Environmental Economics

Volume 2: The Applications

Inside the guide:
• Easy-to-understand applications of common economic concepts • Recommended Websites, Articles, & Case Studies • Classroom Resources

Scientists. Educators. Economists.


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

Kathleen Berry
Canon-McMillan High School

Gail Charnley
HealthRisk Strategies

Nicholas N. Eberstadt
American Enterprise Institute

Michael H. Glantz
National Center for Atmospheric Research

Eric P. Loewen
GE Energy

Dawn M. Anderson, Executive Director Dr. Roger Sedjo, Economics Project Advisor Nicole Barone Callahan, Project & Web Content Manager For more information about environmental economics or other topics in environmental science, please see our website: enviroliteracy.org

Thomas G. Moore
Hoover Institution

John Opie
The University of Chicago

F. James Rutherford
American Association for the Advancement of Science

Frederick Seitz
Rockefeller University

The Council would like to thank the following people for their contribution to the research and production of this guide: Erica Brehmer Charles Fritschner Patrick Polischuk Kiel Stone Megan Wertz

Leonard Shabman
Resources for the Future

Herman H. (Hank) Shugart, Jr.
University of Virginia, Charlottesville

Robert L. Sproull
University of Rochester

M. Jane Teta
Exponent, Inc.

Alvin W. Trivelpiece

Copyright © 2008
All rights reserved. No part of this document may be reproduced or transmitted in any form without permission from the Environmental Literacy Council.

Henderson, Nevada

Anne K. Vidaver
University of Nebraska, Lincoln



Table of Contents

Chapter 1: Introduction to Environmental & Resource Economics 6 Chapter 2: Population ..................................................................... 9 Chapter 3: Biodiversity................................................................. 14 Chapter 4: Agriculture .................................................................. 18 Chapter 5: Fisheries ...................................................................... 22 Chapter 6: Forest Management..................................................... 26 Chapter 7: Tropical Deforestation ................................................ 31 Chapter 8: Water Resources.......................................................... 35 Chapter 9: Energy Production & ANWR ..................................... 40 Chapter 10: Carbon Trading & Sequestration .............................. 44 Chapter 11: The Greening of Business ......................................... 50 Appendix: Resources for the Classroom....................................... 54 Population ............................................................................. 54 Biodiversity........................................................................... 54 Agriculture ............................................................................ 55 Fisheries ................................................................................ 55 Forest Management............................................................... 56 Tropical Deforestation .......................................................... 56 Water Resources ................................................................... 57 Energy Production & ANWR ............................................... 58 Carbon Trading & Sequestration .......................................... 58 The Greening of Business..................................................... 58 Endnotes........................................................................................ 59

Chapter 1: Introduction to Environmental & Resource Economics
Environmental economics is the subset of economics that is concerned with the efficient allocation of environmental resources. The environment provides both a direct value as well as raw material intended for economic activity, thus making the environment and the economy interdependent. For that reason, the way in which the economy is managed has an impact on the environment which, in turn, affects both welfare and the performance of the economy. One of the best known critics of traditional economic thinking about the environment is Herman Daly. In his first book, Steady-State Economics, Daly suggested that “enough is best,” arguing that economic growth leads to environmental degradation and inequalities in wealth. He asserted that the economy is a subset of our environment, which is finite. Therefore his notion of a steady-state economy is one in which there is an optimal level of population and economic activity which leads to sustainability. Daly calls for a qualitative improvement in people's lives – development – without perpetual growth. Today, many of his ideas are associated with the concept of sustainable development. By the late 1970s, the late economist Julian Simon began countering arguments against economic growth. His keystone work was The Ultimate Resource, published in 1981 and updated in 1996 as The Ultimate Resource 2, in which he concludes there is no reason why welfare should not continue to improve and that increasing population contributes to that improvement in the long run. His theory was that population growth and increased income puts pressure on resource supplies; this increases prices, which provides both opportunity and incentive for innovation; eventually the innovations are so successful that prices end up below what they were before the resource shortages occurred. In Simon's view, a key factor in economic growth is the human capacity for creating new ideas and contributing to the knowledge base. Therefore, the more people who can be trained to help solve arising problems, the faster obstacles are removed, and the greater the economic condition for current and future generations. Environmental economics takes into consideration issues such as the conservation and valuation of natural resources, pollution control, waste management and recycling, and the efficient creation of emission standards. Economics is an important tool for making decisions about the use, conservation, and protection of natural resources because it provides information



about choices people make, the costs and benefits of various proposed measures, and the likely outcome of environmental and other policies. Since resources – whether human, natural, or monetary – are not infinite, these public policies are most effective when they achieve the maximum possible benefit in the most efficient way. Therefore, one job of policymakers is to understand how resources can be utilized most efficiently in order to accomplish the desired goals by weighing the costs of various alternatives to their potential benefits. In competitive markets, information exists about how much consumers value a particular good because we know how much they are willing to pay. When natural resources are involved in the production of that particular good, there may be other factors – scarcity issues, the generation of pollution – that are not included in its production cost. In these instances, scarcity issues or pollution become externalities, costs that are external to the market price of the product. If these full costs were included, the cost of the good may be higher than the value placed on it by the consumer. A classic example of an externality is © NOAA Coastal Services Center discussed in Garrett Hardin's Tragedy of the Commons, which occurs in connection to public commons or resources – areas that are open and accessible to all, such as the seas or the atmosphere. Hardin observed that individuals will use the commons more than if they had to pay to use them, leading to overuse and possibly to increased degradation. There are three general schools of thought associated with reducing or eliminating environmental externalities. Most welfare economists believe that the existence of externalities is sufficient justification for government intervention, typically involving taxes and often referred to as Pigovian taxes after economist Arthur Pigou (1877-1959) who developed the concept of economic externalities. Market economists tend to advocate the use of incentives to reduce environmental externalities, rather than command-andcontrol approaches, because incentives allow flexibility in responding to problems rather than forcing a singular approach on all individuals. Freemarket economists focus on eliminating obstacles that prevent the market from functioning freely, which they believe would lead to an optimal level of environmental protection and resource use. The key objective of environmental

economics is to identify those particular tools or policy alternatives that will move the market toward the most efficient allocation of natural resources.

Recommended Resources
Center for the Advancement of the Steady State Economy www.steadystate.org The Center for the Advancement of the Steady State Economy is a nonprofit organization that educates citizens and policy makers on the fundamental conflict between economic growth and environmental protection, economic sustainability, national security, and international stability through its promotion of a steady state economy as a sustainable alternative to economic growth. Political Economy Research Center www.perc.org The Political Economy Research Center is dedicated to original research that brings market principles to resolving environmental problems. The site has an extensive publications list and an environmental education section that touches on a variety of subject areas that relate to both economics and the environment. Protecting Ecosystem Services: Science, Economics, and Law eprints.law.duke.edu/archive/00001071/01/20_Stan._Envtl._L._J._309_(2001).p df This paper is the result of a workshop that took place in December 2000 when a group of 30 scientists, conservationists, economists, lawyers, and policymakers came together at Stanford University to discuss ways to market ecosystem services.



Chapter 2: Population
Between 1900 and 2000, the world's population grew astoundingly fast, from just over 1.6 billion at the dawn of the 20th century to 6.1 billion at its close. Forecasters predict that by 2050, global population will exceed 9 billion. In just one hundred years, the population doubled three times over. During this same time, the world achieved vastly higher standards of living. However, population growth occurs unevenly across the globe, with growth rates lower in countries with wealthier economies. Currently, nearly 95 percent of all population growth is occurring in the developing world and, in the coming years, the fifty least developed nations are expected to double their populations, from 800 million to 1.7 billion. Agrarian lifestyle dominates the social order of most developing countries and, because agricultural tasks are incredibly labor intensive, large family units are needed. In these societies, children help generate wealth for the family. Because many families operate on a basic, subsistence level—two or three children simply cannot provide enough labor to accomplish the farm life's myriad, demanding tasks. Restricted access to contraceptives, limited geographic accessibility to and inadequate funding for family planning also contribute to population growth in many developing countries. Women who may want fewer children might also be restricted from using family planning methods due to a lack of education, cultural and religious values, or adverse social pressure from family members. However, while the overall population today continues to grow, developed countries are experiencing a lower rate of growth—even negative growth— compared to developing countries. In fact, growth rates are expected to decline into mid-century, with projections beyond 2050 indicating that the global population could stabilize or even decline. In its 2004 World Population Prospects report, the United Nations projected that fertility—the number of children per mother—will decline substantially from 2.6 children per woman to just slightly over two children per woman by 2050. Many developed countries, including Germany, Italy, and Japan, are already experiencing a decline as their population ages and fertility rates fall below replacement level. While fertility rates are declining as women have fewer children, the inverse is true for life expectancy. Global life expectancy at birth is projected to increase to 75 years by 2050, compared to 65 years at the present time; in developed countries and regions, life expectancy will reach 82 years by mid-century.

As a country develops economically, the expected transition from a country with high birth and death rates to one with low birth and death rates can be illustrated by the four stages of the demographic transition model (DTM). Stage one occurs in a pre-industrial society where death and birth rates are high and relatively in balance, resulting in a slow and steady population growth. In stage two, death rates begin to decline with improved food supplies and sanitation, which results in a decrease in disease and an overall increase in life span. Stage three sees a decline in birth rates due to a reduction in subsistence agriculture, an increase in women's education and access to contraception, and other social factors. This is also the stage where population growth begins to level off. Stage four shows stabilization in population growth, with both low birth and death rates. However, as the population ages, total population can decline (negative growth) as there are less births than deaths. There are several factors which contribute to lower fertility rates in developed countries. Unlike in developing countries where most children generate wealth, in the developed world, children are not capital assets—they do not need to engage in labor for profit; rather, they require financial investment. Due to the financial and opportunity costs associated with child rearing and the importance placed on each child's social and intellectual development, parents have little incentive to produce large numbers of children. Lower rates of child mortality in developed countries also mean that fewer births are needed to insure survival to maturity. In addition, wealthier countries tend to provide the necessary means to women in order to reduce births, including education and employment opportunities, and increased access to family planning services. As with population growth, there are concerns associated with a declining population. Fewer young people will result in an aging population, eventually resulting in a shortage of workers to support the growing numbers of retirees. By 2050, under current trends, Japan's labor force will fall from 68 million to 46 million, Italy's from 23 million to 14 million, and Germany's from 41 million to 28 million. Aside from likely declines in economic productivity, an aging population can also strain a nation's social security and pension system, and have implications on a country's health budget due to higher elderly care costs. One potent remedy to regional population declines is immigration, which increases the population base by bringing additional workers into a country. Immigrants are also often younger and tend to have more children. Government incentives to increase the rate of fertility within a country are also an option. For example, in 2006 Russia's president called for an increase in government subsidies for children up to 18 months old, extended maternity leave while paying 40 percent of the mother's salary, and covered a portion of day care costs. Several other European countries have instituted similar financial incentives, primarily in the form of bonuses or monthly payments.



