climate change economics panel - johnston

8/15/2019 Climate Change Economics Panel - Johnston

http://slidepdf.com/reader/full/climate-change-economics-panel-johnston 1/21

Managing Ecological Resources in a ChangingManaging Ecological Resources in a Changing

Climate: The Role of Economic Values andClimate: The Role of Economic Values and

Uncertainty.Uncertainty.

Robert J. JohnstonRobert J. JohnstonUniversity of Connecticut University of Connecticut

Preparing for Climate Change Impacts on the Northwest Atlantic Marine Preparing for Climate Change Impacts on the Northwest Atlantic Marine Ecosystem. A multi-disciplinary symposium hosted by: Center for Law & Ecosystem. A multi-disciplinary symposium hosted by: Center for Law & Innovation of the University of Maine School of Law, and Gulf of Maine Innovation of the University of Maine School of Law, and Gulf of Maine

Research Institute April 26-27 Research Institute April 26-27



What Can Economics Contribute to Regional Policy

Guidance in the Face of Climate Change?

Review of economic concepts of ecosystem valuesand the role of uncertainty.

How can economic models help prioritize policy

choices? Upshot—you can’t do everything, so how do you

decide what you are going to do?

Economics can provide insight into reactions toclimate change that will provide the greatest long-term social benefits (and public support!).



Economic Valuation Can Inform Environmental

Policy

Environmental management affects components and

processes of natural systems.

– These features of natural systems often represent

ecological goods and services that may have value to

the public.

– Changes in these goods and

services affect human well- being; measurement of these

effects is economic valuation.

http://aquat1.ifas.ufl.edu/



Economic Values and TradeoffsEconomic Values and Tradeoffs

Appropriate assessment of economic values can helpAppropriate assessment of economic values can help policymakers: policymakers:

– Identify the true social benefits generated byIdentify the true social benefits generated by

ecological stewardship and restoration.ecological stewardship and restoration. – Prioritize environmental policy proposals or actions.Prioritize environmental policy proposals or actions.

– Assess whether the social benefits of particular Assess whether the social benefits of particular policies outweigh the social costs (this is policies outweigh the social costs (this is Benefit-CostBenefit-Cost

AnalysisAn

alysis).).

Economic values do not require money to changeEconomic values do not require money to changehands, nor do they have to be denominated in dollars.hands, nor do they have to be denominated in dollars.



Non-Market Values

A large proportion of the economic value of environmental protection or restoration is made up of non-market values.

Non-market values are effects on individuals’ well- being that are not measurable in markets.

Ignoring non-market values can result in significantunderestimation of social benefits.

These can include use and non-use values. – Use Values: Values related to observable behavior (e.g., recreational,

consumptive, etc.).

– Non-use Values: Values not related to observable behavior (e.g., bequest,

existence values).



Measuring Non-Market Values

Market values are easily measurable in most cases.

Non-market values are harder, but economists havedeveloped a variety of methods to measure different

aspects of non-market value. – Revealed Preference methods based on observable

behavior (hedonic; travel cost).

– Stated Preference methods based on carefully designedsurveys (stated preference; contingent valuation).

– Others (productivity methods, etc.)

These are NOT economic impacts!



What About Risk and Uncertainty?

Environmental outcomes often involve risk or uncertainty—these are different.

– Risk: You can at least approximate possible outcomes

and probabilities. – Uncertainty: Outcomes and probabilities are entirely

unknown.

Under true uncertainty, it is difficult to apply

economic models.

Under risk, there are well-defined methods to adjusteconomic values (expected values; option prices).



Climate Change

Climate change presents an exemplar of decisionmaking under risk and/or uncertainty.

To the extent that we can reduce uncertainty to risk,

economic tools can provide significant insightregarding tradeoffs and policy choices.

What are the best plans of action? What will benefitsociety most in the long run?



Responses to Ecosystem Services Threatened by

Global Warming

Option #1: Protect or Conserve (but you can’t preserve everything!)

Option #2: Mitigate, Offset or Replace (but you can’t

replace everything!) Option #3: Triage (preserve or replace the most

valuable).

