We rely on the natural environment as a source of food and raw materials, for recreation and health and as a dump for waste. Yet, too often, little or no monetary value is placed on the environment. GDP, the standard measure of economic success, is based on market values; and the market undervalues the environment. The prices of the goods we buy bear little relationship with the environmental costs of their production. And yet we all bear the costs (some more than others) as the planet warms, as rain forests are cut down, as seas become polluted and as biodiversity is destroyed.
A major study commissioned by the UK government has just been published. The Economics of Biodiversity: The Dasgupta Review looks at how we need to rethink the value we attach to nature and embed that within economic decisions. As the Review begins by saying, ‘We are part of Nature, not separate from it’. Nature is an asset on which we all depend and yet is is hugely undervalued. The Amazon rainforest is seen by developers as valuable only for clearance for cattle, soy or mining. In these terms, Amazon the company, valued at over US$1 trillion, is worth more than the Amazon rainforest. As page 2 of the Headline Messages states:
Nature’s worth to society – the true value of the various goods and services it provides – is not reflected in market prices because much of it is open to all at no monetary charge. These pricing distortions have led us to invest relatively more in other assets, such as produced capital, and underinvest in our natural assets.
Moreover, aspects of Nature are mobile; some are invisible, such as in the soils; and many are silent. These features mean that the effects of many of our actions on ourselves and others – including our descendants – are hard to trace and go unaccounted for, giving rise to widespread ‘externalities’ and making it hard for markets to function well.
But this is not simply a market failure: it is a broader institutional failure too. Many of our institutions have proved unfit to manage the externalities. Governments almost everywhere exacerbate the problem by paying people more to exploit Nature than to protect it, and to prioritise unsustainable economic activities. A conservative estimate of the total cost globally of subsidies that damage Nature is around US$4 to 6 trillion per year. And we lack the institutional arrangements needed to protect global public goods, such as the ocean or the world’s rainforests.
The Review urges a complete rethinking of environmental value. We need to recognise that we are embedded in Nature and that biodiversity has intrinsic worth – perhaps even moral worth. Only this way can correct economic decisions be made.
To detach Nature from economic reasoning is to imply that we consider ourselves to be external to Nature. The fault is not in economics; it lies in the way we have chosen to practise it.
The Review highlights some specific policies that can be adopted to attach value to the environment. It makes three major recommendations.
- Ensure that our demands on Nature do not exceed its supply, and that we increase Nature’s supply relative to its current level. This involves countries and their citizens accepting that they are stewards of the land, seas and atmosphere. This means making conservation central to decision making in areas such a food production, raw material extraction, energy generation and recycling. A range of policy instruments can be used, including taxes and subsidies, laws and regulations, public investment and provision of services.
- Change our measures of economic success to guide us on a more sustainable path. This would involve amending measures, such as GDP, to include environmental degradation (-ve) and improvement (+ve) and national wealth to include all natural assets, such as biodiversity and land, air, sea and water quality. This would involve ‘natural capital accounting’. This, in turn, would be helped by global standardised presentation of data and modelling approaches, and the provision of data on the environment by statistical agencies.
- Transform our institutions and systems – in particular our finance and education systems – to enable these changes and sustain them for future generations. Institutional arrangements should be put into place that allow the pooling of environmental information at local, national and global levels. Then there will need to be international subsidies to countries with environments that should be protected for the global good (e.g. rainforests) and international charges for the use of global common resources, such as oceans and the atmosphere. ‘What is ultimately required is a set of global standards underpinned by credible, decision-grade data, which businesses and financial institutions can use to fully integrate Nature-related considerations into their decision-making, and assess and disclose their use of, and impact on, Nature.’ But this must also be backed up by education so as to encourage people to be more conservationist in their behaviour and attitudes.
It is hoped that the Review will be a major focus of two upcoming United Nations conferences: on Biological Diversity (COP15) in Kunming, China in May 2021 and on Climate Change (COP26) in Glasgow in November 2021. The authors of the Review hope that these conferences will set new environmental commitments and establish the necessary institutional arrangements to ensure such commitments are met. This will involve changing the approach to economic decision making at all levels in society.
