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.

Insights from a rare self-reflective economist

I find economics an annoyingly smug discipline. Despite the contestable nature of much core economic theory, any critical analysis is quickly dismissed as heterodox and filed away under an appropriate sub discipline by the Serious economists. Because of this, whenever an academic economist takes a jibe at economics as a discipline, chances are their research is going to be pretty interesting.

This is what drew my attention to ecological economist John Gowdy, who begins this short talk on preferences and valuation by admitting that many of the most exciting developments in contemporary economics – such as the recognition that humans are part of social systems – are rather obvious to non-economists. 

If you have a spare 15 minutes I can recommend watching the video but, if not, here’s a quick summary.

Following his initial statement, Gowdy looks at these recent developments in a bit more detail explaining that research in behavioural economics is challenging some of the fundamental assumptions of textbook microeconomics. Microeconomics is the study of decision making at the individual or firm level and, therefore, these assumptions are often referred to collectively as the model of ‘economic man’: an individual who is purely selfish, perfectly rational and makes decisions based on a set of intrinsic preferences. Gowdy highlights research that contradicts the last of these assumptions by arguing that preferences are not constant or based on what is ‘best’ for an individual, but are influenced by a range of factors such as the opinions of respected figures.

Because individual preferences are not, therefore, innate Gowdy argues that conventional environmental valuation techniques that rely on the model of economic man are too simplistic. It may be possible to use individual preferences to derive monetary values for unpriced goods and services, but if these preferences are liable to change there is no guarantee that the calculated value is consistent with the most socially desirable outcomes.

Observing collective decision-making in rural Nigeria, he suggests that a more appropriate approach to environmental valuation would involve deliberation rather than algebra. While I agree in principle, I’m skeptical about the practicality of such deliberative valuation. Extended discussion to reach consensus may be an appropriate way to solve problems in a small rural community, but it’s not clear to me how such an approach would work when trying to establish values that are used to guide national-level decision-making.

Throughout the course of this blog I’ve noticed that this tradeoff between accuracy and practicality is a frequent problem in environmental economics. As I wrote earlier, I agree that environmental valuation is desirable in principle, as a way to highlight the social and economic importance of the environment to policy makers. However, in light of the practical issues I’ve examined I now find myself questioning the use of environmental valuation and wondering whether it threatens to do more harm than good. I’m still mulling this over so make sure you check back sometime in 2014 for my concluding thoughts. 

Until then, hope you’re all enjoying the Christmas break and Happy New Year!

Thresholds: better safe than valued

The US Dust Bowl in the 1930s – recorded so evocatively by the music of Woody Guthrie – is another instance where 

 the erosion of natural resilience by human activity had catastrophic consequences. 

Avid readers may remember this earlier post in which I introduced the concept of environmental wealth and described the collapse of southern Mesopotamian civilisation to show the severe consequences that result when environmental resilience is not adequately valued. However, if resilience is to be incorporated into comprehensive wealth accounting, simply stating that environmental resilience is ‘valuable’ is not enough as accounting frameworks require that all inputs are allocated an exact monetary value. This interesting paper by Walker et al (2010) attempts to address this considerable practical challenge, estimating a monetary value of agricultural resilience in the Goulburn-Broken Catchment to variation in the water table.

Walker et al define ecological resilience using Holling’s (1973) seminal interpretation that conceptualises resilience as the capacity of a system to remain in a particular state or ‘regime' despite temporary shocks. Holling argued that ecological systems move into alternate ‘regimes’ when a critical point is crossed and therefore resilience is primarily determined by the proximity of a given system to such a threshold. Anderies et al’s analysis of the Goulburn-Broken Catchment in South East Australia (Anderies et al 2006) found that when the region’s water table rose to 2m below the surface, natural processes drew saline groundwater upwards resulting in land salinisation and, therefore, Walker et al take this 2m level as a natural threshold.

By examining historical data on rainfall variability in the basin, Walker et al are able to estimate the probability that the 2m threshold will be exceeded, given any level of the water table in the previous period. This allows the authors to establish the level of resilience for a particular groundwater depth. The authors then use agricultural land value figures from Whish-Wilson and Shafron (1997) to attach a monetary value to the saline and non-saline states that, in turn, allows monetary values to be calculated for each resilience level. Applying their methodology, Walker et al find that between 1991 and 2001 unusually dry climate conditions caused the water table to fall from 3m to 3.5m achieving an increase in resilience worth roughly $23 million, which is equivalent to about 7% of the region’s conventional wealth.

