Scenario issues: scenarios versus policies

I usually emphasize in my lectures that you should strictly distinguish policies from scenarios. Policies are what we choose; scenarios simply describe what might happen, regardless of what we choose. In practice it is not as clear-cut as that may seem.

Look at it like this. Suppose we have two policy options. To choose the right policy we also need to know how each policy plays out in the future. But there we have a problem: we don’t know what the future will look like. Usually, however, we do have a rough idea of developments that may take place. We could take some of those developments and explore how they might combine. By doing this we develop a number of scenarios that illustrate what the future could look like (not what it will look like). We can then evaluate our policy options in each scenario. For example, with two policy options and two scenarios we could make a table like this:

Scenario 1 Scenario 2
Policy 1 You win $100 You lose $100
Policy 2 You lose $50 You win $80

In any environmental economics textbook you will find different possible rules to choose between policy options under such uncertainty. Perhaps you want to minimize the possible losses from your policy. By such a maximin rule, as it is called, you would ignore the best outcomes and focus on the worst ones. So you choose Policy 2 because the worst that could happen under Policy 2 is that you lose $50 where under Policy 1 you could lose $100. It is also possible that you want to get as much as possible out of your policy. By following a maximax rule, where you ignore the worst outcomes and focus on the best ones, you would go for Policy 1. After all, Policy 1 could yield $100 where Policy 2 can, at best, yield only $80. And there are more decision rules.

Every year I see students, when asked exam questions like the problem above, give answers like “I would choose Scenario 1”. Which is why I keep emphasizing: you don’t choose scenarios. Nature chooses the scenario. Or God, or Fate, whatever you want to call it. But not the policy maker.

But now comes the tricky part. Suppose the policy maker cannot choose all possible policies at once. Perhaps she works at some government department that decides on some policies, but there are other policies that are decided by other departments. Or the effect of her policies depend on what other governments do.

We’re having discussions about this all the time in VECTORS. For example, an Environment Ministry might want to evaluate a ballast water treatment policy to combat invasive species, but the effects of the policy also depend on international trade policies which are decided by the Ministry of Economic Affairs, or even other countries’ policies. The trade policy might then become part of the scenarios as far as the Environment Ministry is concerned. This is very confusing, and I notice that a lot of people are uncomfortable with including policies as part of scenarios. It seems to me that they prefer their scenarios as pure, roll-the-dice, chance events. Their objection to including policies in scenarios is that, eventually, people decide on policies. They are not chance events. My reply would be that we can only decide on a particular domain, like ballast water treatment policy, or fisheries policy, or MPA allocation. What happens outside that domain is something we cannot influence, so it has to be considered a chance event. But I agree it feels uncomfortable, and the line is difficult to draw.

Great jelly report, shame about the mudslinging

Nando Boero, the man who named a jellyfish after Frank Zappa, has just written a new FAO report on the impact of jellyfish in the Mediterranean and Black seas. As far as I can judge it is a fairly comprehensive overview of these impacts, including some sensible recommendations, including

  • Develop jellyfish products (if you can’t beat them, eat them!)
  • Use cutting nets to destroy jellyfish
  • Destroy the polyps (this may actually be an argument against wind farms, whose concrete structures are excellent breeding grounds for jellyfish polyps)
  • Prevent spread by shipping and so on

It’s just a shame that the report concludes with some unnecessary mudslinging against my profession:

One of the paradigms of current economy is growth. Production, income, and consumption must grow, in order to have a healthy economy. The expectation, thus, is infinite growth.

I have never, ever met a serious economist (surely not an environmental economist) who says that production and consumption can or should grow indefinitely. We are all aware of the second law of thermodynamics, and we are all aware that the earth’s resources are finite. Yes, I know The Economist newspaper recently argued that in order to alleviate poverty we need to increase economic output. But that is an issue of raising people’s income above some absolute level: nobody says our income should rise forever. In any case, are we going to tell 1.1 bln people living on less than $1.25 a day that they should remain poor?

Obviously this is not possible, since our planet is finite, and the biomass ecosystems can produce is limited. The growth of human populations is exerting an unbearable pressure on natural systems that, obviously, are on the edge of collapse.

