Environmental Economics

Volume 2: The Applications

Inside the guide:

• Easy-to-understand applications
of common economic concepts

• Recommended Websites,
Articles, & Case Studies

• Classroom Resources

Scientists. Educators. Economists.

2
The Environmental Literacy Council
For more than a decade, the Environmental Literacy Council has been
dedicated to helping teachers, students, policymakers, and the general public Roger A. Sedjo, President
Resources for the Future
find cross-disciplinary resources on the environment. Environmental issues
involve many dimensions — scientific, economic, aesthetic, and ethical. Kathleen Berry
Through our websites, science-based textbook reviews, and professional Canon-McMillan High School
development materials, we strive to provide information and resources that
convey the importance of environmental science and the deep complexity of Gail Charnley
environmental decision-making. Made up of scientists, economists, education HealthRisk Strategies
policy experts, and veteran teachers, our Council is drawn from the ranks of
Nicholas N. Eberstadt
prestigious organizations such as Resources for the Future, AAAS, The American Enterprise Institute
University of Virginia, GE Energy, and the National Center for Atmospheric
Research. The multi-disciplinary guidance keeps our materials balanced, Michael H. Glantz
current, and scientifically accurate. National Center for Atmospheric Research

Eric P. Loewen
GE Energy
Dawn M. Anderson, Executive Director
Dr. Roger Sedjo, Economics Project Advisor Thomas G. Moore
Hoover Institution
Nicole Barone Callahan, Project & Web Content Manager
John Opie
The University of Chicago
For more information about environmental economics or other topics
in environmental science, please see our website: enviroliteracy.org F. James Rutherford
American Association for the Advancement of Science

Frederick Seitz
Rockefeller University
Acknowledgements
Leonard Shabman
The Council would like to thank the following people for their contribution to Resources for the Future
the research and production of this guide:
Herman H. (Hank) Shugart, Jr.
University of Virginia, Charlottesville
Erica Brehmer Kiel Stone
Charles Fritschner Megan Wertz Robert L. Sproull
Patrick Polischuk University of Rochester

M. Jane Teta
Exponent, Inc.

Alvin W. Trivelpiece
Copyright © 2008 Henderson, Nevada

All rights reserved. No part of this document may be reproduced or transmitted in any form Anne K. Vidaver
without permission from the Environmental Literacy Council. University of Nebraska, Lincoln

3 4
Table of Contents
Chapter 1: Introduction to Environmental & Resource Economics 6
Chapter 2: Population ..................................................................... 9
Chapter 3: Biodiversity................................................................. 14
Chapter 4: Agriculture .................................................................. 18
Chapter 5: Fisheries ...................................................................... 22
Chapter 6: Forest Management..................................................... 26
Chapter 7: Tropical Deforestation ................................................ 31
Chapter 8: Water Resources.......................................................... 35
Chapter 9: Energy Production & ANWR ..................................... 40
Chapter 10: Carbon Trading & Sequestration .............................. 44
Chapter 11: The Greening of Business ......................................... 50
Appendix: Resources for the Classroom....................................... 54
Population ............................................................................. 54
Biodiversity........................................................................... 54
Agriculture ............................................................................ 55
Fisheries ................................................................................ 55
Forest Management............................................................... 56
Tropical Deforestation .......................................................... 56
Water Resources ................................................................... 57
Energy Production & ANWR ............................................... 58
Carbon Trading & Sequestration .......................................... 58
The Greening of Business..................................................... 58
Endnotes........................................................................................ 59
5 6
Chapter 1: Introduction to Environmental
& Resource Economics
Environmental economics is the subset of economics that is concerned with the
efficient allocation of environmental resources. The environment provides both
a direct value as well as raw material intended for economic activity, thus
making the environment and the economy interdependent. For that reason, the
way in which the economy is managed has an impact on the environment which,
in turn, affects both welfare and the performance of the economy.
One of the best known critics of traditional economic thinking about the
environment is Herman Daly. In his first book, Steady-State Economics, Daly
suggested that “enough is best,” arguing that economic growth leads to
environmental degradation and inequalities in wealth. He asserted that the
economy is a subset of our environment, which is finite. Therefore his notion of
a steady-state economy is one in which there is an optimal level of population
and economic activity which leads to sustainability. Daly calls for a qualitative
improvement in people's lives – development – without perpetual growth.
Today, many of his ideas are associated with the concept of sustainable
development.
By the late 1970s, the late economist Julian Simon began countering arguments
against economic growth. His keystone work was The Ultimate Resource,
published in 1981 and updated in 1996 as The Ultimate Resource 2, in which he
concludes there is no reason why welfare should not continue to improve and
that increasing population contributes to that improvement in the long run. His
theory was that population growth and increased income puts pressure on
resource supplies; this increases prices, which provides both opportunity and
incentive for innovation; eventually the innovations are so successful that prices
end up below what they were before the resource shortages occurred. In Simon's
view, a key factor in economic growth is the human capacity for creating new
ideas and contributing to the knowledge base. Therefore, the more people who
can be trained to help solve arising problems, the faster obstacles are removed,
and the greater the economic condition for current and future generations.
Environmental economics takes into consideration issues such as the
conservation and valuation of natural resources, pollution control, waste
management and recycling, and the efficient creation of emission standards.
Economics is an important tool for making decisions about the use,
conservation, and protection of natural resources because it provides information
about choices people make, the costs and benefits of various proposed measures, economics is to identify those particular tools or policy alternatives that will
and the likely outcome of environmental and other policies. Since resources – move the market toward the most efficient allocation of natural resources.
whether human, natural, or monetary – are not infinite, these public policies are
most effective when they achieve the maximum possible benefit in the most
efficient way. Therefore, one job of policymakers is to understand how
resources can be utilized most efficiently in order to accomplish the desired Recommended Resources
goals by weighing the costs of various
alternatives to their potential benefits.

In competitive markets, information exists Center for the Advancement of the Steady State Economy
about how much consumers value a www.steadystate.org
particular good because we know how much The Center for the Advancement of the Steady State Economy is a nonprofit
they are willing to pay. When natural organization that educates citizens and policy makers on the fundamental
resources are involved in the production of conflict between economic growth and environmental protection, economic
that particular good, there may be other sustainability, national security, and international stability through its promotion
factors – scarcity issues, the generation of of a steady state economy as a sustainable alternative to economic growth.
pollution – that are not included in its
production cost. In these instances, scarcity Political Economy Research Center
issues or pollution become externalities, www.perc.org
costs that are external to the market price of The Political Economy Research Center is dedicated to original research that
the product. If these full costs were brings market principles to resolving environmental problems. The site has an
included, the cost of the good may be higher extensive publications list and an environmental education section that touches
than the value placed on it by the consumer. on a variety of subject areas that relate to both economics and the environment.

A classic example of an externality is © NOAA Coastal Services Center Protecting Ecosystem Services: Science, Economics, and Law
discussed in Garrett Hardin's Tragedy of eprints.law.duke.edu/archive/00001071/01/20_Stan._Envtl._L._J._309_(2001).p
the Commons, which occurs in connection to public commons or resources – df
areas that are open and accessible to all, such as the seas or the atmosphere. This paper is the result of a workshop that took place in December 2000 when a
Hardin observed that individuals will use the commons more than if they had to group of 30 scientists, conservationists, economists, lawyers, and policymakers
pay to use them, leading to overuse and possibly to increased degradation. came together at Stanford University to discuss ways to market ecosystem
services.
There are three general schools of thought associated with reducing or
eliminating environmental externalities. Most welfare economists believe that
the existence of externalities is sufficient justification for government
intervention, typically involving taxes and often referred to as Pigovian taxes
after economist Arthur Pigou (1877-1959) who developed the concept of
economic externalities. Market economists tend to advocate the use of
incentives to reduce environmental externalities, rather than command-and-
control approaches, because incentives allow flexibility in responding to
problems rather than forcing a singular approach on all individuals. Free-
market economists focus on eliminating obstacles that prevent the market from
functioning freely, which they believe would lead to an optimal level of
environmental protection and resource use. The key objective of environmental

