EEP 101/econ 125:Market for Environmental services (ES) and poverty DAVID ZILBERMAN

Conservation&Preservation Conservation&Preservation Storage and stabilization ( e.g water,carbon ) Storage and stabilization ( e.g water,carbon ) Risk reduction ( flood control, protection form fire) Risk reduction ( flood control, protection form fire) Natural resources quality enhancement ( soil,water) Natural resources quality enhancement ( soil,water) Amenity creation-Restoration, Enhancement Amenity creation-Restoration, Enhancement What are we talking about? Categories of Environmental Services (ES)

Example 1: water cleanup The New York water utility considered investing $2 billions in water filtering The New York water utility considered investing $2 billions in water filtering The water was contaminated by waste of cows that grazed in the water catchments of the city’s reservoir The water was contaminated by waste of cows that grazed in the water catchments of the city’s reservoir The benefit per cow annually is $1000 The benefit per cow annually is $1000 It will cost $500 million to invest in in water quality if the cows will not graze. It will cost $500 million to invest in in water quality if the cows will not graze. After negotiation with the local farmer each land owner will receive $1500 per cow/annually not to graze After negotiation with the local farmer each land owner will receive $1500 per cow/annually not to graze The lawyers received $50million and stuff paid another $10 to reach a deal The lawyers received $50million and stuff paid another $10 to reach a deal

Example 1: water cleanup II If the rate of discount is 5% Ne Net benefits of PEM2,000,000,000 saved If the rate of discount is 5% Ne Net benefits of PEM2,000,000,000 saved Minus 20000*1000/ ,000,000 cow feed Minus 20000*1000/ ,000,000 cow feed Minus 500,000,000 invest Minus 500,000,000 invest Minus 60,000,000 transac. Cost Minus 60,000,000 transac. Cost Value of ES 1040,000,000,000 Value of ES 1040,000,000,000 Benefits were shared dairy gain receive 600 mil Benefits were shared dairy gain receive 600 mil Issues Issues Monitoring and enforcement of no grazing agreement Monitoring and enforcement of no grazing agreement

Example 2: Flood control by wetlands Probabilitydamage Without wetland.0510,000,000,000 Small Wetland Big wetland ,000,000,0001,000,000,000 Wetland cost small 50,000,000 big 120,000,000 Value of wetland 10,000,000,000 *.05=500,000,000 Minus damage small ,000 big 10,000,000 Minus cost small 50,000,000 big 120,000,000 Total gain small 350,000,000 big 370,000,000

Example 3:Forest preservation Forest communities cut forest to gain income from lumber sale and range activities Forest communities cut forest to gain income from lumber sale and range activities That leads to erosion, loss of biodiversity, carbon release, existence value loss That leads to erosion, loss of biodiversity, carbon release, existence value loss Forest vary by quality and likelihood of deforestation Forest vary by quality and likelihood of deforestation The government wants to slow deforestation The government wants to slow deforestation It established a purchasing fund to pay forest communities for preservation It established a purchasing fund to pay forest communities for preservation One program has the government ask communities to provide proposal of conservation activities that will lead to preservation of forest in the next 15 years One program has the government ask communities to provide proposal of conservation activities that will lead to preservation of forest in the next 15 years

Forest purchasing fund There is a large number of forest communities entitled to participate There is a large number of forest communities entitled to participate Candidate to the program has to provide a bid- Candidate to the program has to provide a bid- How much area they want to preserve How much area they want to preserve How much they want in annual pay How much they want in annual pay Features of the forest to be preserved Features of the forest to be preserved Trees Trees Location Location Wildlife Wildlife Soil erosion protection and water purification Soil erosion protection and water purification

Management activities :Forest ES fund Ranking proposals Ranking proposals Likelihood of deforestation Likelihood of deforestation Value of contribution of forest Value of contribution of forest Are the tree rare Are the tree rare Soil erosion and water purification contributions Soil erosion and water purification contributions Wild life and biodiversity contribution Wild life and biodiversity contribution Poverty of the community ( ES is used to reduce poverty) Poverty of the community ( ES is used to reduce 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 budget Selecting the highest ranked given the budget Payments are annual ( budgets are annual) Payments are annual ( budgets are annual) Behavior of forest communities are monitored and penalty established for violations Behavior of forest communities are monitored and penalty established for violations

Issues of Forest ES program Monitoring- through remote sensing and random physical inspection Monitoring- through remote sensing and random physical inspection Enforcement= how do you punish violations by poor forest communities Enforcement= how do you punish violations by poor forest communities Are leaders personally responsible? Are leaders personally responsible? What about control of crime that endanger forests? What about control of crime that endanger forests? Distribution- who receives the money? Distribution- who receives the money? The community leadership or the forest dwellers that may lose earning opportunities? The community leadership or the forest dwellers that may lose earning opportunities?