This may seem a bit technical and abstract, but Walker et al’s experimental research is important. It’s all very well saying that environmental services should be included in national accounts but for this to be possible, methods of valuing these services need to be developed. However, I think that Walker et al’s paper also highlights a fundamental problem with resilience valuation.

The author’s entire valuation exercise relies on the knowledge of a precise environmental threshold – in this case the 2m water table level – and therefore application of their valuation methodology in other contexts is only possible if significant environmental thresholds can be identified. Environmental complexity means many different types of interdependent environmental resilience exist at a range of scales. For example, the population resilience of freshwater species influences the resilience of a freshwater body to nutrient enrichment and vice versa. This means that natural thresholds are numerous and extremely hard to determine, suggesting that the perfect knowledge required for resilience valuation is highly unrealistic. 

Because the resilience of ecosystems is such a complex and contingent phenomenon, I believe that resilience valuation is unfeasible, rendering the concept of environmental resilience incompatible with comprehensive wealth accounting. Rather than using wealth indicators to inform policy intervention, an alternative way of avoiding critical thresholds would be to establish ‘safe minimum standard’ policy targets for a series of environmental parameters. Although this doesn’t overcome the problem of threshold identification entirely – as determining a ‘safe minimum standard’ inevitably requires some knowledge of what is ‘unsafe’ – exact knowledge of thresholds isn’t necessary.

Attaching monetary values to environmental resilience may offer the empirical precision so beloved by contemporary economists, but the complexities of the real world make such an approach impractical. When it comes to incorporating environmental resilience into policy decisions, therefore, I reckon it’s better to be safe than valued.

Looking glass modelling

'Mitigation tomorrow and mitigation yesterday - but never mitigation today'
Alice and the White Queen, John Tenniel, 1865.

Utility maximization, perfect competition, consumer rationality – when reading economic modelling literature, it doesn’t take long to come across some pretty absurd statements. Because of the complexity of real-world economic processes, simplification is recognised to be a fundamental tenet of economic modelling that is necessary in order to establish and examine specific economic relationships. Such simplification is achieved by making various assumptions when constructing the model and it is here that the absurdities start cropping up. It’s important to recognise that economic models shouldn’t be automatically dismissed because of these outlandish assumptions. In particular, I believe that abstract models are useful for producing benchmark results that can be compared with the real world. For example, examining model predictions that don’t hold in reality and asking why different outcomes are observed can highlight particularly important aspects of economic systems. However, economic models aren’t used solely for academic purposes and often inform policy decisions, which is when extreme assumptions start to be problematic.

Integrated assessment models (IAMs) are a particular type of environment-economy model that are often used when assessing the economic costs of climate change and mitigation policies[1]. Although specific models vary, the general framework combines an economic model of production with a simple general circulation model. Production is assumed to have a positive effect on ‘utility’ or wellbeing, as it enables consumption, but also incurs economic costs or damages by generating greenhouse gas emissions that cause atmospheric temperature increases. Mitigation is incorporated by assuming that decision makers can invest in either production or abatement technology, which has the effect of reducing the level of emissions per unit of output. Policy makers, therefore, face an inter-temporal problem: investing in abatement today is beneficial, as it causes future climate change costs to be avoided, but also undesirable, as it reduces present-day consumption and hence wellbeing. 

From this, it’s pretty clear that IAMs are gross simplifications of reality, but are these simplifications problematic? This excellent paper by Ackerman et al (2009) argues they are, outlining three issues with the IAM framework related to the practice of discounting, speculative valuation methods and the modelling of mitigation. Although the first two of these points are significant, I’m going to focus here on the third, as discounting and valuation are already highly debated topics and I believe Ackerman et al’s critique of mitigation modelling relates to topics I have discussed previously.

A popular use of IAMs is to determine an ‘optimal’ path of mitigation that achieves particular emission reduction targets while minimising the adverse wellbeing impacts of abatement investment and Ackerman et al observe that such modelling exercises often conclude the ‘optimal’ policy involves backloading investment. This observation is supported by a review of IAMs that found ‘perhaps the most surprising result is the consensus that… modest controls are generally optimal’ (Kelly and Kolstad 1999, pg 19), which directly contradicts statements made by the scientific community that argue immediate action against climate change is imperative.

