6.
THE POLITICAL ECONOMY OF
NATURAL RESOURCE
MANAGEMENT
(SPRING 2006)
Larry D. Sanders
Dept. of Ag Economics
Oklahoma State University
1
INTRODUCTION
 Purpose:
– to become aware of the political economy of natural
resource management
 Learning
Objectives. To understand/become aware
of:
1. the concept of political economy.
2. the political economy of agriculture and the
environment.
3. the political economy of forest/public land policy.
4. the political economy of habitat/biodiversity policy.
5. the nature of US incentive enforcement systems.
2
The Political Economy of Environmental
& Natural Resource Issues
 Theories/concepts
that
treat systems as
integrated relationships
of economic, political
& social institutions
 Institutional
mechanisms to affect
the environment &
natural resources have
evolved over time
Political
Institutions
Economic
Institutions
Social
Institutions
3
Political Economy--Basics
 Market
failure historically leads to the “protective
response”:
– Government intervention
– Private sector seeking advantage or market power
 Government
failure may lead to reversion to the market or
refinement of government institutional mechanisms
 Private failure often leads to market concentration
 Models/theories:
– Public Choice--politicians maintain position
– Rent-seeking--interest groups seek govt support
– Capture theory of regulation--firms control process
4
The Political Economy of Agriculture &
the Environment
 Environmental
Policy
– Point vs. Nonpoint
– Property Rights
– Incentives vs. Regulations
 Government
Support a Reality
–
–
–
–
–
But evolving as a “Social Contract”
Depression-Era Support Gone
Idealized Farm Image Persists
Budget Deficit Reduction top goal for 1990s
W/budget surplus, crisis funding for ag returned to near-record
highs
– Environmental Concerns Persist
5
6
Public Policy Tools
 Regulation
– EPA, U.S. Army Corps of Engineers, National
Oceanic and Atmospheric Administration, USDA
 Conservation
Compliance
– 1985 Food Security Act; require implementation of
approved plans to remain eligible for USDA benefits
 Rental
and Easement Payments to take land
out of Production
– oldest policy tool
7
Public Policy Tools (continued)
 Subsidies
for Conservation and
Conservation Related Public Works
Project Activities
– used for expensive capital investments and
large scale watershed protection.
 Cost-Sharing
or Incentive Payments and
Technical Assistance
– most prevalent in the EQUIP, specific practices
for specific fields.
8
Public Policy Tools (continued)
 Trading/Banking/Bonding
– market based approaches, increases flexibility
provided to producers in meeting
environmental goals.
 Education/Research/Data
Development
– develop an information base and improve
conservation practices and program delivery.
9
The Social Contract with Agriculture & the
Environment--Focus on Farm Bills of Past 20 Years
1. 1985 Farm Act
– Conservation Reserve Program (CRP)
» Erosion & supply focus
– Conservation Compliance (CC)
– Sodbuster
– Swampbuster
2. 1990 Farm Act
–
–
–
–
Continue CRP --erosion & supply focus
Wetlands Reserve (1 mil. ac.) (WRP)
Water Quality Incentives Program (WQIP)
Pesticide users’ regulations
10
Social Contract (cont.)
3. Pesticide Regulation
--Federal Insecticide, Fungicide & Rodenticide
Act (FIFRA)
--Endangered Species Act (ESA)
--Federal Environmental Pesticide Control Act
(FEPCA)
--Food Quality Protection Act (FQPA)
11
Social Contract (cont.)
4. 1996 Farm Act
--new CRP (fair market value; average loocal cash rental
rates)
--“Environmental Benefits Index”
» Soil erosion
» Water quality
» Wildlife habitat (temp. or permanent)
» Bid level
» Conservation priority area
» Conservation compliance requirements
--WRP
--Environmental Quality Incentive Program (EQIP)
--Conservation Farm Option (CFO)
12
13
14
The Farm Security & Rural Investment Act
of 2002 (FSRIA): Conservation Programs
 Quadruples
EQIP
 Conservation Security Program (Harkin)
$2 billion total
 Adds 4 bil acres to CRP, WRP
– Continues CRP focus on environmental
benefits (wind, water, erosion, air)
 Provides
other new programs
15
FSRIA: An Evolving Conservation
Philosophy
 Previous
programs focused on protecting
environment/natural resources & compensating
producers/landowners
 New philosophy is shifting toward working
farmland with a conservation ethic (increase from
current 7% to new 40% of program costs)
 Farmers and ranchers should manage farmland to
provide cheap, high quality food and fiber and
environmental amenities (e.g. clean air and water,
wildlife habitat, open space, sequestered carbon).