As Sir David Attenborough states in his foreword to the Review,
Economics is a discipline that shapes decisions of the utmost consequence, and so matters to us all. The Dasgupta Review at last puts biodiversity at its core and provides the compass that we urgently need. In doing so, it shows us how, by bringing economics and ecology together, we can help save the natural world at what may be the last minute – and in doing so, save ourselves.
The Dasgupta Review
- To what extent is the Dasgupta Review an updated version of the Stern Review of 2006?
- Draw a diagram to illustrate how the existence of negative externalities will lead to production levels above the social optimum.
- To what extent is Nature a public good?
- What is meant by the ‘tragedy of the commons’? How is it relevant to the exploitation of Nature?
- How could market incentives be changed by governments so as to halt the loss of biodiversity?
- Following an international agreement to protect the natural environment, what sanctions could be imposed on countries or companies which violate the agreement? How effective would they be?
Back in November, when Joe Biden had just been elected, we considered some of his proposed policies to tackle climate change (see A new era for climate change policy?). On 20th January, the day of his inauguration, he signed 17 executive orders overturning a range of policies of the Trump presidency. Further executive orders followed. Some of these related directly to climate change.
The first was to cancel the Keystone XL oil pipeline project. If it had gone ahead, it would have transported 830 000 barrels of oil per day from the Alberta tar sands in Canada to refineries on the Gulf Coast of Texas. It would have involved building a new pipeline from Alberta to Nebraska, where it would have linked to an existing pipeline to Texas. Extracting oil from tar sands is a particularly dirty process, involves cutting down large areas of forest (a carbon sink) and total emissions are around 20% greater per barrel than from conventional crude.
The pipeline would have cut across First Nations land and any spills would have been highly toxic to the local environment. In terms of profitability, returns on tar sands oil extraction and transportation are very low. This is likely to remain the case as oil prices are likely to remain low, with greater global energy efficiency and the switch to renewables.
Critics of Biden’s decision argue that the pipeline project would have created some 5000 to 6000 temporary jobs in the USA during the two-year construction phase. Also they claim that it would have contributed to greater energy security for the USA.
The second executive order was to rejoin the Paris Climate Agreement, a process that will take 30 days. Rejoining will involve commitments to cut greenhouse gas emissions and the adoption of various measures to bring this about. During the election campaign, Biden pledged to achieve economy-wide net-zero emissions no later than 2050. As we saw in the previous blog, under Biden the USA will play a leading role in the November 2021 UN COP26 climate change conference in Glasgow.
At present, the Paris agreement is for countries to aim to reach a peak of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century. Many countries have have made commitments about when they aim to achieve carbon neutrality, although concrete action is much more limited. It is hoped that the COP26 conference will lead to stronger commitments and actions and that the USA under Biden will play a leading part in driving this forward.
In addition, to cancelling the Keystone XL pipeline and rejoining the Paris Agreement, the executive orders reversed more than 100 other decisions with negative environmental effects taken by the Trump administration – many overturning environmental measures introduced by previous administrations, especially the Obama administration.
These orders included reversing the easing of vehicle emissions standards; stopping reductions in the area of two major national monuments (parks) in Utah; enforcing a temporary moratorium on oil and natural gas leases in Alaska’s Arctic National Wildlife Refuge; and re-establishing a working group on the social costs of greenhouse gasses.
Then there will be new measures, such as adopting strict fuel economy standards and investment in clean public transport. But it remains to be seen how far and fast the Biden administration can move to green the US economy. With the desire for bipartisanship and seeking an end to the divisive policies of Trump, there may be limits to what the new President can achieve in terms of new legislation, especially with a Senate divided 50:50 and only the casting vote of the chair (Kamala Harris as Vice-President) being in Democrat hands.
The articles below consider the various green policies and how likely they are to succeed in their objectives.
- Climate change: Biden’s first act sets tone for ambitious approach
BBC News, Matt McGrath (20/1/21)
- Biden nixes Keystone XL permit, halts Arctic refuge leasing
The Hill, Rachel Frazin (20/1/21)
- Biden’s return to Paris pact just a first step for U.S. climate action
Reuters, Megan Rowling (20/1/21)
- Court Decision Lets Biden Set New Emissions Rules To Meet Paris Agreement Climate Goals
Forbes, Allan Marks (20/1/21)
- Biden to ‘hit ground running’ as he rejoins Paris climate accords
The Guardian, Oliver Milman (19/1/21)
- What could a Biden-Harris administration mean for the planet?
