Why (not) price nature?

A few remarks on today's debate on economic valuation of ecosystem services, here in Wageningen:

• Having two non-economists as the only speakers in a debate on economic valuation of ecosystem services led to the usual misconceptions of economics, some if which I will explain below.
• I have written most of what I can say about the issue in this post.
• In my three-species typology in that post, Dolf de Groot is a typical pragmatic ecologist: he literally called valuation "a necessary evil."
• The same typology might label Bram Büscher (a sociologist) a hardcore ecologist, but actually his arguments were more of a Marxist critique of economics and capitalism than of a moral nature (intrinsic value 'n all). In short his argument is that ecosystem degradation is caused by the logic of capitalism; pricing nature perpetuates that logic rather than abolishing it.
• De Groot claimed that "conventional economists ignore most externalities, like ecosystem degradation." As a conventional environmental economist, who has been working on nothing else for the past ten years than externalities and other market failures, and who meets hundreds of similar economists every year at the meetings of EAERE, AERE, IIFET, BIOECON, and so on, I found this very strange to hear, to put it mildly.
• Another statement by De Groot was that unlike pricing, valuing "is not about substitution." Economic valuation is ALWAYS about substitution. If you don't like the idea that people can be compensated for ecological degradation, don't do valuation. De Groot wants to have his cake and eat it too.
• It is a more general problem I have with the so-called 'ecological economists': a lot of their valuation work is poorly thought through, poorly executed, and done from a political agenda rather than out of scientific curiosity.
• Common mistakes by ecological economists are (1) not properly defining what they measure (like doing a stated preference survey among tourists to measure indirect use values); (2) aggregating values to such a scale that prices are bound to change (the most fundamental critique of Costanza et al.'s 1997 paper); (3) treating economic values like they would treat biophysical variables such as temperature or density (which are not context-dependent while economic value depends on what question you are asking).
• Büscher repeated the Suzuki fallacy that "externality" means "not part of the economic system"
• Büscher "did not have time" to propose an alternative to the capitalist system. Perhaps he should have a look at the historical alternatives to capitalism and their wonderful impact on the environment.
• Büscher quoted a Chinese philosopher (probably Sun Tzu) that "if you can get your enemy to speak your language you have won the battle" or something in that spirit. I don't agree. Economists study the rules of market allocation (property rights, taxation, and so on) to understand where such rules work and where they don't. This would suggest that our advice would always favour big business. But being market-friendly is not the same as being business-friendly.
• I'm in favour of pricing ecosystem services, but only in the context of concrete policy decisions, in a proper cost-benefit analysis that is part of a wider policy-making process that also takes into account other considerations besides economic value (such as intrinsic value, distribution of effects, and so on). Don't try to estimate the total value of the planet, as Costanza did.

On interdisciplinarity

Check out the really cool cover of Nature's special feature on interdisciplinarity!

Of course, as an economist I especially like their inclusion of "Invisible Hand" as the sole superhero representing the social sciences in their scientific team of Avengers. But it is also symbolic for the fact that economists have, in my view, gone the furthest in integrating their discipline with the natural sciences. This holds particularly for environmental and resource economists, who by definition deal with problems of the natural environment like pollution and overfishing. The reason is pretty geeky: most economic research is quantitative, and quite a lot involves the development of mathematical models. And whaddayaknow: so do climate science, population biology, hydrology, and a host of other natural sciences. Give me your equations and I'll plug them into my CGE model.

It is actually much, much harder to truly integrate qualitative social sciences like sociology or anthropology with quantitative sciences - even with a social science like economics. Models like IMAGE and DICE describe the global climate as well as the economy; the Gordon-Schaefer fisheries model and Colin Clark's work on renewable resource use, which use basic models from population biology like logistic growth, are part of the standard canon of resource economics since decades; when Daniel Pauly criticizes the limited impact of the "social sciences" on fisheries research, he lumps together economics with biology, not sociology. Meanwhile, it has taken until 2009 that the Nobel committee finally recognized anthropologist Elinor Ostrom for her contributions to the economics of common pool resources, and economists and sociologists share little but contempt for each others' fields. The Indian economist Jagdish Bhagwati is said to have joked that good economists reincarnate as physicists; wicked economists reincarnate as sociologists. But Ostrom's Nobel also shows that things are changing, especially in the field of institutional economics. Let's have more of that in the future.

Burn the schools down

I guess it's a tradition that every once in a while students revolt against the economics they are being taught. When I was doing my PhD it was a movement calling itself "post-autistic economics", which was mainly active in France, but also got support elsewhere. I agreed with some of their complaints, although the argumentation was not always that strong and sometimes outright politically motivated ("Capitalism boo! Neo-feminist post-constructionalism yay!"). Later on they changed the name to "Real-World Economics", perhaps not to offend people suffering from autism. Looking at their review I still don't get the impression that they're making much of a dent in the economics debate. Neither am I convinced by what they write, to put it politely.

But now a new revolt has emerged in Manchester. As far as I can see it is more constructive, and more well-argued than the post-autist movement. I agree with some of their points, but not all.

I agree with their proposition that economics teaching should take heed of insights from such fields as psychology, law, and policy science. I don't know the Manchester program, but I find it curious that such subjects receive as little attention as the Manchester economics students claim. Besides microeconomics, macroeconomics, and econometrics, students in our BSc Economics and Governance program take courses and lectures on history, policy science, institutional economics, and behavioral economics. I guess it's a question of discussing one particular model or theory very thoroughly, or discussing several different models or theories in a more shallow manner. Our Economics and Governance BSc chooses to be broad, and I agree with that, especially for a problem-oriented university as Wageningen.

I also agree with the Manchester students' call for a more evidence-based economics, and more attention for the conditions under which different theories and models have more explanatory power than others.

