Economic approaches to Sustainability:

Policy Principles and Practices

Opening Policy Windows

➲ Problem stream● Defining existing condition as a problem● Getting policy makers to accept definition

➲ Policy Stream● Develop consensus around policies

necessary to solve problem➲ Politics stream

● National mood; leading politicians accept gravity of problem and willing to implement necessary policies

➲ What does your project focus on?

Problem Stream

➲ What is the conventional and alternative problem definition for:

● VCAT● Alternatives to development in Ecuador● CASSE● Salmon restoration

➲ How do we get policy makers to accept these definitions?

Policy Stream: Tools

➲ Prescription➲ Payments➲ Penalties➲ Property rights➲ Persuasion➲ Power

➲ Concrete examples from each of your projects?

Policy and property rights

➲ Excludability and property rights➲ Property rights as a bundle➲ Changing conditions and the need for

changing property rights● Externalities in a full world● types of property rights

• Property rule

• Privilege

• Inalienability

Policy Stream: General Design Principles

Every independent policy goal must have an independent

policy instrument➲ What should our policy goals be?

● Sustainable scale● Just distribution● Efficient allocation● Others?

➲ Example of scale policy detrimental to distribution?

➲ Examples of policies that meet several goals?

Attain necessary degree of macro control with minimum sacrifice of

micro-level freedom and variability● Incentives (payments, penalties) vs.

prescription● Examples for scale?● Market mechanisms in theory allow

individuals to set MC=MB● Constant incentive to innovate

Attain necessary degree of macro control with minimum sacrifice of

micro-level freedom and variability

Marginal

abatement

costs

Firm 1 Firm 2 Firm 3

First 20% $50,000 $10,000 $25,000

2nd 20% $200,000 $25,000 $50,000

3rd 20% $400,000 $50,000 $100,000

4th 20% $800,000 $100,000 $175,000

Final 20% $1600,000 $500,000 $200,000

Leave a Margin of Error When Dealing with the Biophysical Environment

➲ Uncertainty and Irreversibility➲ Precautionary principle➲ Is democracy appropriate when we live

close to the edge?➲ Examples from projects?

● Europe vs. US● WTO● New chemicals?● 4Ps: Polluter Pays Precautionary Principle

(financial assurance bonds)

Start from historical conditions➲ Market system➲ Existing property rights

● CAT● PES● Pollution

➲ Public property rights➲ Government regulation➲ Role of courts in restricting property

rights● Lake Tahoe

➲ Sovereignty and international policies

Adaptive management

➲ Uncertainty➲ Evolution (ecological and technological)➲ Need to change our policies as we learn

more and as conditions change● Treat policies as scientific experiments

➲ e.g. Montreal Protocol, Kyoto?➲ How can this be built into your projects?

Institutions at the scale of the problem (subsidiarity)

➲ Spatial distribution of ecosystem services

➲ Decentralized decision making for decentralized problems

● The market is a decentralized decision making process for activities that affect only individuals

➲ Globalization➲ Examples from projects?

Policy sequence

➲ Scale● determines how much there is to be

distributed➲ Distribution

● Pareto optimal outcome possible from any initial distribution

● Must be decided before allocation➲ Allocation

Changing Complex Systems

➲ Leverage points● Where can we have the most impact?

➲ See Meadows, Donella. 1997. “Places to Intervene in a System,” Whole Earth, winter issue.

Leverage Point 9➲ Changing Numbers (subsidies, taxes,

standards, interest rates, etc.).● Standard economists stuff● Can still be powerful

➲ Command and control regulations● Create no incentives to exceed standards

➲ Pigouvian taxes● Scale is price determined● Constant incentive to innovate● Can't be used internationally

➲ Subsidies (perverse and otherwise)

Leverage Point 8➲ Changing material stocks and flows

● Built capital: Hawken, Lovins, Atkisson’s solution of replacing everything

● Natural capital: Maintaining buffering capacity can be an important leverage point

➲ Quotas● Scale is price determined● Constant incentive to innovate

➲ Relevance to projects?

