Carbon has been part of the Earth since its beginning, and the carbon cycle is well understood. However, its abundance in the atmosphere has become a problem. Those who propose solutions in decentralized market economies often prefer economic incentives to direct government regulation. Carbon cap-and-trade programs and carbon tax programs are the prime candidates to rein in emissions by altering the economic conditions under which producers and consumers make decisions. Under ideal conditions with full information, they can seamlessly remove the distortion caused by the negative externality and increase a society’s welfare. This distortion is caused by overproduction and underpricing of carbon-related goods and services. The ideal level of emissions would be set under cap-and-trade, or be the outcome of an ideally set carbon tax. The ideal price of carbon permits would result from demand generated by government decree meeting an ideal fixed supply set by the government. The economic benefit of using the ideal carbon tax or the ideal permit price occurs because heterogeneous decision-makers will conceptually reduce emissions to the level that equates their marginal (incremental) emissions-reduction cost to the tax or permit price. When applying the theory to the real world, ideal conditions with full information do not exist. The economically efficient levels of emissions, the carbon tax, and the permit price cannot be categorically determined. The targeted level of emissions is often proposed by non-economists. The spatial extent and time span of the emissions target need to be considered. The carbon tax is bound to be somewhat speculative, which does not bode well for private-sector decision-makers who have to adjust their behavior, and for the achievement of a particular emissions target. The permit price depends on how permits are initially distributed and how well the permit market is designed. The effectiveness of either program is tied to monitoring and enforcement. Social justice considerations in the operation of tax programs often include the condition that they be revenue-neutral. This is more complicated in the permit scheme as much activity after the initial phase is among the emitters themselves.
Based on global measurement of greenhouse gases, several models have been created that attempt to explain how emissions transform into concentrations, how concentrations imply radiative forcing and global warming potential, how the latter cause ecological and economic impacts, and how mitigation and/or adaptation can influence these impacts. Scenarios of the uncertain future continue to be generated under myriad assumptions in the quest for the most reliable. Several institutions have worked to engender sustained cooperation among the parties of the “global commons.” The balance of theory and empirical observation is intended to generate normative and positive policy recommendations. Cap-and-trade and carbon tax programs have been designed and/or implemented by various countries and subnational jurisdictions with the hope of reducing carbon-related emissions. Many analysts have declared that the global human society will reach a “tipping point” in the 21st century, with irreversible trends that will alter life on Earth in significant ways.
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Containing Carbon Through Cap-and-Trade or a Per-Unit Tax
John A. Sorrentino
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Economics, Agriculture, and Famines
Noel Russell
There are continuing developments in the analysis of hunger and famines, and the results of theoretical and empirical studies of hunger and food insecurity highlight cases where hunger intensifies sufficiently to be identified as famine. The varying ability of those affected to cope with the shocks and stresses imposed on them are central to the development of food insecurity and the emergence of famine conditions and to explaining the complex interrelationships between agriculture, famine, and economics.
There are a number of approaches to understanding how famines develop. The Malthusian approach, which sees population growth as the primary source of hunger and famine, can be contrasted with the free market or Smithian approach, which regards freely operating markets as an essential prerequisite for ensuring that famine can be overcome. A major debate has centered on whether famines primarily emerge from a decline in the availability of food or are a result of failure by households to access sufficient food for consumption, seeking to distinguish between famine as a problem related to food production and availability and famine as a problem of declining income and food consumption among certain groups in the population. These declines arise from the interaction between food markets, labor markets and markets for livestock and other productive farm resources when poor people try to cope with reduced food consumption. Further revisions to famine analysis were introduced from the mid-1990s by authors who interpreted the emergence of famines not as a failure in markets and the economic system, but more as a failure in political accountability and humanitarian response.
These approaches have the common characteristic that they seek to narrow the focus of investigation to one or a few key characteristics. Yet most of those involved in famine analysis or famine relief would stress the multi-faceted and broad-based nature of the perceived causes of famine and the mechanisms through which they emerge. In contrast to these approaches, the famine systems approach takes a broader view, exploring insights from systems theory to understand how famines develop and especially how this development might be halted, reversed, or prevented.
Economists have contributed to and informed different perspectives on famine analysis while acknowledging key contributions from moral philosophy as well as from biological and physical sciences and from political and social sciences. Malthus, Smith, and John Stuart Mill contributed substantially to early thinking on famine causation and appropriate famine interventions. Increased emphasis on famine prevention and a focus on food production and productivity led to the unarguable success of the Green Revolution. An important shift in thinking in the 1980s was motivated by Amartya Sen’s work on food entitlements and on markets for food and agricultural resources. On the other hand, the famine systems approach considers famine as a process governed by complex relationships and seeks to integrate contributions from economists and other scientists while promoting a systems approach to famine analysis.