But that's also where my main objection lies: the call for "pluralism" is translated into more attention to other "schools of thought" than just neoclassical economics. According to the Merriam-Webster Dictionary, a school of thought is

a group sharing a common point of view in respect to some matter (e.g. "she belongs to the liberal school of thought"); also: a point of view recognized as held but not necessarily accepted (e.g. "there are two schools of thought about this question")

An economist can be "of" a particular school of thought: for example, Paul Krugman is generally considered a Keynesian; Milton Friedman was a monetarist; Herman Daly is an ecological economist; John Kenneth Galbraith was an institutional economist. The natural scientists I work with can only shake their heads when I tell them this. In their fields, there are different theories that compete or need to be reconciled (e.g. general relativity versus quantum mechanics). Or there are different models for different situations, based on simplifying assumptions, and usually developed for a selection of cases but not for all (e.g. metapopulation theory, or the Beverton-Holt stock recruitment model). In that sense, economics is close to ecology: both deal with complex systems that cannot always be experimented on to test competing hypotheses, so we use models that describe a subset of the mechanisms at work. The difference, however, is that whereas even Ilkka Hanski will acknowledge that not all populations can be approached as metapopulations, economists argue as if either Krugman or Friedman is right. On the other hand, schools of thought also have a danger of being politically motivated: if schools of thought are just "points of view", then you can pick and choose whichever one fits your political preferences. So if you like bow ties, become a Hayekian; if you want to keep your really cool Che Guevara t-shirt, declare yourself a Marxist. (If you're looking for a steady job in economic policy, follow Keynes.)

In my humble opinion economists must get rid of schools. We should treat our theories like ecologists treat their models: to paraphrase George Box, our models are always wrong in some respect, but they may be useful in some cases. The challenge is to identify the conditions under which they can be useful.

My impressions of the 2013 ICES Annual Science Conference

My impressions after a week of presentations, discussions, and lots of delicious food:

• Of all the interdisciplinary conferences I've been to so far, the ICES meeting was the most scientific (read: least political, notwithstanding ICES's role as advisory body for fisheries policy), and the most constructive in its interaction with social scientists (read: economists). Besides EAERE (which I consider a disciplinary meeting) I was once at an ESEE meeting, and once at the European Congress for Conservation Biology. I had mixed feelings about those for their tendency to bash "mainstream economics" (whatever that may be) and to blur the line between science and activism. Perhaps it's because those communities have the hidden assumption that nature is best left alone by man, whereas fisheries scientists investigate, by definition, a form of interference in nature.
• Is it just me, or is there a major disconnect between textbook fisheries economics and the practice of fisheries management? Concepts we teach (notably maximum economic yield and the role of the discount rate) are nowhere to be seen - in fact, I once heard a fisheries industry representative refer to maximum economic yield as "a plaything for economists". In our teaching we hardly pay attention to the stochastic nature of fish stocks, but these days fisheries science is all about reference points and harvest control rules - which only make sense in a stochastic context.
• Economists can make big contributions to fisheries management by further strengthening how fisheries models describe human behaviour. So far those contributions were largely confined to modelling where fishers fish, but what about investments in gear, or boats? Let alone market structures, global developments (tilapia!), value chains, and policy-makers.
• Iceland is like an extreme version of Norway. Thought the Norwegian landscape was rugged? Iceland has volcanoes, and geysers! And where I thought Norwegians don't give a hoot what the rest of the world thinks of hunting and whaling, only Icelanders can serve raw whale meat and rotten shark to a crowd of foreign scientists. (And it was delicious! The whale, that is.) Neither do Icelandic pubs have qualms with playing the entire Velvet Underground & Nico, including John Cale's ear-piercing viola solo in Heroin.

Are humans like fish?

This spaceship currently hosts about 700 fisheries scientists attending the Annual Science Conference of ICES. ICES is an international body that assembles stock assessments and other results from fisheries research in Northern Europe, Canada, and the United States. Fisheries scientists use a lot of detailed models of the marine ecosystem, which allows them (up to a point) to project how different policies affect such things as fish stocks, catches, and so on. I also entered the vessel (more accurately the Harpa conference center and concert hall in Reykjavik, Iceland) to discuss how such models can take the human factor into account. After all, humans take part in the marine ecosystem (in many cases we are the top predator), but we also develop policies with the interests of humans in mind. So if we can model fish, why not also model humans?

"It can't be done"
A common objection against this is that human behaviour cannot be modelled. Of course, as a model-building economist I don't agree with that. Economists have a large set of quantitative models at their disposal that describe human behaviour at several different spatial scales, from consumer choices to entire economies or even international trade. Some biologists at the meeting explained that similar objections were made when biologists started developing their own ecosystem models, but that has never stopped such models from proliferating. Why would humans be any different? The discussion set me thinking about the similarities and differences between humans and fish, and how they could make modelling human behaviour easier or more difficult than modelling animal behaviour or ecosystems.

Why humans are like fish
Basically we discussed three objections that were made against biological models, and are now made against modelling humans. First, people object that the object of the model is too complex. That's true, but so are the global climate, the cascade of nuclear fission and fusion in a hydrogen bomb, and a horde of blood-thirsty zombies climbing over a 50 meter high wall. But that never stopped people from modelling these processes in a plausible manner (admittedly, one of these examples is fictional and no, it's not the first one). If we don't model these processes we will never understand them or how they interact with other processes.

In the fish tank

A second objection is that the processes are uncertain. But although uncertainty complicates matters, it can be dealt with. You can do a sensitivity analysis to assess the robustness of your results. There are methods to optimize uncertain systems, such as stochastic dynamic programming models or uncertainty analysis. Such steps are necessary, they can be difficult, but that is no reason not to try.

A third objection is that models tend to induce tunnel view, where effects that are not "in the model" are ignored. This is a fair point, and as an economist I must admit that my profession has not been immune to this effect. So we need a diverse ecosystem of theories, approaches, and models, in order to stay open-minded for arguments or effects we hadn't thought of. Again, this objection has also been made with respect to biological models, and it has never stopped biologists from modelling.