7 8

Chapter 2: Population
Between 1900 and 2000, the world's population grew astoundingly fast, from
just over 1.6 billion at the dawn of the 20th century to 6.1 billion at its close.
Forecasters predict that by 2050, global population will exceed 9 billion. In just
one hundred years, the population doubled three times over. During this same
time, the world achieved vastly higher standards of living. However, population
growth occurs unevenly across the globe, with growth rates lower in countries
with wealthier economies.
Currently, nearly 95 percent of all population growth is occurring in the
developing world and, in the coming years, the fifty least developed nations are
expected to double their populations, from 800 million to 1.7 billion. Agrarian
lifestyle dominates the social order of most developing countries and, because
agricultural tasks are incredibly labor intensive, large family units are needed. In
these societies, children help generate wealth for the family. Because many
families operate on a basic, subsistence level—two or three children simply
cannot provide enough labor to accomplish the farm life's myriad, demanding
tasks. Restricted access to contraceptives, limited geographic accessibility to and
inadequate funding for family planning also contribute to population growth in
many developing countries. Women who may want fewer children might also be
restricted from using family planning methods due to a lack of education,
cultural and religious values, or adverse social pressure from family members.
However, while the overall population today continues to grow, developed
countries are experiencing a lower rate of growth—even negative growth—
compared to developing countries. In fact, growth rates are expected to decline
into mid-century, with projections beyond 2050 indicating that the global
population could stabilize or even decline. In its 2004 World Population
Prospects report, the United Nations projected that fertility—the number of
children per mother—will decline substantially from 2.6 children per woman to
just slightly over two children per woman by 2050. Many developed countries,
including Germany, Italy, and Japan, are already experiencing a decline as their
population ages and fertility rates fall below replacement level.
While fertility rates are declining as women have fewer children, the inverse is
true for life expectancy. Global life expectancy at birth is projected to increase
to 75 years by 2050, compared to 65 years at the present time; in developed
countries and regions, life expectancy will reach 82 years by mid-century.
9 10
As a country develops economically, the expected transition from a country with
high birth and death rates to one with low birth and death rates can be illustrated
by the four stages of the demographic transition model (DTM). Stage one
occurs in a pre-industrial society where death and birth rates are high and
relatively in balance, resulting in a slow and steady population growth. In stage
two, death rates begin to decline with improved food supplies and sanitation,
which results in a decrease in disease and an overall increase in life span. Stage
three sees a decline in birth rates due to a reduction in subsistence agriculture, an
increase in women's education and access to contraception, and other social
factors. This is also the stage where population growth begins to level off. Stage
four shows stabilization in population growth, with both low birth and death
rates. However, as the population ages, total population can decline (negative
growth) as there are less births than deaths.
There are several factors which contribute to lower fertility rates in developed
countries. Unlike in developing countries where most children generate wealth,
in the developed world, children are not capital assets—they do not need to
engage in labor for profit; rather, they require financial investment. Due to the
financial and opportunity costs associated with child rearing and the importance
placed on each child's social and intellectual development, parents have little
incentive to produce large numbers of children. Lower rates of child mortality in
developed countries also mean that fewer births are needed to insure survival to
maturity. In addition, wealthier countries tend to provide the necessary means to
women in order to reduce births, including education and employment
opportunities, and increased access to family planning services.
As with population growth, there are concerns associated with a declining
population. Fewer young people will result in an aging population, eventually
resulting in a shortage of workers to support the growing numbers of retirees. By
2050, under current trends, Japan's labor force will fall from 68 million to 46
million, Italy's from 23 million to 14 million, and Germany's from 41 million to
28 million. Aside from likely declines in economic productivity, an aging
population can also strain a nation's social security and pension system, and
have implications on a country's health budget due to higher elderly care costs.
One potent remedy to regional population declines is immigration, which
increases the population base by bringing additional workers into a country.
Immigrants are also often younger and tend to have more children. Government
incentives to increase the rate of fertility within a country are also an option. For
example, in 2006 Russia's president called for an increase in government
subsidies for children up to 18 months old, extended maternity leave while
paying 40 percent of the mother's salary, and covered a portion of day care costs.
Several other European countries have instituted similar financial incentives,
primarily in the form of bonuses or monthly payments.
Most developed countries have already reached stage four of the DTM (see
above). And, as a result of rapid social and economic changes, countries such as
Brazil, Thailand, and China are reaching the final stage rather quickly. However,
while the majority of developing countries are moving through the second and
third stages, many nations—especially within Africa—are caught up in the
second stage because of extremely slow economic development.
The governments of several developing countries have attempted various
stabilization schemes, although with mixed success. Kenya was the first sub-
Saharan African country to develop a national family-planning campaign in the
late 1960s. While their official policy calls for matching the size of the
population with available resources, decisions are left to individual families.
Their approach has had much success as fertility rates are declining and
contraception use continues to grow. Perhaps most famously, China's “one child
policy,” mandated by the government in 1979, has effectively curbed the growth
of the world's most populous nation. However, serious human rights concerns
have arisen as abortion, infanticide, and abandonment are practiced with
stunning frequency. Furthermore, many worry that a severe gender imbalance
will soon result in social trouble as many men of marriageable age will find it
increasingly difficult to find wives.
In addition to the relationship between population and wealth, there is an
important link between population growth and the environment. Many of the
natural resources necessary to sustain a population are referred to as 'the
commons,' or common property resources that are shared through open access,
such as air. This concept is perhaps best known from Garrett Hardin's essay The
Tragedy of the Commons, in which he argues that the overpopulation of a
species will deplete shared natural resources. Continued population growth will
create an increased demand for natural resources and can lead to resource
scarcity. This problem could be particularly difficult to manage for open access
resources.
According to a 2005 U.N. Ecosystem Assessment Study, human activity uses
nearly 60 percent of the ecosystem resources in an unsustainable manner. A
growing population can result in a variety of environmental changes, including
an increase in greenhouse gas emissions which contribute to climate change,
water and air pollution, deforestation, and the loss of biodiversity. The loss of
arable land, which could diminish our ability to supply sufficient food, is
another serious concern.
The classic dilemma—inspired by the works of Thomas Malthus in the early
19th century—is that an ever-increasing population will become a major
concern if (and when) it reaches the limits of the Earth's carrying capacity—the
maximum number of individuals an ecosystem can support without severe
11
repercussions. Malthus focused on the relationship between population and food
supply, arguing that because population growth increases geometrically (2, 4, 8,
16, etc) while food supply grows arithmetically (1, 2, 3, 4, etc), humans would
eventually overrun their food supply, with disastrous consequences.
These Malthus-inspired arguments have been challenged by economist Julian
Simon and his colleagues, who maintain that such predictions fail to account for
the enormous capacity for innovation and creative thought among humans.
Simon argues that creativity is in fact the single, ultimate resource possessed by
humans. In practice, they point to increasingly productive agricultural practices,
falling prices of limited resources like minerals and timber, great advances in
food processing and distribution, and technological innovations which allow for
an increasing number of humans to enjoy material prosperity, even as natural
resources grow increasingly scarce.
Furthermore, Simon argues continued population growth can lead to larger and
freer markets, economies of scale, and greater ingenuity to come up with
technical solutions to ever evolving problems. Among other things,
technological advances can lead to the discovery of additional resources,
increase the productivity of resources over time, improve our ability to control
the amount of waste that enters the environment and, through conservation and
efficiency, make available resources last longer. As population concerns
continue to evolve, market processes that promote adaptation and creative
problem solving will remain an effective mechanism for channeling creativity
and encouraging adoption and prosperity.
Recommended Resources
The Demographic Transition
www.uwmc.uwc.edu/geography/Demotrans/demtran.htm
Keith Montgomery, a professor in the Department of Geography and Geology at
the University of Wisconsin Marathon County, details the demographic
transition model in terms of a country that is already fully developed. He also
addresses a different form of transition associated with the differences in growth
rates across countries of differing economic statuses, and includes links to his
sources as well as other links related to the topic.
Population
www.econlib.org/library/Enc/Population.html
Ronald Demos Lee, a professor of demography and economics at the University
12
of California, Berkeley, authored this article on population located within the
Library of Economics and Liberty's Concise Encyclopedia of Economics.
State of the Planet: Web Resources on Human Population
www.sciencemag.org/cgi/content/full/302/5648/1172/DC1
Science magazine created this page of resource links to various websites on
human population information, including United Nations' population sites, the
U.S. Census Bureau, the Population Institute, the Population Reference Bureau,
and various articles on human population.
Human Numbers Through Time
www.pbs.org/wgbh/nova/worldbalance/numbers.html
Created by PBS, this site illustrates the growth of the world human population
over time, and includes a map with projections of where as many as three billion
more people may live by 2050. A graph is also presented to display the growth
of developing countries in comparison to developed countries.
VIEWPOINTS
Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble
www.un.org/esa/population/publications/WPP2004/wpp2004.htm
Lester R. Brown, president of the Earth Policy Institute, argues that increased
access to family planning services is necessary in order to stabilize the global
population. Brown cites examples where increased family planning has been
successful and further illustrates economic benefits experienced by those
countries. He also addresses the idea of striving for an average of two children
per couple, for which he says there is no “feasible alternative.”
Ageing Futures: From Overpopulation to World Underpopulation
www.metafuture.org/Articles/AgeingFutures.htm
Sohail Inoyatullah of Metafuture.org explores the idea that underpopulation will
be the biggest world problem rather than overpopulation. The author presents an
outlook of what problems underpopulation could cause, as well as potential
solutions.
13
Chapter 3: Biodiversity
For many, it is considered unethical to question the worth of biodiversity. The
sense of moral obligation, unalienable right, or spiritual and religious support is
often considered sufficient rationale for requiring responsible stewardship on the
part of humankind. Yet, these views can come into conflict with one's ability to
earn a living or to have access to basic needs, such as food or shelter, resulting
in the contemplation of necessary trade-offs. As a result, the value of
biodiversity is now increasingly expanding to include a number of ecological
and commercial arguments that are directly or indirectly beneficial to humans.
While economists might see the beauty and majesty of biodiversity, they also
view ecosystems and the diverse organisms within as increasingly valuable and
scarce resources. Oftentimes, in determining the best use of scarce resources, a
cost-benefit analysis is the tool that helps to identify, quantify, and compare
various aspects of biodiversity. An economic valuation can determine how
specific changes to biodiversity may affect human well-being, although it also
depends on the understandings and predictions of biologists, geologists, and
ecologists as to how and what ecosystem changes may occur; otherwise there
might be little basis for evaluating an effect on humans.
Changes large enough to warrant a full economic analysis are typically related to
policy or regulatory proposals; for example, the Endangered Species Act or the
Convention on Biological Diversity. In the case of the Endangered Species Act,
one might compare the value of taking action to protect an endangered species
with doing nothing. An example of this is the gray wolf. By 1930 the gray wolf
was virtually extinct in the continental United States due to eradication by
western ranchers concerned about wolves killing livestock. Consequently,
populations of elk, deer, moose, and caribou soared without their natural
predator. In 1995, Alaskan gray wolves were reintroduced to Yellowstone
National Park, part of their traditional habitat. Similar programs have been
undertaken throughout the Great Lakes and Southwest, bringing the gray wolf
population in the continental United States to over 5,000.
These programs appear successful, but were they really worth it? Using three
general categories of value: direct use, indirect use, and non-use, one can
compare the costs and benefits of reintroducing the gray wolf, among other
things.
Current and future benefits derived are the direct use value. In the case of an
endangered species, like the gray wolf, this would include the costs associated
14
with the reintroduction programs, the conservation of habitat, and the livestock
killed on nearby ranches by wolves. Benefits would be attributed to any increase
in tourism revenues from interest in the wolves and perhaps reduced costs
associated with maintaining large elk herds and/or offsetting damages from
excessively sized herds. To estimate a monetary value of these costs, one would
typically use wolf recovery program costs, including livestock lost, other
damages, and program costs necessary to prevent damage. However, simply
calculating a direct use value is an incomplete analysis since it does not include
any additional commercial, environmental, cultural, or aesthetic benefits people
can derive. An example of this would be the usefulness of medicinal plants.
Indirect use value is derived from goods and/or services that are not directly
consumed or sold, yet beneficial. Many of our most basic ecosystem services are
indirect use value, including carbon sequestration by forests and other
vegetation and the filtration capabilities of watersheds. In the example of the
gray wolf, it assists in a form of ecosystem stability which, by keeping other
animal populations under control, indirectly supports human life and enhances
direct use values. Without the gray wolf, the population of various herbivores
could become too large causing a strain on plant populations and creating the
potential for increased erosion. These indirect use values can be difficult to
quantify since there is no market for the interconnected services. Think of
pollinators, how much are their services worth? It is thought that the wealth of
genetic and species diversity remains relatively untapped so the potential value
is considered vast.
One method used to quantify indirect use value is known as replacement cost, or
the cost of replacing an ecosystem service with technology. An excellent
example of this was illustrated when New York City considered building a water
treatment plant to filter water from the Hudson River. The city was previously
dependent on the Catskill Mountain watershed to act as a filter cleaning rain
water and runoff before it reached ground water supplies and eventually the
Hudson River. In taking into consideration replacement cost, it was determined
that it would cost $6 billion to construct a water filtration plant and an additional
$300 million each year in operating costs to do what the watershed has
consistently done for very little cost. For that reason, the city instead decided to
spend $250 million to help conserve the watershed. While quantifying indirect
use values would be simple if replacement cost could be used to monetize the
worth of a watershed, ecosystem or species; but, even this does not take into
account the non-use value of biodiversity.
Quantifying the value of biodiversity becomes incredibly complicated when
non-use values are included; so named because it is the value people derive
without actually using biodiversity. Each individual has a different non-use
value, which can include option, bequest, and existence values. Having the
15
opportunity to travel to see an endangered species or a new ecosystem is an
option value because an individual values the opportunity, whether they actually
take it or not. The irreversibility of biodiversity loss is one reason many
individuals have a high option value for biodiversity. Bequest value is an
individual's value of passing intact ecosystems on to future generations.
Existence value is an individual's moral conviction that the environment has its
own intrinsic value; thus, while one may never see a coral reef, they think it is
important that coral reefs exist.
Each individual has a different non-use value for all aspects of biodiversity, thus
it is very difficult to create a single representative value for non-use variables.
Economists often rely on the stated and revealed preferences of what people,
generally survey participates, are willing to pay to preserve biodiversity or how
much biodiversity loss they are willing to accept. By asking how much an
individual is willing to pay to conserve and/or by examining the actual
contribution to conservation efforts, economists can begin to construct a
representation of non-use values. However, a problem with this method is, in a
survey, participants tend to have a hypothetical bias or will overstate how much
they would be willing to pay because they are not actually being asked to pay
anything.
If preserving biodiversity had no cost, all would be preserved since biodiversity
can be important for a variety of reasons, including ethical, esthetic, spiritual,
ecological, and commercial. However, since many of the offerings biodiversity
provides are public goods that are freely available, they are often undervalued –
especially within the marketplace – when changes to the ecosystem are being
considered. Therefore, while economic valuation can be highly uncertain,
putting a price on an otherwise priceless good is one way to start appreciating its
value by further illustrating the benefits of preservation.
Recommended Resources
The Value of Biodiversity
www.chicagowilderness.org/pubprod/brppdf/CWBRP_chapter2.pdf
This study for Chicago Wilderness explains the different types of use values for
biodiversity and addresses some of the challenges of assessing biodiversity's
value.
The Valuation of Ecosystem Services
www.ecosystemvaluation.org/1-02.htm
16
This piece discusses the methods and drawbacks of various management
decisions of ecosystem services. It includes a discussion of applicable values of
ecosystem services.
Biodiversity Banking: A Primer
ecosystemmarketplace.com/pages/article.news.php?component_id=5617&comp
onent_version_id=8120&language_id=12
This article on the economics of biodiversity conservation, sponsored by
Ecosystem Marketplace, provides an extensive overview and case studies of the
field.
Natural Capital Project Toolbox
www.naturalcapitalproject.org/toolbox.html
The Natural Capital Project is developing modeling and mapping tools to better
estimate the costs and benefits of biodiversity and ecosystem services.
VIEWPOINTS
What Price Biodiversity?
www.ciel.org/Publications/summary.html
This academic article from the Center for International Environmental Law
discusses the incentive behind conservation and the effect of taxes and several
pieces of legislation on land conservation.
Biodiversity Prospecting
www.rff.org/rff/documents/rff-resources-126-biodprospect.pdf
David Simpson from Resources for the Future makes the argument for
“marginal conservation” which he believes is a more sound argument for
conservation than that of bio-prospectors.
17
Chapter 4: Agriculture
Agriculture has been important to the United States since its earliest days. In
1785, Thomas Jefferson remarked, “Cultivators of the earth are the most
valuable citizens.” He saw farmers as the foundational units of a democratic
society; agrarian communities, Jefferson argued, promoted spirited
individualism and dedicated resourcefulness necessary for the young nation. It is
this idealized notion of the American farmer that has come to dominate much of
our historical lore.
Through the early 20th century, small family owned and operated farms
dominated America's agricultural economy. Until the 1930s, in fact, one out of
four Americans lived on family farms. However, industrialization and
commercialization gradually changed the economic landscape as farm operation
and ownership transitioned to larger corporations. Today, that number is closer
to one in fifty. As the agricultural landscape changed, so did the beneficiaries of
the subsidies. Large corporate farms now account for nearly 75% of all farm
sales in the U.S.
Technological advances produced economies of scale while new farming
equipment and innovative cultivation techniques allowed commercial farms to
decrease their labor needs while increasing the overall productivity of the land.
Specialization also meant that the larger farms with higher productive capacities,
more access to capital, and better transportation networks could more effectively
supply consumers in the expanding economy.
Just as American farms were beginning this transition, however, the Great
Depression struck. Money and land were rapidly devalued, millions of people
lost their jobs, and banks closed. At this time, farms across the nation struggled
to break even, but many failed. In response, the Federal government passed the
Agricultural Adjustment Act of 1933, and the era of subsidies was born. Hoping
to keep prices from plummeting and, in turn, keep farmers in business, the
government purchased and subsequently destroyed millions of dollars worth of
agricultural goods.
A variety of programs have since been developed and implemented, employing
different management and planning strategies, with the goal of keeping existing
farms in business. Subsidies and price supports were often used after World War
I in order to keep prices stable, regardless of the level of production. Sometimes,
farmers were paid to reduce their production in order to take excess supply from
the market, also helping to control the price of goods. Incredibly, while farm
18
subsidies were initially promoted only as a temporary relief measure from
Depression Era woes, they have remained in place for over 70 years.
The basic definition of a subsidy is direct monetary aid issued by the
government to individual businesses and industries. Governments use subsidies
to insure profits among established producers who might otherwise face
competition for their products. For example, if the market price for corn is $1.50
a bushel but the government decided that farmers needed $2.50 a bushel in order
to remain profitable, it would issue a $1 subsidy per bushel of corn to each
farmer.
Governments can also subsidize agricultural production in other ways. They
might buy large quantities of a particular commodity—say, cotton—and either
