Worldwide, governments subsidize agriculture at the rate of approximately 1 billion dollars per day. This figure rises to about twice that when export and biofuels production subsidies and state financing for dams and river basin engineering are included. These policies guide land use in numerous ways, including growers’ choices of crop and buyers’ demand for commodities. The three types of state subsidies that shape land use and the environment are land settlement programs, price and income supports, and energy and emissions initiatives. Together these subsidies have created perennial surpluses in global stores of cereal grains, cotton, and dairy, with production increases outstripping population growth. Subsidies to land settlement, to crop prices, and to processing and refining of cereals and fiber, therefore, can be shown to have independent and largely deleterious effect on soil fertility, fresh water supplies, biodiversity, and atmospheric carbon.
Article
Agricultural Subsidies and the Environment
Heather Williams
Article
Containing Carbon Through Cap-and-Trade or a Per-Unit Tax
John A. Sorrentino
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.
Article
Economic Causes and Consequences of Desertification
Luca Salvati
Land degradation and desertification are composite processes that reflect how components of land capital have worsened over time, both quantitatively and qualitatively. Land degradation is intended as a truly socioeconomic issue because the idea and practice of use (and misuse) of land are socially constructed. In this perspective, soil productivity and land capacity, water consumption and landscape fragmentation, agriculture and sustainable development all reflect the vast ensemble of human-nature interactions. The intrinsic heterogeneity of land degradation processes at the global scale limits the development of mitigation actions. Comprehension of the socioeconomic processes underlying land degradation can benefit from a multidisciplinary approach that considers the intricate feedback between biophysical and economic dimensions. The mutual relationship between economic growth, social inequality, political action, and land degradation provides examples of the interplay among proximate causes and factors underlying desertification.
Article
Economic Instruments to Control Greenhouse Gas Emissions: REDD+
Rawshan Ara Begum
Deforestation causes up to 10% of global anthropogenic carbon emissions. Reducing emissions from deforestation and degradation and enhancing forest carbon stocks can contribute to controlling greenhouse gas (GHG) emissions and limit global warming and climate change. However, global warming cannot be limited without decreasing the use of fossil fuel or emission-intensive energy sources. The forestry sector could contribute 7%–25% of global emissions reduction by 2020. Apart from emissions reduction and sink (mitigation), forests also provide cobenefits such as ecosystem services (providing food, timber, and medicinal herbs); biodiversity conservation; poverty reduction; and water quality, soil protection, and climate regulation. In 2005, the UNFCCC introduced a cost-effective mitigation strategy to reduce emissions from deforestation (RED) in developing countries.
The UN’s initiative to reduce emissions from deforestation and forest degradation (REDD+) aims to transform forest management in developing countries, where the majority of tropical forests are located, using finances from developed countries. REDD+ seeks to reward actors for maintaining or restoring forests, acting as an economic instrument by putting a monetary value on every tonne of CO2 that is prevented from entering the atmosphere. Implementation of REDD+ requires economic and policy instruments that can help to control GHG emissions by enhancing carbon sinks, reducing deforestation and forest degradation, and managing sustainable forests.
Payment for environmental services offers opportunities for either cofinancing or economic valuation in regard to REDD+ implementation. The challenge is to identify the most appropriate and cost-effective instrument.
REDD+ fulfills the current needs for economic instruments and incentives that can be implemented with existing land use and forestry policies to control global GHG emissions. However, REDD+ requires forest governance, law enforcement, clarification of land and resource rights, and forest monitoring to work in the long term. REDD+ payments can be made for results-based actions, and the UNFCCC has identified potential ways to pay for them, but challenges remain, such as clarifying financing or funding sources, distribution of funding and sharing of benefits or incentives, carbon rights, and so on. Different aspects pf the implementation, effectiveness, and scale of REDD+ and their interactions with economic, social, and environmental benefits are important for successful REDD+ implementation.
Article
Economic Issues Related to Asian Deforestation
Stefanie Onder, James T. Erbaugh, and Georgia Christina Kosmidou-Bradley
The loss of Asian forests represents one of the most significant changes in contemporary land cover. Between 2000 and 2020 alone, an area twice the size of Malaysia has lost its tree cover as measured by Earth observation data. These trends have significant repercussions for greenhouse gas emissions, carbon storage, the conservation of biodiversity, and the wellbeing of Indigenous Peoples and local communities (IPLCs), making Asian deforestation a phenomenon of global concern.
There are many immediate factors that drive deforestation across Asia, but the conversion to commodity agriculture is the leading cause. Most notably, the expansion of oil palm and rubber plantations by both multinational corporations and smallholders has led to dramatic conversion of forests. The production of timber as well as pulp and paper has further contributed to significant deforestation, with the evolution of each sector often driven by government policies, such as logging bans.
