environmental economic -vol2

8/8/2019 Environmental Economic -vol2

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Environmental Economics

Inside the guide:

Easy-to-understand applicationsof common economic concepts

Recommended Websites,Articles, & Case Studies

Classroom Resources

Scientists. Educators. Economists.

Volume 2: The Applications

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For more than a decade, the Environmental Literacy Council has beendedicated to helping teachers, students, policymakers, and the general publicfind cross-disciplinary resources on the environment. Environmental issuesinvolve many dimensions scientific, economic, aesthetic, and ethical.Through our websites, science-based textbook reviews, and professional

development materials, we strive to provide information and resources thatconvey the importance of environmental science and the deep complexity ofenvironmental decision-making. Made up of scientists, economists, educationpolicy experts, and veteran teachers, our Council is drawn from the ranks ofprestigious organizations such as Resources for the Future, AAAS, TheUniversity of Virginia, GE Energy, and the National Center for AtmosphericResearch. The multi-disciplinary guidance keeps our materials balanced,current, and scientifically accurate.

The Environmental Literacy Council

Copyright 2008

All rights reserved. No part of this document may be reproduced or transmitted in any formwithout permission from the Environmental Literacy Council.

Acknowledgements

The Council would like to thank the following people for their contribution tothe research and production of this guide:

Erica Brehmer Kiel StoneCharles Fritschner Megan WertzPatrick Polischuk

Dawn M. Anderson,Executive DirectorDr. Roger Sedjo,Economics Project Advisor

Nicole Barone Callahan, Project & Web Content Manager

For more information about environmental economics or other topics

in environmental science, please see our website: enviroliteracy.org

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Roger A. Sedjo, PresidentResources for the Future

Kathleen BerryCanon-McMillan High School

Gail CharnleyHealthRisk Strategies

Nicholas N. EberstadtAmerican Enterprise Institute

Michael H. Glantz

National Center for Atmospheric Research

Eric P. Loewen

GE Energy

Thomas G. Moore

Hoover Institution

John Opie

The University of Chicago

F. James Rutherford

American Association for the Advancement of Science

Frederick Seitz

Rockefeller University

Leonard Shabman

Resources for the Future

Herman H. (Hank) Shugart, Jr.

University of Virginia, Charlottesville

Robert L. SproullUniversity of Rochester

M. Jane Teta

Exponent, Inc.

Alvin W. Trivelpiece

Henderson, Nevada

Anne K. Vidaver

University of Nebraska, Lincoln


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Table of Contents

Chapter 1: Introduction to Environmental & Resource Economics6Chapter 2: Population ..................................................................... 9Chapter 3: Biodiversity................................................................. 14Chapter 4: Agriculture .................................................................. 18

Chapter 5: Fisheries ............................................................... ....... 22Chapter 6: Forest Management.................................. ................... 26Chapter 7: Tropical Deforestation ................................................ 31Chapter 8: Water Resources.......................................................... 35Chapter 9: Energy Production & ANWR ..................................... 40Chapter 10: Carbon Trading & Sequestration .............................. 44Chapter 11: The Greening of Business ......................................... 50Appendix: Resources for the Classroom....................................... 54

Population ...................................................................... ....... 54Biodiversity................................ ........................................... 54

Agriculture ..................................................................... ....... 55Fisheries ............................................................. ................... 55Forest Management............................................................... 56Tropical Deforestation .......................................................... 56Water Resources ................................................................... 57Energy Production & ANWR............................................... 58Carbon Trading & Sequestration .......................................... 58The Greening of Business.................................. ................... 58

Endnotes......................................................... ............................... 59

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Chapter 1: Introduction to Environmental& Resource Economics

Environmental economicsis the subset of economics that is concerned with theefficient allocation of environmental resources. The environment provides both

a direct value as well as raw material intended for economic activity, thusmaking the environment and the economy interdependent. For that reason, theway in which the economy is managed has an impact on the environment which,in turn, affects both welfare and the performance of the economy.

One of the best known critics of traditional economic thinking about theenvironment is Herman Daly. In his first book, Steady-State Economics, Dalysuggested that enough is best, arguing that economic growth leads toenvironmental degradation and inequalities in wealth. He asserted that theeconomy is a subset of our environment, which is finite. Therefore his notion ofa steady-state economy is one in which there is an optimal level of populationand economic activity which leads to sustainability. Daly calls for a qualitativeimprovement in people's lives development without perpetual growth.Today, many of his ideas are associated with the concept of sustainabledevelopment .

By the late 1970s, the late economist Julian Simon began countering argumentsagainst economic growth. His keystone work was The Ultimate Resource,published in 1981 and updated in 1996 as The Ultimate Resource 2, in which heconcludes there is no reason why welfare should not continue to improve andthat increasing population contributes to that improvement in the long run. Histheory was that population growth and increased income puts pressure onresource supplies; this increases prices, which provides both opportunity andincentive for innovation; eventually the innovations are so successful that pricesend up below what they were before the resource shortages occurred. In Simon'sview, a key factor in economic growth is the human capacity for creating newideas and contributing to the knowledge base. Therefore, the more people whocan be trained to help solve arising problems, the faster obstacles are removed,and the greater the economic condition for current and future generations.

Environmental economics takes into consideration issues such as theconservation and valuation of natural resources, pollution control, wastemanagement and recycling, and the efficient creation of emission standards.Economics is an important tool for making decisions about the use,conservation, and protection of natural resources because it provides information


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about choices people make, the costs and benefits of various proposed measures,and the likely outcome of environmental and other policies. Since resources whether human, natural, or monetary are not infinite, these public policies aremost effective when they achieve the maximum possible benefit in the mostefficient way. Therefore, one job of policymakers is to understand howresources can be utilized most efficiently in order to accomplish the desiredgoals by weighing the costs of variousalternatives to their potential benefits.

In competitive markets, information existsabout how much consumers value aparticular good because we know how muchthey are willing to pay. When naturalresources are involved in the production ofthat particular good, there may be otherfactors scarcity issues, the generation ofpollution that are not included in itsproduction cost. In these instances, scarcityissues or pollution become externalities,costs that are external to the market price of

the product. If these full costs wereincluded, the cost of the good may be higherthan the value placed on it by the consumer.

A classic example of an externality isdiscussed in Garrett Hardin's Tragedy ofthe Commons, which occurs in connection to public commons or resources areas that are open and accessible to all, such as the seas or the atmosphere.Hardin observed that individuals will use the commons more than if they had topay to use them, leading to overuse and possibly to increased degradation.

There are three general schools of thought associated with reducing or

eliminating environmental externalities. Most welfare economists believe thatthe existence of externalities is sufficient justification for governmentintervention, typically involving taxes and often referred to as Pigovian taxesafter economist Arthur Pigou (1877-1959) who developed the concept ofeconomic externalities. Market economists tend to advocate the use ofincentives to reduce environmental externalities, rather than command-and-control approaches, because incentives allow flexibility in responding toproblems rather than forcing a singular approach on all individuals. Free-market economists focus on eliminating obstacles that prevent the market fromfunctioning freely, which they believe would lead to an optimal level ofenvironmental protection and resource use. The key objective of environmental

NOAA Coastal Services Center

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economics is to identify those particular tools or policy alternatives that willmove the market toward the most efficient allocation of natural resources.

Recommended Resources

Center for the Advancement of the Steady State Economywww.steadystate.orgThe Center for the Advancement of the Steady State Economy is a nonprofitorganization that educates citizens and policy makers on the fundamentalconflict between economic growth and environmental protection, economicsustainability, national security, and international stability through its promotionof a steady state economy as a sustainable alternative to economic growth.

Political Economy Research Centerwww.perc.orgThe Political Economy Research Center is dedicated to original research that

brings market principles to resolving environmental problems. The site has anextensive publications list and an environmental education section that toucheson a variety of subject areas that relate to both economics and the environment.

Protecting Ecosystem Services: Science, Economics, and Laweprints.law.duke.edu/archive/00001071/01/20_Stan._Envtl._L._J._309_(2001).pdfThis paper is the result of a workshop that took place in December 2000 when agroup of 30 scientists, conservationists, economists, lawyers, and policymakerscame together at Stanford University to discuss ways to market ecosystemservices.


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Chapter 2: Population

Between 1900 and 2000, the world's population grew astoundingly fast, fromjust over 1.6 billion at the dawn of the 20th century to 6.1 billion at its close.

