1. 1 6. THE POLITICAL ECONOMY OF NATURAL RESOURCE MANAGEMENT (SPRING 2006) Larry D. Sanders Dept. of Ag Economics Oklahoma State University

2. 2 INTRODUCTION u Purpose: –to become aware of the political economy of natural resource management u Learning Objectives. To understand/become aware of: 1. the concept of political economy. 2. the political economy of agriculture and the environment. 3. the political economy of forest/public land policy. 4. the political economy of habitat/biodiversity policy. 5. the nature of US incentive enforcement systems.

3. 3 The Political Economy of Environmental & Natural Resource Issues u Theories/concepts that treat systems as integrated relationships of economic, political & social institutions u Institutional mechanisms to affect the environment & natural resources have evolved over time Political Institutions Economic Institutions Social Institutions

4. 4 Political Economy--Basics u Market failure historically leads to the “protective response”: –Government intervention –Private sector seeking advantage or market power u Government failure may lead to reversion to the market or refinement of government institutional mechanisms u Private failure often leads to market concentration u Models/theories: –Public Choice--politicians maintain position –Rent-seeking--interest groups seek govt support –Capture theory of regulation--firms control process

5. 5 The Political Economy of Agriculture & the Environment u Environmental Policy –Point vs. Nonpoint –Property Rights –Incentives vs. Regulations u Government Support a Reality –But evolving as a “Social Contract” –Depression-Era Support Gone –Idealized Farm Image Persists –Budget Deficit Reduction top goal for 1990s –W/budget surplus, crisis funding for ag returned to near-record highs –Environmental Concerns Persist

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7. 7 Public Policy Tools u Regulation –EPA, U.S. Army Corps of Engineers, National Oceanic and Atmospheric Administration, USDA u Conservation Compliance –1985 Food Security Act; require implementation of approved plans to remain eligible for USDA benefits u Rental and Easement Payments to take land out of Production –oldest policy tool

8. 8 Public Policy Tools (continued) u Subsidies for Conservation and Conservation Related Public Works Project Activities –used for expensive capital investments and large scale watershed protection. u Cost-Sharing or Incentive Payments and Technical Assistance –most prevalent in the EQUIP, specific practices for specific fields.

9. 9 Public Policy Tools (continued) u Trading/Banking/Bonding –market based approaches, increases flexibility provided to producers in meeting environmental goals. u Education/Research/Data Development –develop an information base and improve conservation practices and program delivery.

10. 10 The Social Contract with Agriculture & the Environment--Focus on Farm Bills of Past 20 Years 1. 1985 Farm Act –Conservation Reserve Program (CRP) »Erosion & supply focus –Conservation Compliance (CC) –Sodbuster –Swampbuster 2. 1990 Farm Act –Continue CRP--erosion & supply focus –Wetlands Reserve (1 mil. ac.) (WRP) –Water Quality Incentives Program (WQIP) –Pesticide users’ regulations

11. 11 Social Contract (cont.) 3. Pesticide Regulation --Federal Insecticide, Fungicide & Rodenticide Act (FIFRA) --Endangered Species Act (ESA) --Federal Environmental Pesticide Control Act (FEPCA) --Food Quality Protection Act (FQPA)

12. 12 Social Contract (cont.) 4. 1996 Farm Act --new CRP (fair market value; average loocal cash rental rates) --“Environmental Benefits Index” »Soil erosion »Water quality »Wildlife habitat (temp. or permanent) »Bid level »Conservation priority area »Conservation compliance requirements --WRP --Environmental Quality Incentive Program (EQIP) --Conservation Farm Option (CFO)

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15. 15 The Farm Security & Rural Investment Act of 2002 (FSRIA): Conservation Programs u Quadruples EQIP u Conservation Security Program (Harkin) $2 billion total u Adds 4 bil acres to CRP, WRP –Continues CRP focus on environmental benefits (wind, water, erosion, air) u Provides other new programs

16. 16 FSRIA: An Evolving Conservation Philosophy u Previous programs focused on protecting environment/natural resources & compensating producers/landowners u New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs) u Farmers and ranchers should manage farmland to provide cheap, high quality food and fiber and environmental amenities (e.g. clean air and water, wildlife habitat, open space, sequestered carbon). u Additional $9 bil thru 2007 authorized