Most developed countries have already reached stage four of the DTM (see above). And, as a result of rapid social and economic changes, countries such as Brazil, Thailand, and China are reaching the final stage rather quickly. However, while the majority of developing countries are moving through the second and third stages, many nations—especially within Africa—are caught up in the second stage because of extremely slow economic development. The governments of several developing countries have attempted various stabilization schemes, although with mixed success. Kenya was the first subSaharan African country to develop a national family-planning campaign in the late 1960s. While their official policy calls for matching the size of the population with available resources, decisions are left to individual families. Their approach has had much success as fertility rates are declining and contraception use continues to grow. Perhaps most famously, China's “one child policy,” mandated by the government in 1979, has effectively curbed the growth of the world's most populous nation. However, serious human rights concerns have arisen as abortion, infanticide, and abandonment are practiced with stunning frequency. Furthermore, many worry that a severe gender imbalance will soon result in social trouble as many men of marriageable age will find it increasingly difficult to find wives. In addition to the relationship between population and wealth, there is an important link between population growth and the environment. Many of the natural resources necessary to sustain a population are referred to as 'the commons,' or common property resources that are shared through open access, such as air. This concept is perhaps best known from Garrett Hardin's essay The Tragedy of the Commons, in which he argues that the overpopulation of a species will deplete shared natural resources. Continued population growth will create an increased demand for natural resources and can lead to resource scarcity. This problem could be particularly difficult to manage for open access resources. According to a 2005 U.N. Ecosystem Assessment Study, human activity uses nearly 60 percent of the ecosystem resources in an unsustainable manner. A growing population can result in a variety of environmental changes, including an increase in greenhouse gas emissions which contribute to climate change, water and air pollution, deforestation, and the loss of biodiversity. The loss of arable land, which could diminish our ability to supply sufficient food, is another serious concern. The classic dilemma—inspired by the works of Thomas Malthus in the early 19th century—is that an ever-increasing population will become a major concern if (and when) it reaches the limits of the Earth's carrying capacity—the maximum number of individuals an ecosystem can support without severe

repercussions. Malthus focused on the relationship between population and food supply, arguing that because population growth increases geometrically (2, 4, 8, 16, etc) while food supply grows arithmetically (1, 2, 3, 4, etc), humans would eventually overrun their food supply, with disastrous consequences. These Malthus-inspired arguments have been challenged by economist Julian Simon and his colleagues, who maintain that such predictions fail to account for the enormous capacity for innovation and creative thought among humans. Simon argues that creativity is in fact the single, ultimate resource possessed by humans. In practice, they point to increasingly productive agricultural practices, falling prices of limited resources like minerals and timber, great advances in food processing and distribution, and technological innovations which allow for an increasing number of humans to enjoy material prosperity, even as natural resources grow increasingly scarce. Furthermore, Simon argues continued population growth can lead to larger and freer markets, economies of scale, and greater ingenuity to come up with technical solutions to ever evolving problems. Among other things, technological advances can lead to the discovery of additional resources, increase the productivity of resources over time, improve our ability to control the amount of waste that enters the environment and, through conservation and efficiency, make available resources last longer. As population concerns continue to evolve, market processes that promote adaptation and creative problem solving will remain an effective mechanism for channeling creativity and encouraging adoption and prosperity.

Recommended Resources
The Demographic Transition www.uwmc.uwc.edu/geography/Demotrans/demtran.htm Keith Montgomery, a professor in the Department of Geography and Geology at the University of Wisconsin Marathon County, details the demographic transition model in terms of a country that is already fully developed. He also addresses a different form of transition associated with the differences in growth rates across countries of differing economic statuses, and includes links to his sources as well as other links related to the topic. Population www.econlib.org/library/Enc/Population.html Ronald Demos Lee, a professor of demography and economics at the University



of California, Berkeley, authored this article on population located within the Library of Economics and Liberty's Concise Encyclopedia of Economics. State of the Planet: Web Resources on Human Population www.sciencemag.org/cgi/content/full/302/5648/1172/DC1 Science magazine created this page of resource links to various websites on human population information, including United Nations' population sites, the U.S. Census Bureau, the Population Institute, the Population Reference Bureau, and various articles on human population. Human Numbers Through Time www.pbs.org/wgbh/nova/worldbalance/numbers.html Created by PBS, this site illustrates the growth of the world human population over time, and includes a map with projections of where as many as three billion more people may live by 2050. A graph is also presented to display the growth of developing countries in comparison to developed countries. VIEWPOINTS Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble www.un.org/esa/population/publications/WPP2004/wpp2004.htm Lester R. Brown, president of the Earth Policy Institute, argues that increased access to family planning services is necessary in order to stabilize the global population. Brown cites examples where increased family planning has been successful and further illustrates economic benefits experienced by those countries. He also addresses the idea of striving for an average of two children per couple, for which he says there is no “feasible alternative.” Ageing Futures: From Overpopulation to World Underpopulation www.metafuture.org/Articles/AgeingFutures.htm Sohail Inoyatullah of Metafuture.org explores the idea that underpopulation will be the biggest world problem rather than overpopulation. The author presents an outlook of what problems underpopulation could cause, as well as potential solutions.

Chapter 3: Biodiversity
For many, it is considered unethical to question the worth of biodiversity. The sense of moral obligation, unalienable right, or spiritual and religious support is often considered sufficient rationale for requiring responsible stewardship on the part of humankind. Yet, these views can come into conflict with one's ability to earn a living or to have access to basic needs, such as food or shelter, resulting in the contemplation of necessary trade-offs. As a result, the value of biodiversity is now increasingly expanding to include a number of ecological and commercial arguments that are directly or indirectly beneficial to humans. While economists might see the beauty and majesty of biodiversity, they also view ecosystems and the diverse organisms within as increasingly valuable and scarce resources. Oftentimes, in determining the best use of scarce resources, a cost-benefit analysis is the tool that helps to identify, quantify, and compare various aspects of biodiversity. An economic valuation can determine how specific changes to biodiversity may affect human well-being, although it also depends on the understandings and predictions of biologists, geologists, and ecologists as to how and what ecosystem changes may occur; otherwise there might be little basis for evaluating an effect on humans. Changes large enough to warrant a full economic analysis are typically related to policy or regulatory proposals; for example, the Endangered Species Act or the Convention on Biological Diversity. In the case of the Endangered Species Act, one might compare the value of taking action to protect an endangered species with doing nothing. An example of this is the gray wolf. By 1930 the gray wolf was virtually extinct in the continental United States due to eradication by western ranchers concerned about wolves killing livestock. Consequently, populations of elk, deer, moose, and caribou soared without their natural predator. In 1995, Alaskan gray wolves were reintroduced to Yellowstone National Park, part of their traditional habitat. Similar programs have been undertaken throughout the Great Lakes and Southwest, bringing the gray wolf population in the continental United States to over 5,000. These programs appear successful, but were they really worth it? Using three general categories of value: direct use, indirect use, and non-use, one can compare the costs and benefits of reintroducing the gray wolf, among other things. Current and future benefits derived are the direct use value. In the case of an endangered species, like the gray wolf, this would include the costs associated



with the reintroduction programs, the conservation of habitat, and the livestock killed on nearby ranches by wolves. Benefits would be attributed to any increase in tourism revenues from interest in the wolves and perhaps reduced costs associated with maintaining large elk herds and/or offsetting damages from excessively sized herds. To estimate a monetary value of these costs, one would typically use wolf recovery program costs, including livestock lost, other damages, and program costs necessary to prevent damage. However, simply calculating a direct use value is an incomplete analysis since it does not include any additional commercial, environmental, cultural, or aesthetic benefits people can derive. An example of this would be the usefulness of medicinal plants. Indirect use value is derived from goods and/or services that are not directly consumed or sold, yet beneficial. Many of our most basic ecosystem services are indirect use value, including carbon sequestration by forests and other vegetation and the filtration capabilities of watersheds. In the example of the gray wolf, it assists in a form of ecosystem stability which, by keeping other animal populations under control, indirectly supports human life and enhances direct use values. Without the gray wolf, the population of various herbivores could become too large causing a strain on plant populations and creating the potential for increased erosion. These indirect use values can be difficult to quantify since there is no market for the interconnected services. Think of pollinators, how much are their services worth? It is thought that the wealth of genetic and species diversity remains relatively untapped so the potential value is considered vast. One method used to quantify indirect use value is known as replacement cost, or the cost of replacing an ecosystem service with technology. An excellent example of this was illustrated when New York City considered building a water treatment plant to filter water from the Hudson River. The city was previously dependent on the Catskill Mountain watershed to act as a filter cleaning rain water and runoff before it reached ground water supplies and eventually the Hudson River. In taking into consideration replacement cost, it was determined that it would cost $6 billion to construct a water filtration plant and an additional $300 million each year in operating costs to do what the watershed has consistently done for very little cost. For that reason, the city instead decided to spend $250 million to help conserve the watershed. While quantifying indirect use values would be simple if replacement cost could be used to monetize the worth of a watershed, ecosystem or species; but, even this does not take into account the non-use value of biodiversity. Quantifying the value of biodiversity becomes incredibly complicated when non-use values are included; so named because it is the value people derive without actually using biodiversity. Each individual has a different non-use value, which can include option, bequest, and existence values. Having the

opportunity to travel to see an endangered species or a new ecosystem is an option value because an individual values the opportunity, whether they actually take it or not. The irreversibility of biodiversity loss is one reason many individuals have a high option value for biodiversity. Bequest value is an individual's value of passing intact ecosystems on to future generations. Existence value is an individual's moral conviction that the environment has its own intrinsic value; thus, while one may never see a coral reef, they think it is important that coral reefs exist. Each individual has a different non-use value for all aspects of biodiversity, thus it is very difficult to create a single representative value for non-use variables. Economists often rely on the stated and revealed preferences of what people, generally survey participates, are willing to pay to preserve biodiversity or how much biodiversity loss they are willing to accept. By asking how much an individual is willing to pay to conserve and/or by examining the actual contribution to conservation efforts, economists can begin to construct a representation of non-use values. However, a problem with this method is, in a survey, participants tend to have a hypothetical bias or will overstate how much they would be willing to pay because they are not actually being asked to pay anything. If preserving biodiversity had no cost, all would be preserved since biodiversity can be important for a variety of reasons, including ethical, esthetic, spiritual, ecological, and commercial. However, since many of the offerings biodiversity provides are public goods that are freely available, they are often undervalued – especially within the marketplace – when changes to the ecosystem are being considered. Therefore, while economic valuation can be highly uncertain, putting a price on an otherwise priceless good is one way to start appreciating its value by further illustrating the benefits of preservation.

Recommended Resources
The Value of Biodiversity www.chicagowilderness.org/pubprod/brppdf/CWBRP_chapter2.pdf This study for Chicago Wilderness explains the different types of use values for biodiversity and addresses some of the challenges of assessing biodiversity's value. The Valuation of Ecosystem Services www.ecosystemvaluation.org/1-02.htm



This piece discusses the methods and drawbacks of various management decisions of ecosystem services. It includes a discussion of applicable values of ecosystem services. Biodiversity Banking: A Primer ecosystemmarketplace.com/pages/article.news.php?component_id=5617&comp onent_version_id=8120&language_id=12 This article on the economics of biodiversity conservation, sponsored by Ecosystem Marketplace, provides an extensive overview and case studies of the field. Natural Capital Project Toolbox www.naturalcapitalproject.org/toolbox.html The Natural Capital Project is developing modeling and mapping tools to better estimate the costs and benefits of biodiversity and ecosystem services. VIEWPOINTS What Price Biodiversity? www.ciel.org/Publications/summary.html This academic article from the Center for International Environmental Law discusses the incentive behind conservation and the effect of taxes and several pieces of legislation on land conservation. Biodiversity Prospecting www.rff.org/rff/documents/rff-resources-126-biodprospect.pdf David Simpson from Resources for the Future makes the argument for “marginal conservation” which he believes is a more sound argument for conservation than that of bio-prospectors.