As I explain in this post, this would be true if economic growth is the same as producing ever more stuff, by putting in ever more other stuff. But it’s not. A lot of economic growth comes from meeting needs (material and immaterial) ever more efficiently, which does not necessarily imply using and producing more material. Can we keep increasing that indefinitely? Personally I don’t think so either. I’d bet our stock of ideas is likely to be as finite as our stock of fossil fuels, but that I’d also expect the bottom of that stock is still a long way off. Again, it is important to remember that not all economic growth is material growth. The economy also grows if we learn how to produce the same amounts with less inputs, for instance by being less wasteful. So for the foreseeable future I believe we can raise those 1.1 bln people above the poverty line while remaining within the boundaries of our planet.

The scientific community is warning about this problem since the times of Malthus and Darwin, but it is apparently unheard by decision-makers, economists having much greater influence than ecologists.

For the record: Malthus was an economist. And economists having influence on policy makers? If only. If this really were the case we would have an effective tax on carbon emissions, much less farm subsidies, and much healthier fish stocks.

Crystal ball gazing, the academic way

The excitement of international science workshops

So I’m in this international research project VECTORS, dealing with many exciting and fascinating issues, working with scientists from all over Europe. But if I tell you I was at a VECTORS workshop in Edinburgh last week, it’s not exactly like we were sipping 40 year old Talisker in Edinburgh Castle with Queen Elisabeth. A business hotel near the airport is more like it: easier to reach, lots of meeting rooms, good food, and no distractions.

Scenarios were the main theme this time. A lot of the developments that VECTORS deals with are highly uncertain. How warm (or cold) will our waters be in the coming 50 years? How many sunbathers will visit Mediterranean beaches? How many international transport vessels will visit the ports of Rotterdam and Antwerp?

You may be tempted to address these questions through some sort of sensitivity analysis: do your calculations for different values of the uncertain variables, or rather, combinations of different values. If you know the probability of some outcome of some variable (say, “the probability that temperatures increase by 1 degree or more is 30%”) you could estimate the probability of some outcome of your models’ output (“the probability that average income increases by €100 per month or more is 50%”). But you will run into a number of problems:

  • You don’t know probabilities.
  • Even if you knew the probabilities they would not be independent. A high nutrient load is more likely if there are many people around spending their money on lots of meat or highly fertilised crops than if the population is small and poor.
  • The number of possible combinations grows exponentially with the number of variables. Suppose you want to consider three levels of each variable. Then one variable gives you three possible outcomes; two variables have nine possible outcomes; three variables have 27 possible outcomes; 10 variables have 59,049 possible outcomes. And then the ecologists in your team tell you that running one such outcome on their model takes one month. So if you have 5000 years you can do a sensitivity analysis of all 10 variables!
  • There are many other possible developments that are difficult to capture in numbers, such as changes in regulations, customs, technologies, and so on.
  • Policy makers have neither the time nor the energy to read your entire sensitivity analysis. They want something you can summarise in one page (which they skim rather than read).

So what do we do? We develop scenarios. But what are scenarios?

A scenario is not a prediction of the future. It is more like a story line that describes how the world might develop in the future, taking into account different possible trends. It should be consistent, and ideally you have a set of scenarios that spans a fairly wide range of possible developments.

A scenario is not a policy option. When you see the different scenarios from, say, the IPCC, you may be tempted to say: “let’s go for this one.” But although you may certainly like some outlooks more than others, the idea is that you don’t know which one will come true – and you have no influence on which one comes true.

At least, scenarios can help us to make sense of the complexity of the different social, economic, political, and biophysical changes that may take place in the future. A few consistent story lines are easier to understand than countless histograms and plots, for scientists as well as policy makers. And they still allow us to explore how different policy choices may work out in the future.

At some point I joked that we should have Philip Pullman write our scenarios, but I was only half joking. It’s at least as much an art as it is a science.

