Ecosystem Services: What are they, we need them, and how to preserve them. The Economic Perspective Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics

What is Economics? ● The allocation of scarce resources among alternative desirable ends ● 3 questions an economist must ask  What are the desirable ends?  What are the scarce resources?  How do we allocate?

Outline of Presentation ● Answer these questions as they apply to Vermont’s natural resources ● What are the scarce resources, and what are their characteristics? ● How do we allocate? ● What are the desirable ends? ● Radically practical thoughts on solving the current economic crisis (if there is time and interest)

What Are the Scarce Resources? ● Law of Physics: You can't make something from nothing ● Everything the economy produces requires raw materials and energy provided by nature ● Law of Physics: You can't make nothing from something ● Everything the economy produces returns to nature as waste ● Exponential growth impossible in finite system

Energy ● Essential to do work ● Fossil fuels  Finite supply ● Combustion causes pollution  Degrades ecosystems

Hubbert Curve

Ecosystem Goods ● Raw materials provided by nature ● Essential inputs into all economic production ● We can use them up as fast as we like ● If I use it, you can't  Competition for use ● Market goods ● Ecosystem structure, building blocks of ecosystems

Ecosystem Services ● Structure generates function ● Ecosystem functions of value to humans known as ecosystem services ● Includes life support functions

Regulation Services ● Water regulation ● Disturbance reg ● Erosion control ● Soil creation ● Pollination ● Climate regulation ● Nutrient cycling ● Biological control ● Waste absorption ● etc.

Provisioning Services ● Production of food, fuel, fiber (regeneration of structure) ● History of Vermont  Clearing of land (Timber, Farmland)  Erosion, soil loss, economic collapse  Depopulation  Can we do this again?

Information Services ● Recreation, tourism  Forests: jobs for 2,393 Vermonters  Annual payrolls of $33 million annually ● Unknown benefits: e.g. Taxol ● Cultural attachments ● Scenery

Supporting Services ● Habitat ● Refugia ● Without biodiversity, there are no other services

Characteristics of Services ● Provided at a given rate over time—we can't use them as fast as we want ● If I use it, you still can (except waste absorption)  Cooperative in use  Prices create artificial scarcity, e.g. avian flu ● Can't be owned ● Non-market goods—no price signal to indicate scarcity

Ecosystem Services and Ignorance ● Passenger pigeons and Lyme disease ● The ozone layer ● Ecological thresholds ● Irreversibility ● What role do your salamanders play? ● What risks should we impose on future generations?

Agricultural Land ● Land as Good  Soil fertility is mined at rate we choose  Competitive within a generation  Market good ● Land as Service  Crops produced at certain rate over time  Cooperative: can be used by this and future generations ● Provides more eco-services than developed land

3.5 times more phosphorus run-off from developed land than ag land

So What? ● All economic production depletes ecosystem structure ● All economic production generates waste ● Resource extraction and waste emissions necessarily degrade ecosystem services ● Ecosystem services have become the scarcest resources

The Economic Problem ● How do we allocate finite ecosystem structure between:  Economic production  Production of life sustaining ecosystem goods and services ● How should we distribute resources among individuals?  Who is entitled to ownership of ecosystem goods?  Is anyone entitled to ecosystem services?

Relative Values ● Both economic production and ecosystem services essential to our survival ● Economics looks at marginal value—value of one more unit  More we have of something, the less one more unit is worth  Value of economic production is decreasing  Value of ecosystem services is increasing  When do we stop converting? ● Law of economics: stop doing something when marginal costs exceed marginal benefits ● Estimated value of global ecosystem services twice that of economic output

Relative Costs ● Is it fair to subsidize development? Developed land: $1.08-$1.29 in services for every dollar in taxes ● Undeveloped land: $0.06-$0.52 in services for every dollar in taxes

The Property Rights Issue ● Private property rights  Is it fair for landowners to degrade ecosystem services that entire community depends on? ● Public property rights (government ownership)  Is it fair to prevent landowners from using their land as they wish?  How do you feel about Ticonderoga paper mill? ● No property rights  Waste absorption capacity  Aquifers?

Solving the Problem ● Market solutions  one dollar, one vote—plutocracy  Provides incentives that may make us all better off in some circumstances ● Effective for many types of goods and services  Those that can be owned  Those for which use by one person prevents use by another

Solving the Problem ● How do make decisions about resources that can't be owned, and my use does not leave less for you to use?  Markets don't exist  No market incentive to provide resources  One citizen one vote? Democracy?  Cooperative provision, cooperative use? ● Existing property rights give owners the right to do as they choose with ecosystem goods (structure), hence control over ecosystem services

Options ● Let rights to goods trump rights to services  Risk another collapse of Vermont's economy  Services probably provide more benefits than goods. Inefficient. ● Limit rights to ecosystem goods  Property rights as a bundle  Lake Tahoe example  Is this fair? Speculators vs. farmers. ● Purchase rights to ecosystem services  Conservation easements  Payments for ecosystem services, e.g. NYC  Community purchase of land

Common property rights (citizen ownership) ● Declare common property rights to unowned goods and services  e.g. waste absorption capacity, aquifers, airwaves, etc. ● Restore common property rights when possible  e.g. waterfront and public trust doctrine ● Create common assets trust to manage resources for this and future generations ● Can use market mechanisms, e.g. cap and auction ● Revenue can be used to purchase and create more common property ● Vermont Common Assets Trust

What are the Desirable Ends? ● Goal of most economists is economic growth ● Per capita income has increase 10x since 1900, total income has increased 40x ● Per capita income in 1969 was 35% of today's  Was life less good then? ● Should our goal be to ensure that our children consume 2x as much as we do? Our grandchildren 4x as much?

Other Desirable Ends ● Sustainability ● Justice (just distribution) ● Health ● Education ● Stability (safe, secure jobs and environment) ● Happiness and satisfaction with life as a whole ● Efficiency  What is the cost of achieving these goals?

Solving the Sustainability Problem: Case study of the current crisis ● System wide change required ● Conceptual  How does the world work?  What are our goals (the desirable ends) ● Institutional  What are the rules under which the system operates?  What are the organizations that create and implement those rules? ● Technical  Techniques and technologies