Environmental economic soul searching

From the by now legendary environmental economic blogger John Whitehead a comment on the love and hate between environmentalists and environmental economists, posted on Energy Collective:

With limited resources, households, business firms and governments must make choices. If I have a fixed amount of money and I’m choosing between a monthly payment on a luxury sedan or a less expensive but more mundane sedan, I might forgo the big TV set and go with the higher payments on the luxury sedan. Part of the cost of the luxury sedan is the foregone benefit of the TV set. Economists see these so-called “opportunity costs” all over the place and we delight in our ability to do that. It is what makes us special … 

… but not so huggable. Finding these costs is what gets us into so much trouble with environmentalists. Environmentalists tend to see only the good, what economists call benefits, in environmental policies. Environmental economists see the good and the bad (i.e., the costs). Since environmental economists and environmentalists essentially agree on the good stuff (but, see below), the only thing left to discuss is the costs. We bring up the costs and environmentalists seem to go ballistic about how evil we are (even when we explicitly state that there are enormous benefits to certain environmental policies).

Yes, that does sound familiar. We are the people that often just have to open the cold showers.

Read the full article here.

H/T: Environmental Economics

A solution for Africa's natural resource curse?

A new report Breaking the Curse by the Open Society Institute of Southern Africa, Third World Network Africa, Tax Justice Network Africa, Action Aid International, and Christian Aid performed a study on mining taxation and transparency in seven African countries, including Ghana, Tanzania, Sierra Leone, Zambia, Malawi, South Africa, and the Democratic Republic of Congo (DRC). 

The central argument made by the report is that African governments have not been able to optimize the mining tax revenue due to them before the 2003 to 2008 price boom; neither have they been able to capture the anticipated windfalls during the price boom. This argument is grounded on two main reasons: (i) Mining companies operating in Africa are granted too many tax subsidies and concessions (ii) There is high incidence of tax avoidance by mining companies conditioned by such measures as secret mining contracts, corporate mergers and acquisitions, and various ‘creative’ accounting mechanisms. These two factors coupled with inadequate institutional capacity to ensure tax compliance contribute in a large measure to diminish the tax revenue due to African governments.tax revenue from the mining industry. 

The report highlights how to improve the situation from a state-revenue side. This is only one part of the story though. More money into state coffers can help address development objectives, but certainly does not guarantee it. Maybe a follow-up report on how government efficiency and transparency is needed to responsibly invest these revenues in meeting development objectives? (see also AfriMap for existing initiatives in this regard).

Climate policy and international trade

Policy instruments that are currently evaluated for a future climate policy regime include restrictions on international trade.  Some developed nations with stricter greenhouse gas reduction targets and policies argue that disincentives such as border measures for carbon-intensive production in other nations are needed. China, for instance, proposed that carbon should be disincentivised not at production, but when consumed. 

The international trade regime, however, is also an important consideration in this debate. A new paper Climate Policy Options and the World Trade Organisation foresees conflicts with WTO rules:

This paper examines whether the climate policy options policymakers are contemplating are compatible with core principles of the world trading system set forth in the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and Appellate Body decisions. The authors argue that border measures—both import restrictive measures and export subsidies—contemplated in US climate bills and the climate policies of other countries stand a fair chance of being challenged in the WTO. Given the prospect of foreseeable conflicts with WTO rules, the authors suggest that key WTO members should attempt to negotiate a new code that delineates a large “green space” for measures that are designed to limit GHG emissions both within the member country and globally. By “green space,” the authors mean policy space for climate measures that are imposed in a manner broadly consistent with core WTO principles even if a technical violation of WTO law could occur. To encourage WTO negotiating efforts along these lines, the authors recommend a time-limited “peace clause” to be adopted into climate legislation of major emitting countries. The peace clause would suspend the application of border measures or other extraterritorial controls for a defined period while WTO negotiations are under way. 

Environment slips in the rankings

From a recent Gallup poll:

For the first time in Gallup's 25-year history of asking Americans about the trade-off between environmental protection and economic growth, a majority of Americans say economic growth should be given the priority, even if the environment suffers to some extent.

This follows an earlier poll:

Although a majority of Americans believe the seriousness of global warming is either correctly portrayed in the news or underestimated, a record-high 41% now say it is exaggerated. This represents the highest level of public skepticism about mainstream reporting on global warming seen in more than a decade of Gallup polling on the subject.

Before jumping to conclusions, please read the results of a Harris poll as well:

As the economic crisis continues, some other issues may be put on the back burner as the government focuses on getting the economy back on its feet. One such issue could be environmental conservation, but 46% of Americans say that the issue of environmental conservation is something that is more important to them personally than it was a few years ago while 47% say it is no more or less important. Just 7% of Americans say it is less important to them. Furthermore, most people do not believe the government needs to choose between the economy and the environment and that the government should be making more of an effort to be environmentally conscious. 