Chapter 4: Agriculture
Agriculture has been important to the United States since its earliest days. In 1785, Thomas Jefferson remarked, “Cultivators of the earth are the most valuable citizens.” He saw farmers as the foundational units of a democratic society; agrarian communities, Jefferson argued, promoted spirited individualism and dedicated resourcefulness necessary for the young nation. It is this idealized notion of the American farmer that has come to dominate much of our historical lore. Through the early 20th century, small family owned and operated farms dominated America's agricultural economy. Until the 1930s, in fact, one out of four Americans lived on family farms. However, industrialization and commercialization gradually changed the economic landscape as farm operation and ownership transitioned to larger corporations. Today, that number is closer to one in fifty. As the agricultural landscape changed, so did the beneficiaries of the subsidies. Large corporate farms now account for nearly 75% of all farm sales in the U.S. Technological advances produced economies of scale while new farming equipment and innovative cultivation techniques allowed commercial farms to decrease their labor needs while increasing the overall productivity of the land. Specialization also meant that the larger farms with higher productive capacities, more access to capital, and better transportation networks could more effectively supply consumers in the expanding economy. Just as American farms were beginning this transition, however, the Great Depression struck. Money and land were rapidly devalued, millions of people lost their jobs, and banks closed. At this time, farms across the nation struggled to break even, but many failed. In response, the Federal government passed the Agricultural Adjustment Act of 1933, and the era of subsidies was born. Hoping to keep prices from plummeting and, in turn, keep farmers in business, the government purchased and subsequently destroyed millions of dollars worth of agricultural goods. A variety of programs have since been developed and implemented, employing different management and planning strategies, with the goal of keeping existing farms in business. Subsidies and price supports were often used after World War I in order to keep prices stable, regardless of the level of production. Sometimes, farmers were paid to reduce their production in order to take excess supply from the market, also helping to control the price of goods. Incredibly, while farm



subsidies were initially promoted only as a temporary relief measure from Depression Era woes, they have remained in place for over 70 years. The basic definition of a subsidy is direct monetary aid issued by the government to individual businesses and industries. Governments use subsidies to insure profits among established producers who might otherwise face competition for their products. For example, if the market price for corn is $1.50 a bushel but the government decided that farmers needed $2.50 a bushel in order to remain profitable, it would issue a $1 subsidy per bushel of corn to each farmer. Governments can also subsidize agricultural production in other ways. They might buy large quantities of a particular commodity—say, cotton—and either hold it in reserve or destroy it, effectively creating a shortage in order to drive up the market price artificially. Or, they might enact protective tariffs for a certain industry; for example, placing a tax on all imported cotton allows domestic producers to raise the price that they are able to charge. Subsidies can affect economic decision making in a variety of ways. The most obvious effect is to raise the price consumers pay for the subsidized commodity. Subsidies also have an indirect effect by raising prices on goods produced from the subsidized commodities. For example, subsidized cotton is more expensive to buy, but so too are the t-shirts, beds, carpets, or any number of other products made – even in part – from cotton. So not only are direct consumers of agricultural products affected by subsidies, so too are fashion designers, clothing retailers, and furniture stores. Other subsidy effects on consumers are less apparent, though no less severe. Not only do consumers pay a higher price for a subsidized commodity, they also tend to pay higher federal taxes which are used by the government to support its pricing system. In effect, consumers are taxed twice, once directly by the government and again at the stores, in the form of higher prices. Environmental externalities can also occur with the use of subsidies. Since producers are insulated from competition when they are supported by subsidies, it could distort the mix of resources utilized leading to the use of excessive amounts of energy, land, fertilizer, and water – and, sometimes, the production of unsuitable crops entirely. Many times, the crops grown are simply destroyed by government officials in an effort to stabilize or prop up the price of the good. In addition, farmers often expand their operations to marginal lands which would otherwise be unsustainable simply in the hope of attracting more government support. But, because the government guarantees a certain price, farmers need not properly take land use into consideration.

Yet, the most controversial impact of agricultural subsidies is related to international trade. For many countries, agriculture is a main source of national income – accounting for nearly 20 percent of gross domestic product (GDP) in both India and Indonesia. In the U.S., it makes up less than one percent of GDP, but continues to be a driving force of our economy. And, while land use for agriculture is at its lowest level since 1945 at 46 percent of total land, crop production continues to rise. An additional indicator of its importance to our country and our economy is that – over the past decade – an average of $16 billion annually has gone to subsidize the agricultural sector. Part of a government's system of subsidies may include barriers to trade like import tariffs and quota limits. Tariffs are a direct tax on imported goods; quotas limit the amount of a particular commodity that can be imported. Both function to raise the price of imported goods while protecting domestic producers from competition, albeit still with an increase in the overall domestic price of the commodity for consumers. Subsidies are used most often by developed countries since they are expensive to maintain. Many European Union countries, for example, subsidize up to 1/3 of a farmer's income, whereas nearly 2/3 of a farmer's income is subsidized in Japan. These subsidies are thought to have disastrous effects on citizens and economies of developing countries that depend on trade in agricultural goods because the farmers simply cannot compete on the world market with more established and heavily subsidized domestic industries. Attempts to level the global playing field oftentimes mean that many developing countries must focus on using trade barriers, such as tariffs and quotas. South Asian countries, for example, have an average tariff of over 100 percent on agricultural goods. It is becoming more and more difficult to have a free flow of goods between nations as the majority of countries now utilize systems of subsidies, tariffs and quotas. There is great debate over the use of these tools, and complaints to the World Trade Organization (WTO) are on the rise. The WTO is becoming increasingly important in helping countries deal with the global rules of trade between nations as they attempt to negotiate reductions in the various barriers to trade. It is challenging to find a solution that can be beneficial for all, especially without cooperation and, while countries may indicate a willingness to reform their agricultural programs, firm action – if any at all – is often slow to occur. However, a change in policies to eliminate international trade barriers, together with the reduction of domestic subsidies, would go a long way toward allowing international trade in agriculture to provide more efficient food production and improved global societal welfare.



Recommended Resources
Institute for Agriculture and Trade Policy (ITAP) www.iatp.org/ The IATP promotes resilient family farms, rural communities and ecosystems around the world through research and education, science and technology, and advocacy. Their website features a wide variety of articles about current and ongoing issues in agriculture and trade policy. Farm Subsidy Database www.ewg.org/farm/index.php?key=nosign This interactive website by the Environmental Working Group looks at how much is received in agricultural subsidies by state, congressional district and county in the United States. It also provides information on the top subsidy recipients. LAWS & TREATIES 2007 Farm Bill www.usda.gov/wps/portal/usdafarmbill?navtype=SU&navid=FARM_BILL_FO RUMS The USDA's website contains a section on the 2007 Farm Bill proposals, including legislative language, fact sheets, and viewpoints. WTO: Agreement on Agriculture www.wto.org/english/docs_e/legal_e/14-ag_01_e.htm The WTO member countries' Uruguay Round Agreement for the international trade of agricultural products is outlined. VIEWPOINTS How Much Does it Hurt? Measuring the Impact of Foreign Trade Policies on Developing Nations www.ifpri.org/media/trade20030826.htm This press briefing prepared by the International Food Policy Research Institute examines the cost to developing countries of agricultural subsidies and trade barriers.

Chapter 5: Fisheries
The oceans - a global commons without clear property rights - present a classic example of the tragedy of the commons. Since a "commons" is accessible to everyone while being the property of no one, one result is the tendency to over utilize or overexploit the resource. In most countries, policies for managing fisheries are influenced by national economic and social policies which are guided by objectives ranging from food security to higher incomes and employment levels to the conservation of environmental resources. There have also been a number of important international treaties that seek to regulate the world's fisheries; however, enforcement remains a challenge. Historically, fisheries management administrations assume a wide range of functions, including the formulation, allocation, and enforcement of regulations, as well as undertaking scientific research related to the management of fisheries. Unfortunately, fishery administrations in many poor and developing nations do not have the means by which to effectively manage their fisheries. Taken as a whole, fisheries worldwide can be characterized by the overfishing of a variety of species, high levels of by-catch, the destruction of habitat, and the loss of fish population and/or changes in the food chain. Therefore, the need for innovative strategies that involve greater participation by the various stakeholders is increasingly being recognized. Probably the most important issue in fisheries conservation and management is that of overfishing. According to the U.N. Food and Agriculture Organization (FAO), the majority of commercial fish stocks are being exploited to their full potential, and several important fisheries are in need of careful management in order to prevent collapse. In the early 1990s, the North Atlantic cod fishery, which sustained communities in both the United States and Canada for centuries, collapsed and is showing few signs of rebounding due to a stable change in the food chain. With the Atlantic cods' slow recovery and their removal as a top-tier predator, there has been a population explosion among smaller prey including herring, capelin, shrimp, and snow crab, which have since become the top predators. Therefore, in many instances, overfishing is an issue that may be best addressed at the local level, rather than at a national or international level. Global by-catch (fish species inadvertently caught in nets) has also become an important area of concern for ocean conservation and fisheries management,



because by-catch from large-scale fishing can amount to hundreds of thousands or even millions of fish, in addition to marine mammals and birds. This issue initially captured the public's attention due to the high number of dolphins that were becoming caught in tuna netting, with thousands of dolphins dying each year. In 1972, the United States passed the Marine Mammal Protection Act (MMPA), which sought to minimize dolphin by-catch in the Pacific tuna industry. By 1988, through several amendments to the legislation and public demand for "dolphin-safe" tuna, fishing companies responded by introducing more dolphin-saving technological innovations. Others have since followed suit, such as long-line fishermen who have had considerable success in reducing seabird mortality by setting their lines at night when the birds cannot see them and by flying streamers behind their boats. In the shrimp industry, shrimpers have been able to modify their trawls with small cage-like attachments that allow shrimp in and keep by-catch, such as sea turtles, out. Finally, fishing practices and human activity can significantly impact marine ecosystems, damaging habitats and threatening fish populations. Trawling and dredging along the ocean floor changes the makeup and productivity of fish communities that are dependent on the ocean floor for both food and refuge. Human activity, through pollution runoff and erosion, affects fisheries indirectly by altering and increasing stresses on coastal ecosystems. There are a number of initiatives, however, that can help to manage fisheries more sustainably. Maximum sustainable yield is the primary goal of fisheries management, but questions arise as to whether or not it is too simplistic an approach because it is very difficult to estimate total populations of fish species. For most fish stocks, the only data readily available is the yield, or the total number of fish caught and, oftentimes, data concerning yield is based on forms of self-reporting therefore leading to the possibility of overstating or understating yields which can lead to even more uncertainty in the management of fisheries. Fishing intensity - the number of fish caught per unit of effort - is another indicator that is often used. Effort can be measured in factors such as the number of nets, boat hours, or work days. Using this indicator, it would be evident that a fish population is "overfished" when yields decline - when fewer fish are caught - or when it takes more effort to find and catch a specific yield. However, fish populations can also vary due to other factors, including changes in water temperature and variability in ocean currents. A promising approach to fishery management is the use of a market-based, pseudo-property rights approach of individual transferable quotas (ITQs) or individual fishing quotas (IFQs). Regulators begin by determining a total annual catch that will preserve the health of the ecosystem; they then distribute

individual quotas that will allow for a certain amount of fish to be caught in any given year. ITQs, which are the distinct property of someone, are also transferable which allows fishing vessel owners to buy and sell their quotas depending on how much they want to catch. Because they leave the individual with the flexibility as to how to adjust to the environmental standard - or in this case, the total catch - they make compliance less expensive. Environmental quality is not sacrificed because the overall level is determined by the number of permits set by the regulatory authority. An ITQ program can also attempt to create a commercial fishing industry that is more stable and profitable. ITQs have been used successfully in New Zealand and in the Pacific Northwest region of the United States. Many people believe that this success indicates hat when fishermen have a vested interest in preserving fish stocks, they are more likely to engage in conservation measures that ensure the long-term health of the stock. Local communities can also have an important role in conserving their own coastal resources because they have a much larger stake in protecting and preserving the resources than state and/or federal agencies do. In the past, issues involving a "commons" and resulting externalities have been resolved primarily through coercive measures, such as setting standards or imposing taxes. Unfortunately, these regulations can have negative effects on both output and employment within an industry, or even for the economy as a whole. Providing clearly defined property rights - or in this case, through the use of a quota system - can effectively remedy a variety of externalities as the market works to allocate resources most efficiently.

