EEP 101/econ 125:Market for Environmental services (ES) and poverty
DAVID ZILBERMAN
Conservation&Preservation Conservation&Preservation Storage and stabilization ( e.g Storage and stabilization ( e.g
water,carbon )water,carbon ) Risk reduction ( flood control, protection Risk reduction ( flood control, protection
form fire)form fire) Natural resources quality enhancement ( Natural resources quality enhancement (
soil,water)soil,water) Amenity creation-Restoration, Amenity creation-Restoration,
Enhancement Enhancement
What are we talking about?Categories of Environmental Services (ES)
Example 1: water Example 1: water cleanup cleanup
The New York water utility considered The New York water utility considered investing $2 billions in water filteringinvesting $2 billions in water filtering
The water was contaminated by waste of The water was contaminated by waste of 20000 cows that grazed in the water 20000 cows that grazed in the water catchments of the city’s reservoircatchments of the city’s reservoir
The benefit per cow annually is $1000The benefit per cow annually is $1000 It will cost $500 million to invest in in water It will cost $500 million to invest in in water
quality if the cows will not graze.quality if the cows will not graze. After negotiation with the local farmer each After negotiation with the local farmer each
land owner will receive $1500 per land owner will receive $1500 per cow/annually not to grazecow/annually not to graze
The lawyers received $50million and stuff paid The lawyers received $50million and stuff paid another $10 to reach a dealanother $10 to reach a deal
Example 1: water Example 1: water cleanup IIcleanup II
If the rate of discount is 5% If the rate of discount is 5% Ne Ne Net benefits of PEMNet benefits of PEM 2,000,000,000 saved2,000,000,000 saved Minus 20000*1000/.05 400,000,000 cow feedMinus 20000*1000/.05 400,000,000 cow feed Minus 500,000,000 investMinus 500,000,000 invest Minus 60,000,000 transac. Minus 60,000,000 transac.
CostCost Value of ES 1040,000,000,000Value of ES 1040,000,000,000
Benefits were shared dairy gain receive 600 Benefits were shared dairy gain receive 600 milmil
IssuesIssues Monitoring and enforcement of no grazing Monitoring and enforcement of no grazing
agreementagreement
Example 2: Flood control Example 2: Flood control by wetlandsby wetlands
Probability Probability damagedamage
Without Without wetlandwetland
.05.05 10,000,000,0010,000,000,0000
Small WetlandSmall Wetland
Big wetlandBig wetland.02.02
.01.015,000,000,0005,000,000,000
1,000,000,0001,000,000,000
Wetland cost small 50,000,000 big 120,000,000Value of wetland 10,000,000,000 *.05=500,000,000Minus damage small 100.000,000 big 10,000,000Minus cost small 50,000,000 big 120,000,000 Total gain small 350,000,000 big 370,000,000
Example 3:Forest Example 3:Forest preservation preservation
Forest communities cut forest to gain income Forest communities cut forest to gain income from lumber sale and range activitiesfrom lumber sale and range activities
That leads to erosion, loss of biodiversity, That leads to erosion, loss of biodiversity, carbon release, existence value losscarbon release, existence value loss
Forest vary by quality and likelihood of Forest vary by quality and likelihood of deforestationdeforestation
The government wants to slow deforestationThe government wants to slow deforestation It established a purchasing fund to pay forest It established a purchasing fund to pay forest
communities for preservationcommunities for preservation One program has the government ask One program has the government ask
communities to provide proposal of communities to provide proposal of conservation activities that will lead to conservation activities that will lead to preservation of forest in the next 15 yearspreservation of forest in the next 15 years
Forest purchasing fundForest purchasing fund There is a large number of forest There is a large number of forest
communities entitled to participatecommunities entitled to participate Candidate to the program has to provide Candidate to the program has to provide
a bid-a bid- How much area they want to preserveHow much area they want to preserve How much they want in annual payHow much they want in annual pay Features of the forest to be preservedFeatures of the forest to be preserved
TreesTrees LocationLocation Wildlife Wildlife Soil erosion protection and water purificationSoil erosion protection and water purification
Management activities :Forest ES Management activities :Forest ES fundfund
Ranking proposalsRanking proposals Likelihood of deforestationLikelihood of deforestation Value of contribution of forest Value of contribution of forest