Why humans are not like fish
This is where it gets interesting. First of all, fish don't read. People, however, may read your report and respond. There is evidence that negative news coverage on consumer confidence further reduces that same consumer confidence. This is a typical feature of social science research: as a researcher you have an impact on your object of research (i.e. people) that goes much deeper than any quantum physicist could get. Your results could be self-fulfilling, as in the consumer confidence case. They could also be self-defeating, as some people argued was the case with Limits To Growth: the stir caused by this report inspired efforts to reduce pollution and resource use to such an extent that we evaded the environmental catastrophe predicted by the report. (I'm not sure I'm buying the argument about this particular example but you get the idea.)

Second, I would argue that humans are much better at anticipating what other humans, including governments, do. For example, a common objection against vessel buybacks is that they create an expectation among fishers that the government will buy access capital (at tax-payers' expense) when the going gets tough for fishers - an open invitation for creating excess capacity because fishers face only part of the financial risks. Likewise, fishers may anticipate what other fishers do in their decision whether to fish, and how much to fish.

Who needs a window if you can have a view on virtual nature?

Third, many properties of humans, such as customs, habits, and technologies, are much more subject to change than those of animals. Over the 200,000 years of its existence, homo sapiens has developed sticks, houses, wheels, fish nets, purse seines, and pulse trawls. We're the only animal with such a massive change in capability and impact. And although economists commonly assume that preferences don't change over time, I'm not so sure. Suppose we estimate the recreational value of a natural park to be, say, €5 million, will it remain like that forever? There was a time when forests were for cutting down - they were seen as collecting grounds of villains and predators. Now we want to protect them out of love of exercise, hunting, and nature. What if our descendants develop a taste for hikes in virtual reality (or simply get glued to their iPads), and hikes in real forests fall out of fashion?

Fourth, on the bright side, we cannot communicate with fish but in social research we can do surveys and interviews to gain insight into their considerations, their lines of reasoning, and so on. These methods are not perfect (people can lie, or withhold information), but neither are biological measurement tools such as the ones used in stock assessments.

Should we? Can we? How?
The bottom line is that we can to some extent model human behaviour, and by doing so we can address a lot of pressing problems. But it will be tricky. I can't judge whether it will be trickier than modelling fish, but it will surely be tricky in different ways. Again, that should not be an impairment to doing it.

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.

Why economists argue with ecologists (6): Can we price nature?

Can we express nature's value in currency, such as dollars, euros, or yuan? I usually get one of the following three replies to this question.

The first is the hardcore ecologist:
"Most certainly not. Nature has a value in itself. Pricing nature is disrespectful to nature; it violates nature's intrinsic value; it's cynical and perhaps even blasphemous. Can't we just enjoy something without putting a price tag on it? Why does everything have to be expressed in money?"

The second is the hardcore economist:
"Well, duh. People have preferences. Do you prefer an apple or an orange? Do you prefer a highway or a forest? From preference orderings we can derive the amount of compensation people would need for building that highway. So of course we can price nature. We do it every time we make a choice between nature and something else."

The third is the pragmatic ecologist:
"I don't like it, but if we don't do it policy makers won't listen to us. Economists rule the world, so to promote nature conservation we need to speak the language of economists, and that is money. So I'll just hold my nose and price nature. But I will also remind people that the price tag does not mean that nature can be substituted for something else."

Believe it or not, but my view is closer to the hardcore ecologist than any of the other two. So what am I doing teaching monetary valuation of the environment next June?

When we do monetary valuation of, say, a coral reef, we don't value a coral reef. Does my wage say how much I am worth as a human being? (Boy, am I glad I never pursued that career in Dutch folk music.) No, at best it gives an indication of the value of the skills and expertise I am offering in the labor market as a teacher and researcher. Likewise, coral reef valuation aims to estimate the economic value of the goods and services provided by a coral reef, like diving tourism, coastal protection, or nursing juvenile fish. By "economic value" I mean how badly we want or need those goods and services, and how easy it would be to get them elsewhere if the coral reef disappears. That tension between how badly we want something and how easily we can get it is also called relative scarcity. Water is not scarce in The Netherlands, even though it is an essential resource. The fact that it is so easy to get makes that it has a very low market price. On the other hand, diamonds are hugely expensive, not because we need them so badly but because they are so difficult to come by. You rarely see newspaper headlines about the scarcity of people, but there is common mention of scarcity of skills or labor. The last time we put price tags on humans was during the shameful era of the slave trade. Likewise, monetary valuation does not, and should not, even pretend to price nature as such.

This view puts me at odds with the hardcore economist who argues that ethics can be fit in preference orderings and compensated for. I don't agree with this line of reasoning. It would imply that one person can block a policy if he finds it absolutely unacceptable - after all, he would require an infinite amount of compensation in order to be left "as well off" as without the policy. In practice we would call him a protest bidder and remove his data point from our analysis. Another problem is that this line of reasoning assumes that moral objections are purely individual. Moral considerations, however, typically pretend to hold for everybody. If I think eating meat is wrong, I can allow you to order a hamburger while still condemning it. If it were a purely individual preference, for instance if I would have no quarrels with eating meat but I simply don't like hamburgers, I would have no reason to condemn your ordering of a hamburger. So when we talk about the intrinsic value of a coral reef or a species, we have no other option but to debate it with others. The outcome of that debate may be that the majority dismisses the idea of an intrinsic value of a coral reef. But at least the argument would have its proper place in the political process, which it would not have if we tried to express it in a monetary value.

It also puts me at odds with the pragmatic ecologist. First, I find his line of reasoning insincere. If you think coral reefs are unique, unsubstitutable, and should be preserved for their own worth, just say so and don't start using economic value as an argument of convenience. Second, economic value implies substitutability, period. If I compensate you for the loss of an environmental asset, I substitute the environmental asset by something that makes you just as well off as with the asset. So I have substituted the asset by something of similar value to you. If I cannot substitute the asset by all the wealth in the universe, then its value must be infinite: hence Michael Toman's characterization of Costanza's $33 trillion paper as "a serious underestimate of infinity". Third, valuation should be done sincerely, and with the prime goal to make sure that all relevant information is available for public decisions. If you blur the line between moral considerations and purely economic ones, you will be tempted to overstate the economic arguments because the moral ones didn't work.