Recommended Resources
The State of the World Fisheries and Aquaculture www.fao.org/sof/sofia/index_en.htm This document - published every 2 years - is the premier document of the UN FAO's Fisheries Department. Its purpose is to provide policy makers, civil society, and those that derive their livelihood from the sector a comprehensive and objective global view of capture fisheries and aquaculture, including associated policy issues. NOAA Fisheries: Statistics Division www.st.nmfs.gov/st1/index.html This division collects data and coordinates information and research programs to support the science-based stewardship of the nation's living marine resources.



LAWS & TREATIES Magnuson-Stevens Fishery Conservation and Management Act Reauthorization, 2005 www.nmfs.noaa.gov/msa2005/ The Senate recently reauthorized the Magnuson-Stevens Fishery Conservation and Management Act (MSA) - the central bill that governs U.S. fisheries which was initially enacted in 1976. This current bill, which will go through 2010, addresses several important advances in fisheries management that will help fish, fishermen, fishermen, coastal communities, and U.S. seafood consumers that rely on these resources, reaching fisheries from coast to coast. National Marine Sanctuaries Act - Reauthorization, 2005 www.sanctuaries.noaa.gov/about/legislation/ In 1972 this U.S. law set regulations for dumping waste into oceans and coastal waterways, and authorized the Secretary of Commerce to declare certain areas of distinctive natural and cultural resources as National Marine Sanctuaries. The Act also set up programs to examine the long-term effects of pollution, overfishing, and other human-induced changes to marine ecosystems. VIEWPOINTS Fisheries with a Future: the Case for Individual Fishing Quotas www.environmentaldefense.org/documents/1953_IFQbrochure.pdf This brochure, presented by Environmental Defense, makes a case for IFQ use in protecting fisheries and the environment. It explains how IFQs work, recounts instances where they have been beneficial, and includes links to more information about IFQ systems. Swimming Upstream: The Challenge of Managing the World's Fisheries www.rff.org/rff/News/Features/Swimming-Upstream.cfm In this 2006 interview with James Sanchirico of Resources for the Future, he gives his insights into how fisheries are managed and what might be done to improve their future.

Chapter 6: Forest Management
Forest management in the United States has become increasingly complex as the broad array of services that forests provide become more readily apparent. Though national policy has generally reflected good intentions, the economics behind managing both public and private forests provide for a difficult decision making process when figuring out how to maximize the benefits of forests without sacrificing their ability to provide a wide range of outputs over the long term. The National Forest System is comprised of approximately 150 forests covering 192 million acres. Originally established to ensure that the United States would have a continuous supply of timber, today's national forests, managed by the U.S. Forest Service, must provide a combination of many outputs as dictated by various pieces of legislation. The initial objectives of national forest management were to maintain forests for the long term, to harvest modest amounts of timber while making sure that water flows were not seriously disturbed, and to provide for forest regeneration. The Multiple-Use Sustained Yield Act added wildlife and recreation to the list of specific outputs in 1960, followed by the addition of a multiple-use planning process involving public participation as mandated by the National Forest Management Act of 1976. Implementation of these laws is made difficult by the fact that the composition of outputs is not specified. Because these outputs are difficult to value (many are non-market goods) and are characterized by highly complex ecological interactions, national forest management has largely been a political process dominated by various interest groups. In addition to the National Forest System, there are other large forested areas, including parks and wilderness areas, in public ownership (including federal, state and local) which are managed for a variety of purposes. The management of private forests is simplified by the fact that the objective is generally clear: maximize profits, usually over the long run. However, privately managed forests must also address environmental and amenity services, which are usually considered to be externalities and thus would be undervalued and undersupplied in private markets. However, some of these services can be brought into markets, such as fee hunting which helps to preserve habitat and wildlife. Private forest management is also typically constrained by various forest practice regulations, including riparian zones, which are imposed by governmental entities.



In addition, forest managers, both public and private, often struggle with attempts at ecosystem valuation because it is a complex process that does not always assign accurate values to the many services that natural resources provide. Forest management is also not subject to traditional depreciation considerations due to the fact that many forest services and outputs appreciate in value over time or provide very long-term benefits. One example is that timber value generally increases with age because taller trees are more valuable. However, since most individuals prefer to benefit now rather than later, and because individuals tend to be risk averse due to the uncertainty of the future, the future value of a forest is discounted. As such, forest managers have an incentive to harvest forests for tangible, near term outputs. The long term value of forests is evidenced by a recent trend among financial investors to invest in timber funds. Unlike an integrated forest products firm with both forestlands and processing facilities, timber funds own only timberlands. While a downturn in timber prices can hurt a lumber company's earnings, timber fund investors can ride out any dip in the market to allow them to benefit from the long term profits that older timberlands can bring. If an investor does not like the current market price, they can easily hold on to their investment in order to capitalize on the higher profits that taller trees bring. This strategy has made privately owned forests effective in maximizing profits. While many economic externalities could be ignored in this system, a recent effort that helps to address these externalities is the voluntary market for conservation easements whereby logging is allowed but subject to forest management environmental constraints. Because the government is not obligated to maximize profits, it is in a position in which it can take external effects, such as wildlife or recreation, into account when formulating a strategy to manage its forests. This is both a product and cause of the vagueness of the United States' official forest management policies. Today the National Forest System provides less than five percent of the nation's timber production, compared to over fifteen percent just 20 years ago. This is largely due to the policy decision to focus national forest management on producing environmental outputs rather than timber. Non-market amenity services refer to the outputs or benefits of a forest that cannot be bought and sold in a traditional market. These include cleaning and preserving the natural environment, filtering water, cleaning the air, preventing erosion, preserving biodiversity, reducing the threat of climate change, and providing flood control services. Until recently, many of these services were not taken into consideration when formulating strategies for forest management. Indeed, the value of some of these services, like flood control, has often been ignored altogether. However, many of these services are provided over the long term, and the benefits are usually not directly enjoyed by the owner of the forest.

As such, they are not always taken into account when private forest managers are developing their management strategies. The government, on the other hand, has a much greater interest in preserving forests for these non-market outputs. Our ability to preserve the output of these non-market amenity services depends on policies intended to preserve forests and forest amenities. However, even in the absence of timber harvests, forests are subject to many disturbances— including fires and infestations—that could have serious long-term effects on the makeup of a forest. The difficulties of human interaction with complex forest systems can be further illustrated by how forest fires have historically been managed. As homes and other structures are built further into the wilderness, firefighters are responsible for putting down fires deeper into otherwise unsettled forests. This fact, compounded by a general misunderstanding about the natural benefits of forest fires, has led to an increase in both size and intensity of forest fires. Naturallyoccurring forest fires normally burn away dead branches and underbrush that accumulate on the forest floor. If every forest fire is put out before this build up can burn off it can lead to massive forest fires. Moreover, climate change is already beginning to have some effects on forest life cycles. As spring snowmelts take place earlier, disease and insect infestation become more prevalent, leading to more dead trees that make good fuel for fire. These realities have brought about a greater sense of the importance of understanding how forests must be managed to ensure their health and sustainability. New efforts at conservation are poised to take advantage of some of the benefits and flexibility that the free market provides. Conservation easements, funded largely by private donations and conservation organizations, provide a voluntary market mechanism that provides both timber and non markets outputs. Another example, funded entirely by private capital, one group is in the process of buying a northern California redwood forest to preserve the land by operating it as a nonprofit business. Because the land had been logged for decades, the timber company that owned the land decided to sell after having harvested the most profitable timber. The buyer, Redwood Forest Foundation, Inc. plans to reduce the rate of tree harvest to less than two percent while maintaining a long term objective of bringing the forest back to its natural state. It is argued that this method is more sustainable than using the land for development or turning it into a preserve or park because it provides jobs and keeps the land on the tax rolls. Though these approaches have their critics, they represent novel attempts to use the power of the market to preserve forest land. The economics of forest management, like other natural resources, are varied and in some ways counterintuitive. Though discounting is often thought of as a negative practice in terms of environmental preservation—in carrying out policy



evaluations to help decision-makers, economic analyses typically discount future environmental impacts—this is not always the case. While high discount rates might shift environmental burdens to future generations, they also tend to discourage high levels of investment which, in turn, can reduce demand for natural resources. As such, the economics of natural resource use should be thoroughly analyzed when formulating forest management strategies.

This Act declares that the purposes of the national forests include outdoor recreation, range, timber, watershed and fish and wildlife. The Act directs the Secretary of Agriculture to administer national forest renewable surface resources for multiple use and sustained yield.

Recommended Resources
USDA Forest Service: National Report on Sustainable Forests – 2003 www.fs.fed.us/research/sustain/documents/SustainableForests.pdf The first-ever accounting of 67 indicators of sustainable forests in the United States, as endorsed by the Montreal Process, of which the United States is a member country. The report includes data gaps and recommendations to move forward. Rainforestinfo.org: Timber Certification Defined www.rainforestinfo.org.au/good_wood/tcrt_def.htm Timber certification is a voluntary, market-driven program that seeks to identify wood and paper products from forests managed according to internationally accepted stewardship principles. This website outlines the process. LAWS & TREATIES National Forest Management Act – 1976 www.fs.fed.us/emc/nfma/includes/NFMA1976.pdf The NFMA is the primary statute governing the administration of national forests. It reorganized and expanded the Forest and Rangeland Renewable Resources Planning Act of 1974 to include a requirement that the Secretary of Agriculture develop a management program and implement a resource management plan for the National Forest System. Forest and Rangeland Renewable Resources Planning Act – 1974 www.fs.fed.us/emc/nfma/includes/range74.pdf This Act calls for an assessment of the Nation's renewable resources. It is intended to provide reliable information on the status and trends of the Nation's resources so that informed policy decisions can be made. Multiple-Use Sustained Yield Act – 1960 www.fs.fed.us/emc/nfma/includes/musya60.pdf



