Ecosystem Services: What are they, we need them, and how to

preserve them. The Economic Perspective

Joshua FarleyCommunity Development and Applied EconomicsGund 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