DEPARTMENT OF PUBLIC POLICY

POL562 Environmental Policy Lecture Materials
© Chad J. McGuire, All Rights Reserved

I. General Introduction to Environmental Policy
A. Course Introductory Remarks
Welcome to environmental policy. This course has been created with particular care to focus on the following areas: • • Understanding the main themes (knowledge base) that influence environmental decisions, specifically science, economics, and values. Create a conceptual framework (‘tool box’) through an understanding of the three themes mentioned above in order to provide a cognitive tool that can be used in evaluating environmental decisions through a policy lens. Apply the knowledge base and conceptual ‘tool box’ to several kinds of environmental problems (fact patterns) in order to understand how the principles learned work in context.

To help achieve the goals stated above, I have taken some pains over the past few years to accumulate my experience and thinking on environmental policy as a course for students trying to understand what it really means in context. I’ve never been a fan of most of the texts on environmental policy because they provide what I might refer to as secondary context to the field. Rather than discussing environmental policy as a process utilized in making decisions about how humans interact with the environment, most texts provide non-foundational insights on the topic that look at it from a variety of perspectives beyond the ‘foundation’ of the topic itself.1 I have always seen this as placing the proverbial “cart before the horse” because is presumes students have a level of understanding about environmental policy as a practice, something that is often not the case – even with those who ‘practice’ in the field.

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For example, many texts utilize a mix of historical pieces to weave together some understanding of the ‘evolution’ of environmental policy in the United States (and globally). While this information is certainly relevant in understand how environmental policy has come to be a subject area in civilized society, it fails to provide an understanding of what environmental policy is as a practice.

Page 2 of 63 Due to my frustrations with current volumes on the subject, I set out to “put up or shut up” and create my own text on the subject entitled Environmental Decision-making in Context: A Toolbox. This text will form the foundation of meeting the three primary goals outlined above: understanding the themes of environmental policy; creating a conceptual framework that can be applied to environmental problems; and actually applying those frameworks to problems at the end of the book. Thus, in some ways, the book itself represents the kinds of detailed lecture notes I would want to provide students with during a course I was running on environmental policy. I know there are other ways to approach the subject area, but I hope you will find this method to be foundationally comprehensive as a ‘how to’ approach to environmental problems. The ‘approach’ I note here is heavy on the public policy aspects of environmental problems, meaning the approach is meant to help place environmental issues in a context where one is thinking of the issue from the perspective of a government agent. From this perspective we can ask three main questions: • • • What is government choosing to do about the environmental problem? Why is government making this choice? Are there consequences to this choice, and if so, what are they?

By the end of this course you should have a solid understanding of how to begin answering these three questions using the framework established in the materials. My hope is that everyone will find something of value depending on the level of interaction they desire with environmental policy as a subject area. For example: • Public managers will be capable of understanding the causes of environmental issues and the relative roles and responsibilities of government in relation to those issues. Policy analysts will be able to use the conceptual framework as a way of determining the impact of government choices on the environment. For example, if government chooses Direction A over Direction B as a policy approach, what impact does this have on different environmental goals/objectives? Evaluators of policy will be able to not only understand impacts and tradeoffs between policy choices related to the environment, but they may also be able to determine alternative directions including ‘superior’ (more efficient, etc.) policy directions that what is currently in place.

Obviously because I have created the materials (including the text), I feel this version of environmental policy is a more refined and fundamental course than what I have taught in the past; I hope you agree insofar as you find the materials clear, digestible, and essentially ‘helpful’ in your understanding of environmental policy in context – thank you!

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B. Introduction to Materials
As we begin this journey into environmental policy, I ask that we start by considering these words separately. Environment, I have learned, is a term that means different things to different people. Most include natural settings in their definition of environment. Others talk about the importance of the environment being judged by its use. Still others see the environment as something sacred, having symbolic and religious significance. No matter how you see the environment, what is important is that you understand its meaning can vary from person to person. This, in turn, impacts the preferences from which individuals deal with environmental issues. Policy should best be understood as a process, and not a thing. While there is no one universally accepted definition, a policy generally refers to the approach one takes towards a given issue or problem. An example might be the academic dishonesty policies contained your student handbook. If you read this information, you will find there is a specific process (or approach) taken when an individual suspects a student of cheating. Included are the procedures used to formally make the accusation, the procedural safeguards for the student to defend themselves against the accusation, and the process for resolving the question (usually a trial-like process before a tribunal). What I just described is a process that holistically can be said to be a policy towards academic dishonesty. In this course, you will be asked to look behind the policy to understand how the policy came to be. For instance, it is reasonable to conclude the policy (and process) for academic dishonesty was the result of a general question that needed answering. The question may have been: What do we do if we think a student has cheated? This question likely led to a group being formed to try and answer the question. The group likely studied the issue, and sought input from experts in various fields. They may even have looked at how other universities handle the issue. Ultimately, a formal procedure was established for dealing with cheating.2 This procedure was then formalized, in writing, as an official university policy (given a stamp of approval, legitimized in policy parlance). To understand environmental policy, you will need to understand how the policy process works generally, and also the specific contextual aspects of environmental policy.3 Once you understand how the policy process works, and once you have a
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Undoubtedly part of this formalization process included a determination of resources available to handle the proposed policy put in place. In other words, providing a set of procedures to deal with accusations of cheating includes ensuring those procedures are actually instituted; if this means a ‘council’ must be created, then resources have to be secured to ensure for the creation and maintenance of that council. During this process some consideration of the benefits of having this procedure in place may have been balanced against the costs incurred in creating and maintaining the council.
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Understanding the role of science, economics, and values in environmental decisions is the contextual aspect of environmental policy.

Page 4 of 63 contextual understanding of environmental problems, you can then begin to think about the evaluation of policies (what makes a good versus a bad policy), as well as how specific policies are working in context. The Venn Diagram: Overview of the Fields of Environmental Policy The following Venn Diagram is a visual representation of environmental policy by referencing the contextual fields that impact environmental decisions:

As can be seen, what we refer to as ‘environmental policy’ here is really an amalgam of principles that include a combination of scientific understanding, economic considerations, and value-based preferences. The suggestion, then, is that environmental policy is an activity that occurs at the intersection of these three areas of human study. • Science helps us understand cause and effect relationships in the natural world. In addition, applied science (technology) allows us to understand the kinds of tools that are available in responding to environmental issues and developing policy directions related to the environment.4

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For example, observational science can help us understand the connection (correlation) between the levels of carbon in our atmosphere and average global ambient temperatures. This cause and effect relationship can help us understand an environmental issue; forcing

Page 5 of 63 • Economics helps us place our understanding of environmental issues into context. For example, by using economic principles one can assess the relative benefits and costs of human activities that might impact the environment. In doing so, the tradeoffs between different policy directions (choices) can be better understood, and thus can lead to better decisions when presented with alternative policy directions.5 Values help us understand the role of human-based incentives in both the individual and group context. Dynamics that effect our perception of value are of particular importance in understanding the role of values in environmental decisions and thus environmental policy. By understanding the motivations behind human decisions, greater insights on what we are calling ‘environmental policy’ can be made. For example, are people swayed on an environmental issue because of objective factors, or are subjective factors influencing their decisionmaking? Knowing the answer to this question and the associated factors are critical to fully understanding the role of values in environmental policy.

During our time together we will be exploring these three areas in relative depth. I say “relative” because we cannot spend too much time on any one issue. For example, we will be touching upon aspects of physics, environmental science, and biogeochemistry in the first main chapter of the assigned text. These are all important fields of specialty that more carbon into the atmosphere can result in an increase in average global temperatures. In addition, applied scientific advancements can help us find potential solutions to this problem; technology advancements in wind and solar energy production methods allow for an alternative to burning coal as a means of producing electricity and thus provides a solution that minimizes one of the potential causes of global warming: burning coal.
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Economics is powerful as an instrument in comparing “apples to apples,” which is critical in policy analysis. Using the tools of economics can help us understand precisely why environmental harm occurs in human activities, and why this harm must be actively intervened in by government (at least in most cases). For example, most environmental harms are unintended consequences of market-based transactions that allow for the externalization of costs outside the transaction itself. The market price paid for burning coal to create electricity includes the prices paid to extract and deliver the coal as the input for electricity generation. Not included in this price is the cost of additional carbon placed in the air as a result of burning the coal. If this additional carbon is responsible for climate change, then the additional costs borne by climate change (more storms of greater intensity, droughts, sea level rise, etc.) may be externalized from the cost of using coal. If all this is true, then there is a market failure in our system because the markets are not accounting for these costs in the price charged for coal; in essence, these costs are externalized in the market transaction. From a public policy standpoint, the externalization of costs can be a reason why environmental problems existing, and economic principles help us understand the dynamics by which these kinds of phenomena occur (and also can help to identify policy solutions).

Page 6 of 63 deserve (at least) a full semester of treatment each. The same can be said for the economics and values section, where relatively complex concepts such as discounting, game theory, and agent-based modeling are explored in order to provide the conceptual tools promised. While I believe I have provided sufficient information to understand the concepts in the text and lecture materials, what is ‘sufficient’ is not unlike the definition of beauty; the ultimate answer is for each of us to decide individually. Those who have a background in any of the areas we discuss will have some advanced understanding – although this is not required! Where appropriate, I do supplement the materials with additional readings for greater insights on what I believe to be key points for understanding. The point I am trying to make is two-fold: • First, there is no ‘fat’ contained in this course; everything required in this course is essential for your understanding of the materials. Thus, you should avail yourself of everything offered. Second, the materials offered in this course should not be considered the only materials relevant to your study. The text is well referenced and contains a detailed bibliography of primary materials at the end of each chapter. For those who are truly interested in understanding the details within this course (and have the time) – utilize the references! Go further, challenge yourself, see how much ownership you can gain over the materials; you may be surprised with how far you can take yourself with the effort.

I hope you gain as much out of the materials in this course as I have placed into their development. We begin a journey of exploration into better understanding ourselves, and our role on Earth. Environmental policy is really about gaining this understanding so that we can make more informed decisions for our mutual benefit today and for future generations. Thank you! END OF SECTION.

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II. Science – Natural Systems Ecosystem Principles, Biodiversity
A. Introduction
Our first major goal is to get a sense of what defines a natural system, specifically the roles of ecosystem principles in helping to describe a natural system and the concept of biodiversity as a measure (or proxy) for the health of a natural system, as well as the potential value that exists within the system itself (the Costanza reading). Natural Systems The first concept we should reemphasize from the reading is the idea that systems have boundaries. Recall the following representation of a basic system from the text:

The boundaries of the system are really what sets up the insights in understanding system dynamics. For example, note the outer boundary in the figure above: it separates the kinds of interactions that occur between the outside and inside of the boundary. The fact that the boundary exists means that we can influence the makeup of the system by altering the composition of concentrations within and outside the boundary.6 In the
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The extent to which we can alter the composition of what is within and outside the boundary depends on the permeability of the boundary itself. If a boundary has a low permeability, then concentrations within and outside of the boundary are capable of

Page 8 of 63 figure above, the large component of the system is defined in light blue. Within this large component there are smaller subcomponents in green that have a different composition than the large component (because they have their own boundaries limiting what goes into and flows out of the component). However, what is critical is to understand that the boundaries themselves establish the behavior of the system; if the boundaries did not exist, then the system would act and look different from its current state. This leads to the following insight: • The way a system functions can change by altering the composition of components within the system.

Once this insight is understood, the importance of equilibrium and phase shifts can be understood. Equilibrium theory suggests systems like the Earth are in a state of balance (recall the Gaia Hypothesis from the text); this balance has been created over a long period of time. Altering this balance has the potential to alter the equilibrium state of the system. Recall the following diagram from the text:

A few points can be made based on the figure:

greater change; the opposite is the case where a boundary has a high permeability.

Page 9 of 63 • • • The initial state of equilibrium is in green. Stress placed on the system can cause a shift in the equilibrium state (red). If the stress is abated before passing a system threshold, then the system can enter a phase of recovery (yellow) that ultimately returns to the initial equilibrium state (green). If the stress is such that the system passes a threshold (blue), then the system can move to a new (different) equilibrium state (red dotted).