Chapter 7: Tropical Deforestation
Rainforests can provide a variety of benefits to both man and nature. They supply over 20 percent of the planet's oxygen while storing carbon dioxide, methane, and nitrous oxide; greenhouse gases that contribute to global warming. Tropical rainforests also act to protect watersheds, and are critical to maintaining regional supplies of both fresh and drinking water. Aside from their many environmental services, rainforests contain a vast amount of animal and plant biodiversity while also providing a home for a large number of indigenous people. They also supply both local and global markets with a variety of products, as well as ingredients for many medicines. Nearly half of all medicines used today are linked to discoveries within the rainforests. Finally, tropical rainforests have become a major focus for 'ecological tourism,' which can be beneficial to a local or country's economy, but is dependent upon continuing forest preservation. Tropical rainforests are located in a wide band surrounding the equator, covering over six percent of the earth's total land surface. Scientists estimate that these rainforests contain over half of the world's plant and animal species, with a potential for millions of new, still undiscovered species. Unfortunately, tropical rainforests lose an estimated 93,000 square miles each year due to deforestation, a complex issue with many underlying economic concerns. Deforestation can occur in a variety of ways, but it is mainly the result of a combination of agricultural and infrastructure expansion. Commercial wood extraction for pulp or timber can also contribute to deforestation if forest regeneration is not allowed. The leading land-use change associated with deforestation is agricultural expansion, which includes forest conversion for permanent cropping, cattle ranching, shifting cultivation, and/or colonization. Oftentimes land conversion occurs out of a shear growth in population that increases the need for food, fuel, and subsistence. This is often a basic way of life for many within tropical countries. The motivations that result in deforestation are very complex, primarily due to the nature of the countries and regions where tropical rainforests are found. Decisions to convert tropical forests are often encouraged by a number of fiscal incentives, including tax concessions or subsidies. The competitive global economy can also drive the need for income in countries that are economically-

challenged. Therefore, deforestation rates in tropical areas are often closely linked to a country's economy. Low income countries often experience deforestation. In the past, many governments and markets tended to recognize only the cash value of the rainforest, rather than its economic importance in terms of 'unmarketed' benefits, such as the many environmental services offered and the vast amount of biodiversity that is sheltered. Land rights have tended to favor developers and colonizers, not native peoples; and incentives often encouraged a conversion from forested land to agriculture utilization. Logging concessions were often sold to raise money for specific projects, to pay down international debt, or to further develop industry within a country. A practice of low taxes on income derived from agriculture and rates that favored pasture over forest, made it extremely profitable in some countries to convert rainforests for these purposes. Pro-deforestation economic development policies often lead to an increase in commercial crops and pastures and when combined with an expansion of the road network, further open up the rainforest area. Part of the challenge in creating more sustainable tropical forest practices is the large number of players that can be involved, including farmers, logging or agricultural companies, the governments of tropical forest countries, and even the international community. The decisions made by each stakeholder group often differ and conflict, where the benefits and costs important for one group are not necessarily important to the others. However, economic efficiency would try to account for all benefits, including how sustainable practices can contribute to greater productivity while limiting environmental impacts – factors that may or may not be considered by industries that enter the market in order to maximize profits. There are, however, a variety of measures that can turn the exploitation of tropical rainforests into more sustainable actions. Economic activities can be sustainable as long as the forests are not over-exploited and have enough time to regenerate. One model that can be applied to forest management is sustained yield, which aims to maintain or increase the amount of timber in the rainforest. The model is based on the idea that harvesting need not disturb the overall ecosystem, and that the quantity of timber harvested should be less than or equal to the amount of timber regrowth. Demand-reducing trade measures can also be introduced to help curb tropical deforestation. These measures can be instances where the governments of consumer countries consider increasing import duties on tropical timber. Selective import duties can also be used, where sustainably-produced timber may be imported duty-free while a tax is placed on timber that is unsustainably produced. Trade bans, such as prohibiting tropical hardwood for specific uses,



such as in new home building, can also be put in place. However, such prohibitions should be used carefully and selectively so as not to discourage the entry into the market of sustainably-produced tropical timber. Timber certification is another method that can be used to promote sustainable forestry practices. It operates on the assumption that consumers are willing to pay a premium on products harvested in a sustainable manner by clearly identifying and verifying that the timber is coming from sustainably managed forests. Current certification systems need further development, however, as the overall acceptance of certified forest management in tropical developing countries thus far has been relatively minor. While certified management is common in developed countries, certified timber products have only been minimally successful. Part of the problem with certification is the absence of market price premiums, even in the more environmentally-conscious markets, such as West Germany, the Netherlands, and the U.K. However, in the tropics much of the problem also relates to the difficulties in establishing viable certification programs in many of the developing countries. Within the global economy, foreign aid can also be used to decrease the rate of deforestation if the transfers can ease the need for exploitation by enabling a country to cope with problems that require immediate attention rather than exploiting forests to earn much needed foreign exchange. The international community can also use a 'carrot and stick' approach by providing foreign aid or debt reduction, sometimes in the form of debt-for-nature swaps, under the specific condition that a country improve forest conservation or sustainable use practices. To realistically protect the many resources and services provided by tropical rainforests, ultimately a balance must be found between preservation and forest use through sustainable economic practices.

certification bodies. The organization's website provides information on the process, including lists of areas that have received certification. VIEWPOINTS Developing Countries: Pay us to Save Rainforests news.mongabay.com/2005/1127-rainforests.html This 2005 article discusses the argument made by a coalition of tropical developing countries for why wealthy countries should pay them to preserve rainforests due to the services provided that benefit the rest of the world. Also included is a 2006 update.

Recommended Resources
EO: Tropical Deforestation earthobservatory.nasa.gov/Library/Deforestation/ NASA's Earth Observatory article explains why deforestation happens, deforestation rates, the connection between deforestation and global processes, as well as what happens to land after deforestation. Forest Stewardship Council www.fsc.org/en/ The FSC is one organization that awards timber certification through accredited



Chapter 8: Water Resources
The basic building block for all life on Earth, water is the most plentiful natural resource on the planet; in fact, over two-thirds of the Earth is covered by water. However, 97 percent is held in the oceans, while only 3 percent is freshwater. Of the freshwater, only one third is easily accessible as ground or surface water, the remains are is stored in glaciers and icecaps. Thus, water is both the most abundant natural resource on our planet and a fundamental element of life whose preciousness requires diligent management. Human consumption and use of water in any particular location revolves around two key factors: quantity and quality. Scarcity results when either the physical quantity of water is low or the quality of existing water resources is unfit for human use. The production of electric power and irrigation are the largest and most important uses of water throughout the world, each with their own impact. In industrial nations, concerns over water quantity dominate, while in the developing world, water quality remains the major concern (though water quantity is certainly a major problem in certain geographic areas). Let us first examine issues of water scarcity in industrialized nations. Though limited concerns over the quality of water still exist—specifically regarding contamination from pollutants—scarcity results not from a lack of clean water supplies, but rather from inefficiencies in allocation; in other words, the water is clean but it is often misused (i.e. wasted). Why does this occur? Water is a peculiar resource. Because of its abundance and fundamental importance, water has historically been seen by many as an inexhaustible resource that should be available to all at little or no cost. Traditionally, water has been managed as a public good by state-run water industries. When demand for water was low, this strategy seemed appropriate. But as demand for water increases, especially in expanding urban centers and arid regions like the Mountain West, various problems arise. The central dilemma faced by consumers in a state-run system of water provision is known as the tragedy of the commons. A tragedy of the commons occurs when a limited resource—like water—is over-used or misused because of the absence of an effective price mechanism. Because the market does not supply a price which accurately reflects the value of a particular good, in this case, water, individuals have an incentive to maximize use; or, similarly, have little or no incentive to conserve. Thus, water is not allocated to valuemaximizing areas. In plain terms, this means that water does not go to the

people who most value its use (and thus are most likely to conserve). The result: water shortages which damage both natural environments and economic wellbeing. According to a recent U.S. survey, 36 states report that they expect to suffer water shortages within the next ten years. Water scarcity issues are no longer problems only in the western states; as our groundwater resources—specifically the Ogallala aquifer supplying the majority of Midwestern water—slowly deplete, battles over access to the Mississippi, Potomac and Delaware Rivers, as well as to the Great Lakes will become more pronounced. Another, more subtle, but similarly problematic dimension of state-managed water industries is the inherently political nature of water provision in a government controlled system; this is known as a public choice dilemma. This problem goes to the very heart of state-run water industries for it maintains that even if government industries could overcome the tragedy of the commons problem, the officials actually charged with managing water distribution often face certain incentives which preclude an equitable and efficient allocation of water. Oftentimes, political approval and the desires of various interests groups are key factors, rather than responding to price changes caused by movements of supply and demand. Therefore, inefficient distribution outcomes necessarily result. The market overcomes this problem because it is blind to the lobbying of particular interest groups and responds only to changes in value, signaled by shifts in demand. The tragedy of the commons and public choice dilemmas plague residents of developing countries as well. However, these countries face both distribution and sanitation concerns which further complicates the water scarcity debate. Simply put, most water industries within developing nations are incapable of supplying adequate and clean water to all citizens. A major problem is infrastructure—not enough pipes exist to satisfy demand. To compound this, many citizens in the developing world live in large shanty towns on the outskirts of cities and lack formal property rights to their homes. Governments often refuse to recognize the property rights of these dwellers because doing so would mean they would have to fulfill and obligation to supply these citizens with services, including water. The vicious cycle continues as those without water are forced to make use of whatever is available, often times bathing, cleaning, and laundering in horribly polluted streams. But even if governments in developing nations could adequately supply water, they would still face distribution problems due to the tragedy of the commons and public choice dilemmas. Many proponents of reform argue that privatization, rather than state-control, produces the most equitable, environmentally friendly, and economically sound system for managing both the distribution and consumption of water. Water



rights which are transferable from one individual to another are the fundamental building blocks of such a system. Rather than government controlling access to water, in a private system individuals could buy, sell, and trade water rights, just as we do with property rights today. However, critics charge that private water markets will undersupply consumers and led to unequal distribution, skewing towards those with more means. Yet, in practice, this seems not to be the case. Interestingly enough, privatization benefits are actually most visible in developing countries. People living on the margins, without recognizable property or water rights, are able to access clean drinking water for a small cost because local water vendors have responded to failures of government supply. In West Africa, for example, small, disposable, bags of clean drinking water called “sachets” are available throughout the region for only a few cents. Many foreign companies are also responding to increased demand, shipping ever larger amounts of bottled water to consumers who need it most. Water markets can also prove useful in environmental protection efforts. For example, the Columbia Basin Water Transactions Program (CBWTP), a partnership between seven nonprofit groups and four state water agencies, allows partners to negotiate water transactions based on individual demand. Between July and September of 2007, nearly 6.5 million gallons which would have otherwise been diverted to state water boards stayed in the Middle Fork and John Day River system stream flows, benefiting animal populations in and around the rivers while providing downstream farmers with suitable water for irrigation during the late summer months. A similar agreement in Washington state between the US Department of Ecology, the Washington Water Trust, and the Taneum Canal Company is keeping more than 18 million gallons of water in Taneum Creek each day. As a result, portions of the river system which were once dry beds are once again flowing, restoring precious fish and wildlife habitats. Agreements like these utilize market principles to achieve increased efficiency. More importantly, they highlight the future environmental and economic benefits of increased privatization. Creating a realistic market for water, price increases will effectively treat water as a finite and precious resource, reflecting all costs associated with its use. When water prices do not reflect scarcity, waste, and inefficiency, environmental degradation often results; when prices signal the actual value of the resource, entrepreneurs respond to demand and individuals adapt, innovate, and find creative ways to trade and conserve. Century old state-run water industries are beginning to incorporate market-based trading techniques which allow individuals to trade water rights based on their local knowledge and consumption needs. Water boards are also attempting to incorporate pricing schemes which can more accurately take into account

fluctuations in supply and demand. In the developing world, water entrepreneurs and foreign water companies are slowly making life saving progress, providing water cheaply and efficiently wherever possible.

Recommended Resources
UN Environment Programme - Freshwater www.unep.org/themes/freshwater/ The UN Environment Programme’s website details the issues revolving around freshwater in the world. International Water Management Institute (IWMI) www.iwmi.cgiar.org/About_IWMI/Overview.aspx The IWMI's mission is to improve the management of land and water resources. Their research agenda is organized around 4 priority themes: basin water management; land, water and livelihoods; agriculture, water and cities; and water management and environment. National Water Program www.usawaterquality.org/ A link to the National Water Program’s website that provides information about water usage throughout the United States. Global Water Outlook to 2025: Averting an Impending Crisis www.ifpri.org/media/water_facts.htm The IFPRI prepared this fact sheet about the usage of water around the world both today and in the future. LAWS & TREATIES Water, a Shared Responsibility www.unesco.org/water/wwap/wwdr2/table_contents.shtml The 2nd UN World Water Development Report, published in March 2006. UN Environment Programme - Water Policy and Strategy www.unep.org/themes/Freshwater/Documents/pdf/WPS_adpoted_at_GC%2024. pdf The UN outlines their policy on water related issues.