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Economics of Hazardous Waste Management
Hilary Sigman
Hazardous waste management involves treatment, disposal, or recycling of a wide range of different waste streams from industry, households, and others. The diversity of wastes and management methods means that many choices affect its environmental harms, which result from possible contamination of groundwater, surface water, soil, and air. Efficient public policies that would fully reflect such varied external costs are unlikely to be feasible. In practice, governments principally apply three policy approaches to hazardous waste: taxes on hazardous waste, liability for environmental damages, and standards-based regulation of waste management facilities. Hazardous waste taxes may help internalize environmental costs but do not reflect all the variability in these costs. By contrast, liability for environmental damage can make waste generators and managers confront environmental costs that vary with their particular choices. However, environmental liability is often linked to programs for cleanup of contaminated sites and may not create efficient incentives for active waste management because this liability does not reflect the social costs of the contamination. Regulation usually takes the form of technology and performance standards applied to treatment, storage, and disposal facilities (TSDFs) and affects generation decisions only indirectly. Research finds that public policies that raise costs of hazardous waste management, such as taxes and regulation, encourage less waste generation, but may also provoke detrimental responses. First, facilities may substitute illegal waste dumping for legal management and thus exacerbate environmental damage. Second, generators may ship waste to jurisdictions with weaker environmental protections, especially developing countries, giving rise to a “waste haven” effect. This effect may create offsetting environmental damage, facilitate destructive policy competition among jurisdictions, and worsen inequities in exposure to environmental harm from hazardous waste.
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Economics of Low Carbon Agriculture
Dominic Moran and Jorie Knook
Climate change is already having a significant impact on agriculture through greater weather variability and the increasing frequency of extreme events. International policy is rightly focused on adapting and transforming agricultural and food production systems to reduce vulnerability. But agriculture also has a role in terms of climate change mitigation. The agricultural sector accounts for approximately a third of global anthropogenic greenhouse gas emissions, including related emissions from land-use change and deforestation. Farmers and land managers have a significant role to play because emissions reduction measures can be taken to increase soil carbon sequestration, manage fertilizer application, and improve ruminant nutrition and waste. There is also potential to improve overall productivity in some systems, thereby reducing emissions per unit of product. The global significance of such actions should not be underestimated. Existing research shows that some of these measures are low cost relative to the costs of reducing emissions in other sectors such as energy or heavy industry. Some measures are apparently cost-negative or win–win, in that they have the potential to reduce emissions and save production costs. However, the mitigation potential is also hindered by the biophysical complexity of agricultural systems and institutional and behavioral barriers limiting the adoption of these measures in developed and developing countries. This includes formal agreement on how agricultural mitigation should be treated in national obligations, commitments or targets, and the nature of policy incentives that can be deployed in different farming systems and along food chains beyond the farm gate. These challenges also overlap growing concern about global food security, which highlights additional stressors, including demographic change, natural resource scarcity, and economic convergence in consumption preferences, particularly for livestock products. The focus on reducing emissions through modified food consumption and reduced waste is a recent agenda that is proving more controversial than dealing with emissions related to production.
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Economics of the Biodiversity Convention
Joanne C. Burgess
Biological diversity refers to the variety of life on Earth, in all its forms and interactions. Biological diversity, or biodiversity for short, is being lost at an unprecedented rate. The International Union for Conservation of Nature (IUCN) Red List of Threatened Species estimates that 25% of mammals, 41% of amphibians, 33% of reef building corals, and 13% of birds are threatened with extinction. These biodiversity benefits are being lost due to conversion of natural habitat, overharvesting, pollution, invasive species, and climate change. The loss of biodiversity is important because it provides many critical resources, services, and ecosystem functions, such as foods, medicines, clean air, and storm protection. Biodiversity loss and ecosystem collapse pose a major risk to human societies and economic welfare.
The CBD was established in 1992 at the United Nations Conference on Environment and Development (the Rio “Earth Summit”) and enacted in 1993. The international treaty aims to conserve biodiversity and ensure the sustainable use of the components of biodiversity and the equitable sharing of the benefits derived from the use of genetic resources. The CBD has near universal global participation with 196 parties signatory to the treaty. The non-legally binding commitments established in 2010 by the CBD are known as the Aichi Targets. They include the goal of conserving at least 17% of terrestrial and inland water habitats and 10% of coastal and marine areas by 2020.