17. 17 FSRIA 02: Conservation Programs TOTAL $17.1 billion for 2002-2007 u CRP– 39.2 (36.4) million acre cap- $1.517 billion u Conservation Security Program - $2 billion u Environmental Quality Incentives Program- $9 billion u Wetland Reserve Program – 2.6 (1.1) million acre cap - $1.726 billion u Grassland Reserve Program – 2 million acres – $254 million u Farmland Protection Program - $1 billion u Wildlife Habitat Incentive Program - $700 million u Small Watershed Rehabilitation Program - $275 million

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20. 20 CRP—Active Contracts, Aug 2005, US & OK Type Contracts FarmsAcres$mil$/acre General407,642267,76232,408,0291,41743.74 continuous --non CREP250,233155,3562,371,74221188.93 --CREP42,99028,648681,33682120.30 --subtotal293,223179,7693,053,07829395.93 Farmable Wetland 8,4816,859130,87516118.71 TOTAL709,346410,86735,591,9821,72648.49 OK Total9,1376,2401, 052,16234,18832.49 Annual Rental Payments

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22. 22 OK CRP 2004 u Half CRP acres in Panhandle u 35,542 acres recently accepted in Signup 29 – state total beginning FY 2006 = 1,074,312 acres u OK (OSU-NRCS 2000) study suggested CRP more profitable than returning to production for CRP land terminating existing contracts: –Participate in new CRP: $25 net income –Return to wheat/sorghum: ($16)-($32) net loss –Keep in grass for grazing: $17-$24 net income

23. 23 OK CRP 2004 (Prepared by R. Wanger, OK FSA)

24. 24 FSRIA 02: Conservation Programs-- EQIP u Established in 1996 Farm Bill u Voluntary program addressing soil, water & other natural resource concerns on agricultural lands. u Administered by NRCS, funding through CCC, facilitated by FSA u Technical & financial assistance for… –regulatory compliance, –environmental enhancement, –conservation planning. u 5X over subscribed.

25. 25 EQIP Contracts 1997-2003 year$milcontractsFarm ac.(1,000) Crop ac. (1,000) 19974.495127370 19984.184520674 19993.670219557 20003.558815950 20014.057313947 20028.385622176 200311.31059 OK avg 97- 02 $6,19726483 US avg 97- 02 $9,131438110

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27. 27 WRP Acres

28. 28 Wetland is Defined as.. u “An area inundated or saturated by surface or ground water at frequency and duration sufficient to support …life adapted to saturated soil conditions.” u Has “water-loving” species

29. 29 Wetland Benefits Ecological Benefits u Floodwater storage u Trap nutrients and sediment u Groundwater recharge u Habitat u Buffer shorelines Human Benefits Outdoor Recreation Timber Production Livestock Grazing Educational Activities

30. 30 Wetland Conversion, Restoration and Net Change

31. 31 “No Net Loss” u Average costs range from several hundred dollars per acre for wetlands in their natural state that have little potential for conversion up to hundreds of thousands of dollars per acre of wetlands with potential value for urban development.

32. 32 Factors That Influence Wetland Conversion u Decline in profitability u Swampbusters and Farm Bills u CWA (section 404) u Public Interest u Federal, State, Local Wetland Restoration Programs

33. 33 FSRIA 02 Conservation Programs: Summary u CRP/WRP– if you can’t manage land to meet environmental restrictions u EQIP – if you need technical or financial assistance to mange land u Other Programs to preserve desired landscape –CSP – if you want to try new management or be compensated for existing conserving practices on working lands –FPP – protect against urban sprawl –GRP – protect fragile grasslands –WHIP – maintain or improve wildlife habitat

34. 34 Factors to Consider in the Effectiveness of Conservation Systems u Frequency u Timing u Severity of wind u Precipitation u Exposure of land forms to weather u Ability of exposed soil to withstand erosive forces u Plant material available to shelter soils u Propensity of production practices to reduce or extenuate erosive forces

35. 35 FSRIA 02: Energy Title (Title IX) 1.Federal Procurement of biobased products 2.Biorefinery development grants 3.Biodiesel fuel education programs 4.Energy audit and renewable energy development program 5.Renewable energy systems and energy efficiency improvements 6.Hydrogen and fuel cell technologies 7.Biomass research and development 8.Cooperative research and extension projects 9.Continuation of bioenergy program

36. 36 FSRIA 02: Energy Title u Key provisions –Federal agencies required to procure biobased products. –Biobased “products will be purchased to the maximum extent possible.” »Energy from bio-mass including ag crops and animals waste. »Energy from renewable sources, wind, solar, biomass or geothermal or hydrogen produced from water or biomass

