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ELO Brussels Conference6th & 7th November 2003
CAP reform: Entrepreneurial Opportunities in the Enlarged EU
Paying for environment
Prof. Allan Buckwell Chief Economist, Country Land and Business Association and
Chairman of ELO Policy Group
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Paying for Environment
The coupling of entitlements to land and environmental production to ensure sustainable management of land
• Principles• Existing CAP schemes for environment• The new Fischler CAP• Have we a coherent policy? • How does Natura 2000 fit in?• Concluding remarks
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What is the environment?
• The conventional three elements– Biodiversity: habitat: nature– Landscape: aesthetic: heritage– Resource protection
• These really are an opportunity for land owners and managers
• Highly complex; interrelated and dynamic– Goods and bads: link to property rights– Actions to promote goods may reduce bads
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Principles: who should pay?
• The popular wisdom is that the polluter should pay…but…
• Are we considering positive or negative externalities?
• Even for negative externalities practicality, efficiency and fairness have to be considered.
• Lets shift balance of the discussion from focus on the bads to the goods
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Positive and negative externalities
• A positive externality, is a side effect of production which is desirable to some others, but for which the producer is not paid.
• Examples – landscape, habitats, biodiversity • Positive externalities are under-supplied by markets
• A negative externality is a side effect of production which is considered undesirable by others, and whose costs are not borne by the polluter.
• Examples – pollution of soil, water, air.• Negative externalities are over-supplied.
• The lack of clear property rights lies at the heart of these market failures.
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How to deal with these failures?
• Assign the property rights: EU and National law defines a baseline which producers respect at their own cost, and above which collective action to arrange provision of the environmental services.
• Collective action need not only be payments from the public purse, but private schemes, C-credits, eco-points.
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Is it always possible and fair to make the polluter pay?
• For diffuse pollution the costs of detecting and tracing the polluter; enforcing the rule, and extracting the payment may exceed the size of the damage.
• Regulation designed for industrial enterprises is disproportionate for SMEs which characterise rural business.
• We want outcomes, less pollution, not the comfort of fine principles
• Hence other solutions may be more effective:information – publicity – advice - social pressure - taxes - tax incentives - other inducements.
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The ELO perspective
• Long list of EU and Member State regulations which attempt – with varying degrees of success - to deal with the negative externalities.
• Command and control regulation will generally be bad at inducing positive behaviour.
• The new focus is on the positive environmental and cultural landscape services, which only private land managers can supply.
• Many actions to increase positive externalities will also cut negative externalities
• Our motto…Nature needs Farming
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Existing agri-environmental measures
1. Agri-environment schemes in the RDR
2. Less Favoured Area schemes
3. Extensification payments
4. Organic Farming
5. Management of set-aside
6. Cross compliance conditions in 1259/99
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New agri-environment measuresHorizontal Regulation 1782/03
1. Reduced production support and decoupled payments per se.
2. Cross-compliance on decoupled payments (Annexes III and IV)
3. New rules for set-aside4. National Envelopes (article 69)5. New chapter of revised RDR – meeting
standards6. Financing Natura 2000 within the RDR
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C Is this a coherent framework?
• It would be nice to say ‘yes’ but not possible.
• Problem of the overall policy concept…
• Is the strategy to get the environmental delivery in Pillar 1 or in Pillar 2?
• There are evidently severe restrictions in moving resources from Pillar 1 to 2.
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Figure 1 Interrelationship between Agri-Environment Schemes
Reference level of statutory environmental requirements
Public Property Rights,
Polluter Pays Land area
Cross-compliance
Tier 0 Base Stewardship,
Greened Pillar 1
Tier 1 Agri - Environment
Schemes
Tier 2 AES
Payment for Base Tier 0
Payment for Tier 1
Payment for highest Tier
Payment rate € /ha
Environmental performance
Pill
ar 2
P
illar
1
Private Property Rights,
Provider Receives
Legal sanctions for non-compliance
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Natura 2000 and its financing
• N2K sites cover ~18% EU land area• The principle of compensation for all costs
and forgone output• The estimated need for funding ~€6b• Where does it come from?• Agricultural share from RDR? • Non- agricultural share, forest land, wetlands
form enlarged LIFE?• Degree of integration with other agri-
environment schemes – ecologically & administratively.
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Concluding remarks• Large scale market failure in rural land management
• Large role for private sector land managers.
• If we expose EU faming to US, Brazilian, Australian world market prices we will get US/Brazilian/Australian farmed landscape and biodiversity
• This is NOT want Europe wants
• Hence the substantial role for paying for environmental and cultural landscape services
• Current arrangements are far from optimal
• Funding debate has scarcely begun: pillar 1: pillar 2 and other sources, especially for N2K
• This has to be regionally differentiated, big differences in what is ecologically necessary and socially acceptable.