The concept of a system threshold is dependent on the initial existence of boundaries, which then create the difference between system components leading to equilibrium of the system itself. The lesson here is that the existence of boundaries within natural systems helps us understand cause and effect. From an environmental policy standpoint there are a few take home lessons that help add to our understanding of natural systems: • First, natural systems are constantly changing (they are dynamic). Thus, we should expect to see change in nature – this is normal. However, we must be observant for constant changes over time as they might indicate a problem. Boundaries exist between components of natural systems. The extent to which these boundaries impact system interactions depends on the permeability of the boundary. Close examination of what is coming in and leaving the system (like carbon dioxide concentrations in the atmosphere) can help us determine whether the system is in balance (or out of balance). Systems, like the Earth, that have been around for a long time tend to exhibit equilibrium states. Thus, concentrations observed today should tend to be similar to concentrations observed tomorrow and into the future. A change in concentrations is an indicator the system may be moving out of its current equilibrium state. Systems that are out of equilibrium state have the potential to move back to preperturbation equilibrium states. However, those systems also have the potential to cross a threshold after which they will likely encounter a new equilibrium state. If the new equilibrium state means greater weather variability (climate change for example), then the costs associated with that greater variability should be considered up-front in policymaking simply because it is almost impossible to move the system back to a ‘kinder’ equilibrium state after it has shifted.

B. Ecosystem Principles
Ecosystem principles are functionally about understanding the interactions between components of a system so that policy decisions can be grounded in those background realities. As stated in the reading, this means understanding the context in which one is

Page 10 of 63 working. For example, a desert has fundamentally different ecosystem interactions than a rainforest. One would not expect to see the same kinds of things within each ecosystem, and as such the way in which one might approach an environmental problem in these areas differs. The main way in which ecosystem principles are defined in environmental policy is through the identification and cataloging of the kinds of services provided by the ecosystem under review. In general there are three categories of services to consider: • Provisioning Services: what the ecosystem provides for human consumption and direct use. Examples include using trees from forest ecosystems as an input (wood) for building homes and other things. Mountains might be manicured and utilized in winter for skiing (recreation). Certain ocean ecosystems provide important fishery habitat for human capture and consumption. Regulating Services: what the ecosystem provides that is not necessarily directly used by humans, but still provides important functions for human wellbeing. Examples include the natural water filtration that occurs in wetlands, or the storm protection offered to mainland human habitations by barrier beach ecosystems. Cultural Services: what the ecosystem provides for human self-satisfaction and spirituality. John Muir often observed the close connection people share with nature as “God’s cathedral.” Native Americans and others often have a deep spiritual reverence for nature and ecosystem features, including where the divine is observed ‘living’ through nature.

C. Biodiversity
Biodiversity is, roughly, a measure of the abundance of life (the different total number of species and the relative concentration of species per unit area). One expects to find some measure of biodiversity everywhere on Earth (even in the Antarctic), but the relative abundance of biodiversity is not the same in different ecosystems. One does not expect to find the same kinds and abundances of species in a desert ecosystem as one finds in a rainforest ecosystem. The key message in biodiversity laid out in the text is that is represents a gauge or measure of the relative health of a system. The assumption here is that the following: • The relative abundance of life that exists today is a necessary background condition upon which human wellbeing depends (because the conditions that allowed for humans to develop and thrive included that background biodiversity).

If we accept this statement from an environmental policy standpoint, then we can see biodiversity serves as an important indicator of nature’s health (and potentially human health). Where biodiversity is being threatened, we may presume this is a policy problem worth fixing (because of how we connect this measure to human wellbeing). Where

Page 11 of 63 biodiversity is flourishing, we may see this as an indicator of a state or condition that should be maintained. In this way we can see the use of biodiversity as a goal when establishing environmental policy agendas. Recall that biodiversity is a measure of life; it does not necessarily suggest all life is equal (although this is a presumption that may be made in environmental policy goals).7 From a policy standpoint, the use of biodiversity as a means of achieving policy goals can be controversial, particularly where the connection between human wellbeing and species diversity is not obvious. A great number of controversies surrounding government attempts to protect biodiversity at the expense of human endeavors is at the heart of environmental law courses and controversial statutes like the Endangered Species Act. The point here is not to debate the controversy itself, but to acknowledge the use of biodiversity as a measure of understanding natural systems in relation to environmental decisions; biodiversity is one way of trying to create legitimate means of identifying environmental issues, but is certainly is not a bullet-proof method. Note on Costanza Article The supplemental reading discusses the value of ecosystem services. A few points should be taken from the article: • First, even conservative estimates of ecosystem services (particularly provisioning services) are quite high (something around 4 times our entire national U.S. debt of value contributed by ecosystem services every year). Second, most of these services are not captured in markets, meaning the values expressed are the kinds that escape internalization when making choices (this will be further explained in the economics section).8 Third, the values expressed in the article represent substantial benefits to human wellbeing. Thus, there is an important role for environmental policy to play in maintaining these services. Biodiversity plays a role in understanding how to maintain these important and valuable services.

END OF SECTION.
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Consider the U.S. Endangered Species Act as one example of a policy that presumes all species are important in so far as the Act allows for the listing of species who’s populations have been determined to be threatened or endangered. There is no original analysis in the Act that differentiates amongst different kinds of species (rank ordering the species).
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Our methods for valuing these services and placing them inside our economic systems (like markets) may be an important function for environmental policy as a proactive policy approach to environmental issues.

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III. Science – Natural Systems Ecosystem-Based Management
A. Definition and Purpose
Ecosystem-based management is truly about combining our understanding and thinking of natural systems with human-created institutions. This is very much a primer on how to use information about natural systems and apply that information to a process (framework) that inculcates natural system elements into decision-making. The key to understanding this management process may best be seen by revisiting the figure from the text describing an ecosystem-based management process:

The purpose of the management process outlined above is to allow for learning to occur as a means of managing natural systems. Recall that natural systems are dynamic, meaning they are constantly in a state of change (although the upper and lower limits of those changes cancel out over time to create an equilibrium state).9 The dynamic nature of systems can influence a management plan by altering some of the assumptions inherent in the plan. As a simplified example, fisheries management generally includes setting a limit of allowable catch (quota) each season. The quota established is usually
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This is where statistics is helpful in understanding the concept of averages and variation from the mean. An equilibrium state is the average background condition of the natural system. When the system is stressed beyond a threshold, then it is possible for the system to move to a new background average, a new equilibrium state (see, that stats course does have application after all!).

Page 13 of 63 based on actual sampling of the target fish population and the utilization of statistics to make an informed guess about the total population (we actually never know the real total population – our estimate is based on reasonable assumptions attached to actual catches of the species). This informed guess is then used to establish a catch limit. Even if we assumed all of our information and assumptions were correct, the dynamic characteristic of natural systems means some of those assumptions can change over time. For example, there may be a new disease of fin rot that appears in the target species of fish in a particular season, causing a significant portion of the population to die off due to the new disease. The disease (an example of a dynamic interaction) alters our original management plan by changing the total population of fish presumed, thus likely affecting our set catch limit. When this new information becomes available to those creating the management plan learning occurs, and this learning then sets the stage for changing the management plan – adapting management to the newly learned information. The point in the preceding example can be summarized as follows: • • Dynamic natural systems are subject to change at any time. Because of the constant of change, management styles also need to be capable of change to keep up with the natural system changes; management styles need to be adaptive. Adaptive management techniques include a process that allows for new information to be immediately ‘ingested’ into the decision-making process. The ingestion of the new information informs the management process in order to meet the original goals of the policy.

B. Role in Environmental Management
From a larger perspective, ecosystem-based management allows for a management philosophy (including the development and implementation of policy goals) that provides for the internalization of natural system values, including the provisioning, regulating, and cultural services mentioned in the previous section. Assume the fin rot disease mentioned earlier was caused by bacteria, and the bacteria was in particularly high concentrations because of nutrient runoff from nearby farms thus causing the outbreak in the target fish population. Assume further the nutrient runoff used to be neutralized by a saltwater marsh (wetland) that was filled in for a residential development project; the marsh would filter out the nutrients and stabilize them in the marsh environment before they escaped into the open waters. Now with these assumptions we can identify the following services: • The target fish species is a provisioning service that is directly used by humans for consumption. Once captured, the fish species is openly sold and resold in a market system. Thus, the direct value of the fish species is relatively easy to identify.

Page 14 of 63 • The agricultural practices on the farm are also provisioning services; land that was once in a ‘natural’ state has been altered to grow produce and other product for human consumption. To enhance growing rates and product yield, fertilizer (nutrients) is spread on the field. The products yielded on the farm are regularly sold in market systems, thus the direct value of the agricultural practice can be ascertained. The salt marsh (wetland) is a regulating service; one of the regulating services provided by the wetland was to filter out nutrient runoff from nearby farms thus preventing the nutrients from causing bacteria blooms and, in this case, fin rot. This is one example of how the salt marsh provided indirect services to the commercial fishing industry. Land transition from salt marsh to residential development is a provisioning service in the same way that land transitioned to agricultural use (described above).

It is likely the value of the salt marsh as a contributor to the health of the commercial fish population was unknown. However, it is a fact that that salt marsh contributed to the health of the commercial fish species. The value of the marsh then can be indirectly calculated by the value of the commercial fish lost to the fin rot disease.10 From an ecosystem-based management perspective a few points can be highlighted: • Like the assumption about biodiversity, we can assume that ecosystems – including parts of ecosystems – are contributors to the overall health and wellbeing of the natural system. Because components of the system may be critical in helping to maintain the integrity of the larger system, a presumption that everything natural is important may not be an unreasonable assumption to start from when engaging in environmental policy. Under an assumption that everything is important, a precautionary approach may be a superior starting point for any environmental policy. Adaptive management techniques are an essential process-orientated means of internalizing the presumption of ecosystem value and working with precaution because the policy technique is meant to change based on the assumption that nature will constantly be evolving and ‘telling’ us more about how it helps to provide us with valuable services (ala Costanza).

• •

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Note: this is just one of the values the salt marsh provided, there likely are many other regulating services it provided as well.

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C. Examples of Ecosystem-Based Management
One of the main points being made in this section is the following: information is power. This is particularly true in ecosystem-based management because, if you recall, the technique relies on a consistent flow of information to inform managers and allow for the adaptation of practices to meet new information. Remember, ecosystem-based management is an adaptive management technique that follows a natural systems principle including the assumption that nature is dynamic and thus always changing. Thus, the management technique employed must also be dynamic in its operation and implementation. The driver of the dynamic nature of ecosystem-based management is constantly updated information. There are a few points to make about the concept of information as described above. The fact is not all information is created equal, and in the world of ecosystem-based management some information is more valuable than other kinds of information. For example, objective forms of information that follows the scientific method (observational information) tends to provide better forms of information about the natural environment. If ecosystem-based management techniques are geared towards understanding the background conditions of the natural environment (and how they might be changing), then objective information about those background conditions is superior in helping to adapt the management to the actual conditions presented. Beyond objective information about the natural environment, information about human interactions is also critical, including some understanding of the dynamics surrounding the sharing of information. The example provided in the text on the nearshore fishery (sea urchin, albacore, and lobster) is an example of the dynamics involved in managing the sharing of human-based information (local knowledge and the incentives that drive the withholding or sharing of that information). This is a different kind of information from the science-based objective information described earlier. In the reading we can see clearly how the sharing of information between the resource users can yield a more optimal outcome for all of the users and the resources impacted under the right conditions. From a management (policy) perspective, the job is to understand the particular dynamics involved in the disclosure and sharing of such information, and develop management techniques that minimize individual incentives not to share while maximizing collective incentives to disclose and share this information. The readings posted to supplement the text materials (McGuire 2011, McGuire 2012) are meant to highlight the following two aspects of information in ecosystem-based management: • • The objective information that helps us understand natural systems through techniques that follow the scientific method; and The more human-based information that affects the capacity of both mangers (policy developers) and resource users to effectively understand the human dynamics behind resource allocation and utilization.