The bottom line is that when you do economic valuation, you need to define very precisely what it is you are measuring, and whether the methods you use answer the question you ask. I am deeply skeptical of measuring such notions as existence value (an economic value derived from no more than knowing something exists), because I doubt whether people understand the concept, and whether we will ever be able to distinguish it from moral considerations. But perhaps that is what the role of economists should be in this issue: to properly phrase the question, to explicitly lay out the arguments and considerations, and to quantify those considerations that can be quantified.

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

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

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 the following 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.

Why economists argue with ecologists (4): Economics and thermodynamics

If you think environmental economists are a boring lot, look up this 1997 issue of Ecological Economics. It covers a debate between three economists on economic growth and the environment, but at times it reads like a transcript of a Jerry Springer show. On one side we have Herman Daly, one of the first ecological economists and co-founder of the journal Ecological Economics. On the other side we have Robert Solow and Joseph Stiglitz. Solow and Stiglitz are environmental economists, neoclassical economists, or mainstream economists, whatever you want to call them, although Stiglitz has lately turned into antiglobalists' favourite economist due to his criticism of globalization.

The trouble actually started twenty years earlier, when Solow and Stiglitz pointed out that when we run out of one resource, we can substitute it by another one: when we run out of oil, we switch to natural gas; when gas runs out, we switch to solar energy; and so on. Because we can always invent better and more efficient ways of meeting our needs, the economy should be able to keep on growing for the foreseeable future, or perhaps even indefinitely. Not everybody agreed, and an economist called Nicholas Georgescu-Roegen wrote a scathing rebuke where he argued that not all resources will be as easily substituted: if we run out of fish, how will we make our paella? If we run out of oxygen, what will we breathe? The idea of eternal economic growth, he argued, violated the laws of thermodynamics. To put it very crudely, these laws state that although you could convert matter into energy (which is what happens in a nuclear reactor), or energy into matter (as happens in particle accelerators), it is impossible to create energy or matter out of nothing. Georgescu-Roegen accused Solow and Stiglitz of "ignoring the difference between the real world and the Garden of Eden" and of "conjuring tricks." In the 1997 issue of Ecological Economics, Daly compares Solow to a medieval alchemist trying to turn lead into gold. You may not consider that particularly diplomatic, but Solow and Stiglitz pull no punches either. The opening sentence of Solow's article reads

Dr Daly's prose tends to dissolve at any moment into a dense cloud of righteousness. This makes it very hard to respond rationally to his performance.

Stiglitz's reaction seems somewhat friendlier, until we get to the last few sentences:

No one, to our knowledge, is proposing repealing the laws of thermodynamics! Doing so would make as little sense as the act of one state legislature that thought that students' intellectual resources could be economized by changing the value of π from the highly inconvenient 3.1416... to just 3.
In the end, we hope we have made our essential points, using somewhat fewer trees and other resources than Daly did in his 15-page note.

I will not go into all the arguments used in this debate now. There is a lot to be said about economic growth, too much in fact for one blog post. But that these people argue over the law of thermodynamics points towards another difference between ecologists and economists.

The laws of thermodynamics are central to many environmental sciences. Climate scientists include in their models the amount of heat the sun directs at the Earth, as well as the amount of heat that the Earth radiates or reflects into space: the difference is net warming, or net cooling. Biologists model animals as barrels of energy where energy goes in as food and goes out as movement and body heat: this helps biologists explain under what circumstances a species thrives and when it goes extinct. Whatever the system, if there is energy or matter coming out of it, the same amount must also be going in somewhere, or the system is either collecting or losing something. No wonder ecologists are critical of economic growth: if you produce more, it must be because you are losing something somewhere else. So how can these economists claim that we can produce ever more with ever less inputs?

Like Stiglitz says, no economist proposes to repeal the laws of thermodynamics: they govern how we can convert raw materials, energy, and labour into cars, computers, and so on. In other words, they would apply if we were talking about producing ever more stuff. But economics does not necessarily deal with stuff, but with the value of that stuff. And believe it or not: it is possible to create value out of nothing, and to make it disappear into nothing.

In fact it works a lot like information. A while ago I read a rather strange question in Intermediair, a Dutch career magazine: does a USB stick get heavier when you load it with data? The answer, of course, is no. To a computer, a USB stick is like an Etch-A-Sketch: it uses it to write things down by moving stuff around, not by adding stuff. A USB stick contains loads and loads of switches that can be either turned 'on' or 'off' (if I'm not mistaken, my 16GB USB stick has 134,217,728 of them). A computer 'reads' the information on a USB stick by observing which switches are 'on' and which ones are 'off'. Together, these switches can contain the latest Ufomammut CD, a movie of your PhD defense, or your illegal copy of Matlab. Put these files on your USB stick, and the USB stick has become a lot more valuable to you. How often do you read that some official has lost a USB stick with sensitive data? And this is all possible without changing the mass, nor the energy contained in the USB stick. (OK, to be honest, there may be some swapping of electrons between the stick and the computer, but that is negligible.) But leave it near a strong magnetic field and all your data are lost. And the USB stick has become worthless.

I sometimes get the impression that ecologists tend to treat value as they would treat the number π, or the density of some material, or the temperature of a body. Some studies measure it for a few samples and then aggregate them over the entire planet. And the folks who cite those studies seem to assume it remains unchanged over time. But value is a strange concept. Ever wonder why water is so much cheaper, yet so much more important to human life than gold? Value also varies between individuals and over time. You may not give a rat's ass for Trout Mask Replica, but there are folks out there willing to lose an eye for an original vinyl copy. Likewise, is there anyone who still listens to The Sweet? I mean, seriously?

Granted: so far economies have grown partly because we are getting more effective at extracting and using ever more inputs, and thereby producing ever more stuff. This is something we cannot keep doing indefinitely: resources are finite, the amount of solar energy our planet receives is finite. There is only so much stuff you can produce, period.