VIEWPOINTS FAO Newsroom: Coping with Water Scarcity www.fao.org/newsroom/en/focus/2007/1000521/index.html An interview with the FAO-Director General Dr. Jacques Diouf about the severity of water scarcity throughout the world.

Chapter 9: Energy Production & ANWR
In 1960, Secretary of the Interior Fred Seaton signed an executive order that established the nearly 9 million acres of undeveloped wilderness on Alaska's North Slope – the far northwest region of the state – as the Arctic National Wildlife Range. The area was expanded in 1980 and renamed the Arctic National Wildlife Refuge (ANWR) by Congress through the passage of the Alaska National Interest Lands Conservation Act (ANLCA). The Arctic National Wildlife Refuge currently encompasses just over 19 million acres of undeveloped, federally protected wilderness. Through ANLCA, Congress designated a 10 million acre “Minimal Management” zone to be left entirely untouched; 8 million acres were set aside for limited recreational use, becoming part of the U.S. Wilderness Area; and the final 1.5 million acres, located along the coastal plain (Area 1002), were to allow exploratory studies for the potential of resource development, primarily oil and gas. The coastal plain borders Prudhoe Bay, an area long known to be rich in petroleum reserves. Although the passage of ANLCA in 1980 specifically called for possible future development of Area 1002, it also required Congressional approval before any projects could begin. After initial exploratory studies revealed huge deposits of oil lay beneath the surface of Area 1002, many expected that approval for drilling would be quickly forthcoming. However, the Exxon Valdez accident in 1989 all but destroyed political momentum, and attempts to authorize drilling in the early 1990s were not able to make it to a vote. There have been several proposed solutions to this difficult debate. Proponents want Congress to move forward with plans to open Area 1002 for drilling and development. The strongest opponents want an outright Congressional ban on all possible future development in the region. With a ban, even Area 1002, designated by Congress as a development zone, would be closed. Increasing scrutiny on petroleum use due to climate change, predictions of potential oil scarcity and increasing national security concerns are all greatly influencing the debate over whether to develop the Arctic National Wildlife Refuge. In the climate change debate, some believe that oil consumption must be immediately curbed, and that no new sources should be developed. Opponents counter that the most effective way to prepare for the negative



aspects of climate change is to increase global prosperity, providing people with more tools that can be used to adapt to any changing conditions. This may require continued use of cheap and efficient fuel today so that we can advance quickly towards a future in which our society possesses sufficient wealth and knowledge to further develop alternative energy technologies. Similarly, discussions concerning the use of ANWR are especially important as we begin to confront a future where energy production and consumption may depart radically from traditional norms. Some argue that since petroleum is a finite resource which will eventually disappear, we should immediately direct all our energies towards alternative fuel development. New drilling sites, they maintain, only perpetuate a dangerous dependence on petroleum. Many scientists and economists disagree, arguing that ANWR should be developed precisely because conventional oil supplies are soon to be depleted. Like in the climate change argument, it is thought that the best solution is increased wealth and knowledge, which can most rapidly be developed only if we utilize the efficient energy resources now available. In 1998, a report by the U.S. Geological Survey revealed that there was far more oil beneath Area 1002 than previously thought, and interest in drilling was once again sparked. In addition, as oil prices began to rise in the early part of the 21st century, the ANWR debate began to gain national prominence. Yet, despite a push by the Bush Administration and Congressional Republicans, more than twenty-five years after Congress first approved Area 1002 for initial development the region remains untapped. Unfortunately, the extreme politicization of the ANWR debate has obscured many of the fundamental points of the issue. With increasing instability in the international oil market, many argue that domestic development is crucial to national economic security. Area 1002 contains the largest untapped supply of oil in the United States, with estimates of between 9 and 16 billion barrels of recoverable oil beneath the sea and soil. In addition, job creation is estimated to be between 250,000 and 750,000 with the development of the area. Opponents counter that ANWR, in fact, represents just a fraction of total global oil output and even maximum production of the area would do little to insulate America from global oil shocks. Furthermore, ANWR is considered by many to be one of the few remaining areas of untouched wilderness in the country. Development would not only destroy this distinction, it could also disrupt ecosystems and endanger wildlife. However, technological advancement has greatly reduced drilling “footprints” over the last thirty years, and as oil and gas companies are forced to interact in and with increasingly sensitive areas, innovative strategies and techniques for protecting – even promoting – wildlife migration and habitat protection would necessarily be sought.

Since the Arctic National Wildlife Refuge is important to our entire country – for a variety of reasons – it is likely that if there is ever any resolution to allow for the use of Area 1002, it will include requirements for environmentally sensitive development with much of the financial proceeds (certainly several billion dollars) directed towards the research and development of renewable energy options and/or for environmental protection efforts elsewhere. However, all previous attempts to pass an ANWR bill by tying it to more acceptable elements have yet to make it through the U.S. Senate.

Recommended Resources
The Arctic National Wildlife Refuge: A Special Report arcticcircle.uconn.edu/ANWR/ Arctic Circle, a consortium of scholars centered at the University of Connecticut, maintains an informative site about the Arctic National Wildlife Refuge. There are helpful pages summarizing federal legislation affecting the refuge and the history of oil and gas exploration in the region, as well as a section outlining and explaining the controversy over drilling in the refuge. Arctic National Wildlife Refuge: New Directions in the 110th Congress www.protectthearctic.com/files/CRS_arctic_2007.pdf This 2007 summary report from the Congressional Research Service examines the key aspects of the debate surrounding oil drilling in ANWR. It discusses the basic geological issues of where the oil is and whether it is recoverable, as well as the political and ethical issues surrounding this contentious environmental issue. LAWS & TREATIES The Alaska Natural Gas Pipeline Act, 2004 www.ferc.gov/industries/gas/indus-act/angtp/act.htm#act In 2004, Congress passed the Alaska Natural Gas Pipeline Act allowing the extraction of natural gas and oil from Alaska's North Slope. Although no extraction has taken place to date, the law makes it much easier and more likely that it will occur in the future. Arctic Power: Arctic National Wildlife Refuge www.anwr.org/ The majority of Alaska’s state, local, and tribal governments favor opening ANWR to energy development. This site, created by an Alaskan non-profit



organization, explains why local proponents see potential reserves in ANWR as beneficial to their state and the nation. They include some interesting graphics on how Alaskan oil development benefits other states, information about new drilling technologies, and a "Top 10" list of reasons why drilling should be approved.

Chapter 10: Carbon Trading & Sequestration
The atmosphere offers another type of global commons, accessible to everyone while being the property of no one. Typically, issues involving a “commons” have been resolved primarily through coercive measures, such as setting standards (command and control) or imposing taxes, which can have negative effects on both output and employment within an industry, or even for an economy. However, as governments and regulatory bodies across the globe seek to meet increasingly costly environmental quality goals, they have begun to look at other incentives and initiatives as more flexible, lower cost alternatives in both national and international environmental policy. An example of this can be illustrated through a discussion on the treatment of carbon dioxide emissions. Carbon dioxide, along with other greenhouse gases, forms a protective layer around the Earth, capturing a portion of the sun's energy and allowing the planet to be warmer than it would be without it. In the Earth's natural biogeochemical cycles, carbon is exchanged between terrestrial vegetation and the atmosphere through photosynthesis and respiration, a natural flow among stores in the atmosphere, oceans, and land surfaces. The level of carbon in the atmosphere remains in balance when the carbon going in and out of the atmosphere is of roughly equal amounts. However, when the levels of carbon dioxide and other greenhouse gases increase, they trap higher levels of the sun's energy in the atmosphere, resulting in a rising global temperature. A key source of the increase in carbon dioxide emissions is human activity. In 2004, the burning of fossil fuel and changes in land use (deforestation and clearing) contributed approximately 5.5 billion metric tons and 1.1 billion metric tons of carbon, respectively, in the U.S. alone and continues to rise. Nearly half of all anthropocentric emissions remain in the atmosphere, with the rest being taken up by natural carbon sinks. In some countries, policies for managing the level of greenhouse gases emitted into the atmosphere are influenced by national economic and social policies, guided by objectives ranging from energy availability and security to higher incomes and employment levels to the conservation of environmental resources. There are also important international treaties, seeking to address greenhouse gas emissions worldwide. One, the Kyoto Protocol, provides greenhouse gas emission targets. However, gaining active participation in the control of



greenhouse gases by key countries, like the United States and China, and enforcement of the targets remain a challenge. In terms of carbon dioxide, there are a number of initiatives that can help to manage emissions while allowing the market to allocate resources most efficiently, including carbon trading and carbon sequestration. The establishment of a market that utilizes the value of carbon can help facilitate technological, political, and social change needed to address and minimize the impact on our environment. Carbon sequestration, which can provide for the long-term storage of carbon dioxide either by enhancing natural sinks or through artificial methods, is an initiative that continues to gain momentum. Some studies have shown that sequestration can be a cost-effective method to reduce atmospheric carbon dioxide in the near term. Cost (or value) is generally expressed in monetary units per ton of carbon sequestered, and is based on the cost of the land, planting and management. The amount of carbon that can be sequestered varies with storage method, land management practices, the plant, crop, and vegetation species, and geographic location. Sequestration can take place in terrestrial areas (trees, plants, and crops), in the underground storage of geologic formations, and in the deep ocean. Terrestrial Sequestration Soils and vegetation are natural focal points for carbon storage. Aside from their many environmental services, forests provide a variety of benefits to both man and nature by supplying much of the planet's oxygen while storing carbon, which as a greenhouse gas contributes to global warming. Methods that can increase the potential for sequestration include afforestation – the conversion of open land to forest – reforestation, and forest preservation. According to a PEW Center report, the marginal cost of sequestering approximately 300 million tons of carbon each year in forestland would range from $25 to $75/short ton. The conversion of 115 million acres of marginal agricultural lands in the U.S. to forests has the potential to sequester an additional 270 million metric tons of carbon annually, at a marginal cost of approximately $45/short ton. Increasing the potential of agricultural lands for carbon storage may also involve a change in land-use and/or management practices. For example, conservation tillage leaves a minimum of 30 percent crop residue on the soil after planting, disturbs the soil less, and increases the amount of carbon that can accumulate in the soil. However, some practices may not be the most economical for farmers.