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In the first reading on Information Processing Theory (McGuire 2011) I discuss how following the dynamics of information flows can aid in better understanding how that information is being utilized (or marginalized) in order to aid in achieving policy goals. The second reading on Public Policy Frameworks in Environmental Settings helps provide an understanding of how environmental issues – particularly the use of objective information – creates special requirements when thinking about policy directions (essentially arguing for the need to have adaptable ecosystem-based management frameworks). Both pieces are meant to provide a deeper understanding of ecosystembased management in the context of thinking about information flows and establishing policy frameworks that support the inculcation of new and meaningful information. Through the readings one can begin to see some of the obstacles that can arise in developing and implementing an ecosystem-based management policy approach. These obstacles include institutional barriers (both intentional and unintentional) to the flow of information, as well as barriers created by participants in the policy issue (both participants in the policy arena and users of the resource under consideration). A visual representation of the categories of information described above follows:

By utilizing this figure we can recall the general categories of information available for use in ecosystem-based management, which can help us as we attempt to decipher the issues presented in identifying environmental problems and formulating policy responses to those problems. Remember, information (in its various forms) really is a driver of ecosystem-based management as a policy process that incorporates both background natural systems understanding (what is nature doing, how it is responding to specific stimuli, etc.) and an understanding of how human dynamics are influencing potential

Page 17 of 63 policy directions. The next section in our work will help to provide us with a better understanding of systems thinking (understanding the natural systems part of the information). Later work in economics and values will help us better understand the human dynamics aspect of information inputs into the process of environmental policy. END OF SECTION.

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IV. Science – Systems Thinking Systems, Box Modeling, Scientific Principles, Feedbacks
A. Introduction
Remember, environmental policy is closely attuned to the dynamics occurring in the natural system because those dynamics are the signals we use to understand what, if anything, needs to be done from a policy standpoint in response to those signals. One of the difficult roles in this process is deciphering what is a signal from the environment? For example, is a really strong storm a signal of something ‘different?’ Is a heat wave indicative of something worth ‘listening’ to? Is a toxic algal bloom and fish kill evidence that something is awry in our environment? To answer these questions we need to know a few things: • • First, we need to understand the background conditions of the environment.11 Second, we need some capacity to make informed assumptions about what we are observing and its potential impact on background natural conditions.12

The previous sections discussed natural systems in some detail in order to help provide a sense of what background conditions are in our environment. In this section we are going to discuss three tools that will help us make informed assumptions about what we are seeing today and its relationship to background environmental conditions. These tools are box modeling, underlying scientific principles, and feedback loops.

B. Box Modeling
The concept of box modeling is actually quite simple; take a complex, dynamic setting like a natural system and simplify it conceptually so changes in background conditions can be identified and understood. This all starts with a basic representation of a system interaction (copied from the text) as follows:

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These background conditions create a baseline from which observations can be compared. Without the baseline, we cannot make meaningful comparisons between what we are observing and the ‘natural’ state of nature. This is where science – particularly scientific observations over time – can be quite useful; science can help us understand what background conditions are so we are making appropriate assumptions through new observations (otherwise we are just “spinning our wheels” when thinking about environmental policy).
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Knowing something about background natural conditions is not enough. We need to have some tools that help us place what we are observing into context with background conditions.

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Based on prevailing information about the natural system, the box model focuses our attention, via systems theory, on the interactions that occur in the observed system component. In the figure there are three primary interactions: • • • The green inflows into the system; The red outflows; and The blue feedback mechanisms (if any) that result from the inputs and outflows.

By focusing on the set of interactions in the system, one can use the box model as a way of comparing between expected background conditions and current observations. In addition, the model can be used to forecast potential interactions based on assumed changes in the future. By focusing on the movements into and from the system component, the model allows us to focus on energy flows.13 The energy flows help to tell a story about the system, for example whether the system is staying within an equilibrium state, or whether it is beginning to move out of an equilibrium state and (potentially)

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Remember, environmental policy is about understanding what is going on in nature (fundamentally) and whether what is happening requires some kind of formal government intervention. The basic way this observation can be made is to understand what are considered ‘normal’ background conditions of nature and what actions (inflows, outflows, feedback) might be altering this background condition. If the action is deemed ‘bad’ for the environment, then this may be a trigger to do something.

Page 20 of 63 towards a systems threshold.14 Feedback loops help to provide evidence of a shift in equilibrium state, and the strength of the feedback may be an indicator the system is moving towards a threshold response.15 These concepts are made clearer in the later section on placing box modeling into context. However, in order to understand that context, some additional insights focusing on how underlying scientific principles affect systems thinking are necessary.

C. Underlying Scientific Principles
If system thinking requires us to think in terms of energy flows between components of the system (inputs, outflows, feedback), then we need to understand basic scientific principles about energy. The reason: these scientific principles about energy help to define our assumptions about the underlying natural system (how it functions under ‘normal’ circumstances). Mass-energy equivalence reminds us that mass and energy are, well, equivalent. This is important because it helps us draw a clear relationship about how energy moves through a system component. We can see the energy move into the system and then have interactions in the system. Those interactions are important in understanding what occurs within the system, and also what outputs are removed from the system. All of this influences feedback within the system. Thus, understanding mass-energy equivalence in general is important in understanding how systems theory aids in environmental policy. The text highlights the important aspects of mass-energy equivalence for recollection.

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Often it is very difficult to predict when a change in a system is occurring to the degree that a systems threshold is being crossed. However, basic calculations using the box model can help one see where changes are occurring and consequently where the potential for a threshold response (punctuated event) resides.
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Human induced climate change may be a good example here. The carbon cycle of the Earth is being perturbed by humans; carbon is being removed from the lithosphere and added to the atmosphere (the input). This additional carbon in the atmosphere is trapping additional heat within the Earth system (the output), and the additional heat within the Earth system is leading to climate change (the feedback). The increasing measurement of carbon in the atmosphere has been observed and recorded by scientists for decades (of course this means science already had to of known the ‘background’ rate of carbon in the atmosphere under natural state conditions). These observations from science have made it possible to monitor the change in inputs, and these changes in the amount of carbon in the atmosphere are an indicator of a problem that likely needs to be addressed by government. This is a prime example of box modeling and its application (by utilizing other principles discussed) to environmental policy. This is explained in greater detail in the text.

Page 21 of 63 Assumption of a well-mixed system is important in understanding the energy dynamics of a system. Earlier we discussed the concept that natural systems like the Earth are considered to be well-mixed, or at a general state of equilibrium. This assumption is based on the age of the Earth and the idea that, given a long enough time, the concentrations of ‘stuff’ that makes up the Earth averages out to be constant – it does not change substantially. In the text this was explained in terms of the relatively stable concentration of oxygen found in the atmosphere; even though there are lots of things that consume oxygen on the Earth, the concentration remains essentially stable.16 The importance of understanding this principle is that it establishes the validity of background conditions as an expectation in environmental observations. Thus, any deviation from background conditions may be an indicator of change leading to further inquiry and potential policy intervention (if we think of environmental policy in-part as monitoring for potentially harmful outcomes). In essence, Charles Keeling, when he began seeing changes in carbon dioxide concentrations through his measurements, relied on equilibrium theory to predict human beings were adding carbon to the atmosphere through the byproducts of industrialization (burning hydrocarbons). Keeling’s prediction was right not because he is an oracle, but rather because he relied on a steady-state assumption about the Earth and the relative concentrations of carbon in the atmosphere – the concentration should not change unless something unusual is happening. The roots of environmental policy follow the same pattern of logic and rely on the same assumptions based in scientific principles. With the underlying scientific principles understood, we are able to revisit the box model and observe its functions as a policy tool in context.

D. The Box Model in Context – Feedback Mechanisms
With the concepts of mass-energy equivalence and systems equilibrium in-hand, we return to our policy ‘tool’ of box modeling to see how the concepts help in our understanding of natural system dynamics. The text uses the example of following carbon through the different components of the earth system – the carbon cycle. By modeling the carbon cycle, the changes in components of the earth system (particularly removing carbon from the lithosphere and ‘forcing’ it into the atmosphere) can be understood in relatively simplistic terms. Visually, the progression of this modeling process is summarized below:

16

Recall James Lovelock’s Gaia Hypothesis as a way of understanding how feedback mechanisms might work to regulate a stable concentration over time.

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What is interesting to note is not only do we see the perturbation (change) within the system components (the moving of carbon from the lithosphere to the atmosphere) through a box model of carbon, but we also see how the earth system reacts to this perturbation. For example, some of the carbon added to the atmosphere is absorbed into the oceans. Ocean absorption of the carbon from the atmosphere may be seen as a system feedback from the input of carbon into the atmosphere. We can see this specific feedback mechanism because we can see there is more carbon going into the oceans than is being absorbed by the oceans, a net increase of carbon into the oceans. This increase violates a tenet of equilibrium theory, which suggests a well-mixed system has no net change in concentrations over time (the amount going into a system component should equal the amount going out of the same system component). Thus, by modeling the various inputs and outputs of the system component we can see a potential issue unfolding; additional carbon is being added to the atmosphere, with some of it being taken up by the oceans but not all of it – some of the carbon is remaining in the atmosphere causing a net increase in carbon concentrations in the atmosphere. The box model now really shows its merits by allowing us to consider the impacts of the energy flows observed. We already know additional carbon in the atmosphere is leading to an increased greenhouse effect and thus rising average global temperatures. However, we can see other issues from the box model relatively clearly. For example, the oceans are taking up additional carbon. This means the overall concentration of carbon in ocean waters is increasing over time. We can now ask ourselves what this might mean for the

Page 24 of 63 ocean system including the life that exists within that system. Some of the effects of additional carbon uptake in the ocean include ocean acidification; the carbon taken up is chemically altering the pH of the ocean. Since much of the life that has evolved in the ocean has done so at specific ranges of pH, the change is having consequences that are now being observed. For example, coral bleaching (the die off of coral communities) is occurring. I hope everyone can see the power in box modeling: the ability to reduce complex interactions down to manageable interactions. In essence, box modeling does the following: • • It simplifies a complex environment. It allows for a systems-based approach to understanding environmental conditions, focusing on energy flows (inputs, outflows, feedback) within and among system components. It adheres to basic principles of science, including mass-energy equivalence and equilibrium theory. It allows trends to be observed and, in doing so, provides a method for forecasting potential environmental issues.17

• •

We now should have a deeper understanding of the role of science in environmental policy. Science helps us understand what is meant by natural systems, and also provides a connection to the way in which natural systems operate thereby aiding in identifying environmental problems. In addition, by focusing on a systems approach, the connection between environmental policy and systems thinking is made clearer through understanding basic scientific principles. What ends up becoming an ‘environmental problem’ is really a study of system dynamics; when the background rates change in a way that potentially impacts human wellbeing we can say with some degree of certainty that this change is an ‘environmental problem’ that is worth looking into and potentially developing a policy response to – the role of government. To better understand the problem, and potentially forecast other issues (understanding feedback potential), box modeling can be used as a conceptual framework for simplifying the complex interactions so that a policy response, if needed, can be adequately determined. Now that we have a clearer sense of the role of science in environmental decisionmaking, we move on to the ‘human’ side of the information that aids in policy
17

For example, the trend of increasing carbon accumulation in the atmosphere can be observed from box modeling (assuming the information is available to identify the trend – one reason we should see how important basic observational research is), and the forecasting of issues, such as the net uptake of carbon in the ocean leading to acidification, can be made.

Page 25 of 63 directions. This will include us looking at our economic principles in some detail, and also some observations of how humans identify and quantify value as a concept in the environmental arena. END OF SECTION.