But economies also grow by producing more value with the same inputs, by tayloring products to people's wishes ever more precisely, or by enhancing the efficiency of production. How long we can keep that up is lot more difficult to say.

Granted: bad arguments against ecological footprint

While writing my post on Ecological Footprint I came across a lot of sound arguments against it, but, to be fair, also a few less convincing ones. Here are two that hold more than a grain of truth, but simply will not convince the EF's proponents.

"Land prices will stop you from sequestering carbon"
The argument goes like this: it's unrealistic to assume all carbon emissions are mitigated by planting trees, because as more and more land is covered by 'carbon farms' (yes, not only the term exists, so does the practice), land will become so expensive that you will resort to other ways of climate change mitigation.

Of course you would expect land prices aree extremely high when the last square meter of agricultural land is converted to a carbon farm: after all, we only have one planet. But perhaps that is exactly what EF tries to tell us? Nevertheless, the argument points towards another problem with EF: it assumes sequestration is the only way to deal with GHG emissions, or at least the cheapest way. But although adaptation to climate change has long been a dirty word in the climate debate, it would be bad science and bad policy to dismiss it straight away - especially if sequestering carbon becomes prohibitively expensive. Given the choice between starvation and building better coastal defenses, my motto would certainly not be let em eat tree bark.

"You can overshoot temporarily without wrecking the planet"
EF counts any policy that increases stocks of carbon as unsustainable, but it is possible to accept a slight, temporary increase in carbon stocks without inflicting major damage to the climate system. Indeed, it might even be optimal to do so. If we could eradicate poverty by a temporary spurt in economic output to build up capital (read: build machines, infrastructure, establish institutions, etc), after which we close biophysical cycles again, bringing our impact on the planet within safe boundaries, the elevation to a higher but sustainable standard of living may more than offset the temporary damage inflicted on the environment.

But to me this sounds too much like the drunk who is caught by police while starting his car and tries defending himself with the excuse that he wasn't planning on actually driving it. Are you really trying to tell me that flying to distant holiday destinations several times a year (just to name an example) is supposed to be temporary, and to help developing countries get richer? Don't get me wrong here: I think everybody is free to take a long vacation on the other side of the globe if he or she likes, although we should do so facing prices that convey all relevant costs, and that includes our impact on the environment. But most people would assume that our current way of life is at least supposed to be maintained indefinitely, and otherwise to be expanded. The EF's proponents argue that this is impossible. There may be a lot to be said against their position, but claiming it's all meant to be temporary is not one of them.

The Living Planet Report (2): Ecological Footprint makes for nice reading but abominable science

WWF's latest Living Planet Report presents a bleak picture, some hopeful trends, an awfully bad indicator and lots of pious words on sustainable development.

Oh boy: the Ecological Footprint

NGOs like WWF love indicators like the Ecological Footprint. Its message seems simple: if we want to continue living the way we do now, we need more planets to offset all the bad thing we do. Alas, it is one of the worst concoctions that ever came out of an econophobic environmentalist's imagination. At best it tells us things we already know. At worst it suggests policies that are harmful to people AND the environment. It is claptrap. Trash. Ecological Footprint is evil. The objections are legion, but the main ones are:

• EF tells us nothing about how "bad" or how "serious" impacts are;
• It depends strongly on carbon emissions and makes wildly strong assumptions on how carbon emissions are mitigated;
• It is biased against cities and trade.

Ecological Footprint does not tell us how bad impacts are

Suppose we have two pollutants. One will, if it reaches a certain concentration, kill all life on the planet. Theoretically we can reduce its concentration with some technology that takes very little space, but because we think it is too expensive we haven't installed it yet. (Let's say we can install some device on the North Pole that sucks the pollutant out of the air.) The other pollutant causes a nasty rash among a small share of the population. Reducing its concentration requires the planting of huge areas of forest, but we can use these forests also for recreation, timber, and all other kinds of uses. Which pollutant should be banned?

EF would say: ban the second pollutant. Not because that pollutant causes a rash, not because EF aims to kill all life on the planet, but because mitigating that pollutant's emissions takes more hectares than mitigating the first pollutant. So one problem with EF is that it ignores how a given activity affects our well-being, or that of future generations. All that matters is how far we are from a steady state, and this "how far" is measured in hectares. Why hectares? Are they such good indicators of the well-being of humans, or life on Earth in general? No. But it gives you pretty pictures: you can show your readers a picture of Earth besides one or two other planets and tell people we also need the other planets. And then your readers can say: "Oh no! We need two more!" It's a great propaganda tool.

Ecological Footprint depends strongly on carbon emissions

In fact, EF ignores toxic substances altogether, because, you guessed it, they are so difficult to translate into hectares. The only exception is carbon emissions: after all, we could in theory plant trees to absorb and store carbon. (Please don't start now that carbon is not a pollutant but plant food, and that anthropogenic global warming is a leftist conspiracy to take away your SUV. Conspiracy theories give me a rash.) This is what the EF assumes: that we need to grow trees in order to absorb all the carbon we emit. No wonder carbon makes up about 50% of the global Ecological Footprint! In case you haven't noticed: the fact that 50% of the EF is caused by carbon emissions is not the result of the gravity of human-induced climate change (which I agree is serious), but of the assumptions that the EF makes on how we should mitigate those emissions (which may be or may not be realistic but is in NO way related to the consequences of human-induced climate change). Moreover, there are many ways of mitigating carbon emissions, many of which take less space than planting trees: Carbon Capture and Storage, for instance.

Ecological Footprint is biased against cities and trade

If the LPR simply presented the EF as an indicator of whether we can keep up current consumption rates indefinitely or not, it may not necessarily be wrong, although it would be useless: we already know from IPCC, IUCN, and other bodies that we are having impacts that are drastically altering ecosystems, and are likely to limit future generations' well-being. The problem so far seems to be that it is presented as a quantitative measure of how bad things are, which it is not. However, the LPR (as well as the EF's proponents) go further than that: they claim cities are evil, and they base that claim on cities' Ecological Footprint.