US ag conservation programs T he Conservation Reserve Program (CRP) pays rents and cost-share assistance for long-term, land conversion from farming conservation T he Conservation Reserve Program (CRP) pays rents and cost-share assistance for long-term, land conversion from farming conservation EQIP pays for adoption of conservation practices in livestock or agriculture. EQIP pays for adoption of conservation practices in livestock or agriculture. The Wetlands Reserve Program is offering landowners the opportunity to protect, restore, and enhance wetlands on their property. The Wetlands Reserve Program is offering landowners the opportunity to protect, restore, and enhance wetlands on their property. Conservation security program CSP provides financial and technical assistance to promote the conservation and improvement of soil, water, air, energy, plant and animal life, and other conservation purposes on Tribal and private working lands. Conservation security program CSP provides financial and technical assistance to promote the conservation and improvement of soil, water, air, energy, plant and animal life, and other conservation purposes on Tribal and private working lands.

US conservation program CRP-Originated in soil conservation program CRP-Originated in soil conservation program Initially targeted cheapest lands Initially targeted cheapest lands Now use an index based on mixture of attributes Now use an index based on mixture of attributes Spending 2005 Spending 2005 CRP 1.9 Bill CRP 1.9 Bill EQIP 1.0 Bill EQIP 1.0 Bill CSP.2 Bill CSP.2 Bill WRP.3 Bill WRP.3 Bill Other.2 Bill Other.2 Bill Payments are targeted to regions where there is political pressure not environmental need Payments are targeted to regions where there is political pressure not environmental need IS it a subsidy or a genuine program? IS it a subsidy or a genuine program?

Alternative Approaches to Wetland Protection Land retirement Working lands Carrot CRP, WRP EQIP StickSwampbuster

Conservation Reserve Program: Background The CRP is a land retirement program. It aims to reduce farm acreage so to increase supply and to increase farm income. The CRP is a land retirement program. It aims to reduce farm acreage so to increase supply and to increase farm income. The biggest program of U,S. Agriculture is excess supply. Another problem has been soil erosion. Conservation programs traditionally paid farmers to take erosive land out of production The biggest program of U,S. Agriculture is excess supply. Another problem has been soil erosion. Conservation programs traditionally paid farmers to take erosive land out of production Conservation programs are “Green” policies, and are looked favorably by international trade agreements aimed to reduce farm support. They are likely to increase in importance. Conservation programs are “Green” policies, and are looked favorably by international trade agreements aimed to reduce farm support. They are likely to increase in importance.

CRP-Basic Features CRP provides owners or operators with an annual per-acre rental payment and 1/2 the cost of establishing a permanent land cover for retiring cropland from production for 10- to 15-years. CRP provides owners or operators with an annual per-acre rental payment and 1/2 the cost of establishing a permanent land cover for retiring cropland from production for 10- to 15-years. Producers can offer land for competitive bidding based on an Environmental Benefits Index (EBI) during periodic signups. Producers can offer land for competitive bidding based on an Environmental Benefits Index (EBI) during periodic signups. Producers can automatically enroll more limited acreages in practices such as riparian buffers, field windbreaks, and grass strips on a continuous basis Producers can automatically enroll more limited acreages in practices such as riparian buffers, field windbreaks, and grass strips on a continuous basis Enrollees in selected practices program receive enhanced rental rates, 50-percent cost-sharing and a per-acre maintenance payment. Enrollees in selected practices program receive enhanced rental rates, 50-percent cost-sharing and a per-acre maintenance payment.

