Policy Options
Topics
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Political issues: how do we overcome
political barriers?
General design principles
Policy sequence
Policy tools
Places to intervene: leverage points
Opening Policy Windows
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Problem stream
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Policy Stream
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Defining existing condition as a problem
Getting policy makers to accept definition
Develop consensus around policies necessary
to solve problem
Politics stream
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National mood; leading politicians accept
gravity of problem and willing to implement
necessary policies
General design principles for
policy
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1. Every independent policy goal must
have an independent policy instrument
2. Attain necessary degree of macro
control with minimum sacrifice of microlevel freedom and variability
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Market mechanisms
General design principles for
policy
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3. Uncertainty and irreversibility requires
considerable safety margin
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Precautionary principle
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Which is more precautionary: quotas or taxes?
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How does this relate to positive feedback loops?
4. Start from historical conditions
 Market economy and market mechanisms
General design principles for
policy (cont.)
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5. Adaptive management
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How can we adjust feedback loops to cope with
increasing strength of impacts?
How does this relate to quotas?
6. Principle of subsidiarity: Institutions at the
scale of the problem
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Who should be making policy decisions?
How does this relate to feedback loops?
Policy sequence
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Scale
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Distribution
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Determines how much there is to be
distributed/allocated
Pareto optimal outcome possible from
any initial distribution
Decided before allocation
Allocation
Policy Tools
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Prescription
Payments
Penalties
Property rights
Persuasion
Power
How Can we Change Complex
Systems
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Leverage points
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Where can we have the most impact?
See Meadows, Donella. 1997. “Places to
Intervene in a System,” Whole Earth,
winter issue.
Where should we intervene?
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Where can our interventions have the
most impact?
We need to understand how the
ecological, social and economic objectives
influence one another
Where is intervention the most feasible?
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“the minimum that is ecologically necessary is
greater than the maximum that is politically
feasible” GORE
Candidates for intervention
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Critical variables (strong influence on
others, strongly influenced by others)
Active variables (influence others, but are
not influenced by others)
Buffer variables (absorb impacts without
passing them on)
10 Leverage Points
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10. Numbers (subsidies, taxes, standards).
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9. Buffering capacity
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Standard economists stuff
Can still be powerful
E.g. acid rain and calcium carbonate
8. Material stocks and flows.
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E.g. replacing transportation system,
10 Leverage Points
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7. Regulating negative feedback loops
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6. Driving positive feedback loops.
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Feedback has to be proportional to problem
Markets and feedback loops
Slow them down, let negative feedbacks do
their thing
E.g. Financial crisis
5. Information flows.
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E.g. publicizing pollution, labeling, etc.
Feedback loops as leverage points
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Can we increase the strength of negative
feedback loops?
Can we slow down/halt positive feedback
loops?
Can we create appropriate feedback loops
where none exist?
Can we increase the strength of
negative feedback loops?
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Strength of loop has to correspond to strength
of impacts they are designed to correct
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What has happened to strength of impacts in the
system over time?
How have external factors affected this?
Can we increase the strength of
negative feedback loops?
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Time lag must be appropriate
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How could we reduce the time lag?
Can we speed up information flows?
Role of communication/education
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How could we improve information flows?
Can we create information flows that are more direct?
Slowing/breaking positive feedback
loops
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Slowing the loop
Breaking the loop
Information and feedback loops
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Electric meter example
Unique to human systems
Creating appropriate feedback
loops
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Role of education
Price mechanism as a feedback loop
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Community values as a feedback loop
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Taxes
Subsidies
Quotas
Relationship with price signals
Regulations as feedback loops
What characteristics should key
indicators have?
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Minimal time lag
Key indicators of change in the system
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Passive variables (weak influence on others,
strongly influenced by others)
Critical variables (strong influence on others,
strongly influenced by others)
Change is a constant. We need to adapt.
10 Leverage Points
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4. The rules of the system
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Democratic control over the commons, the
media, and the problem of macroallocation
Cooperative provision/management of nonrival resources, including information
Return the right to seigniorage to government
Just distribution of resources provided by
nature and society
3. The power of self-organization.
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Maintain diversity
10 Leverage Points
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2. The goals of the system.
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What is socially and psychologically desirable?
Shared vision of a sustainable and desirable
future.
Continuous economic growth is undesirable
Doom and gloom doesn’t win converts
10 Leverage Points
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1. The mindset or paradigm out of which
the goals, rules, feedback structure arise.
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What is biophysically possible?
Economy is sustained and contained by the
global ecosystem
Continuous economic growth is impossible
Macroallocation is central problem
Humans are social animals, not homogenous
globules of desire, etc.
10 Leverage Points
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0. The ability to transcend paradigms
Policy and property rights
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Excludability and property rights
Property rights as a bundle
Changing conditions and the need for changing
property rights
Command and control regulations (standard
setting) for negative externalities
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Typical approach to pollution control
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Adequate agricultural practices, BAT
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Setting effluent level/limiting channelization
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Political factors involved in setting standards
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Economically inefficient
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Does not respond to economic conditions, i.e.
increases or decreases in abatement costs
Command and control (cont.)
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Not cost effective
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Different marginal abatement costs for
different polluters
No incentive to reduce emissions below
standard
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no incentive not to increase pollution in
attainment areas
little incentive to develop new technologies
Marginal
restoration
cost
First 20%
Landowner 1 Landowner 2 Landowner 3
$5000
$1000
$2500
2nd 20%
$20,000
$2500
$5000
3rd 20%
$40,000
$5000
$10,000
4th 20%
$80,000
$10,000
$17,500
Final 20%
$160,000
$50,000
$20,000
Marginal costs of restoring floodplains.