Are the tree rareAre the tree rare Soil erosion and water purification contributionsSoil erosion and water purification contributions Wild life and biodiversity contributionWild life and biodiversity contribution
Poverty of the community ( ES is used to reduce Poverty of the community ( ES is used to reduce poverty)poverty)
The benefits are then compared to costs to rank bids The benefits are then compared to costs to rank bids Selecting the highest ranked given the budgetSelecting the highest ranked given the budget Payments are annual ( budgets are annual)Payments are annual ( budgets are annual) Behavior of forest communities are monitored Behavior of forest communities are monitored
and penalty established for violationsand penalty established for violations
value of tree unit 1
value of erosion 1 Budget
area tree quality erosion bid/land value value/$ 24000
500 8 6 9 14 1.56 4500 4500300 3 9 8 12 1.50 2400 2400400 5 7 9 12 1.33 3600 0250 6 4 6 10 1.67 1500 1500300 2 9 7 11 1.57 2100 2100500 6 4 7 10 1.43 3500 0250 9 5 9 14 1.56 2250 2250450 6 6 6 12 2.00 2700 2700350 3 7 4 10 2.50 1400 1400250 2 8 5 10 2.00 1250 1250500 3 6 7 9 1.29 3500 0400 6 7 6 13 2.17 2400 2400350 8 8 9 16 1.78 3150 3150
total 34250 23650
value of tree unit 1
value of erosion 0.5 Budget
area tree quality erosion bid/land value value/$ 24000
500 8 6 9 11 1.22 4500 4500300 3 9 8 7.5 0.94 2400 0400 5 7 9 8.5 0.94 3600 0250 6 4 6 8 1.33 1500 1500300 2 9 7 6.5 0.93 2100 0500 6 4 7 8 1.14 3500 3500250 9 5 9 11.5 1.28 2250 2250450 6 6 6 9 1.50 2700 2700350 3 7 4 6.5 1.63 1400 1400250 2 8 5 6 1.20 1250 1250500 3 6 7 6 0.86 3500 0400 6 7 6 9.5 1.58 2400 2400350 8 8 9 12 1.33 3150 3150
total 34250 22650
Issues of Forest ES Issues of Forest ES programprogram
Monitoring- through remote sensing and Monitoring- through remote sensing and random physical inspectionrandom physical inspection
Enforcement= how do you punish Enforcement= how do you punish violations by poor forest communitiesviolations by poor forest communities Are leaders personally responsible?Are leaders personally responsible? What about control of crime that endanger What about control of crime that endanger
forests?forests? Distribution- who receives the money? Distribution- who receives the money?
The community leadership or the forest The community leadership or the forest dwellers that may lose earning dwellers that may lose earning opportunities? opportunities?
US ag conservation US ag conservation programsprograms TThe Conservation Reserve Programhe Conservation Reserve Program (CRP) pays (CRP) pays
rents and cost-share assistance for long-term, rents and cost-share assistance for long-term, land conversion from farming conservationland conversion from farming conservation
EQIPEQIP pays for adoption of conservation pays for adoption of conservation practices in livestock or agriculture.practices in livestock or agriculture.
The Wetlands ReserveThe Wetlands Reserve Program is offering Program is offering landowners the opportunity to protect, restore, landowners the opportunity to protect, restore, and enhance wetlands on their property. and enhance wetlands on their property.
Conservation security programConservation security program CSP provides CSP provides financial and technical assistance to promote financial and technical assistance to promote the conservation and improvement of soil, the conservation and improvement of soil, water, air, energy, plant and animal life, and water, air, energy, plant and animal life, and other conservation purposes on Tribal and other conservation purposes on Tribal and private working lands. private working lands.
US conservation programUS conservation program CRP-Originated in soil conservation programCRP-Originated in soil conservation program
Initially targeted cheapest landsInitially targeted cheapest lands Now use an index based on mixture of attributesNow use an index based on mixture of attributes
Spending 2005Spending 2005 CRP 1.9 BillCRP 1.9 Bill EQIP 1.0 BillEQIP 1.0 Bill CSP .2 BillCSP .2 Bill WRP .3 BillWRP .3 Bill Other .2 BillOther .2 Bill
Payments are targeted to regions where there Payments are targeted to regions where there is political pressure not environmental needis political pressure not environmental need
IS it a subsidy or a genuine program?IS it a subsidy or a genuine program?
Alternative Approaches to Alternative Approaches to Wetland ProtectionWetland Protection
Land retirementLand retirement Working landsWorking lands
CarrotCarrot CRP, WRPCRP, WRP EQIPEQIP
StickStick SwampbusterSwampbuster
Conservation Reserve Conservation Reserve Program:Program:BackgroundBackground The CRP is a land retirement program. It aims The CRP is a land retirement program. It aims
to reduce farm acreage so to increase supply to reduce farm acreage so to increase supply and to increase farm income.and to increase farm income.