Is this maybe an indication of some important nuances developing in perceptions about the environment? Or just a straightforward polarisation?

On crises and the oversupply of bad news

Crises is a word that became part of our daily vocabulary in recent months. It can be defined as a time of intense difficulty, trouble or danger. It also seems as if there is an incentive (at least in some circles) to keep the fires of crises burning. Or to put it differently: bad news sells. 

Julian Simon, renowned resource optimist had this to say in an article in Science on the question why bad news dominate public discussion on topics such as natural resources, population and the environment, way back in 1980:

Why do false statements of bad news dominate public discussion of these topics? Here are some speculations. 

1) There is a funding incentive for scholars and institutions to produce bad news about population, resources, and the environment. The AID and the U.N.'s Fund for Population Activities disburse more than a hundred million dollars each year to bring about fertility decline. Much of this money goes to studies and publications that show why fertility decline is a good thing. There are no organizations that fund studies having the opposite aim.

2) Bad news sells books, newspapers, and magazines; good news is not half so interesting. Is it a wonder that there are lots of bad-news best-sellers warning about pollution, population growth, and natural-resource depletion but none telling us the facts about improvement?

3) There are a host of possible psychological explanations for this phenomenon about which I am reluctant to speculate. But these two seem reasonably sure: (i) Many people have a propensity to compare the present and the future with an ideal state of affairs rather than with the past or with some other feasible state; the present and future inevitably look bad in such a comparison. (ii) The cumulative nature of exponential growth models has the power to seduce and bewitch.

4) Some publicize dire predictions in the idealistic belief that such warnings can mobilize institutions and individuals to make things even better; they think that nothing bad can come of such prophecies. But we should not shrug off false bad news as harmless exaggeration. There will be a loss of credibility for real threats as they arise, and loss of public trust in public communication. As Philip Handler, president of the National Academy of Sciences, testified to congressmen. in the midst of the environmental panic of 1970: "The nations of the world may yet pay a dreadful price for the public behavior of scientists who depart from . . . fact to indulge ... in hyperbole".

Why does bad news flourish? In short, according to Simon,  due to R&D funding and media incentives, idealistic/utopian expectations of reality and a (dangerous) sense that communicating a crises/alarmism will lead to action or at least will not be harmful.

My apologies for not being able to finish this post. I have to run, have a project crises to attend to...

H/T: The Encyclopedia of the Earth

Image: tralfaz-archives

The Geotourism Challenge 2009

Ashoka's Changemakers in collaboration with National Geographic are searching for innovations that protect destination quality through tourism that "sustains or enhances the geographical character of a place — its environment, culture, aesthetics, heritage and the well-being of its residents.” In Africa there are many such opportunities, so let us see if Africa can gain in prominence with more entries to The Geotourism Challenge 2009: Power of Place with Entry Deadline on 20 May 2009.

Some of the past African nominations:
Fair Trade in Tourism , South Africa: nomination
Urban Walkabout , South Africa: nomination
Campi ya Kanzi, Kenya
Bulungula Lodge, South Africa: nomination

See also a related Changemakers Competition

Water pricing: insights from Harvard

It has been argued on this blog ("Should water be priced according to its market value?", "On the municipal price of water") that water pricing is an important policy instrument to manage water scarcity and risks.

A recent blogpost (As reservoirs fall, prices should rise) from Prof. Robert Stavins, environmental economist at Harvard University again states this clearly in the US context:

Throughout the United States, water is under-priced.  Efficient use of water will take place only when the price reflects the actual additional cost of making that water available.  Lest one fear that higher water rates would mean that Americans would go thirsty, take note:  On average, each of us uses 183 gallons of water a day for drinking, cooking, washing, flushing, cleaning, and watering, but less than 5% of that is for drinking and cooking combined.  There is plenty of margin for change if people are given the right price signals.

Fifty years of economic analyses have demonstrated that water demand is responsive to price changes, both in the short term, as individuals and firms respond by making do with less, and in the long term, as they adopt more efficient devices in the home and workplace.  For example, when Boulder, Colorado moved from unmetered to metered systems, water use dropped by 40% on a sustained basis.

But prices are typically set well below the social costs of the water supplies, since historical average costs are employed, rather than true additional (marginal) costs of new supplies.  Although water scarcity typically develops gradually across seasons of low rainfall and low accumulations of snow pack, pronounced droughts are usually felt in the summer months of greatest demand.  The economically sensible approach is to charge more at these times, but such “seasonal pricing” is practiced by less than 2% of utilities across the country.