Biodiversity continues to decline at an unprecedented rate and the world faces “biological annihilation” and a sixth mass extinction event. There are several underlying causes of the continuing loss of biodiversity that need to be addressed. First, the CBD Aichi Targets are not ambitious enough and should be extended to protect as much as 50% of the terrestrial realm for biodiversity. Second, it is difficult to place an economic value on the range of direct, indirect, and nonuse values of biodiversity. The failure to take into account the full economic value of biodiversity in prices, projects, and policy decisions means that biodiversity is often misused and overused. Third, biodiversity is a global public good and displays nonrival and nonexcludable characteristics. Because of this, it is difficult to raise sufficient funds for conservation and to channel these funds to cover local conservation costs. In particular, much of the world’s biodiversity is located in (mainly tropical) developing countries, and they do not have the incentive or the funds to spend the money to “save” enough biodiversity on behalf of the rest of the world. The funding for global biodiversity conservation is $4–$10 billion annually, whereas around $100 billion a year is needed to protect the Earth’s broad range of animal and plant species. This funding gap undermines CBD’s conservation efforts. Governments and international organizations have been unable to raise the investments needed to reverse the decline in biological populations and habitats on land and in oceans. There is an important role for private-sector involvement in the CBD to endorse efforts for more sustainable use of biodiversity and to contribute funds to finance conservation and habitat protection efforts.
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Economics of Water Scarcity in China
Yong Jiang
Water scarcity has long been recognized as a key issue challenging China’s water security and sustainable development. Economically, China’s water scarcity can be characterized by the uneven distribution of limited water resources across space and time in hydrological cycles that are inconsistent with the rising demand for a sufficient, stable water supply from rapid socioeconomic development coupled with a big, growing population. The limited water availability or scarcity has led to trade-offs in water use and management across sectors and space, while negatively affecting economic growth and the environment. Meanwhile, inefficiency and unsustainability prevail in China’s water use, attributable to government failure to account for the socioeconomic nature of water and its scarcity beyond hydrology.
China’s water supply comes mainly from surface water and groundwater. The nontraditional sources, wastewater reclamation and reuse in particular, have been increasingly contributing to water supply but are less explored. Modern advancement in solar and nuclear power development may help improve the potential and competitiveness of seawater desalination as an alternative water source. Nonetheless, technological measures to augment water supply can only play a limited role in addressing water scarcity, highlighting the necessity and importance of nontechnological measures and “soft” approaches for managing water. Water conservation, including improving water use efficiency, particularly in the agriculture sector, represents a reasonable strategy that has much potential but requires careful policy design.
China’s water management has started to pay greater attention to market-based approaches, such as tradable water rights and water pricing, accompanied by management reforms. In the past, these approaches have largely been treated as command-and-control tools for regulation rather than as economic instruments following economic design principles. While progress has been made in promoting the market-based approaches, the institutional aspect needs to be further improved to create supporting and enabling conditions. For water markets, developing regulations and institutions, combined with clearly defining water use rights, is needed to facilitate market trading of water rights. For water pricing, appropriate design based on the full cost of water supply needs to be strengthened, and policy implementation must be enforced.
An integrated approach is particularly relevant and greatly needed for China’s water management. This approach emphasizes integration and holistic consideration of water in relation to other resource management, development opportunities, and other policies across scales and sectors to achieve synergy, cost-effectiveness, multiple benefits, and eventually economic efficiency. Integrated water management has been increasingly applied, as exemplified by a national policy initiative to promote urban water resilience and sustainability. While economics can play a critical role in helping evaluate and compare alternative measures or design scenarios and in identifying multiple benefits, there is a need for economic or social cost–benefit analysis of China’s water policy or management that incorporates nonmarket costs and benefits.
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The Economics of Watershed Management
Brent M. Haddad
Watersheds are physical regions from which all arriving water flows to a single exit point. The shared hydrology means that other biophysical systems are linked, typically with upper-gradient regions influencing lower-gradient ones. This situation frames the challenge of managing economic and other uses of watersheds both in terms of individual activities and their influence on other connected processes and activities. Economics provides concepts and methods that help managers with decision making in the complex physical, biological, and institutional environment of a watershed. Among the important concepts and methods that help characterize watershed processes are externalities, impacts of economic activity that fall upon individuals not party to the activity, and third parties, individuals impacted without consent. Public goods and common pool resources describe categories of things or processes that by their nature are not amenable to regular market transactions. Their regulation requires special consideration and alternative approaches to markets. Benefit-cost analysis and valuation are related methods that provide a means to compare alternative uses of the same system. Each is based on the normative argument that the best use provides the greatest net benefits to society. And intergenerational equity is a value orientation that argues for preservation of watershed processes for the benefit of future generations. The need for effective watershed management methods pushed 20th-century economists to adapt their discipline to the complexity of watersheds, from which emerged subdisciplines of natural resource economics, environmental economics, and ecological economics. The field is still evolving with a growing interest in data gathering through land-based low-cost data collection systems and remote sensing, and in emerging data analysis techniques to improve management decisions.