The biggest program of U,S. Agriculture is The biggest program of U,S. Agriculture is excess supply. Another problem has been soil excess supply. Another problem has been soil erosion. Conservation programs traditionally erosion. Conservation programs traditionally paid farmers to take erosive land out of paid farmers to take erosive land out of production production
Conservation programs are “Green” policies, Conservation programs are “Green” policies, and are looked favorably by international trade and are looked favorably by international trade agreements aimed to reduce farm support. agreements aimed to reduce farm support. They are likely to increase in importance. They are likely to increase in importance.
CRP-Basic FeaturesCRP-Basic Features CRP provides owners or operators with an annual CRP provides owners or operators with an annual
per-acre rental payment and 1/2 the cost of per-acre rental payment and 1/2 the cost of establishing a permanent land cover for retiring establishing a permanent land cover for retiring cropland from production for 10- to 15-years.cropland from production for 10- to 15-years.
Producers can offer land for competitive bidding Producers can offer land for competitive bidding based on an Environmental Benefits Index (EBI) based on an Environmental Benefits Index (EBI) during periodic signups.during periodic signups.
Producers can automatically enroll more limited Producers can automatically enroll more limited acreages in practices such as riparian buffers, acreages in practices such as riparian buffers, field windbreaks, and grass strips on a continuous field windbreaks, and grass strips on a continuous basisbasis
Enrollees in selected practices program receive Enrollees in selected practices program receive enhanced rental rates, 50-percent cost-sharing enhanced rental rates, 50-percent cost-sharing and a per-acre maintenance payment. and a per-acre maintenance payment.
CRP RentsCRP Rents
CRP Rental Rate (Dollar/Acre)
12 - 4040 - 5050 - 6060 - 7070 - 113No CRP
CRP Historical CRP Historical BackgroundBackground
CRP Established in its current form in 1985 to be CRP Established in its current form in 1985 to be administered by USDA’s Farm Services Agency (FSA) administered by USDA’s Farm Services Agency (FSA) ad funded through Commodity credit corporation.ad funded through Commodity credit corporation.
In 1996, CRP was reauthorized, limiting enrollment to In 1996, CRP was reauthorized, limiting enrollment to 36.4 million acres at any time.36.4 million acres at any time.
In 2000, enhanced incentives for continuous signup:In 2000, enhanced incentives for continuous signup: A signing incentive payment of $100 to $150 per A signing incentive payment of $100 to $150 per
acre acre A practice incentive payment equal to 40 percent A practice incentive payment equal to 40 percent
of cost-sharing for all continuous signup practicesof cost-sharing for all continuous signup practices As of October 2001, about 1.5 million acres had been As of October 2001, about 1.5 million acres had been
enrolled in the continuous signup, enrolled in the continuous signup, The 2002 Farm Act increased the enrollment limit to The 2002 Farm Act increased the enrollment limit to
39 million acres.39 million acres.
The Wetland Reserve The Wetland Reserve ProgramProgram
WRP was authorized under the 1985 Farm Act. WRP was authorized under the 1985 Farm Act. Under the 2002 Farm Act, the acreage cap is Under the 2002 Farm Act, the acreage cap is
increased from 1.075 million acres to 2.275 million increased from 1.075 million acres to 2.275 million acres. acres.
Objective is to enroll 250,000 acres per yearObjective is to enroll 250,000 acres per year Options: a permanent or30-year conservation Options: a permanent or30-year conservation
easement or a 10-year cost-share restoration easement or a 10-year cost-share restoration agreementagreement
USDA pays 100 percent of restoration costs for USDA pays 100 percent of restoration costs for permanent easements, and 75 percent for 30-year permanent easements, and 75 percent for 30-year easements and restoration cost-share agreements. easements and restoration cost-share agreements.
Conservation vs restoration .Conservation vs restoration . was around $1,300 was around $1,300 per acre. The study also concludes that the WRP per acre. The study also concludes that the WRP achieves restoration at around $600 per acre. achieves restoration at around $600 per acre.
Retirement Program and Retirement Program and WetlandsWetlands
The 2002 Act expands land retirement by The 2002 Act expands land retirement by 4 million acres, WRP enrollment cap more 4 million acres, WRP enrollment cap more than doubles, from 1.075 million acres to than doubles, from 1.075 million acres to 2.275 million,. In the CRP, 500,000 acres 2.275 million,. In the CRP, 500,000 acres could be used to enroll farmed wetlands could be used to enroll farmed wetlands and associated buffer acreage. and associated buffer acreage.
CRP serves to support farmers income-not CRP serves to support farmers income-not environmental needs. Has limits as environmental needs. Has limits as wetlands policy framework. wetlands policy framework.