 Additional $9 bil thru 2007 authorized
16
FSRIA 02: Conservation Programs
TOTAL $17.1 billion for 2002-2007
 CRP– 39.2 (36.4) million acre cap- $1.517 billion
 Conservation Security Program - $2 billion
 Environmental Quality Incentives Program- $9 billion
 Wetland Reserve Program – 2.6 (1.1) million acre cap $1.726 billion
 Grassland Reserve Program – 2 million acres – $254
million
 Farmland Protection Program - $1 billion
 Wildlife Habitat Incentive Program - $700 million
 Small Watershed Rehabilitation Program - $275 million
17
18
19
CRP—Active Contracts, Aug 2005,
US & OK
Annual Rental Payments
Type
Contracts Farms
Acres
$mil
$/acre
General
407,642
267,762
32,408,029
1,417
43.74
--non CREP
250,233
155,356
2,371,742
211
88.93
--CREP
42,990
28,648
681,336
82
120.30
--subtotal
293,223
179,769
3,053,078
293
95.93
Farmable
Wetland
8,481
6,859
130,875
16
118.71
TOTAL
709,346
410,867
35,591,982
1,726
48.49
OK Total
9,137
6,240
1, 052,162
34,188
32.49
continuous
20
21
OK CRP 2004
 Half
CRP acres in Panhandle
 35,542 acres recently accepted in Signup 29 –
state total beginning FY 2006 = 1,074,312
acres
 OK
(OSU-NRCS 2000) study suggested CRP more
profitable than returning to production for CRP land
terminating existing contracts:
– Participate in new CRP: $25 net income
– Return to wheat/sorghum: ($16)-($32) net loss
– Keep in grass for grazing: $17-$24 net income
22
OK CRP 2004
(Prepared by R. Wanger, OK FSA)
23
FSRIA 02: Conservation Programs-EQIP
 Established
in 1996 Farm Bill
 Voluntary program addressing soil, water & other
natural resource concerns on agricultural lands.
 Administered by NRCS, funding through CCC,
facilitated by FSA
 Technical & financial assistance for…
– regulatory compliance,
– environmental enhancement,
– conservation planning.
 5X
over subscribed.
24
EQIP Contracts 1997-2003
year
$mil
contracts
Farm
ac.(1,000)
Crop ac.
(1,000)
1997
4.4
951
273
70
1998
4.1
845
206
74
1999
3.6
702
195
57
2000
3.5
588
159
50
2001
4.0
573
139
47
2002
8.3
856
221
76
2003
11.3
1059
OK avg 9702
$6,197
264
83
US avg 9702
$9,131
438
110
25
26
WRP Acres
27
Wetland is Defined as..
 “An
area inundated or saturated by surface
or ground water at frequency and duration
sufficient to support …life adapted to
saturated soil conditions.”
 Has “water-loving” species
28
Wetland Benefits
Ecological Benefits
 Floodwater
storage
 Trap nutrients and
sediment
 Groundwater recharge
 Habitat
 Buffer
Human Benefits
• Outdoor
Recreation
• Timber Production
• Livestock Grazing
• Educational
Activities
shorelines
29
Wetland Conversion, Restoration
and Net Change
30
“No Net Loss”
 Average
costs range from several hundred
dollars per acre for wetlands in their natural
state that have little potential for conversion
up to hundreds of thousands of dollars per
acre of wetlands with potential value for
urban development.
31
Factors That Influence Wetland
Conversion
 Decline
in profitability
 Swampbusters and Farm Bills
 CWA (section 404)
 Public Interest
 Federal, State, Local Wetland Restoration
Programs
32
FSRIA 02 Conservation Programs:
Summary
CRP/WRP– if you can’t manage land to meet
environmental restrictions
 EQIP – if you need technical or financial
assistance to mange land
 Other Programs to preserve desired landscape

– CSP – if you want to try new management or be
compensated for existing conserving practices on
working lands
– FPP – protect against urban sprawl
– GRP – protect fragile grasslands
– WHIP – maintain or improve wildlife habitat
33
Factors to Consider in the Effectiveness of
Conservation Systems
Frequency
 Timing
 Severity of wind
 Precipitation
 Exposure of land forms to weather
 Ability of exposed soil to withstand erosive forces
 Plant material available to shelter soils
 Propensity of production practices to reduce or
extenuate erosive forces

34
FSRIA 02: Energy Title (Title IX)
1.Federal Procurement of biobased products
2.Biorefinery development grants
3.Biodiesel fuel education programs
4.Energy audit and renewable energy development
program
5.Renewable energy systems and energy efficiency
improvements
6.Hydrogen and fuel cell technologies
7.Biomass research and development
8.Cooperative research and extension projects
9.Continuation of bioenergy program
35
FSRIA 02: Energy Title
 Key
provisions
– Federal agencies required to procure biobased
products.