A reasonable objection to jacking up the price of water is that it would hurt the poor.  But we can take a page from the play book of electric utilities who subsidize the first kilowatt-hours of electricity use with very low “life-line rates.”  Indeed, the first increment of water use can be made available free of charge.  What matters is that the right incentives are provided for higher levels of usage.

Climate Change: South Africa's options

The South African government is currently hosting a climate change summit. According to the designated website the purpose and objectives of the summit are as follows:

PURPOSE

The purpose of the Climate Change Summit 2009 is to:

• Provide all key climate change response stakeholders with an update on the most recent climate change research and other current South African initiatives and interventions; and
• Provide a platform for all key climate change response stakeholders to discuss and agree the framework for a National Climate Change Response Policy that includes, among others, fiscal, regulatory and legislative packages as well as sectoral implementation plans.

OBJECTIVES

By the end of the summit –

• All key climate change response stakeholders have a common understanding of the most recent climate change research and other South African climate change response initiatives and interventions;
• A detailed policy framework (comprehensive annotated table of contents) is broadly supported;
• The roles and responsibilities of sector departments in respect to the development of the sector policy components is agreed;
• All policy development timelines and milestones are agreed;
• The implications and intentions of all policy directions are understood.

On this blog this topic has also been discussed in bits and pieces. A short synthesis that may help in further debating South Africa's options:

- CDM may be an obstacle rather then a solution to climate stabilisation. Yes, it may offer some benefits and help finance reduction of greenhouse gases, but CDM has not (yet?) made a discernable impact in Africa. CDM may prove to be a stepping stone towards a more efficient multi-lateral market on carbon credits in the medium to longer term.

- Adaptation is the name of the game in Africa. Africa contributes little to overall greenhouse gases and is most vulnerable to climate change. With persistent poverty and increasing socioeconomic vulnerability, no climate change response strategy worthy its salt will ignore or only pay lip service to strengthening adaptive capacity. Let's not forget adaption.

- In South Africa we have a few very large greenhouse gas emitters. Eskom is the second highest CO2 emitting power company in the world. South Africa has a high energy and carbon intensive economy. This suggests that environmental effectiveness and efficiency gains are most likely be possible, but the risks of not doing anything need to be included in a future strategy. Increasing climate risks may start affecting planned expansions in coal-fired power stations (see also here and related story from the World Bank here). The point is that coal-fired power is an increasing risky business. These risks need to be reflected within a country development and company strategy, not only in a national climate response strategy.

- The pertinent question is at what cost greenhouse gases can be reduced. Marginal cost curves for greenhouse gas reduction (see Global cost carbon reduction, US cost curves) illustrate that some options may yield net benefits while others can be very expensive.  However, these studies did raise questions on the assumed behaviour of consumers, whether the costs of transacting have been included and the discount rate. The South African Long-Term Mitigation Scenarios (LTMS) also proposes a list with the costs of country specific interventions. This is useful work, but as the authors themselves suggest, need to set the basis for a more detailed scrutiny of the proposed options.

- The climate system may be forced into abrupt changes. In some circles this has been referred to as tipping points. The need to responding to extreme climatic events and disasters need to be acknowledged and response options for such climatic events included in a disaster management strategy.

- The Kyoto Protocol is fragile and pressure is mounting for a new climate policy regime.  Any national policy on climate change need to anticipate and plan for a future international climate policy regimes which may include wider cap-and-trade systems (cap-auction-and-trade), trade rules and border tariff adjustments to name a few.

Changemakers

From my Inbox :

Dear Martin,

We are launching an online competition to search for system-changing innovations in agriculture and rural development.

“Cultivating Innovation: Solutions for Rural Communities” is hosted at http://www.changemakers.net/agriculture. Please find below today’s news release. Please share this information with your readers and help us promote this initiative.

If you would like banners and buttons relevant to this initiative for your website, please do not hesitate to contact me by email, or visithttp://www.changemakers.net/agriculture/mediacenter

Thank you so much for your support.

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Click on the Changemakers button for more information.

China's costly environmental crises

China's environment is in bad shape according to Kenneth Lieberthal, visiting fellow at The Brookings Institution.  This sends out a strong warning to other developing nations to better manage the environmental impacts of economic development.

 From ResponsibleChina.com:

China’s environmental crisis is wide-ranging, complex, and consequential

It threatens the pace of economic growth

Addressing it effectively will be expensive, and will require changes in the political economy

Challenges will evolve over time

The environment may well be the most consequential factor in shaping the country’s future

Why the Kyoto Protocol is so fragile

This graphic tells it all. From the New York Times.