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V. Economics - Categories Natural Resource, Ecological, Discounting, Substitution, Tradeoffs
A. Introduction
Economics is really about creating a universal set of rules that can be applied consistently across a subject matter. As noted in the introductory materials to this section in the text, economics is used in environmental policy to explain the potential and actual impacts of human actions on the earth house – natural systems. To do this we need to accomplish a few goals: • • • First, we need to have an understanding of the categories of economic theory that may be applied to environmental issues. Second, we need to understand how economics, as an instrument, helps to define value so that clear environmental policy goals can be derived from this definition. Finally, specific tools of economics – total value accounting and benefit-cost analysis – will be highlighted and explained as conceptual frameworks for evaluating environmental problems with the goal of developing meaningful policy directions.

Our job in this section of the materials is to focus on the nomenclature and categorization of economics that apply most clearly to environmental issues. Remember, our ultimate goal in environmental policy is determining what is ‘best’ for the environment, and what actions (policy directions) are ‘best’ capable of getting us to that goal. In both cases, we are using a term (“best”) that is normative, meaning the term is subject to interpretation; what I believe is ‘best’ in terms of both the outcomes for the environment and the process of getting to those outcomes can vary from what you believe is ‘best.’ Even if you and I agree on the definition of ‘best’ for the outcome of the environment (the goal), we may not agree on the process (policy direction) to get to that goal. Understanding some basic economic principles can help guide us to a clearer understanding by helping us create more objective criteria for assessing what is ‘best’ in terms of both environmental outcomes and the policy process for getting to those outcomes. Before we explore environmental economic principles in detail, I want to take a moment and highlight an important conceptual assumption about the environment in relation to economic activity. The assumption, replicated from the text, is visually presented here:

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The assumption stated in the figure above suggests the environment constrains our economic capacity. What this means is that the environment acts as an outer limit for economic activity: economic activity cannot exceed this outer limit, whatever it might be.18 This is an important presumption because it influences the ways in which economics aids in our understanding of environmental problems; this point will be highlighted in greater detail below with the distinction between natural resource and ecological subdisciplines of economics. The figure also shows society as existing wholly within the confines of our environment (natural system). In addition, economic activity is shown bounded by our social institutions. This is important because it suggests that social choices help to define our economic choices. We will see how economic analysis is subject to social interpretations, for example how natural resource economics focuses mainly on natural resources as extractive inputs for human wellbeing, while ecological economics looks more to the
18

Thomas Malthus, Paul Ehrlich, and others (Limits to Growth study, etc.) have argued the environment is the upper-limit on economic capacity (through population limits, etc.). Others, like Economist Julian Simon, see economic principles such as substitution as a means of never reaching these outer limits, thus they discount the notion of the environment providing an outer limit simply because basic economic principles will favor substitutes before any such limits are reached. This difference in opinion highlights an important philosophical distinction in economic theory (particularly the presumptions about certain things) that will be discussed in greater length throughout this section of the course.

Page 28 of 63 systems relationships in the natural system, determining the values created through those relationships and interactions within and among system components.

B. Nomenclature – Values vs. Assets
As we explore different forms of economics applied to environmental issues, let us take a moment on one specific term and devise an accepted nomenclature for that term. As suggested in the text, I propose we use the term asset(s) in place of the term value(s) in much of this section so that we can properly differentiate the accounting aspects inherent in economic analysis. The main reason for the use of asset here is that the term “value” will have specific meaning in the following chapter of the main text. In addition, I think the term “asset” can help us think in accounting terms, allowing us to see how we are categorizing different environmental attributes in a way that highlights economic valuation as a technique that categorized aspects of environmental attributes, rather than a hard truth that is set in stone. In order to help us move in this direction, we can first decipher between positive and normative economics. These terms are defined in the text, and I would like to propose the following in terms of accounting for the two categories: • Positive (objective) economics may refer to understanding the ways of valuing assets of the natural system.19 • Normative (subjective) economics may refer to an understanding of the ways of ranking between assets when engaging in valuation techniques and, ultimately, making decisions (considering tradeoffs).20

19

Recall from our work on natural systems that the Earth is a natural system and the energy flows between components of that system can be measured. In addition, the scientific principles of equilibrium, closed system, and mass-energy equivalence allow us to see that energy flows between system components are finite. This means that we can account for the total assets of the Earth system because it exists in a ‘closed’ steady state. For example, we can identify the value of the regulating services of a wetland as an asset of the system, and through measuring the services provided, come to some dollar valuation through economic techniques that then allow us to compare the ‘value’ of the wetland’s regulating services against some other defined value.
20

For example, positive economic instruments might allow us to determine the valuation of the regulating services of a wetland. Normative economics allows us to rank-order (prioritize) between the regulating service values of a wetland and other values, for example the use of that wetland area for other purposes such as aquaculture development. The normative aspects of economics helps us understand the bias that can exist in valuation techniques, for example whether we believe the well-being of humans existing today should take precedent over the well-being of future generations (humans that have yet to come into existence). We will see how this bias reflects itself in economic analysis

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Positive economic principles will help us identify natural assets in as much objectivity as possible, while normative economic principles will help us place a relative ranking on different assets, and also help us understand the assumptions underlying certain rankings.

C. Two Types of Economic Approaches – Resources vs. Systems
As noted in the text, there are two primary subfields of economics that are used in understanding environmental issues: • Natural Resource Economics focuses on resources as things (inputs); what can we get out of what nature provides? This is very much an extractive way of looking at nature; nature provides certain ‘assets’ that we extract from the environment and put to some human use. Ecological Economics focuses more on a systems approach. Rather than looking at natural resources as inputs (what can the wood fiber of a tree be used to make?), ecological economics take a systems approach and tries to understand what natural resources provide for humans. This certainly can include the extractive value of natural resources, but it also includes other considerations like the provisioning services provided by those resources (trees also serve a function in creating oxygen, carbon sequestration, soil stabilization, and other functions).

In order to understand the relative merits of natural resource and ecological economics, we can analyze the extent to which each subfield provides an understanding of natural systems and thus incorporates the various assets of those systems in their accounting process. The following table, copied from the text, helps us understand how each accounts for natural system attributes:

through the discussion of discounting. The policy implementation of this process is alternatives analysis through the consideration of tradeoffs.

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We can see here that natural resource economics adheres to valuations of environmental assets based on market transactions. This means that natural resource ‘values’ are identified in relation to what individuals are paying for the item. Commodity markets may be one clear example of natural resource valuation; the value placed on a resource – like timber, oil, or gold – is connected to the actual price being paid for the product on an open market. We generally refer to these kinds of valuations as direct values. Excluded from this valuation technique are valuations that consider system-based interactions, for example regulating services provided by natural resources (either individually or in combination with other natural system components). Ecological economics tends to expand its valuation methodology, looking beyond the prices being paid for environmental assets in open markets (direct values) to the other services provided by natural assets, and also to the ways in which humans derive ‘value’ out of natural areas for non-consumptive reasons (like aesthetic and spiritual connections to natural resources). The way in which ecological economics expands its valuation of nature is by adopting a systems approach to understanding the relationships between natural systems and human wellbeing. This means identifying and (where possible) quantifying these relationships. For example, trees have additional values beyond their extractive use; trees provide carbon sequestration, oxygen, and soil stabilization as noted earlier. These are indirect values because they are not generally considered in market transactions (they are more process-orientated and less capable of division for consumptive purposes).21 In addition, trees can also have non-use values; giant sequoias
21

Consider that it is relatively easy to divide a tree into quantifiable units for sale in an open market (the wood product itself). However, it is difficult to divide and quantify the regulating services provided by trees; how exactly would one quantify and divide the

Page 31 of 63 provide an awe inspiring visual experience where people often express an intense aesthetic preference (spiritual experience) in their setting. This kind of ‘value’ does not depend on the extraction of the tree or the kinds of regulating services provided by the tree; the ‘value’ is personal to the user. Collectively ecological economics strives to incorporate these additional valuations into the quantification of natural system assets.

D. The Language of Economics
Three concepts are discussed in the text relevant in understanding economic principles related to environmental policy: discounting, substitution, and tradeoffs. All three are part of the language of economics that helps place environmental issues into a human context. Recall earlier in our studies that we identified two categories of information when discussing ecosystem-based management: objective (science-based) and subjective (human-based). The principles of discounting, substitution, and tradeoffs fall into our subjective categorization because they are economic principles that derive from humanbased presumptions. This is an important point to understand because each principle is heavily influenced by the assumptions that accompany the employment the principle. Thus, it is not enough to understand the principle itself, but one must also be aware of the assumptions being made when applying the principle as the assumptions will ultimately impact the analysis (more on this point later). Discounting means that we attribute less value to something over time. For example, if we value the immediate attainment of some ‘good,’ we will discount the future value of that good in relationship to its value now: because we want the thing now, it means more to us now than at some future time. Discounting can also be seen as a means of lessening the true value, or costs, of a particular activity. The example in the text is of burning coal. Coal is burned to produce electricity and it is often seen as a cheap source of fuel for creating electricity because the market price of coal (what is paid) does not include the impacts burning coal has on our natural environment; the effects on our air, water, and climate are generally not internalized into the price of using coal – at least not directly. Rather, those costs are externalized to the air, water, and climate. As suggested in the text, by using coal we discount the costs (negative externalities) to the environment.22 The concept of substitution draws in large part on the impact of applied science (technology) in our discussion of environmental policy. The concept behind substitution is that there is more than one way to do something, or said another way, more than one carbon sequestration value of a single tree? Even if one could, where is the market where these ‘values’ are identified and openly traded by humans?
22

Consider that natural resource economics would discount the environmental harms by not having them identified in the price of coal (looking solely at the direct value of the resource). Meanwhile ecological economics would identify the effect of using coal on the natural system to include the costs borne by the components of the natural system: the air, water, and climate.

Page 32 of 63 thing can accomplish the same goal. The example in the text is the use of alternative means of producing electricity besides coal including wind, solar, hydro, geothermal, and others. Substitutions often work best when they are ‘deemed’ superior under some established criteria (the dominant criteria in our current economic paradigm seems to be direct cost). Alternative sources of creating electricity are often considered ‘costly’ in comparison to coal; coal has a very cheap marginal unit cost per output of energy. However, coal is deemed cheap because only the direct costs are considered. If the costs to the natural system (the negative externalities) of burning coal were included in the price of coal (as may be done in an ecological economics analysis), then the actual cost of coal may be deemed more expensive than some or all of the alternative ways of producing electricity (assuming the alternatives are not also being discounted by externalizing certain costs). Finally, the concept of tradeoffs (opportunity costs) incorporates the assumption that once a thing has been put to one use, it is not readily available to be put to another use. I use the example of time in the text; time spent in one way cannot be ‘taken back’ and used in another way – the particular unit of time is gone. In environmental policy planning, tradeoff discussions can be an important part of forecasting potential issues. One can envision committing resources in one way, and then think about committing those same resources in a different (alternative) way. One of the ways of evaluating between the alternative commitments of resources is to consider tradeoffs. Just what are the tradeoffs depends very much on where priorities are established. Priorities, in-turn, are very much derived from values. For example, those who value natural system integrity will tend to follow the kind of asset assessment explained under ecological economics. Those who favor immediate human wellbeing may tend to discount some of the natural resource values at-stake in a decision. Depending on how the question is framed, the examination of tradeoffs will tend to differ. As noted earlier, these three economic concepts help to derive information that, while constrained by rules of economic analysis, are human-induced and subject to value-laden influences. Probably the largest influences come from assumptions about priorities (what is ‘most’ important). One question in environmental policy that tends to garner a lot of attention is what role, if any, should intergenerational considerations play in decisions made today? Said another way, how much influence should the consideration of future generations have on us when we make decisions about how we choose to interact with the environment today? You can imagine how this question becomes difficult when certain priorities today (say economic wellbeing of the current generation) may lead to policy directions that have the potential to negatively harm future generations. This is not an easy area to engage in policy discussions for a variety of reasons. However, what we can agree on is that these discussions are steeped in value-laden judgments. It is this focus on value that will help to define the remainder of the economic section of this course. END OF SECTION.