The reasoning is like this. Imagine a city that covers 100 km². Of course it cannot exist on its own: after all, it is a city, population density is high, so it is impossible to feed all the city folk by growing food on the mere 100 km² covered by that city. So it buys food from the rural areas around it. The inventors of EF claim this is a bad thing. Our imaginary city could have an ecological footprint several times its physical surface area, because all that farmland provides food to the city. So according to EF's proponents it is unsustainable, and should reduce its footprint to something more in line with its physical size. Cities are parasites on their surroundings, the EF folks claim.

This 'parasitism' is nothing more than trade. A farm's footprint is smaller than its physical area because it only uses a fraction of the food it produces: the rest is sold, mainly to city folk. This is good: farmers can specialize in farming, city folk can specialize in activities for which it pays to be close to other people, such as trade, banking, research, and education. Throughout history, cities have been hotbeds of innovation, of revolution, of new ideas being spawned, spreading, and finding fertile ground.

No wonder EF is also biased against international trade: densely populated countries (read: countries where land is in short supply) like Singapore and The Netherlands import a lot of food and timber from countries that have lots of land. This way everybody can do what he or she is best at. Really, you don't want to live in a world where everybody grows his own food, fetches his own water, generates his own energy, builds his own house, and pulls his own teeth. Trade enables division of labour, which enables us to do a lot more with the same resources.

Better indicators? Prices!

If EF is so bad, is there any other way to express the state of the world's environment in one figure? The short answer is: no. The issues are too diverse, and too numerous to be translated in a single figure. The long answer: what should such an indicator reflect? At least it should reflect how serious the issues are, because policy makers will set their priorities with the help of the indicator. Prices may be imperfect reflections of what people want, but they are still way better than an arbitrary variable like surface area. (Why not Joules? Or grams? I know: less pretty pictures.) The indicator should also reflect not only our current happiness, but also our impact on the future. So a country that throws a big party squandering its natural resources should have a lower value than a country that uses the same amount of resources more wisely. The first issue is not in EF, and the second issue only partially (and using, as I said, a poorly suited unit). Gross National Income, which is widely used by economists but also criticized by ecologists, is also a very poor indicator of wealth, mainly because it ignores natural resource depletion. But there are better, less well-known indicators: the latest edition of The World Bank's Little Green Data Book presents not only Gross National Income of different countries and regions, but also their Adjusted Net National Income, which is GNI minus consumption of fixed capital, and depletion of energy resources, minerals, and forests. And thankfully, the word "footprint" is nowhere to be found.

Living Planet Report (1): Living Planet Index paints a bleak picture, but be careful with your interpretation

WWF's latest Living Planet Report presents a bleak picture, some hopeful trends, an awfully bad indicator and lots of pious words on sustainable development.

The Living Planet Index

The bleak picture is painted by the overall trends in The Living Planet Index, a weighted average of the abundance (or density, or another indicator of well-being) of a 'basket' of species. You can argue about the weights each species gets, of course, but the overall message is that most of the species they monitor are still in decline.

The hopeful trends are in the North: rich country LPIs are rising. There could be many reasons for this. Unsurprisingly, the LPR claims that the rising trends in the North are only possible because rich countries 'export', as it were, the damaging activities necessary for their consumption to poorer countries. I don't doubt this is one of the drivers, but I can't help thinking that it also matters that as we grow richer, we start caring more for the environment. Whether this means that we should all be poor (little consumption of natural resources) or rich (high preference for conservation) is a very, very old discussion in environmental economics.

The LPR also states that just because things are getting better, that does not mean they are going well. The report rightly points towards the fact that Atlantic cod stocks in some places are only a few percent of what they were mid-nineteenth century. Although cods stocks are improving, they could have been a lot better (i.e., we could have had a lot more bacalau than we're having now). Be careful, however, not to interpret this as that we should strive for pre-industrial levels for all species. After all, this would mean that we should never fish at all. The report does not make this claim explicitly, but such claims are made in other indicators. It is important to keep in mind that biomass levels that give us Maximum Sustainable Yield generally lie at about 20%-50% of what the biomass would have been if we did not fish at all. So if a stock is at 5% of its pre-fishing level it could be at about 10% of its optimal size. Always keep in mind: what do we want? Pre-industrial or even pre-human biomass levels are poor benchmarks for that.

Next post: Oh boy. They're using the Ecological Footprint

North Sea Foundation vs Climategate: my 2 cents

Last Monday was World Biodiversity Day, and the focus was this time on marine biodiversity. This means a lot of press releases and other broohaha (and boohoo) about declining marine biodiversity. I can point to plenty of problems with marine biodiversity (for instance, that delicious fish species like eel and southern bluefin tuna are at the brink of extinction), but you can read all about that here. For now, I want to look at the following statement by the Dutch North Sea Foundation (my translation; links added by me):

The North Sea, The Netherlands' largest nature area, is under pressure. In 2010 the Nature Balance announced that only 40% is left of the North Sea's biodiversity. "So it is necessary that important areas and animal species are well-protected, so that the sea's biodiversity can recover”, says Monique van de Water of the North Sea Foundation.

Rypke Zeilmaker of Climategate disagrees because, among others, the Nature Balance figures are based on reference levels for which no scientific foundation exists (translated rather liberally):

As reference level for porpoises the Nature Balance uses an unfounded historical figure of 50,000 porpoises along the Dutch North Sea Coast and 1000 in the Wadden Sea. They don't say why.

As I said before, I follow the Climategate blog not because I'm a climate sceptic (I'm not), but between all the accusations and rhetoric you occasionally find interesting viewpoints. So I looked up the documents on which all this is based. Here are a few quotes.

Osinga et al, 2007; cited in Wortelboer 2010, which is cited by the Nature Balance:
With a density of 0.390 porpoises per square km and a Dutch North Sea with a surface area of 57,000 square km the total number of porpoises in the Dutch North Sea is estimated at about 22,230 individuals.