CRP Rents

CRP Historical Background CRP Established in its current form in 1985 to be administered by USDA’s Farm Services Agency (FSA) ad funded through Commodity credit corporation. CRP Established in its current form in 1985 to be administered by USDA’s Farm Services Agency (FSA) ad funded through Commodity credit corporation. In 1996, CRP was reauthorized, limiting enrollment to 36.4 million acres at any time. In 1996, CRP was reauthorized, limiting enrollment to 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 acre A signing incentive payment of $100 to $150 per acre A practice incentive payment equal to 40 percent of cost- sharing for all continuous signup practices A practice incentive payment equal to 40 percent of cost- sharing for all continuous signup practices As of October 2001, about 1.5 million acres had been enrolled in the continuous signup, As of October 2001, about 1.5 million acres had been enrolled in the continuous signup, The 2002 Farm Act increased the enrollment limit to 39 million acres. The 2002 Farm Act increased the enrollment limit to 39 million acres.

The Wetland Reserve Program 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 increased from million acres to million acres. Under the 2002 Farm Act, the acreage cap is increased from million acres to million acres. Objective is to enroll 250,000 acres per year Objective is to enroll 250,000 acres per year Options: a permanent or30-year conservation easement or a 10-year cost-share restoration agreement Options: a permanent or30-year conservation easement or a 10-year cost-share restoration agreement USDA pays 100 percent of restoration costs for permanent easements, and 75 percent for 30-year easements and restoration cost-share agreements. USDA pays 100 percent of restoration costs for permanent easements, and 75 percent for 30-year easements and restoration cost-share agreements. Conservation vs restoration. was around $1,300 per acre. The study also concludes that the WRP achieves restoration at around $600 per acre. Conservation vs restoration. was around $1,300 per acre. The study also concludes that the WRP achieves restoration at around $600 per acre.

Retirement Program and Wetlands The 2002 Act expands land retirement by 4 million acres, WRP enrollment cap more than doubles, from million acres to million,. In the CRP, 500,000 acres could be used to enroll farmed wetlands and associated buffer acreage. The 2002 Act expands land retirement by 4 million acres, WRP enrollment cap more than doubles, from million acres to million,. In the CRP, 500,000 acres could be used to enroll farmed wetlands and associated buffer acreage. CRP serves to support farmers income-not environmental needs. Has limits as wetlands policy framework. CRP serves to support farmers income-not environmental needs. Has limits as wetlands policy framework.

Working Land Working land conservation programs can benefit wetlands mostly indirectly by reducing agricultural pollution. Working land conservation programs can benefit wetlands mostly indirectly by reducing agricultural pollution. $5.7 billion is available from and $12 billion from for the Environmental Quality Incentives Program (EQIP), Wildlife Habitat Incentives Program (WHIP), and Conservation Security Program (CSP). $5.7 billion is available from and $12 billion from for the Environmental Quality Incentives Program (EQIP), Wildlife Habitat Incentives Program (WHIP), and Conservation Security Program (CSP).

The Environmental Quality Incentives Program EQIP *EQIP-Provides technical assistance, cost sharing (up to 75 percent), and incentive payments to assist livestock and crop producers with environmental improvements. *60%of EQIP's funding earmarked for livestock producers, No size limits on livestock operations, Payments are limited to a total of $450,000 per operation over the 6-year life of the Act. Payments are limited to a total of $450,000 per operation over the 6-year life of the Act.

Conservation Security Fund & The Wildlife Habitat Incentives Program The Conservation Security Program will focus on land-based practices and specifically excludes livestock waste-handling facilities. Producers can participate at one of three tiers; higher tiers require greater conservation effort and offer higher payments. The lowest cost practices that meet conservation standards must be used. The Conservation Security Program will focus on land-based practices and specifically excludes livestock waste-handling facilities. Producers can participate at one of three tiers; higher tiers require greater conservation effort and offer higher payments. The lowest cost practices that meet conservation standards must be used. The Wildlife Habitat Incentives Program provides cost sharing to landowners and producers to develop and improve wildlife habitat. The Wildlife Habitat Incentives Program provides cost sharing to landowners and producers to develop and improve wildlife habitat.