Forecasters predict that by 2050, global population will exceed 9 billion. In justone hundred years, the population doubled three times over. During this sametime, the world achieved vastly higher standards of living. However, populationgrowth occurs unevenly across the globe, with growth rates lower in countrieswith wealthier economies.

Currently, nearly 95 percent of all population growth is occurring in thedeveloping world and, in the coming years, the fifty least developed nations areexpected to double their populations, from 800 million to 1.7 billion. Agrarianlifestyle dominates the social order of most developing countries and, becauseagricultural tasks are incredibly labor intensive, large family units are needed. Inthese societies, children help generate wealth for the family. Because many

families operate on a basic, subsistence leveltwo or three children simplycannot provide enough labor to accomplish the farm life's myriad, demandingtasks. Restricted access to contraceptives, limited geographic accessibility to andinadequate funding for family planning also contribute to population growth inmany developing countries. Women who may want fewer children might also berestricted from using family planning methods due to a lack of education,cultural and religious values, or adverse social pressure from family members.

However, while the overall population today continues to grow, developedcountries are experiencing a lower rate of growtheven negative growthcompared to developing countries. In fact, growth rates are expected to declineinto mid-century, with projections beyond 2050 indicating that the globalpopulation could stabilize or even decline. In its 2004 World PopulationProspects report, the United Nations projected that fertilitythe number ofchildren per motherwill decline substantially from 2.6 children per woman tojust slightly over two children per woman by 2050. Many developed countries,including Germany, Italy, and Japan, are already experiencing a decline as theirpopulation ages and fertility rates fall below replacement level.

While fertility rates are declining as women have fewer children, the inverse istrue for life expectancy. Global life expectancy at birth is projected to increaseto 75 years by 2050, compared to 65 years at the present time; in developedcountries and regions, life expectancy will reach 82 years by mid-century.

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As a country develops economically, the expected transition from a country withhigh birth and death rates to one with low birth and death rates can be illustratedby the four stages of the demographic transition model (DTM). Stage oneoccurs in a pre-industrial society where death and birth rates are high andrelatively in balance, resulting in a slow and steady population growth. In stagetwo, death rates begin to decline with improved food supplies and sanitation,which results in a decrease in disease and an overall increase in life span. Stagethree sees a decline in birth rates due to a reduction in subsistence agriculture, anincrease in women's education and access to contraception, and other socialfactors. This is also the stage where population growth begins to level off. Stagefour shows stabilization in population growth, with both low birth and deathrates. However, as the population ages, total population can decline (negativegrowth) as there are less births than deaths.

There are several factors which contribute to lower fertility rates in developedcountries. Unlike in developing countries where most children generate wealth,in the developed world, children are not capital assetsthey do not need toengage in labor for profit; rather, they require financial investment. Due to thefinancial and opportunity costs associated with child rearing and the importanceplaced on each child's social and intellectual development, parents have little

incentive to produce large numbers of children. Lower rates of child mortality indeveloped countries also mean that fewer births are needed to insure survival tomaturity. In addition, wealthier countries tend to provide the necessary means towomen in order to reduce births, including education and employmentopportunities, and increased access to family planning services.

As with population growth, there are concerns associated with a decliningpopulation. Fewer young people will result in an aging population, eventuallyresulting in a shortage of workers to support the growing numbers of retirees. By2050, under current trends, Japan's labor force will fall from 68 million to 46million, Italy's from 23 million to 14 million, and Germany's from 41 million to28 million. Aside from likely declines in economic productivity, an aging

population can also strain a nation's social security and pension system, andhave implications on a country's health budget due to higher elderly care costs.

One potent remedy to regional population declines is immigration, whichincreases the population base by bringing additional workers into a country.Immigrants are also often younger and tend to have more children. Governmentincentives to increase the rate of fertility within a country are also an option. Forexample, in 2006 Russia's president called for an increase in governmentsubsidies for children up to 18 months old, extended maternity leave whilepaying 40 percent of the mother's salary, and covered a portion of day care costs.Several other European countries have instituted similar financial incentives,primarily in the form of bonuses or monthly payments.


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Most developed countries have already reached stage four of the DTM (seeabove). And, as a result of rapid social and economic changes, countries such asBrazil, Thailand, and China are reaching the final stage rather quickly. However,while the majority of developing countries are moving through the second andthird stages, many nationsespecially within Africaare caught up in thesecond stage because of extremely slow economic development.

The governments of several developing countries have attempted various

stabilization schemes, although with mixed success. Kenya was the first sub-Saharan African country to develop a national family-planning campaign in thelate 1960s. While their official policy calls for matching the size of thepopulation with available resources, decisions are left to individual families.Their approach has had much success as fertility rates are declining andcontraception use continues to grow. Perhaps most famously, China's one childpolicy, mandated by the government in 1979, has effectively curbed the growthof the world's most populous nation. However, serious human rights concernshave arisen as abortion, infanticide, and abandonment are practiced withstunning frequency. Furthermore, many worry that a severe gender imbalancewill soon result in social trouble as many men of marriageable age will find itincreasingly difficult to find wives.

In addition to the relationship between population and wealth, there is animportant link between population growth and the environment. Many of thenatural resources necessary to sustain a population are referred to as ' thecommons,' or common property resources that are shared through open access,such as air. This concept is perhaps best known from Garrett Hardin's essay TheTragedy of the Commons, in which he argues that the overpopulation of aspecies will deplete shared natural resources. Continued population growth willcreate an increased demand for natural resources and can lead to resourcescarcity. This problem could be particularly difficult to manage for open accessresources.

According to a 2005 U.N. Ecosystem Assessment Study, human activity usesnearly 60 percent of the ecosystem resources in an unsustainable manner. Agrowing population can result in a variety of environmental changes, includingan increase in greenhouse gas emissions which contribute to climate change,water and air pollution, deforestation, and the loss of biodiversity. The loss ofarable land, which could diminish our ability to supply sufficient food, isanother serious concern.

The classic dilemmainspired by the works of Thomas Malthus in the early19th centuryis that an ever-increasing population will become a majorconcern if (and when) it reaches the limits of the Earth's carrying capacitythemaximum number of individuals an ecosystem can support without severe

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repercussions. Malthus focused on the relationship between population and foodsupply, arguing that because population growth increases geometrically (2, 4, 8,16, etc) while food supply grows arithmetically (1, 2, 3, 4, etc), humans wouldeventually overrun their food supply, with disastrous consequences.

These Malthus-inspired arguments have been challenged by economist JulianSimon and his colleagues, who maintain that such predictions fail to account forthe enormous capacity for innovation and creative thought among humans.

Simon argues that creativity is in fact the single, ultimate resource possessed byhumans. In practice, they point to increasingly productive agricultural practices,falling prices of limited resources like minerals and timber, great advances infood processing and distribution, and technological innovations which allow foran increasing number of humans to enjoy material prosperity, even as naturalresources grow increasingly scarce.

Furthermore, Simon argues continued population growth can lead to larger andfreer markets, economies of scale, and greater ingenuity to come up withtechnical solutions to ever evolving problems. Among other things,technological advances can lead to the discovery of additional resources,increase the productivity of resources over time, improve our ability to control

the amount of waste that enters the environment and, through conservation andefficiency, make available resources last longer. As population concernscontinue to evolve, market processes that promote adaptation and creativeproblem solving will remain an effective mechanism for channeling creativityand encouraging adoption and prosperity.


The Demographic Transitionwww.uwmc.uwc.edu/geography/Demotrans/demtran.htmKeith Montgomery, a professor in the Department of Geography and Geology atthe University of Wisconsin Marathon County, details the demographictransition model in terms of a country that is already fully developed. He alsoaddresses a different form of transition associated with the differences in growthrates across countries of differing economic statuses, and includes links to hissources as well as other links related to the topic.

Populationwww.econlib.org/library/Enc/Population.htmlRonald Demos Lee, a professor of demography and economics at the University


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of California, Berkeley, authored this article on population located within theLibrary of Economics and Liberty's Concise Encyclopedia of Economics.

State of the Planet: Web Resources on Human Populationwww.sciencemag.org/cgi/content/full/302/5648/1172/DC1Science magazine created this page of resource links to various websites onhuman population information, including United Nations' population sites, theU.S. Census Bureau, the Population Institute, the Population Reference Bureau,

and various articles on human population.