Ackerman et al argue that this result occurs because the way technological change is modeled in IAMs is inadequate and causes the costs of mitigation to be overstated. While IAMs acknowledge that abatement technology will become increasingly efficient over time (meaning that a given amount of investment in abatement will achieve a greater reduction in emissions), this technological change is assumed to occur at a constant rate that can be determined from past data. As the authors state, this awesome simplification makes the optimality of backloading unsurprising:

‘Because climate change is a long term crisis, and predictable, inexorable technological change will make it easier and cheaper to reduce emissions in the future, it seems better to wait before addressing the problem of climate change’, (Ackerman et al 2009, pg 308).

Such a blithe treatment of efficiency overlooks a significant and rich literature on innovation that emphasises technological change is often path dependent and, as I have written about before, can be positively influenced by public policy. If politicians are presented with the result that the ‘optimal’ policy is to do nothing – or very little – now, the potential benefits of targeted public investment are unlikely to be realised.

Although there have been recent attempts to ‘endogenise’ technological progress, which means efficiency is no longer taken as a constant but is determined within the model, these progressive developments haven’t been applied to all IAMs. Furthermore, it is often very hard to establish what assumptions are being made in any particular model as these are often buried in technical annexes rather than explicitly stated in the main body of reports and research papers. As long as economists continue to use IAMs that treat technological change as given and discuss underlying assumptions evasively, I worry that climate policy will remain an unfulfilled promise reminiscent of the White Queen’s policy of ‘jam tomorrow’ that Alice found so frustrating in her adventures through the looking glass…

"The rule is, jam to-morrow and jam yesterday – but never jam to-day." 
"It must come sometimes to 'jam to-day'," Alice objected."No, it can't," said the Queen. "It's jam every other day: to-day isn't any other day, you know."  (Carroll 1897).

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[1] Just to give you an idea of their significance, the whole Stern Review was based on the PAGE2002 IAM (Hope 2006, Dietz et al 2007)

Hungry for social policy

At the beginning of this blog I explained the concept of a ‘green transition’ referred to two distinct changes: reducing the environmental intensity of economic activity and improving the resilience of socio-economic systems to changes in climate. My previous posts have all addressed the former topic and so today I’m going to focus on the latter and examine how experiences of past climate change can inform present efforts to increase such societal resilience.

Records of the Great Famine that spread across Northern Europe during 1315-17 exemplify the severe social effects that changes in climate can cause. While historians have been aware of the catastrophic event for centuries, thanks to the harrowing accounts recorded by medieval chroniclers, more recent analyses have reconstructed climatic conditions during the period in order to examine the causes of the crisis. The tree-ring and GISP2 ice core analyses (undertaken by Lyons in Crawford (ed) 1989 (Ch. 2) and Dawson et al 2007 respectively), conclude that Northern Europe experienced significant increases in rainfall during 1315-16 that occurred alongside an increase in Northern Atlantic sea surface temperature. This supports numerous accounts recorded during the famine period that describe prolonged downpours from 1314-1316 that decimated crops and caused severe flooding (Jordan 1996). Although the rains subsided in 1317, the agricultural crisis persisted as widespread outbreaks of livestock murrain, caused by inundated pastures, continued to disrupt agricultural markets. Jordan argues that this caused the crisis period to continue for a further 5 years with food prices returning to pre-1315 levels only after 1322.

While the climatic cause of the famine is uncontested there is evidence that the severity of the crisis was increased by socio-economic factors. Crop failures caused substantial increases in agricultural market prices causing food to become unaffordable for large sectors of the population. Within this group it was the landless poor who experienced the most prolonged and severe impacts as, unable to undertake subsistence agriculture, they were dependent on agricultural markets and therefore endured food scarcity over the entire 1315-1322 period.

By analysing historical records, Kershaw (1973) has identified two factors that caused increases in this particularly vulnerable group during the famine period:

1. Increases in the unemployed landless – Outbreaks of livestock murrain and increased pressures on manorial finances caused large landowners to considerably reduce the number of people they employed resulting an increase in unemployment among landless individuals and, hence, an increase in the landless poor.

2. Reduction in peasant population – Peasants (individuals who undertook subsistence agriculture on small plots of land they owned) were vulnerable to climate variations as they didn’t maintain stores of produce. Following the initial crop failures, these individuals were forced to sell their smallholdings to wealthier households securing a temporary increase in income but removing their capacity to cultivate subsistence crops when the torrential rains ended in 1317. 

