Robert Johnston: Managing Ecological Resources in a Changing Climate

Robert Johnston promises to tell us about the methods that economists use to assess economic values in an uncertain world. We need to make policy even when we don't fully know what kinds of changes are coming. These policy changes will be local, regional, national.

What can economics contribute to policy guidance? Economists are used to talking about tradeoffs. You can't have everything: how do you choose from among competing alternatives? How can you get public support for the decisions you make? This framework will be important in explaining how the linkages the scientists are discovering can be formed into policy and regulations that enjoy public support.

Economic valuation informs environmental policy. Features of natural systems represent ecological goods and services (e.g. clean air, sunshine, a beach that people like, the availability of fish) that impact human well being. Not everything has a commercial or direct economic value (e.g. the entertainment value of watching a fish run, or the health value of having clean air). Economists assign a value to these components and help policymakers maximize long term social well being. They also help policymakers weigh the benefits versus the costs.

Note: economic values are not the same as "economic impact". Well being means more than money in people's pocket or flows of cash from one person to another. These "non-market values" are harder to calculate and articulate: they impact people's well-being but aren't bought or sold. These are "use values" (e.g. the ability to go fishing, go to the beach, breathe air, see a fish jump, etc.) and "non-use values" (e.g. the existence of a viable fish run that will be there for our children, even if you're not using it -- this is a "bequest" value -- or the conservation of land or wildlife species -- there's value just in the existence of a resource, separate from its use).

How do you measure non-market values? Well, you can see the impacts of pollution on market prices on houses in the area. You can see the impact of a healthy environment by seeing how far people are willing to travel to visit or experience that place. You can design surveys that mimic bond issues -- how much would you pay in order to conserve/create a particular resource. There are other methods of measuring non-market values. Remember, it's not the same as "economic impact" -- that's where money directly changes hands around a particular resource.

Tricky things: uncertainty makes measuring and modeling economic values really tricky. Risk and uncertainty are different concepts. Risky outcomes are those that are unlikely but have a probability we can assess. Uncertain outcomes don't have an assessed probability. Economists can deal with risky outcomes, but less well with uncertain outcomes. So the task is to work with scientists who are measuring and assessing uncertain changes, and try to assign risk instead.

Climate change is an example of decision making under risk and uncertainty. If scientists and economists can translate uncertainty to risk, we can plug various scenarios into economic models.

Responses to ecosystem service threatened by global warming:
1) Protect/conserve -- but which to preserve?
2) Mitigate, offset, or replace -- but you can't replace everything!
3) Triage: preserve or replace the most valuable -- but what's the most valuable?

The language and tools of economics is useful to help people make these decisions.

Example: Fish runs in Rhode Island have been disappearing since the arrival of humans. River herring habitat can be rebuilt with fish ladders, dam notching, and dam removal. Diadromous fish populations have been growing or stable until very recently. That's good news. But in 2000 and 2001, there were major declines in fish populations -- 95-99% drop in population on herring runs. (From 631,000 fish in 1985 to 21 fish in 2006. Yikes!) Why? The consensus: it has nothing to do with the fish passage habitat -- it must be something at the estuary or ocean level. Possibilities: by-catch in sea herring fishery? Resurgence of predators like bass? Climate change? And what do you do when you are providing costly fish ladder restoration methods and the population is declining for unrelated reasons? Do you reallocate the resources to something else?

What is the optimal response to uncertain impacts? The methodology of economics moves you through the analysis. Like Kenny Rogers says: you gotta know when to hold 'em, know when to fold 'em? How do you know? What is the probability you will win if you stay in the game?

You can make probability models that balance the function of $$ resources allocated into one arena (e.g. building good fish ladders, taking out dams in rivers) and exogenous events beyond the control of managers (e.g. climate change). You can also assess the social value -- the larger the social value of the "pot" in your poker game, the more it's worth to risk for a win.

It's easy to find the market value. It's harder, but not impossible, to find the non-market value of environmental resources. It's very hard to assign values to the uncertainty, but physical scientists are working on this, and it's important for scientists and economists to work together so the economic modeling is based on the best science. If the economic models are optimal, we'll make better policy decisions about allocating resources.

The frameworks exist. What we mostly need is the empirical estimates of probabilities and values, so we see the implications of putting money in one place or another.



Robert's slide presentation is also available online.

Q: Patten White: what is the mitigation for replacing shorefront land? Replacing a sea marsh with a farm pond 5 miles inland really reduces productivity.
A: Mitigation like that is really a misuse of economic modeling. If mitigation is to work, your benefits have to replace the benefits of what is lost -- right now mitigation really seems to focus on the cost side, not the benefit trade. Mitigation isn't a viable option unless what you're replacing is equivalent to what you're taking away.

Q: You focused on responding to climate change. What about preventing it?
A: Same economic analysis, lingo, and process for making policy decisions that might prevent climate change. I was focusing on more local responses, but the framework is the same. I think we're starting to do that work now, but I don't think we were doing a very good job 5 years ago. (and this isn't my line of work, so I'm a little out of my league).

Q: Non-use values -- how do you value or compare the audience or population for non-use values. Is there a global audience for it?
A: It depends on the resource. Preserving local farmland has a really high use and non-use value to the people in the local community; as you get further away, the non-use value of that system diminishes. But in Connecticut, as a state, there's about a penny per acre per person of conserved land. Some ecosystems can have high non-use values, because they're

Q: Priscilla from the Conservation Law Foundation: in my experience, the non-market values are rarely incorporated into policy-making. That's understandable, because they're hard to collect and measure. But what do you do to make that easier to do -- e.g. a "bank" of non-market values that you can incorporate into reports and analyses?
A: there are more of these. EPA currently incorporates non-market values into its reports, and the Office of Management and Budget insists that they strip those out. (And the EPA just got sued, and lost, and was ordered to re-visit an analysis that had its non-market values stripped out by the OMB.) Also, there is a growing interest in banks and databases that incorporate non-market values and make them easier to measure and specify.