Human Numbers Through Timewww.pbs.org/wgbh/nova/worldbalance/numbers.htmlCreated by PBS, this site illustrates the growth of the world human populationover time, and includes a map with projections of where as many as three billionmore people may live by 2050. A graph is also presented to display the growthof developing countries in comparison to developed countries.

VIEWPOINTS

Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble

www.un.org/esa/population/publications/WPP2004/wpp2004.htmLester R. Brown, president of the Earth Policy Institute, argues that increasedaccess to family planning services is necessary in order to stabilize the globalpopulation. Brown cites examples where increased family planning has beensuccessful and further illustrates economic benefits experienced by thosecountries. He also addresses the idea of striving for an average of two childrenper couple, for which he says there is no feasible alternative.

Ageing Futures: From Overpopulation to World Underpopulationwww.metafuture.org/Articles/AgeingFutures.htmSohail Inoyatullah of Metafuture.org explores the idea that underpopulation willbe the biggest world problem rather than overpopulation. The author presents anoutlook of what problems underpopulation could cause, as well as potentialsolutions.

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Chapter 3: Biodiversity

For many, it is considered unethical to question the worth of biodiversity. Thesense of moral obligation, unalienable right, or spiritual and religious support isoften considered sufficient rationale for requiring responsible stewardship on thepart of humankind. Yet, these views can come into conflict with one's ability to

earn a living or to have access to basic needs, such as food or shelter, resultingin the contemplation of necessary trade-offs. As a result, the value ofbiodiversity is now increasingly expanding to include a number of ecologicaland commercial arguments that are directly or indirectly beneficial to humans.

While economists might see the beauty and majesty of biodiversity, they alsoview ecosystems and the diverse organisms within as increasingly valuable andscarce resources. Oftentimes, in determining the best use of scarce resources, acost-benefit analysis is the tool that helps to identify, quantify, and comparevarious aspects of biodiversity. An economic valuation can determine howspecific changes to biodiversity may affect human well-being, although it alsodepends on the understandings and predictions of biologists, geologists, and

ecologists as to how and what ecosystem changes may occur; otherwise theremight be little basis for evaluating an effect on humans.

Changes large enough to warrant a full economic analysis are typically related topolicy or regulatory proposals; for example, the Endangered Species Act or theConvention on Biological Diversity. In the case of the Endangered Species Act,one might compare the value of taking action to protect an endangered specieswith doing nothing. An example of this is the gray wolf. By 1930 the gray wolfwas virtually extinct in the continental United States due to eradication bywestern ranchers concerned about wolves killing livestock. Consequently,populations of elk, deer, moose, and caribou soared without their naturalpredator. In 1995, Alaskan gray wolves were reintroduced to Yellowstone

National Park, part of their traditional habitat. Similar programs have beenundertaken throughout the Great Lakes and Southwest, bringing the gray wolfpopulation in the continental United States to over 5,000.

These programs appear successful, but were they really worth it? Using threegeneral categories of value: direct use, indirect use, and non-use, one cancompare the costs and benefits of reintroducing the gray wolf, among otherthings.

Current and future benefits derived are the direct use value. In the case of anendangered species, like the gray wolf, this would include the costs associated


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with the reintroduction programs, the conservation of habitat, and the livestockkilled on nearby ranches by wolves. Benefits would be attributed to any increasein tourism revenues from interest in the wolves and perhaps reduced costsassociated with maintaining large elk herds and/or offsetting damages fromexcessively sized herds. To estimate a monetary value of these costs, one wouldtypically use wolf recovery program costs, including livestock lost, otherdamages, and program costs necessary to prevent damage. However, simplycalculating a direct use value is an incomplete analysis since it does not includeany additional commercial, environmental, cultural, or aesthetic benefits peoplecan derive. An example of this would be the usefulness of medicinal plants.

Indirect use value is derived from goods and/or services that are not directlyconsumed or sold, yet beneficial. Many of our most basic ecosystem services areindirect use value, including carbon sequestration by forests and othervegetation and the filtration capabilities of watersheds. In the example of thegray wolf, it assists in a form of ecosystem stability which, by keeping otheranimal populations under control, indirectly supports human life and enhancesdirect use values. Without the gray wolf, the population of various herbivorescould become too large causing a strain on plant populations and creating thepotential for increased erosion. These indirect use values can be difficult to

quantify since there is no market for the interconnected services. Think ofpollinators, how much are their services worth? It is thought that the wealth ofgenetic and species diversity remains relatively untapped so the potential valueis considered vast.

One method used to quantify indirect use value is known as replacement cost, orthe cost of replacing an ecosystem service with technology. An excellentexample of this was illustrated when New York City considered building a watertreatment plant to filter water from the Hudson River. The city was previouslydependent on the Catskill Mountain watershed to act as a filter cleaning rainwater and runoff before it reached ground water supplies and eventually theHudson River. In taking into consideration replacement cost, it was determined

that it would cost $6 billion to construct a water filtration plant and an additional$300 million each year in operating costs to do what the watershed hasconsistently done for very little cost. For that reason, the city instead decided tospend $250 million to help conserve the watershed. While quantifying indirectuse values would be simple if replacement cost could be used to monetize theworth of a watershed, ecosystem or species; but, even this does not take intoaccount the non-use value of biodiversity.

Quantifying the value of biodiversity becomes incredibly complicated whennon-use values are included; so named because it is the value people derivewithout actually using biodiversity. Each individual has a different non-usevalue, which can include option, bequest, and existence values. Having the

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opportunity to travel to see an endangered species or a new ecosystem is anoption value because an individual values the opportunity, whether they actuallytake it or not. The irreversibility of biodiversity loss is one reason manyindividuals have a high option value for biodiversity. Bequest value is anindividual's value of passing intact ecosystems on to future generations.Existence value is an individual's moral conviction that the environment has itsown intrinsic value; thus, while one may never see a coral reef, they think it isimportant that coral reefs exist.

Each individual has a different non-use value for all aspects of biodiversity, thusit is very difficult to create a single representative value for non-use variables.Economists often rely on the stated and revealed preferences of what people,generally survey participates, are willing to pay to preserve biodiversity or howmuch biodiversity loss they are willing to accept. By asking how much anindividual is willing to pay to conserve and/or by examining the actualcontribution to conservation efforts, economists can begin to construct arepresentation of non-use values. However, a problem with this method is, in asurvey, participants tend to have a hypothetical bias or will overstate how muchthey would be willing to pay because they are not actually being asked to payanything.

If preserving biodiversity had no cost, all would be preserved since biodiversitycan be important for a variety of reasons, including ethical, esthetic, spiritual,ecological, and commercial. However, since many of the offerings biodiversityprovides are public goods that are freely available, they are often undervalued especially within the marketplace when changes to the ecosystem are beingconsidered. Therefore, while economic valuation can be highly uncertain,putting a price on an otherwise priceless good is one way to start appreciating itsvalue by further illustrating the benefits of preservation.


The Value of Biodiversitywww.chicagowilderness.org/pubprod/brppdf/CWBRP_chapter2.pdfThis study for Chicago Wilderness explains the different types of use values forbiodiversity and addresses some of the challenges of assessing biodiversity'svalue.

The Valuation of Ecosystem Services

www.ecosystemvaluation.org/1-02.htm


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This piece discusses the methods and drawbacks of various managementdecisions of ecosystem services. It includes a discussion of applicable values ofecosystem services.

Biodiversity Banking: A Primerecosystemmarketplace.com/pages/article.news.php?component_id=5617&component_version_id=8120&language_id=12This article on the economics of biodiversity conservation, sponsored by

Ecosystem Marketplace, provides an extensive overview and case studies of thefield.

Natural Capital Project Toolboxwww.naturalcapitalproject.org/toolbox.htmlThe Natural Capital Project is developing modeling and mapping tools to betterestimate the costs and benefits of biodiversity and ecosystem services.

VIEWPOINTS

What Price Biodiversity?www.ciel.org/Publications/summary.html

This academic article from the Center for International Environmental Lawdiscusses the incentive behind conservation and the effect of taxes and severalpieces of legislation on land conservation.

Biodiversity Prospectingwww.rff.org/rff/documents/rff-resources-126-biodprospect.pdfDavid Simpson from Resources for the Future makes the argument formarginal conservation which he believes is a more sound argument forconservation than that of bio-prospectors.