Working LandWorking Land Working land conservation programs can Working land conservation programs can
benefit wetlands mostly indirectly by benefit wetlands mostly indirectly by reducing agricultural pollution.reducing agricultural pollution.
$5.7 billion is available from 2002-2007 $5.7 billion is available from 2002-2007 and $12 billion from 2002-11 for the and $12 billion from 2002-11 for the Environmental Quality Incentives Environmental Quality Incentives Program (EQIP), Wildlife Habitat Program (EQIP), Wildlife Habitat Incentives Program (WHIP), and Incentives Program (WHIP), and Conservation Security Program (CSP).Conservation Security Program (CSP).
The Environmental The Environmental Quality Incentives Quality Incentives
Program EQIPProgram EQIP*EQIP-Provides technical assistance, cost*EQIP-Provides technical assistance, cost
sharing (up to 75 percent), and incentive sharing (up to 75 percent), and incentive payments to assist livestock and croppayments to assist livestock and crop
producers with environmental improvements.producers with environmental improvements.
*60%of EQIP's funding earmarked for *60%of EQIP's funding earmarked for livestock producers, livestock producers,
No size limits on livestock operations,No size limits on livestock operations,
Payments are limited to a total of $450,000 Payments are limited to a total of $450,000 per operation over the 6-year life of the per operation over the 6-year life of the Act. Act.
Conservation Security Fund & Conservation Security Fund & The Wildlife Habitat Incentives The Wildlife Habitat Incentives
ProgramProgram The Conservation Security Program will focus The Conservation Security Program will focus
on land-based practices and specifically on land-based practices and specifically excludes livestock waste-handling facilities. excludes livestock waste-handling facilities. Producers can participate at one of three Producers can participate at one of three tiers; higher tiers require greater tiers; higher tiers require greater conservation effort and offer higher conservation effort and offer higher payments. The lowest cost practices that payments. The lowest cost practices that meet conservation standards must be used.meet conservation standards must be used.
The Wildlife Habitat Incentives Program The Wildlife Habitat Incentives Program provides cost sharing to landowners and provides cost sharing to landowners and producers to develop and improve wildlife producers to develop and improve wildlife habitathabitat..
Swampbuster Swampbuster EstablishedEstablished 19851985
. . "Swampbuster" - farmers or ranchers lose eligibility for "Swampbuster" - farmers or ranchers lose eligibility for farm program benefits if they produce an agricultural farm program benefits if they produce an agricultural commodity on a wetland converted after December 23, commodity on a wetland converted after December 23, 1985, or if they convert a wetland after November 28, 1985, or if they convert a wetland after November 28, 1990,.1990,. Swampbuster recognizes four categories of wetlands:.Swampbuster recognizes four categories of wetlands:. Wetlands, or areas that contain hydric soils which Wetlands, or areas that contain hydric soils which
support mostly hydrophatessupport mostly hydrophates Converted wetlands, defined as areas drained or altered Converted wetlands, defined as areas drained or altered
after December 23, 1985after December 23, 1985 Farmed wetlands, or areas partially drained or altered Farmed wetlands, or areas partially drained or altered
to produce a crop prior to Swampbuster, but which still to produce a crop prior to Swampbuster, but which still retain some wetland characteristicsretain some wetland characteristics
Prior converted wetlands, or areas that were used for Prior converted wetlands, or areas that were used for farming prior to Swampbuster and which no longer farming prior to Swampbuster and which no longer exhibit any wetland characteristics.exhibit any wetland characteristics.
Permitting vs. Voluntary Permitting vs. Voluntary ProgramsPrograms Permitting cuts down on uncertainty. It can lead Permitting cuts down on uncertainty. It can lead
to a more accurate assessment of the inventory of to a more accurate assessment of the inventory of wetlands. With incentive programs, more work is wetlands. With incentive programs, more work is necessary to measure wetland gains and losses necessary to measure wetland gains and losses
In a permitting system, applicants must bear In a permitting system, applicants must bear significant fixed application costs. With voluntary significant fixed application costs. With voluntary program, the government pays for targetingprogram, the government pays for targeting
Voluntary program may be captured.Voluntary program may be captured. Targeting criteria matters acreage maximization Targeting criteria matters acreage maximization
benefits farmers.Should target lands with highest benefits farmers.Should target lands with highest benefit cost ratio.benefit cost ratio.