Channelization with smooth cost
curves
Pigouvian tax
tax
Marginal
restoration
cost
First 20%
Landowner 1 Landowner 2 Landowner 3
$5000
$1000
$2500
2nd 20%
$20,000
$2500
$5000
3rd 20%
$40,000
$5000
$10,000
4th 20%
$80,000
$10,000
$17,500
Final 20%
$160,000
$50,000
$20,000
Marginal costs of restoring floodplains.
Pigouvian taxes and subsidies
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Cost effective
Efficiency requires full knowledge of costs
and benefits
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Issues with taxes
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Politically difficult
May be higher cost to farmers than
alternatives, though cost effective for society
Not possible for international problems
Pigouvian taxes and subsidies
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Issues with subsidy
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May lead to more entrants into industry
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Ignores polluter pays principle (negative externalities)
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Excellent for activities with positive public good
externalities
May be most feasible alternative for some
international problems
Addresses allocation first, scale and distribution
only indirectly
Channelization quotas
quota
Marginal
restoration
cost
First 20%
Landowner 1 Landowner 2 Landowner 3
$5000
$1000
$2500
2nd 20%
$20,000
$2500
$5000
3rd 20%
$40,000
$5000
$10,000
4th 20%
$80,000
$10,000
$17,500
Final 20%
$160,000
$50,000
$20,000
Marginal costs of restoring floodplains.
Tradable channelization quotas
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Cost effective
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Distribution of permits
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Grandfather
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Auction
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Equity based
Tradable channelization quotas
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Purchase of permits by downstream
communities
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Problems with market thinness
Spatial issues
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public goods problem
Erosion damage: local problem--impacts on
downstream farm
Flood damage: Lewis creek watershed problem
Phosphorous emissions: Lake Champlain watershed
problem
Pollution quotas: CO2, SO2, Mercury
Tradable quotas
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Addresses scale first, distribution second,
allocation third
Actual results
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SOx permits in US
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CBA financed by industry vs. actual costs
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Fisheries quotas
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Kyoto protocol
Problems with distribution
What should quota be?
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Renewables (forests, fisheries, etc.)
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Cannot exceed rate of renewal
In general, balance between structure and function, raw
materials and ecosystem services, stock-flow and fund-service
Waste absorption capacity
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Cannot exceed ecological constraints
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Must also focus on human impacts
Non-renewables
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What would be a just distribution across generations?
set quota so that price stimulates creation of substitutes before
resource is exhausted
Must not leave future worse off than it would have been in
absence of resource
Tax or quota?
Tax or quota?
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With a tax, you can theoretically get
right amount, but amount will change with
economic change
Is it better to let prices vary (economic)
than amount of resource to be used
(ecological)
Impacts of shift in MNPB under
taxes and quotas
tax
quota
Impacts of shift in MNPB under
taxes and quotas
Shift in MNPB
quota
Distribution issues
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Increasing price of resources leads to increase in
price of consumer goods, so regressive.
But, rich consume more than poor, so receive a
higher subsidy from the future
gov’t gets more money, can get rid of more
regressive taxes.
If resource prices are kept low, resources must
inevitably run out. Who will this affect more,
the rich or poor?
Other policies
Financial assurance bonds
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Polluter pays precautionary principle
Potential forms:
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Why is this needed?
Can these handle uncertainty?
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Bonding
Insurance
Uncertain outcomes
Uncertainty regarding cause and effect
Could there be any role for these in Lewis
Creek?
ICMS Ecologico
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Ecological value added tax
Municipalities (counties/townships) are
rewarded for their provision of ecosystem
services
Promotes competition for resources
Helps address subsidiarity problem
Could this work for Lewis Creek?
Conservation easements
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Separating the property rights bundle into
individual sticks
Are these similar to a tax, quota or neither?
Net present value of an annual subsidy
Impact on land values
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Tax implications
Legal costs
Strictness and cost
Macro
Precautionary Starting
Adaptive
Subsidiarity
goals,
principle
from
managem
micro
historic
ent
freedo
al
m
conditio
ns
Taxes/
subsidies
Strong
OK
OK
Weak
Local,
state
and
federal
Tradable
quotas
Strong
Strong
OK
Strong
Depends
Conservation OK
easements
OK
Strong
OK
Depends
Financial
bonding
Strong
OK
OK
Depends
OK
Strong
OK
Strong
OK
ICMS
Strong
ecologico
Summary
Scale
Distribution
Efficiency
Taxes/
subsidies
OK
Polluter pays,
OK
strong
Tradable
quotas
Conservation
easements
Strong
Can be strong
Strong
Can be strong
OK
depends
Financial
bonding
ICMS
ecologico
OK
Polluter pays
OK
Can be Strong
beneficiary
pays, OK
Strong
The Macro-allocation problem
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How many resources should be devoted to
market goods, and how many to public
goods?
Can translate into quotas for ecosystem
goods/services
Decision cannot be made by market
How can this decision be made?
Distribution policies
4 sources of income
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human capital (wage)
built and financial capital (interest)
natural capital (rent)
entrepreneurship (profit)
Human capital (wages)
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Minimum wage
Job training
Maximum wage?
Built capital
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ESOPs: building a capitalist society
CSOPs: building capitalism while
internalizing negative externalities
Financial transaction taxes
Stock taxes
Natural capital
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Capturing rent:
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eliminating perverse subsidies
land rent
royalties (non-renewables)
natural dividend (renewables)
Social capital
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Land rent
Patents
Luxury tax?
Wealth tax?
Slowing/breaking positive feedback
loops
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Positive feedback in the news
What happens when positive feedback
loops run their course?