– Biobased “products will be purchased to the
maximum extent possible.”
» Energy from bio-mass including ag crops and animals
waste.
» Energy from renewable sources, wind, solar, biomass or
geothermal or hydrogen produced from water or biomass
36
FSRIA 02: Energy Title--Bio-Based
Preference
 Key
Points
– Each federal agency required to have specs for biobased products within one year.
– Optional, allows some wiggle room to opt out.
– Labeling for bio-based products.
– Office of Federal Procurement Policy coordinated
program.
– Preference in contracting goes to item with highest
% bio-based product.
– $6 million
37
FSRIA 02: Energy Title—Other BioBased Provisions


Bio-Refinery Grants:
– Grants to defray cost of development and construction
of bio-refineries.
– Farmers, national lab, institutions of higher ed, state or
local agency, tribe, consortium.
– Gov’t cost not to exceed 30% of cost.
Bio-Diesel Fuel Education Program
– Grant to educate public and government about the
benefits of bio diesel.
– $1 million/year.
38
CCC Bio-Energy Program
– Payments to eligible producers to encourage increased
purchase of eligible commodities for purpose of expanding
production of bio-energy and supporting new production
capacity for bioenergy.
– Contract required
» Producers < 65K gallons reimbursed 1 feedstock unit for
every 2.5 feedstock units of commodity used for increased
production
» Producers 65K or more gallons 1 feedstock unit for every
3.5 feedstock units.
» No farmer gets more than 5% of total funds
» Proration allowed
» Total authorized $150M/yr. 2003-06; $0 in 2007
39
Other Energy Provisions
 Energy Audit
and Renewable Energy Audits Grant
– Cost share gov’t pays 75%.
 Renewable
Energy Purchase Grants
– Loan and Loan guarantees for farmers to purchase renewable
energy systems or to make energy efficiency improvements.
– Grant not to exceed 25% of cost.
– Grant and Loan not to exceed 50% of cost of system.
– Must be cost effective.
– $75 million
40
Other Energy Provisions
 Hydrogen
Cells and Fuel Cells
– Sec. Ag. to work with Sec. Energy to disseminate info.
 Biomass
Research and Development
– Reauthorizes the Biomass Research & Development Act of 2000
– CCC gives $5M 2002; $14M 2003-2007;
– Additional authorized $49M 2002-2007.
 CSREES
Carbon Sequestration Research & Extension
– Such sums as are necessary are authorized .
41
Energy Policy in FSRIA02
--2005 update
 Biomass
Research & Development
– Oct 05: 11 research, development & demo
projects selected to receive $12.6 mil.
» Cost share brings total to $19 mil.
» Joint effort USDA & DOE
» Noble Foundation, Ardmore: $670,166
42
Farmland Protection--State/Local

FREE MARKET VS. REGULATION
– Zoning Laws
– Development Rights Market
– Right-to-Farm Laws
– Preferential Assessment
– Ag Districts
 Subsidies
– 1996 FAIR Act ($17.2 mil. for easements in 98)
– State initiatives
43
Crop Residue Management (CRM)
 Government
Intervention
– Conservation Compliance & Highly erodible land
(1985 Farm Act)
– Supported Compliance, other environmental programs
(1990 Farm Act)
– CRM action plan (1991)
– Conservation Farm Option, other programs (1996 Farm
Act)
– Ongoing educational & technical assistance by NRCS,
FSA, & landgrant programs (extension & research)
44
Grazing--Common Property Issues
 A major
use of public lands (BLM, FS, NPS)
– Predates government management
– Ecosystem stress forced govt. intervention
» Taylor Grazing Act (1934)--management system for
non-FS public lands by BLM; right-to-use based on:
prior use
commensurability (sufficient alt. lands off-season)
dependency (insufficient alt. lands in-season)
grazing fee (permits, #head, area, other restrictions)
45
Forest/Public Land Policy
 Pinchot
vs. Preservation vs. Development
 1891-Forest Reserve Act (public forest reserves
from public land; Western US)
 1897-Forest “Organic” Act (establishes national
forest system for water flow & timber sustainability)
 1905-USFS established
 1911-Weeks Act (okays purchase of private land for
national forests; Eastern US)
46
Forest/Public Land Policy (cont.)
 1916-National
Park Organic Act (creates NPS &
system to conserve scenery, wildlife, historic
objects)
 1960-Multiple Use & Sustainable Yield Act
(MUSYA) (adds watersheds, recreation, wildlife,
fishing, hunting, soil concerns to national forests)
 1964-Wilderness Act (begins preservation of unique
natural areas)
 1968-Wild & Scenic Rivers Act (preservation of
unique rivers)
47
Forest/Public Land Policy (cont.)