hold it in reserve or destroy it, effectively creating a shortage in order to drive up
the market price artificially. Or, they might enact protective tariffs for a certain
industry; for example, placing a tax on all imported cotton allows domestic
producers to raise the price that they are able to charge.
Subsidies can affect economic decision making in a variety of ways. The most
obvious effect is to raise the price consumers pay for the subsidized commodity.
Subsidies also have an indirect effect by raising prices on goods produced from
the subsidized commodities. For example, subsidized cotton is more expensive
to buy, but so too are the t-shirts, beds, carpets, or any number of other products
made – even in part – from cotton. So not only are direct consumers of
agricultural products affected by subsidies, so too are fashion designers, clothing
retailers, and furniture stores.
Other subsidy effects on consumers are less apparent, though no less severe. Not
only do consumers pay a higher price for a subsidized commodity, they also
tend to pay higher federal taxes which are used by the government to support its
pricing system. In effect, consumers are taxed twice, once directly by the
government and again at the stores, in the form of higher prices.
Environmental externalities can also occur with the use of subsidies. Since
producers are insulated from competition when they are supported by subsidies,
it could distort the mix of resources utilized leading to the use of excessive
amounts of energy, land, fertilizer, and water – and, sometimes, the production
of unsuitable crops entirely. Many times, the crops grown are simply destroyed
by government officials in an effort to stabilize or prop up the price of the good.
In addition, farmers often expand their operations to marginal lands which
would otherwise be unsustainable simply in the hope of attracting more
government support. But, because the government guarantees a certain price,
farmers need not properly take land use into consideration.
19
Yet, the most controversial impact of agricultural subsidies is related to
international trade. For many countries, agriculture is a main source of national
income – accounting for nearly 20 percent of gross domestic product (GDP) in
both India and Indonesia. In the U.S., it makes up less than one percent of GDP,
but continues to be a driving force of our economy. And, while land use for
agriculture is at its lowest level since 1945 at 46 percent of total land, crop
production continues to rise. An additional indicator of its importance to our
country and our economy is that – over the past decade – an average of $16
billion annually has gone to subsidize the agricultural sector.
Part of a government's system of subsidies may include barriers to trade like
import tariffs and quota limits. Tariffs are a direct tax on imported goods;
quotas limit the amount of a particular commodity that can be imported. Both
function to raise the price of imported goods while protecting domestic
producers from competition, albeit still with an increase in the overall domestic
price of the commodity for consumers.
Subsidies are used most often by developed countries since they are expensive
to maintain. Many European Union countries, for example, subsidize up to 1/3
of a farmer's income, whereas nearly 2/3 of a farmer's income is subsidized in
Japan. These subsidies are thought to have disastrous effects on citizens and
economies of developing countries that depend on trade in agricultural goods
because the farmers simply cannot compete on the world market with more
established and heavily subsidized domestic industries. Attempts to level the
global playing field oftentimes mean that many developing countries must focus
on using trade barriers, such as tariffs and quotas. South Asian countries, for
example, have an average tariff of over 100 percent on agricultural goods.
It is becoming more and more difficult to have a free flow of goods between
nations as the majority of countries now utilize systems of subsidies, tariffs and
quotas. There is great debate over the use of these tools, and complaints to the
World Trade Organization (WTO) are on the rise. The WTO is becoming
increasingly important in helping countries deal with the global rules of trade
between nations as they attempt to negotiate reductions in the various barriers to
trade. It is challenging to find a solution that can be beneficial for all, especially
without cooperation and, while countries may indicate a willingness to reform
their agricultural programs, firm action – if any at all – is often slow to occur.
However, a change in policies to eliminate international trade barriers, together
with the reduction of domestic subsidies, would go a long way toward allowing
international trade in agriculture to provide more efficient food production and
improved global societal welfare.
20
 Recommended Resources
Institute for Agriculture and Trade Policy (ITAP)
www.iatp.org/
The IATP promotes resilient family farms, rural communities and ecosystems
around the world through research and education, science and technology, and
advocacy. Their website features a wide variety of articles about current and
ongoing issues in agriculture and trade policy.
Farm Subsidy Database
www.ewg.org/farm/index.php?key=nosign
This interactive website by the Environmental Working Group looks at how
much is received in agricultural subsidies by state, congressional district and
county in the United States. It also provides information on the top subsidy
recipients.
LAWS & TREATIES
2007 Farm Bill
www.usda.gov/wps/portal/usdafarmbill?navtype=SU&navid=FARM_BILL_FO
RUMS
The USDA's website contains a section on the 2007 Farm Bill proposals,
including legislative language, fact sheets, and viewpoints.
WTO: Agreement on Agriculture
www.wto.org/english/docs_e/legal_e/14-ag_01_e.htm
The WTO member countries' Uruguay Round Agreement for the international
trade of agricultural products is outlined.
VIEWPOINTS
How Much Does it Hurt? Measuring the Impact of Foreign Trade Policies
on Developing Nations
www.ifpri.org/media/trade20030826.htm
This press briefing prepared by the International Food Policy Research Institute
examines the cost to developing countries of agricultural subsidies and trade
barriers.
21
Chapter 5: Fisheries
The oceans - a global commons without clear property rights - present a classic
example of the tragedy of the commons. Since a "commons" is accessible to
everyone while being the property of no one, one result is the tendency to over
utilize or overexploit the resource. In most countries, policies for managing
fisheries are influenced by national economic and social policies which are
guided by objectives ranging from food security to higher incomes and
employment levels to the conservation of environmental resources. There have
also been a number of important international treaties that seek to regulate the
world's fisheries; however, enforcement remains a challenge.
Historically, fisheries management administrations assume a wide range of
functions, including the formulation, allocation, and enforcement of regulations,
as well as undertaking scientific research related to the management of
fisheries. Unfortunately, fishery administrations in many poor and developing
nations do not have the means by which to effectively manage their fisheries.
Taken as a whole, fisheries worldwide can be characterized by the overfishing
of a variety of species, high levels of by-catch, the destruction of habitat, and the
loss of fish population and/or changes in the food chain. Therefore, the need for
innovative strategies that involve greater participation by the various
stakeholders is increasingly being recognized.
Probably the most important issue in fisheries conservation and management is
that of overfishing. According to the U.N. Food and Agriculture Organization
(FAO), the majority of commercial fish stocks are being exploited to their full
potential, and several important fisheries are in need of careful management in
order to prevent collapse. In the early 1990s, the North Atlantic cod fishery,
which sustained communities in both the United States and Canada for
centuries, collapsed and is showing few signs of rebounding due to a stable
change in the food chain. With the Atlantic cods' slow recovery and their
removal as a top-tier predator, there has been a population explosion among
smaller prey including herring, capelin, shrimp, and snow crab, which have
since become the top predators. Therefore, in many instances, overfishing is an
issue that may be best addressed at the local level, rather than at a national or
international level.
Global by-catch (fish species inadvertently caught in nets) has also become an
important area of concern for ocean conservation and fisheries management,
22
because by-catch from large-scale fishing can amount to hundreds of thousands
or even millions of fish, in addition to marine mammals and birds. This issue
initially captured the public's attention due to the high number of dolphins that
were becoming caught in tuna netting, with thousands of dolphins dying each
year. In 1972, the United States passed the Marine Mammal Protection Act
(MMPA), which sought to minimize dolphin by-catch in the Pacific tuna
industry. By 1988, through several amendments to the legislation and public
demand for "dolphin-safe" tuna, fishing companies responded by introducing
more dolphin-saving technological innovations. Others have since followed
suit, such as long-line fishermen who have had considerable success in reducing
seabird mortality by setting their lines at night when the birds cannot see them
and by flying streamers behind their boats. In the shrimp industry, shrimpers
have been able to modify their trawls with small cage-like attachments that
allow shrimp in and keep by-catch, such as sea turtles, out.
Finally, fishing practices and human activity can significantly impact marine
ecosystems, damaging habitats and threatening fish populations. Trawling and
dredging along the ocean floor changes the makeup and productivity of fish
communities that are dependent on the ocean floor for both food and refuge.
Human activity, through pollution runoff and erosion, affects fisheries indirectly
by altering and increasing stresses on coastal ecosystems.
There are a number of initiatives, however, that can help to manage fisheries
more sustainably. Maximum sustainable yield is the primary goal of fisheries
management, but questions arise as to whether or not it is too simplistic an
approach because it is very difficult to estimate total populations of fish species.
For most fish stocks, the only data readily available is the yield, or the total
number of fish caught and, oftentimes, data concerning yield is based on forms
of self-reporting therefore leading to the possibility of overstating or
understating yields which can lead to even more uncertainty in the management
of fisheries.
Fishing intensity - the number of fish caught per unit of effort - is another
indicator that is often used. Effort can be measured in factors such as the
number of nets, boat hours, or work days. Using this indicator, it would be
evident that a fish population is "overfished" when yields decline - when fewer
fish are caught - or when it takes more effort to find and catch a specific yield.
However, fish populations can also vary due to other factors, including changes
in water temperature and variability in ocean currents.
A promising approach to fishery management is the use of a market-based,
pseudo-property rights approach of individual transferable quotas (ITQs) or
individual fishing quotas (IFQs). Regulators begin by determining a total
annual catch that will preserve the health of the ecosystem; they then distribute
23
individual quotas that will allow for a certain amount of fish to be caught in any
given year. ITQs, which are the distinct property of someone, are also
transferable which allows fishing vessel owners to buy and sell their quotas
depending on how much they want to catch. Because they leave the individual
with the flexibility as to how to adjust to the environmental standard - or in this
case, the total catch - they make compliance less expensive. Environmental
quality is not sacrificed because the overall level is determined by the number of
permits set by the regulatory authority. An ITQ program can also attempt to
create a commercial fishing industry that is more stable and profitable.
ITQs have been used successfully in New Zealand and in the Pacific Northwest
region of the United States. Many people believe that this success indicates hat
when fishermen have a vested interest in preserving fish stocks, they are more
likely to engage in conservation measures that ensure the long-term health of the
stock. Local communities can also have an important role in conserving their
own coastal resources because they have a much larger stake in protecting and
preserving the resources than state and/or federal agencies do.
In the past, issues involving a "commons" and resulting externalities have been
resolved primarily through coercive measures, such as setting standards or
imposing taxes. Unfortunately, these regulations can have negative effects on
both output and employment within an industry, or even for the economy as a
whole. Providing clearly defined property rights - or in this case, through the
use of a quota system - can effectively remedy a variety of externalities as the
market works to allocate resources most efficiently.
Recommended Resources
The State of the World Fisheries and Aquaculture
www.fao.org/sof/sofia/index_en.htm
This document - published every 2 years - is the premier document of the UN
FAO's Fisheries Department. Its purpose is to provide policy makers, civil
society, and those that derive their livelihood from the sector a comprehensive
and objective global view of capture fisheries and aquaculture, including
associated policy issues.
NOAA Fisheries: Statistics Division
www.st.nmfs.gov/st1/index.html
This division collects data and coordinates information and research programs to
support the science-based stewardship of the nation's living marine resources.
24
LAWS & TREATIES
Magnuson-Stevens Fishery Conservation and Management Act -
Reauthorization, 2005
www.nmfs.noaa.gov/msa2005/
The Senate recently reauthorized the Magnuson-Stevens Fishery Conservation
and Management Act (MSA) - the central bill that governs U.S. fisheries -
which was initially enacted in 1976. This current bill, which will go through
2010, addresses several important advances in fisheries management that will
help fish, fishermen, fishermen, coastal communities, and U.S. seafood
consumers that rely on these resources, reaching fisheries from coast to coast.
National Marine Sanctuaries Act - Reauthorization, 2005
www.sanctuaries.noaa.gov/about/legislation/
In 1972 this U.S. law set regulations for dumping waste into oceans and coastal
waterways, and authorized the Secretary of Commerce to declare certain areas
of distinctive natural and cultural resources as National Marine Sanctuaries. The
Act also set up programs to examine the long-term effects of pollution,
overfishing, and other human-induced changes to marine ecosystems.
VIEWPOINTS
Fisheries with a Future: the Case for Individual Fishing Quotas
www.environmentaldefense.org/documents/1953_IFQbrochure.pdf
This brochure, presented by Environmental Defense, makes a case for IFQ use
in protecting fisheries and the environment. It explains how IFQs work,
recounts instances where they have been beneficial, and includes links to more
information about IFQ systems.
Swimming Upstream: The Challenge of Managing the World's Fisheries
www.rff.org/rff/News/Features/Swimming-Upstream.cfm
In this 2006 interview with James Sanchirico of Resources for the Future, he
gives his insights into how fisheries are managed and what might be done
to improve their future.
25
Chapter 6: Forest Management
Forest management in the United States has become increasingly complex as the
broad array of services that forests provide become more readily apparent.
Though national policy has generally reflected good intentions, the economics
behind managing both public and private forests provide for a difficult decision
making process when figuring out how to maximize the benefits of forests
without sacrificing their ability to provide a wide range of outputs over the long
term.
The National Forest System is comprised of approximately 150 forests covering
192 million acres. Originally established to ensure that the United States would
have a continuous supply of timber, today's national forests, managed by the
U.S. Forest Service, must provide a combination of many outputs as dictated by
various pieces of legislation. The initial objectives of national forest
management were to maintain forests for the long term, to harvest modest
amounts of timber while making sure that water flows were not seriously
disturbed, and to provide for forest regeneration. The Multiple-Use Sustained
Yield Act added wildlife and recreation to the list of specific outputs in 1960,
followed by the addition of a multiple-use planning process involving public
participation as mandated by the National Forest Management Act of 1976.
Implementation of these laws is made difficult by the fact that the composition
of outputs is not specified. Because these outputs are difficult to value (many are
non-market goods) and are characterized by highly complex ecological
interactions, national forest management has largely been a political process
dominated by various interest groups. In addition to the National Forest System,
there are other large forested areas, including parks and wilderness areas, in
public ownership (including federal, state and local) which are managed for a
variety of purposes.
The management of private forests is simplified by the fact that the objective is
generally clear: maximize profits, usually over the long run. However, privately
managed forests must also address environmental and amenity services, which
are usually considered to be externalities and thus would be undervalued and
undersupplied in private markets. However, some of these services can be
brought into markets, such as fee hunting which helps to preserve habitat and
wildlife. Private forest management is also typically constrained by various
forest practice regulations, including riparian zones, which are imposed by
governmental entities.
26
In addition, forest managers, both public and private, often struggle with
attempts at ecosystem valuation because it is a complex process that does not
always assign accurate values to the many services that natural resources
provide. Forest management is also not subject to traditional depreciation
considerations due to the fact that many forest services and outputs appreciate in
value over time or provide very long-term benefits. One example is that timber
value generally increases with age because taller trees are more valuable.
However, since most individuals prefer to benefit now rather than later, and
because individuals tend to be risk averse due to the uncertainty of the future,
the future value of a forest is discounted. As such, forest managers have an
incentive to harvest forests for tangible, near term outputs.
The long term value of forests is evidenced by a recent trend among financial
investors to invest in timber funds. Unlike an integrated forest products firm
with both forestlands and processing facilities, timber funds own only
timberlands. While a downturn in timber prices can hurt a lumber company's
earnings, timber fund investors can ride out any dip in the market to allow them
to benefit from the long term profits that older timberlands can bring. If an
investor does not like the current market price, they can easily hold on to their
investment in order to capitalize on the higher profits that taller trees bring. This
strategy has made privately owned forests effective in maximizing profits.
While many economic externalities could be ignored in this system, a recent
effort that helps to address these externalities is the voluntary market for
conservation easements whereby logging is allowed but subject to forest
management environmental constraints.
Because the government is not obligated to maximize profits, it is in a position
in which it can take external effects, such as wildlife or recreation, into account
when formulating a strategy to manage its forests. This is both a product and
cause of the vagueness of the United States' official forest management policies.
Today the National Forest System provides less than five percent of the nation's
timber production, compared to over fifteen percent just 20 years ago. This is
largely due to the policy decision to focus national forest management on
producing environmental outputs rather than timber.
Non-market amenity services refer to the outputs or benefits of a forest that
cannot be bought and sold in a traditional market. These include cleaning and
preserving the natural environment, filtering water, cleaning the air, preventing
erosion, preserving biodiversity, reducing the threat of climate change, and
providing flood control services. Until recently, many of these services were not
taken into consideration when formulating strategies for forest management.
Indeed, the value of some of these services, like flood control, has often been
ignored altogether. However, many of these services are provided over the long
term, and the benefits are usually not directly enjoyed by the owner of the forest.
27
As such, they are not always taken into account when private forest managers
are developing their management strategies. The government, on the other hand,
has a much greater interest in preserving forests for these non-market outputs.
Our ability to preserve the output of these non-market amenity services depends
on policies intended to preserve forests and forest amenities. However, even in
the absence of timber harvests, forests are subject to many disturbances—
including fires and infestations—that could have serious long-term effects on the
makeup of a forest.
The difficulties of human interaction with complex forest systems can be further
illustrated by how forest fires have historically been managed. As homes and
other structures are built further into the wilderness, firefighters are responsible
for putting down fires deeper into otherwise unsettled forests. This fact,
compounded by a general misunderstanding about the natural benefits of forest
fires, has led to an increase in both size and intensity of forest fires. Naturally-
occurring forest fires normally burn away dead branches and underbrush that
accumulate on the forest floor. If every forest fire is put out before this build up
can burn off it can lead to massive forest fires. Moreover, climate change is
already beginning to have some effects on forest life cycles. As spring
snowmelts take place earlier, disease and insect infestation become more
prevalent, leading to more dead trees that make good fuel for fire. These realities
have brought about a greater sense of the importance of understanding how
forests must be managed to ensure their health and sustainability.
New efforts at conservation are poised to take advantage of some of the benefits
and flexibility that the free market provides. Conservation easements, funded
largely by private donations and conservation organizations, provide a voluntary
market mechanism that provides both timber and non markets outputs. Another
example, funded entirely by private capital, one group is in the process of
buying a northern California redwood forest to preserve the land by operating it
as a nonprofit business. Because the land had been logged for decades, the
timber company that owned the land decided to sell after having harvested the
most profitable timber. The buyer, Redwood Forest Foundation, Inc. plans to
reduce the rate of tree harvest to less than two percent while maintaining a long
term objective of bringing the forest back to its natural state. It is argued that this
method is more sustainable than using the land for development or turning it
into a preserve or park because it provides jobs and keeps the land on the tax
rolls. Though these approaches have their critics, they represent novel attempts
to use the power of the market to preserve forest land.
The economics of forest management, like other natural resources, are varied
and in some ways counterintuitive. Though discounting is often thought of as a
negative practice in terms of environmental preservation—in carrying out policy
28
evaluations to help decision-makers, economic analyses typically discount
future environmental impacts—this is not always the case. While high discount
rates might shift environmental burdens to future generations, they also tend to
discourage high levels of investment which, in turn, can reduce demand for
natural resources. As such, the economics of natural resource use should be
thoroughly analyzed when formulating forest management strategies.
This Act declares that the purposes of the national forests include outdoor
recreation, range, timber, watershed and fish and wildlife. The Act directs the
Secretary of Agriculture to administer national forest renewable surface
resources for multiple use and sustained yield.

