Environmental Economics

Along with ceramics production, sedentism, and herding, agriculture is a major component of the Neolithic as it is defined in Europe. Therefore, the agricultural system of the first Neolithic societies and the dispersal of exogenous cultivated plants to Europe are the subject of many scientific studies. To work on these issues, archaeobotanists rely on residual plant remains—crop seeds, weeds, and wild plants—from archaeological structures like detritic pits, and, less often, storage contexts. To date, no plant with an economic value has been identified as domesticated in Western Europe except possibly opium poppy. The earliest seeds identified at archaeological sites dated to about 5500–5200 bc in the Mediterranean and Temperate Europe. The cultivated plants identified were cereals (wheat and barley), oleaginous plant (flax), and pulses (peas, lentils, and chickpeas). This crop package originated in the Fertile Crescent, where it was clearly established around 7500 bc (final Pre-Pottery Neolithic B), after a long, polycentric domestication process. From the middle of the 7th millennium bc, via the Balkan Peninsula, the pioneer Neolithic populations, with their specific economies, rapidly dispersed from east to west, following two main pathways. One was the maritime route over the northwestern basin of the Mediterranean (6200–5300 bc), and the other was the terrestrial and fluvial route in central and northwestern continental Europe (5500–4900 bc). On their trajectory, the agropastoral societies adapted the Neolithic founder crops from the Middle East to new environmental conditions encountered in Western Europe.

The Neolithic pioneers settled in an area that had experienced a long tradition of hunting and gathering. The Neolithization of Europe followed a colonization model. The Mesolithic groups, although exploiting plant resources such as hazelnut more or less intensively, did not significantly change the landscape. The impact of their settlements and their activities are hardly noticeable through palynology, for example. The control of the mode of reproduction of plants has certainly increased the prevalence of Homo sapiens, involving, among others, a demographic increase and the ability to settle down in areas that were not well adapted to year-round occupation up to that point. The characterization of past agricultural systems, such as crop plants, technical processes, and the impact of anthropogenic activities on the landscape, is essential for understanding the interrelation of human societies and the plant environment. This interrelation has undoubtedly changed deeply with the Neolithic Revolution.

Worldwide, governments subsidize agriculture at the rate of approximately 1 billion dollars per day. This figure rises to about twice that when export and biofuels production subsidies and state financing for dams and river basin engineering are included. These policies guide land use in numerous ways, including growers’ choices of crop and buyers’ demand for commodities. The three types of state subsidies that shape land use and the environment are land settlement programs, price and income supports, and energy and emissions initiatives. Together these subsidies have created perennial surpluses in global stores of cereal grains, cotton, and dairy, with production increases outstripping population growth. Subsidies to land settlement, to crop prices, and to processing and refining of cereals and fiber, therefore, can be shown to have independent and largely deleterious effect on soil fertility, fresh water supplies, biodiversity, and atmospheric carbon.

Benefit transfer is the projection of benefits from one place and time to another time at the same place or to a new place. Thus, benefit transfer includes the adaptation of an original study to a new policy application at the same location or the adaptation to a different location. The appeal of a benefit transfer is that it can be cost effective, both monetarily and in time. Using previous studies, analysts can select existing results to construct a transferred value for the desired amenity influenced by the policy change. Benefit transfer practices are not unique to valuing ecosystem service and are generally applicable to a variety of changes in ecosystem services. An ideal benefit transfer will scale value estimates to both the ecosystem services and the preferences of those who hold values. The article outlines the steps in a benefit transfer, types of transfers, accuracy of transferred values, and challenges when conducting ecosystem transfers and ends with recommendations for the implementation of benefit transfers to support decision-making.

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Environmental Science. Please check back later for the full article.

While economic values of nonmarket ecosystem goods and services are in high demand to inform decision making processes, economic valuation has also attracted significant criticism. Particularly, its implicit rationality assumptions and value monism gave rise to alternative approaches to economic nonmarket valuation. Deliberative Monetary Valuation (DMV) originated in the early 2000s and has gained particular prominence after 2010, especially in the context of the United Kingdom National Ecosystem Assessment (UK NEA). It constitutes a major methodological development to overcome the limitations of conventional nonmarket valuation methods by incorporating deliberative group elements (information provision, discussion, time to reflect in a group setting) in the valuation process.