Euronews, Marthe de Ferrer (20/1/21)
- Ask a Scientist: What Should the Biden Administration and Congress Do to Address the Climate Crisis?
ecoWatch, Elliott Negin (18/1/21)
- Biden marks Day One with burst of orders reversing Trump policies on climate and health
Science Business, Éanna Kelly (21/1/21)
- What Is the Paris Climate Agreement That Joe Biden Will Rejoin, Why Did Donald Trump Leave?
Newsweek, Kashmira Gander (18/1/21)
- Find out what other environmental policies are being pursued by President Biden and assess their likely effectiveness in achieving their environmental objectives.
- Would policies to reduce carbon emissions necessarily be desirable? How would you assess their desirability?
- When is it best to use the ‘precautionary principle’ when devising environmental policies?
- To what extent is game theory relevant in understanding the difficulties and opportunities of developing internationally agreed policies on carbon reduction?
- If the objective is to tackle global warming, is it better to seek international agreement on limiting the extent of global warming or international agreement on carbon reduction? Explain.
With the election of Joe Biden, the USA will have a president committed to tackling climate change. This is in stark contrast to Donald Trump, who has been publicly sceptical about the link between human action and climate change and has actively supported the coal, oil and gas industries and has rolled back environmental protection legislation and regulation.
What is more, in June 2017, he announced that the USA would withdraw from the UN Paris Accord, the international agreement to cut greenhouse gas emissions so as to limit global warming to ‘well below’ 2°C above pre-industrial levels with efforts to limit it to 1.5°C. The USA’s withdrawal was finalised on 4 November 2020, a day after the US election. Joe Biden, however, pledged to rejoin the accord.
A growing number of countries are pledging to achieve carbon neutrality by mid-century or earlier. The EU is planning to achieve a 55% cut in greenhouse gas emissions by 2030 so as to reach neutrality by 2050. This will involve various taxes, subsidies and public investment. Similar pledges to achieve net zero emissions by 2050 have been made by Japan and South Korea and by 2060 by China. In the UK, legislation was passed requiring the government to reduce the UK’s net emissions 100% relative to 1990 levels by 2050 and thereby achieve net zero emissions.
Constraints on action
Short-termism. One of the problems with setting targets a long time in the future is that they take away the urgency to act now. There are huge time lags between introducing policies to curb carbon emissions and their impact on the climate. The costs of such policies for business and consumers, however, are felt immediately in terms of higher taxes and/or higher prices. Thus politicians may be quick to make long-term pledges but reluctant to take firm measures today. Instead they may prefer to appease various pressure groups, such as motoring organisations, and cut fuel taxes, or, at least, not raise them. Politically, then, it may be easier to focus policy on the short term and just make pledges without action for the future.
Externalities. Various activities that cause carbon emissions, whether directly, such as heavy industry, dairy farming, aviation and shipping, or indirectly, such as oil and coal production, thereby impose environmental costs on society, both at home and abroad. These costs are negative externalities and, by their nature, are not borne by those who produce them. There are often powerful lobbies objecting to any attempt to internalise these externalities through taxes, subsidising green alternatives or regulation. Take the case of the USA. Fossil fuel producers, energy-intensive industries and farmers all claim that green policies will damage their businesses, leading to a loss of profits and jobs. These groups were courted by Donald Trump.
International competition. Countries may well be reluctant to impose green taxes or tough environmental regulation on producers, when competitors abroad do not face such constraints. Indeed, some countries are actively promoting dirty industries as part of their policies to stimulate economic recovery from the Covid-induced recession. Such countries include China, Russia and Turkey. This again was a major argument used in the Trump campaign that US industries should not be hobbled by environmental constraints but should be free to compete.