 1974-Forest
& Rangeland Renewable Resources
Planning Act (RPA) (creates planning process)
 1976-National Forest Management Act (adds
economic, wildlife, wilderness & recreational uses
to USFS planning)
 1980-Alaska National Interest Lands Conservation
Act (ANILCA)(adds 13 national parks, 16 wildlife
refuges, 56 mil. Ac. To wilderness system)
 1970s-1980s-added to wilderness system thru US
 1990s-move to privatize some national forest areas
 2004-Healthy Forests Act
48
Habitat/Biodiversity Policy
 Endangered
Species Act (ESA) 1973
– under review for past decade
– Little changed
 Criticisms:
– Species over Humans
– Ignores Economics
– “Taking” of Property Rights
 Response
– Species Critical to Ecosystem
– Economics may favor Species
– Property Rights Evolve
49
ESA--Background
 Expired
1992, but most statutes in effect until
repealed
 Primary Goal: Conservation of endangered,
threatened species & their ecosystems
 Key Elements:
– Listing;
– Protections, Prohibited Activities & Enforcement;
– Relief/exemption from sanctions
50
ESA--Process
1. Listing:
– Species based solely on biological considerations
– Requirement of designation of “critical habitat” must
consider economic impacts; potential sites may be
excluded if opportunity costs too hi
2. Regulatory Constraints
– Protects listed species against “taking” (harming or
degrading habitat); private land not protected
– Prohibits federal actions that jeopardize species or
adversely modify habitat
– Can’t consider economics
51
ESA--Process (cont.)
3. Regulatory Relief
--Allows granting of permits to take listed species
--Incidental/conditional to approved conservation plan
--Economics may be considered
--Exemption possible
52
ESA--Property Rights
 Some
claims that ESA is unconstitutional “taking”
private property rights w/o compensation (violates
Fifth Amendment of Constitution)
 Property rights always evolving, subject to
limitations, & not inalienable nor absolute
 Current ESA reform bills may ignore historic
precedence, but do contribute to debate on
redefinition of rights by society
 ESA was amendment of property rights; standard
practice to not compensate when prohibiting a
“bad”; courts very cautious
53
Incentive Enforcement Systems
 Incentive
for polluting firms to
self-report or self-monitor
 Govt monitoring & collection of
penalties
 Benefits: Less govt cost; More
flexibility & privacy for firms
 Many states & some federal programs have
versions
 Industry coalitions: paper mills, chemical/
energy/waste management companies
 Environmental groups generally skeptical
54
EPA Self-Monitoring Policy
 Reduced
penalties
for firms selfreporting & taking
corrective action
 Eliminates punitive
penalties if no major
health hazard
55
EPA Enforcement
 Emissions
inspection once/yr
 Requires firms to submit water pollution discharge
records & compliance
 Random hazards difficult to monitor
– toxic waste
– nonpoint source water pollution
– proper chemical use/container disposal
 Chemical
sales relatively easy to monitor
 Education & “jawboning” are key
 Sanctions: penalties, criminal/civil prosecution
56
1990 Clean Air Act & Amendments
--less federal court time/expense
 Penalties
up to $200,000
 Appeal to Administrative Law Judge
 Field Citations up to $5,000/day for serious
violations
 Emergency actions: threats to environment and/or
threats to human health
– fines $5,000 - $25,000/day
– criminal penalties up to 5 years
 $10,000
reward for citizens who report
 Self-reporting required
57
Citizen Suits
 Private
citizens who are harmed may sue polluters in
many cases
 Expands enforcement efforts
 May force compliance, require damages restitution,
impose sanctions
 Evidentiary requirements make it difficult
 Often counter political power of firms/industry
58
Water Quality Programs


Federal Water Pollution Control Act
Amendments of 1972 (Clean Water Act)
Administered by EPA and the USDA.
59
Section 404, CWA
 Clean
Water Act.
 Federal Program that regulates wetland
conversion.
 EPA oversees Section 404 .
 States can set their own standards
independent of federal standards.
60
Mitigation Banking
 Section
404 (C.W.A.)
 Compensatory mitigation
 Offset unavoidable wetland losses.
 Amendments to 1990 Farm Act.
61
EPA Programs Affecting Agriculture



Coastal Zone Management Act
Reauthorization Amendments
Safe Drinking Water Act
Comprehensive State Ground Water
Protection Program
62
REFERENCES
R. Asay, J. Grossman, R. Mayes, W. Miller, J.
Sharp, S. Stewart, D. Wood, “Conservation &
Environmental Policies”, Spring 2004.
Sanders, L. & J. Stiegler, various assessments of
CRP transition.
USDA, various publications/websites.
63