Slippage-high commodity prices lead to reuse of Slippage-high commodity prices lead to reuse of marginal lands or wetlands-should be considered marginal lands or wetlands-should be considered in designin design
Activities of Private Activities of Private Groups Groups
Easements, Duck Unlimited DU rarely buys Easements, Duck Unlimited DU rarely buys wetlands outright, but negotiates conservation wetlands outright, but negotiates conservation easements. These agreements are for 10-easements. These agreements are for 10-years.years.
The nature conservancy has a diversified The nature conservancy has a diversified approachapproach
Ownership TypeOwnership Type AcresAcres Conservation EasementConservation Easement 1,400,453 1,400,453 Management AgreementsManagement Agreements 1,389,0991,389,099 LeasesLeases 2,146,7452,146,745 Owned by TNCOwned by TNC 2,098,9502,098,950 TOTALTOTAL 7,035,2467,035,246
Conservation Conservation PartnershipsPartnerships
One such collaboration between DU and the federal One such collaboration between DU and the federal government is the River CARE project in which DU government is the River CARE project in which DU and the NRCS have cooperated in implementing and the NRCS have cooperated in implementing the WRP in the Mississippi Alluvial Valley (MAV). the WRP in the Mississippi Alluvial Valley (MAV). By 1998, more than 1,500 private landowners in By 1998, more than 1,500 private landowners in the MAV were active partners with DU and WRP to the MAV were active partners with DU and WRP to provide and restore wildlife habitat on their lands. provide and restore wildlife habitat on their lands.
TNC’s Glacial Ridge Project, one of 12 habitats TNC’s Glacial Ridge Project, one of 12 habitats targeted in the “Saving the Last Great Places” targeted in the “Saving the Last Great Places” campaign, received $1.6 million from NRCS as part campaign, received $1.6 million from NRCS as part of the USDA’s WRP program for a partial easement of the USDA’s WRP program for a partial easement payment to restore nearly 2,800 acres of previously payment to restore nearly 2,800 acres of previously drained wetland and 1,500 acres of tall grass drained wetland and 1,500 acres of tall grass prairie in Minnesota. Saving the Last Great Places, prairie in Minnesota. Saving the Last Great Places,
International programsInternational programs
Debt for nature swapDebt for nature swap Problem- government get money, rural Problem- government get money, rural
people do not see thatpeople do not see that
Private vs. Public Private vs. Public ApproachesApproaches
Public sector is not forced to pay attention to factor Public sector is not forced to pay attention to factor prices. Private groups have better incentives to target prices. Private groups have better incentives to target the land with the highest level of environmental the land with the highest level of environmental amenities per dollar spent. amenities per dollar spent.
Private investment in wetland conservation, includes Private investment in wetland conservation, includes land purchase expenditures and investment in land purchase expenditures and investment in improvement on wetland quality. improvement on wetland quality.
From the Corps perspective, the land has no From the Corps perspective, the land has no opportunity cost, from a societal perspective the land opportunity cost, from a societal perspective the land is valuable in providing other services. This, there may is valuable in providing other services. This, there may be a tendency to over-regulate and acquire more land be a tendency to over-regulate and acquire more land than is socially optimal.than is socially optimal.
ES new item in Env. Policy ES new item in Env. Policy makers toolbox makers toolbox
Old tools Old tools Command and controlCommand and control Cap and tradeCap and trade
New policy New policy
Paying for ES -Paying for ES - “ “When you can not beat them-bribe them”When you can not beat them-bribe them” Base line and creditBase line and credit
Rationale for ES Rationale for ES programsprograms
Payment for positive externalitiesPayment for positive externalities When polluters has rights to pollute ES When polluters has rights to pollute ES
programs will buy pollution reductionprograms will buy pollution reduction Payments for public goodsPayments for public goods
Existence value, knowledgeExistence value, knowledge Common problems-the atmosphereCommon problems-the atmosphere Correcting mismanagement of a stockCorrecting mismanagement of a stock
Alternative mechanisms sell Alternative mechanisms sell ES ES
All mechanisms have problems and need All mechanisms have problems and need improvementimprovement
MarketsMarkets Clearing house ?Clearing house ? Formal Markets Formal Markets ExchangesExchanges
OffsetsOffsets Bilateral dealsBilateral deals AuctionsAuctions Subsidies & government paymentsSubsidies & government payments
Environmental Services & Environmental Services & Land Use Land Use
Distinguish between resource rental programs Distinguish between resource rental programs and working land programsand working land programs
Working land programs-promoting green Working land programs-promoting green practicespractices
Conversion of lands to “greener” useConversion of lands to “greener” use From farming to forestFrom farming to forest
Prevention of land use conversionsPrevention of land use conversions Controlling developmentControlling development
What is the Asset unit?What is the Asset unit? Generally not land- but resource stock related to Generally not land- but resource stock related to
land useland use Stored carbonStored carbon Water quality in lakeWater quality in lake
The Multidimensionality of The Multidimensionality of ESES
The same land may provide a multitude of ES The same land may provide a multitude of ES Some ES are provided simultaneously others Some ES are provided simultaneously others