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VI. Economics – Defining Value Measuring Wellbeing, GDP, Alternatives
A. Introduction
The concept of value in economic parlance is likely different from what you and I define as ‘value’ in our personal lives. There may certainly be overlap between economic measures of ‘value’ and our individual and social ‘value systems,’ but there likely is a good deal of difference as well. The purpose of this section is to get a sense of the term value from an economic standpoint. As we begin to understand the assumptions behind economic principles of value, including the assumptions behind those principles, we can compare and contrast these goals with our existing knowledge and understanding of environmental policy goals, particularly the connection to systems thinking and intergenerational questions of equity and fairness.

B. How Do We Measure Value in Economic Terms?
The term value from an economic standpoint is closely tied to a general goal in economics of maximizing human wellbeing. Now, we can all imagine that the concept of wellbeing is a bit vague and likely ranges from person-to-person. Certain groups of people may have general agreement on categories or notions of what constitutes ‘wellbeing’, but there is likely a lot of difference between opinions on precisely what constitutes wellbeing in a particular context. Income disparity is one example; while all people may believe wellbeing includes a ‘comfortable’ lifestyle, a person of limited economic means may define ‘comfort’ very differently from someone who is wealthy. Thus, there may be general agreement on the concept of ‘comfort (certain needs and desires being met), but the way in which ‘comfort’ is being operationally defined between the wealthy and poor person is different. Economics tends to focus on large-scale measures of human wellbeing in order to try and capture a general sense of wellbeing amongst all groups of people. A different way of saying this is that economics focuses on the total potential of wellbeing while not being too discerning on the distribution of wellbeing amongst participants.23 The main mechanism used by countries to measure the wellbeing, and thus value of the country, is through Gross Domestic Product, or GDP.

23

It is important to note here that we are focusing mostly on macroeconomic principles in defining wellbeing for humans in general. A number of applications of economic theory look directly at equity issues like distribution of benefits among groups of people and even at the individual level. What we are talking about here is general neoclassical economic theory, including the underlying assumptions that provide the basis for macroeconomic measurements of wellbeing.

Page 34 of 63 The text explains GDP, including its definition and application. The text also summarizes some of the major complications of using GDP as a measurement of wellbeing. In summary they include: • GDP is a gross measure of all the goods and services produced by a nation in a given year, but such a measure does not yield meaningful information on distribution among the citizens of the nation. A country can have a very high GDP by extracting non-renewable resources and selling them, i.e., a high GDP may not be sustainable and can harm future generations. Activities that contribute to GDP can be harmful to the environment and unsustainable. GDP does not equal equitable distribution among the population (the benefits can be retained by a small percentage of the population) both today and tomorrow (future generations). A war can increase GDP – this does not seem to equate to overall wellbeing.

• •

There are many other criticisms linked at GDP and if we recall the Stone article about equity we can overlay her concerns from a policy standpoint on most of the GDP measures identified here. In essence, GDP is a very rough measure of wellbeing; it provides some evidence of economic activity (including ‘growth’), but it does not provide a full accounting of that growth, nor does it provide a sense of how that growth is connected to larger societal goals.

C. Relationship Between GDP and Public Policy
Let us take a moment now and consider GDP in relation to policy generally and environmental policy specifically. Recall from the reading that neoclassical economics favors free markets as the mechanism for achieving human wellbeing. Through the creation of free markets, humans are ‘free’ to express their individual preferences by buying and selling (exchange) without coercion. Thus, an increasing measure of GDP is, under ideal circumstances, reflective of an increase in individuals expressing their preferences in free markets. There is an assumption inherent in the theory stated above that I think is closely connected to public policy and particularly environmental policy. One major assumption in this market model is that people have complete information as they are engaging in their free market activities, and thus they are making informed choices as they express their preference for one thing over another. The assumption of complete information is key in policy because, if true, then the role of government would be

Page 35 of 63 limited here to, essentially, keeping the peace between market participants.24 However, what has been found to occur in free markets is a lack of complete information leading to market failures, or the result of misinformation leading to transactions that do not accurately reflect what a person might be willing to pay if they had complete information.25 Market failures (where the market does not operate on complete information) are the basis for government intervention and regulation in our economic system, and thus the need for public policy. In addition, market failures (the lack of complete information) often underlie environmental problems; the failure to internalize the costs of certain actions (the failure to add those costs to the market transaction) creates a distortion in the market because the price willing to be paid (and accepted) does not meet the costs incurred in the product. The difference between the price paid and the costs of the product must be ingested in some way. Often in environmental problems that additional cost not being paid is externalized onto the environment itself.26 When market failures occur, government intervention is often necessary to ‘fix’ the problem. This is the foundation of environmental policy; government is stepping in where the ‘free market’ has failed. The basis for the failure is free riding, or the externalization of costs (by not asking or paying for those costs in the transaction), and thus the externalization of those costs onto the environment (natural system). Government can engage in a variety of policy tools to remedy this kind of market failure:
24

For example, government may be required to help establish free markets and then really only help in enforcing the agreements made between market participants to ensure the legitimacy of the market itself (provide courts of law to enforce private contract agreements between parties is one example).
25

Much of the global economic collapse that occurred in 2008 was based on misinformation in market transactions. For example, home prices were being valued not on what might be considered fundamental valuations, but rather on speculation about the continuation of certain market forces (the continued future appreciation of home values). This assumption was not based on accurate information regarding home prices (historically, rationally, or otherwise), but rather on a desire to support the continuation of the market system itself. The information available to the market participants in this case cannot be considered complete in any reasonable sense of the definition.
26

The air (atmosphere) absorbs the additional costs of pollution not internalized in the price paid for using coal to produce electricity. The water (hydrosphere) absorbs the additional costs of pollution not internalized in the price paid for agriculture where fertilizer runoff leads to nutrient enrichment and dead zones in our water bodies. The Earth system absorbs the carbon that is forced outside of equilibrium storage and not internalized into the costs of carbon-forcing, leading to climate change and other impacts (in this case climate change may be evidence of the ‘costs’ being incurred indirectly after-the fact).

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• • • •

Regulations through command-and-control (Clean Water Act, Clean Air Act, etc.). Quasi-regulations through cap-and-trade (regulation to cap, market forces to trade). Taxing through internalizing the cost of the harm that is otherwise externalized (think of taxing cigarette smoking as one example). Privatization through privatizing the resource (air, water, etc.) or pollution and then allowing owners of the resource to engage in market transactions for the harm. Government can enforce the private rights created through court systems (Coase Theorem – consider individual quota systems in fisheries management as one example).

So, in summary, neoclassical economic policy presumes open markets lead to the maximization of human wellbeing, and because wellbeing is defined here through the expression of preference it can be closely linked to what we may term value. Thus, a rough measure of the amount of activity occurring in market transactions (GDP) is a way of measuring overall value. However, there are real problems with linking GDP to overall preference, and in the environmental arena the problem of market failures brought on by a failure to internalize costs of actions is a catalyst for environmental problems. In many ways this failure to internalize costs is the reason environmental policy exists; its goal is to ensure those costs are accounted for in the analysis so that the goal of wellbeing can be more transparently achieved. Another way of incorporating transparent goals of wellbeing into a nation’s policy is to use a measure other than GDP in determining whether a society is moving towards a maximization of wellbeing.

D. Alternate Ways of Measuring Wellbeing
The text explains two alternative methods of measuring human wellbeing (happiness) in a country: Gross National Happiness (GNH) and the Genuine Progress Indicator (GPI). Both are concerned with a more directed approach to discerning between economic activities that are ‘good’ vs. ‘bad.’ Each has established criteria (some more objective and others more subjective) to help in assessing the net value of economic activity. What is important to understand is that each method seeks to place economic activity into a greater context, and then use that context as a way of better understanding the cause and effect relationship between the economic activity and the impacts it has on human wellbeing. If we think of public policy as an attempt to gain greater insights into the impacts and consequences of government action, then we may find value in these alternate methods of measuring human production and linking that production to criteria that reasonably distinguishes between ‘good’ and ‘bad’ outcomes. I would be remiss if I did not take a moment to try and connect GNH and GPI to environmental policy by noting both of these methods tend to go further than GDP in

Page 37 of 63 assessing the impacts of economic activity on the natural environment (the Earth system). Recall our figure that presents us with a major assumption about the environment in relation to our society and economy, reproduced here:

Both GNH and GPI are, in my view, attempts to better understand the role of economic activity (the orange) in achieving societal goals (the blue) by placing some emphasis on the impact of that economic activity on the natural system (green). This suggests an awareness that society is not dominated by economic concerns (rather the economy is defined by social expectations and institutions), and importantly, that both society and economic activity are constrained by the environment; failure to account for the impacts of economic activity on the environment can harm the capacity of the environment to aid in achieving societal goals, including a reasonable definition of happiness (wellbeing).27 END OF SECTION.

27

It is interesting to note how much of a role economic activity takes up in our society, particularly when conditions like the economic downturn of 2008 are considered. Often it is hard to think that we have choices as a society that influence our economy; it seems in much of the popular press that our society is ‘driven’ by economic considerations, not the other way around. I think it is useful to contemplate this relationship as we consider the role of environmental policy in our social institutions.

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VII. Economics – Valuations Total Value Accounting, Benefit-Cost Analysis
A. Introduction
We have now spent some considerable time understanding the following principles: • The connection between environmental policy and natural systems, including the role of science in helping to understand the impact of human actions on natural systems. Ecosystem-based management as a method or style of management that follows systems principles by focusing on the energy flows within and between system components and applying an adaptive management approach to environmental policy development and implementation (including the role of precaution in such a management approach). The role of box modeling as a means of applying systems thinking in understanding environmental problems, whether that is calculating current problems or forecasting future problems in environmental policy directions. Focus in this area is on understanding the inputs, interactions, outflows, and feedback loops to see how the system reacts to specific stimuli. Once can use this modeling process to understand existing phenomena as well as forecast potential interactions of future policy directions. Categories of economics, including the distinction between natural resource economics and ecological economics as a way of understanding the different approaches an economic model might take in accounting for environmental harms in policy planning. Goals of economics, including the major goal of maximizing human wellbeing, and the measures developed – like GDP – to understand wellbeing in context. An important goal of this section is to understand the assumptions made in economic theory about wellbeing and how those assumptions may impact environmental goals. Important concepts reinforced in this section include equity and intergenerational considerations.

With these principles in-hand, we now take time to develop the two important conceptual tools explained in this section so that we can construct a means of engaging in environmental policymaking. In the case of this course, the two major tools we will use in developing environmental policy are the following: • Total Value Accounting: A framework that allows us to identify all of the major values associated with an existing or potential environmental policy direction. Using systems theory as a background principle of analysis, direct, indirect, and

Page 39 of 63 non-use values are categorized. • Benefit-Cost Analysis: Using our accounting sheet developed under our total value analysis, the relative benefits and costs of a particular policy direction are analyzed. Key to this analysis is an up-front identification of assumptions used in distinguishing between a benefit and a cost. This is where the information provided thus far becomes important. For example, the assumption that our environment provides the outer limits of our economic activity. Or, the assumption that natural system integrity (including preserving background rates of equilibrium) is a foundational requirement (goal) of any environmental policy direction.

B. Applying Total Valuation and Benefit-Cost Analysis
Probably the best way to place the concepts of total value accounting and benefit-cost analysis into context is to use an example problem. Consider the following scenario representing an airport abutting a wetland area:

The figure above represents an existing airport that abuts a wetland area. The airport wishes to expand the runway into the wetland area. The question for our consideration is what environmental impact might the expansion of the runway have on the wetland. Using the conceptual tools we have developed thus far in this course, we will answer this question using a total value approach and benefit-cost analysis. The first step in our analysis is to understand the extent of the expansion into the wetland, represented here:

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With the above figure we now have a clearer sense of how much of the wetland resource is at-stake in the proposed expansion; literally we have a clear sense of the direct area of impact.28 In addition, we can identify the areas around the black expansion area (the yellow box and beyond) and consider the impacts of the expansion on those areas as well. However, fundamentally, we have a starting point for our analysis here because we know the physical extent of the proposed expansion. The job now is to identify and account for the different values that exist in the wetland area so the potential benefits and costs can be calculated and compared.