One way to encourage carbon storage is for governments to subsidize new agricultural management practices that increase carbon storage, similar to those subsidies already provided for growing specific crops or for keeping land fallow. Geologic Sequestration Geologic sequestration involves a direct injection of carbon dioxide into an underground geologic formation at high pressure and at depths generally greater than 2,625 feet. It is at this depth that pressurized carbon dioxide behaves like a liquid and occupies all possible areas, including the pore spaces within the surrounding rock, similar to the way a sponge absorbs water. Suggested storage sites include depleted oil reservoirs, coal beds that cannot be mined, and deep saline aquifers. Carbon dioxide has been used for decades in declining oil fields in order to increase oil recovery. When injected, the carbon dioxide lowers the viscosity of the oil, allowing it to slip through the pores in the rock. Primary benefits of this method include the cost offset by the sale of recovered oil and the availability to use the existing infrastructure. Although the fields tend to have an inconsistent geographic distribution and are individually limited in their capacity for storage, some countries – including the U.S. and China – appear to have very large geological sequestration potential. A problem that could increase costs is the potential for leakage due to the requirement for high pressure and low temperature. Unminable coal beds, which are either too thick or too deep to be mined economically, are also a possible option for carbon storage because carbon dioxide adheres to the surface of the coal, which could ensure safe, long-term storage. The process of injecting carbon dioxide into coal beds also offers the benefit of releasing methane which can be recovered and sold to help offset costs, although the release or burning of the methane would partially offset the sequestration. Deep saline aquifers offer another potential storage option for carbon. These rock units, containing water with a high concentration of salt, are relatively common in distribution and are believed to have a large storage capacity. Unfortunately, they have no byproduct that can help to offset costs and there is little known about them in comparison to coal and oil fields. Overall, geologic sequestration costs are site-specific, making cost estimates difficult. It will depend on the option, available infrastructure, location, depth, and the individual characteristics of the storage reservoir formation. Monitoring and verification programs will also add to the cost.



Ocean Sequestration The ocean is the largest natural sink on Earth and is thought to have enormous potential for additional carbon storage. Two processes drive the natural activity of the ocean to take in carbon dioxide; a biological system that transports carbon to the ocean's interior, and the solubility of carbon dioxide in seawater that is further enhanced by ocean circulation. Methods currently being studied to further enhance carbon storage are ocean fertilization and direct injection. Fertilization utilizes adding iron particles to the water to encourage plankton growth. As the plankton population grows, so does their productivity which increases the amount of carbon dioxide removed from the atmosphere through photosynthesis. The effect of increasing plankton blooms on ocean ecosystems is unclear; however, it is thought that much of the carbon is recycled back into the atmosphere over time. Plankton also release sulfur aerosols which play a complex role in both cloud formation and condensation. Similar to geologic sequestration, carbon dioxide can be directly injected into the depths of the ocean to ensure long-term storage. Transport can take place through an onshore pipeline or via an ocean tanker. Either option would also need to include a monitoring and verification program. However, many of the ecological, chemical, and geological elements of the deep sea and, therefore, the effects of injecting carbon dioxide into the ocean, are widely unknown. Debate also continues on how much potential for additional carbon storage in the ocean actually exists. Carbon Trading and Sequestration in Practice While carbon trading and sequestration methods are still being studied and developed, they offer great potential for contributing to the mitigation of climate change. Government, industry, academia, and other organizations are exploring the possibility of utilizing existing technology, as well as developing new methods, of capturing carbon. However, in addition to these methods, many of which are experimental, new standards and regulations will be needed to address the overlying risks and liabilities of carbon storage. Carbon trading – also known as 'cap and trade' – is a market-based system that can foster emissions trading across all sectors, as well as across the globe, allowing emitters to purchase carbon offsets from sources that are able to lower their emissions more economically. If limits to greenhouse gas emissions are put in place, the market should find ways to allocate resources most cost-effectively while meeting applicable targets. The U.S. Environmental Protection Agency already has programs in place for both SO2 and NOx emissions trading.

The United States has the Chicago Climate Exchange which, beginning in 2003, was the world's first voluntary, legally binding greenhouse gas reduction and trading system for emission sources and offset projects in North America and Brazil. Participants that have joined the exchange range from corporations like Ford and Motorola, to educational institutions like Tufts University and the University of Minnesota, to farm organizations like the National Farmers Union and the Iowa Farm Bureau. Europe has a sister exchange, the European Climate Exchange, that began trading in 2005 throughout the European Union. Although not all efforts are currently identified as eligible for carbon emission reductions, there are many examples of activities taking place that are reducing overall carbon emissions. For example, the National Farmers Union has a multistate carbon credit program that allows farmers and landowners to earn income by storing carbon through long-term seeding and no-till crop production. Forestry projects have also been popular within the U.S., including in tribal territories. In Idaho, for example, the Nez Perce tribe planted trees across 4,000 acres on land that had been cleared for farming a century ago. Selling the rights allows tribes to foster economic development without having to wait decades for the harvest. Although risks do exist – drought and infestation can ruin entire stands of forest – there is somewhat less uncertainty on tribal land where the land is held by a tribal government and, therefore, long-term leases are more secure. Also, since 2003 the Edison Electrical Institute, an association of the electric power industry, has instituted a large forest carbon sequestration initiative. Although not a final or only solution, utilizing a variety of cost-effective carbon storage methods, along with the increased use of carbon trading, can serve as a positive intermediary step while more comprehensive greenhouse gas mitigation policies are developed.

Recommended Resources
National Energy Technology Laboratory (NETL): Carbon Sequestration Technologies www.netl.doe.gov/technologies/carbon_seq/index.html This website gives an overview of NETL-funded projects, containing background information on the various steps and technologies involved in sequestration. The 2007 Carbon Sequestration Technology Roadmap and Program Plan can also be found on the site.



Environmental Protection Agency (EPA): Carbon Sequestration in Agriculture & Forestry www.epa.gov/sequestration/index.html EPA's website describes carbon sequestration, provides a list of frequently asked questions, overviews sequestration practices and the science background within both agriculture and forestry, and discusses international sequestration opportunities. VIEWPOINTS Giant Carbon Vacuums Could Cool Earth www.csmonitor.com/2007/0419/p13s01-sten.html This article, from the April 19, 2007 edition of the Christian Science Monitor, discusses Columbia University physicist Klaus Lackner's idea of scrubbing carbon dioxide directly from the atmosphere to mitigate climate change from human-emitted carbon dioxide.

Chapter 11: The Greening of Business
Vast valuable resources make up our global commons. Human interaction with these areas is contributing to climate change, water and air pollution, and other forms of environmental degradation. Increasingly, both small and large businesses and industries are realizing the importance of operating in a more sustainable manner so as to avoid potential environmental ruin. The evolution of these new management efforts, often referred to as the “greening of business,” range from responding to government-sponsored environmental standards to voluntary efforts toward lowering a business' environmental impact to setting up networks for sharing knowledge and best practices. These efforts, however, vary in both effectiveness and sincerity—as environmental stewardship has become more popular and widespread, some merely engage in the practice of “green washing,” or marketing oneself as being environmentally responsible so as to yield a business and/or profit advantage. Many businesses, most importantly, are realizing that environmental stewardship can translate directly into increased efficiency, lower costs, and higher profits. Early efforts focused primarily on energy efficiency. In 1992, the Environmental Protection Agency and the Department of Energy teamed up to establish the Energy Star Program. Energy Star for businesses is designed to provide an energy management strategy that helps in measuring current energy performance, setting goals, tracking savings, and rewarding improvements. Such an approach is useful in that simply informing businesses of how well they are performing is often enough to further motivate significant additional steps toward greener business practices. The Energy Star logo has since become widely recognized as a staple of modern electronics in both homes and businesses. In addition to government-sponsored programs, stakeholders from industry and the non-profit sector are creating a number of certification programs designed to establish sustainable codes of conduct. Due to concerns about rapid deforestation, particularly in the Amazon rainforest, the forestry industry provides a good example of an industry working to develop and promote codes of conduct through various timber certification programs. Once certified, timber producers can label their products as such, thereby allowing customers to purchase sustainable timber with a higher level of confidence. In turn, timber and other certification programs may allow for the greening of other business



aspects, in particular the construction of LEED-certified or other green buildings. The International Organization for Standardization (ISO) is a standard-setting body that advances world-wide industrial and commercial standards, including environmental management guidelines through ISO 14000. These guidelines exist to help companies and organizations minimize their negative impact on the environment through comprehensive process solutions rather than focusing on the product itself. This ensures that the widest array of protective measures is implemented and allows companies to communicate their environmental responsibility to consumers with a high level of verifiability. Companies and organizations are not mandated by any government body to participate in ISO 14000 standardization. Rather, participation is motivated by increased efficiency and improved public relations, which in turn can lead to increased profitability. Many companies, however, are developing their own guidelines and strategies for creating sustainable business. For example, Wal-Mart has committed to selling only concentrated liquid laundry detergent to conserve water, plastic, and cardboard, and Dell Computers has committed to aim for carbon neutrality. Yet, there is often skepticism, as some wonder if many of the actions are just a wide re-branding of longstanding interests and activities. After all, companies have always sought ways to increase sales and profits through enhanced efficiencies in manufacturing and distribution processes. With increasing interest in climate change and environmental protection, many companies may simply be describing their normal activities in a new light. Other large companies are spearheading environmental stewardship efforts as government institutions have foundered in terms of environmental regulations. Google recently launched an initiative to develop electricity from renewable sources cheaper than electricity produced from coal. Despite the fact that this initiative is fairly removed from Google's main business strategy, it is an example of how companies are committing to protecting the environment. Not long ago, Google installed the largest corporate solar array at its main campus in Mountain View, California and committed to carbon neutrality for 2007 and beyond. Simply offsetting carbon emissions does not constitute sustainable management, however. Carbon neutrality efforts are usually a combination of reducing and offsetting emissions, therefore opponents argue that the practice allows companies and individuals to continue their bad habits without guilt. However, a transition to increasing sustainability is not immediate, and companies must often take smaller steps toward becoming green businesses. Carbon offsets often provide a good way for businesses to work toward sustainability in an

incremental manner so long as it is followed by an ongoing effort to decrease their overall environmental footprint. On the other side of the spectrum, small- to medium-sized businesses are sprouting networks to link themselves and other businesses with values-driven consumers to further promote and sustain green business. One of the oldest and largest green business networks is maintained by Co-op America, an organization that defines green business as business conducted as a tool for social change, as values-driven and not solely profit-driven, and as socially and environmentally responsible in the way they source, manufacture, and market their products. The over-arching goal of Co-op America's Green Business Network is to provide the tools and information needed for small- to mediumsized businesses to succeed in today's intensively competitive marketplace. Members include well-known companies as Burt's Bees, Clif Bar, and Patagonia. Because the private sector has such a massive impact on the natural environment, it is becoming imperative that any comprehensive effort to protect the environment include a strategy to encourage the greening of business. Investments in efficiency are often the easiest way to make a business greener as they simultaneously reduce greenhouse gas emissions while increasing productivity and profitability—allowing us to do more with less. With an everincreasing popularity of environmental stewardship, green hype, and an awareness of global climate change, the movement towards the greening of business will continue to be in the forefront of both the news and industry action for the foreseeable future.

Recommended Resources
Green Business Network www.coopamerica.org/cabn/ Co-op America is the nation's leading non-profit educator on socially and environmentally responsible consumption and investing. Its Green Business Network is the largest and oldest in the nation, and is intended to link socially and environmentally responsible small- and medium-sized businesses with likeminded customers. GreenBiz www.greenbiz.com/ This website features free daily news and resources to large and small



businesses on how to align environmental responsibility with business success. Topics include relevant environmental legislation, new environmental efforts by some of the world's leading companies, how to green small businesses, and much more. Ceres www.ceres.org/ceres/ Ceres is dedicated to integrating sustainability into capital markets through its network of investors, environmental organizations, and other public interest groups working with companies and investors to address sustainability challenges. VIEWPOINTS Fast Company – Are Carbon Offsets a Cop-Out? www.fastcompany.com/magazine/120/are-carbon-offsets-a-cop-out.html The author of this November 2007 article tackles the question of whether carbon offsets are a legitimate form of environmental stewardship. Despite their similarities to medieval indulgences, he concludes that it is still valuable to do what is easiest and quickest first. Derivatives Strategy – The World According to Richard Sandor www.derivativesstrategy.com/magazine/archive/1999/1299qa.asp Richard Sandor founded the Chicago Climate Exchange, a voluntary carbon emissions trading program. In this early interview he outlines his views on how sustainable business practices often indicate strong managerial abilities and thus higher profitability.