are not are not Growing Wetland conflicts with native plantsGrowing Wetland conflicts with native plants Soil erosion and wind erosion are complementarySoil erosion and wind erosion are complementary
ES may provide regional, national & global ES may provide regional, national & global benefitsbenefits
Benefits of ES vary across individuals &groupsBenefits of ES vary across individuals &groups Bird watchers & hunters benefit from better bird Bird watchers & hunters benefit from better bird
habitathabitat All gain from flood control- gains vary by locationAll gain from flood control- gains vary by location
The Dimensions of The Dimensions of Wetland ServicesWetland Services
Local National International
Wildlife habitat PublicPrivate
Public Public
Flood control Public Private Public Private Public Private
Water purification PrivatePublic
Public Private
Aesthetic value Public Private Public Public
Recreation Private Private Private
Existence Public Public Public
Implication of “Beneficiary Implication of “Beneficiary pay” pay” Government pays for public good aspectsGovernment pays for public good aspects- -
utilized by manyutilized by many No exclusionNo exclusion - e.g Existence value - e.g Existence value
Private agencies should pay for private Private agencies should pay for private benefits.benefits.
BUTBUT Private Private willingness to paywillingness to pay for ES is understated for ES is understated
because it emits public goods because it emits public goods There is a role for public-private cooperationThere is a role for public-private cooperation
Matching fund Matching fund Tax creditTax credit
Selling ES in markets vs. Selling ES in markets vs. special tradesspecial trades
MarketLow transaction costStandard productLarge number of buyersMinimal contact of buyerand seller
Special dealTailor product to buyers’ needsLocal small number of potential partnerNeeds a way to link buyer to seller green E-bay
Elements of Elements of implementationimplementation
MeasurementMeasurement
ES output meeting well defined standardsES output meeting well defined standards
Monitoring and enforcementMonitoring and enforcement
UnbundlingUnbundling
HeterogeneityHeterogeneity
CorrelationCorrelation
TargetingTargeting
Role of governmentRole of government
Third partyThird party
MeasurementMeasurement Buyers and sellers need to knowBuyers and sellers need to know
What is delivered - when - for what priceWhat is delivered - when - for what price Deliverables can be outcomes or actionsDeliverables can be outcomes or actions Must be easily measurableMust be easily measurable Simplicity and common sense are essential Simplicity and common sense are essential
ES is controlled by the worker in the fieldES is controlled by the worker in the field Not the scientist is the lab.Not the scientist is the lab.
Clever use of new IT can improve measurement Clever use of new IT can improve measurement accounting and monitoring accounting and monitoring
The reasons for ES product The reasons for ES product standardsstandards
( ( Being commodities not unique Being commodities not unique products)products) Buyers wantBuyers want
to know what they buyto know what they buy To sell it when they want ( liquidity)To sell it when they want ( liquidity) Certification by trusted agencyCertification by trusted agency
All associated with having ES meeting standards. All associated with having ES meeting standards. AlsoAlso
Low transaction costLow transaction cost High volume of tradingHigh volume of trading
Monitoring and Monitoring and EnforcementEnforcement ES are frequently generated on large ES are frequently generated on large
parcels of land over long period of timeparcels of land over long period of time Farmers can easily cut cornersFarmers can easily cut corners Inspection backed by action will lead to Inspection backed by action will lead to
improved ES qualityimproved ES quality justify higher pricesjustify higher prices Can be part of certification programCan be part of certification program Monitoring allows establishing Monitoring allows establishing buyers buyers
insurance plansinsurance plans ( Guaranteeing delivery ( Guaranteeing delivery and compensation)and compensation)
ES markets allow selling ES markets allow selling bundles of ESbundles of ES
A field may generate various types of ESA field may generate various types of ES Potential buyer may be interested in only part Potential buyer may be interested in only part
of the packageof the package The Land owner’s gain will increase If they The Land owner’s gain will increase If they
can sell different types of ES to to different can sell different types of ES to to different buyersbuyers
A well functioning ES market results in a A well functioning ES market results in a pricing of individual ES that will increase the pricing of individual ES that will increase the flexibility of the buyers and sellers flexibility of the buyers and sellers
HeterogeneityHeterogeneity
Lands vary in their productivity and ES Lands vary in their productivity and ES generationgeneration
Sometimes 90% of certain ES is Sometimes 90% of certain ES is provided by 10% landprovided by 10% land
Both buyers and sellers benefit when Both buyers and sellers benefit when buyer who appreciate certain ES are buyer who appreciate certain ES are able to get them-part of efficient buying able to get them-part of efficient buying and selling strategiesand selling strategies
Buying the lands with the best ES is not Buying the lands with the best ES is not always the best strategy- best to buy ES always the best strategy- best to buy ES who provide highest value Per dollarwho provide highest value Per dollar
Targeting strategiesTargeting strategies
A buyer with given budget may chooseA buyer with given budget may choose Acreage maximizationAcreage maximization given the budget given the budget
This strategy is preferred by sellersThis strategy is preferred by sellers
It is optimal only when cheapest lands provide most It is optimal only when cheapest lands provide most ES.ES.
