1. 1 8. THE POLITICAL ECONOMY OF NATURAL RESOURCE MANAGEMENT (SPRING 2002) 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

6. 6 The Social Contract with Agriculture & the Environment--Focus on Farm Bills 1. 1985 Farm Act --Conservation Reserve Program (CRP) --Conservation Compliance (CC) --Sodbuster --Swampbuster 2. 1990 Farm Act --Continue CRP --Wetlands Reserve (1 mil. ac.) (WRP) --Water Quality Incentives Program (WQIP) --Pesticide users’ regulations

7. 7 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) 4. 1996 Farm Act (expires 2002) --new CRP, WRP --Environmental Quality Incentive Program (EQIP) --Conservation Farm Option (CFO)

8. 8 1996 Federal Agriculture Improvement & Reform Act: Conservation Reserve Program (CRP) u CRP maintained at 36.4 mil. ac. –New enrollments permitted with rental rates at fair market value –Early Out permitted w/restrictions 1.Payment rates: --Avg local cash rental rate by soil type --Oklahoma rates by county vary: --Panhandle: $13-$36--Western OK: $15-$48 --Eastern OK: $17-$58 2. State designated 10% of cropland as “conservation priority area”

9. 9 1996 FAIR--REVISED CRP RULES: 3.Eligibility: --EI > 8 or conservation compliance HEL definition --Planted/Considered Planted 2 of 5 past crop years --Owner, operator, tenant of eligible land for 1 year 4.Selection Process: a. Applicant meets w/NRCS to determine max rental rate b. Applicant estimates a bid < max rate c. Agency evaluates/selects highest environmental benefits to bid levels d. Per person total CRP payments limited to $50,000

10. 10 REVISED CRP RULES FOR 1997+ (continued): u Note on “ENVIRONMENTAL BENEFITS” –An index developed that considers: »Soil erosion »Water quality »Wildlife habitat (temp. or permanent) »Bid level »Conservation priority area »Conservation compliance requirements

11. 11 REVISED CRP RULES FOR 1997+: u Continuous Signup 10-15 yr. contracts (same eligibility; not subject to environmental index; county limit waived) –Filter strips/grass waterways –Riparian buffers/salt tolerant vegetation –Shelter belts/shallow water areas for wildlife –Living snow fences –Acreage w/in designated wellhead area –Field windbreaks

12. 12 CRP UPDATE (Feb 2000) u CRP Rental Rates ranged from $37-$43/ac. for OK during 1986-1995 u CRP Rental Rates ranged from $28-$34/ac for Ok during 1996-2000 u OK: current land in CRP--994,559 ac; $32.43/ac u OK (OSU-NRCS) study suggests 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

13. 13 Environmental Quality Incentive Program (EQIP) u Cost share, incentive payments & technical assistance; 5-10 yr. plan u Moderate/small livestock producers ($100 mil.) u Combines several recent ag land environmental programs ($100 mil.) u Replaces most NRCS assistance w/competitive bid process

14. 14 Conservation Farm Option (CFO) u Pilot Program for producers w/govt support contracts (Production Flex Contract-PFC) u Develop & implement 10-15 yr. plan u In exchange for CFO payments, producers forego participation in/payments under CRP, WRP, EQIP u Payment equivalent to foregone payment plus PFC payment

15. 15 Other Key Environmental Provisions u Conservation Compliance –Continued –Self-Certification u Wetlands Conservation Program –Improvements in Mitigation Allowance –Pilot Wetlands “Bank”/No-net Loss u Farmland Protection--170-340,000 ac. u Wildlife Habitat Incentive Program –Cost-share; 10 yr.+ agreements

16. 16 Wetlands Reserve Program (WRP) u WRP capped at 975,000 ac.; new enrollments: –1/3 Permanent Easements –1/3 30-year/less Easements –1/3 Wetland Restoration w/cost-share

17. 17 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

18. 18 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)

19. 19 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)

20. 20 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)

21. 21 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)

22. 22 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

23. 23 Habitat/Biodiversity Policy u Endangered Species Act (ESA) under review u Criticisms: –Species over Humans –Ignores Economics –“Taking” of Property Rights u Response –Species Critical to Ecosystem –Economics may favor Species –Property Rights Evolve

24. 24 ESA (1973)--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

25. 25 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

26. 26 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

27. 27 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

28. 28 ESA--Administration Proposals (95-96) u Early identification of allowable activities by FWS & NMFS (exempt from “take” prohibitions) u Expedite habitat conservation planning (HCP)-- streamline permitting process, especially for lo- & medium impact cases u “No Surprises” policy--if unforeseen circumstan- ces, no further penalty if landowner under HCP u Small landowners exemption--if used as residence & 5 ac./less, or negligible effect u Market mechanisms being considered

29. 29 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 By ‘96, 18 states & some federal programs u Industry coalitions: paper mills, chemical/ energy/waste management companies u Environmental groups generally skeptical

30. 30 EPA Self-Monitoring Policy u Reduced penalties for firms self- reporting & taking corrective action u Eliminates punitive penalties if no major health hazard

31. 31 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

32. 32 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

33. 33 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