The factors highlighted by Kershaw indicate that economic responses can exacerbate the social effects of climate change implying that resilience to future climate change could be increased by policies that inhibit the repeat of these responses:

1. Improving climate-resilience of smallholders – It is clear that measures designed to increase the resilience of agricultural production to climate change are critical to the improvement of broader social resilience.  In particular, policies that seek to ensure that smallholder subsistence agriculturalists are prepared to withstand future climate change and climate variability could minimise a recurrence of the most severe social impacts observed during 1315-22. Reports such as CGIAR (2012) have identified which crops are most suited to increasing food security in poorer countries while also enhancing resilience to future climate and therefore policies that attempt to increase uptake of these crops among smallholders, such as seed subsidies, could be valuable methods of increasing social resilience.

2. Rural employment guarantees – The Great Famine also shows that resilience to climate variations could be improved by reducing the sensitivity of employment to climate change. In the present context, rural workforces dependent on agriculture are most vulnerable to climate variations and therefore, policies to guarantee rural employment could mitigate the social impact of harvest failure. Economist Jean Dreze is a prominent advocate of such policies and in this interview he explains his position and defends India’s rural employment guarantee scheme.

Although it’s necessary to treat precedents from the past with some caution, as their relevance is inevitably constrained by their historical context, an understanding of the factors that have increased vulnerability to climate in the past can be insightful. The experience of the Great Famine exemplifies how economic responses can exacerbate the social impacts of climate events and emphasises that economic policies will be essential in mitigating the severe social consequences threatened by a changing and increasingly variable climate. 

Public investment please

What with financialisation and a taste for fossil fuels, it seems that the private sector is incapable of financing a green transition. But what can the government do to compensate for this?

While economic theory tends to view the public sector as a cumbersome barrier to business, with blundering government intervention likely to result in cronyism and ‘government failure’, economist Marianna Mazzucato, is out to challenge this caricature. Contrary to conventional economic wisdom, which sees the correct role of government as (at most) fixing flaws in markets leaving the dynamic private sector to get on with innovation, she argues that state investment has underpinned some of the most revolutionary technological developments of the last few decades (Mazzucato 2011). In the video below she explains her thesis and examines the iphone to reveal the many ways in which public investment enabled the creation of one of Silicon Valley’s most iconic products.

These examples are much more than just fun facts as Mazzucato argues that they show government acting as an ‘entrepreneurial state’ willing to take the biggest investment risks that scare the comparatively timid and impatient private sector. In particular, she highlights how the Defense Advanced Research Projects Agency has acted as a technology pioneer overseeing the early stages of the internet among many other important developments. Trenzel et al (2012) provide another interesting example, examining how government intervention facilitated the shale gas revolution in the US.

Listening to contemporary politicians with their mantra of ‘getting the deficit down’, you might be inclined to dismiss Mazzucato’s argument as interesting but irrelevant: government might have been able to can get things done in the past but in the wake of the financial crisis it simply doesn’t have the financial resources to take the big investment risks any more. Mazzucato also addresses this issue of financing, stating that governments in the past have been far too reluctant to reap the rewards of their investments. If the public sector stopped being so modest about its entrepreneurial role and started demanding remuneration from the companies that profit from publicly funded innovations, government investment could be self-financing. Furthermore, figures recently published by the Overseas Development Institute (Whitley 2013) show that government subsidies offered to the coal, oil and gas industries amount to £2.6bn a year, making Britain the fifth largest fossil fuel subsidiser in the world.

Mazzucato believes that the next sector waiting to benefit from public sector innovation is green tech and I agree. Britain, however, is falling behind countries like the US and South Korea where publicly-funded green initiatives have already been developed:

Taken from 'The Green Investment Gap' (PIRC 2011)

The UK government should stop subsidising fossil fuels and start an active programme of green investment. A green-investment bank simply won’t be enough as history shows that only after government has taken the biggest investment risks will the private sector start loosening its purse strings.

Peatland and modelling

Have CSERGE developed Earth's very own Deep Thought?

Peatlands are important. It is estimated that Northern peatlands store more than 455Pg of carbon (Gorham 1991), which, according to my calculations, is roughly twice as much as the carbon stored in the world’s tropical rainforests[1]. So yeah, these soggy, waterlogged landscapes are pretty important.

