Who is the real enemy of rational
action on the environment?
Roderick Duncan
Charles Sturt University
Institute for Land, Water and Society
Ecosystem services from an
economist’s perspective
• Why have economists reacted so negatively to
the ES approach? (Standard environmental
economics textbooks have no reference to ES:
Field and Field (2006), Goodstein (2005),
Tietenberg (2004))
– Turf war (unreasonable)
– Problems with ES approach (reasonable)
Where did ES go wrong (from an
economist’s perspective)?
• The original Costanza et al (1997) paper wanted
to estimate “values for ecosystem services per
unit area by biome”. Valid and useful.
• It was an unfortunate decision in the paper that
the authors “then multiplied by the total area of
each biome and summed over all services and
biomes”.
– Doesn’t represent anything useful. It’s a GDP of the
environment. But what use is it?
– Economists suspect this calculation was driven by
politics rather than a desire to represent anything
meaningful. A need for a big number.
The value of marginal values
• Sadly the choice to calculate total value for the planet
is also an unnecessary one.
• If we wish to find improvements from our current
situation, we do not need to find where utopia lies.
We do not need to calculate a total value of the
environment.
• It’s sufficient simply to know which direction “better”
lies in. We just need to calculate the direction of
marginal reforms that improve the present. We need
marginal values.
• Most economic decisions are made using market
prices. Economic GDP is rarely used in any decisions.
What do we use in economic analysis?
• In economic analyses
such as CBA, economists
do not estimate total
value, but instead use
price as an indicator of
the value of a marginal
change.
• What is the value of a
marginal unit area of
wetland? Or a marginal
unit of water into a
wetland?
Market
Price
ΔValue ≈ P0ΔQ
?
P0
WTP or
Demand
ΔQ
Quantity of
ecosystem
service
Where are the economists wrong?
• I would argue that the economists are most likely
to go wrong when evaluating environmental
actions because economists take their
assumption of marginal changes too seriously.
Economists (in CBA, MCA, and EIS) rarely think of
systems effects.
• Are the wetlands functions of 1,000 unit areas
simply the wetland functions of 1 unit area times
1,000?
– Economists would likely think “yes” and calculate
values and quantities on that assumption.
Contrasting world views
• Economics
Quantity of
Services
Provided
• Ecology
Quantity of
Services
Provided
State of environment
State of environment
Example: Calculating marginal values
with a possible state change
• Assume that there is a critical lower threshold
for an wetland region, but we can only
calculate a probability of collapse, f(.), which
depends on the total area of wetland.
• The probability f(.) rises as the area of the
wetland region falls.
• If we are valuing the cost of the loss of a
marginal unit area, we might want to calculate
a marginal value of a unit area (lost) as:
ValueofES  f (.) xCostofCollapse
Integrating ecology and economics
• Ecology can best help environmental decision-making
by applying this systems thinking- complex response
functions rather than linear functions.
• The choice to multiply ES value per unit area by total
unit area then gives away exactly what ecology can
best contribute to environmental decision-making accurate estimates of systemic environmental
responses to marginal changes.
• Total value of ES is environmental thinking as an
economist would simplistically do it. But I don’t know
any economist who would do it that way.
Moving forward
• Careful calculation of the environmental impact
of small changes (one more unit area of land, one
more gigalitre of water) through using both
ecological and economic tools.
– The information can be partial and, in many cases,
even partial values would rule out a lot of bad
environmental policy.
– The information must include local context and be
wary of transferring across contexts.
– The information must be comparable to other
information we have about economic and social costs.
– Provide data useful for decisions about environment.
Thinking about our audience
• The most important audience for rational analysis
of environmental problems is not other ecologists
or economists.
• If we want better decision-making about the
environment, our proper audience are the voters
and the politicians. We need to design our
research to provide data that they need to make
better decisions.
• This aspect is the weakest and least studied part
of ecological economics. What is the politics of
environmental decision-making?
This is the real enemy of reform
• A dozen angry
representatives of a special
interest group (irrigators)
with one well-publicized
stunt almost managed to
completely halt reform in
the MDB.
• They did manage to sidetrack the reforms, cost the
Chair of the MDBA his job
and gain billions worth of
infrastructure investment
for themselves as
compensation.
Who stymies reform?
• Why can’t we act to save large oceanic fish
populations?
• Why can’t we act on climate change?
• Why couldn’t the US stop sugar growers polluting
the Everglades?
• Why doesn’t Japan stop its whaling fleets?
– None of the physical science or economics is in doubt.
The economists find the lack of political action on
these questions as insane as the ecologists do.
The unreasonable power of small
groups
• Public choice economics says that small groups of
voters with large common interests can have a
disproportional impact on political decisions.
– Fishermen in small rural villages in US, Canada and
Japan managed to hold off fisheries reform for
decades- and in whaling, still do.
– Sugar farmers in the US controlled US sugar policy for
decades by controlling senators from Florida and
Hawaii.
– Irrigators in the MDB have managed to extract 1%
worth of GDP from the MDB negotiations for
investment in irrigation infrastructure.
Political success or failure
• The truly sad fact is that the economics and the
ecology of environmental decisions rarely decides the
final political outcome.
• If we wish to influence political decisions to achieve
better outcomes for the environment and for society,
we have to become far more aware of and plan for the
politics of the decision-making process.
• It is far more important that we get the politics of
environmental reform right than getting more accurate
numbers to evaluate reform with. Climate change
policy is failing in Australia because of politics- not
science.
What can we learn from the political
economy of reform?
• The bad news: Economists have been opposing special
interest politics for over two centuries now.
Economists have rarely been successful.
• The Wealth Of Nations, Book IV Chapter VIII, v. ii, p.
660, para. 49.
– People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to
raise prices…. But though the law cannot hinder people of
the same trade from sometimes assembling together, it
ought to do nothing to facilitate such assemblies, much
less to render them necessary.
Know your enemy- identification of
winners and losers
• It was perfectly predictable that the irrigators
would react badly to MDBA reforms. How was
this not anticipated?
• But once losers are identified, reforms can often
be made win-win by transferring some of the
surplus from the winners to the losers.
• For a fraction of the $9bn Australia will spend
upgrading infrastructure, we could have “bought
off” the opposition of the irrigators through other
policies.
Know your audience- what do
politicians need to know?
• Politicians are always in the world of limited budgets
and limited priorities. We need to provide them with
information that conforms to their limitations.
Environmental decisions are more like triage.
– Priorities: What is the best way to spend $300m?
• Politicians are more interested in the politics of reform.
Who are the winners and losers in the reform process?
Which groups are likely to oppose or to support the
reform?
– Where are the impacts of reform on marginal electorates?
• Politicians worry about the risks- political and
environmental. What can go wrong?
Build politics into reform at the start
• The design of environmental reforms is crucial. The design
of reforms should anticipate and nullify special interest
politics.
• For the MDBA:
– Irrigators should have been brought in at the start of the
deliberations and been involved in design of the reform.
– Provide reform “ownership” to irrigators.
– If irrigators’ concerns were about communities, the water
buyouts could have been negotiated at the community/district
level.
• Politically-designed reform may not be best for the
environment but may be far more likely to be
implemented.