37. 37 FSRIA 02: Energy Title--Bio-Based Preference u Key Points –Each federal agency required to have specs for bio- based products within one year. –Optional, allows some wiggle room to opt out. –Labeling for bio-based products. –Office of Federal Procurement Policy coordinated program. –Preference in contracting goes to item with highest % bio-based product. –$6 million

38. 38 FSRIA 02: Energy Title—Other Bio- Based Provisions u Bio-Refinery Grants : –Grants to defray cost of development and construction of bio-refineries. –Farmers, national lab, institutions of higher ed, state or local agency, tribe, consortium. –Gov’t cost not to exceed 30% of cost. u Bio-Diesel Fuel Education Program –Grant to educate public and government about the benefits of bio diesel. –$1 million/year.

39. 39 CCC Bio-Energy Program –Payments to eligible producers to encourage increased purchase of eligible commodities for purpose of expanding production of bio-energy and supporting new production capacity for bioenergy. –Contract required »Producers < 65K gallons reimbursed 1 feedstock unit for every 2.5 feedstock units of commodity used for increased production »Producers 65K or more gallons 1 feedstock unit for every 3.5 feedstock units. »No farmer gets more than 5% of total funds »Proration allowed »Total authorized $150M/yr. 2003-06; $0 in 2007

40. 40 Other Energy Provisions u Energy Audit and Renewable Energy Audits Grant –Cost share gov’t pays 75%. u Renewable Energy Purchase Grants –Loan and Loan guarantees for farmers to purchase renewable energy systems or to make energy efficiency improvements. –Grant not to exceed 25% of cost. –Grant and Loan not to exceed 50% of cost of system. –Must be cost effective. –$75 million

41. 41 Other Energy Provisions u Hydrogen Cells and Fuel Cells –Sec. Ag. to work with Sec. Energy to disseminate info. u Biomass Research and Development –Reauthorizes the Biomass Research & Development Act of 2000 –CCC gives $5M 2002; $14M 2003-2007; –Additional authorized $49M 2002-2007. u CSREES Carbon Sequestration Research & Extension –Such sums as are necessary are authorized.

42. 42 Energy Policy in FSRIA02 --2005 update u Biomass Research & Development –Oct 05: 11 research, development & demo projects selected to receive $12.6 mil. »Cost share brings total to $19 mil. »Joint effort USDA & DOE »Noble Foundation, Ardmore: $670,166

43. 43 Farmland Protection--State/Local u FREE MARKET VS. REGULATION –Zoning Laws –Development Rights Market –Right-to-Farm Laws –Preferential Assessment –Ag Districts u Subsidies –1996 FAIR Act ($17.2 mil. for easements in 98) –State initiatives

44. 44 Crop Residue Management (CRM) u Government Intervention –Conservation Compliance & Highly erodible land (1985 Farm Act) –Supported Compliance, other environmental programs (1990 Farm Act) –CRM action plan (1991) –Conservation Farm Option, other programs (1996 Farm Act) –Ongoing educational & technical assistance by NRCS, FSA, & landgrant programs (extension & research)

45. 45 Grazing--Common Property Issues u A major use of public lands (BLM, FS, NPS) –Predates government management –Ecosystem stress forced govt. intervention »Taylor Grazing Act (1934)--management system for non-FS public lands by BLM; right-to-use based on: u prior use u commensurability (sufficient alt. lands off-season) u dependency (insufficient alt. lands in-season) u grazing fee (permits, #head, area, other restrictions)

46. 46 Forest/Public Land Policy u Pinchot vs. Preservation vs. Development u 1891-Forest Reserve Act (public forest reserves from public land; Western US) u 1897-Forest “Organic” Act (establishes national forest system for water flow & timber sustainability) u 1905-USFS established u 1911-Weeks Act (okays purchase of private land for national forests; Eastern US)

47. 47 Forest/Public Land Policy (cont.) u 1916-National Park Organic Act (creates NPS & system to conserve scenery, wildlife, historic objects) u 1960-Multiple Use & Sustainable Yield Act (MUSYA) (adds watersheds, recreation, wildlife, fishing, hunting, soil concerns to national forests) u 1964-Wilderness Act (begins preservation of unique natural areas) u 1968-Wild & Scenic Rivers Act (preservation of unique rivers)