Recommended Resources

USDA Forest Service: National Report on Sustainable Forests – 2003

www.fs.fed.us/research/sustain/documents/SustainableForests.pdf
The first-ever accounting of 67 indicators of sustainable forests in the United
States, as endorsed by the Montreal Process, of which the United States is a
member country. The report includes data gaps and recommendations to move
forward.

Rainforestinfo.org: Timber Certification Defined

www.rainforestinfo.org.au/good_wood/tcrt_def.htm
Timber certification is a voluntary, market-driven program that seeks to identify
wood and paper products from forests managed according to internationally
accepted stewardship principles. This website outlines the process.

LAWS & TREATIES

National Forest Management Act – 1976

www.fs.fed.us/emc/nfma/includes/NFMA1976.pdf
The NFMA is the primary statute governing the administration of national
forests. It reorganized and expanded the Forest and Rangeland Renewable
Resources Planning Act of 1974 to include a requirement that the Secretary of
Agriculture develop a management program and implement a resource
management plan for the National Forest System.

Forest and Rangeland Renewable Resources Planning Act – 1974

www.fs.fed.us/emc/nfma/includes/range74.pdf
This Act calls for an assessment of the Nation's renewable resources. It is
intended to provide reliable information on the status and trends of the Nation's
resources so that informed policy decisions can be made.