Appendix: Resources for the Classroom

Linking Population, Health, and Environment www.prb.org/Educators/LessonPlans/2005/LinkingPopulationHealthandEnviro nment.aspx?p=1 This lesson plan from the Population Reference Bureau explores how the human population alters the environment and how environmental changes can affect human health. The lesson involves an ecological footprint quiz, reading activity, and group investigations into the linkages between the population, health, and environment in certain countries. [Grades 9-12] PBS: Be a Demographer www.pbs.org/wgbh/nova/worldbalance/demographer.html On this site, students can play eight mini-matching games to learn more about the demographic markers that influence a country's population. In each scenario, students match four countries with their appropriate demographic data. Each matching set includes information on a particular marker – including life expectancy, median age, and total fertility rate, listing the social factors that influence them. Population Growth Project k12science2.ciese.stevens-tech.edu/curriculum/popgrowthproj/ This project, created by the Stevens Institute of Technology, includes a series of activities on the mathematic and environmental aspects of population growth. Students use information from the Census Bureau to model population growth and can submit their work to be published online. The activity website also includes a Teacher Guide and a list of experts and references students can use to find out more information. [Grades 9-12]

The Importance of Biodiversity: An Exercise cnx.org/content/m12175/latest/



This exercise asks students to research and consider the implications of species loss using a framework of economic biodiversity valuation. EconEdLink: There is Something in the Water www.econedlink.org/lessons/index.cfm?lesson=EM308&page=teacher Students will analyze and debate the tradeoffs and discuss the economic factors involved in making decisions about draining wetlands versus protecting them to retain their value as a natural resource. [Grades 6-8]

that can be employed to ensure the long-term survival of a resource in spite of the natural tendency toward exploitation. [Grades 9-Undergraduate] Fishing for the Future www.pbs.org/emptyoceans/educators/activities/fishing-for-the-Future.html Facing the Future is an organization that helps teachers engage their students on global issues. Through a fishing simulation, students model several consecutive seasons of a fishery and explore how technology, population growth, and sustainable practices impact fish catch and fisheries management. [Grades 6-12]

The Economics of the Family Farm www.econedlink.org/lessons/index.cfm?lesson=NN122&page=nnlprimer This National Council on Economic Education (NCEE) lesson introduces basic agricultural economic knowledge necessary for interpreting what we see in the news. [Grades 9-12] Fighting for Fair Farming: Examining How Domestic Subsidies Impact Foreign Markets www.nytimes.com/learning/teachers/lessons/20040428wednesday.html This New York Times Learning Network lesson plan examines the impacts of subsidies on farmers and other industries, and outlines how subsidies can affect domestic and foreign markets. [Grades 6-12]

Forest Management
Citizens for Responsible Forest Management: Growth calculator applet www.crfm.org/simulator/index.simulator.html This calculator can be used to show the sustainability (or lack thereof) of different timber cut rates and intervals. Though it is not completely accurate it can give some idea of how re-entry and cutting rates affect a forest. USDA Forest Service: Speech, “Climate Change, Kids, and Forests: What's the Connection?” www.fs.fed.us/news/2007/speeches/09/climate.shtml Delivered by Forest Service Chief Gail Kimbell at the annual conference for the Society of Environmental Journalists in September of 2007, this speech touches on the concerns that many kids have about the future of the natural environment and our forests in particular. Environmental Literacy Council: Firestorm www.enviroliteracy.org/subcategory.php/350.html The Council’s role-playing simulation module is designed to give students authentic experience in the process of making important decisions about the environment—gathering and analyzing information; judging the reliability of information sources; understanding complex perspectives; and forming opinions and making recommendations based on solid knowledge of ecosystems and different approaches to environmental management. [Grades 6-12] Discovery Education: Forest Fires school.discoveryeducation.com/lessonplans/programs/forestfires/ This lesson plan is intended to teach students the benefits and problems associated with forest fires along with the role that fire plays in maintaining healthy ecosystems. [Grades 9-12]

EconEdLink: New Sense, Inc. vs. Fish Till U Drop, or Coase vs. Pigou www.econedlink.org/lessons/index.cfm?lesson=EM582&page=teacher This lesson uses an engaging open-ended role play situation to explore, "Which economic approach is the most efficient and fair to resolve utility issues surrounding the use of common or public property?" [Grades 9-12] EconEdLink: There is Something in the Water www.econedlink.org/lessons/index.cfm?lesson=EM308&page=teacher This lesson illustrates the concept that although natural resources may seem abundant, it is not always the case. It also shows how trade-offs and good management are essential for maintaining and preserving resources for future generations. [Grades 6-8] Environmental Literacy Council: Tragedy of the Commons www.enviroliteracy.org/article.php/1160.html The purpose of this simulation is to explore how resources are used and exploited when they are available to multiple parties and to illustrate strategies

Tropical Deforestation


PBS: Chico Mendes of Brazil www.pbs.org/journeyintoamazonia/teacher_chico.html This activity explores how fast rainforests are disappearing and how the rainforests are used by looking at the competition between cattle ranchers and rubber tappers for the land rights. [Grades 6-12] The Rainforest, Raw Materials, and You www.pbs.org/journeyintoamazonia/teacher_raw.html Also by PBS, this lesson identifies and compares the rainforest products that we use in our everyday lives. [Grades 6-12] Forests of UCO: Classroom Activities www.phoenixzoo.org/learn/educator_resources/rainforest_classroom_activities. pdf A set of activities on rainforests, including lessons on rainforest layers, the importance of rainfall in rainforests and the difference in rainfall in various regions, behavioral observations, and the use of mimicry and camouflage by rainforest animals. [Grades K-5] Economics Lesson: The Rain Forest www.mcps.k12.md.us/curriculum/socialstd/grade3/Econ_Interd.html In this lesson from Montgomery County Public Schools in Maryland, students examine different points of view people have regarding the rainforest. Students will learn about economic concepts such as opportunity cost while taking on different roles, including people who live in the rainforest, people employed by the timber industry, and scientists concerned with preserving biodiversity. [Grades K-5]

Energy Production & ANWR
To Drill or Not to Drill? www.eric.ed.gov/ERICDocs/data/ericdocs2sql/content_storage_01/0000019b/8 0/19/79/f4.pdf This lesson plan, located on ERIC (the Education Resources Information Center), is entitled 'The Arctic National Wildlife Refuge: Many Alternatives and One Choice To Make' and was created in 2001 by the Foundation for Teaching Economics. Although a bit dated, it provides a terrific opportunity for students to discuss the background to the ANWR debate in small groups, identifying supporters and opponents of drilling and areas of dispute.

Carbon Trading & Sequestration
Carbon Sequestration Labs www.keystonecurriculum.org/middleschool/curriculum_grid.html Under days 7-9 in the Science section of this curriculum grid from The Keystone Center, teachers will find three separate labs that explore terrestrial, oceanic, and geologic carbon sequestration methods. [Grades 5-8]

The Greening of Business
Green Business Project allagash.miyazaki-mu.ac.jp/CUE/stories/storyReader$105 This extended classroom project, intended for more advanced students, teaches students about green businesses while highlighting academic skills, critical thinking, and creative output. Through this project, students design a green business and marketing strategy in response to a specific environmental threat. [Grades 10-Undergraduate] PC World Education – The Green Classroom www.pcwb.com/info/activeict/oct2007/the_green_classroom.html This website provides instructions on how to make classrooms themselves greener. Suggestions include making printing more efficient, slashing electricity use by turning things off when not in use, and investing in more environmentally-friendly personal computers.

Water Resources
USGS: Water Usage at Home ga.water.usgs.gov/edu/sq3.html The USGS provides this website to calculate the amount of water an individual’s home uses everyday. Thirstin's Matching Fun Facts Game www.epa.gov/safewater/kids/flash/flash_matching.html The EPA created this matching game for students to learn how much water is used in a variety of activities around the world. Water, Water Everywhere? school.discovery.com/lessonplans/activities/watereverywhere/ This unique lesson plan provided by the Discovery Channel teaches students about the global water crisis that is facing the world today. [Grades 6-10]



Agricultural Trade Reform and Poverty in the Developing World, EarthTrends April 2007 Monthly Update, World Resources Institute. Agricultures Role in Greenhouse Gas Mitigation from the PEW Center on Global Climate Change, September 2006. "Aid Is a Bumper Crop for Farmers,” October 15, 2006 from the Washington Post. Ashford, Lori. World Population Highlights 2004, Population Reference Bureau, 2004. An Overview of the EPA's National Water Program, Environmental Protection Agency, 2006. Anderson, Terry L. and Pamela Snyder. Water Markets: Priming the Invisible Pump. The Cato Institute, Washington, DC. 1997. Brown, Lester R. “Stabilizing Population by Reducing Fertility.” Eco-Economy: Building an Economy for the Earth, 2001. Butler, Rhett A., Tropical Rainforests from Mongabay.com Dawicki, Shelley. Effects of Ocean Fertilization with Iron to Remove Carbon Dioxide from the Atmosphere Reported. Woods Hole Institute. April 16, 2004. Demographic Transition from Wikipedia.org Department of Economic and Social Affairs Population Division. Population, Environment, and Development: The Concise Report. United Nations, 2001. Envisioning the Agenda for Water Resources Research in the 21st Century. National Academy Press, Washington, DC. 2001. Fitzpatrick, Eileen. The Weyburn Project: A Model for International Collaboration. National Energy Technology Laboratory. Geist, Helmut J. and Eric Lambin, Proximate Causes and Underlying Driving Forces of Tropical Deforestation, BioScience, Feb. 2002, Vol. 52 No. 2. Greig-Gran, M. “Is tacking deforestation a cost-effective mitigation approach?” International Institute for Economic Development, 2006. Hussen, Ahmed. Principles of Environmental Economics, 2e. New York, NY: Routledge, 2004. IPCC Special Report on Carbon Dioxide Capture and Storage from the Intergovernmental Panel on Climate Change, 2006.

McDonald, Peter. Low Fertility Not Politically Sustainable, Population Today, August/September 2001. Negative Population Growth from About.com “New York City Depends on Natural Water Filtration,” The Rand Institute, 2007. Oates, Wallace E. (ed.) The RFF Reader in Environmental and Resource Management. Resources for the Future, Washington, DC. 1999. Overpopulation from Wikipedia.org Population and the Environment, The Population Institute, updated May 2006. Subsidies to Agriculture: Why?, OECD in Washington, No. 46, August/September 2003. The Cost of U.S. Forest-based Carbon Sequestration. PEW Center on Global Climate Change, January 2005. Turner, R. Kerry, David Pearce, and Ian Bateman. Environmental Economics: An Elementary Introduction. Baltimore, MD: The Johns Hopkins University Press, 1993. Urquhart, Gerald and Walter Chomentowski, David Skole, and Chris Barber. Tropical Deforestation, NASA Earth Observatory. van Soest, Daan. Tropical Deforestation: An Economic Perspective, University of Groningen: 1998. Wise, Timothy A. The Paradox of Agricultural Subsidies. Global Development and Environment Institute, Tufts University, Working Paper No. 04-02, May 2004. World Population Prospects: The 2004 Revision, United Nations.



1625 K Street, NW, #1020 Washington, DC 20006 tel: 202-296-0390 fax: 202-822-0991 info@enviroliteracy.org sciencetextcentral.org enviroliteracy.org