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Chapter 4: Agriculture

Agriculture has been important to the United States since its earliest days. In1785, Thomas Jefferson remarked, Cultivators of the earth are the mostvaluable citizens. He saw farmers as the foundational units of a democraticsociety; agrarian communities, Jefferson argued, promoted spirited

individualism and dedicated resourcefulness necessary for the young nation. It isthis idealized notion of the American farmer that has come to dominate much ofour historical lore.

Through the early 20th century, small family owned and operated farmsdominated America's agricultural economy. Until the 1930s, in fact, one out offour Americans lived on family farms. However, industrialization andcommercialization gradually changed the economic landscape as farm operationand ownership transitioned to larger corporations. Today, that number is closerto one in fifty. As the agricultural landscape changed, so did the beneficiaries ofthe subsidies. Large corporate farms now account for nearly 75% of all farmsales in the U.S.

Technological advances produced economies of scale while new farmingequipment and innovative cultivation techniques allowed commercial farms todecrease their labor needs while increasing the overall productivity of the land.Specialization also meant that the larger farms with higher productive capacities,more access to capital, and better transportation networks could more effectivelysupply consumers in the expanding economy.

Just as American farms were beginning this transition, however, the GreatDepression struck. Money and land were rapidly devalued, millions of peoplelost their jobs, and banks closed. At this time, farms across the nation struggledto break even, but many failed. In response, the Federal government passed the

Agricultural Adjustment Act of 1933, and the era ofsubsidies was born. Hopingto keep prices from plummeting and, in turn, keep farmers in business, thegovernment purchased and subsequently destroyed millions of dollars worth ofagricultural goods.

A variety of programs have since been developed and implemented, employingdifferent management and planning strategies, with the goal of keeping existingfarms in business. Subsidies and price supports were often used after World WarI in order to keep prices stable, regardless of the level of production. Sometimes,farmers were paid to reduce their production in order to take excess supply fromthe market, also helping to control the price of goods. Incredibly, while farm


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subsidies were initially promoted only as a temporary relief measure fromDepression Era woes, they have remained in place for over 70 years.

The basic definition of a subsidy is direct monetary aid issued by thegovernment to individual businesses and industries. Governments use subsidiesto insure profits among established producers who might otherwise facecompetition for their products. For example, if the market price for corn is $1.50a bushel but the government decided that farmers needed $2.50 a bushel in order

to remain profitable, it would issue a $1 subsidy per bushel of corn to eachfarmer.

Governments can also subsidize agricultural production in other ways. Theymight buy large quantities of a particular commoditysay, cottonand eitherhold it in reserve or destroy it, effectively creating a shortage in order to drive upthe market price artificially. Or, they might enact protective tariffs for a certainindustry; for example, placing a tax on all imported cotton allows domesticproducers to raise the price that they are able to charge.

Subsidies can affect economic decision making in a variety of ways. The mostobvious effect is to raise the price consumers pay for the subsidized commodity.

Subsidies also have an indirect effect by raising prices on goods produced fromthe subsidized commodities. For example, subsidized cotton is more expensiveto buy, but so too are the t-shirts, beds, carpets, or any number of other productsmade even in part from cotton. So not only are direct consumers ofagricultural products affected by subsidies, so too are fashion designers, clothingretailers, and furniture stores.

Other subsidy effects on consumers are less apparent, though no less severe. Notonly do consumers pay a higher price for a subsidized commodity, they alsotend to pay higher federal taxes which are used by the government to support itspricing system. In effect, consumers are taxed twice, once directly by thegovernment and again at the stores, in the form of higher prices.

Environmental externalities can also occur with the use of subsidies. Sinceproducers are insulated from competition when they are supported by subsidies,it could distort the mix of resources utilized leading to the use of excessiveamounts of energy, land, fertilizer, and water and, sometimes, the productionof unsuitable crops entirely. Many times, the crops grown are simply destroyedby government officials in an effort to stabilize or prop up the price of the good.In addition, farmers often expand their operations to marginal lands whichwould otherwise be unsustainable simply in the hope of attracting moregovernment support. But, because the government guarantees a certain price,farmers need not properly take land use into consideration.

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Yet, the most controversial impact of agricultural subsidies is related tointernational trade. For many countries, agriculture is a main source of nationalincome accounting for nearly 20 percent of gross domestic product (GDP) inboth India and Indonesia. In the U.S., it makes up less than one percent of GDP,but continues to be a driving force of our economy. And, while land use foragriculture is at its lowest level since 1945 at 46 percent of total land, cropproduction continues to rise. An additional indicator of its importance to ourcountry and our economy is that over the past decade an average of $16billion annually has gone to subsidize the agricultural sector.

Part of a government's system of subsidies may include barriers to trade likeimport tariffs and quota limits. Tariffs are a direct tax on imported goods;quotas limit the amount of a particular commodity that can be imported. Bothfunction to raise the price of imported goods while protecting domesticproducers from competition, albeit still with an increase in the overall domesticprice of the commodity for consumers.

Subsidies are used most often by developed countries since they are expensiveto maintain. Many European Union countries, for example, subsidize up to 1/3of a farmer's income, whereas nearly 2/3 of a farmer's income is subsidized in

Japan. These subsidies are thought to have disastrous effects on citizens andeconomies of developing countries that depend on trade in agricultural goodsbecause the farmers simply cannot compete on the world market with moreestablished and heavily subsidized domestic industries. Attempts to level theglobal playing field oftentimes mean that many developing countries must focuson using trade barriers, such as tariffs and quotas. South Asian countries, forexample, have an average tariff of over 100 percent on agricultural goods.

It is becoming more and more difficult to have a free flow of goods betweennations as the majority of countries now utilize systems of subsidies, tariffs andquotas. There is great debate over the use of these tools, and complaints to theWorld Trade Organization (WTO) are on the rise. The WTO is becoming

increasingly important in helping countries deal with the global rules of tradebetween nations as they attempt to negotiate reductions in the various barriers totrade. It is challenging to find a solution that can be beneficial for all, especiallywithout cooperation and, while countries may indicate a willingness to reformtheir agricultural programs, firm action if any at all is often slow to occur.However, a change in policies to eliminate international trade barriers, togetherwith the reduction of domestic subsidies, would go a long way toward allowinginternational trade in agriculture to provide more efficient food production andimproved global societal welfare.


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Institute for Agriculture and Trade Policy (ITAP)www.iatp.org/The IATP promotes resilient family farms, rural communities and ecosystems

around the world through research and education, science and technology, andadvocacy. Their website features a wide variety of articles about current andongoing issues in agriculture and trade policy.

Farm Subsidy Databasewww.ewg.org/farm/index.php?key=nosignThis interactive website by the Environmental Working Group looks at howmuch is received in agricultural subsidies by state, congressional district andcounty in the United States. It also provides information on the top subsidyrecipients.

LAWS & TREATIES

2007 Farm Billwww.usda.gov/wps/portal/usdafarmbill?navtype=SU&navid=FARM_BILL_FORUMSThe USDA's website contains a section on the 2007 Farm Bill proposals,including legislative language, fact sheets, and viewpoints.

WTO: Agreement on Agriculturewww.wto.org/english/docs_e/legal_e/14-ag_01_e.htmThe WTO member countries' Uruguay Round Agreement for the internationaltrade of agricultural products is outlined.

VIEWPOINTS

How Much Does it Hurt? Measuring the Impact of Foreign Trade Policies

on Developing Nations

www.ifpri.org/media/trade20030826.htmThis press briefing prepared by the International Food Policy Research Instituteexamines the cost to developing countries of agricultural subsidies and tradebarriers.

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Chapter 5: Fisheries

The oceans - a global commons without clear property rights - present a classicexample of the tragedy of the commons. Since a "commons" is accessible to

everyone while being the property of no one, one result is the tendency to overutilize or overexploit the resource. In most countries, policies for managingfisheries are influenced by national economic and social policies which areguided by objectives ranging from food security to higher incomes andemployment levels to the conservation of environmental resources. There havealso been a number of important international treaties that seek to regulate theworld's fisheries; however, enforcement remains a challenge.

Historically, fisheries management administrations assume a wide range offunctions, including the formulation, allocation, and enforcement of regulations,as well as undertaking scientific research related to the management offisheries. Unfortunately, fishery administrations in many poor and developing

nations do not have the means by which to effectively manage their fisheries.Taken as a whole, fisheries worldwide can be characterized by the overfishingof a variety of species, high levels of by-catch, the destruction of habitat, and theloss of fish population and/or changes in the food chain. Therefore, the need forinnovative strategies that involve greater participation by the variousstakeholders is increasingly being recognized.