Benefits targetingBenefits targeting Purchase the highest quality Purchase the highest quality lands within budget -best for buyers if there is lands within budget -best for buyers if there is lower variability of productivity than ES among lower variability of productivity than ES among landslands
Benefit /cost Targeting Benefit /cost Targeting Purchase lands with the Purchase lands with the highest highest per dollars given the budget-highest highest per dollars given the budget-always works for buyersalways works for buyers
Targeting strategiesTargeting strategies Suppose there are N locations, identified by n=1,NSuppose there are N locations, identified by n=1,N . .
An= Land of location n, An= Land of location n, Bn = Benefits per acre of location n.Bn = Benefits per acre of location n. Cn = Costs per acre( value of land in alternative useCn = Costs per acre( value of land in alternative use)) Budget SBudget S
Acreage Maximization-buy all land with Acreage Maximization-buy all land with Cn<CCn<C
benefits maximization-buy all land with benefits maximization-buy all land with Bn>BBn>B
Benefit cost maximization: buy all land with Benefit cost maximization: buy all land with Bn/Cn>B/C Bn/Cn>B/C
targetingtargeting
C
CostMinimization
Benefit max
Benefit/cost ratio
Importance of Importance of heterogeneityheterogeneityranking vary ranking vary withtargetingwithtargeting
CC BB B/CB/C Rank C max Bmax B/C maxRank C max Bmax B/C max
1010 55 .5.5 6 4.5 46 4.5 4
88 3 3 .375.375 3 7.5 63 7.5 6
1515 66 .4.4 8 2,5 58 2,5 5
66 55 ,83,83 1 4.5 21 4.5 2
88 77 .875.875 3 1 13 1 1
99 33 .333.333 5 7.5 75 7.5 7
1414 44 .29.29 7 6 87 6 8
88 66 .75.75 3 2.5 33 2.5 3
Third partiesThird parties
Designers of ES programs need to be aware Designers of ES programs need to be aware that that
taking lands out of production may result taking lands out of production may result in increase ag pricesin increase ag prices May backfire leading to farming of previously May backfire leading to farming of previously
idle lands (slippage)- thus may need to pay for idle lands (slippage)- thus may need to pay for prevention prevention
Reduced farm activities may reduce tax baseReduced farm activities may reduce tax base Landowners may gain but operators and Landowners may gain but operators and
other lose other lose
Role of government in ESRole of government in ES Create demand for environmental creditsCreate demand for environmental credits Establish rules of games- Establish rules of games-
definition definition LiabilityLiability
Invest in R&D to allow measurement and better Invest in R&D to allow measurement and better pricing of ESpricing of ES
Pay for public good aspects of ESPay for public good aspects of ES Play role of assembler of Domestic ES in global Play role of assembler of Domestic ES in global
program (Kyoto)program (Kyoto)
ES and poverty ES and poverty alleviationalleviation
Theory:One tool (ES) may be ineffective in Theory:One tool (ES) may be ineffective in the pursuit of two objectives( the pursuit of two objectives( Environmental Environmental
quality and poverty alleviationquality and poverty alleviation) ) it all depends on synergies and it all depends on synergies and
correlationscorrelations
Es program may affectEs program may affect Urban poor Urban poor Poor asset ownersPoor asset owners Landless rural poorLandless rural poor
Impacts on urban poorImpacts on urban poor
Possibly negative food prices effect Possibly negative food prices effect ( supply reduction)( supply reduction)
Employment effects of various kindsEmployment effects of various kinds Some ES program y supply pro poor Some ES program y supply pro poor
goods goods Flood control, fire protection Flood control, fire protection Improved water qualityImproved water quality
Existence value of wild life is presumably Existence value of wild life is presumably a luxury gooda luxury good
Impacts on poor assets Impacts on poor assets ownersowners
when they are sold to ESwhen they are sold to ES NotationNotation B = ES per acreB = ES per acre R rent per acreR rent per acre W=Value of labor release at saleW=Value of labor release at sale V price of ESV price of ES Farms have L hectaresFarms have L hectares Farm income before program L*RFarm income before program L*R Poorer farmers may have less land, lower rent or Poorer farmers may have less land, lower rent or
both both Land will be sold for ES ifLand will be sold for ES if
VB+W>RVB+W>R
Gain = VB - R + W Per unit if landGain = VB - R + W Per unit if land
Do the poor gain from Do the poor gain from selling land for ES?selling land for ES?