Lessons learned from the Slovenia meeting

  • Biologists have come a long way assessing ex post the invasiveness of a species. They call this Biological Traits Analysis: looking at what a species eats, how it reproduces, how it spreads, and so on. It gives them a rough idea how the species will behave when introduced in, say, the North Sea: how quick it may spread, whether it will do any damage, how much damage it will do, and so on. Even a rough estimate of these variables can help the aforementioned tradeoff between limiting access, limiting spread, and suffering/enjoying the consequences.
  • Some biologists simulate animal behaviour assuming that the animal maximizes some objective, just like economists simulate human behaviour assuming that humans maximize their utility. Funnily, they get away with it, but apply the same principle to humans and people complain that humans “are not like that”. (Mind you, I’m not complaining, it was a biologist who pointed this out to me.) Are humans any different?
  • One of the biologists on the project named a jellyfish after Frank Zappa.

Stuff I do: marine invasive species

I’m in Slovenia now, attending the second annual progress meeting of VECTORS. VECTORS is a huge EU-funded research project on the ecological, social, and economic consequences of invasive alien species (and other related stuff) for Europe’s seas. So while outside spring is finally taking off with a clear blue sky and a pleasant 18°C, we’re indoors talking about jellyfish and oysters.

To get an idea of what VECTORS is about, consider the fact that international shipping brings us more than cheap laptops from China. As transport ships take in ballast water in the harbour of Shanghai, all kinds of critters may hitch a ride on those transport ships – Shanghaied, as it were. When this ballast water ends up in Rotterdam harbour, so do these species. From that point on, they are considered alien species as they are not native to the North Sea ecosystem. Because they are alien to the North Sea they may not survive for long. They may also find an environment with lots of food and no natural enemies. If this is so, and they become so abundant that they cause problems, we call them invasive alien species.

Take, for instance, the chinese mitten crab, which may very well have travelled from Shanghai to Rotterdam on board a cargo ship. The chinese mitten crab damages fish nets and occasionally clogs up water intakes of factories and power stations. Interestingly, however, it also has benefits because it is considered a delicacy in many Asian countries. Some European fishers sell their mitten crab by-catch to Asian restaurants! Another example is the comb jelly, which was introduced from its native American shores through ballast water. The comb jelly does not sting humans, but it eats fish eggs and larvae. One study estimates that the comb jelly may cost the Black Sea anchovy fishery about $17 million per year.

Shipping is not the only conduit for invasive species. The Pacific oyster was introduced deliberately by oyster farmers due to its size and growth. It is still considered a delicacy, but due to its sharp edges and its nasty habit of pointing its edges upwards it is considered a risk to swimmers and mudflat walkers.

So invasive alien species can have several different effects on the economy, notably fishing, tourism, and energy. In many cases those effects are negative, as fishers, mud-flat walkers and power stations can attest. Occasionally they are positive – if you happen to like sea food.

If it turns out that the negative effects of, say, the Pacific oyster outstrip its positive effects, the next question is what we should do about it. It is possible to reduce oyster abundance by fishing, as this video illustrates. You can also drag heavy chains over oyster colonies to destroy the shells. The big question is whether the costs of these interventions outweigh their benefits, where the benefits include the reduction in the costs of medical treatment and possibly an increase in tourism revenues as tourists probably prefer oyster-free coasts.

You could also try to make it more difficult for a species to enter European marine waters in the first place. Several technologies are available to treat ballast water in ships so that invertebrate stowaways do not become invasive aliens. Again, these methods can be costly.

So dealing with invasive alien species involves finding the right balance between three different sorts of costs. First, there are the costs of making it difficult for invasive species to enter your ecosystem. Second, there are the costs of reducing the species’ abundance if it has invaded your ecosystem. Third, there are the consequences of the species’ presence which could be good as well as bad. What makes this tradeoff particularly difficult is the fact that you often do not know which species may invade, nor how they will behave once they have invaded. So you need to take into account the possibility that your information changes in the future.

I’d love to say that this is what I do in VECTORS – but I should give credit to Adam, who is actually doing it. Adam is one of the PhD students I co-supervise, and he develops the models to analyse the tradeoffs I have just described. Besides Adam and me, there are 70 or so other researchers involved, including other economists, marine biologists, environmental scientists, ecologists, anthropologists and so on. In about three years, we hope to give EU policy makers some concrete advise how they can best manage invasive alien species in European marine areas.

So next time you cut your foot on a Pacific oyster: we’re working on it. But it may turn out that it is better to let you cut your foot than to eradicate the oyster.