Probably the most important issue in fisheries conservation and management isthat ofoverfishing. According to the U.N. Food and Agriculture Organization(FAO), the majority of commercial fish stocks are being exploited to their fullpotential, and several important fisheries are in need of careful management inorder to prevent collapse. In the early 1990s, the North Atlantic cod fishery,

which sustained communities in both the United States and Canada forcenturies, collapsed and is showing few signs of rebounding due to a stablechange in the food chain. With the Atlantic cods' slow recovery and theirremoval as a top-tier predator, there has been a population explosion amongsmaller prey including herring, capelin, shrimp, and snow crab, which havesince become the top predators. Therefore, in many instances, overfishing is anissue that may be best addressed at the local level, rather than at a national orinternational level.

Global by-catch (fish species inadvertently caught in nets) has also become animportant area of concern for ocean conservation and fisheries management,


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because by-catch from large-scale fishing can amount to hundreds of thousandsor even millions of fish, in addition to marine mammals and birds. This issueinitially captured the public's attention due to the high number of dolphins thatwere becoming caught in tuna netting, with thousands of dolphins dying eachyear. In 1972, the United States passed the Marine Mammal Protection Act(MMPA), which sought to minimize dolphin by-catch in the Pacific tunaindustry. By 1988, through several amendments to the legislation and publicdemand for "dolphin-safe" tuna, fishing companies responded by introducingmore dolphin-saving technological innovations. Others have since followedsuit, such as long-line fishermen who have had considerable success in reducingseabird mortality by setting their lines at night when the birds cannot see themand by flying streamers behind their boats. In the shrimp industry, shrimpershave been able to modify their trawls with small cage-like attachments thatallow shrimp in and keep by-catch, such as sea turtles, out.

Finally, fishing practices and human activity can significantly impact marineecosystems, damaging habitats and threatening fish populations. Trawling anddredging along the ocean floor changes the makeup and productivity of fishcommunities that are dependent on the ocean floor for both food and refuge.Human activity, through pollution runoff and erosion, affects fisheries indirectlyby altering and increasing stresses on coastal ecosystems.

There are a number of initiatives, however, that can help to manage fisheriesmore sustainably. Maximum sustainable yield is the primary goal of fisheriesmanagement, but questions arise as to whether or not it is too simplistic anapproach because it is very difficult to estimate total populations of fish species.For most fish stocks, the only data readily available is the yield, or the totalnumber of fish caught and, oftentimes, data concerning yield is based on formsof self-reporting therefore leading to the possibility of overstating orunderstating yields which can lead to even more uncertainty in the managementof fisheries.

Fishing intensity - the number of fish caught per unit of effort - is anotherindicator that is often used. Effort can be measured in factors such as thenumber of nets, boat hours, or work days. Using this indicator, it would beevident that a fish population is "overfished" when yields decline - when fewerfish are caught - or when it takes more effort to find and catch a specific yield.However, fish populations can also vary due to other factors, including changesin water temperature and variability in ocean currents.

A promising approach to fishery management is the use of a market-based,pseudo-property rights approach of individual transferable quotas (ITQs) orindividual fishing quotas (IFQs). Regulators begin by determining a totalannual catch that will preserve the health of the ecosystem; they then distribute

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individual quotas that will allow for a certain amount of fish to be caught in anygiven year. ITQs, which are the distinct property of someone, are alsotransferable which allows fishing vessel owners to buy and sell their quotasdepending on how much they want to catch. Because they leave the individualwith the flexibility as to how to adjust to the environmental standard - or in thiscase, the total catch - they make compliance less expensive. Environmentalquality is not sacrificed because the overall level is determined by the number ofpermits set by the regulatory authority. An ITQ program can also attempt tocreate a commercial fishing industry that is more stable and profitable.

ITQs have been used successfully in New Zealand and in the Pacific Northwestregion of the United States. Many people believe that this success indicates hatwhen fishermen have a vested interest in preserving fish stocks, they are morelikely to engage in conservation measures that ensure the long-term health of thestock. Local communities can also have an important role in conserving theirown coastal resources because they have a much larger stake in protecting andpreserving the resources than state and/or federal agencies do.

In the past, issues involving a "commons" and resulting externalities have beenresolved primarily through coercive measures, such as setting standards or

imposing taxes. Unfortunately, these regulations can have negative effects onboth output and employment within an industry, or even for the economy as awhole. Providing clearly defined property rights - or in this case, through theuse of a quota system - can effectively remedy a variety of externalities as themarket works to allocate resources most efficiently.


The State of the World Fisheries and Aquaculturewww.fao.org/sof/sofia/index_en.htmThis document - published every 2 years - is the premier document of the UNFAO's Fisheries Department. Its purpose is to provide policy makers, civilsociety, and those that derive their livelihood from the sector a comprehensiveand objective global view of capture fisheries and aquaculture, includingassociated policy issues.

NOAA Fisheries: Statistics Divisionwww.st.nmfs.gov/st1/index.htmlThis division collects data and coordinates information and research programs tosupport the science-based stewardship of the nation's living marine resources.


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LAWS & TREATIES

Magnuson-Stevens Fishery Conservation and Management Act -

Reauthorization, 2005www.nmfs.noaa.gov/msa2005/The Senate recently reauthorized the Magnuson-Stevens Fishery Conservationand Management Act (MSA) - the central bill that governs U.S. fisheries -which was initially enacted in 1976. This current bill, which will go through

2010, addresses several important advances in fisheries management that willhelp fish, fishermen, fishermen, coastal communities, and U.S. seafoodconsumers that rely on these resources, reaching fisheries from coast to coast.

National Marine Sanctuaries Act - Reauthorization, 2005www.sanctuaries.noaa.gov/about/legislation/In 1972 this U.S. law set regulations for dumping waste into oceans and coastalwaterways, and authorized the Secretary of Commerce to declare certain areasof distinctive natural and cultural resources as National Marine Sanctuaries. TheAct also set up programs to examine the long-term effects of pollution,overfishing, and other human-induced changes to marine ecosystems.

VIEWPOINTS

Fisheries with a Future: the Case for Individual Fishing Quotaswww.environmentaldefense.org/documents/1953_IFQbrochure.pdfThis brochure, presented by Environmental Defense, makes a case for IFQ usein protecting fisheries and the environment. It explains how IFQs work,recounts instances where they have been beneficial, and includes links to moreinformation about IFQ systems.

Swimming Upstream: The Challenge of Managing the World's Fisherieswww.rff.org/rff/News/Features/Swimming-Upstream.cfmIn this 2006 interview with James Sanchirico of Resources for the Future, he

gives his insights into how fisheries are managed and what might be doneto improve their future.

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Chapter 6: Forest Management

Forest management in the United States has become increasingly complex as thebroad array of services that forests provide become more readily apparent.

Though national policy has generally reflected good intentions, the economicsbehind managing both public and private forests provide for a difficult decisionmaking process when figuring out how to maximize the benefits of forestswithout sacrificing their ability to provide a wide range ofoutputs over the longterm.

The National Forest System is comprised of approximately 150 forests covering192 million acres. Originally established to ensure that the United States wouldhave a continuous supply of timber, today's national forests, managed by theU.S. Forest Service, must provide a combination of many outputs as dictated byvarious pieces of legislation. The initial objectives of national forestmanagement were to maintain forests for the long term, to harvest modest

amounts of timber while making sure that water flows were not seriouslydisturbed, and to provide for forest regeneration. The Multiple-Use SustainedYield Act added wildlife and recreation to the list of specific outputs in 1960,followed by the addition of a multiple-use planning process involving publicparticipation as mandated by the National Forest Management Act of 1976.

Implementation of these laws is made difficult by the fact that the compositionof outputs is not specified. Because these outputs are difficult to value (many arenon-market goods) and are characterized by highly complex ecologicalinteractions, national forest management has largely been a political processdominated by various interest groups. In addition to the National Forest System,there are other large forested areas, including parks and wilderness areas, in

public ownership (including federal, state and local) which are managed for avariety of purposes.