Wortelboer 2010:
Based on the data of later analyses by SCANS II we estimated the number of porpoises at 11,000. (...) The Dutch Mammal Society (2007) estimates the current number of porpoises in the Dutch North Sea at roughly 17,000 (15,000 - 19,000) based on airplane surveys and SCANS II. (...) The Dutch Mammal Society estimates the porpoise population in the Dutch North Sea in 1950 at 32,500 (25,000 - 40,000) individuals. This is lower than the reference level according to Baptist and Jagtman (1997).

I don't have the Dutch Mammal Society report but here is what Baptist and Jagtman (1997) say:

There are no measurements of porpoise populations before 1960. From the number of stranded animals we can say that the species was very common. (...) From biological monitoring studies we can deduce that there is a population of at least 30,000 individuals in the southern North Sea. This population was until recently present in the British part of the North Sea, but not in the Dutch part. Based on current knowledge the reference population can be estimated at more than 100,000 porpoises in the southern North Sea, of which 50,000 in the Dutch part of the North Sea.

Overestimated? Possibly. Shaky? Undoubtedly, but unavoidably in this kind of studies. Poorly referenced? I believe so: I would have liked to know what is meant by "current knowledge". Unfounded? That's too harsh. Scientific fraud, as Zeilmaker claims? Certainly not. There are simply no data, but the policy makers want figures to work with. And the affair after which the Climategate blog is named shows that if you don't like the North Sea Foundation, PBL, or any organisation involved in environmental policy or research, it is always possible to find some mistake, misquote, omitted reference or whatever, and to blow that out of proportion.

But there is still something that bothers me about the 40% figure used by the North Sea Foundation. The indicator they use is a sort of average of a lot of other indicators, all of which express how well the environment is doing with respect to some reference level that is supposed to represent a pristine, untouched environment. So if the porpoise population would have been 50,000 in the absence of man, and it is now, say, 25,000, then the indicator for porpoises is 50%. There are loads of such indicators, and the method of aggregating them to a single figure can be debated at length also, of course. But that holds for any indicator that aims to express a multidimensional issue in a single figure (more on ecological footprinting in a later post).

No, what bothers me is that they also do this for commercial fish species like herring, plaice, and cod. Didn't we agree under the Convention for Biodiversity that fish stocks should be maintained at Maximum Sustainable Yield? As a rule of thumb, a species' MSY stock size is mostly about half what it would be in the absence of fishing, although for some species it can be as low as 25%. So if we meet our CBD targets and maximize the harvests we can maintain sustainably, environmentalists still have plenty to complain as these stocks have a "nature quality index" of 50% or less. So yes, please do take the 40% with a grain of salt.

WWF's Living Planet Report

WWF has a new edition of its Living Planet Report out. I promise to read it more carefully in the near future, but what bothers me about it already is their use of the ecological footprint to make their case. Economists have long criticized the use of the EF as a measure of sustainability. I'll get deeper into the reasons for that in future posts, but the bottom line for me is that it is often interpreted in a normative sense, even though it cannot be used for that purpose. In other words: it only tells you, in a simplified way, whether we can keep up our current way of life, but it says nothing about the consequences of living unsustainable. Therefore, you risk sounding the wrong alarm bells. By the same token, the way it is designed it is strongly biased against cities and trade: two things economists like and ecologists dislike. This goes some way in explaining its popularity but that does not mean it is an accurate indicator.

Anyway, I'll go deeper into this later.

Edited 13 June 2012: Changed the title. I should have known about the kind of connotations animal limbs can have (pandas, camels). That's what you get when you're not a native speaker.

Why economists argue with ecologists (3): consequences versus deontology

A fundamental difference between economists and ecologists is that economists tend to approach environmental pollution as an allocative issue, whereas ecologists tend to approach it as a moral issue. Or, more accurately, economists take a consequentialist approach whereas ecologists tend to be more deontologist.

There are many examples to illustrate this, but none is as sharp as the debate on emissions trading. It used to be no more than a smart idea to limit pollution in an efficient manner, but it has evolved into a political minefield where the Left sees it as a sell-out to Wall Street, whereas the Right sees it as a communist takeover of the economy. The idea is simple: we limit emissions to, say, 100 units, and so we distribute 100 units of emission rights among polluters. Want to pollute more? Then buy rights from another polluter, who will then have to take additional emission reduction measures. You bet he will only agree to that transaction if you pay him more for his right to pollute than it costs him to reduce his pollution by one additional unit. Moreover, you will only agree if the price you pay for the right is lower than it benefits you to increase your pollution. In other words, you can have a voluntary transaction that makes both parties better off without further damaging the environment. This is a way of achieving what economists call allocative efficiency: we shuffle around resources and other inputs to achieve the maximum output at minimum costs, where costs include environmental damage as well as wages and all. An economist would say: we have the same environmental quality, but we increase welfare - what's not to like?

A lot, an ecologist would say. Besides issues with regard to enforcement, windfall profits, etc., an ecologist would also have objections of a moral nature. Here are a few of the objections I've heard from students and researchers:

• How can you give somebody a right to pollute? Nobody should have any right to pollute the environment.
• Under such schemes companies can just pay some money and go about their dirty business. They should give a good example to others.
• It's immoral to commodify the environment.
• Tradable emission permits are a modern version of medieval indulgences.

I can think of a lot of misguided objections to emissions trading, but these objections are not among them. They are moral objections that are valid within a given moral framework, which may not be my moral framework, but a valid one nonetheless. You hear similar arguments in the debate on economic valuation of the environment, biotechnology, and to some extent Payments for Ecosystem Services (wait until you propose hunting as a source of conservation funding). In all of these examples economists stress the allocative issue: "look, we clean up the environment right? That's what you want, right? So why not make sure that we do this efficiently through emissions trading / cost-benefit analysis / GMOs / hunting concessions?" On the other hand, ecologists tend to stress the moral side of the issue: "rights to pollute / pricing nature / genetic modification / hunting is plain wrong and we shouldn't do it."