Multiple-Use Sustained Yield Act – 1960

www.fs.fed.us/emc/nfma/includes/musya60.pdf

29 30

Chapter 7: Tropical Deforestation
Rainforests can provide a variety of benefits to both man and nature. They
supply over 20 percent of the planet's oxygen while storing carbon dioxide,
methane, and nitrous oxide; greenhouse gases that contribute to global warming.
Tropical rainforests also act to protect watersheds, and are critical to maintaining
regional supplies of both fresh and drinking water.
Aside from their many environmental services, rainforests contain a vast
amount of animal and plant biodiversity while also providing a home for a large
number of indigenous people. They also supply both local and global markets
with a variety of products, as well as ingredients for many medicines. Nearly
half of all medicines used today are linked to discoveries within the rainforests.
Finally, tropical rainforests have become a major focus for 'ecological tourism,'
which can be beneficial to a local or country's economy, but is dependent upon
continuing forest preservation.
Tropical rainforests are located in a wide band surrounding the equator, covering
over six percent of the earth's total land surface. Scientists estimate that these
rainforests contain over half of the world's plant and animal species, with a
potential for millions of new, still undiscovered species. Unfortunately, tropical
rainforests lose an estimated 93,000 square miles each year due to
deforestation, a complex issue with many underlying economic concerns.
Deforestation can occur in a variety of ways, but it is mainly the result of a
combination of agricultural and infrastructure expansion. Commercial wood
extraction for pulp or timber can also contribute to deforestation if forest
regeneration is not allowed. The leading land-use change associated with
deforestation is agricultural expansion, which includes forest conversion for
permanent cropping, cattle ranching, shifting cultivation, and/or colonization.
Oftentimes land conversion occurs out of a shear growth in population that
increases the need for food, fuel, and subsistence. This is often a basic way of
life for many within tropical countries.
The motivations that result in deforestation are very complex, primarily due to
the nature of the countries and regions where tropical rainforests are found.
Decisions to convert tropical forests are often encouraged by a number of fiscal
incentives, including tax concessions or subsidies. The competitive global
economy can also drive the need for income in countries that are economically-
31
challenged. Therefore, deforestation rates in tropical areas are often closely
linked to a country's economy. Low income countries often experience
deforestation.
In the past, many governments and markets tended to recognize only the cash
value of the rainforest, rather than its economic importance in terms
of 'unmarketed' benefits, such as the many environmental services offered and
the vast amount of biodiversity that is sheltered. Land rights have tended to
favor developers and colonizers, not native peoples; and incentives often
encouraged a conversion from forested land to agriculture utilization. Logging
concessions were often sold to raise money for specific projects, to pay down
international debt, or to further develop industry within a country. A practice of
low taxes on income derived from agriculture and rates that favored pasture over
forest, made it extremely profitable in some countries to convert rainforests for
these purposes. Pro-deforestation economic development policies often lead to
an increase in commercial crops and pastures and when combined with an
expansion of the road network, further open up the rainforest area.
Part of the challenge in creating more sustainable tropical forest practices is the
large number of players that can be involved, including farmers, logging or
agricultural companies, the governments of tropical forest countries, and even
the international community. The decisions made by each stakeholder group
often differ and conflict, where the benefits and costs important for one group
are not necessarily important to the others. However, economic efficiency
would try to account for all benefits, including how sustainable practices can
contribute to greater productivity while limiting environmental impacts – factors
that may or may not be considered by industries that enter the market in order to
maximize profits.
There are, however, a variety of measures that can turn the exploitation of
tropical rainforests into more sustainable actions. Economic activities can be
sustainable as long as the forests are not over-exploited and have enough time to
regenerate. One model that can be applied to forest management is sustained
yield, which aims to maintain or increase the amount of timber in the rainforest.
The model is based on the idea that harvesting need not disturb the overall
ecosystem, and that the quantity of timber harvested should be less than or equal
to the amount of timber regrowth.
Demand-reducing trade measures can also be introduced to help curb tropical
deforestation. These measures can be instances where the governments of
consumer countries consider increasing import duties on tropical timber.
Selective import duties can also be used, where sustainably-produced timber
may be imported duty-free while a tax is placed on timber that is unsustainably
produced. Trade bans, such as prohibiting tropical hardwood for specific uses,
32
such as in new home building, can also be put in place. However, such certification bodies. The organization's website provides information on the
prohibitions should be used carefully and selectively so as not to discourage the process, including lists of areas that have received certification.
entry into the market of sustainably-produced tropical timber.
VIEWPOINTS
Timber certification is another method that can be used to promote sustainable
forestry practices. It operates on the assumption that consumers are willing to Developing Countries: Pay us to Save Rainforests
pay a premium on products harvested in a sustainable manner by clearly news.mongabay.com/2005/1127-rainforests.html
identifying and verifying that the timber is coming from sustainably managed This 2005 article discusses the argument made by a coalition of tropical
forests. Current certification systems need further development, however, as the developing countries for why wealthy countries should pay them to preserve
overall acceptance of certified forest management in tropical developing rainforests due to the services provided that benefit the rest of the world. Also
countries thus far has been relatively minor. While certified management is included is a 2006 update.
common in developed countries, certified timber products have only been
minimally successful. Part of the problem with certification is the absence of
market price premiums, even in the more environmentally-conscious markets,
such as West Germany, the Netherlands, and the U.K. However, in the tropics
much of the problem also relates to the difficulties in establishing viable
certification programs in many of the developing countries.

Within the global economy, foreign aid can also be used to decrease the rate of
deforestation if the transfers can ease the need for exploitation by enabling a
country to cope with problems that require immediate attention rather than
exploiting forests to earn much needed foreign exchange. The international
community can also use a 'carrot and stick' approach by providing foreign aid or
debt reduction, sometimes in the form of debt-for-nature swaps, under the
specific condition that a country improve forest conservation or sustainable use
practices. To realistically protect the many resources and services provided by
tropical rainforests, ultimately a balance must be found between preservation
and forest use through sustainable economic practices.

Recommended Resources

EO: Tropical Deforestation

earthobservatory.nasa.gov/Library/Deforestation/
NASA's Earth Observatory article explains why deforestation happens,
deforestation rates, the connection between deforestation and global processes,
as well as what happens to land after deforestation.

Forest Stewardship Council

www.fsc.org/en/
The FSC is one organization that awards timber certification through accredited

33 34

Chapter 8: Water Resources
The basic building block for all life on Earth, water is the most plentiful natural
resource on the planet; in fact, over two-thirds of the Earth is covered by water.
However, 97 percent is held in the oceans, while only 3 percent is freshwater.
Of the freshwater, only one third is easily accessible as ground or surface water,
the remains are is stored in glaciers and icecaps. Thus, water is both the most
abundant natural resource on our planet and a fundamental element of life whose
preciousness requires diligent management.
Human consumption and use of water in any particular location revolves around
two key factors: quantity and quality. Scarcity results when either the physical
quantity of water is low or the quality of existing water resources is unfit for
human use. The production of electric power and irrigation are the largest
and most important uses of water throughout the world, each with their own
impact. In industrial nations, concerns over water quantity dominate, while in
the developing world, water quality remains the major concern (though water
quantity is certainly a major problem in certain geographic areas).
Let us first examine issues of water scarcity in industrialized nations. Though
limited concerns over the quality of water still exist—specifically regarding
contamination from pollutants—scarcity results not from a lack of clean water
supplies, but rather from inefficiencies in allocation; in other words, the water is
clean but it is often misused (i.e. wasted). Why does this occur?
Water is a peculiar resource. Because of its abundance and fundamental
importance, water has historically been seen by many as an inexhaustible
resource that should be available to all at little or no cost. Traditionally, water
has been managed as a public good by state-run water industries. When
demand for water was low, this strategy seemed appropriate. But as demand for
water increases, especially in expanding urban centers and arid regions like the
Mountain West, various problems arise.
The central dilemma faced by consumers in a state-run system of water
provision is known as the tragedy of the commons. A tragedy of the commons
occurs when a limited resource—like water—is over-used or misused because of
the absence of an effective price mechanism. Because the market does not
supply a price which accurately reflects the value of a particular good, in this
case, water, individuals have an incentive to maximize use; or, similarly, have
little or no incentive to conserve. Thus, water is not allocated to value-
maximizing areas. In plain terms, this means that water does not go to the
35
people who most value its use (and thus are most likely to conserve). The result:
water shortages which damage both natural environments and economic well-
being.
According to a recent U.S. survey, 36 states report that they expect to suffer
water shortages within the next ten years. Water scarcity issues are no longer
problems only in the western states; as our groundwater resources—specifically
the Ogallala aquifer supplying the majority of Midwestern water—slowly
deplete, battles over access to the Mississippi, Potomac and Delaware Rivers, as
well as to the Great Lakes will become more pronounced.
Another, more subtle, but similarly problematic dimension of state-managed
water industries is the inherently political nature of water provision in a
government controlled system; this is known as a public choice dilemma. This
problem goes to the very heart of state-run water industries for it maintains that
even if government industries could overcome the tragedy of the commons
problem, the officials actually charged with managing water distribution often
face certain incentives which preclude an equitable and efficient allocation of
water. Oftentimes, political approval and the desires of various interests groups
are key factors, rather than responding to price changes caused by movements of
supply and demand. Therefore, inefficient distribution outcomes necessarily
result. The market overcomes this problem because it is blind to the lobbying of
particular interest groups and responds only to changes in value, signaled by
shifts in demand.
The tragedy of the commons and public choice dilemmas plague residents of
developing countries as well. However, these countries face both distribution
and sanitation concerns which further complicates the water scarcity debate.
Simply put, most water industries within developing nations are incapable of
supplying adequate and clean water to all citizens. A major problem is
infrastructure—not enough pipes exist to satisfy demand. To compound this,
many citizens in the developing world live in large shanty towns on the outskirts
of cities and lack formal property rights to their homes. Governments often
refuse to recognize the property rights of these dwellers because doing so
would mean they would have to fulfill and obligation to supply these citizens
with services, including water. The vicious cycle continues as those without
water are forced to make use of whatever is available, often times bathing,
cleaning, and laundering in horribly polluted streams. But even if governments
in developing nations could adequately supply water, they would still face
distribution problems due to the tragedy of the commons and public choice
dilemmas.
Many proponents of reform argue that privatization, rather than state-control,
produces the most equitable, environmentally friendly, and economically sound
system for managing both the distribution and consumption of water. Water
36
rights which are transferable from one individual to another are the fundamental
building blocks of such a system. Rather than government controlling access to
water, in a private system individuals could buy, sell, and trade water rights,
just as we do with property rights today. However, critics charge that private
water markets will undersupply consumers and led to unequal distribution,
skewing towards those with more means. Yet, in practice, this seems not to be
the case.
Interestingly enough, privatization benefits are actually most visible in
developing countries. People living on the margins, without recognizable
property or water rights, are able to access clean drinking water for a small cost
because local water vendors have responded to failures of government supply.
In West Africa, for example, small, disposable, bags of clean drinking water
called “sachets” are available throughout the region for only a few cents. Many
foreign companies are also responding to increased demand, shipping ever
larger amounts of bottled water to consumers who need it most.
Water markets can also prove useful in environmental protection efforts. For
example, the Columbia Basin Water Transactions Program (CBWTP), a
partnership between seven nonprofit groups and four state water agencies,
allows partners to negotiate water transactions based on individual demand.
Between July and September of 2007, nearly 6.5 million gallons which would
have otherwise been diverted to state water boards stayed in the Middle Fork
and John Day River system stream flows, benefiting animal populations in and
around the rivers while providing downstream farmers with suitable water for
irrigation during the late summer months. A similar agreement in Washington
state between the US Department of Ecology, the Washington Water Trust, and
the Taneum Canal Company is keeping more than 18 million gallons of water in
Taneum Creek each day. As a result, portions of the river system which were
once dry beds are once again flowing, restoring precious fish and wildlife
habitats.
Agreements like these utilize market principles to achieve increased efficiency.
More importantly, they highlight the future environmental and economic
benefits of increased privatization. Creating a realistic market for water, price
increases will effectively treat water as a finite and precious resource, reflecting
all costs associated with its use. When water prices do not reflect scarcity,
waste, and inefficiency, environmental degradation often results; when prices
signal the actual value of the resource, entrepreneurs respond to demand and
individuals adapt, innovate, and find creative ways to trade and conserve.
Century old state-run water industries are beginning to incorporate market-based
trading techniques which allow individuals to trade water rights based on their
local knowledge and consumption needs. Water boards are also attempting to
incorporate pricing schemes which can more accurately take into account
37
fluctuations in supply and demand. In the developing world, water
entrepreneurs and foreign water companies are slowly making life saving
progress, providing water cheaply and efficiently wherever possible.
Recommended Resources
UN Environment Programme - Freshwater
www.unep.org/themes/freshwater/
The UN Environment Programme’s website details the issues revolving around
freshwater in the world.
International Water Management Institute (IWMI)
www.iwmi.cgiar.org/About_IWMI/Overview.aspx
The IWMI's mission is to improve the management of land and water resources.
Their research agenda is organized around 4 priority themes: basin water
management; land, water and livelihoods; agriculture, water and cities; and
water management and environment.
National Water Program
www.usawaterquality.org/
A link to the National Water Program’s website that provides information about
water usage throughout the United States.
Global Water Outlook to 2025: Averting an Impending Crisis
www.ifpri.org/media/water_facts.htm
The IFPRI prepared this fact sheet about the usage of water around the world
both today and in the future.
LAWS & TREATIES
Water, a Shared Responsibility
www.unesco.org/water/wwap/wwdr2/table_contents.shtml
The 2nd UN World Water Development Report, published in March 2006.
UN Environment Programme - Water Policy and Strategy
www.unep.org/themes/Freshwater/Documents/pdf/WPS_adpoted_at_GC%2024.
pdf
The UN outlines their policy on water related issues.
38
VIEWPOINTS

FAO Newsroom: Coping with Water Scarcity

www.fao.org/newsroom/en/focus/2007/1000521/index.html
Chapter 9: Energy Production & ANWR
An interview with the FAO-Director General Dr. Jacques Diouf about the
severity of water scarcity throughout the world.
In 1960, Secretary of the Interior Fred Seaton signed an executive order that
established the nearly 9 million acres of undeveloped wilderness on Alaska's
North Slope – the far northwest region of the state – as the Arctic National
Wildlife Range. The area was expanded in 1980 and renamed the Arctic
National Wildlife Refuge (ANWR) by Congress through the passage of the
Alaska National Interest Lands Conservation Act (ANLCA).