Swampbuster Established "Swampbuster" - farmers or ranchers lose eligibility for farm program benefits if they produce an agricultural commodity on a wetland converted after December 23, 1985, or if they convert a wetland after November 28, 1990,. Swampbuster recognizes four categories of wetlands:. Swampbuster recognizes four categories of wetlands:. Wetlands, or areas that contain hydric soils which support mostly hydrophates Wetlands, or areas that contain hydric soils which support mostly hydrophates Converted wetlands, defined as areas drained or altered after December 23, 1985 Converted wetlands, defined as areas drained or altered after December 23, 1985 Farmed wetlands, or areas partially drained or altered to produce a crop prior to Swampbuster, but which still retain some wetland characteristics Farmed wetlands, or areas partially drained or altered to produce a crop prior to Swampbuster, but which still retain some wetland characteristics Prior converted wetlands, or areas that were used for farming prior to Swampbuster and which no longer exhibit any wetland characteristics. Prior converted wetlands, or areas that were used for farming prior to Swampbuster and which no longer exhibit any wetland characteristics.

Permitting vs. Voluntary Programs Permitting cuts down on uncertainty. It can lead to a more accurate assessment of the inventory of wetlands. With incentive programs, more work is necessary to measure wetland gains and losses Permitting cuts down on uncertainty. It can lead to a more accurate assessment of the inventory of wetlands. With incentive programs, more work is necessary to measure wetland gains and losses In a permitting system, applicants must bear significant fixed application costs. With voluntary program, the government pays for targeting In a permitting system, applicants must bear significant fixed application costs. With voluntary program, the government pays for targeting Voluntary program may be captured. Voluntary program may be captured. Targeting criteria matters acreage maximization benefits farmers.Should target lands with highest benefit cost ratio. Targeting criteria matters acreage maximization benefits farmers.Should target lands with highest benefit cost ratio. Slippage-high commodity prices lead to reuse of marginal lands or wetlands-should be considered in design Slippage-high commodity prices lead to reuse of marginal lands or wetlands-should be considered in design

Activities of Private Groups Easements, Duck Unlimited DU rarely buys wetlands outright, but negotiates conservation easements. These agreements are for 10-years. Easements, Duck Unlimited DU rarely buys wetlands outright, but negotiates conservation easements. These agreements are for 10-years. The nature conservancy has a diversified approach The nature conservancy has a diversified approach Ownership TypeAcres Ownership TypeAcres Conservation Easement1,400,453 Conservation Easement1,400,453 Management Agreements 1,389,099 Management Agreements 1,389,099 Leases 2,146,745 Leases 2,146,745 Owned by TNC2,098,950 Owned by TNC2,098,950 TOTAL7,035,246 TOTAL7,035,246

Conservation Partnerships One such collaboration between DU and the federal government is the River CARE project in which DU and the NRCS have cooperated in implementing the WRP in the Mississippi Alluvial Valley (MAV). By 1998, more than 1,500 private landowners in the MAV were active partners with DU and WRP to provide and restore wildlife habitat on their lands. One such collaboration between DU and the federal government is the River CARE project in which DU and the NRCS have cooperated in implementing the WRP in the Mississippi Alluvial Valley (MAV). By 1998, more than 1,500 private landowners in the MAV were active partners with DU and WRP to provide and restore wildlife habitat on their lands. TNC’s Glacial Ridge Project, one of 12 habitats targeted in the “Saving the Last Great Places” campaign, received $1.6 million from NRCS as part of the USDA’s WRP program for a partial easement payment to restore nearly 2,800 acres of previously drained wetland and 1,500 acres of tall grass prairie in Minnesota. Saving the Last Great Places, TNC’s Glacial Ridge Project, one of 12 habitats targeted in the “Saving the Last Great Places” campaign, received $1.6 million from NRCS as part of the USDA’s WRP program for a partial easement payment to restore nearly 2,800 acres of previously drained wetland and 1,500 acres of tall grass prairie in Minnesota. Saving the Last Great Places,

International programs Debt for nature swap Debt for nature swap Problem- government get money, rural people do not see that Problem- government get money, rural people do not see that

Private vs. Public Approaches Public sector is not forced to pay attention to factor prices. Private groups have better incentives to target the land with the highest level of environmental amenities per dollar spent. Public sector is not forced to pay attention to factor prices. Private groups have better incentives to target the land with the highest level of environmental amenities per dollar spent. Private investment in wetland conservation, includes land purchase expenditures and investment in improvement on wetland quality. Private investment in wetland conservation, includes land purchase expenditures and investment in improvement on wetland quality. From the Corps perspective, the land has no opportunity cost, from a societal perspective the land is valuable in providing other services. This, there may be a tendency to over-regulate and acquire more land than is socially optimal. From the Corps perspective, the land has no opportunity cost, from a societal perspective the land is valuable in providing other services. This, there may be a tendency to over-regulate and acquire more land than is socially optimal.