The large swathes of peatland that now exist in the circum-arctic region are believed to have developed during the late Pleistocene and early Holocene as ice sheets retreated and the climate became warmer and wetter. The hypothesis that climate has been the prime driver of peat formation is supported by Macdonald et al (2006) who use radiocarbon dating to establish the timing of peat development across northern Europe. They find that peatland expansion across all continents occurred in a pattern that reflects fluctuations in global temperatures with initial expansion during the Bølling-Allerød warm period (c.14.7–14.5 ka bp) slowing during the colder conditions of the Younger Dryas (c.12.65–11.5 ka bp) before rapidly increasing after the end of the Younger Dryas at around 11.5 ka bp.

Evidence from the UK, however, indicates anthropogenic impacts have also been important causes of peatland formation. For example, Oldfield (in Walker and West (eds) 1970) has shown that Blelham Bog in the Lake District was artificially established in the early 19^th century as a result of human flooding of former peat cuttings with subsequent stream diversion throughout the 19^th century encouraging further silt deposition and, hence, peat formation.

While the contribution of humans to peatland therefore appears variable, it is clear that anthropogenic impacts are the overwhelming drivers of contemporary peatland destruction. In Europe alone, it is estimated that out of a total mire and peatland area of 617.000km2, 52% has been converted over last century with the main areas of conversion including agriculture (50%), forestry (30%) and peat extraction (10%) (Byrne et al 2004). It's clear that future land-use decisions should preserve this significant carbon sink, but how can we ensure that such decisions are made?

Here I believe that recent developments in environment-economy modelling can, again, be instructive. Work is being undertaken at The Centre for Social and Economic Research on the Global Environment to develop integrated land-use models that will allow decision-makers to measure the impacts of land-use changes not only in terms of changes in market-priced commodities, such as agricultural output and timber, but also non-market benefits such as the recreational services of forests and, importantly, the carbon sequestration benefits of peatland.

Bateman et al (2013) provides an example of how such modelling developments can promote pro-peat land-use decisions. The authors use a series of decision models to explore how land use patterns change under various scenarios defined in terms of the magnitude of climate change and the strength of environmental regulations. Valuation models are then used to determine the magnitude of changes in market and non-market benefits that are the result of land use in each scenario. The images below show the results from the ‘world markets’ scenario in which environmental regulation and policy are weakened unless they coincide with improved agricultural production. Looking at the maps, the difference between market (agricultural) and non-market (ghg emissions and recreation) outcomes is explicit. Chopping down trees and converting peatland to agriculture would be expected to increase agricultural output but the maps below show how this also causes increased carbon emissions and losses in recreational benefits (going for a walk in a field of potatoes isn’t quite the same as going for a walk in an ancient forest).

Images from Bateman et al (2013)

These maps might look nice but what’s the point of this? Bateman et al (2013) show that basing land-use decisions solely on market values will have considerable detrimental effects and, while this result is pretty unsurprising, the model developed by CSERGE makes the point impossible to ignore.

I do, however, have some reservations. The novel aspect of Bateman et al’s modelling approach is the combination of a land-use decision model with a valuation model. This allows all the impacts of land use changes to be expressed in terms of a single monetary unit (note that the maps above are all in terms of £/ha/yr). To me, there seem to be two issues with such an approach. The first is that this means that modelling results are inevitably going to depend on the monetary values that are placed on non-market benefits such as the carbon sequestration services of peatland. I’ve written before about the importance of such environmental valuation but it’s important to recognise that the model’s conclusions will always be contingent on the valuation methods used.

While I believe that environmental valuation has many benefits, my second, and more significant, concern is that policy makers place too much emphasis on such modelling exercises. I worry that politicians are far too keen to hold up the results of such models as facts that make further deliberation redundant, ignoring that the results are actually contingent on subjective valuation method decisions.

So yes, environment-economy models such as that developed by CSERGE can aid pro-peatland decision-making but it’s vitally important to use them correctly as tools to inform further debate rather than infallible oracles that always produce The Truth.

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[1] To put the peatland figure in context I used NASA’s estimate of the total carbon stored in tropical forests (247 billion tons) and used this converter to express the figure in petagrams. I am pretty ignorant about comparative carbon storage estimates so if this appears way off to anyone please let me know!  

A brief note on Kraken

no, not that Kraken...

A while ago I wrote about the effect that financialisation is having on private sector investment. The recent approval of EnQuest’s development of the Kraken oil field, however, suggests that the private sector is willing to invest – just in the wrong type of energy! Compared to the £5.55bn that was invested in renewables in the UK in 2012 (Frankfurt School UNEP Centre and BNEF 2013), EnQuest’s £4bn project is startling: how can a single fossil fuel project amount to over 70% of total renewable investment?

