BIODIVERSITY, ENVIRONMENTAL ECONOMICS AND ECONOMIC POLICIES

Transcription

1 BIODIVERSITY, ENVIRONMENTAL ECONOMICS AND ECONOMIC POLICIES Edward B. Barbier University of Wyoming The 7 th Trondheim Conference on Biodiversity Trondheim, Norway May 2013

2 Policy challenges Economic policies must address 3 key challenges: Valuation challenge Incentives challenge International compensation challenge The overall policy challenge is to overcome the environment-economy tradeoff that is increasing ecological scarcity The loss of biodiversity and valuable ecosystem services 5/30/2013 Barbier - 7th Trondheim Conference 2

3 The economy-environment tradeoff Economic development Resource depletion and pollution Altered ecosystems Economic benefits Ecological scarcity 5/30/2013 Barbier - 7th Trondheim Conference 3

4 The global problem of ecological scarcity Over 60% of the world's major ecosystem goods and services have been degraded or used unsustainably (MEA). The demise of key ecosystems of the developing world include mangroves (35% either lost or degraded), coral reefs (30%) and tropical forests (30%) Over the next 50 years, global biodiversity loss will accelerate, leading to the extinction of at least 500 or the 1,192 currently threatened bird species and 565 of the 1,137 mammal species. The remaining areas of relatively undisturbed ecosystems and species richness are mainly in tropical developing regions. LDCs already account for 71% of global water withdrawal, and their demand is expected to grow by 27% by /30/2013 Barbier - 7th Trondheim Conference 4

5 Global status of key ecosystem goods and services Condition globally has been enhanced Crops Livestock Aquaculture Global climate regulation Condition globally has been degraded Capture fisheries Wild foods Wood fuel Genetic resources Biochemicals, natural medicines and pharmaceuticals Fresh water Air quality regulation Regional and local climate regulation Erosion regulation Water purification and waste treatment Pest regulation Pollination Natural hazard regulation Spiritual and religious values Aesthetic values Condition globally is mixed Timber Cotton, hemp, silk and other fiber crops Water regulation Disease regulation Recreation and ecotourism Source: Adapted from Millennium Ecosystem Assessment (2005, Table 1). 5/30/2013 Barbier - 7th Trondheim Conference 5

6 How economics approaches environmental degradation Market failures Inefficient property rights Public goods Market externalities Imperfect markets Private versus social discount rates Policy/government failures Unintended policy impacts. Subsidies failure to correct pervasive market failures. Other factors: Institutional failures Population growth Poverty Trade and Growth 5/30/2013 Barbier - 7th Trondheim Conference 6

7 Three key failures Market failures markets fail to reflect fully environmental values; i.e. markets are inefficient in allocating environmental goods and services. Externalities Valuation challenge Public goods Incentives challenge Institutional failures Lack of appropriate social institutions for efficiently managing the environment; or existing institutions are inadequate or ineffective. Policy/government failures Government policies over/under correct for market and institutional failures; or government policies are themselves the cause of excessive environmental degradation. 5/30/2013 Barbier - 7th Trondheim Conference 7

8 Externalities as a source of market failure Exclusivity is a chief characteristic of efficient property rights. However, this characteristic is frequently violated when an agent making a decision does not bear all of the consequences of his or her action. Externality the welfare of one agent, either a firm or household, depends not on his or her activities, but also on activities under the control of some other agent. This welfare impact (negative or positive) is uncompensated. 5/30/2013 Barbier - 7th Trondheim Conference 8

9 Ecological services as economic externalities The overall productivity and stability of an ecosystem may dependent on the regulatory and habitat functions of an adjacent system. E.g, coastal marshlands and mangrove systems as breeding grounds and nurseries for off-shore fisheries; flood and sedimentation control provided by upper watershed and montane forest systems; sediment and nutrient retention by riverine wetlands; and semi-arid and arid brush forests protecting against desertification of rangelands. These services are ecological externalities, some of which also contribute important economic values E.g. off-shore fisheries supported by coastal breeding habitats may be harvested commercially, recreationally and for subsistence consumption; flood and sedimentation control by upland forests may protect lowland residential areas, industries and agriculture; waste treatment function of wetlands may reduce human health risks; and rangelands protected from desertification may provide livestock grazing 5/30/2013 Barbier - 7th Trondheim Conference 9

10 Valuing ecological externalities The lack of markets for these ecological services means that those individuals benefiting from economic activities supported by these services have no automatic influence over the quantity and quality of this supply, even though their welfare is affected. Instead, the resource allocation decisions of another set of individuals impact the ecosystems where these services originate, but they have no incentive to take into account the effects of these ecological externalities on the well-being of individuals elsewhere. E.g., agricultural or aquaculture conversion in coastal areas does not bear loss in revenues for off-shore fisheries; loggers in upland areas ignore costs of dredging reservoirs or sedimentation costs downstream, etc. Ecological externalities are also economic externalities that need to be valued and incorporated into resource allocation decisions. 5/30/2013 Barbier - 7th Trondheim Conference 10