Economics and economic valuescan help inform these choices.

A tool for decision making…



New England Diadromous Fish Restoration

Provides an Excellent Policy Illustration

Diadromous fish restoration is a major policyinitiative in most New England states.

Example: Red shows RI rivers where migratory fish

used to live before humans arrived. Blue showsrivers where these fish live today.

River Herring (alewife)River Herring (alewife)



Decline of Southern New England River Herring

Between 95-99% decline in many Southern NewEngland fish runs; river herring fishery closed in MA,CT, RI.

Fish passing over Holyoke Dam in MA dropped fromover 630,000 in 1985 to 21 last year (yes, that’stwenty-one fish).

http://www.risaa.org/newsletter/herringclose06.html



The Cause of Decline is Unknown

Consensus is that decline has nothing to do with fish passage—it’s something happening at estuarineinterface or in the open ocean.

Possibilities include: – By-catch in sea herring

fishery.

– Resurgence of predators.

– Climate change.

http://www.risaa.org/newsletter/herringclose06.html



What is Going On?What is Going On?

"It's clear striped bass are having an impact," he"It's clear striped bass are having an impact," he

said. "But I'm not convinced it's the main thing.said. "But I'm not convinced it's the main thing.

Something is happening in the Atlantic Ocean andSomething is happening in the Atlantic Ocean and

Long Island Sound, too. We are just not sureLong Island Sound, too. We are just not sureexactly what.“ (R. Gephard, CT DEP, quoted inexactly what.“ (R. Gephard, CT DEP, quoted in

Hartford Courant 4/17/2007).Hartford Courant 4/17/2007).



What is the Optimal Response?

Place additional resources to try and offset or reversethe decline?

– But restoration activities are costly, and restoration

expenditures may be ineffective at halting the decline. Abandon new restoration efforts?

– But restoration efforts might help to slow the declineor even prevent extinction in some rivers.

From an economic perspective, answer depends on both probabilities and relative values.



What is the Optimal Response?

You got to know when to hold them, know when tofold them. How much do you bet in a poker game, or do you fold?

It’s hard with cards, and harder with fish, but

economics can provide a guiding framework.



The Structure of Probability is Critical

Assume that the probability that fish run i will persist( P i) is a function of resources allocated to fish

passage in river i ( X i) and exogenous events beyondthe control of managers (Qi).

What is the probability that you will win if you stayin the game?

P P ii(X (X ii , Q , Qii ) )

The more important isThe more important is X X ii, the, themoremore resources should beresources should beexpended.expended.

The more important isThe more important is QQii, the, thelessless resources should beresources should beexpended.expended.



Social Value is Also Critical

Expected surplus (or value), ES i, is a function of the probability that fish run i will persist ( P i) and theattributes of the fish run (Y i).

What is the size of the pot? How much is at stake?

ES ES ii(P (P ii(X (X ii , Q , Qii ), Y ), Y ii ) )

The larger is social value comparedThe larger is social value compared

to that of other resources, theto that of other resources, the moremore resources should be expended.resources should be expended.



What Information Is Needed?

In some cases, estimates of market and non-marketvalues are available.

– For example, we are currently conducting a study of

non-market values associated with the restoration of river herring passage and populations.

Estimating probabilities can be more difficult, butnatural scientists are trying to solve the puzzle.

The key is to link appropriate economic andecological information to guide more optimal policyresponses.



Parallel Choices for Other Resources Threatened by

Climate Change

Funds are not infinite—we cannot protect or restoreeverything.

How should we prioritize our actions? Which cards

do we hold and which do we fold? Given empirical estimates or approximations of

probabilities and values, economics can provideguidance.

This is not the only tool available to managers—butcan help to ensure that policy serves the long-terminterests of society.



Conclusions

Economics can provide tools to assist managers inconceptualizing and facing tradeoffs related toresources threatened by climate change.

Frameworks are well-developed; what is needed areempirical estimates of probabilities and values.

Even without specific estimates, however, economicscan contribute structural clarity to decisions facing

policymakers. It’s all about choices and tradeoffs…

in a very important card game.

climate change economics panel - johnston

Documents