The Arctic National Wildlife Refuge currently encompasses just over 19 million
acres of undeveloped, federally protected wilderness. Through ANLCA,
Congress designated a 10 million acre “Minimal Management” zone to be left
entirely untouched; 8 million acres were set aside for limited recreational use,
becoming part of the U.S. Wilderness Area; and the final 1.5 million acres,
located along the coastal plain (Area 1002), were to allow exploratory studies
for the potential of resource development, primarily oil and gas.

The coastal plain borders Prudhoe Bay, an area long known to be rich in
petroleum reserves. Although the passage of ANLCA in 1980 specifically called
for possible future development of Area 1002, it also required Congressional
approval before any projects could begin. After initial exploratory studies
revealed huge deposits of oil lay beneath the surface of Area 1002, many
expected that approval for drilling would be quickly forthcoming. However, the
Exxon Valdez accident in 1989 all but destroyed political momentum, and
attempts to authorize drilling in the early 1990s were not able to make it to a
vote.

There have been several proposed solutions to this difficult debate. Proponents
want Congress to move forward with plans to open Area 1002 for drilling and
development. The strongest opponents want an outright Congressional ban on
all possible future development in the region. With a ban, even Area 1002,
designated by Congress as a development zone, would be closed.

Increasing scrutiny on petroleum use due to climate change, predictions of

potential oil scarcity and increasing national security concerns are all greatly
influencing the debate over whether to develop the Arctic National Wildlife
Refuge. In the climate change debate, some believe that oil consumption must
be immediately curbed, and that no new sources should be developed.
Opponents counter that the most effective way to prepare for the negative

39 40
aspects of climate change is to increase global prosperity, providing people with
more tools that can be used to adapt to any changing conditions. This may
require continued use of cheap and efficient fuel today so that we can advance
quickly towards a future in which our society possesses sufficient wealth and
knowledge to further develop alternative energy technologies.
Similarly, discussions concerning the use of ANWR are especially important as
we begin to confront a future where energy production and consumption may
depart radically from traditional norms. Some argue that since petroleum is a
finite resource which will eventually disappear, we should immediately direct all
our energies towards alternative fuel development. New drilling sites, they
maintain, only perpetuate a dangerous dependence on petroleum. Many
scientists and economists disagree, arguing that ANWR should be developed
precisely because conventional oil supplies are soon to be depleted. Like in the
climate change argument, it is thought that the best solution is increased wealth
and knowledge, which can most rapidly be developed only if we utilize the
efficient energy resources now available.
In 1998, a report by the U.S. Geological Survey revealed that there was far more
oil beneath Area 1002 than previously thought, and interest in drilling was once
again sparked. In addition, as oil prices began to rise in the early part of the 21st
century, the ANWR debate began to gain national prominence. Yet, despite a
push by the Bush Administration and Congressional Republicans, more than
twenty-five years after Congress first approved Area 1002 for initial
development the region remains untapped.
Unfortunately, the extreme politicization of the ANWR debate has obscured
many of the fundamental points of the issue. With increasing instability in the
international oil market, many argue that domestic development is crucial to
national economic security. Area 1002 contains the largest untapped supply of
oil in the United States, with estimates of between 9 and 16 billion barrels of
recoverable oil beneath the sea and soil. In addition, job creation is estimated to
be between 250,000 and 750,000 with the development of the area.
Opponents counter that ANWR, in fact, represents just a fraction of total global
oil output and even maximum production of the area would do little to insulate
America from global oil shocks. Furthermore, ANWR is considered by many to
be one of the few remaining areas of untouched wilderness in the country.
Development would not only destroy this distinction, it could also disrupt
ecosystems and endanger wildlife. However, technological advancement has
greatly reduced drilling “footprints” over the last thirty years, and as oil and gas
companies are forced to interact in and with increasingly sensitive areas,
innovative strategies and techniques for protecting – even promoting – wildlife
migration and habitat protection would necessarily be sought.
41
Since the Arctic National Wildlife Refuge is important to our entire country –
for a variety of reasons – it is likely that if there is ever any resolution to allow
for the use of Area 1002, it will include requirements for environmentally
sensitive development with much of the financial proceeds (certainly several
billion dollars) directed towards the research and development of renewable
energy options and/or for environmental protection efforts elsewhere. However,
all previous attempts to pass an ANWR bill by tying it to more acceptable
elements have yet to make it through the U.S. Senate.
Recommended Resources
The Arctic National Wildlife Refuge: A Special Report
arcticcircle.uconn.edu/ANWR/
Arctic Circle, a consortium of scholars centered at the University of
Connecticut, maintains an informative site about the Arctic National Wildlife
Refuge. There are helpful pages summarizing federal legislation affecting the
refuge and the history of oil and gas exploration in the region, as well as
a section outlining and explaining the controversy over drilling in the refuge.
Arctic National Wildlife Refuge: New Directions in the 110th Congress
www.protectthearctic.com/files/CRS_arctic_2007.pdf
This 2007 summary report from the Congressional Research Service examines
the key aspects of the debate surrounding oil drilling in ANWR. It discusses the
basic geological issues of where the oil is and whether it is recoverable, as well
as the political and ethical issues surrounding this contentious environmental
issue.
LAWS & TREATIES
The Alaska Natural Gas Pipeline Act, 2004
www.ferc.gov/industries/gas/indus-act/angtp/act.htm#act
In 2004, Congress passed the Alaska Natural Gas Pipeline Act allowing the
extraction of natural gas and oil from Alaska's North Slope. Although no
extraction has taken place to date, the law makes it much easier and more likely
that it will occur in the future.
Arctic Power: Arctic National Wildlife Refuge
www.anwr.org/
The majority of Alaska’s state, local, and tribal governments favor opening
ANWR to energy development. This site, created by an Alaskan non-profit
42
organization, explains why local proponents see potential reserves in ANWR as
beneficial to their state and the nation. They include some interesting graphics
on how Alaskan oil development benefits other states, information about new
drilling technologies, and a "Top 10" list of reasons why drilling should be Chapter 10: Carbon Trading &
approved. Sequestration

The atmosphere offers another type of global commons, accessible to everyone

while being the property of no one. Typically, issues involving a “commons”
have been resolved primarily through coercive measures, such as setting
standards (command and control) or imposing taxes, which can have negative
effects on both output and employment within an industry, or even for an
economy. However, as governments and regulatory bodies across the globe seek
to meet increasingly costly environmental quality goals, they have begun to look
at other incentives and initiatives as more flexible, lower cost alternatives in
both national and international environmental policy. An example of this can be
illustrated through a discussion on the treatment of carbon dioxide emissions.

Carbon dioxide, along with other greenhouse gases, forms a protective layer
around the Earth, capturing a portion of the sun's energy and allowing the planet
to be warmer than it would be without it. In the Earth's natural biogeochemical
cycles, carbon is exchanged between terrestrial vegetation and the atmosphere
through photosynthesis and respiration, a natural flow among stores in the
atmosphere, oceans, and land surfaces. The level of carbon in the atmosphere
remains in balance when the carbon going in and out of the atmosphere is of
roughly equal amounts. However, when the levels of carbon dioxide and other
greenhouse gases increase, they trap higher levels of the sun's energy in the
atmosphere, resulting in a rising global temperature.

A key source of the increase in carbon dioxide emissions is human activity. In

2004, the burning of fossil fuel and changes in land use (deforestation and
clearing) contributed approximately 5.5 billion metric tons and 1.1 billion metric
tons of carbon, respectively, in the U.S. alone and continues to rise. Nearly half
of all anthropocentric emissions remain in the atmosphere, with the rest being
taken up by natural carbon sinks.

In some countries, policies for managing the level of greenhouse gases emitted
into the atmosphere are influenced by national economic and social policies,
guided by objectives ranging from energy availability and security to higher
incomes and employment levels to the conservation of environmental resources.
There are also important international treaties, seeking to address greenhouse
gas emissions worldwide. One, the Kyoto Protocol, provides greenhouse gas
emission targets. However, gaining active participation in the control of