The management of private forests is simplified by the fact that the objective isgenerally clear: maximizeprofits, usually over the long run. However, privatelymanaged forests must also address environmental and amenity services, whichare usually considered to be externalities and thus would be undervalued andundersupplied in private markets. However, some of these services can bebrought into markets, such as fee hunting which helps to preserve habitat andwildlife. Private forest management is also typically constrained by variousforest practice regulations, including riparian zones, which are imposed bygovernmental entities.


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In addition, forest managers, both public and private, often struggle withattempts at ecosystem valuation because it is a complex process that does notalways assign accurate values to the many services that natural resourcesprovide. Forest management is also not subject to traditional depreciationconsiderations due to the fact that many forest services and outputs appreciate invalue over time or provide very long-term benefits. One example is that timbervalue generally increases with age because taller trees are more valuable.However, since most individuals prefer to benefit now rather than later, andbecause individuals tend to be risk averse due to the uncertainty of the future,the future value of a forest is discounted. As such, forest managers have anincentive to harvest forests for tangible, near term outputs.

The long term value of forests is evidenced by a recent trend among financialinvestors to invest in timber funds. Unlike an integrated forest products firmwith both forestlands and processing facilities, timber funds own onlytimberlands. While a downturn in timber prices can hurt a lumber company'searnings, timber fund investors can ride out any dip in the market to allow themto benefit from the long term profits that older timberlands can bring. If aninvestor does not like the current market price, they can easily hold on to theirinvestment in order to capitalize on the higher profits that taller trees bring. Thisstrategy has made privately owned forests effective in maximizing profits.While many economic externalities could be ignored in this system, a recenteffort that helps to address these externalities is the voluntary market forconservation easements whereby logging is allowed but subject to forestmanagement environmental constraints.

Because the government is not obligated to maximize profits, it is in a positionin which it can take external effects, such as wildlife or recreation, into accountwhen formulating a strategy to manage its forests. This is both a product andcause of the vagueness of the United States' official forest management policies.Today the National Forest System provides less than five percent of the nation'stimber production, compared to over fifteen percent just 20 years ago. This is

largely due to the policy decision to focus national forest management onproducing environmental outputs rather than timber.

Non-market amenity services refer to the outputs or benefits of a forest thatcannot be bought and sold in a traditional market. These include cleaning andpreserving the natural environment, filtering water, cleaning the air, preventingerosion, preserving biodiversity, reducing the threat of climate change, andproviding flood control services. Until recently, many of these services were nottaken into consideration when formulating strategies for forest management.Indeed, the value of some of these services, like flood control, has often beenignored altogether. However, many of these services are provided over the longterm, and the benefits are usually not directly enjoyed by the owner of the forest.

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As such, they are not always taken into account when private forest managersare developing their management strategies. The government, on the other hand,has a much greater interest in preserving forests for these non-market outputs.

Our ability to preserve the output of these non-market amenity services dependson policies intended to preserve forests and forest amenities. However, even inthe absence of timber harvests, forests are subject to many disturbancesincluding fires and infestationsthat could have serious long-term effects on the

makeup of a forest.

The difficulties of human interaction with complex forest systems can be furtherillustrated by how forest fires have historically been managed. As homes andother structures are built further into the wilderness, firefighters are responsiblefor putting down fires deeper into otherwise unsettled forests. This fact,compounded by a general misunderstanding about the natural benefits of forestfires, has led to an increase in both size and intensity of forest fires. Naturally-occurring forest fires normally burn away dead branches and underbrush thataccumulate on the forest floor. If every forest fire is put out before this build upcan burn off it can lead to massive forest fires. Moreover, climate change isalready beginning to have some effects on forest life cycles. As spring

snowmelts take place earlier, disease and insect infestation become moreprevalent, leading to more dead trees that make good fuel for fire. These realitieshave brought about a greater sense of the importance of understanding howforests must be managed to ensure their health and sustainability.

New efforts at conservation are poised to take advantage of some of the benefitsand flexibility that the free market provides. Conservation easements, fundedlargely by private donations and conservation organizations, provide a voluntarymarket mechanism that provides both timber and non markets outputs. Anotherexample, funded entirely by private capital, one group is in the process ofbuying a northern California redwood forest to preserve the land by operating itas a nonprofit business. Because the land had been logged for decades, the

timber company that owned the land decided to sell after having harvested themost profitable timber. The buyer, Redwood Forest Foundation, Inc. plans toreduce the rate of tree harvest to less than two percent while maintaining a longterm objective of bringing the forest back to its natural state. It is argued that thismethod is more sustainable than using the land for development or turning itinto a preserve or park because it provides jobs and keeps the land on the taxrolls. Though these approaches have their critics, they represent novel attemptsto use the power of the market to preserve forest land.

The economics of forest management, like other natural resources, are variedand in some ways counterintuitive. Though discounting is often thought of as anegative practice in terms of environmental preservationin carrying out policy


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evaluations to help decision-makers, economic analyses typically discountfuture environmental impactsthis is not always the case. While high discountrates might shift environmental burdens to future generations, they also tend todiscourage high levels of investment which, in turn, can reduce demand fornatural resources. As such, the economics of natural resource use should bethoroughly analyzed when formulating forest management strategies.


USDA Forest Service: National Report on Sustainable Forests 2003www.fs.fed.us/research/sustain/documents/SustainableForests.pdfThe first-ever accounting of 67 indicators of sustainable forests in the UnitedStates, as endorsed by the Montreal Process, of which the United States is amember country. The report includes data gaps and recommendations to moveforward.

Rainforestinfo.org: Timber Certification Definedwww.rainforestinfo.org.au/good_wood/tcrt_def.htmTimber certification is a voluntary, market-driven program that seeks to identifywood and paper products from forests managed according to internationallyaccepted stewardship principles. This website outlines the process.

LAWS & TREATIES

National Forest Management Act 1976www.fs.fed.us/emc/nfma/includes/NFMA1976.pdfThe NFMA is the primary statute governing the administration of nationalforests. It reorganized and expanded the Forest and Rangeland Renewable

Resources Planning Act of 1974 to include a requirement that the Secretary ofAgriculture develop a management program and implement a resourcemanagement plan for the National Forest System.

Forest and Rangeland Renewable Resources Planning Act 1974www.fs.fed.us/emc/nfma/includes/range74.pdfThis Act calls for an assessment of the Nation's renewable resources. It isintended to provide reliable information on the status and trends of the Nation'sresources so that informed policy decisions can be made.

Multiple-Use Sustained Yield Act 1960www.fs.fed.us/emc/nfma/includes/musya60.pdf

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This Act declares that the purposes of the national forests include outdoorrecreation, range, timber, watershed and fish and wildlife. The Act directs theSecretary of Agriculture to administer national forest renewable surfaceresources for multiple use and sustained yield.


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Chapter 7: Tropical Deforestation

Rainforests can provide a variety of benefits to both man and nature. Theysupply over 20 percent of the planet's oxygen while storing carbon dioxide,

methane, and nitrous oxide; greenhouse gases that contribute to global warming.Tropical rainforests also act to protect watersheds, and are critical to maintainingregional supplies of both fresh and drinking water.

Aside from their many environmental services, rainforests contain a vastamount of animal and plant biodiversity while also providing a home for a largenumber of indigenous people. They also supply both local and global marketswith a variety of products, as well as ingredients for many medicines. Nearlyhalf of all medicines used today are linked to discoveries within the rainforests.Finally, tropical rainforests have become a major focus for 'ecological tourism,'which can be beneficial to a local or country's economy, but is dependent uponcontinuing forest preservation.

Tropical rainforests are located in a wide band surrounding the equator, coveringover six percent of the earth's total land surface. Scientists estimate that theserainforests contain over half of the world's plant and animal species, with apotential for millions of new, still undiscovered species. Unfortunately, tropicalrainforests lose an estimated 93,000 square miles each year due todeforestation, a complex issue with many underlying economic concerns.

Deforestation can occur in a variety of ways, but it is mainly the result of acombination of agricultural and infrastructure expansion. Commercial woodextraction for pulp or timber can also contribute to deforestation if forestregeneration is not allowed. The leading land-use change associated withdeforestation is agricultural expansion, which includes forest conversion forpermanent cropping, cattle ranching, shifting cultivation, and/or colonization.Oftentimes land conversion occurs out of a shear growth in population thatincreases the need for food, fuel, and subsistence. This is often a basic way oflife for many within tropical countries.

