Economics of the Environment - Coggle Diagram
Economics of the Environment
Laid on the non-exclusivity feature of biodiversity
Rationale: Social marginal cost not covered by anyone
Consequence: Too much of a bad thing.
Pigou: Taxes (negative externalities), subsidies (positive externalities)
Coase: Private property
Challenges: Path dependency and politics issues.
Public goods (- exclusiveness, - rivalry)
Rationale: Social marginal benefits not provided efficiently. So there are not incentives to produce more.
Consequence: Too little of a good thing.
Provided by the state and get returns through taxes.
Transform it in a club good. Pay for enjoy the benefits. (+ exclusiveness, - rivalry)
The solutions must consider the level of clarity that lands property rights and the rule of law have. Normally, in developing countries, these instances are not well ensured.
International public goods
have their own challenges including the bargaining between nations, potential trade-offs, synergies between climate change or poverty reduction and biodiversity targets.
Convention of Biological Diversity
Developed nations financially support developing countries to meet incremental costs of protecting biodiversity.
Financial flows (channalized by GEF) are not enough.
The rich offer to pay the incremental costs of protecting biodiversity but all the economic surplus is kept by the rich and not by the poor. - Not a Nash equilibrium (narrow national self-interests) (Helm & Hepbrun 2012).
It is unable to cover the economic need of biodiversity.
Convention of International Trade in Endangered Species
Lack of attention for economic incentives is a shortcoming, including lack of an explicit attempt to deflate market demand for endangered species. This demand creates the conditions for stockpiling of wildlife commodities (Mason et al. 2012).
The trade of extinctic species is NOT banned, this scenario promotes incentives to stockpiles owners to push forward the extinction of the species and unlock the ban.
REDD+ under the UNFCCC
Protecting key habitats
The Tragedy of the Commons (- exclusiveness, + rivalry)
Polycentric governance (Ostrom, 2010)
Command-control (the Leviathan - Ostrom 1990)
Rationale: Diminished marginal returns in common-pool resources
Common-pool resources depletion
Property rights and cooperation is key
A clever management of our assets:
Natural capital has its own rates of returns (represented by its regenerative rate for a marginal unit of stock), which outperform the returns rates of produced capital. However, until now nations have accumulated produced capital and depleted natural capital. So we should follow to measures: 1. Better management of all our assets, stopping natural capital depletion; 2. Maintain biodiversity in our portafolio of natural capital (Dasgupta et al. 2020).
is a feature of one type of our assets which are the ecosystems (Dagupta et al 2020). It is part of the natural capital (Barbier 2011). Biodiversity helps ecosystems to be resilient, ensuring their yield and its capacity to continue providing ecosystem services. For that reason is very important to maintain high levels of biodiversity in our ecosystems.
Markets of biodiversity
Economics of biodiversity
Biodiversity is being destroyed and without valuate it, compensation is not possible (Helm & Hepburn 2012).
Methods of valuation
Cost-benefit analysis (Helm and Hepburn 2012)
Justification: Explicit costs and benefits tend to be amenable to lobbying and implicit influencing. It is also a method to characterise biodiversity and its damages.
Challenges: Biased "experts" valuating biodiversity based on personal interests.
Overcoming challenges: Explicit assumptions and information at valuating biodiversity, transparency.
To manage renewable resources and avoid the depletion of non-renewable resources under the sustainability umbrella.
Optimal amount of biodiversity
Substitutability of natural and man-made capital
Price instruments (Incentives, taxes)
Payment for ecosystem services (PES)
It can be directed to the causes or the consequences of human activity. It may also be represented by taxes (for contamination, for instance) or subsidies (for the production that is not taking place).
They can work when the biodiversity target is too stringent.
Quantity instruments (tradable permits): Creating new markets
When the optimal amount of pollution is not zero, i.e. it is possible to still pollute the environment.
Basically constitute permits to impact the biodiversity, whose prices are based on the market.
Eco credits to offset the impact.
Challenges: Implement them in hotspots, because of the high habitat-specificity of biodiversity. Implement them in developing countries because the weakness of their institutions.
Command-control ("Leviathan" in the words of Ostrom 1990)
May be easier to manage in developing countries.
Present value, future value and discount rate:
Discounting allows to know what would be the cost or benefit of a present net value in the future. --> Allows to make trade-offs exercises between short-term costs/benefits and long-term costs/benefits.
FV = PV x (1 + i)^n
FV = Future value; PV = Present value; i = discount rate; n = years
When the user values more the present or the future is uncertain, the discount rate is higher.
When the user values the future or have certainty of what will happen later, the discount rate is lower.