Working on Grand Challenges in Environmental Science and Policy: The Role of Environmental Economics

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Working on Grand Challenges in Environmental
Science and PolicyThe Role of Environmental
Economics

• Steve Polasky
• University of Minnesota
• Beijer Institute of Ecological Economics
• The Natural Capital Project

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21st Century Challenges

• Environmental scientists think we have entered a
  new geologic age
• The anthropocene (humans as dominant agents of
  global change)
• Land use change (agriculture, pasture, managed
  forests, urban)
• Climate change
• Altered nutrient cycles and pollution
• Biodiversity loss

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Challenge of Sustainable Development

• Is the global social-ecological system on a
  trajectory that can maintain or enhance human
  well-being over the long term?
• Sustainability development challenge how will
  we meet the desires for material standard of
  living for 9-10 billion people without wrecking
  the planet?
• Agriculture Double food production in 50 years
• Extensification? Best land already in
  agriculture
• Intensification? Is there a second green
  revolution, this one with more positive
  environmental effects?
• Energy can we find alternatives to fossil-fuels
  that currently make approximately 85 of world
  energy supply

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Role of Economics in Environmental Grand
Challenges

• Economics as the framework for analysis
• Cost-benefit analysis is the standard tool for
  analysis of environmental policy
• Economics supplies the only consistent and
  coherent to address sustainable development that
  exists currently
• Economics supplies essential components of
  analysis
• Valuation
• Analysis of incentives

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Sustainable Development and Value of Nature

• World Commission on Environment and Development
  (1987)
• ... development that meets the needs of the
  present without compromising the ability of
  future generations to meet their own needs.
• Inclusive wealth framework (Arrow et al. Journal
  of Economic Perspectives 2004)
• Sustainable development as non-declining human
  well-being
• Application of economic dynamics (i.e., growth
  theory renewable resource theory)
• Non-declining welfare is equivalent to showing
  that the value of all assets (wealth) is
  non-declining
• Two components
• Amount of each asset
• Value of each asset (value contribution of
  asset to present value of current and future
  well-being)
• Take summation over all assets to see if wealth
  is non-declining

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Turning Theory into Practice

• At level of whole economy there doesnt exist
  good estimates of inclusive wealth (yet)
• At micro/project level, there are approaches that
  allow evaluation of alternative management/policy
  options in terms of net benefits
• Value of ecosystem services

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A Research Agenda for Valuing Ecosystem Services
Policy decisions
Decisions by firms and individuals
(1) Incentives
(3) Non-anthropocentric approaches
(2) Actions
Other considerations
Ecosystems
(5) Biophysical tradeoffs
(7) Economic efficiency
Ecological production functions
(4)
Benefits and costs
Ecosystem services
(6) Valuation
Polasky Segerson Annual Review of Resource
Economics 1 409-434.
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Demand Exceeds Supply

• Demand for economic analysis from natural
  scientists to help value nature
• Relatively few economists engaged with natural
  scientists
• Demand far exceeds the supply
• Gap is currently being partially filled by
  natural scientists attempting to do economic
  analysis

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Examples of Natural Scientists Trying to do
Economics

• Pimentel et al. (2005) Ecological Economics 52
  273-288
• Estimates of total damage in the U.S. from
  invasive species 120 billion annually
• How is this derived?
• Builds up estimates from damages from specific
  species
• Warning next slide depicts violent misuse of
  economicsif you are easily upset you should
  leave the room now

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Examples of Natural Scientists Trying to do
Economics

• Annual damage from feral cats annually 17
  billion
• Method
• Assume 8 birds killed per feral cat per year
• 30 million feral cats
• 240 million birds are killed per year
• Each adult bird is valued at 30
• Multiply 30 x 240 million 7.2 billion
• When Pimentel et al. do the multiplication they
  get 17 billion
• Second example pigeons over 1 billion per
  year
• Control costs of 9 per pigeon
• Multiply by a large number of pigeons (gt100
  million)
• Question if feral cats kill pigeons is that a
  benefit?

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Examples of Natural Scientists Trying to do
Economics

• Costanza et al. 1997. The value of the worlds
  ecosystem services and natural capital. Nature
  387 253-260
• Estimated value of global ecosystem services of
  33 trillion annually (standard error of 18
  trillion)
• Global GDP was approx 18 trillion at the time of
  the study

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Willingness-to-Pay or Willingness-to-Accept?

• Suppose the Martians land on earth and say
• (A) We would like to buy earths life support
  system from you, how much would you be
  willing-to-accept in exchange for it?
• (B) We have control over earths life support
  system, how much are you willing-to-pay to buy it
  back?
• For (A) the correct answer is infinity
• Toman (1998) Costanza et al. estimate is a
  serious underestimate of infinity
• For (B) the correct answer is all of income (18
  trillion annually)

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Economists Needed

• To do this well requires serious analysis by
  those who understand economic principles
• Pressing need for economists to become engaged
  with larger scientific community
• Two warnings for serious economists
• Desire for accountants
• Desire for economists to deliver the right
  answer (we KNOW its valuable, you just provide
  us with credible documentation)

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The Natural Capital ProjectMainstreaming
ecosystem services
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InVEST Integrated Valuation of Ecosystem
Services and Tradeoffs
http//www.naturalcapitalproject.org/InVEST.html
Frontiers of Ecology and Environment Feb 2009
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Where to put things? Spatial land management with
biological and economic objectives
Polasky et al. 2008. Biological Conservation
141(6) 1505-1524.
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Ecological production function and valuation

• Analyze the consequences of alternative land use
  patterns on
• Species conservation viable populations for
  terrestrial vertebrates
• Market-based economic returns for commodity
  production and value of housing development
• Find an efficiency frontier in which we maximize
  species conservation for a given economic return
  (or vice-versa)

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Willamette Basin
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Efficiency of incentives to jointly increase
carbon sequestration and species conservation on
a landscape
Nelson et al. 2008. Proceedings of the National
Academy of Sciences 105(28) 9471-9476.
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Example simulation results for willingness to
accept
Parcels eligible for easement payment

• 8,176 manageable parcels in Basin.
• Detailed data on conditions in each parcel.
• 3,889 private parcels potentially
• eligible for easement.

WTA for easement Per acre annual payment
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Comparison of efficiency of policies across
policy scenarios (Tier 1)
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Modeling multiple ecosystem services and
tradeoffs at landscape scales
Nelson et al. 2009. Frontiers in Ecology and
Environment 7(1) 411.
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Projected land use change in 2050 under the
three scenarios
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Outputs through time
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Willamette Applications Summary

• Spatially explicit analysis of multiple ecosystem
  services and biodiversity conservation
• Joint provision of services one landscape, many
  consequences
• Tradeoffs among services under alternative
  management
• Can show relative efficiency of alternatives
• Can use valuation to rank alternatives
• Integrated tools to address three related tasks
• Quantification of services
• Valuation of services
• Policies for provision of services

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Moving Ahead

• Addressing the grand challenges in environmental
  science and policy REQUIRES environmental
  economics
• Huge opportunities for environmental economics
• Advice for the environmental economists
• Invest in learning some environmental science
• Willingness to listen and adapt
• Patience
• Pre-tenure economists balance disciplinary and
  interdisciplinary work

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Integrated Economic Modelers circa 2000
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Integrated Economic Modelers circa 2020
Photo credit www.abc.net.au/triplej/events/one_ni
ght_stand_07
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Thank You