ES new item in Env. Policy makers toolbox Old tools Old tools Command and control Command and control Cap and trade Cap and trade New policy New policy Paying for ES - “When you can not beat them-bribe them” “When you can not beat them-bribe them” Base line and credit Base line and credit

Rationale for ES programs Payment for positive externalities Payment for positive externalities When polluters has rights to pollute ES programs will buy pollution reduction When polluters has rights to pollute ES programs will buy pollution reduction Payments for public goods Payments for public goods Existence value, knowledge Existence value, knowledge Common problems-the atmosphere Common problems-the atmosphere Correcting mismanagement of a stock Correcting mismanagement of a stock

Alternative mechanisms sell ES All mechanisms have problems and need improvement All mechanisms have problems and need improvement Markets Markets Clearing house ? Clearing house ? Formal Markets Formal Markets Exchanges Exchanges Offsets Offsets Bilateral deals Bilateral deals Auctions Auctions Subsidies & government payments Subsidies & government payments

Environmental Services & Land Use Distinguish between resource rental programs and working land programs Distinguish between resource rental programs and working land programs Working land programs-promoting green practices Working land programs-promoting green practices Conversion of lands to “greener” use Conversion of lands to “greener” use From farming to forest From farming to forest Prevention of land use conversions Prevention of land use conversions Controlling development Controlling development What is the Asset unit? Generally not land- but resource stock related to land use Generally not land- but resource stock related to land use Stored carbon Stored carbon Water quality in lake Water quality in lake

The Multidimensionality of ES The same land may provide a multitude of ES The same land may provide a multitude of ES Some ES are provided simultaneously others are not Some ES are provided simultaneously others are not Growing Wetland conflicts with native plants Growing Wetland conflicts with native plants Soil erosion and wind erosion are complementary Soil erosion and wind erosion are complementary ES may provide regional, national & global benefits ES may provide regional, national & global benefits Benefits of ES vary across individuals &groups Benefits of ES vary across individuals &groups Bird watchers & hunters benefit from better bird habitat Bird watchers & hunters benefit from better bird habitat All gain from flood control- gains vary by location All gain from flood control- gains vary by location

The Dimensions of Wetland Services LocalNationalInternational Wildlife habitatPublic Private Public Flood controlPublic Private Water purificationPrivate Public Public Private Aesthetic valuePublic PrivatePublic RecreationPrivate ExistencePublic

Implication of “Beneficiary pay” Government pays for public good aspects - Government pays for public good aspects - utilized by many utilized by many No exclusion - e.g Existence value No exclusion - e.g Existence value Private agencies should pay for private benefits. Private agencies should pay for private benefits.BUT Private willingness to pay for ES is understated because it emits public goods Private willingness to pay for ES is understated because it emits public goods There is a role for public-private cooperation There is a role for public-private cooperation Matching fund Matching fund Tax credit Tax credit

Selling ES in markets vs. special trades Market Low transaction cost Standard product Large number of buyers Minimal contact of buyer and seller Special deal Tailor product to buyers’ needs Local small number of potential partner Needs a way to link buyer to seller green E-bay

Elements of implementation Measurement ES output meeting well defined standards Monitoring and enforcement UnbundlingHeterogeneityCorrelationTargeting Role of government Third party

Measurement Buyers and sellers need to know Buyers and sellers need to know What is delivered - when - for what price What is delivered - when - for what price Deliverables can be outcomes or actions Deliverables can be outcomes or actions Must be easily measurable Must be easily measurable Simplicity and common sense are essential Simplicity and common sense are essential ES is controlled by the worker in the field ES 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 accounting and monitoring

The reasons for ES product standards ( Being commodities not unique products) Buyers want Buyers want to know what they buy to know what they buy To sell it when they want ( liquidity) To sell it when they want ( liquidity) Certification by trusted agency Certification by trusted agency All associated with having ES meeting standards. Also Low transaction cost Low transaction cost High volume of trading High volume of trading