11 The valuation challenge NRC (2005, p. 2): the fundamental challenge of valuing ecosystem services lies in providing an explicit description and adequate assessment of the links between the structure and functions of natural systems, the benefits (i.e., goods and services) derived by humanity, and their subsequent values. National Research Council (NRC) (2005), Valuing Ecosystem Services: Toward Better Environmental Decision Making, Washington D.C.: National Academy Press. Cardinale et al. (2012, p. 65): Although there are good estimates of society s willingness to pay for a number of non-marketed ecosystem services, we still know little about the marginal value of biodiversity (that is, value associated with changes in the variation of genes, species and functional traits) in the production of those services. Cardinale, B.J., J.E. Duffy, A. Gonzalez, D.U. Hopper, C. Perrings, P. Venail, A. Narwani, G.M. Mace, D. Tilman, D.A. Wardle, A.P. Kinzig, G.C. Daily, M. Loreau, J.B. Grace, A. Larigauderi, D.S. Srivastava and S. Naeem Biodiversity loss and its impact on humanity. Nature 486: /30/2013 Barbier - 7th Trondheim Conference 11

12 Ecosystems and their valuable goods and services Ecosystem structure and functions Ecological production function Human drivers of ecosystem change Values Economic valuation Ecosystem goods and services Source: Adapted from NRC (2005, Figure 1-3). 5/30/2013 Barbier - 7th Trondheim Conference 12

13 Ecosystems and their valuable goods and services Biodiversity Ecosystem structure and functions Ecological production function Human drivers of ecosystem change Values Economic valuation Ecosystem goods and services Source: Adapted from NRC (2005, Figure 1-3). 5/30/2013 Barbier - 7th Trondheim Conference 13

14 Optimal coastal landscape conversion to development $ D MB t MB t 0 A t A Area Preserve Develop 14

15 Optimal coastal landscape conversion to development $ D MB t 0 A Area Develop 15

16 Optimal coastal landscape conversion to development $ MBt 1 D MB t MB t 0 A A Area t Preserve 16

17 Comparison of land use values per ha, Thailand, (US$1996) Land use Net present value ($) per ha (10-15% discount rate) 1. Shrimp farming: Net economic returns 1,078 1, Mangrove replanting and restoration: Total cost 8,812 9, Ecosystem goods & services: Net income from collected forest products Habitat-fishery linkage Storm protection service 8,966 10,821 Total 10,158 12,392 Barbier, E.B. Valuing Ecosystem Services as Productive Inputs. Economic Policy, January, 49: /30/2013 Barbier - 7th Trondheim Conference 17

18 Source: Barbier 2007 Storm protection US$/ha (PV: 9 yrs) Private Profits, Public Losses Shrimp Farm Mangroves 10,000 5,000 $9,632/ha $12,392/ha After adding public benefits of mangroves $584/ha $1,220/ha $584/ha Fishery nursery 0 private profits private profits less subsidies private profits When public costs and benefits are included, the optimal choice changes completely Net of public costs of pollution and restoration after 5 years -ve $9,098/ha 5/30/2013 Barbier - 7th Trondheim Conference 18

19 The incentives challenge Market, institutional and government failures often lead to lack of incentives to protect biodiversity and ecosystems. The incentive problem is exacerbated by the public goods nature of many critical natural habitats, ecosystems and biodiversity. The result is further undersupply of these important natural assets. 5/30/2013 Barbier - 7th Trondheim Conference 19

20 Public property and public goods Public property ownership of a resource is by the government or state; rights are generally exclusive, enforceable, divisible and transferable. Public good nonexclusive and nonrival (or indivisible), i.e. it is available to everyone and the amount one individual uses does not diminish the amount available to others (clean air, natural beauty, radio signals). A public good is defined by its technical characteristics, not by ownership (e.g. public agency may provide a private good such as flood insurance, and private entities may provide a public good such as a radio station). 5/30/2013 Barbier - 7th Trondheim Conference 20

21 Efficient Provision of Public Goods Biodiversity $ Cost of Diversity $5 $ Cost of Diversity $15 $10 Person A Q Person B $ Cost of Diversity $15 $10 $5 Q* Market Demand 5/30/2013 Barbier - 7th Trondheim Conference Q Marginal Cost Q 21

22 Policies, property rights and biodiversity conservation Original Property Rights Regime Property Rights Policy Incenti ve Effect Open access and illdefined or unenforced private, state or common property. Private, state or common property, but insecure, inappropriately defined or difficult to enforce Private, state or common property, but no compensation for global benefits Establishing/enforcing property rights, including intellectual property rights to genetic/taxonomic information. Enforcement of property rights and guaranteeing security of tenure; define appropriate terms of ownership (including long-term lease or licencing agreements). Recognition of host country's right to 'sell' global benefits in international markets, or to receive compensation for such benefits from the international community. Allows local communities and host country to capture benefits of biodiversity exploitation, including bioprospecting and ecotourism, through 'user fees' and royalty deals. Allows private owner and state to manage the resource for longterm efficient management and profits, encouraging investments in activities with long-run paybacks, such as bioprospecting, ecotourism, sustainable nontimber and timber harvesting. Allows host country to receive compensation, either through globally created markets or through compensating funds via bilateral and multilateral mechanisms, e.g. the Global Environment Facility, joint implementation deals, debt-fornature swaps, tradeable development rights, bilateral aid. 5/30/2013 Barbier - 7th Trondheim Conference 22