DMV approaches range from those that focus on facilitating individual preference formation for complex and unfamiliar environmental changes and stay close to neoclassical economic theory, to those that try to go beyond methodological individualism and monetary valuation to include a plurality of different values. The theoretical foundation of DMV comprises a mix of economic welfare theory on the one hand and various strands of deliberative democratic theory and discourse ethics on the other. DMV formats are mostly inspired by deliberative institutions such as citizens’ juries and combine those with stated preference methods such as choice experiments. While the diversity of approaches within this field is large, it has been demonstrated that deliberation can lead to more well-informed and stable preferences, as well as facilitate the inclusion of considerations going beyond self-interest. Future research challenges surrounding DMV include the exploration of intergroup power relations and group dynamics as well as the theoretical status and the validity of DMV results.

Climate change is already having a significant impact on agriculture through greater weather variability and the increasing frequency of extreme events. International policy is rightly focused on adapting and transforming agricultural and food production systems to reduce vulnerability. But agriculture also has a role in terms of climate change mitigation. The agricultural sector accounts for approximately a third of global anthropogenic greenhouse gas emissions, including related emissions from land-use change and deforestation. Farmers and land managers have a significant role to play because emissions reduction measures can be taken to increase soil carbon sequestration, manage fertilizer application, and improve ruminant nutrition and waste. There is also potential to improve overall productivity in some systems, thereby reducing emissions per unit of product. The global significance of such actions should not be underestimated. Existing research shows that some of these measures are low cost relative to the costs of reducing emissions in other sectors such as energy or heavy industry. Some measures are apparently cost-negative or win–win, in that they have the potential to reduce emissions and save production costs. However, the mitigation potential is also hindered by the biophysical complexity of agricultural systems and institutional and behavioral barriers limiting the adoption of these measures in developed and developing countries. This includes formal agreement on how agricultural mitigation should be treated in national obligations, commitments or targets, and the nature of policy incentives that can be deployed in different farming systems and along food chains beyond the farm gate. These challenges also overlap growing concern about global food security, which highlights additional stressors, including demographic change, natural resource scarcity, and economic convergence in consumption preferences, particularly for livestock products. The focus on reducing emissions through modified food consumption and reduced waste is a recent agenda that is proving more controversial than dealing with emissions related to production.

Vessel oil spills are very serious natural hazards that have affected coasts worldwide for many decades. Although oil spills from tankers are highly publicized, very little is known about the role played by the incentives and regulatory instruments in place to prevent them. In order to shed some light on these issues, data were collected worldwide on large oil spills from multiple databases, starting in the 1970s, and merged with other socioeconomic records. A crucial concern is that that large oil spills have been undercompensated over time with respect to the damages caused. A meta-analysis was estimated in order to assess relevant factors affecting the damage claimed in oil spills and the compensations received by the affected parties. Meta-regression results show that the legislation applied (strict unlimited liability versus limited liability) played a crucial role in both the amount claimed and the final compensation received. Also, time-trend variables are shown as determining factors for both the damages and claims that are finally paid. To correct the large gap between damage claimed and compensation scenarios, it is recommended to strengthen compensation funds, while carrying out more comprehensive assessment studies which apply valuation methods comparable with those proposed by green capital initiatives for marine ecosystem services, and which could be used successfully during the litigation process.

Reforestation is the natural or intentional restocking of existing forests and woodlands that have been harvested or depleted, and afforestation is the establishing of a forest in an area where there were no trees. For economic and practical purposes, reforestation and afforestation have similar goals and processes and thus can be treated as identical activities. Although reforestation and afforestation have a long history, large-scale reforestation and afforestation activities started with industrialization, which caused scarcity in timber and forest-based ecosystem services. In a unified economic model of reforestation and afforestation, factors influencing investments in reforestation and in afforestation on private and public lands include timber prices, unit reforestation cost, interest rate, the responsiveness of tree growth to silviculture, and the value of nontimber benefits, such as ecosystem services. Market and public policies may facilitate, enhance, or hinder reforestation and afforestation activities, and nontimber benefits are an increasingly important motive for reforestation and, especially, afforestation efforts around the world.

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Environmental Science. Please check back later for the full article.

