Reaching conclusions: government and the green transition

If only? Technocracy International was a social movement formed in the 1930s to promote
a technocratic vision for North America (Burris 1993)

Even the most neoclassical economic textbooks recognise that environmental damage cannot be solved by market mechanisms alone. The consensus, however, ends there with different economic and political philosophies disagreeing about how governments can and should address environmental problems. Throughout this blog I've engaged with some of these debates by asking how national governments can promote a green transition and so in this final post, I'm going to draw my thoughts together.

While the EKC hypothesis suggests that governments should just go for growth to improve the environment, the theory’s shaky foundations undermine its conclusions. I believe that to reduce the environmental intensity of economic activity it’s necessary for environmental considerations to be integrated into every area of economic policy. Alongside evidence that shows governments can spur innovation and even lead a new green industrial revolution, policies also have the capacity to address corporate short-termism and thereby promote private sector green investment. Furthermore, social policies are essential in order to increase the resilience of economic systems and mitigate the social consequences of seemingly unavoidable climate change, particularly in developing countries where large poor rural populations are particularly vulnerable.

Governments are clearly integral to the process of green transition and therefore the tools and methods that are used to inform policy formulation are of significant importance. Because environmental economists and their rhetoric of ‘ecosystem services’ are particularly salient within environmental policy-making, this blog has examined some key concepts and developments within environmental economics to examine whether they are conducive to progressive policy developments. In the previous two posts I concluded that, while environmental valuation seems to be more hassle than it's worth, the development of environment-economy models is promising.  Aside from this, however, I’m skeptical that governments are willing to act on the scale demanded by the potential magnitude of future climate change. As the energy price debate has highlighted, politicians operating on 5-year election cycles seem prone to short-termism and more inclined to offer piecemeal populist policy changes than the radical overhaul that a green transition would require.

It’s pretty easy to criticise political myopia, but thinking of ways to address the problem is a lot trickier. Replacing democratic government with a technocratic dictatorship would potentially work but, I must admit, it isn’t the most appealing or feasible of solutions. A more pragmatic approach would be to promote cross-parliamentary agreements, such as current carbon budgets, that tie all parties to certain environmental policy commitments or targets. However, I fear that the sclerosis of Whitehall means this approach would just result in a sort of political constipation where an awful lot of effort generates distinctly underwhelming results. Furthermore, pledges are a considerable political liability (just ask Nick Clegg), and so I doubt that cross-party agreements with ambitious targets would be able to achieve sufficient parliamentary support. 

If governments could overcome their chronic shortsightedness, I believe it would be possible to significantly reduce the environmental impact of economic activity. If not, however, I worry that the current socio-economic system – already creaking under the strain of inequality and environmental degradation – will become untenable. 

And on that cheery note, I'm going to say goodbye and leave you with a bit of Marvin Gaye. I've really enjoyed exploring a range of subjects through this blog – I just hope its been an interesting read! 

                                           

Reaching conclusions: meritorious modelling

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, 'Let's smash the can open with a rock.' The chemist says, 'Let's build a fire and heat the can first.' The economist says, 'Let's assume we have a can-opener'.  

George Goodman (1981)

As the joke above parodies, economists have a tendency to simplify the problems they face by making assumptions and early in this blog I explained how the assumptions made during the construction of conventional economic models has led to a systematic neglect of environmental variables within economics. The recent development of environment-economy models, however, is addressing this significant oversight and throughout the course of this blog I've looked at the insights that such models can (and can’t), offer.

From delineating the impact of trade on endangered species to improving land-use decisions to estimating the cost of climate change, it’s clear that environment-economy models can be used to investigate a wide range of subjects. Despite the variety of these hybrid models, however, I want to conclude with two general pieces of advice.

1.   Always remain skeptical – environment-economy models, like all models, rely on a set of simplifying assumptions and, as exemplified by integrated assessment models, these assumptions can be highly problematic. Because of this, if you ever come across a report that uses env-econ models to generate estimates or projections, I would encourage you to flick straight to the technical appendix. Although the inevitable discussion of Cobb-Douglas production functions might not be particularly stimulating, this is where all the assumptions are hidden and so it’s a good way to check the integrity of any models that are used.

2.   Models are never enough –  Because models rely on simplification and abstraction, they are inherently fallible. This means that it’s always necessary to check the accuracy of a model’s results using real-world analysis. If used correctly, I believe that environment-economy models can be informative but it’s essential that modelling is used to complement, rather than replace, more ad hoc sources of evidence.

Although researchers should be more explicit about the assumptions that models are founded on, I think that environment-economy models can make valuable contributions. In particular, environmental-extended input-output models (like the one I discussed here) are important, as they show how production and consumption within a particular country has environmental impacts that extend globally. So overall, my outlook on environment-economy modelling is pretty positive – I just hope this esoteric sub-discipline gets the attention it deserves!

Reaching conclusions: the value of valuation

The maths might look pretty but does environmental valuation risk doing more harm than good?

Happy New Year everyone!

As 2014 gets underway, the beginning of second term is drawing closer and, as this is my final year, I’m afraid that means the end for this blog… at least for a while. Over the last few months I’ve touched on a wide range of issues and so I think a few concluding posts are necessary to draw things together.

One of the issues that I’ve examined during the course of this blog is environmental valuation. Although I initially defended valuation as a way of emphasising that environmental policy can achieve economic – as well as environmental – gains, I’ve become increasingly skeptical about its validity and utility. It is clear that some critical ecosystem characteristics – such as environmental resilience – are simply too complex to value and, therefore, environmental valuation will inevitably be a partial exercise. Furthermore, if individual preferences vary, rather than being intrinsic as is assumed in conventional economics, then environmental values that are derived using preferences are also liable to change.

Despite these problems with environmental valuation, an obvious counter-argument is that imperfect numbers are better than no numbers: even if the methods used to derive environmental values are flawed, the fact that the value of the environment is being recognised can only be a good thing. I’m not convinced by this. As long as methodological issues remain unresolved, it’s too easy for politicians to just dismiss environmental values as imprecise. But even if valuation methods could be improved, I find the rationale behind monetisation problematic.

Monetisation, is a way of standardising the magnitude of various changes in terms of a single unit (e.g. £s or $s), in order to facilitate ‘rational’ decision making. Obviously decisions need to be based on some sort of information but why is it necessary to present everything in terms of a single monetary unit? The only reason I can think of is political. Deciding between a series of qualitative scenarios would require politicians to make value judgments that would then have to be justified to the wider public. Allocating each scenario a quantitative value, however, avoids this by turning a subjective decision into an objective one: the best policy is simple that which results in the biggest positive number. This seems problematic because, as I have argued, the numbers that are ascribed to various impacts are far less objective than they may seem.

What is clear is that climate change will have complex impacts and therefore environmental policy decisions will inevitably involve trade-offs. Should renewable energy generation be promoted even if this increases energy prices?  Should carbon emission mitigation or infrastructure adaptation be prioritised? Should the problems of environmental change take precedence over other social issues such as the public health burden of an ageing population? Such tradeoffs will inevitably require politicians to make hard decisions and I believe that, rather than aiming for quantitative objectivity, politicians should be expected to explain and justify the value judgments underpinning their policy choices.

Because environmental valuation encourages political empiricism, I fear it risks turning environmental decision-makers into quants thereby undermining more deliberative approaches that, in my opinion, are far more suited to addressing the challenges posed by climate change.