48. 48 Forest/Public Land Policy (cont.) u 1974-Forest & Rangeland Renewable Resources Planning Act (RPA) (creates planning process) u 1976-National Forest Management Act (adds economic, wildlife, wilderness & recreational uses to USFS planning) u 1980-Alaska National Interest Lands Conservation Act (ANILCA)(adds 13 national parks, 16 wildlife refuges, 56 mil. Ac. To wilderness system) u 1970s-1980s-added to wilderness system thru US u 1990s-move to privatize some national forest areas u 2004-Healthy Forests Act

49. 49 Habitat/Biodiversity Policy u Endangered Species Act (ESA) 1973 –under review for past decade –Little changed u Criticisms: –Species over Humans –Ignores Economics –“Taking” of Property Rights u Response –Species Critical to Ecosystem –Economics may favor Species –Property Rights Evolve

50. 50 ESA--Background u Expired 1992, but most statutes in effect until repealed u Primary Goal: Conservation of endangered, threatened species & their ecosystems u Key Elements: –Listing; –Protections, Prohibited Activities & Enforcement; –Relief/exemption from sanctions

51. 51 ESA--Process 1. Listing: –Species based solely on biological considerations –Requirement of designation of “critical habitat” must consider economic impacts; potential sites may be excluded if opportunity costs too hi 2. Regulatory Constraints –Protects listed species against “taking” (harming or degrading habitat); private land not protected –Prohibits federal actions that jeopardize species or adversely modify habitat –Can’t consider economics

52. 52 ESA--Process (cont.) 3. Regulatory Relief --Allows granting of permits to take listed species --Incidental/conditional to approved conservation plan --Economics may be considered --Exemption possible

53. 53 ESA--Property Rights u Some claims that ESA is unconstitutional “taking” private property rights w/o compensation (violates Fifth Amendment of Constitution) u Property rights always evolving, subject to limitations, & not inalienable nor absolute u Current ESA reform bills may ignore historic precedence, but do contribute to debate on redefinition of rights by society u ESA was amendment of property rights; standard practice to not compensate when prohibiting a “bad”; courts very cautious

54. 54 Incentive Enforcement Systems u Incentive for polluting firms to self-report or self-monitor u Govt monitoring & collection of penalties u Benefits: Less govt cost; More flexibility & privacy for firms u Many states & some federal programs have versions u Industry coalitions: paper mills, chemical/ energy/waste management companies u Environmental groups generally skeptical

55. 55 EPA Self-Monitoring Policy u Reduced penalties for firms self- reporting & taking corrective action u Eliminates punitive penalties if no major health hazard

56. 56 EPA Enforcement u Emissions inspection once/yr u Requires firms to submit water pollution discharge records & compliance u Random hazards difficult to monitor –toxic waste –nonpoint source water pollution –proper chemical use/container disposal u Chemical sales relatively easy to monitor u Education & “jawboning” are key u Sanctions: penalties, criminal/civil prosecution

57. 57 1990 Clean Air Act & Amendments --less federal court time/expense u Penalties up to $200,000 u Appeal to Administrative Law Judge u Field Citations up to $5,000/day for serious violations u Emergency actions: threats to environment and/or threats to human health –fines $5,000 - $25,000/day –criminal penalties up to 5 years u $10,000 reward for citizens who report u Self-reporting required

58. 58 Citizen Suits u Private citizens who are harmed may sue polluters in many cases u Expands enforcement efforts u May force compliance, require damages restitution, impose sanctions u Evidentiary requirements make it difficult u Often counter political power of firms/industry

59. 59 Water Quality Programs u Federal Water Pollution Control Act Amendments of 1972 (Clean Water Act) u Administered by EPA and the USDA.

60. 60 Section 404, CWA u Clean Water Act. u Federal Program that regulates wetland conversion. u EPA oversees Section 404. u States can set their own standards independent of federal standards.

61. 61 Mitigation Banking u Section 404 (C.W.A.) u Compensatory mitigation u Offset unavoidable wetland losses. u Amendments to 1990 Farm Act.

62. 62 EPA Programs Affecting Agriculture u Coastal Zone Management Act Reauthorization Amendments u Safe Drinking Water Act u Comprehensive State Ground Water Protection Program

63. 63 REFERENCES R. Asay, J. Grossman, R. Mayes, W. Miller, J. Sharp, S. Stewart, D. Wood, “Conservation & Environmental Policies”, Spring 2004. Sanders, L. & J. Stiegler, various assessments of CRP transition. USDA, various publications/websites.