Leverage Point 7

➲ Regulating Negative Feedback Loops● Feedback has to be proportional to problem● Too long or too short can be problematic

➲ Numbers (#9) more effective when they achieve this

● e.g. Pollution taxes➲ Route exhaust pipes through car?➲ Financial Assurance Bonds➲ Producer responsibility for disposal

# 6

➲ Controlling Positive Feedback Loops● non-equilibrium

➲ Population● Tradable baby permits

➲ Speculative bubbles ● Tobin tax

➲ Economic growth● Wealth tax

➲ Erosion rates● Penalties for poor land use practices

Deforestation destabilizes hillsides

…resulting in greater runoff, erosion and erosion gullies…

#5

➲ Information flows● Creating new feedback loops

➲ Educating the public➲ Related to persuasion➲ Electric meters➲ Most polluting industries➲ Toxic waste sites

#4

➲ Changing the rules (incentives, punishments, constraints)

● Changing property rights, privilege, constitutions

● The commons (democracy over plutocracy)● WTO● Free speech● Banning campaign contributions, lobbying,

etc.

Private property rights: Conversion of Private property rights: Conversion of Mangrove Ecosystems to Shrimp Mangrove Ecosystems to Shrimp AquacultureAquaculture

Public property rights

#3➲ Power of self organization

● Complexity theory and diversity➲ How do we maintain diversity?

● Endangered species act● Anti-trust legislation● University tenure

#2

➲ The Goals of the system➲ Changing the desirable ends

● Economic growth, or ecological sustainability, just distribution, emphasis on other capitals?

● “Ask not what America can do for you, but what you can do for America” vs. “Get the government off our backs”

➲ Can objective science achieve this?

#1

➲ Change the paradigm!➲ What is biophysically possible?➲ From neoclassical economics to

ecological economics

#0

➲ Transcend Paradigms

Politics Stream

➲ Focusing events➲ National mood➲ Changing administrations➲ Getting politicians to accept gravity of

problem, implement necessary policies➲ Examples from your projects?

State of the Political Stream➲ “Obama Urgent on Warming, Public

Cool” NYT➲ Belief that climate change is human

caused has decreased (Rasmussen poll)● “44% Say Global Warming Due To Planetary

Trends, Not People”➲ 95-0 non-binding resolution that we won’t

sign any climate change treaties in which poor countries don’t participate

● At the time, America emitted nearly 10x per capita as China, and nearly 20x as India

Why are we failing on the political stream?

➲ Strong media coverage of climate change skeptics?

● NYT headline today: “Use Energy, Get Rich and Save the Planet”

● “Dissenter on Warming Expands His Campaign” http://climatedepot.com/

➲ Media emphasis on unknown rather than known?

➲ Poor communication skills by scientist?➲ Lack of advocacy by scientists?

● Journal article title: Dragnet Ecology--"Just the Facts, Ma'am": The Privilege of Science in a Postmodern World

➲ Lack of a focusing event?● “the political system’s inability to address

long-term challenges without a thunderous precipitating event “

Insights from Behavioral Economics

➲ Why do we need to understand behavior?

● Environmental problems are caused by humans

● Understand what is desirable● Understand what is possible● Learn how to change behavior

People respond to immediate threats

"Dumbo, caught obsessing about higher planetary CO2, did not leave any descendants"

People respond to immediate threats

Finite pool of worry, Single action bias

How do we make decisions?

➲ Rational analysis of scientific and technical information?

➲ Personal experience, affect and emotion, trust, values, worldviews?

➲ Personal experience and time lags?➲ Affect and word choice

● Taxes vs. offsets● Negative thoughts first or positive

➲ Parallel and interacting

World Views

➲ Hierarchist: bureacuracy

➲ Egalitarian: hunter-gatherer

➲ Individualist: market➲ Fatalist:

prisoner/slave

Group vs. Individual behavior

➲ Groups more patient (lower discount rates)

➲ Groups do a better job assessing relevant info

➲ Easy to make people act as groups● “blue star team”

What influences preferences?

➲ Framing● 80% survival rate vs. 20% mortality

➲ Default choices● Organ donors

➲ Group or individual decisions➲ Starting points

● WTP or WTA?➲ What we think about first

Nudges: Libertarian Paternalism

➲ Strategic choice of words (strategic interpretation of scientific data, story telling)

➲ Order options (defaults)➲ Create group effects➲ How libertarian?

Presentations

➲ 20 minutes plus 10 for questions

Presentations➲ Grading criteria

● 25 pts. Clearly and accurately describe the problem you chose to address from the perspective of ecological economics. Relate to course content.

● 20 pts. Clearly and accurately explain how your research helps address the problem

● 15 pts. Explain what future groups will need to to do continue/implement your research

● 20 pts Creativity in presentation● 20 pts Ability to respond to any questions from

audience