Case of significant gainCase of significant gain A positive correlation between wealth and rent -A positive correlation between wealth and rent -
Poorer farmers has small and less productive Poorer farmers has small and less productive farmsfarms
A negative correlation between B and R- less A negative correlation between B and R- less productive land provides more ESproductive land provides more ES
Gain is higher the higher are v and WGain is higher the higher are v and W Gain to poor from ES is relatively smaller Gain to poor from ES is relatively smaller
If no correlation between size and R- rich is largerIf no correlation between size and R- rich is larger No correlation between B and R.No correlation between B and R.
Poor may not gain much if they own small and Poor may not gain much if they own small and highly productive plots highly productive plots
The case of working landsThe case of working lands Payment per acre VBPayment per acre VB Costs include Costs include R= PR= PY+ Y+ CC
Revenue loss PRevenue loss PY ( use traditional technology) Y ( use traditional technology) Cost increase Cost increase C ( Reduce input use)C ( Reduce input use)
Participate in ES program if VB> PParticipate in ES program if VB> PY+ Y+ CC Poor benefit if (Poor benefit if (PPY+ Y+ C)/ VB C)/ VB isis negatively negatively
correlated to income. E.g,correlated to income. E.g, Payment aim to preserve varieties used by Payment aim to preserve varieties used by
poor. They have high B and low poor. They have high B and low YY Poor are located in erosive area and payment Poor are located in erosive area and payment
for less erosive toil managmentfor less erosive toil managment
Impacts on land lessImpacts on land less If landless are employed in activities If landless are employed in activities
reduced by ES program- the programs mayreduced by ES program- the programs may benefitbenefit the poor the poor land ownersland owners but may but may harmharm the the landlesslandless
ES program design affects employment & ES program design affects employment & livelihood opportunities of the landless . livelihood opportunities of the landless . Less jobs if ES results in closed reserves Less jobs if ES results in closed reserves
than when it leads to Eco tourismthan when it leads to Eco tourism Diverting resources and denying access Diverting resources and denying access
as part of ES management may be costly as part of ES management may be costly to the landless (to the landless (they utilize these resources they utilize these resources informally) informally)
Dynamic considerationsDynamic considerations Poor may be late adopters and ES payment Poor may be late adopters and ES payment
excludes consideration of improved options.excludes consideration of improved options. The benefits of ES program may vary in their The benefits of ES program may vary in their
dynamic profile. dynamic profile. Some ES effort aim to induce a sustainable Some ES effort aim to induce a sustainable
changechange Other aim to provide quick reliefOther aim to provide quick relief Income may vary over time Income may vary over time
Contract should reflect the dynamic nature of Contract should reflect the dynamic nature of benefits and income available to ES programbenefits and income available to ES program
ES design should consider impact of present ES design should consider impact of present performance on future earningperformance on future earning
Management of Purchasing FundManagement of Purchasing Fund Heterogeneity -Heterogeneity -ESES benefit &cost per acre varybenefit &cost per acre vary Consider first the case with the No Scale effects-Consider first the case with the No Scale effects- Suppose there are N locations, identified by n=1,NSuppose there are N locations, identified by n=1,N . .
An= Land of location n, An= Land of location n, Bn = Benefits per acre of location n.Bn = Benefits per acre of location n. Cn = Costs per acre( value of land in alternative useCn = Costs per acre( value of land in alternative use))
Targeting criteriaTargeting criteria Acreage maximizationAcreage maximization Buy the lands with the Buy the lands with the
lowest Cn (regardless of benefits) given the lowest Cn (regardless of benefits) given the budgetbudget
Benefits targetingBenefits targeting Purchase the highest quality Purchase the highest quality lands (lands with highest Bn) within budget lands (lands with highest Bn) within budget
Benefit /cost Targeting Benefit /cost Targeting Purchase lands with the Purchase lands with the highest Bn/Cn (highest benefit cost ratio) given highest Bn/Cn (highest benefit cost ratio) given the budgetthe budget