Who is the real enemy of rational action on the environment?

1. Who is the real enemy of rational action on the environment? Roderick Duncan Charles Sturt University Institute for Land, Water and Society

2. Ecosystem services from an economist’s perspective • Why have economists reacted so negatively to the ES approach? (Standard environmental economics textbooks have no reference to ES: Field and Field (2006), Goodstein (2005), Tietenberg (2004)) • Turf war (unreasonable) • Problems with ES approach (reasonable)

3. Where did ES go wrong (from an economist’s perspective)? • The original Costanza et al (1997) paper wanted to estimate “values for ecosystem services per unit area by biome”. Valid and useful. • It was an unfortunate decision in the paper that the authors “then multiplied by the total area of each biome and summed over all services and biomes”. • Doesn’t represent anything useful. It’s a GDP of the environment. But what use is it? • Economists suspect this calculation was driven by politics rather than a desire to represent anything meaningful. A need for a big number.

4. The value of marginal values • Sadly the choice to calculate total value for the planet is also an unnecessary one. • If we wish to find improvements from our current situation, we do not need to find where utopia lies. We do not need to calculate a total value of the environment. • It’s sufficient simply to know which direction “better” lies in. We just need to calculate the direction of marginal reforms that improve the present. We need marginal values. • Most economic decisions are made using market prices. Economic GDP is rarely used in any decisions.

5. What do we use in economic analysis? • In economic analyses such as CBA, economists do not estimate total value, but instead use price as an indicator of the value of a marginal change. • What is the value of a marginal unit area of wetland? Or a marginal unit of water into a wetland? Market Price ΔValue ≈ P0ΔQ ? P0 WTP or Demand ΔQ Quantity of ecosystem service

6. Where are the economists wrong? • I would argue that the economists are most likely to go wrong when evaluating environmental actions because economists take their assumption of marginal changes too seriously. Economists (in CBA, MCA, and EIS) rarely think of systems effects. • Are the wetlands functions of 1,000 unit areas simply the wetland functions of 1 unit area times 1,000? • Economists would likely think “yes” and calculate values and quantities on that assumption.

7. Contrasting world views • Economics • Ecology Quantity of Services Provided Quantity of Services Provided State of environment State of environment

8. Example: Calculating marginal values with a possible state change • Assume that there is a critical lower threshold for an wetland region, but we can only calculate a probability of collapse, f(.), which depends on the total area of wetland. • The probability f(.) rises as the area of the wetland region falls. • If we are valuing the cost of the loss of a marginal unit area, we might want to calculate a marginal value of a unit area (lost) as:

9. Integrating ecology and economics • Ecology can best help environmental decision-making by applying this systems thinking- complex response functions rather than linear functions. • The choice to multiply ES value per unit area by total unit area then gives away exactly what ecology can best contribute to environmental decision-making - accurate estimates of systemic environmental responses to marginal changes. • Total value of ES is environmental thinking as an economist would simplistically do it. But I don’t know any economist who would do it that way.

10. Moving forward • Careful calculation of the environmental impact of small changes (one more unit area of land, one more gigalitre of water) through using both ecological and economic tools. • The information can be partial and, in many cases, even partial values would rule out a lot of bad environmental policy. • The information must include local context and be wary of transferring across contexts. • The information must be comparable to other information we have about economic and social costs. • Provide data useful for decisions about environment.

11. Thinking about our audience • The most important audience for rational analysis of environmental problems is not other ecologists or economists. • If we want better decision-making about the environment, our proper audience are the voters and the politicians. We need to design our research to provide data that they need to make better decisions. • This aspect is the weakest and least studied part of ecological economics. What is the politics of environmental decision-making?

12. This is the real enemy of reform • A dozen angry representatives of a special interest group (irrigators) with one well-publicized stunt almost managed to completely halt reform in the MDB. • They did manage to side-track the reforms, cost the Chair of the MDBA his job and gain billions worth of infrastructure investment for themselves as compensation.

13. Who stymies reform? • Why can’t we act to save large oceanic fish populations? • Why can’t we act on climate change? • Why couldn’t the US stop sugar growers polluting the Everglades? • Why doesn’t Japan stop its whaling fleets? • None of the physical science or economics is in doubt. The economists find the lack of political action on these questions as insane as the ecologists do.

14. The unreasonable power of small groups • Public choice economics says that small groups of voters with large common interests can have a disproportional impact on political decisions. • Fishermen in small rural villages in US, Canada and Japan managed to hold off fisheries reform for decades- and in whaling, still do. • Sugar farmers in the US controlled US sugar policy for decades by controlling senators from Florida and Hawaii. • Irrigators in the MDB have managed to extract 1% worth of GDP from the MDB negotiations for investment in irrigation infrastructure.

15. Political success or failure • The truly sad fact is that the economics and the ecology of environmental decisions rarely decides the final political outcome. • If we wish to influence political decisions to achieve better outcomes for the environment and for society, we have to become far more aware of and plan for the politics of the decision-making process. • It is far more important that we get the politics of environmental reform right than getting more accurate numbers to evaluate reform with. Climate change policy is failing in Australia because of politics- not science.

16. What can we learn from the political economy of reform? • The bad news: Economists have been opposing special interest politics for over two centuries now. Economists have rarely been successful. • The Wealth Of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49. • People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

17. Know your enemy- identification of winners and losers • It was perfectly predictable that the irrigators would react badly to MDBA reforms. How was this not anticipated? • But once losers are identified, reforms can often be made win-win by transferring some of the surplus from the winners to the losers. • For a fraction of the $9bn Australia will spend upgrading infrastructure, we could have “bought off” the opposition of the irrigators through other policies.

18. Know your audience- what do politicians need to know? • Politicians are always in the world of limited budgets and limited priorities. We need to provide them with information that conforms to their limitations. Environmental decisions are more like triage. • Priorities: What is the best way to spend $300m? • Politicians are more interested in the politics of reform. Who are the winners and losers in the reform process? Which groups are likely to oppose or to support the reform? • Where are the impacts of reform on marginal electorates? • Politicians worry about the risks- political and environmental. What can go wrong?

19. Build politics into reform at the start • The design of environmental reforms is crucial. The design of reforms should anticipate and nullify special interest politics. • For the MDBA: • Irrigators should have been brought in at the start of the deliberations and been involved in design of the reform. • Provide reform “ownership” to irrigators. • If irrigators’ concerns were about communities, the water buyouts could have been negotiated at the community/district level. • Politically-designed reform may not be best for the environment but may be far more likely to be implemented.