The motivations that result in deforestation are very complex, primarily due tothe nature of the countries and regions where tropical rainforests are found.Decisions to convert tropical forests are often encouraged by a number of fiscalincentives, including tax concessions or subsidies. The competitive globaleconomy can also drive the need for income in countries that are economically-

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challenged. Therefore, deforestation rates in tropical areas are often closelylinked to a country's economy. Low income countries often experiencedeforestation.

In the past, many governments and markets tended to recognize only the cashvalue of the rainforest, rather than its economic importance in termsof 'unmarketed' benefits, such as the many environmental services offered andthe vast amount of biodiversity that is sheltered. Land rights have tended to

favor developers and colonizers, not native peoples; and incentives oftenencouraged a conversion from forested land to agriculture utilization. Loggingconcessions were often sold to raise money for specific projects, to pay downinternational debt, or to further develop industry within a country. A practice oflow taxes on income derived from agriculture and rates that favored pasture overforest, made it extremely profitable in some countries to convert rainforests forthese purposes. Pro-deforestation economic development policies often lead toan increase in commercial crops and pastures and when combined with anexpansion of the road network, further open up the rainforest area.

Part of the challenge in creating more sustainable tropical forest practices is thelarge number of players that can be involved, including farmers, logging or

agricultural companies, the governments of tropical forest countries, and eventhe international community. The decisions made by each stakeholder groupoften differ and conflict, where the benefits and costs important for one groupare not necessarily important to the others. However, economic efficiencywould try to account for all benefits, including how sustainable practices cancontribute to greater productivity while limiting environmental impacts factorsthat may or may not be considered by industries that enter the market in order tomaximize profits.

There are, however, a variety of measures that can turn the exploitation oftropical rainforests into more sustainable actions. Economic activities can besustainable as long as the forests are not over-exploited and have enough time to

regenerate. One model that can be applied to forest management is sustainedyield, which aims to maintain or increase the amount of timber in the rainforest.The model is based on the idea that harvesting need not disturb the overallecosystem, and that the quantity of timber harvested should be less than or equalto the amount of timber regrowth.

Demand-reducing trade measures can also be introduced to help curb tropicaldeforestation. These measures can be instances where the governments ofconsumer countries consider increasing import duties on tropical timber.Selective import duties can also be used, where sustainably-produced timbermay be imported duty-free while a tax is placed on timber that is unsustainablyproduced. Trade bans, such as prohibiting tropical hardwood for specific uses,


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such as in new home building, can also be put in place. However, suchprohibitions should be used carefully and selectively so as not to discourage theentry into the market of sustainably-produced tropical timber.

Timbercertification is another method that can be used to promote sustainableforestry practices. It operates on the assumption that consumers are willing topay a premium on products harvested in a sustainable manner by clearlyidentifying and verifying that the timber is coming from sustainably managedforests. Current certification systems need further development, however, as theoverall acceptance of certified forest management in tropical developingcountries thus far has been relatively minor. While certified management iscommon in developed countries, certified timber products have only beenminimally successful. Part of the problem with certification is the absence ofmarket price premiums, even in the more environmentally-conscious markets,such as West Germany, the Netherlands, and the U.K. However, in the tropicsmuch of the problem also relates to the difficulties in establishing viablecertification programs in many of the developing countries.

Within the global economy, foreign aid can also be used to decrease the rate ofdeforestation if the transfers can ease the need for exploitation by enabling a

country to cope with problems that require immediate attention rather thanexploiting forests to earn much needed foreign exchange. The internationalcommunity can also use a 'carrot and stick' approach by providing foreign aid ordebt reduction, sometimes in the form of debt-for-nature swaps, under thespecific condition that a country improve forest conservation or sustainable usepractices. To realistically protect the many resources and services provided bytropical rainforests, ultimately a balance must be found between preservationand forest use through sustainable economic practices.


EO: Tropical Deforestationearthobservatory.nasa.gov/Library/Deforestation/NASA's Earth Observatory article explains why deforestation happens,deforestation rates, the connection between deforestation and global processes,as well as what happens to land after deforestation.

Forest Stewardship Councilwww.fsc.org/en/The FSC is one organization that awards timber certification through accredited

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certification bodies. The organization's website provides information on theprocess, including lists of areas that have received certification.

VIEWPOINTS

Developing Countries: Pay us to Save Rainforestsnews.mongabay.com/2005/1127-rainforests.htmlThis 2005 article discusses the argument made by a coalition of tropicaldeveloping countries for why wealthy countries should pay them to preserverainforests due to the services provided that benefit the rest of the world. Alsoincluded is a 2006 update.


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Chapter 8: Water Resources

The basic building block for all life on Earth, water is the most plentiful naturalresource on the planet; in fact, over two-thirds of the Earth is covered by water.However, 97 percent is held in the oceans, while only 3 percent is freshwater.Of the freshwater, only one third is easily accessible as ground or surface water,the remains are is stored in glaciers and icecaps. Thus, water is both the mostabundant natural resource on our planet and a fundamental element of life whosepreciousness requires diligent management.

Human consumption and use of water in any particular location revolves aroundtwo key factors: quantity and quality. Scarcity results when either the physicalquantity of water is low or the quality of existing water resources is unfit forhuman use. The production of electric power and irrigation are the largestand most important uses of water throughout the world, each with their ownimpact. In industrial nations, concerns over water quantity dominate, while inthe developing world, water quality remains the major concern (though water

quantity is certainly a major problem in certain geographic areas).

Let us first examine issues of water scarcity in industrialized nations. Thoughlimited concerns over the quality of water still existspecifically regardingcontamination from pollutantsscarcity results not from a lack of clean watersupplies, but rather from inefficiencies in allocation; in other words, the water isclean but it is often misused (i.e. wasted). Why does this occur?

Water is a peculiar resource. Because of its abundance and fundamentalimportance, water has historically been seen by many as an inexhaustibleresource that should be available to all at little or no cost. Traditionally, waterhas been managed as a public good by state-run water industries. When

demand for water was low, this strategy seemed appropriate. But as demand forwater increases, especially in expanding urban centers and arid regions like theMountain West, various problems arise.

The central dilemma faced by consumers in a state-run system of waterprovision is known as the tragedy of the commons. A tragedy of the commonsoccurs when a limited resourcelike wateris over-used or misused because ofthe absence of an effective price mechanism. Because the market does notsupply a price which accurately reflects the value of a particular good, in thiscase, water, individuals have an incentive to maximize use; or, similarly, havelittle or no incentive to conserve. Thus, water is not allocated to value-maximizing areas. In plain terms, this means that water does not go to the

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people who most value its use (and thus are most likely to conserve). The result:water shortages which damage both natural environments and economic well-being.

According to a recent U.S. survey, 36 states report that they expect to sufferwater shortages within the next ten years. Water scarcity issues are no longerproblems only in the western states; as our groundwater resourcesspecificallythe Ogallala aquifer supplying the majority of Midwestern waterslowlydeplete, battles over access to the Mississippi, Potomac and Delaware Rivers, as

well as to the Great Lakes will become more pronounced.

Another, more subtle, but similarly problematic dimension of state-managedwater industries is the inherently political nature of water provision in agovernment controlled system; this is known as a public choice dilemma. Thisproblem goes to the very heart of state-run water industries for it maintains thateven if government industries could overcome the tragedy of the commonsproblem, the officials actually charged with managing water distribution oftenface certain incentives which preclude an equitable and efficient allocation ofwater. Oftentimes, political approval and the desires of various interests groupsare key factors, rather than responding to price changes caused by movements ofsupply and demand. Therefore, inefficient distribution outcomes necessarily

result. The market overcomes this problem because it is blind to the lobbying ofparticular interest groups and responds only to changes in value, signaled byshifts in demand.

The tragedy of the commons and public choice dilemmas plague residents ofdeveloping countries as well. However, these countries face both distributionand sanitation concerns which further complicates the water scarcity debate.Simply put, most water industries within developing nations are incapable ofsupplying adequate and clean water to all citizens. A major problem isinfrastructurenot enough pipes exist to satisfy demand. To compound this,many citizens in the developing world live in large shanty towns on the outskirtsof cities and lack formal property rights to their homes. Governments often

refuse to recognize the property rights of these dwellers because doing sowould mean they would have to fulfill and obligation to supply these citizenswith services, including water. The vicious cycle continues as those withoutwater are forced to make use of whatever is available, often times bathing,cleaning, and laundering in horribly polluted streams. But even if governmentsin developing nations could adequately supply water, they would still facedistribution problems due to the tragedy of the commons and public choicedilemmas.