23 International compensation challenge The remaining habitats supplying key global ecological services are mainly in poor countries. E.g., the informational content of genetic material of species that could be used for medicines or crop breeding; ecotourism and other international recreational benefits; transboundary services, such as carbon storage, climate stabilization, watershed protection and support for marine fisheries; and various non-use values. The benefits for these various global ecosystem services are likely to be higher for wealthy as opposed to poor nations. Unless compensated for the costs of conservation, the poor nations will undersupply these global services. 5/30/2013 Barbier - 7th Trondheim Conference 23

24 The funding gap Pearce (2007): The global benefits of ecosystems and biodiversity are likely to be hundreds of billions of dollars, yet currently the world spends at most US$10 billion annually on ecosystem conservation. Pearce, D.W. Do we really care about biodiversity? Environmental and Resource Economics 37: /30/2013 Barbier - 7th Trondheim Conference 24

25 Global funding for biodiversity and ecosystems The wide gap between the global benefits that humankind receives from ecosystems and what we are willing to pay to maintain and conserve them is a critical symptom of how oblivious we are to the risks arising from the global ecological scarcity problem. There are two aspects to overcoming this funding challenge: The design of adequate global mechanisms that provide adequate compensation for ecosystem services. To raise and provide adequate financing of these mechanisms as well as global ecosystem conservation generally. 5/30/2013 Barbier - 7th Trondheim Conference 25

26 Mechanism Financing mechanisms for funding global ecosystem conservation Global Environmental Facility (GEF) Description A multi-donor global mechanism to meet the additional costs of developing countries in achieving global environmental benefits from biological diversity, climate change, international waters, ozone layer depletion, reduced land degradation and abatement of persistent organic pollution. Adaptation Fund A fund financing adaptation projects and programs in developing countries; funded with 2% of the Certified Emission Reduction credits issued for projects of the Clean Development Mechanism and from other sources. International payment for ecosystem services (IPES) Reduced emissions from deforestation and forest degradation (REDD+) scheme Global carbon cap and auction system Global carbon tax International Finance Facility (IFF) Sovereign wealth fund (SWF) Financial transaction tax (FTT) Currency transaction tax (CTT or Tobin tax) A global mechanism for raising and distributing funds from beneficiaries of ecosystem services to those who conserve them. A specific IPES aimed at reducing greenhouse gas (GHG) emissions from deforestation and forest degradation in developing countries. A cap and auction scheme for GHG emissions; funds are raised by auctioning the initial emission permits. Taxes applied to carbon-equivalent GHG emissions. Mobilize financing from international capital markets by issuing long-term bonds repaid by donor countries. A proportion of a country's foreign exchange reserves set aside for investment purposes. Tax applied to the sale of specific financial assets, such as stock, bonds or futures. Tax applied to currency exchange transactions. Airline travel tax Aviation or shipping fuel tax Tax applied to international airline ticket sales. Tax applied to international aviation and shipping fuel use. Tax applied to international exports of armaments. Tax applied to sales of tobacco products, a proportion of which is allocated to global funds. 5/30/2013 Barbier - 7th Trondheim Conference 26 Arms trade tax Tobacco excise tax

27 Paying for the new strategy Source: Barbier, E.B Tax societal ills to save the planet. Nature 483:30. 5/30/2013 Barbier - 7th Trondheim Conference 27

28 The role for economic policy Address the market, institutional and government failures behind environmental degradation. Quantify and value ecosystem goods and services that are critical for assessing the economic consequences of ecological scarcity. Implement the necessary five i s: information, incentives, institutions, investment and infrastructure. Create and finance the necessary international mechanisms for global ecosystem conservation Barbier, E.B. and A. Markandya A New Blueprint for a Green Economy. Routledge/Taylor & Francis, London, 5/30/2013 Barbier - 7th Trondheim Conference 28

29 Reversing the economy-environment tradeoff Economic policies are needed to convert the vicious cycle whereby the failure of environmental values to be reflected in markets and government decisions leads to economic development with excessive environmental degradation and increasing ecological scarcity. Ecological and Economic Analysis Environmental Values Not Reflected in Markets or Policies Valuation and Policy Analysis Increased Ecological Scarcity Development with Excessive Environmental Degradation Unsustainability and Net Welfare Loss Information Incentives Institutions Investment Infrastructure 5/30/2013 Barbier - 7th Trondheim Conference 29