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Environmental Degradation, Tropical Diseases, and Economic Development
John Luke Gallup
It’s complicated. Tropical diseases have unusually intricate life cycles because most of them involve not only a human host and a pathogen, but also a vector host. The diseases are predominantly tropical due to their sensitivity to local ecology, usually due to the vector organism. The differences between the tropical diseases mean that they respond to environmental degradation in various ways that depend on local conditions. Urbanization and water pollution tend to limit malaria, but deforestation and dams can exacerbate malaria and schistosomiasis. Global climate change, the largest environmental change, will likely extend the range of tropical climate conditions to higher elevations and near the limits of the tropics, spreading some diseases, but will make other areas too dry or hot for the vectors. Nonetheless, the geographical range of tropical diseases will be primarily determined by public health efforts more than climate. Early predictions that malaria will spread widely because of climate change were flawed, and control efforts will probably cause it to diminish further. The impact of human disease on economic development is hard to pin down with confidence. It may be substantial, or it may be misattributed to other influences. A mechanism by which tropical disease may have large development consequences is its deleterious effects on the cognitive development of infants, which makes them less productive throughout their lives.
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Environmental Economics and Uncertainty: Review and a Machine Learning Outlook
Ruda Zhang, Patrick Wingo, Rodrigo Duran, Kelly Rose, Jennifer Bauer, and Roger Ghanem
Economic assessment in environmental science means measuring and evaluating environmental impacts, adaptation, and vulnerability. Integrated assessment modeling (IAM) is a unifying framework of environmental economics, which attempts to combine key elements of physical, ecological, and socioeconomic systems. The first part of this article reviews the literature on the IAM framework: its components, relations between the components, and examples.
For such models to inform environmental decision-making, they must quantify the uncertainties associated with their estimates. Uncertainty characterization in integrated assessment varies by component models: uncertainties associated with mechanistic physical models are often assessed with an ensemble of simulations or Monte Carlo sampling, while uncertainties associated with impact models are evaluated by conjecture or econometric analysis. The second part of this article reviews the literature on uncertainty in integrated assessment, by type and by component.
Probabilistic learning on manifolds (PLoM) is a machine learning technique that constructs a joint probability model of all relevant variables, which may be concentrated on a low-dimensional geometric structure. Compared to traditional density estimation methods, PLoM is more efficient especially when the data are generated by a few latent variables. With the manifold-constrained joint probability model learned by PLoM from a small, initial sample, manifold sampling creates new samples for evaluating converged statistics, which helps answer policy-making questions from prediction, to response, and prevention. As a concrete example, this article reviews IAMs of offshore oil spills—which integrate environmental models, transport models, spill scenarios, and exposure metrics—and demonstrates the use of manifold sampling in assessing the risk of drilling in the Gulf of Mexico.
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Sea Level Rise and Coastal Management
James B. London
Coastal zone management (CZM) has evolved since the enactment of the U.S. Coastal Zone Management Act of 1972, which was the first comprehensive program of its type. The newer iteration of Integrated Coastal Zone Management (ICZM), as applied to the European Union (2000, 2002), establishes priorities and a comprehensive strategy framework. While coastal management was established in large part to address issues of both development and resource protection in the coastal zone, conditions have changed. Accelerated rates of sea level rise (SLR) as well as continued rapid development along the coasts have increased vulnerability. The article examines changing conditions over time and the role of CZM and ICZM in addressing increased climate related vulnerabilities along the coast.
The article argues that effective adaptation strategies will require a sound information base and an institutional framework that appropriately addresses the risk of development in the coastal zone. The information base has improved through recent advances in technology and geospatial data quality. Critical for decision-makers will be sound information to identify vulnerabilities, formulate options, and assess the viability of a set of adaptation alternatives. The institutional framework must include the political will to act decisively and send the right signals to encourage responsible development patterns. At the same time, as communities are likely to bear higher costs for adaptation, it is important that they are given appropriate tools to effectively weigh alternatives, including the cost avoidance associated with corrective action. Adaptation strategies must be pro-active and anticipatory. Failure to act strategically will be fiscally irresponsible.