43 44
greenhouse gases by key countries, like the United States and China, and
enforcement of the targets remain a challenge.
In terms of carbon dioxide, there are a number of initiatives that can help to
manage emissions while allowing the market to allocate resources most
efficiently, including carbon trading and carbon sequestration. The
establishment of a market that utilizes the value of carbon can help facilitate
technological, political, and social change needed to address and minimize the
impact on our environment.
Carbon sequestration, which can provide for the long-term storage of carbon
dioxide either by enhancing natural sinks or through artificial methods, is an
initiative that continues to gain momentum. Some studies have shown that
sequestration can be a cost-effective method to reduce atmospheric carbon
dioxide in the near term. Cost (or value) is generally expressed in monetary
units per ton of carbon sequestered, and is based on the cost of the land, planting
and management. The amount of carbon that can be sequestered varies with
storage method, land management practices, the plant, crop, and vegetation
species, and geographic location. Sequestration can take place in terrestrial areas
(trees, plants, and crops), in the underground storage of geologic formations, and
in the deep ocean.
Terrestrial Sequestration
Soils and vegetation are natural focal points for carbon storage. Aside from their
many environmental services, forests provide a variety of benefits to both man
and nature by supplying much of the planet's oxygen while storing carbon,
which as a greenhouse gas contributes to global warming. Methods that can
increase the potential for sequestration include afforestation – the conversion of
open land to forest – reforestation, and forest preservation.
According to a PEW Center report, the marginal cost of sequestering
approximately 300 million tons of carbon each year in forestland would range
from $25 to $75/short ton. The conversion of 115 million acres of marginal
agricultural lands in the U.S. to forests has the potential to sequester an
additional 270 million metric tons of carbon annually, at a marginal cost of
approximately $45/short ton.
Increasing the potential of agricultural lands for carbon storage may also involve
a change in land-use and/or management practices. For example, conservation
tillage leaves a minimum of 30 percent crop residue on the soil after planting,
disturbs the soil less, and increases the amount of carbon that can accumulate in
the soil. However, some practices may not be the most economical for farmers.
45
One way to encourage carbon storage is for governments to subsidize new
agricultural management practices that increase carbon storage, similar to those
subsidies already provided for growing specific crops or for keeping land fallow.
Geologic Sequestration
Geologic sequestration involves a direct injection of carbon dioxide into an
underground geologic formation at high pressure and at depths generally greater
than 2,625 feet. It is at this depth that pressurized carbon dioxide behaves like a
liquid and occupies all possible areas, including the pore spaces within the
surrounding rock, similar to the way a sponge absorbs water. Suggested storage
sites include depleted oil reservoirs, coal beds that cannot be mined, and deep
saline aquifers.
Carbon dioxide has been used for decades in declining oil fields in order to
increase oil recovery. When injected, the carbon dioxide lowers the viscosity of
the oil, allowing it to slip through the pores in the rock. Primary benefits of this
method include the cost offset by the sale of recovered oil and the availability to
use the existing infrastructure. Although the fields tend to have an inconsistent
geographic distribution and are individually limited in their capacity for storage,
some countries – including the U.S. and China – appear to have very large
geological sequestration potential. A problem that could increase costs is the
potential for leakage due to the requirement for high pressure and low
temperature.
Unminable coal beds, which are either too thick or too deep to be mined
economically, are also a possible option for carbon storage because carbon
dioxide adheres to the surface of the coal, which could ensure safe, long-term
storage. The process of injecting carbon dioxide into coal beds also offers the
benefit of releasing methane which can be recovered and sold to help offset
costs, although the release or burning of the methane would partially offset the
sequestration.
Deep saline aquifers offer another potential storage option for carbon. These
rock units, containing water with a high concentration of salt, are relatively
common in distribution and are believed to have a large storage capacity.
Unfortunately, they have no byproduct that can help to offset costs and there is
little known about them in comparison to coal and oil fields.
Overall, geologic sequestration costs are site-specific, making cost estimates
difficult. It will depend on the option, available infrastructure, location, depth,
and the individual characteristics of the storage reservoir formation. Monitoring
and verification programs will also add to the cost.
46
Ocean Sequestration
The ocean is the largest natural sink on Earth and is thought to have enormous
potential for additional carbon storage. Two processes drive the natural activity
of the ocean to take in carbon dioxide; a biological system that transports carbon
to the ocean's interior, and the solubility of carbon dioxide in seawater that is
further enhanced by ocean circulation. Methods currently being studied to
further enhance carbon storage are ocean fertilization and direct injection.
Fertilization utilizes adding iron particles to the water to encourage plankton
growth. As the plankton population grows, so does their productivity which
increases the amount of carbon dioxide removed from the atmosphere through
photosynthesis. The effect of increasing plankton blooms on ocean ecosystems
is unclear; however, it is thought that much of the carbon is recycled back into
the atmosphere over time. Plankton also release sulfur aerosols which play a
complex role in both cloud formation and condensation.
Similar to geologic sequestration, carbon dioxide can be directly injected into
the depths of the ocean to ensure long-term storage. Transport can take place
through an onshore pipeline or via an ocean tanker. Either option would also
need to include a monitoring and verification program. However, many of the
ecological, chemical, and geological elements of the deep sea and, therefore, the
effects of injecting carbon dioxide into the ocean, are widely unknown. Debate
also continues on how much potential for additional carbon storage in the ocean
actually exists.
Carbon Trading and Sequestration in Practice
While carbon trading and sequestration methods are still being studied and
developed, they offer great potential for contributing to the mitigation of climate
change. Government, industry, academia, and other organizations are exploring
the possibility of utilizing existing technology, as well as developing new
methods, of capturing carbon. However, in addition to these methods, many of
which are experimental, new standards and regulations will be needed to address
the overlying risks and liabilities of carbon storage.
Carbon trading – also known as 'cap and trade' – is a market-based system that
can foster emissions trading across all sectors, as well as across the globe,
allowing emitters to purchase carbon offsets from sources that are able to lower
their emissions more economically. If limits to greenhouse gas emissions are put
in place, the market should find ways to allocate resources most cost-effectively
while meeting applicable targets. The U.S. Environmental Protection Agency
already has programs in place for both SO2 and NOx emissions trading.
47
The United States has the Chicago Climate Exchange which, beginning in 2003,
was the world's first voluntary, legally binding greenhouse gas reduction and
trading system for emission sources and offset projects in North America and
Brazil. Participants that have joined the exchange range from corporations like
Ford and Motorola, to educational institutions like Tufts University and the
University of Minnesota, to farm organizations like the National Farmers Union
and the Iowa Farm Bureau. Europe has a sister exchange, the European Climate
Exchange, that began trading in 2005 throughout the European Union.
Although not all efforts are currently identified as eligible for carbon emission
reductions, there are many examples of activities taking place that are reducing
overall carbon emissions. For example, the National Farmers Union has a multi-
state carbon credit program that allows farmers and landowners to earn income
by storing carbon through long-term seeding and no-till crop production.
Forestry projects have also been popular within the U.S., including in tribal
territories. In Idaho, for example, the Nez Perce tribe planted trees across 4,000
acres on land that had been cleared for farming a century ago. Selling the rights
allows tribes to foster economic development without having to wait decades for
the harvest. Although risks do exist – drought and infestation can ruin entire
stands of forest – there is somewhat less uncertainty on tribal land where the
land is held by a tribal government and, therefore, long-term leases are more
secure. Also, since 2003 the Edison Electrical Institute, an association of the
electric power industry, has instituted a large forest carbon sequestration
initiative.
Although not a final or only solution, utilizing a variety of cost-effective carbon
storage methods, along with the increased use of carbon trading, can serve as a
positive intermediary step while more comprehensive greenhouse gas mitigation
policies are developed.
Recommended Resources
National Energy Technology Laboratory (NETL): Carbon Sequestration
Technologies
www.netl.doe.gov/technologies/carbon_seq/index.html
This website gives an overview of NETL-funded projects, containing
background information on the various steps and technologies involved in
sequestration. The 2007 Carbon Sequestration Technology Roadmap and
Program Plan can also be found on the site.
48
Environmental Protection Agency (EPA): Carbon Sequestration in
Agriculture & Forestry
www.epa.gov/sequestration/index.html
EPA's website describes carbon sequestration, provides a list of frequently asked
questions, overviews sequestration practices and the science background within
both agriculture and forestry, and discusses international sequestration
opportunities.
VIEWPOINTS
Giant Carbon Vacuums Could Cool Earth
www.csmonitor.com/2007/0419/p13s01-sten.html
This article, from the April 19, 2007 edition of the Christian Science Monitor,
discusses Columbia University physicist Klaus Lackner's idea of scrubbing
carbon dioxide directly from the atmosphere to mitigate climate change from
human-emitted carbon dioxide.
49
Chapter 11: The Greening of Business
Vast valuable resources make up our global commons. Human interaction with
these areas is contributing to climate change, water and air pollution, and other
forms of environmental degradation. Increasingly, both small and large
businesses and industries are realizing the importance of operating in a more
sustainable manner so as to avoid potential environmental ruin.
The evolution of these new management efforts, often referred to as the
“greening of business,” range from responding to government-sponsored
environmental standards to voluntary efforts toward lowering a business'
environmental impact to setting up networks for sharing knowledge and best
practices. These efforts, however, vary in both effectiveness and sincerity—as
environmental stewardship has become more popular and widespread, some
merely engage in the practice of “green washing,” or marketing oneself as
being environmentally responsible so as to yield a business and/or profit
advantage. Many businesses, most importantly, are realizing that environmental
stewardship can translate directly into increased efficiency, lower costs, and
higher profits.
Early efforts focused primarily on energy efficiency. In 1992, the Environmental
Protection Agency and the Department of Energy teamed up to establish the
Energy Star Program. Energy Star for businesses is designed to provide an
energy management strategy that helps in measuring current energy
performance, setting goals, tracking savings, and rewarding improvements. Such
an approach is useful in that simply informing businesses of how well they are
performing is often enough to further motivate significant additional steps
toward greener business practices. The Energy Star logo has since become
widely recognized as a staple of modern electronics in both homes and
businesses.
In addition to government-sponsored programs, stakeholders from industry and
the non-profit sector are creating a number of certification programs designed to
establish sustainable codes of conduct. Due to concerns about rapid
deforestation, particularly in the Amazon rainforest, the forestry industry
provides a good example of an industry working to develop and promote codes
of conduct through various timber certification programs. Once certified, timber
producers can label their products as such, thereby allowing customers to
purchase sustainable timber with a higher level of confidence. In turn, timber
and other certification programs may allow for the greening of other business
50
aspects, in particular the construction of LEED-certified or other green
buildings.
The International Organization for Standardization (ISO) is a standard-setting
body that advances world-wide industrial and commercial standards, including
environmental management guidelines through ISO 14000. These guidelines
exist to help companies and organizations minimize their negative impact on the
environment through comprehensive process solutions rather than focusing on
the product itself. This ensures that the widest array of protective measures is
implemented and allows companies to communicate their environmental
responsibility to consumers with a high level of verifiability. Companies and
organizations are not mandated by any government body to participate in ISO
14000 standardization. Rather, participation is motivated by increased efficiency
and improved public relations, which in turn can lead to increased profitability.
Many companies, however, are developing their own guidelines and strategies
for creating sustainable business. For example, Wal-Mart has committed to
selling only concentrated liquid laundry detergent to conserve water, plastic, and
cardboard, and Dell Computers has committed to aim for carbon neutrality. Yet,
there is often skepticism, as some wonder if many of the actions are just a wide
re-branding of longstanding interests and activities. After all, companies have
always sought ways to increase sales and profits through enhanced efficiencies
in manufacturing and distribution processes. With increasing interest in climate
change and environmental protection, many companies may simply be
describing their normal activities in a new light.
Other large companies are spearheading environmental stewardship efforts as
government institutions have foundered in terms of environmental regulations.
Google recently launched an initiative to develop electricity from renewable
sources cheaper than electricity produced from coal. Despite the fact that this
initiative is fairly removed from Google's main business strategy, it is an
example of how companies are committing to protecting the environment. Not
long ago, Google installed the largest corporate solar array at its main campus in
Mountain View, California and committed to carbon neutrality for 2007 and
beyond.
Simply offsetting carbon emissions does not constitute sustainable management,
however. Carbon neutrality efforts are usually a combination of reducing and
offsetting emissions, therefore opponents argue that the practice allows
companies and individuals to continue their bad habits without guilt. However, a
transition to increasing sustainability is not immediate, and companies must
often take smaller steps toward becoming green businesses. Carbon offsets often
provide a good way for businesses to work toward sustainability in an
51
incremental manner so long as it is followed by an ongoing effort to decrease
their overall environmental footprint.
On the other side of the spectrum, small- to medium-sized businesses are
sprouting networks to link themselves and other businesses with values-driven
consumers to further promote and sustain green business. One of the oldest and
largest green business networks is maintained by Co-op America, an
organization that defines green business as business conducted as a tool for
social change, as values-driven and not solely profit-driven, and as socially and
environmentally responsible in the way they source, manufacture, and market
their products. The over-arching goal of Co-op America's Green Business
Network is to provide the tools and information needed for small- to medium-
sized businesses to succeed in today's intensively competitive marketplace.
Members include well-known companies as Burt's Bees, Clif Bar, and
Patagonia.
Because the private sector has such a massive impact on the natural
environment, it is becoming imperative that any comprehensive effort to protect
the environment include a strategy to encourage the greening of business.
Investments in efficiency are often the easiest way to make a business greener as
they simultaneously reduce greenhouse gas emissions while increasing
productivity and profitability—allowing us to do more with less. With an ever-
increasing popularity of environmental stewardship, green hype, and an
awareness of global climate change, the movement towards the greening of
business will continue to be in the forefront of both the news and industry action
for the foreseeable future.
Recommended Resources
Green Business Network
www.coopamerica.org/cabn/
Co-op America is the nation's leading non-profit educator on socially and
environmentally responsible consumption and investing. Its Green Business
Network is the largest and oldest in the nation, and is intended to link socially
and environmentally responsible small- and medium-sized businesses with like-
minded customers.
GreenBiz
www.greenbiz.com/
This website features free daily news and resources to large and small
52
businesses on how to align environmental responsibility with business success.
Topics include relevant environmental legislation, new environmental efforts by
some of the world's leading companies, how to green small businesses, and
much more.
Ceres
www.ceres.org/ceres/
Ceres is dedicated to integrating sustainability into capital markets through its
network of investors, environmental organizations, and other public interest
groups working with companies and investors to address sustainability
challenges.
VIEWPOINTS
Fast Company – Are Carbon Offsets a Cop-Out?
www.fastcompany.com/magazine/120/are-carbon-offsets-a-cop-out.html
The author of this November 2007 article tackles the question of whether carbon
offsets are a legitimate form of environmental stewardship. Despite their
similarities to medieval indulgences, he concludes that it is still valuable to do
what is easiest and quickest first.
Derivatives Strategy – The World According to Richard Sandor
www.derivativesstrategy.com/magazine/archive/1999/1299qa.asp
Richard Sandor founded the Chicago Climate Exchange, a voluntary carbon
emissions trading program. In this early interview he outlines his views on how
sustainable business practices often indicate strong managerial abilities and thus
higher profitability.
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Appendix:
Resources for the Classroom
Population
Linking Population, Health, and Environment
www.prb.org/Educators/LessonPlans/2005/LinkingPopulationHealthandEnviro
nment.aspx?p=1
This lesson plan from the Population Reference Bureau explores how the human
population alters the environment and how environmental changes can affect
human health. The lesson involves an ecological footprint quiz, reading activity,
and group investigations into the linkages between the population, health, and
environment in certain countries. [Grades 9-12]
PBS: Be a Demographer
www.pbs.org/wgbh/nova/worldbalance/demographer.html
On this site, students can play eight mini-matching games to learn more about
the demographic markers that influence a country's population. In each scenario,
students match four countries with their appropriate demographic data. Each
matching set includes information on a particular marker – including life
expectancy, median age, and total fertility rate, listing the social factors that
influence them.
Population Growth Project
k12science2.ciese.stevens-tech.edu/curriculum/popgrowthproj/
This project, created by the Stevens Institute of Technology, includes a series of
activities on the mathematic and environmental aspects of population growth.
Students use information from the Census Bureau to model population growth
and can submit their work to be published online. The activity website also
includes a Teacher Guide and a list of experts and references students can use to
find out more information. [Grades 9-12]
Biodiversity
The Importance of Biodiversity: An Exercise
cnx.org/content/m12175/latest/
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This exercise asks students to research and consider the implications of species
loss using a framework of economic biodiversity valuation.
EconEdLink: There is Something in the Water
www.econedlink.org/lessons/index.cfm?lesson=EM308&page=teacher
Students will analyze and debate the tradeoffs and discuss the economic factors
involved in making decisions about draining wetlands versus protecting them to
retain their value as a natural resource. [Grades 6-8]
Agriculture
The Economics of the Family Farm
www.econedlink.org/lessons/index.cfm?lesson=NN122&page=nnlprimer
This National Council on Economic Education (NCEE) lesson introduces basic
agricultural economic knowledge necessary for interpreting what we see in the
news. [Grades 9-12]
Fighting for Fair Farming: Examining How Domestic Subsidies Impact
Foreign Markets
www.nytimes.com/learning/teachers/lessons/20040428wednesday.html
This New York Times Learning Network lesson plan examines the impacts of
subsidies on farmers and other industries, and outlines how subsidies can affect
domestic and foreign markets. [Grades 6-12]
Fisheries
EconEdLink: New Sense, Inc. vs. Fish Till U Drop, or Coase vs. Pigou
www.econedlink.org/lessons/index.cfm?lesson=EM582&page=teacher
This lesson uses an engaging open-ended role play situation to explore, "Which
economic approach is the most efficient and fair to resolve utility issues
surrounding the use of common or public property?" [Grades 9-12]
EconEdLink: There is Something in the Water
www.econedlink.org/lessons/index.cfm?lesson=EM308&page=teacher
This lesson illustrates the concept that although natural resources may seem
abundant, it is not always the case. It also shows how trade-offs and good
management are essential for maintaining and preserving resources for future
generations. [Grades 6-8]
Environmental Literacy Council: Tragedy of the Commons
www.enviroliteracy.org/article.php/1160.html
The purpose of this simulation is to explore how resources are used and
exploited when they are available to multiple parties and to illustrate strategies
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that can be employed to ensure the long-term survival of a resource in spite of
the natural tendency toward exploitation. [Grades 9-Undergraduate]
Fishing for the Future
www.pbs.org/emptyoceans/educators/activities/fishing-for-the-Future.html
Facing the Future is an organization that helps teachers engage their students on
global issues. Through a fishing simulation, students model several consecutive
seasons of a fishery and explore how technology, population growth, and
sustainable practices impact fish catch and fisheries management. [Grades 6-12]
Forest Management
Citizens for Responsible Forest Management: Growth calculator applet
www.crfm.org/simulator/index.simulator.html
This calculator can be used to show the sustainability (or lack thereof) of
different timber cut rates and intervals. Though it is not completely accurate it
can give some idea of how re-entry and cutting rates affect a forest.
USDA Forest Service: Speech, “Climate Change, Kids, and Forests: What's
the Connection?”
www.fs.fed.us/news/2007/speeches/09/climate.shtml
Delivered by Forest Service Chief Gail Kimbell at the annual conference for the
Society of Environmental Journalists in September of 2007, this speech touches
on the concerns that many kids have about the future of the natural environment
and our forests in particular.
Environmental Literacy Council: Firestorm
www.enviroliteracy.org/subcategory.php/350.html
The Council’s role-playing simulation module is designed to give students
authentic experience in the process of making important decisions about the
environment—gathering and analyzing information; judging the reliability of
information sources; understanding complex perspectives; and forming opinions
and making recommendations based on solid knowledge of ecosystems and
different approaches to environmental management. [Grades 6-12]
Discovery Education: Forest Fires
school.discoveryeducation.com/lessonplans/programs/forestfires/
This lesson plan is intended to teach students the benefits and problems
associated with forest fires along with the role that fire plays in maintaining
healthy ecosystems. [Grades 9-12]
Tropical Deforestation
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PBS: Chico Mendes of Brazil
www.pbs.org/journeyintoamazonia/teacher_chico.html
This activity explores how fast rainforests are disappearing and how the
rainforests are used by looking at the competition between cattle ranchers and
rubber tappers for the land rights. [Grades 6-12]
The Rainforest, Raw Materials, and You
www.pbs.org/journeyintoamazonia/teacher_raw.html
Also by PBS, this lesson identifies and compares the rainforest products that we
use in our everyday lives. [Grades 6-12]
Forests of UCO: Classroom Activities
www.phoenixzoo.org/learn/educator_resources/rainforest_classroom_activities.
pdf
A set of activities on rainforests, including lessons on rainforest layers, the
importance of rainfall in rainforests and the difference in rainfall in various
regions, behavioral observations, and the use of mimicry and camouflage by
rainforest animals. [Grades K-5]
Economics Lesson: The Rain Forest
www.mcps.k12.md.us/curriculum/socialstd/grade3/Econ_Interd.html
In this lesson from Montgomery County Public Schools in Maryland, students
examine different points of view people have regarding the rainforest. Students
will learn about economic concepts such as opportunity cost while taking on
different roles, including people who live in the rainforest, people employed by
the timber industry, and scientists concerned with preserving biodiversity.
[Grades K-5]
Water Resources
USGS: Water Usage at Home
ga.water.usgs.gov/edu/sq3.html
The USGS provides this website to calculate the amount of water an individual’s
home uses everyday.
Thirstin's Matching Fun Facts Game
www.epa.gov/safewater/kids/flash/flash_matching.html
The EPA created this matching game for students to learn how much water is
used in a variety of activities around the world.
Water, Water Everywhere?
school.discovery.com/lessonplans/activities/watereverywhere/
This unique lesson plan provided by the Discovery Channel teaches students
about the global water crisis that is facing the world today. [Grades 6-10]
57
Energy Production & ANWR
To Drill or Not to Drill?
www.eric.ed.gov/ERICDocs/data/ericdocs2sql/content_storage_01/0000019b/8
0/19/79/f4.pdf
This lesson plan, located on ERIC (the Education Resources Information
Center), is entitled 'The Arctic National Wildlife Refuge: Many Alternatives and
One Choice To Make' and was created in 2001 by the Foundation for Teaching
Economics. Although a bit dated, it provides a terrific opportunity for students
to discuss the background to the ANWR debate in small groups, identifying
supporters and opponents of drilling and areas of dispute.
Carbon Trading & Sequestration
Carbon Sequestration Labs
www.keystonecurriculum.org/middleschool/curriculum_grid.html
Under days 7-9 in the Science section of this curriculum grid from The
Keystone Center, teachers will find three separate labs that explore terrestrial,
oceanic, and geologic carbon sequestration methods. [Grades 5-8]
The Greening of Business
Green Business Project
allagash.miyazaki-mu.ac.jp/CUE/stories/storyReader$105
This extended classroom project, intended for more advanced students, teaches
students about green businesses while highlighting academic skills, critical
thinking, and creative output. Through this project, students design a green
business and marketing strategy in response to a specific environmental threat.
[Grades 10-Undergraduate]
PC World Education – The Green Classroom
www.pcwb.com/info/activeict/oct2007/the_green_classroom.html
This website provides instructions on how to make classrooms themselves
greener. Suggestions include making printing more efficient, slashing electricity
use by turning things off when not in use, and investing in more
environmentally-friendly personal computers.
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Endnotes
Agricultural Trade Reform and Poverty in the Developing World, EarthTrends
April 2007 Monthly Update, World Resources Institute.
Agricultures Role in Greenhouse Gas Mitigation from the PEW Center on
Global Climate Change, September 2006.
"Aid Is a Bumper Crop for Farmers,” October 15, 2006 from the Washington
Post.
McDonald, Peter. Low Fertility Not Politically Sustainable, Population Today,
August/September 2001.
Negative Population Growth from About.com
“New York City Depends on Natural Water Filtration,” The Rand Institute,
2007.
Oates, Wallace E. (ed.) The RFF Reader in Environmental and Resource
Management. Resources for the Future, Washington, DC. 1999.
Overpopulation from Wikipedia.org
Population and the Environment, The Population Institute, updated May 2006.