28

Note the difference between the direct area of impact (the proposed expansion represented in black) and the surrounding area that likely will also be impacted (the area that includes the yellow square and possibly beyond). In order to understand this concept we must consider edge effects, or the effects of changes that impact not only the specific area altered, but also the physically unaltered areas that exist in proximity to the specific area altered. One of the arguments against developing casinos is the effects that extend beyond the immediate location of the casino itself. Communities often argue these ancillary effects (greater crime rates in the community, etc.) come with the casino and move into the community itself; this is one small example of an edge effect (without considering the evidence to support the proposition). One that is observed in the environmental arena is the effect on fishing effort that occurs at the border of protected areas. Often a policy tool implemented in fisheries management is to close off certain areas to fishing because those areas are identified as critical habitat for a target fish species. The effect of creating these closed areas has often been to change behavior patterns of fishermen (more on behavior in Chapter 4); the fishing effort tends to congregate at the edges of the closed area because there tends to be aggregation of target fish in these areas (just beyond the protected area).

Page 41 of 63 The values at-stake in the proposed expansion, using our total value approach, include direct, indirect, and non-use values. A very simple evaluation of these values (categorically) might include the following:

The direct values are identified as low because the wetland is likely not being utilized as a source for provisioning services that are then bought and sold in a free market.29 The indirect values at-stake likely include nursery habitat for fish, habitat for wildlife, and water filtration depending on the hydrological connections between the wetland and water resources for the surrounding community (for example if the community uses well water that includes water moving through this wetland). Non-use values include, at the least, a buffer between an adjoining residential neighborhood and the airport and any cultural/historical/aesthetic considerations based on the location of the wetland, how the wetland is utilized, and how that is connected to human use of the area.30

29

It is important to note that the analysis would pretty much end here under a natural resource economics framework; the direct values would be the primary way of identifying costs, and these costs would then be compared to the benefits of the airport expansion. The remainder of this analysis includes considerations under an ecological economics framework.
30

For example, if the wetland exists in an urban area, it may represent one of the only areas where waterfowl (ducks, geese, herons, etc.) utilize the area and as such it may provide an important source of visual and aesthetic connection to nature for the surrounding community.

Page 42 of 63 Once the different categories of value have been identified, the process of accounting and evaluation can occur. The process would generally proceed in something resembling the following manner: • Determine the total value of the area (per unit – value/acre for example). The value identified in each category will depend heavily on the assumptions utilized in the valuation process – this is key! Remember, indirect and non-use values are often not easy to calculate because there is no direct market transaction for these services. Thus, alternate methods of valuation (contingent valuation, willingness to pay) must be utilized. Compare the total value number achieved against the projections of value added by the runway expansion. (Include any discount rates that might apply in this analysis). Decide. Decisions can be affirmative (yes or no), or they can be laid out by establishing a set of alternative options based on different assumptions (playing with the assumptions of value and discount rates).

Visually, the way in which we can compare relative costs to benefits may be represented like the following figure:

By looking at the figure, we can see the goal is to make a decision where the amount of total environmental harm is balanced against the costs in reducing that harm – essentially

Page 43 of 63 getting the policy decision to ‘fit’ within the green box identified in the figure. If the policy direction allows the amount of environmental harm (damage) to move into the redhatched line, then the policy is inefficient. Similarly, if the policy allows the costs of protecting the environment (the costs to human wellbeing) to move into the solid red line, then the policy is also inefficient.31 The key in the process identified here is the attempt to internalize all of the values atstake in a proposed action that has the potential to impact environmental values. By going through this process and utilizing scientific information (systems thinking) as a means of understanding the potential impacts, the end result is a clearer identification of relative costs and benefits of our actions. Collectively this leads to greater transparency in connecting our human actions to environmental impacts, and in many ways, this is precisely what we can hope for when we think of the role of environmental policy in our society. Now that we have a sense of how to connect economic analysis to our understanding of natural systems (science), we need to add one further consideration to complete our understanding of environmental policy in context. This final consideration has to do with the expression of value through human behavior patterns. Our final section looks at the role of human behavior in helping us understanding how humans internalize information and make decisions. Even though we may better identify the potential benefits and costs of our actions through a transparent total value approach as described above, there is no indication this ‘better’ information will lead to ‘better’ (more efficient) decisions regarding our environment. Thus, the final section in our studies here is to get a handle on how humans go about making decisions. This includes a consideration of how we internalize risk objective and subjectively, how we develop and express personal values, and how our expression of value is influenced by scale (individual expressions vs. group expressions). END OF SECTION.

31

The argument here is that a policy that protects the environment at substantial cost to human wellbeing may not be a desirable outcome because human wellbeing is a valid goal of policy (the pendulum can swing too far in a direction that unnecessarily harms environmental assets, and swinging in the other direction, unnecessarily harms human wellbeing).

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VIII. Values – Objective Risk Assessment, Quantification Methods, Role of Science
A. Introduction
We now begin our final area of examination, values. The types of values referenced in this section are focused primarily on how humans assess risk. We will see that human assessment of risk follows our previous discussion of information, dividing the kind of information that leads to risk assessment into two major categories: objective and subjective forms of risk. In this section, we will discuss the objective form of risk assessment, looking at how science helps us understand the concept of risk. In the following section we will look at subjective forms of risk assessment and try to understand how they help to inform opinion and thus drive policy directions.

B. Risk Assessment
Think for a moment about how you might assess a risk? What are the factors you might apply in defining a risk? Why those particular factors? And, importantly, do you think the factors you might choose to describe a risk are the same factors others might choose? This is really at the heart of this section on risk assessment. Remember, we are using the process of identifying risk as a proxy for understanding values. Thus, the factors we use in coming to a sense of a risk are an important way of understanding how humans think about environmental problems within a risk context. In this section our focus is on understanding objective forms of risk assessment. One of the ways of establishing objective forms of risk assessment is to gain a perspective of the ‘risk’ in a particular policy direction that is, to the extent practicable, immune from bias. Bias speaks to the subjective experiences of humans, as well as to flaws in interpretation of data (via human perspective), and can thus impact both results (bias in methods used) and conclusions (bias in interpreting results). Thus, objective forms of measuring risk are meant to help prevent the formation of bias and thus give us a clearer indication of risk.

C. Assumptions Under Objective Forms of Risk Assessment
Objective forms of risk assessment are directly linked to the scientific method. This means that the assumptions and limitations built into our understanding of the world under science (discussed earlier in this course) exist in our objective assessments of risk. To reinforce this point from the text, consider the following generalized relationship between the probability of harm and magnitude of harm visually presented here:

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As noted in the text, there is an inverse relationship presumed between probability and magnitude of harm: as the probability increases, the magnitude decreases – and viceversa. This general presumption helps us understand risk assessment in environmental policy (and other policy arenas). We assume that high probability events will tend to be of lower magnitude, and low probability events will tend to be of higher magnitude (at least if we are employing policy correctly to mitigate risk). This relationship between probability and magnitude of harm is also a general presumption inherent in equilibrium theory and natural systems discussed earlier in this course. A well-mixed natural system provides the background upon which life is capable of developing. A natural system like our Earth has a lot of life (and variety of life on it) that has developed and thrived under background conditions. Thus, the background conditions that exist present the relationship between probability and magnitude of harm suggested above. For example, the sun ‘rises’ every day and drenches the Earth in solar irradiance; much of what is potentially toxic to humans and other species. However, the worst parts of the sun’s irradiance are ‘filtered’ by protective layers that surround the Earth (like the ozone layer for instance). Life has developed on Earth based on this filtering so the spectrum of the sun that arrives at the Earth’s surface (particular the thermal bands of electromagnetic energy) is not harmful. Thus, we can say the following regarding this background condition of the Earth: • The portion of the sun’s rays that reach the earth surface are a high probability event (because it happens all the time), and because this is a high probability

Page 46 of 63 event the magnitude of harm from this part of the electromagnetic spectrum (like heat energy) is low (we are ‘adapted’ to actually thrive from this energy – plants actually need it to grow and we need the plants to give off oxygen for our survival). • The portions of the sun’s rays that are filtered from reaching the earth surface (including ultra-violet radiation) under normal circumstances have a low probability likelihood of actually reaching the earth surface (because of the filtering agents like the ozone layer). Thus, if this particular energy did reach the earth, it would lead to a high magnitude of harm because the natural system (including the living things on the system) is not adapted to dealing with the event (low probability).32

Environmental policy follows the same precepts in its assumptions about human actions and the environment. The example provided in the text is on nuclear energy; we know that a nuclear disaster would provide a high magnitude event that would be extremely harmful to life on Earth. Thus, we have to assume that allowing the development and use of nuclear materials must have included some assessment (and policy initiatives) to ensure that the probability of risk was low, otherwise why would we ever engage in such a risky activity as enriching and using such a dangerous thing? In other words, our current state of knowledge and policies derived around the creation, refinement, and use of nuclear material must have included a risk assessment process that ensured the probability of risk remained low. If this were not the case – if we ended up with both a high probability of harm and high risk of harm – we would really need to revisit the policy behind the development of nuclear materials (whether for energy, weaponry, medicine, science, etc.). So objective risk assessment, in many ways, is about understanding the relationship between magnitude of harm and probability of harm. From this assessment, policies can be developed that attempt to ensure and maintain the inverse relationship between magnitude and probability; in other words the goal of environmental policy, from a risk assessment standpoint, is to ensure the inverse relationship is maintained. Any policy that deviates from this inverse relationship may be considered suspect. You may also see the role of adaptive management in the process described above. Recall that science is always updating (refining) our understanding of what we know about the natural world. This refinement process certainly includes our understanding of objective risk. As science comes up with new information about known risks, we can update our policies by referencing this updated risk knowledge against the probabilitymagnitude relationship described above. Where policies show a weak inverse relationship based on new information, this may signal a trigger that the policy needs to be revisited in light of this new information. Examples were provided in this text on when

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See how important systems thinking is in understanding these concepts?

Page 47 of 63 such information may trigger a reassessment of existing policy, and also where such information may trigger the need to develop new policy directions. What remains to be discussed is the precise process used in coming up with a probability and magnitude of harm rating, particularly understanding the magnitude of harm. To understand the objective methods for assessing a likelihood of harm, we must review the ways in which risk is quantified.

D. Quantification Methods
In order to quantify risk, we first need to come to some agreement on what a risk is (and is not). Sometimes it is hard to determine a ‘risk’ in absolute terms, meaning the risk is somewhat dependent on context. We do have the relationship between probability and magnitude of harm described above; this relationship offers us one method of assessing risk: the greater the magnitude and probability of harm together, the greater the risk. Visually, this can be represented in our previous figure as follows:

The context expressed in this relationship is clear: greater risk exists where the probability and magnitude of harm are both high (red shading); less risk exists where the probability and magnitude of harm are both low (green shading). While this is helpful in some ways, we still need to understand how magnitude of harm is determined as a function of risk. To begin, we can create a rank-ordering (priority) system that helps us

Page 48 of 63 identify risk in relation to certain policy goals. As stated in the text, the traditional rankorder presented for environmental policy is the following: • • • • Priority #1: Human Health Priority #2: Human Wellbeing Priority #3: Ecosystem Integrity Priority #4: Aesthetic Considerations

Each priority is discussed in some detail in the text materials. One thing we might consider here is the relationship this rank-ordering system has to certain assumptions we have made about the interrelationships between society and environment, particularly about the natural system as a necessary background prerequisite to human wellbeing. To help with understanding this point, the relationship between environment, society, and economy we explored earlier is reproduced here:

If we accept the underlying premises of this figure, particularly that the environment creates the outer limits for social and economic prosperity, then the ranking system identified above may seem incomplete. For example, ecosystem integrity (Priority #3) may be inextricably linked to human health (Priority #1) and human wellbeing (Priority #2) under a natural systems theory, meaning ecosystem integrity is a necessary prerequisite for human health and wellbeing. In a way we may identify ecosystem integrity as a singular goal under a natural systems analysis, meaning that if our focus in

Page 49 of 63 environmental policy is on enhancing and maintaining ecosystem integrity, then other closely associated factors like human health and wellbeing will follow. In this context, a defined risk to ecosystem health is a risk to human health and wellbeing: there is no real prioritization between these categories of risk. Putting aside the question of ranking systems, or priorities, in risk assessment, we can review the general risk assessment process, which is as follows: • First, identify the hazard. What precisely is a hazard can be a measure of magnitude and harm as described earlier, as well as a determination of potential impacts on our priority listing; something may be considered ‘more’ hazardous if it impacts human health, but less hazardous if it is shown to only impact aesthetics. Second, engage in a dose-response assessment. At what levels might the potential hazard create a true risk under stated priorities? For example, there are background rates of radiation in our environment that are not considered to have a high magnitude of harm. However, at certain concentrations, the radiation moves from a low magnitude to a high magnitude of harm. Third, engage in an exposure assessment. Once a magnitude of harm is known, exposure assessment provides some evidence on the probability of harm; under what conditions might the probability of harm increase, and what actions (policies) might be taken to decrease this probability?

