Ecosystem Services: What are they, we need them, and how to preserve them. The Economic Perspective

1. Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics Ecosystem Services: What are they, we need them, and how to preserve them. The Economic Perspective

2. What is Economics? • The allocation of scarce resources among alternative desirable ends • 3 questions an economist must ask • What are the desirable ends? • What are the scarce resources? • How do we allocate?

3. Outline of Presentation • Answer these questions as they apply to Vermont’s natural resources • What are the scarce resources, and what are their characteristics? • How do we allocate? • What are the desirable ends? • Radically practical thoughts on solving the current economic crisis (if there is time and interest)

4. What Are the Scarce Resources? • Law of Physics: You can't make something from nothing • Everything the economy produces requires raw materials and energy provided by nature • Law of Physics: You can't make nothing from something • Everything the economy produces returns to nature as waste • Exponential growth impossible in finite system

5. Energy • Essential to do work • Fossil fuels • Finite supply • Combustion causes pollution • Degrades ecosystems

6. Hubbert Curve

7. Ecosystem Goods • Raw materials provided by nature • Essential inputs into all economic production • We can use them up as fast as we like • If I use it, you can't • Competition for use • Market goods • Ecosystem structure, building blocks of ecosystems

8. Ecosystem Services • Structure generates function • Ecosystem functions of value to humans known as ecosystem services • Includes life support functions

9. Regulation Services • Water regulation • Disturbance reg • Erosion control • Soil creation • Pollination • Climate regulation • Nutrient cycling • Biological control • Waste absorption • etc.

10. Provisioning Services • Production of food, fuel, fiber (regeneration of structure) • History of Vermont • Clearing of land (Timber, Farmland) • Erosion, soil loss, economic collapse • Depopulation • Can we do this again?

11. Information Services • Recreation, tourism • Forests: jobs for 2,393 Vermonters • Annual payrolls of $33 million annually • Unknown benefits: e.g. Taxol • Cultural attachments • Scenery

12. Supporting Services • Habitat • Refugia • Without biodiversity, there are no other services

13. Characteristics of Services • Provided at a given rate over time—we can't use them as fast as we want • If I use it, you still can (except waste absorption) • Cooperative in use • Prices create artificial scarcity, e.g. avian flu • Can't be owned • Non-market goods—no price signal to indicate scarcity

14. Ecosystem Services and Ignorance • Passenger pigeons and Lyme disease • The ozone layer • Ecological thresholds • Irreversibility • What role do your salamanders play? • What risks should we impose on future generations?

15. Agricultural Land • Land as Good • Soil fertility is mined at rate we choose • Competitive within a generation • Market good • Land as Service • Crops produced at certain rate over time • Cooperative: can be used by this and future generations • Provides more eco-services than developed land

16. 3.5 times more phosphorus run-off from developed land than ag land

17. So What? • All economic production depletes ecosystem structure • All economic production generates waste • Resource extraction and waste emissions necessarily degrade ecosystem services • Ecosystem services have become the scarcest resources

18. The Economic Problem • How do we allocate finite ecosystem structure between: • Economic production • Production of life sustaining ecosystem goods and services • How should we distribute resources among individuals? • Who is entitled to ownership of ecosystem goods? • Is anyone entitled to ecosystem services?

19. Relative Values • Both economic production and ecosystem services essential to our survival • Economics looks at marginal value—value of one more unit • More we have of something, the less one more unit is worth • Value of economic production is decreasing • Value of ecosystem services is increasing • When do we stop converting? • Law of economics: stop doing something when marginal costs exceed marginal benefits • Estimated value of global ecosystem services twice that of economic output

20. Relative Costs • Is it fair to subsidize development? Developed land: $1.08-$1.29 in services for every dollar in taxes • Undeveloped land: $0.06-$0.52 in services for every dollar in taxes

21. The Property Rights Issue • Private property rights • Is it fair for landowners to degrade ecosystem services that entire community depends on? • Public property rights (government ownership) • Is it fair to prevent landowners from using their land as they wish? • How do you feel about Ticonderoga paper mill? • No property rights • Waste absorption capacity • Aquifers?

22. Solving the Problem • Market solutions • one dollar, one vote—plutocracy • Provides incentives that may make us all better off in some circumstances • Effective for many types of goods and services • Those that can be owned • Those for which use by one person prevents use by another

23. Solving the Problem • How do make decisions about resources that can't be owned, and my use does not leave less for you to use? • Markets don't exist • No market incentive to provide resources • One citizen one vote? Democracy? • Cooperative provision, cooperative use? • Existing property rights give owners the right to do as they choose with ecosystem goods (structure), hence control over ecosystem services

24. Options • Let rights to goods trump rights to services • Risk another collapse of Vermont's economy • Services probably provide more benefits than goods. Inefficient. • Limit rights to ecosystem goods • Property rights as a bundle • Lake Tahoe example • Is this fair? Speculators vs. farmers. • Purchase rights to ecosystem services • Conservation easements • Payments for ecosystem services, e.g. NYC • Community purchase of land

25. Common property rights (citizen ownership) • Declare common property rights to unowned goods and services • e.g. waste absorption capacity, aquifers, airwaves, etc. • Restore common property rights when possible • e.g. waterfront and public trust doctrine • Create common assets trust to manage resources for this and future generations • Can use market mechanisms, e.g. cap and auction • Revenue can be used to purchase and create more common property • Vermont Common Assets Trust

26. What are the Desirable Ends? • Goal of most economists is economic growth • Per capita income has increase 10x since 1900, total income has increased 40x • Per capita income in 1969 was 35% of today's • Was life less good then? • Should our goal be to ensure that our children consume 2x as much as we do? Our grandchildren 4x as much?

27. Other Desirable Ends • Sustainability • Justice (just distribution) • Health • Education • Stability (safe, secure jobs and environment) • Happiness and satisfaction with life as a whole • Efficiency • What is the cost of achieving these goals?

29. Solving the Sustainability Problem: Case study of the current crisis • System wide change required • Conceptual • How does the world work? • What are our goals (the desirable ends) • Institutional • What are the rules under which the system operates? • What are the organizations that create and implement those rules? • Technical • Techniques and technologies