Monitoring and Enforcement ES are frequently generated on large parcels of land over long period of time ES are frequently generated on large parcels of land over long period of time Farmers can easily cut corners Farmers can easily cut corners Inspection backed by action will lead to improved ES quality Inspection backed by action will lead to improved ES quality justify higher prices justify higher prices Can be part of certification program Can be part of certification program Monitoring allows establishing buyers insurance plans ( Guaranteeing delivery and compensation) Monitoring allows establishing buyers insurance plans ( Guaranteeing delivery and compensation)

ES markets allow selling bundles of ES A field may generate various types of ES A field may generate various types of ES Potential buyer may be interested in only part of the package Potential buyer may be interested in only part of the package The Land owner’s gain will increase If they can sell different types of ES to to different buyers The Land owner’s gain will increase If they can sell different types of ES to to different buyers A well functioning ES market results in a pricing of individual ES that will increase the flexibility of the buyers and sellers A well functioning ES market results in a pricing of individual ES that will increase the flexibility of the buyers and sellers

Heterogeneity Lands vary in their productivity and ES generation Lands vary in their productivity and ES generation Sometimes 90% of certain ES is provided by 10% land Sometimes 90% of certain ES is provided by 10% land Both buyers and sellers benefit when buyer who appreciate certain ES are able to get them-part of efficient buying and selling strategies Both buyers and sellers benefit when buyer who appreciate certain ES are able to get them-part of efficient buying and selling strategies Buying the lands with the best ES is not always the best strategy- best to buy ES who provide highest value Per dollar Buying the lands with the best ES is not always the best strategy- best to buy ES who provide highest value Per dollar

Targeting strategies A buyer with given budget may choose Acreage maximization given the budget Acreage maximization given the budget This strategy is preferred by sellers It is optimal only when cheapest lands provide most ES. Benefits targeting Purchase the highest quality lands within budget -best for buyers if there is lower variability of productivity than ES among lands Benefits targeting Purchase the highest quality lands within budget -best for buyers if there is lower variability of productivity than ES among lands Benefit /cost Targeting Purchase lands with the highest highest per dollars given the budget-always works for buyers Benefit /cost Targeting Purchase lands with the highest highest per dollars given the budget-always works for buyers

Targeting strategies Suppose there are N locations, identified by n=1,N. Suppose 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 use) Cn = Costs per acre( value of land in alternative use) Budget S Budget S Acreage Maximization-buy all land with Cn<C Acreage Maximization-buy all land with Cn<C benefits maximization-buy all land with Bn>B benefits maximization-buy all land with Bn>B Benefit cost maximization: buy all land with Bn/Cn>B/C Benefit cost maximization: buy all land with Bn/Cn>B/C

targeting  C Cost Minimi zation Benefit max Benefit/cost ratio

Importance of heterogeneity ranking vary withtargeting CBB/C Rank C max Bmax B/C max ,5 5 65,

Third parties Designers of ES programs need to be aware that taking lands out of production may result in increase ag prices taking lands out of production may result in increase ag prices May backfire leading to farming of previously idle lands (slippage)- thus may need to pay for prevention May backfire leading to farming of previously idle lands (slippage)- thus may need to pay for prevention Reduced farm activities may reduce tax base Reduced farm activities may reduce tax base Landowners may gain but operators and other lose Landowners may gain but operators and other lose

Role of government in ES Create demand for environmental credits Create demand for environmental credits Establish rules of games- Establish rules of games- definition definition Liability Liability Invest in R&D to allow measurement and better pricing of ES Invest in R&D to allow measurement and better pricing of ES Pay for public good aspects of ES Pay for public good aspects of ES Play role of assembler of Domestic ES in global program (Kyoto) Play role of assembler of Domestic ES in global program (Kyoto)

ES and poverty alleviation Theory:One tool (ES) may be ineffective in the pursuit of two objectives( Environmental quality and poverty alleviation ) Theory:One tool (ES) may be ineffective in the pursuit of two objectives( Environmental quality and poverty alleviation ) it all depends on synergies and correlations it all depends on synergies and correlations Es program may affect Es program may affect Urban poor Urban poor Poor asset owners Poor asset owners Landless rural poor Landless rural poor

