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Article

María E. Ibarrarán and Jerónimo Chavarría

In Mexico, the laws and norms that regulate the environment emerged at the end of the 19th century to standardize infrastructure construction and preserve nature. However, it was not until the early 1970s that the first formal government entity dedicated to promote environmental protection, the Vice-Ministry for Environmental Improvement, under the Ministry of Health, was founded, mostly responding to a government initiative rather than social pressure. Other laws were then issued and applied by the Secretariat of Urban Development and Ecology. However, in the 1980s, civil society pressed for more regulations aimed at protecting the environment. In the 1990s, the Ministry of the Environment, Natural Resources and Fisheries (SEMARNAP) was created, focusing on natural resources, biodiversity, hazardous waste, and urban-industrial environmental problems. Its objective was to reduce the trends of environmental deterioration and to promote economic and social development under criteria of sustainability. This and other institutions have evolved since then, covering a larger set of topics and media. Nevertheless, degradation has not been stopped and is far from being reverted, because even though there is a toolbox of policies and instruments, many of them economic, they have not been fully implemented in some cases or enforced in others because of economic and political factors. With the changes in institutions, legislation was also modified. Mexico became part of international environmental agreements and included the rights to a safe environment in the constitution. However, this legislation has not been enough to modify behavior because often the incentives either for regulators or for polluters themselves are not enough. Environmental degradation is a market failure. It can be shaped as an externality that markets alone cannot solve either because of overproduction, abuse of open access resources, or underprovision of public goods. In any of these cases, resolution comes only through government intervention. Regulations must include consideration of the benefits and costs they impose to change behavior. However, regardless of formal regulation, there are still a host of environmental problems that affect both urban and rural communities and Indigenous and non-Indigenous populations, and there is a regulatory vacuum integrating environmental aspects with economic and social development issues. Examples of this are the Energy Reform of 2013 and the Law of Waters, as well as the Law of Biodiversity, where impacts on communities are often left aside, because of a de facto prevalence of economic activity over human rights. On the other hand, legal loopholes prevent adequate management of wildlife resources and sufficient treatment of hazardous waste discarded by industries, even if they are regulated. Furthermore, environmental regulations are based on corrective regulations, such as obligations, restrictions, and sanctions, but these have not strengthened their preventive character. It is still less expensive to pollute or degrade the environment than take measures not to. A shift in the paradigm toward policies that create incentives to protect the environment, both for polluters and regulators, may foster much better environmental quality.

Article

The production of food, fiber, and fuel often results in negative externalities due to impacts on soil, water, air, or habitat. There are two broad ways to incentivize farmers to alter their land use or management practices on that land to benefit the environment: (1) provide payments to farmers who adopt environmentally beneficial actions and (2) introduce direct controls or regulations that require farmers to undertake certain actions, backed up with penalties for noncompliance. Both the provision of payments for environmentally beneficial management practices (BMPs) and a regulatory requirement for use of a BMP alter the incentives faced by farmers, but they do so in different ways, with different implications and consequences for farmers, for the policy, for politics, and consequently for the environment. These two incentive-based mechanisms are recommended where the private incentives conflict with the public interest, and only where the private incentives are not so strong as to outweigh the public benefits. The biggest differences between them probably relate to equity/distributional outcomes and politics rather than efficiency. Governments often seem to prefer to employ beneficiary-pays mechanisms in cases where they seek to alter farmers’ existing practices, and polluter-pays mechanisms when they seek to prevent farmers from changing from their current practices to something worse for the environment. The digital revolution has the potential to help farmers produce more food on less land and with fewer inputs. In addition to reducing input levels and identifying unprofitable management zones to set aside, the technology could also alter the transaction costs of the policy options.

Article

Christine L. Crago

Energy from the sun has vast potential for powering modern society. The first decades of the 21st century saw a rapid increase in the deployment of solar power, with global solar photovoltaic (PV) capacity growing over 25-fold, from 23 GW to 627 GW, between 2009 and 2019. Growth in the solar PV market is supported by financial and regulatory incentives offered by many governments worldwide. These incentives include feed-in tariffs, rebates, and tax incentives, as well as market-support policies governing permitting and grid interconnection. Despite the rapid growth in solar PV capacity, solar electricity accounts for under 3% of global electricity generation, suggesting that there is huge potential for the solar PV market to expand and meet global energy demand. Foremost among the benefits of solar power is its potential to drastically cut greenhouse gas (GHG) emissions from the electricity sector. Solar electricity can also reduce local air pollution, and growth of the PV market can enhance energy security and contribute to the green economy. However, there are challenges to future expansion of the solar PV market. One of the key barriers is the cost of solar projects. Although as of 2020 the cost of utility-scale solar projects was beginning to be competitive with the cost of conventional energy sources, further reductions in costs are needed to achieve deeper penetration of solar electricity. Other challenges associated with solar electricity have to do with the predictable and unpredictable aspects of solar resource. On the one hand, solar resource varies predictably based on season and time of day. When solar electricity output coincides with peak electricity demand, solar electricity provides added value to the electrical grid. On the other hand, weather variation, air quality, and other factors can drastically alter predicted output from solar PV systems. The unpredictable aspect of solar electricity poses a major challenge for integrating solar electricity into the electrical grid, especially for high levels of penetration. Grid operators must either store electricity or rely on standby generators to maintain grid reliability, both of which are costly. Advances in storage technology and grid management will be needed if solar electricity is to be a major source of electricity supply. Residential adoption of rooftop solar PV systems has led to the growth of “prosumers” (households that consume and produce electricity) and has provided a novel setting to examine several aspects of consumer behavior related to adoption of new technology and energy-use behavior. Studies show that financial incentives, pro-environmental preferences, and social interactions affect adoption of solar PV technology. Prosumers are also likely to consume more electricity after they install solar PV systems. Decarbonization goals related to society’s response to climate change are expected to drive future growth in the solar PV market. In addition to technological advances, market mechanisms and policies are needed to ensure that the transition to an energy system dominated by solar and other renewables is accomplished in a way that is economically efficient and socially equitable.

Article

The economic tool of individual transferable quotas (ITQs) gives their owners exclusive and transferable rights to catch a given portion of the total allowable catch (TAC) of a given fish stock. Authorities establish TACs and then divide them among individual fishers or firms in the form of individual catch quotas, usually a percentage of the TAC. ITQs are transferable through selling and buying in an open market. The main arguments by proponents of ITQs is that they eliminate the need to “race for the fish” and thus increase economic returns while eliminating overcapacity and overfishing. In general, fisheries’ management objectives consist of ecological (sustainable use of fish stocks), economic (no economic waste), and social (mainly the equitable distribution of fisheries benefits) issues. There is evidence to show that ITQs do indeed reduce economic waste and increase profits for those remaining in fisheries. However, they do not perform well in terms of sustainability or socially. A proposal that integrates ITQs in a comprehensive and effective ecosystem-based fisheries management system that is more likely to perform much better than ITQs with respect to ecological, economic, and social objectives is presented in this article.

Article

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

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.