Internalising the ExternalitiesInternalising the Externalities--presented at:presented at:

National Forest Strategy conference, National Forest Strategy conference, 12 March 200412 March 2004    Johnstown House Hotel, Enfield, Johnstown House Hotel, Enfield,

Co Meath.Co Meath.

By Frank J. Convery (frank.convery@ucd.ie)

Heritage Trust Professor of Environmental Studies, UCD

Thanks for invitationThanks for invitation

Tribute to Tim McEvoy  • Fantastic work of the land acquisition team of the

former Forestry Division and Forest Service. • Made huge contribution to our well-being, by providing

public access to uplands, and platform for knowledge• If access to privately owned uplands continues to be

limited, the value of this benefit will grow rapidly over time. 

• A similar nationally based capacity to buy land with integrity, professionalism and persistence for other public interest acquisitions – housing, infrastructure?

IssuesIssues  Access to landAccess to land

• decoupling creates the potential for forest expansion• But other shoe not falling – land prices will still stay

high – will confirm the sclerosis affecting Irish farming – no new entrants, no economies of scale and of scope.

with low cost land, forestry could compete with farming

without it, no chance – ‘boutique’ farming and forestry for the future

• Implication – effective lobbing for decoupling to result in land price fall.

44. Externalities. Externalities

• Wood and ‘the rest’• Add for 100 Pipers Scotch Whiskey: Great with

haggis, fantastic without.• Externalities defined as benefits (external benefit) not

captured by the provider thereof, and costs (external costs) not borne by the perpetrator thereof.

• A product of market failure – inadequate assignment of property rights – no transactions, therefore no prices, no market signal to signify scarcity

5.      Idea of internalisation5.      Idea of internalisation

• Archimedes: Give me a fulcrum and I will move the world.

• Diogenes: Will it be better off in some other place?

• - capture the benefits of your activity• -   pay the costs of your activity.• For intellectual framework, see: Clinch, J.

Peter, 1998. Economics of Irish Forestry –evaluating returns to economy and society, COFORD, Dublin.

6.      Steps in internalisation

• Understand:Þ The production function – what in physical

and psychological terms are the effects, positive and negative.

Þ What is the value of these effects for those impacted

Þ How and to what extent these benefits can be captured by the providers.

Þ How and to what extent the costs can be borne by the generators thereof

Decide Decide

Who will bear these costs and capture the

benefits

How this is to be achieved

8. The key externalities:

• An evolving story…• Yogi Berra: When you come to a fork in the road,

take it. • Recreation• Visual-landscape• Biodiversity• Habitats• Water• Air• Greenhouse gasses• Soil

9. General situation9. General situation  

• Considerable progress on understanding the production function

• - tribute mainly to work of COFORD

Samuel Beckett:Samuel Beckett: On the fallibility of all

knowledge: [Arsene, the departing Butler, telling a story about

asking the time one wet evening on Westminster bridge]. Securing me with one hand, he removed from the other with his mouth two pairs of leather gauntlets, unwound his heavy woollen muffler, unbuttoned successively and flung aside his greatcoat, jerkin, coat, two waistcoats, shirt, outer and inner vests, coaxed from a washleather fob hanging in company with a crucifix I imagine from his neck a gunmetal half hunter, sprung open its case, held it to his eyes (night was falling) recovered in a series of converse operations his original form, said, Seventeen minutes past five exactly as God is my witness, remember me to your wife (I never had one), let go my arm, raised his hat and hastened away. A moment later, Big Ben (is that the name?) struck six. This in my opinion is the type of all information whatsoever, whether voluntary or solicited. . [from: Watt, cited in Samuel Beckett, the Last Modernist, by Anthony Cronin, Flamingo, Harper Collins, London, p. 337.]

General situation 2

• Much less on the values

• Still less on internalisation

10. Recreation benefits

• Huge growth area

• Forestry doesn’t get enough credit

• Are there costs?

• Key issue - maintain access to publicly owned forests

• Private forests?

11.Visual Landscape

• Big advance in science – work of Art McCormack et al

• Internalisation of costs – limitations imposed• Internalisation of benefits – possible at

neighbourhood level • Bill Vaughn: A suburb is a place where a

developer cuts down all the trees to build houses, and then names the streets after the trees

12. Biodiversity and Habitats

• Good progress with native woodlands• Little, Declan, 2002. ‘An integrated approach to native

woodland management,’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp. 55-57.

• Good progress on understanding the production function. Jury out on wider biodiversity challenge

• ‘Feehan, John, 2002. . ‘Biodiversity and Ireland – meeting the challenge of the Convention’ ’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp. 23-28.

13. Water and Air

• Good progress on the production function – effects mainly potentially negative?

• Farrell, Edward, and Kenneth A. Byrne, 2002. ‘The Emergence of the Multifunctional Forest in Ireland,’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp. 18-22

• And policy response regarding zoning from sensitive (acid) soils.

• Water supply effects unaddressed so far?

14. Greenhouse gasses – we will have a price signal

   Emissions trading will give us a market price in 2005. Futures price at present in the €12-15 per tonne of CO2.

• Mostly upside for forestry• Production function still evolving• Byrne, Kenneth A., and Edward P. Farrell, 2002.

‘Towards an understanding of the role of Irish forests in mitigating greenhouse gas emissions’ ’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp. .112-115.

15. Soil

 • Still the ‘orphan’ in policy terms• Blum, Winfried E.H., 2002. ‘Soils and sustainability in

Europe,’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp.338-340.

• But knowledge of production function evolving• Renou, Florence, and Thomas Cummins, 2002. ‘Soil as a

key to sustainable forest management,’ ’ in Frank Convery and John Feehan, Eds, Achievement and Challenge – Rio+10 and Ireland, University College, Dublin, pp. 85-90

16. Overall

• A good story• COFORD deserve great credit for moving us up the knowledge

curve and for systematically bringing in ‘non forestry’ expertise and talent

• Alan Bennett. Those best at saying what they mean aren't always best at meaning what they say.

• Unless land price challenge met, expansion will be limited.• Implication – concentrate in existing estate?• Forestry has got its act together in most of the externality areas,

but are we winning the battle for hearts and minds at public and policy level?