These are the three steps in engaging in a risk assessment process. A visual representation of this process is reproduced from the text here:

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In summary, we can see that objective values are really not ‘objective’ in a literal sense. Rather, the process of understanding values as a representation of risk utilizes science as a means of identifying the magnitude and probability of potential harms, but there is no absolute way of determining a risk itself: what we decide to determine as ‘risky’ has a lot to do with how we rank our priorities. If we are focused on human health as the basis for identifying risk, then we may capture risks that are immediate and obvious, while potentially failing to capture long-term exposure risks that are more incremental in nature (like climate change). In this way we may see how difficult certain environmental problems are, particularly those where the risks are not obvious and acute, but rather accumulate over time. We may also see the connection between these kinds of risks and concepts of intergenerational equity, or fairness of passing on incremental risks today that may accrue to more substantial (realized) risks for future generations. END OF SECTION.

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IX. Values – Subjective Emotion, Public Outrage, NIMBY
A. Introduction
The focus of the immediately preceding section was on understanding value determinations from what was described as an objective context. Value was framed in this objective context through risk assessment, and the process of assessing risk included more objectively based inputs, although not all of the inputs used in the analysis are objectively determined. In this section we move our focus to understanding the subjective context for understanding values; what factors influence human decision-making, and what is it about those factors that define them as more subjective than what was studied in the previous section. In addition, we will try and understand the influence these subjective factors play in how humans perceive risk as a proxy for value, and how those perceptions influence environmental policy directions.

B. A Note on Learning Dynamics – How Beliefs Come to Be
As you review the materials presented in this section, you will note the importance of what we might call belief systems, including the process by which humans develop a well-founded belief on a topic.33 For our purposes here the importance lies in connecting forms of learning to strongly held beliefs as these beliefs can underlie the impact a proposed policy direction has on members of the public (if we are considering public support as an important component of furthering public policy directions, which of course it is). In the introductory part of the text on the values chapter, you are introduced to the concept of heuristics, or belief systems. The example provided in a footnote from Judith Layzer of Harvard is on the association of heuristics and determination of risk. Layzer notes that association with a risk can factor into how a person feels about a risk; the more experience one has with a risk, the less ‘risky’ they feel about the risk. The example provided is household pest control devices. Most of these sprays include very dangerous chemicals that pose an objective risk to human health. However, people who become accustomed to having the spray in their homes tend to discount the objective risk based on their experience with the product; the more experience they have with the product, the less ‘risk’ they perceive with the product. Note the actual objective risk has not changed, but the subjective perception of risk has changed. The question entertained here is whether an objective risk becomes less ‘risky’ simply because the public, through

33

Learning dynamics is covered in greater detail in the following section on scaling of values.

Page 52 of 63 experience, perceives a lower risk? This question is really at the heart of subjective values and their influence on environmental policy. To place the idea of perceptions of risk into context, I want to take a moment now and summarize two categories of learning dynamics, even though this subject will be taken up in greater detail in the next section. The two categories are as follows: • Reinforcement Learning: Reinforcement learning is, in most cases, learning by experience. In Layzer’s example above regarding household pest spray, the idea of being accustomed to something in this context is really based on experience. Prior experiences aggregate over time. When those experiences lead to a similar outcome that is repeated again-and-again, an expectation forms suggesting that outcome should occur in the future. If the outcome is positive, then we tend to form a positive belief (if the pesticide never harms a person in the home, then it is ‘seen’ as safe). If the outcome is negative, then we tend to form a negative belief (if the pesticide harms a person in the home, then it is seen as unsafe). Belief Learning. Belief learning, in the context provided here, is meant to refer to learning that occurs in relation to an accepted belief.34 Rather than allowing experience to form the belief itself (as in reinforcement learning above), the belief is a foundational principle and experiences help to place that belief into perspective. For strongly held beliefs (unshakeable beliefs), experiences will tend to be viewed in a light that most likely complements the belief system. For less strongly held beliefs, an event counter to the belief may alter the underlying belief. If a number of events occur that contrast with the belief, it is possible for the belief to be abandoned based on the evidence presented. The amount of evidence required to ‘shake’ a belief is positively correlated to the strength of the belief; strongly held beliefs require lots of evidence (and even then may not give way), while less strongly held beliefs require less evidence.

Often our perception of risk is directly connected to the way we learn and how that learning impacts our belief systems. For example, a person may begin with no strong belief in the safety of household pesticides. Over the years they may develop a belief those products are safe if no events occur where the pesticide causes harm. However, if an event occurs that causes harm (and the event has a strong impact, say the person’s infant child almost dies), then the previous belief system about the safety of household pesticides may change based on this single event. If there is an event where someone gets mildly sick from the pesticide, but the event is isolated to this one instance and does not occur again, then maybe the original belief about safety of the pesticide remains.

34

The accepted belief can be something that is indoctrinated into the individual by their parents, social mores, and other influences. The key is the belief is not necessarily ‘learned’ through experience, but is rather accepted on something closer to the definition of faith.

Page 53 of 63 One who has a strongly held belief about the safety of pesticides (I know, not the best example) may not waver in their belief even if their infant child almost dies from exposure. There may be some people whose belief system creates a foundation upon which no evidence may sway them from that belief. Understanding these basic principles of learning dynamics is an important way of putting the concept of subjective forms of value into context.35

C. Public Outrage: How Emotions Can Define Risk
With our introduction into learning dynamics from above, we can highlight some of the points made in the text about the role of emotion as a driver of value expression. In the context of public policy (and environmental policy particularly), the form of value expression focused on at aggregate levels (groups of people) may be termed public outrage (the term we will use). Visually, we can get a sense of the relationship between risk and public outrage from the following figure:

From the figure we can see the relationship between an objectively based determination of hazard and the more subjectively based component of outrage; both hazard and
35

For example, an environmental policy that requires people to alter their current views or paradigms may have a lesser or greater likelihood of acceptance based on a number of factors, one of which is the way in which people are subjectively valuing the underlying information for the proposed policy direction. Whether one is dealing with an issue that is steeped in reinforcement learning or strongly held belief systems impacts the degree to which the policy may be accepted in the public domain.

Page 54 of 63 outrage are components of determining risk. The Sandman reading describes some of the more subjective aspects of risk assessment and I invite you to compare the details of that reading to the earlier discussion of learning dynamics. In many cases we do not perceive risk, even in very risky situations, simply because we have either accepted the risks inherent in the activity (like skiing), or we have discounted the actual risks due to experience (reinforcement learning) or a strongly held belief system. With this in-mind let us consider the aggregation of subjective values (moving from the individual to the group) as expressed through the concept of public outrage. As reflected in the reading, public outrage provides a gauge of sentiment towards a potential risk; the degree to which the public deems something risky is dependent on a number of variables including familiarity, knowability, and controllability. In many ways, the public’s perception of an environmental problem, and a proposed solution, is connected to its overall level of comfort with the problem and proposed solution. From an environmental policy standpoint, this means policy directions should tend to favor familiarity over unfamiliarity. For example, people understand the risks associated with smoking, but they discount the risk because they have a familiarity with the activity that is reinforced through a long timeframe between the activity (smoking today) and the potentially negative outcome (lung cancer decades in the future). Thus, in order to make anti-smoking policy more acceptable to the public, policy directions should focus on creating a sense of public outrage that provides familiarity to the public; educating the public on the effects of secondhand smoke can provide a strong signal making antismoking measures (smoking in public places for instances) easier to pass.36 The point to take away from this section is that public outrage can be a powerful component in making environmental decisions, and the factors that influence public outrage can impact policy directions. As stated in the text, climate change poses difficulties in public acceptance because it lacks consensus (it is not completely knowable), it cannot be easily controlled, and its impacts occur over a long period of time thus limiting familiarity. Knowing this, policies to deal with climate change that are perceived to be economically harmful to the public today (like a carbon tax or cap-andtrade system) will likely lead to greater degrees of public outrage simply because of the nature of the climate change. People may not be willing to accept the actual risks (hazards) of climate change because they do not have a consensus on the issue from a group standpoint. Again, this highlights the power of public sentiment in defining value through a subjective lens; understanding the dynamics of how public perceptions are created is an important part of understanding environmental policy, particularly public acceptance of policy directions. Note here that the section in the text on principled bargaining is one way of thinking about how to better harmonize public perception and policy directions through strategic considerations about how to approach the development of policy by including public perception as a factor in development.

36

Note that in this example the public’s outrage is being informed by objective information on secondhand smoke.

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D. A Note on NIMBY
The NIMBY materials are really a primer for the following section on individual and multiparty decision-making, particularly how incentives help to drive individual and group decisions. Like the materials on principled bargaining, the explanation of NIMBY is helpful in understanding how value questions are further perceived through individual preferences, which themselves are highly influenced by incentives. If you can understand the preference(s) of an individual or group, then you are in a position to understand their incentives (what is driving them). If you can understand incentives, then you are in a position to think about how to mold policy options in such a way as to have a better chance of gaining public acceptance. Remember, this section is not about identifying legitimate (objective) environmental risks, but rather accounting for subjective ways in which risks are defined and internalized into the populace. Incentives are an important factor in how subjective risks are internalized into the populace as the NIMBY materials suggest. In the next section we will learn how incentives work at the individual and multiparty scale to drive decision-making. END OF SECTION.

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X. Values – Scaling Individual and Multiparty Decision-making, Learning Dynamics
A. Introduction
In the first two sections of our exploration of values, we structured our study by distinguishing between what was termed objective and subjective forms of valuation. The idea behind that structure was to understand some of the categorical dynamics that occur when trying to establish priorities for environmental policy. We should all agree the first step in any environmental policy is to determine a problem that requires fixing. But what exactly can be defined as a ‘problem’ depends in large part on how the problem is perceived. What we should take away from the previous discussion on values is that perception of environmental problems can occur through two categorical means: • Objective perceptions attempt to identify problems through a more scientific ‘lens’ by establishing standards (human wellbeing for instance through a doseresponse methodology) that then forms the basis of identifying an environmental problem. If observations find the established standards are at-risk, then policy initiation seeking to protect against that risk is justified: the problem is defined by comparing observations to the standard. Subjective perceptions identify problems not necessarily based on the actual hazard posed by the risk, but rather on how the risk is internalized by the public through social norms and community values: heuristics. If a ‘risk’ is accepted by a community, then that risk may be discounted because it is accepted by the community. Key factors influencing acceptance of a risk include the relationship between the risk and the community; a community that has lived near a dangerous condition for decades with no negative impact may discount the risk because of their previous experience (familiarity) with the risk. However, an event that alters that previous experience can change the community acceptance of the risk; for example, if the dangerous conditions suddenly becomes symptomatic within the population. The key in subjective perceptions is to understand the identification of a problem is only one factor in gaining public support for policy directions: other less objective factors must be analyzed in order to determine the potential acceptance of a proposed policy initiative to deal with the problem.