Ashford, Lori. World Population Highlights 2004, Population Reference Bureau, Subsidies to Agriculture: Why?, OECD in Washington, No. 46,
2004. August/September 2003.

An Overview of the EPA's National Water Program, Environmental Protection The Cost of U.S. Forest-based Carbon Sequestration. PEW Center on Global
Agency, 2006. Climate Change, January 2005.

Anderson, Terry L. and Pamela Snyder. Water Markets: Priming the Invisible Turner, R. Kerry, David Pearce, and Ian Bateman. Environmental Economics:
Pump. The Cato Institute, Washington, DC. 1997. An Elementary Introduction. Baltimore, MD: The Johns Hopkins University
Press, 1993.
Brown, Lester R. “Stabilizing Population by Reducing Fertility.” Eco-Economy:
Building an Economy for the Earth, 2001. Urquhart, Gerald and Walter Chomentowski, David Skole, and Chris Barber.
Tropical Deforestation, NASA Earth Observatory.
Butler, Rhett A., Tropical Rainforests from Mongabay.com
van Soest, Daan. Tropical Deforestation: An Economic Perspective, University
Dawicki, Shelley. Effects of Ocean Fertilization with Iron to Remove Carbon of Groningen: 1998.
Dioxide from the Atmosphere Reported. Woods Hole Institute. April 16, 2004.
Wise, Timothy A. The Paradox of Agricultural Subsidies. Global Development
Demographic Transition from Wikipedia.org and Environment Institute, Tufts University, Working Paper No. 04-02, May
Department of Economic and Social Affairs Population Division. Population, 2004.
Environment, and Development: The Concise Report. United Nations, 2001. World Population Prospects: The 2004 Revision, United Nations.
Envisioning the Agenda for Water Resources Research in the 21st Century.
National Academy Press, Washington, DC. 2001.
Fitzpatrick, Eileen. The Weyburn Project: A Model for International
Collaboration. National Energy Technology Laboratory.
Geist, Helmut J. and Eric Lambin, Proximate Causes and Underlying Driving
Forces of Tropical Deforestation, BioScience, Feb. 2002, Vol. 52 No. 2.
Greig-Gran, M. “Is tacking deforestation a cost-effective mitigation approach?”
International Institute for Economic Development, 2006.
Hussen, Ahmed. Principles of Environmental Economics, 2e. New York, NY:
Routledge, 2004.
IPCC Special Report on Carbon Dioxide Capture and Storage from the
Intergovernmental Panel on Climate Change, 2006.

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