The Kraken news story reminded me of a report published earlier this year that highlights the magnitude of the financial resources that are being devoted to fossil fuel exploitation (Leaton et al 2013). The report emphasises that burning already known fossil fuels reserves would generate carbon emissions large enough to warm the planet by more than the 2°C that the Copenhagen Accord states should be the upper bound of climate policy targets. The authors argue that further investment in fossil fuels is therefore a waste of scarce financial resources but estimate that, despite this, the top 200 global oil, gas and coal mining companies spent $674bn in 2012 to find and develop new fossil fuel sources. Ironically, this figure is approximately 1% of global GDP, which what the Stern Review (2006) concluded would be necessary to stable atmospheric carbon dioxide levels at 500-550ppm by 2050.

Because of the private sector’s apparent aversion to green investment, it seems that the public sector will have to step up as the national green financier. I’ll be posting  later this week about whether it’s possible for government to spearhead a surge in green investment, so make sure you check it out. Until then, how about some music that seems to reflect the private-sector attitude…

Climate change and conservation

Evidence about the extinction of megafauna, such as the giant sloth,
can be used to challenge climate-species fatalism

If the planet is already locked into significant climate change, as is widely recognised, then what is the point of conservation? In the past, the earth has undergone considerable changes that have been accompanied by species extinctions and so aren’t contemporary conservation efforts just wasting resources by attempting to preserve species that are maladapted to the present climate?

The above statement is an example of what I like to call ‘climate-species fatalism’, which argues that human efforts will be unable to overcome the pressures placed on endangered species by climate change therefore rendering conservation pointless. While economists may be notorious for holding controversial opinions, I’m just trying to provoke a response here and don’t actually believe this. Although climate-species fatalism may appeal to politicians looking for an excuse to avoid action, I would argue that evidence from past extinction events implies that, even in the present context, conservation can still prove effective.

The wave of late Pleistocene megafauna extinctions is a good case in point. 50 ka BP the planet was home to over 150 genera of megafauna (animals >44kg) but by 10 ka BP at least 97 of these had become extinct. The causes of this significant extinction event are debated and there is a rich academic literature that attempts to solve the megafauna mystery. Was it the arrival of trigger-happy human populations who hunted easy-to-catch larger species to extinction or are shifts in climate to blame? While proof of the latter of these causes would support the position of climate-species fatalists, Barnosky et al (2004) have undertaken a comprehensive summary and analysis of a range of studies that indicates that both factors were significant. Observing that the global wave of extinctions occurred in a pattern of regional pulses, the authors assess both paleoecological evidence about major regional climate shifts and archaeological evidence about the date of human population arrival to suggest that regional extinctions peaked when both adverse human and climatic pressures were present.

These findings have present day relevance as they imply that, even as unavoidable climate change places increased pressure on species, addressing anthropogenic impacts that are adversely affecting threatened species can mitigate extinction risks.

So if conservation remains important, what sort of policies should conservationists be pushing for? I have previously discussed the development of integrated environment-economy models and believe that they can offer an insight here. In particular, Lenzen et al (2012) have developed a particular economic-environment model that analyses the impact of trade on global biodiversity. By evaluating the species impact of supply chains and combining this with an analysis of international trade patterns, the authors have been able to show how the impacts that consumers have on biodiversity often extend well beyond national borders. For example, the study finds that UK imports threaten 285 species abroad owing to the high volumes of environmentally harmful crops such as tea, coffee and palm oil demanded by UK consumers.

This shows that a national approach to conservation, which focuses exclusively on domestic biodiversity impacts, will be inadequate to preserve global biodiversity. Lenzen et al (2012) emphasise that their findings show how local biodiversity threats are driven by global trade systems and argue that this international dimension demands similarly international conservation policies. For example they argue that policies to address production practices with damaging impacts on local biodiversity should acknowledge the role of international traders and consumers as well as local producers themselves. This gives support to initiatives such as the Roundatable for Sustainable Palm Oil which seeks to increase the sustainability of palm oil production through engagement with stakeholders across the commodity’s geographically dispersed supply chain.

    

While climate-species fatalism is challenged by historical evidence I fear that, unless further conservation efforts are made at an international level, conservation policy will be inadequate to mitigate the extinction threats posed by climate change and the climate-species fatalists will be proved right.