The purpose of this section is to take the information we have gleaned about values and their role in helping to understand ‘environmental problems’ and add the component of decision-making dynamics, both individually and multiparty, to our understanding. Consider that the process by which people make decisions can have a strong influence on acceptance of public policy in general, and environmental policy in particular (especially where environmental policy often means incorporating costs to the environment that were

Page 57 of 63 previously externalized).37 Having some understanding of how value decisions are made, including the important role incentives play in decision-making, is a critical way of gaining insights into human behavior patterns that help to drive reactions to environmental policy proposals. This section is about introducing some of these behavior dynamics.

B. Perspective – Providing a Basis For Sound Environmental Decisions
Consider the following process for making environmental decisions through a benefitcost analysis: • • • Variables are identified, defined, and weighted.38 Through total value accounting, all benefit and costs of a proposed action are identified. The benefits and costs are balanced to come to a decision.

Underlying this process are the social mores of society, the ideas behind fairness, equity, and similar collective goals in our societal ideal. The way in which our decision-making process becomes more objective (repeatable) is if we are able to strongly connect the presumptions being made in the process identified above. Specifically, what rationale was used in determining the set of variables for the benefit-cost analysis? Also, how were the weights established for different variables, and what might happen if we change the weights: does changing the weights of different variables change the result?39
37

In some ways environmental policies require people to pay for things they previously did not have to pay for. An example is a tax on carbon to internalize the costs of climate change. None of us have had to pay for the amount of carbon we emit through our actions. Forcing us to pay for this cost (as real as it may be) fundamentally changes our expectations about society. If we always paid for this cost, then we may more accepting (habituated). However, because we are not accustomed to paying the cost we are likely to be recalcitrant, at least up-front.
38

Remember, the weighting is where personal bias (preference) can arise. In addition, the choice of variables also matters; it is possible bias can result in choosing certain variables over others. The point is the process is not entirely objective.
39

A simple example: we are engaging in a benefit-cost analysis of taking action today to curb climate change impacts. Two variables chosen are current generation and future generation (without defining specifically how these variables are distinguished from one another here in the example). In one analysis we weight current generation more than future generation. The result of the analysis is that we do less to curb our actions today because of the harm on the current generation. In a second analysis we weight future generation more than current generation. The result is that we do more today to curb our actions because of the harm on the future generation. The weighting reveals our bias;

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So what we are really talking about here is ensuring a transparent process that is grounded in reason when we are engaging in making environmental decisions. To help us understand the role of bias, we explore human behavior dynamics at the individual and group setting to develop insights into presumptions used in environmental policy analysis.

C. Decisions at the Individual Level
Individual decisions are value-laden enterprises. Consider the introductory materials in the text on this point, particularly the example of choosing to be a vegetarian. Quickly the simplified stimulus-response (“I’m hungry – I need to eat”) becomes complicated through the human lens as additional value questions complicate the decision of eating. No longer is the stimulus (hunger) met by simply finding any food to eat (the response); now the response becomes complicated by choosing amongst different kinds of available food. The fact that choices exist provides the basis for exhibiting preference. In the world of environmental policy, we might define these preferences as alternatives (different ways of going about accomplishing a goal). How preferences emerge (choosing to be a vegetarian) and how strongly the preference is held (will I still be a vegetarian if I’m starving and only meat is available?) are important factors in understanding the extent to which the values are driving individual decisions. Consider the following figure separating different categories of property rights based on the characteristics of excludability and divisibility:

weighting current generations higher is a bias towards wellbeing today, while weighting future generations higher is a bias towards wellbeing in the future. Underlying the weighting are ethical questions and implications. Stating these biases (presumptions) is one key to ensuring the analysis is transparent.

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As noted in the text, the type of property right being described is often linked to the kinds of incentives that arise in individual decision-making. This is particularly true in questions related to environmental policy and management; precisely what incentives arise can be impacted by the characteristics of the resources (ala Mancur Olson’s The Logic of Collective Action and Elinor Ostrom’s work on Common Pool Resources). Most difficult environmental problems today tend to be the kinds that represent situations where the characteristics of the resources are highly divisible but non-excludable. Knowing this can be helpful in a few ways: • • First, we can link individual incentives to the kinds of property right characteristics represented in an environmental problem. Second, where a property right characteristic is creating an incentive to act counter to an environmental goal, and the property right characteristic is capable of being changed, then a possible policy direction can be identified.40 Third, common values may be identified that aid in limiting defectors from environmental goals (in the group setting). This is not about changing individual incentives, but rather about identifying the factors that allow for the expression of

40

For example, changing the excludability characteristic (moving from low to high excludability) may result in better stewardship outcomes (through privatization of the resource).

Page 60 of 63 individual incentives leading to undesirable outcomes. Altering the factors (rules) can marginalize the individual incentive to cheat (free ride).41 By understanding the connection between property right characteristics and individual incentives, we move closer to comprehending a key element of environmental policy: getting people to agree to a policy direction whether voluntarily or through coercion. By altering property rights we can focus on a framework that achieves the policy goal regardless of the values and incentives driving individual behavior – you don’t change people, you change actions.

D. Revisiting Learning Dynamics
We previously discussed learning dynamics by categorizing learning into two main types for environmental policy purposes (other purposes as well I’m sure): belief learning and reinforcement learning. It was noted that learning is really an expression of behavior patterns, whether those patterns are based in belief, experience (reinforcement), or a mix of the two. The expression of a behavior is itself a representation of value if we assume that we tend to express aspects of ourselves we value (there are exceptions of course). So when we speak of learning dynamics, we are really talking about the expression of value. What is of note to understand here is that having a value and expressing a value can be two different things, particularly when we move from individual value systems to group (multi-party) value systems (the standing ovation problems highlights this distinction). Identifying different ways of learning as a means of understanding value development was dealt with earlier in the discussion on belief and reinforcement learning. What we are focused on now is how the expression of values can be impacted through interactions in society. Remember, environmental policy does not have to be about changing people (changing what they value, how they learn, etc.), but rather changing how they act (behavior patterns). The materials presented in the text on the Prisoner’s Dilemma, Stag Hunt, and Standing Ovation Problem offer us examples of how different contexts can alter a persons expression of value, without necessarily considering the underlying values of the person. By understanding these concepts we can gain some insights into human behavior patterns as forms of expression, and what kinds of stimulus can create incentives to move behavior expressions towards environmental goals. The details of the Prisoner’s Dilemma and the Stag Hunt are well described in the text: we will not attempt to rehash them here. However, there are a few points I do want to reinforce about these two games in terms of how they relate to human behavior patterns:

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The example provided in the text discusses privatizing parts of the atmosphere by charging for each unit of carbon emitted into the atmosphere. By doing so the ‘common’ resource (atmosphere) becomes excludable, and like a toll good the user must “pay to pollute.” The incentive to pollute (externalize the cost) does not change, but rather the rules providing an opportunity to exercise the incentive have changed.

Page 61 of 63 • First, consider the importance of compulsion in non-cooperative games like the Prisoner’s Dilemma. When information is not freely shared (no opportunity to negotiate between players), then we often find individual incentives will dominate (people will tend to express their personal value preferences and individual incentives without consideration of other people). However, this is not complete. Consider the visual example of learning from the text copied below. Even without the ability to directly communicate between players, the actual results of each game being played provide learning opportunities; the likely actions of one’s opponent may be gleaned from previous interactions (iterations of the game). This is an example of reinforcement learning in action; a person can learn from past experiences and alter their behaviors in the future, even if this does not mean altering underlying value systems. Thus, reinforcement can be a powerful policy tool regardless of individual preferences.

Second, consider that compulsion, and thus the need for reinforcement learning, is less important in cooperative games like the Stag Hunt. Because both players have the opportunity to exchange information before selecting a strategy, there is the opportunity to achieve a superior strategy where the payoffs are highest for both players. This underlies the idea that sharing of information is a key component to an optimum expression of preference.42 If information can be

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Note the difference in how information aids in learning between the Prisoner’s Dilemma (non-cooperative) and Stag Hunt (cooperative) games. In the Prisoner’s Dilemma, there is no voluntary sharing of information; the information is gleaned only

Page 62 of 63 shared prior to action being taken, then there is a greater likelihood that sharing leads to better (more efficient) policy outcomes. • Third, the Standing Ovation Problem brings up the dynamic of group interactions and how the expression of preference can be altered in the group setting. What is important here is the role of peer pressure (compulsion) in altering the expressing of personal values; a person can often feel compelled to applaud by the actions of surrounding actors; what goes on around us can influence how we behave (even if it does not influence what we believe).

E. Bringing the Message Home
So values are complex things: they are not always easily discerned, not always based on objective evidence, and they don’t always express themselves in action. However, expressions of value truly do drive environmental policy decisions. Consider the influence they have in connecting good information to appropriate outcomes (say a rational approach). Science may be able to guide us to accurate information about the Earth system. Economics can provide us with frameworks for making decisions based on good scientific information (total value accounting through an ecological economics approach). However, this information is D.O.A. (Dead on Arrival) if there is no popular support in the public for taking actions that incorporate the good information that is yielded from the science and economic frameworks; in many ways this is the conundrum of environmental policy – connecting good ideas into the behavioral fabric of society. The materials presented on values are meant to provide an overview of human behavioral interactions. The goal is two-fold: • First, the materials allow us to gain insights into how humans develop and express values. Because there are so many nuances that go into the process of developing personal values, we separate the question by focusing on ways of learning, and then divide learning dynamics into two main types: reinforcement and belief. Understanding the role (and impact) of different learning patterns on value systems helps one understand the dynamics involved with the internal acceptance of policy directions (does the policy fit my internal values?). Those who base their values on experience may be more willing to accept new information, while those who base their values on belief systems may be less willing depending on the ‘fit’ between the policy direction and the belief system, and also the degree to which the belief is held.

through experience (past games) between the players. In the Stag Hunt, the information is learned voluntarily before a strategy is chosen. Thus, in the Stag Hunt parties can agree to a superior strategy early in the interaction (because of cooperation). When information is not voluntarily shared, as in the Prisoner’s Dilemma, the learning dynamics are time consuming and thus more costly.

Page 63 of 63 • Second, we can see how the structure of interactions between individuals and within group settings can impact value expression. Game theory helps us understand the dynamics that can occur in cooperative and non-cooperative settings. In addition, agent-based modeling allows us to see how dynamics might occur within group settings, particularly the factors that might influence the expression of individual preferences including when an individual might feel compelled to act in a way that differs from their personal value system.

This is a complicated arena (human behavioral dynamics) that is continually evolving; we are constantly learning new things about how humans ‘believe’ and express their beliefs individually and within a larger social context. The final part of this chapter focuses on how different government settings can influence behavior dynamics. Ultimately policy acceptance on the group level (societal level) may come down to ensuring that, regardless of individual preference, the group as a whole understands the policy provides greater benefits than costs, and to the degree possible, creates a sense that the benefits will be distributed in such a way that individuals will receive those benefits in a manner that exceeds individual costs. Consider how this might work in something like a carbon tax; individuals will have to feel that whatever they are paying for the tax, they are individually receiving greater benefits from the reduced potential for climate change – precisely how to get that message across would be a huge win for environmental policy.43 I hope you have enjoyed the materials presented in this course. More individual work on certain areas is undoubtedly required, but upon completion of these materials you have a truly solid foundation from which to understand the dynamics of environmental policy – thank you! END OF SECTION.

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One way to do this is to focus on secondary effects. If the carbon tax can be shown to limit the burning of coal, and the burning of coal can be shown to increase respiratory illnesses (due to increased air pollutants), then people may more easily identify with the secondary effects being highlighted in the policy initiative (prevent respiratory illnesses like environmental asthma) because they are more directly connected to immediate human health concerns (whereas climate change may be less connected).

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