjack. And hence yellowfin and bigeye often end up in a tuna sandwich at a young age where they could have had a glorious career as sushi or tuna steak.

Therefore, the FAO recommends not to increase skipjack catches: not because it is concerned about skipjack stocks, but because catching more skipjack will likely have a negative impact on stocks of yellowfin and bigeye. So perhaps to preserve yellowfin and bigeye stocks, the last thing one should do is buy skipjack tuna.

Governments have used all kinds of different policy instruments to manage fisheries, such as days-at-sea restrictions, or individual transferable quota, or a variety of gear regulations. Such instruments, however, are not everywhere as easy to implement, and governments are in a difficult situation themselves. It is often difficult to observe how much fishers have caught. Moreover, if Kiribati limits its tuna catch in order to preserve tuna stocks for the future, fishers gladly move on to the next Pacific Island Nation to fish there. Perhaps retailers, NGOs, and consumers should step in? We could reward fishers who fish more selectively with some certification scheme: guilt-ridden consumers may be willing to pay some extra for guilt-free tuna. But what if that simply increases demand for fish, and thereby fishing pressure?



Note the neat batik BESTTuna shirts – courtesy of our Bogor partners

BESTTuna
Last week I was in Bogor, Indonesia, to discuss this problem with colleagues from Wageningen University and other institutes. We were at the kick-off of BESTTuna, a project of Wageningen University together with many other organisations, including Bogor Agricultural University, University of the South Pacific, University of the Philippines, University of California, Santa Barbara, WWF, and Anova Seafood. The objective of BESTTuna is to look deeper into the management problem with skipjack, yellowfin, and bigeye tuna, considering the different countries involved, the different fishing techniques, the companies involved, NGOs, fishers, and so on. Should Indonesia introduce individual tradable quota? Will MSC certification give fishers an incentive to fish sustainably or will it only enhance fishing pressure as green consumers can start eating tuna with a seemingly clear conscience? How can we make sure that Pacific Island Nations cooperate to manage their tuna stocks sustainably? It’s a complex, but therefore also fascinating problem – and it’s one of those problems you’re reminded of every time you enter the supermarket.

Footnotes
1
One of the most depressing cases of tuna overfishing is the southern Pacific bluefin tuna. It is currently at no more than about 15% of its 1973 stock. Bluefin, however, is quite a different story than the species I describe in this post.↩

Carbon is carbon, but water is not water and land is not land

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Besides the ecological footprint you might also have heard of the carbon footprint and the water footprint. Only carbon footprint makes sense; I criticized ecological footprint in an earlier post, but I did not mention another problem that also holds for water footprint.

Why do I think carbon footprint makes sense? It’s about one environmental problem: climate change. It’s about one type of pollutant, greenhouse gases such as carbon dioxide and methane, and it doesn’t matter where you emit them. Whether you burn coal in Las Vegas, Shanghai, or Maasbree: the radiative forcing of the greenhouse gases you emit is similar.

How different that is with water. Growing fairly thirsty crops in Las Vegas is a much bigger problem than growing very thirsty crops in Maasbree, simply because there is much more water in the Dutch province of Limburg than in the American state of Nevada. In Nevada you would have to extract groundwater to irrigate your crops, and you would have to extract a lot of it because a big part of what you spray on your crops will evaporate before your crops can drink it. The groundwater aquifers you extract your water from will take a very long time to be replenished. In Limburg, on the other hand, you can use water from the Meuse (which is what Maasbree is named after), and even if you extract groundwater there is plenty of rain and river water to replenish it. Nevertheless, the water footprint will simply look at water use or the thirstiness of your crops, so growing very thirsty crops in areas where there is plenty of water is worse than growing somewhat less thirsty crops in areas where water is very scarce. Water depletion is a local problem: you can’t compare Dutch water to Nevadan water. This problem does not hold for greenhouse gas because a Dutch ton of CO2 has the same effect as a Nevadan ton of CO2.

Ecological footprint has the same problem. Here the unit is not tons of carbon or liters of water, but hectares of land. With land it is important to consider the opportunity cost: if, say, you would use it to store carbon, what uses of the land would you have to forgo? In other words: if you would not use it to store carbon, what else would you have done with it? And then it turns out that it actually matters a lot whether we are talking about highly productive land in a well-drained and fertile Dutch polder or some remote wasteland with no biodiversity to speak of. Ecological footprint aggregates all land used by a person, a city, or a product, including the hypothetical hectares one would need to store carbon. Whether it is office space in the centre of Hong Kong, a highly diverse rainforest in Brazil, the fertile polder of Het Groene Hart or the barren desert of the Sahara: land is land, according to the ecological footprint. But it isn’t, just like water is not water.

How to cram the whole world in a small Dutch pub

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One of the greatest things about Wageningen is that you meet people from over the world. It’s a fairly small university, but it is very internationally oriented, so there is no escaping our international students and staff.

Some of them find themselves in a small pub on a Sunday afternoon listening to a couple of folks playing bagpipes, fiddles, hurdy-gurdies and other strange acoustic instruments. That would be me and my fellow musicians at the monthly traditional music session in Café De Zaaier:

//www.youtube.com/get_player

(I’m the one holding the camera.)