A brief comment on carbon taxation

Last week I wrote about the importance of environmental economics and in particular the topic of environmental valuation. A significant and debated subject within this field is carbon taxation and there is a considerable literature that analyses different schemes around the world and tries to establish the correct ‘shadow price’ of carbon (a price that reflects the negative effects of carbon emissions), in order to determine the ‘optimal’ rate of taxation. Carbon taxation is such a large topic that an entire blog could be devoted to the subject – as dull as that may be – and so I will not attempt a summary here but instead want to explain my opinion on the subject.

The logic of carbon taxation is simple and comes straight from economics 101. Carbon emissions cause negative effects on parties other than the emitter but are un-priced and therefore occur at a level above that which maximises social wellbeing. To redress this, carbon taxes are necessary to increase the private costs of emitting so that they align with the social costs of emissions. Simply put, if you levy a tax on something people (should) do it less and therefore harmful things, like smoking and carbon emissions, should be taxed. Although this – like most economics – is a simplification, I believe that the basic principle makes sense and I therefore support economic taxation as a way to reduce carbon emissions.

Despite this endorsement, I fear that there is too much emphasis, both within academic economics and policy making, on this one policy tool. This is probably because carbon taxation requires relatively little public intervention when compared to other schemes such as cap-and-trade systems and therefore appeals to politicians who are wary of large administrative costs and accusations of being against the free market (an apparently indefensible position in contemporary politics).

I worry that carbon taxation is becoming a token green policy that politicians can flag up as proof of their environmental credentials detracting attention from the overall inadequacy of environmental policy. Statements such as this made by the OECD are increasing the problem as they suggest that governments should only engage in the most ‘cost-effective’ environmental policies instead of employing a range of tools to achieve ambitious policy aims. With organisations such as the committee on climate change stating that global carbon emissions need to peak by 2020 and then be halved by 2050 in order to avoid severe climate change, it is obvious that carbon taxation alone does not constitute adequate environmental policy.

To achieve a green transition, environmental policy needs to move beyond laissez-faire market tinkering and become more imaginative and ambitious. While carbon taxation is undoubtedly an important policy tool, academic and policy work should give up the holy-grail-like quest for the ‘optimal’ level of taxation and instead focus on developing an environmental policy arsenal capable of mitigating and tackling the considerable threats posed by climate change.  

Can you get to that? - the wisdom of funk and history

When you base your love on credit and your loving days are done,
the cheques you signed with love and kisses later come back signed insufficient funds 

- Can you get to that, Funkadelic

What reason can I possibly have for introducing this post with some 70s funk? To me, the song’s lyrics make the point that the accumulation of debt, which is the equivalent to the erosion of wealth, has implications. Although the concept of ‘wealth’ is often viewed from a solely monetary perspective (as the assets that an individual owns such as savings and housing), some economists argue that this narrow definition needs to be extended to include the natural and social forms of wealth that sustain human wellbeing (such as environmental processes and education). This concept of ‘comprehensive wealth’ means that ‘environmental debt’ can be defined as actions that reduce the ability of the natural environment to sustain human wellbeing, which brings us back to Funkadelic’s lyrics:

Well, I read an old quotation in a book just yesterday
,Said "Gonna reap just what you sow,
The debts you make you have to pay."

The collapse of ancient civilisations in southern Mesopotamia exemplifies the catastrophic impacts that the accumulation of excessive ‘environmental debt’ can have on human societies. Irrigated agriculture was essential to the development of early Sumerian societies around 5300 BC as it enabled high crop yields that were able to sustain sedentary, urban populations (Leick 2003). Between 2350 and 1700 BC, however, crop yields declined considerably owing to an increase in salinity that impeded the cultivation of wheat and, although populations were able to adapt by shifting to the more salt-tolerant crop of barley, yields continued to remain below 50% of previous levels (Chew 2001). Thompson (2004) argues that these dramatic declines in food production drove depopulation in Southern Mesopotamia causing a northward shift in regional power that ended the dominance of Southern civilisations. 

The extent to which human activities caused this disastrous increase in salinity is debated. Jacobsen and Adams (1958) suggest that population pressures necessitated the construction of large irrigation channels resulting in progressive salinisation as over-irrigation caused ground water levels to rise. An alternative explanation that emphasises the impact of climatic change is presented by Issar (1995), who argues that variations in climate diminished the flow of the Tigris and Euphrates rivers, reducing the amounts of water available to flush salts from irrigated land. I believe that the most adequate explanation of south Mesopotamian decline, however, is a synthesis of these alternative hypotheses as articulated by Chew (2001) who states that climatological changes undermined an agricultural system that had been pushed to it’s ecological limits as a result of intense cultivation practices.