However, it is the underlying drivers (i.e., distal and proximate causes) that determine where and when commodity production displaces forest cover. They are particularly challenging to tackle in a globalized world, where consumption patterns driven by local population and income growth lead to environmental and social change in distant producer countries, including in Asia. Certification programs and legality requirements have been put in place to address these externalities with varying success. Deforestation in Asia is also facilitated by weak governance and regulatory frameworks, where forest rights are often unclear, and financial, technological, and human resources for forest monitoring are limited.
Several contemporary forest governance strategies seek to promote sustainable management of Asian forests. Financial mechanisms such as reducing emissions from deforestation and forest degradation (REDD+) and payments for ecosystem services (PES) schemes seek to provide economic incentives for forest conservation. Pledges and activities to remove deforestation from commodity supply chains seek to respond to consumer demand, promote corporate environmental and social responsibility, and reduce the extent to which commodity supply chains contribute to Asian deforestation. And multiple state-led initiatives across Asia to empower IPLCs aim to align forest management objectives between national governments, subnational administrations, and local people. Assessing the impact of interventions related to financial mechanisms, corporate responsibility, and local forest governance will be critical to shaping the future of Asian forest cover change.
Article
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.
Article
Environmental Policy and the Double Dividend Hypothesis
Antonio M. Bento
Since the 1990s, the so-called double-dividend debate—that is, the possibility that swaps of newly environmental taxes for existing distortionary taxes such as taxes on labor or capital could simultaneously improve environmental quality and reduce the distortionary costs of tax system—has attracted the attention of policymakers and academics. And while prior to the 1990s environmental economics as a field was not ready to inform this debate, scholars quickly moved to incorporate insights of the theory of second-best from public economics to inform the discussion. The result was a substantial advancement of the field of environmental economics, with the evaluation of the welfare effects of alternative policy instruments relying on general equilibrium models with pre-existing distortions.
Initially, scholars casted substantially doubt on the prospects of a double dividend, and suggested that environmental tax reforms would not reduce the distortionary costs of the tax system. This is because studies documented that the tax-interaction effect dominated the revenue-recycling effect. That is, newly environmental taxes interact with pre-existing distortions in labor markets. And even when the revenues of environmental taxes are used to cut the rate of the labor tax, the environmental tax reform exacerbates, rather than alleviate, pre-existing distortions in labor markets. Throughout the 2000s and in more recent decades, the literature has documented many instances where a double dividend is more likely to exist, including in the context of developing countries.
Article
The Impacts of Environmental Regulation on the U.S. Economy
Ann E. Ferris, Richard Garbaccio, Alex Marten, and Ann Wolverton
Concern regarding the economic impacts of environmental regulations has been part of the public dialogue since the beginning of the U.S. EPA. Even as large improvements in environmental quality occurred, government and academia began to examine the potential consequences of regulation for economic growth and productivity. In general, early studies found measurable but not severe effects on the overall national economy. Although price increases due to regulatory requirements outweighed the stimulative effect of investments in pollution abatement, they nearly offset one another. However, these studies also highlighted potentially substantial effects on local labor markets due to the regional and industry concentration of plant closures.
More recently, a substantial body of work examined industry-specific effects of environmental regulation on the productivity of pollution-intensive firms most likely to face pollution control costs, as well as on plant location and employment decisions within firms. Most econometric-based studies found relatively small or no effect on sector-specific productivity and employment, though firms were less likely to open plants in locations subject to more stringent regulation compared to other U.S. locations. In contrast, studies that used economy-wide models to explicitly account for sectoral linkages and intertemporal effects found substantial sector-specific effects due to environmental regulation, including in sectors that were not directly regulated.
It is also possible to think about the overall impacts of environmental regulation on the economy through the lens of benefit-cost analysis. While this type of approach does not speak to how the costs of regulation are distributed across sectors, it has the advantage of explicitly weighing the benefits of environmental improvements against their costs. If benefits are greater than costs, then overall social welfare is improved. When conducting such exercises, it is important to anticipate the ways in which improvements in environmental quality may either directly improve the productivity of economic factors—such as through the increased productivity of outdoor workers—or change the composition of the economy as firms and households change their behavior. If individuals are healthier, for example, they may choose to reallocate their time between work and leisure. Although introducing a role for pollution in production and household behavior can be challenging, studies that have partially accounted for this interconnection have found substantial impacts of improvements in environmental quality on the overall economy.