Misinformation. Politicians, knowing that taking tough environmental measures will be unpopular with large numbers of people, may well downplay the dangers of inaction. Some, such as Trump in America and Bolsonaro in Brazil deliberately appeal to climate change deniers or say that technology will sort things out. This makes it hard for other politicians to promote green policies, knowing that they will face scepticism about the science and the efficacy of their proposed policies.
Biden’s climate change policy
Although it will be difficult to persuade some Americans of the need for tougher policies to tackle climate change, Joe Biden has already made a number of pledges. He has stated that under his administration, the USA will rejoin the Paris Climate Agreement and will play a leading role in the November 2021 UN COP26 climate change conference summit in Glasgow. He has also pledged a Clean Energy Revolution to put the USA on an ‘irreversible path to achieve economy-wide net-zero emissions no later than 2050’.
But readopting the pledges under the Paris Agreement and advocating a clean energy revolution are not enough on their own. Specific measures will need to be taken. So, what can be done that is practical and likely to meet with the approval of the majority of Americans or, at least, of Biden’s supporters?
For a start, he can reintroduce many of the regulations that were overturned by the Trump administration, such as preventing oil and gas companies from flaring methane on public lands. He could introduce funding for the development of green technology. He could require public buildings to use green energy.
According to the Clean Energy Revolution, the US government will develop ‘rigorous new fuel economy standards aimed at ensuring 100% of new sales for light- and medium-duty vehicles will be zero emissions and annual improvements for heavy duty vehicles’.
One of the biggest commitments is to tackle external costs directly by enacting ‘legislation requiring polluters to bear the full cost of their climate pollution’. This may be met with considerable resistance from US corporations. It is thus politically important for Biden to stress the short-term benefits of his policies, not just the long-term ones.
Given the damage done to the economy by the spread of the pandemic, perhaps the main thing that Biden can do to persuade people of the benefits to them of his policies is to focus on green investment and green jobs. Building a green energy infrastructure of wind, solar and hydro and investing in zero-emissions vehicles and charging infrastructure will provide jobs and lead to multiplier effects throughout the economy.
- Trump Administration Removes Scientist in Charge of Assessing Climate Change
The New York Times, Christopher Flavelle, Lisa Friedman and Coral Davenport (9/11/20)
- As U.S. leaves Paris accord, climate policy hangs on election outcome
The Washington Post, Brady Dennis, Juliet Eilperin and Dino Grandoni (5/11/20)
- Where next for US action on Climate Change?
British Foreign Policy Group, Evie Aspinall (11/11/20)
- Media reaction: What Joe Biden’s US election victory means for climate change
Carbon Brief, Josh Gabbatiss (10/11/20)
- Joe Biden: How the president-elect plans to tackle climate change
BBC News, Matt McGrath (10/11/20)
- Biden victory ushers in ‘race to the top’ on climate change
Lexology, Baker McKenzie, David P Hackett and Ilona Millar (13/11/20)
- Climate heroes: the countries pioneering a green future
The Guardian, Jonathan Watts (11/11/20)
- ‘Hypocrites and greenwash’: Greta Thunberg blasts leaders over climate crisis
The Guardian, Damian Carrington (9/11/20)
- Five post-Trump obstacles to a global green recovery
The Guardian, Jonathan Watts (11/11/20)
- Biden’s climate change plans can quickly raise the bar, but can they be transformative?
The Conversation, Edward R Carr (10/11/20)
- Jana Shea/Shutterstock Climate change: Joe Biden could ride a wave of international momentum to break deadlock in US
The Conversation, Richard Beardsworth and Olaf Corry (10/11/20)
- Climate change after COVID-19: Harder to defeat politically, easier to tackle economically
VoxEU, Franziska Funke and David Klenert (17/8/20)
- Identify three specific climate change policies of Joe Biden and assess whether each one is likely to succeed.
- Draw a diagram to illustrate why a free market will lead to over production of a good which produces negative externalities.
- To what extent can education internalise the positive externalities of green consumption and production?
- What was agreed at the Paris climate change conference in December 2015 and what mechanisms were put in place to incentivise countries to meet the targets?
- Will the coronavirus pandemic have had any lasting effects on emissions? Explain.
- How may carbon trading lead to a reduction in carbon emissions? What determines the size of such reductions?