Impacts on urban poor Possibly negative food prices effect ( supply reduction) Possibly negative food prices effect ( supply reduction) Employment effects of various kinds Employment effects of various kinds Some ES program y supply pro poor goods Some ES program y supply pro poor goods Flood control, fire protection Flood control, fire protection Improved water quality Improved water quality Existence value of wild life is presumably a luxury good Existence value of wild life is presumably a luxury good

Impacts on poor assets owners when they are sold to ES Notation Notation B = ES per acre B = ES per acre R rent per acre R rent per acre W=Value of labor release at sale W=Value of labor release at sale V price of ES V price of ES Farms have L hectares Farms have L hectares Farm income before program L*R Farm income before program L*R Poorer farmers may have less land, lower rent or both Poorer farmers may have less land, lower rent or both Land will be sold for ES if Land will be sold for ES ifVB+W>R Gain = VB - R + W Per unit if land

Do the poor gain from selling land for ES? Case of significant gain Case of significant gain A positive correlation between wealth and rent - Poorer farmers has small and less productive farms A positive correlation between wealth and rent - Poorer farmers has small and less productive farms A negative correlation between B and R- less productive land provides more ES A negative correlation between B and R- less productive land provides more ES Gain is higher the higher are v and W Gain 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 larger If 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 highly productive plots Poor may not gain much if they own small and highly productive plots

The case of working lands Payment per acre VB Payment per acre VB Costs include DR= PDY+ DC Costs include DR= PDY+ DC Revenue loss PDY ( use traditional technology) Revenue loss PDY ( use traditional technology) Cost increase DC ( Reduce input use) Cost increase DC ( Reduce input use) Participate in ES program if VB> PDY+ DC Participate in ES program if VB> PDY+ DC Poor benefit if (PDY+ DC)/ VB is negatively correlated to income. E.g, Poor benefit if (PDY+ DC)/ VB is negatively correlated to income. E.g, Payment aim to preserve varieties used by poor. They have high B and low DY Payment aim to preserve varieties used by poor. They have high B and low DY Poor are located in erosive area and payment for less erosive toil managment Poor are located in erosive area and payment for less erosive toil managment

Impacts on land less If landless are employed in activities reduced by ES program- the programs may benefit the poor land owners but may harm the landless If landless are employed in activities reduced by ES program- the programs may benefit the poor land owners but may harm the landless ES program design affects employment & livelihood opportunities of the landless. ES program design affects employment & livelihood opportunities of the landless. Less jobs if ES results in closed reserves than when it leads to Eco tourism Less jobs if ES results in closed reserves than when it leads to Eco tourism Diverting resources and denying access as part of ES management may be costly to the landless ( they utilize these resources informally) Diverting resources and denying access as part of ES management may be costly to the landless ( they utilize these resources informally)

Dynamic considerations Poor may be late adopters and ES payment excludes consideration of improved options. Poor may be late adopters and ES payment excludes consideration of improved options. The benefits of ES program may vary in their dynamic profile. The benefits of ES program may vary in their dynamic profile. Some ES effort aim to induce a sustainable change Some ES effort aim to induce a sustainable change Other aim to provide quick relief Other aim to provide quick relief Income may vary over time Income may vary over time Contract should reflect the dynamic nature of benefits and income available to ES program Contract should reflect the dynamic nature of benefits and income available to ES program ES design should consider impact of present performance on future earning ES design should consider impact of present performance on future earning

Management of Purchasing Fund Heterogeneity -ES benefit &cost per acre vary Heterogeneity -ES benefit &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,N. Suppose 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 use) Cn = Costs per acre( value of land in alternative use) Targeting criteria Targeting criteria Acreage maximization Buy the lands with the lowest Cn (regardless of benefits) given the budget Acreage maximization Buy the lands with the lowest Cn (regardless of benefits) given the budget Benefits targeting Purchase the highest quality lands (lands with highest Bn) within budget Benefits targeting Purchase the highest quality lands (lands with highest Bn) within budget Benefit /cost Targeting Purchase lands with the highest Bn/Cn (highest benefit cost ratio) given the budget Benefit /cost Targeting Purchase lands with the highest Bn/Cn (highest benefit cost ratio) given the budget