Article
The Mirage of Supply-Side Development: The Hydraulic Mission and the Politics of Agriculture and Water in the Nile Basin
Harry Verhoeven
In an era of calamitous climate change, entrenched malnutrition, and the chronic exclusion of hundreds of millions of people from access to affordable energy, food, and water, evaluating the policy options of African states to address these challenges matters more than ever. In the Nile Basin especially, a region notorious for its poverty, violent instability and lack of industrialisation, states have invested their scarce resources and political capital in a “hydraulic mission” in the belief that they can engineer their way out of international marginalization. Incumbents have bet on large-scale hydro-infrastructure and capital-intensive agriculture to boost food production, strengthen energy security, and deal with water scarcity, despite the woeful track-record of such a supply-side approach to development.
While ruling elites in the Nile Basin have portrayed the hydraulic mission as the natural way of developing the region’s resources—supposedly validated by the historical achievements of Pharaonic civilization and its mastery over its tough environment—this is a modern fiction, spun to justify politically expedient projects and the exclusion of broad layers of the population. In the last two hundred years, the hydraulic mission has made three major political contributions that underline its strategic usefulness to centralizing elites: it has enabled the building of modern states and a growing bureaucratic apparatus around a riverain political economy; it has generated new national narratives that have allowed unpopular regimes to rebrand themselves as protectors of the nation; and it has facilitated the forging of external alliances, linking the resources and elites of Egypt, Ethiopia, and Sudan to global markets and centers of influence. Mega-dams, huge canals and irrigation for export are fundamentally about power and the powerful—and the privileging of some interests and social formations over others. The one-sided focus on increasing supply—based on the false premise that this will allow ordinary people to access more food and water—transfers control over livelihoods from one (broad) group of people to (a much narrower) other one by legitimizing top-down interventionism and dislocation. What presents itself as a strategy of water resources and agricultural development is really about (re)constructing hierarchies between people. The mirage of supply-side development continues to seduce elites at the helm of the state because it keeps them in power and others out of it.
Article
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.
Article
Use of Experimental Economics in Policy Design and Evaluation: An Application to Water Resources and Other Environmental Domains
Simanti Banerjee
Economics conceptualizes harmful effects to the environment as negative externalities that can be internalized through implementation of policies involving regulatory and market-based mechanisms, and behavioral economic interventions. However, effective policy will require knowledge and understanding of intended and unintended stakeholder behaviors and consequences and the context in which the policy will be implemented. This mandate is nontrivial since policies once implemented can be hard to reverse and often have irreversible consequences in the short and/or long run, leading to high social costs. Experimental economics (often in combination with other empirical evaluation methods) can help by testing policies and their impacts prior to modification of current policies, and design and implementation of new ones. Such experimental evaluation can include lab and field experiments, and choice experiments. Additionally, experimental policy evaluation should pay attention to scaling up problems and the ethical ramifications of the treatment. This would ensure that the experimental findings will remain relevant when rolled out to bigger populations (hence retaining policy makers’ interest in the method and evidence generated by it), and the treatment to internalize the externality will not create or exacerbate societal disparities and ethical challenges.
Article
The Value of the Environment in Recreation
Gianluca Grilli
Natural environments represent background settings for most outdoor recreation activities, which are important non-consumptive benefits that people obtain from nature. Recreation has been traditionally considered a non-market service because it is practiced free of charge in public spaces and therefore of secondary relevance for the economy. Although outdoor recreation in natural parks became relevant during the 19th century, the increased popularity of recreation after the Second World War required tools for the assessment of recreational benefits, which were not considered in the evaluation of investments in recreational facilities, and increasing spending for recreational equipment captured the attention of outdoor recreation as an economic sector. In the 1990s, it was observed that many recreational activities were commercialized and started being considered equally important to tourism as a means to boost the economy of local communities. The expansion of outdoor recreation is reflected in a growing interest in the economic aspects, including cost–benefit calculations of the investments in recreational facilities and research on appropriate methods to evaluate the non-market benefits of recreation. The first economic technique used for valuing recreation was the travel cost method that consisted in the assessment of a demand curve, where the demanded quantity is the number of trips to a specific site and the cost is the unit cost of travel to the destination. After this first intuition, the number of contributions on recreation valuation exponentially grew, and new methods were proposed, including methods based on stated preferences for recreation that can be used when travel cost data that reveal consumers’ behavior are not available. A regular assessment of recreational benefits has several advantages for public policy, including the evaluation of investments and information on visitor profile and preferences, income, and price elasticity, which are essential to understand the market of outdoor recreation and propose effective strategies and recreation-oriented management. The increasing environmental pressure associated with participation in outdoor recreation required effective conservation activities, which in turn posed limitations to economic activities of local communities who live in contact with natural resources. Therefore, a balance between environmental, social, and economic interests is essential for recreational destination to avail of benefits without conflicts among stakeholders.