Beneath the economist's allocative approach lies the philosophy of utilitarianism. In a nutshell, utilitarians argue that an action is morally right whenever it maximizes the sum of all happiness. This also means that utilitarians judge an action purely by its consequences, whereas other moral philosophies (also called deontological ethics) judge the action itself.

In other words, economists take a consequentialist approach to environmental problems, whereas ecologists tend to be more on the deontological side. Note that the moral objections to emissions trading listed above focus on the trading itself rather than its consequences. The economist's reply will always point to the consequences.

Maybe it is due to my economics training, but I'm more on the consequentialist/utilitarian side. The deontological argument can become self-defeating, for instance when opposition to hunting leads to habitat degradation. If we have to choose between an ailing population of an endangered species without hunting and a thriving population that pays for its own conservation through hunting, I'd choose hunting anytime.

Here we go again

Kalle Lasn, founder and editor of Adbusters magazine, says in the latest edition of Solutions Journal:

"I predict we’re going to move away from large occupations of parks and we’ll have surprise, one-day occupations of banks and corporations and the economics departments of universities"

There you have it: banks, corporations, economists. All latter-day Scrooges. Further down the interview:

"I hope you tell [Herman Daly and Robert Costanza, founders of ecological economics] that from my perspective their ideas are reaching fruition, and I wish they would encourage their followers to be more aggressive. Suddenly, old and young people are pushing against the system and it’s time for ecological economists to stand up and be counted and not just play academic games in the background. Joseph Stiglitz actually went to Zuccotti Park and gave a talk. We need more of that. We need them to champion their paradigm.

We also don’t have full cost accounting. There is a dream among Occupiers to have a global market where products show their ecological cost, which would reflect their true cost. They will find that the price of cars goes up and bikes goes down. Maybe that McDonald’s napkin could suddenly have a certain price to it. And apples from New Zealand would have a different price. How much does all that stuff from China going to Walmart truly cost in environmental damage?"

Lasn's "full cost accounting" is called a "Pigouvian tax" in any mainstream, neoclassical, economics text book. It's really not that controversial.

Why economists argue with ecologists (2): what is economics?

Tom Tietenberg once told somebody he is an environmental economist, and the person reacted: "Isn't that a contradiction in terms?" People tend to think in terms of "economy versus environment" where "economy" means "overpaid fat cats screwing the planet for a dime with their filthy industries" and "environment" means "the poor polar bear that gets screwed for the fat cat's dime." If you put it that way an economist can only be the fat cat's stooge.

Of course I wouldn't be writing this if I thought it were true - better to keep the conspiracy a secret, right? So indeed I think it is not true. For starters, there are a lot of policies that economists generally recommend but that are not necessarily in the interest of the fat cats, such as anti-trust laws to limit monopoly power, a tax on environmental pollution, and abolishing subsidies or protectionism. Economists recommend such policies because they are likely to increase the welfare of society as a whole.

Mind you: welfare is not the same as your income, or the money on your bank account. You can be filthy rich, but thoroughly unhappy, if you cannot go out without a gas mask. That is because our welfare depends on more than just the money we earn or own, or the goods and services we can buy with it. There are lots of other things we need in life that we cannot trade on a market, such as clean air, or the bird song in your garden. Moreover, a lot of the stuff we do trade on markets depends on what you may call nature's goods and services. Our fruit and vegetables would be a lot more expensive if farmers had to do all the pollination by themselves, but luckily bees do the work for them. And there are loads of examples like this.

The problem with all this is that it all hangs together. Want to spray your crops to get rid of pest insects? Then be aware that you may also kill the bugs that do good things, such as bees and bumblebees. Want to build a shrimp farm in this mangrove forest? Then be aware that the next tsunami may do a lot more damage than the last one. An economist's job is to analyse those tradeoffs, and help policy makers make the right decision. Maybe growing shrimp turns out to generate more welfare than conserving the forest, but it might just as well be better to conserve the forest. You don't know that unless you perform a good analysis of these issues.

So economists do not always prefer 'factories' over 'polar bears', or vice versa. Nevertheless, most of them will put man in the middle, and ask the question "what do these policies mean for Homo sapiens?" Because of this economists are always the ones asking the Nasty Question: "Why do you want to conserve this forest?" And in analysing the tradeoffs we make a few strong assumptions of our own. I'll get back to that in later posts.

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.

Why economists argue with ecologists (1)

One of the aspects of my work I enjoy most is the interaction with other disciplines. By its very nature, natural resource economics assumes knowledge of the natural resource as well as economics. So in my career as a researcher I have worked with landscape ecologists, fisheries biologists, geologists, sociologists, and so on.

Nevertheless, there always seems to be a tension in my field between, roughly speaking, economists and ecologists (where 'ecology' can be understood broadly enough to include any environmental science). I come across this tension on every level of my work. It is in environmental students' reactions when I teach them the basics of environmental and resource economics. It is in the lengthy discussions (and misunderstandings) I have had with ecologist co-workers, and in the sometimes relentless complaints about 'mainstream economics' (whatever that may be) at ecologist conferences. It is even visible in the existence of two global professional organisations of scientists working on the economics of environmental and resource management. On the ecologist side there is the International Society for Ecological Economics (ISEE), whereas on the economist side there is the Association of Environmental and Resource Economists (AERE). For the record, I am a member of EAERE, which the European counterpart of AERE.

It's not like we are at war or something. Economists and ecologists can often work together very well, if only because both fields have a strong tradition in quantitative modelling. If you both speak the language of mathematics it is not that difficult to spot the linkages between your theories, or your models: "the amount of fish caught in my economic model fits nicely into the amount of fish that dies in your biological model." But go to an ISEE conference, or try to explain the merits of cap-and-trade to environmental students, and you get an idea of what those poor girls in Salem must have felt like.

One of the things I will do on this blog is to explain what I think are the main points of contention between ecologists and economists. What I can say in general is that these differences can be due to differences in moral values, assumptions, methodology, and, admittedly, genuine misunderstandings about each other's discipline. I don't think you can blame any of the two disciplines; in fact I don't think any of the two is totally wrong or totally right. But it is interesting in its own right to look at the differences.