We have been doing this every month for more than 10 years now, and I know we should count ourselves very lucky. It’s the perfect setting for a traditional music session: the pub is a traditional ‘bruin café’ (literally “brown pub” – a type of Dutch pub named after its dark brown wooden interior) with a large collection of Dutch and Belgian genevers, many different beers (including Guinness and Kilkenny – Irish sessioneers seem to be quite keen on that) and the owner is a musician with a love for folk music. This being Wageningen, we have enjoyed the company of musicians and listeners from Mexico, the Czech Republic, Sweden, Eritrea, and, lately, the Basque country:

//www.youtube.com/get_player


Everybody is welcome to come and listen or to play along. All traditions are welcome – this diversity is one of the fun things! The only thing to mind are three rules:

  • We play ‘around the table’ so that all musicians get a chance to start a tune or a song;
  • It is better to play something simple you feel confident with than to play something difficult that you have to start over and over again. In other words: if you play, you play;
  • Feel free to join somebody else’s tune or song, but don’t overdo it, especially if you don’t know the song or tune.

Curious? We have a website where you can find all the details.

Two draft course documents

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What do you do when you need only one chapter of Perman et al., or Tietenberg, but you can’t reasonably ask your students to buy the whole book? You either distribute illegal copies, or you write the text yourself. Of course I’m a decent guy so I just posted two draft texts on my WUR website:

A very basic introduction to Stochastic Dynamic Programming
This is a text that I prepared last year for my lecture on stochastic dynamic programming in a course on the economics of natural resources. Dynamic Programming is one of the more elegant ways of presenting the problem of natural resource depletion: how much should we harvest now, and how much should we save for later? The problem is that most introductory texts in natural resource economics say little about DP, whereas the specialized texts on DP are too difficult technical.

Market failure and natural resource depletion
I co-teach a course on marine resource management where I explain the basic principles of natural resource economics to MSc students with almost no economic background. I have not yet found a text that explains natural resource economics in an accessible manner to this audience. So far this document only features the basics of supply, demand, consumer surplus, and producer surplus, but I intend to extend it in the near future.

Feel free to download, use, comment, etc.

My two hands, I mean cents, on Monbiot’s anti-valuation rant

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I am happy to say that James Delingpole and George Monbiot make my toes cringe in equal measure (don’t you think they even look alike?). Whether it’s about the leftist conspiracy to strangle the economy with cap-and-trade or the neoliberal commodification of our athmosphere by cap-and-trade, I always find it difficult to reach the end of their writings with the same blood pressure as when I started reading them.

This time it’s Monbiot who writes yet another econophobic rant against Payments for Ecosystem Services: pricing nature is wrong, PES is just a slippery slope towards privatisation of nature, without markets we wouldn’t be in this situation in the first place, blah blah blah.

Tim Worstall writes a rebuttal of Monbiot’s piece in The Telegraph (indeed, Delingpole’s home newspaper) where he makes two major points:

  1. If we didn’t try to estimate the value of nature in monetary terms, it would be priceless, which in today’s world means worthless (and hence, defenceless);
  2. It’s not the establishment of property rights, but their absence that is driving overexploitation of natural resources. Monbiot’s rejection of private property rights takes us back to the days when nature was a free-for-all, with all the depletion and extinctions that come with it.

Worstall’s second point is very valid, and I’m glad somebody is making it (although I doubt it convinces George “markets are evil and governments are saints” Monbiot). His first point, however, raises two question marks, making me feel somewhat like the proverbial two-handed economist.

On my left hand, I admit (albeit grudgingly) that Monbiot has a point: there are more reasons to preserve nature than just its contribution to the economy. It’s the classical dichotomy between utilitarian and deontological ethics: Worstall uses utilitarian arguments (show how important nature is and people will more likely preserve it), whereas Monbiot argues that it is simply morally right to preserve nature, because it has a value in itself regardless of how highly humans value it.

On my right hand (call it my Delingpole hand if you like), arguments like Worstall’s first point make me suspicious. Too much research in this matter is being done to “raise awareness”, “wake up the politicians”, or something like that. It makes for terrible, politically biased science that accepts any wild guess as long as it gives a big number. People still seem to believe the global ecosystem is worth $33 trillion, although any serious economist can tell you that this number as well as the method used to arrive at it (and, indeed, the sheer idea of calculating a total value of the entire ecosystem) is nonsensical: economist Michael Toman called it “a serious underestimate of infinity.” Moreover, when you price nature you should be aware that it may turn out not to be that valuable: perhaps it is still sensible to cut that forest and build a hospital instead. This is of course the outcome that folks like Monbiot dread; on the other hand, the folks who use the “raise awareness” argument gloss over it, or worse.

The bottom line is that economic valuation of ecosystem services is best done in the context of a concrete, well-defined policy question. Pricing nature improves that decision-making by making values visible that would otherwise be ignored, in a way that makes them comparable to goods and services that do have a market price. Prices can never tell the entire story (this is where I agree with Monbiot), but it is a laudable goal to make the cost-benefit analysis as complete as possible (which is where I agree with Worstall). But whatever you do, “raising awareness” is just about the worst reason to do it.