The critical point here is that the Mesopotamian populations did not recognise that their intensive farming practices were reducing environmental resilience and thereby undermining the capacity of the natural environment to sustain their civilisation. In other words, they were running up environmental debt with inadequate consideration of the consequences. 

So what can be done to avoid a repeat of the Mesopotamian experience?

It is inevitable that the efforts needed to ensure contemporary human civilisation is not undermining the natural wealth upon which it depends are numerous and diverse. In order to increase the effectiveness of such efforts, and discourage actions with deleterious environmental effects, it is vital that methods of monitoring and quantifying natural wealth are developed. While this may seem like blue-skies thinking, several governments – including the UK Treasury – are currently attempting to incorporate environmental variables into the national accounting frameworks that are the basis of standard economic indicators such as GDP. If you can get past the crippling dullness of the video below (it is produced by the Office for National Statistics after all), it provides a pretty good explanation of what’s being done in the UK. 

By providing an objective environmental monitoring framework with which politicians could be held to account these methodological developments could promote a green transition by increasing political motives to preserve – and perhaps even enhance – environmental wealth. However, despite the potential of environmental accounting, I’m pretty skeptical that it will actually achieve anything. To date, very few environmental variables have been considered and negligible public awareness of the concept means it is unlikely to displace GDP as the raison d'être of politicians. In the face of current political priorities I fear that valuable lessons, both from funk and from the past, are going to continue to be ignored and that the accumulation of environmental debt will continue until the consequences start to manifest themselves in pretty severe ways. 

The industrial revolution, Malthusian constraints and modelling

A view of Machester from Kersal Moor, Willian Wylde (1852)

The industrial revolution that occurred in Britain during the mid to late 18^th century initiated an unprecedented increase in material living standards that continues today. Before the mid-18^th century, income per capita was stable and relatively equal across the world with the emergence of global inequality occurring concurrent with the industrial revolution (see below). 

Gross domestic product per capita depicting data from Maddison (2007)

This has led to the period being known as ‘the great divergence’. As the historian P.H.H. Vries writes:

‘The great divergence in the end, by definition, must boil down to the fact that during its industrialisation Britain escaped from the Malthusian constraints and Smithian limits that characterised (advanced) organic economies’. (Vries 2001 p 423).

This escape from ‘Malthusian constraints’ described by Vries indicates how the industrial revolution caused a considerable change in the relationship between economic activity and the natural environment: from being limited by a dependence on the natural environment, production was now able to accelerate considerably through mineral and fossil fuel exploitation (Thomas 1985). However, although the industrial revolution changed the nature of the production-environment relationship, it did not terminate it; contemporary economic activity remains dependent on the environment. The present-day dependence of production on the natural environment might seem obvious to some, but I believe that the relational shift caused by the industrial revolution has led to a chronic neglect of environmental considerations within mainstream academic economics.

This is particularly apparent within the esoteric subject of economic modeling. Whenever you hear that the IMF or some similar institution has produced an economic forecast, it’s not just the outcome of a bunch of suits sat in a room gazing at crystal balls. These forecasts are produced using mathematical models of that consist of thousands of equations intended to describe the significant relationships within an economic system[1]. Establishing these relationships is a considerable task and therefore a degree of simplification is necessary and, because the natural environment does not overtly limit contemporary economic production, there has been a tendency to ‘simplify’ away environmental factors. Although major commodity prices such as oil and grain are usually included, there is no consideration of soil fertility, water quality, climate or any similar ‘uneconomic’ environmental variables. 

Such oversight is dangerous. As previously stated, economic activity is still dependent on and impacts the environment. If models are unable to capture how these environmental impacts change in response to economic variation and how these changes feedback into economic systems, the environment is going to remain inadequately considered by policy makers and economies are going to become increasingly vulnerable to external environmental impacts. Thankfully, the environment-shaped hole in contemporary models is being addressed by several projects that are attempting to create new models capturing interactions between economic activity and the environment (for example see Tukker et al 2009 and Peters et al 2011).

Although the particular environment-economy relationships included in these new models differ between projects and are often estimated from past data, which risks overlooking threshold effects, their development can only be seen as a good thing as they are challenging orthodox models in which the economy is represented as a self-contained system unbound from the ‘malthusian constraints’ of the environment.  

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[1] (sadly more tangible and entertaining models such as the Phillip’s model are no longer used).