Many proponents of reform argue that privatization, rather than state-control,produces the most equitable, environmentally friendly, and economically soundsystem for managing both the distribution and consumption of water. Water


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rights which are transferable from one individual to another are the fundamentalbuilding blocks of such a system. Rather than government controlling access towater, in a private system individuals could buy, sell, and trade water rights, just as we do with property rights today. However, critics charge that privatewater markets will undersupply consumers and led to unequal distribution,skewing towards those with more means. Yet, in practice, this seems not to bethe case.

Interestingly enough, privatization benefits are actually most visible in

developing countries. People living on the margins, without recognizableproperty or water rights, are able to access clean drinking water for a small costbecause local water vendors have responded to failures of government supply.In West Africa, for example, small, disposable, bags of clean drinking watercalled sachets are available throughout the region for only a few cents. Manyforeign companies are also responding to increased demand, shipping everlarger amounts of bottled water to consumers who need it most.

Water markets can also prove useful in environmental protection efforts. Forexample, the Columbia Basin Water Transactions Program (CBWTP), apartnership between seven nonprofit groups and four state water agencies,allows partners to negotiate water transactions based on individual demand.

Between July and September of 2007, nearly 6.5 million gallons which wouldhave otherwise been diverted to state water boards stayed in the Middle Forkand John Day River system stream flows, benefiting animal populations in andaround the rivers while providing downstream farmers with suitable water forirrigation during the late summer months. A similar agreement in Washingtonstate between the US Department of Ecology, the Washington Water Trust, andthe Taneum Canal Company is keeping more than 18 million gallons of water inTaneum Creek each day. As a result, portions of the river system which wereonce dry beds are once again flowing, restoring precious fish and wildlifehabitats.

Agreements like these utilize market principles to achieve increased efficiency.

More importantly, they highlight the future environmental and economicbenefits of increased privatization. Creating a realistic market for water, priceincreases will effectively treat water as a finite and precious resource, reflectingall costs associated with its use. When water prices do not reflect scarcity,waste, and inefficiency, environmental degradation often results; when pricessignal the actual value of the resource, entrepreneurs respond to demand andindividuals adapt, innovate, and find creative ways to trade and conserve.

Century old state-run water industries are beginning to incorporate market-basedtrading techniques which allow individuals to trade water rights based on theirlocal knowledge and consumption needs. Water boards are also attempting toincorporate pricing schemes which can more accurately take into account

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fluctuations in supply and demand. In the developing world, waterentrepreneurs and foreign water companies are slowly making life savingprogress, providing water cheaply and efficiently wherever possible.


UN Environment Programme - Freshwater

www.unep.org/themes/freshwater/The UN Environment Programmes website details the issues revolving aroundfreshwater in the world.

International Water Management Institute (IWMI)www.iwmi.cgiar.org/About_IWMI/Overview.aspxThe IWMI's mission is to improve the management of land and water resources.Their research agenda is organized around 4 priority themes: basin watermanagement; land, water and livelihoods; agriculture, water and cities; andwater management and environment.

National Water Programwww.usawaterquality.org/A link to the National Water Programs website that provides information aboutwater usage throughout the United States.

Global Water Outlook to 2025: Averting an Impending Crisiswww.ifpri.org/media/water_facts.htmThe IFPRI prepared this fact sheet about the usage of water around the worldboth today and in the future.

LAWS & TREATIES

Water, a Shared Responsibilitywww.unesco.org/water/wwap/wwdr2/table_contents.shtmlThe 2nd UN World Water Development Report, published in March 2006.

UN Environment Programme - Water Policy and Strategywww.unep.org/themes/Freshwater/Documents/pdf/WPS_adpoted_at_GC%2024.pdfThe UN outlines their policy on water related issues.


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VIEWPOINTS

FAO Newsroom: Coping with Water Scarcitywww.fao.org/newsroom/en/focus/2007/1000521/index.htmlAn interview with the FAO-Director General Dr. Jacques Diouf about theseverity of water scarcity throughout the world.

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Chapter 9: Energy Production & ANWR

In 1960, Secretary of the Interior Fred Seaton signed an executive order thatestablished the nearly 9 million acres of undeveloped wilderness on Alaska's

North Slope the far northwest region of the state as the Arctic NationalWildlife Range. The area was expanded in 1980 and renamed the ArcticNational Wildlife Refuge (ANWR) by Congress through the passage of theAlaska National Interest Lands Conservation Act (ANLCA).

The Arctic National Wildlife Refuge currently encompasses just over 19 millionacres of undeveloped, federally protected wilderness. Through ANLCA,Congress designated a 10 million acre Minimal Management zone to be leftentirely untouched; 8 million acres were set aside for limited recreational use,becoming part of the U.S. Wilderness Area; and the final 1.5 million acres,located along the coastal plain (Area 1002), were to allow exploratory studiesfor the potential of resource development, primarily oil and gas.

The coastal plain borders Prudhoe Bay, an area long known to be rich inpetroleum reserves. Although the passage of ANLCA in 1980 specifically calledfor possible future development of Area 1002, it also required Congressionalapproval before any projects could begin. After initial exploratory studiesrevealed huge deposits of oil lay beneath the surface of Area 1002, manyexpected that approval for drilling would be quickly forthcoming. However, theExxon Valdez accident in 1989 all but destroyed political momentum, andattempts to authorize drilling in the early 1990s were not able to make it to avote.

There have been several proposed solutions to this difficult debate. Proponentswant Congress to move forward with plans to open Area 1002 for drilling anddevelopment. The strongest opponents want an outright Congressional ban onall possible future development in the region. With a ban, even Area 1002,designated by Congress as a development zone, would be closed.

Increasing scrutiny on petroleum use due to climate change, predictions ofpotential oil scarcity and increasing national security concerns are all greatlyinfluencing the debate over whether to develop the Arctic National WildlifeRefuge. In the climate change debate, some believe that oil consumption mustbe immediately curbed, and that no new sources should be developed.Opponents counter that the most effective way to prepare for the negative


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aspects of climate change is to increase global prosperity, providing people withmore tools that can be used to adapt to any changing conditions. This mayrequire continued use of cheap and efficient fuel today so that we can advancequickly towards a future in which our society possesses sufficient wealth andknowledge to further develop alternative energy technologies.

Similarly, discussions concerning the use of ANWR are especially important aswe begin to confront a future where energy production and consumption maydepart radically from traditional norms. Some argue that since petroleum is afinite resource which will eventually disappear, we should immediately direct allour energies towards alternative fuel development. New drilling sites, theymaintain, only perpetuate a dangerous dependence on petroleum. Manyscientists and economists disagree, arguing that ANWR should be developedprecisely because conventional oil supplies are soon to be depleted. Like in theclimate change argument, it is thought that the best solution is increased wealthand knowledge, which can most rapidly be developed only if we utilize theefficient energy resources now available.

In 1998, a report by the U.S. Geological Survey revealed that there was far moreoil beneath Area 1002 than previously thought, and interest in drilling was once

again sparked. In addition, as oil prices began to rise in the early part of the 21stcentury, the ANWR debate began to gain national prominence. Yet, despite apush by the Bush Administration and Congressional Republicans, more thantwenty-five years after Congress first approved Area 1002 for initialdevelopment the region remains untapped.

Unfortunately, the extreme politicization of the ANWR debate has obscuredmany of the fundamental points of the issue. With increasing instability in theinternational oil market, many argue that domestic development is crucial tonational economic security. Area 1002 contains the largest untapped supply ofoil in the United States, with estimates of between 9 and 16 billion barrels ofrecoverable oil beneath the sea and soil. In addition, job creation is estimated to

be between 250,000 and 750,000 with the development of the area.

Opponents counter that ANWR, in fact, represents just a fraction of total globaloil output and even maximum production of the area would do little to insulateAmerica from global oil shocks. Furthermore, ANWR is considered by many tobe one of the few remaining areas of untouched wilderness in the country.Development would not only destroy this distinction, it could also disruptecosystems and endanger wildlife. However, technological advancement hasgreatly reduced drilling footprints over the last thirty years, and as oil and gascompanies are forced to interact in and with increasingly sensitive areas,innovative strategies and techniques for protecting even promoting wildlifem