While most attention on the use of economic instruments for environmental protection has centered on their applications in industrialized countries, middle-income countries have made important inroads as well. Among them, Mexico stands out for its application to the agenda of a wide array of green and brown issues. Starting in 2001, with the introduction of fees to access natural protected areas, followed in 2003, with the establishment of the Payment for Ecosystems Services program for forests, and then in 2014, the introduction of the environmental tax on pesticides, the use of complementary price signals through the fiscal system has sought to influence, in a decentralized manner, the decisions of both consumers and resource owners towards protecting key elements of Mexico’s natural capital. As the central promise from economic instruments is to reduce compliance costs of reaching a certain goal by providing flexibility on how to meet individual obligations, the use of market-based mechanisms in regulations has also been explored with some success in Mexico. Partial incorporation of such a mechanism was applied to the design of its national Federal Fuel Efficiency standards for automobiles, by redefining compliance as meeting a corporate average standard starting from 2006 onwards. More recently, full use of market mechanisms was introduced, in 2016, into the strategy to reach Mexico’s Clean Energy requirement goals. The demonstration by utilities of compliance with the milestone of the national 2024 goal of 35% share of clean energy in power generation can be done either by holding or purchasing Clean Energy Certificates in their secondary market. This allows utilities to separate the decision to purchase energy at the lowest cost, and to meet environmental requirements, also at their lowest cost.

Both tax and market mechanisms are converging with Mexico’s Climate Change policy. The Fiscal Reform of 2014 introduced Mexico’s first explicit carbon tax in the form of an excise tax applied to fossil fuels, just as its G20 commitments to phase-out negative carbon pricing (i.e., fossil fuel subsidies) were being fulfilled. With price signals pushing towards more energy efficiency and a lower carbon footprint for the economy, Mexico is on the right track for carbon pricing and is showing leadership at a global scale. It will be interesting to observe how this will mix with a proposed cap-and-trade carbon mechanism, obviously touted as a complementary instrument. The establishment of such a mechanism to meet the emission reduction goals of Mexico’s Climate Change legislation and international commitments is the subject of intense debate and analysis. It represents an interesting decision point for a middle-income country such as Mexico, where all costs are local in nature, the emissions per capita are at the world’s average, and indirect benefits of the energy transition are only partial. In the political economy debate, the linkage to international markets, such as California and Quebec, is not only an option but a central motivation to launch the market, as gains from trade are the driving force.

Geologists’ reframing of the global changes arising from human impacts can be used to consider how the insights from environmental economics inform policy under this new perspective. They ask a rhetorical question. How would a future generation looking back at the records in the sediments and ice cores from today’s activities judge mankind’s impact? They conclude that the globe has entered a new epoch, the Anthropocene. Now mankind is the driving force altering the Earth’s natural systems. This conclusion, linking a physical record to a temporal one, represents an assessment of the extent of current human impact on global systems in a way that provides a warning that all policy design and evaluation must acknowledge that the impacts of human activity are taking place on a planetary scale. As a result, it is argued that national and international environmental policies need to be reconsidered. Environmental economics considers the interaction between people and natural systems. So it comes squarely into conflict with conventional practices in both economics and ecology. Each discipline marginalizes the role of the other in the outcomes it describes. Market and natural systems are not separate. This conclusion is important to the evaluation of how (a) economic analysis avoided recognition of natural systems, (b) the separation of these systems affects past assessments of natural resource adequacy, and (c) policy needs to be redesigned in ways that help direct technological innovation that is responsive to the importance of nonmarket environmental services to the global economy and to sustaining the Earth’s living systems.

The environmental Kuznets curve (EKC) is a hypothesized relationship between environmental degradation and GDP per capita. In the early stages of economic growth, pollution emissions and other human impacts on the environment increase, but beyond some level of GDP per capita (which varies for different indicators), the trend reverses, so that at high income levels, economic growth leads to environmental improvement. This implies that environmental impacts or emissions per capita are an inverted U-shaped function of GDP per capita. The EKC has been the dominant approach among economists to modeling ambient pollution concentrations and aggregate emissions since Grossman and Krueger introduced it in 1991 and is even found in introductory economics textbooks. Despite this, the EKC was criticized almost from the start on statistical and policy grounds, and debate continues. While concentrations and also emissions of some local pollutants, such as sulfur dioxide, have clearly declined in developed countries in recent decades, evidence for other pollutants, such as carbon dioxide, is much weaker. Initially, many understood the EKC to imply that environmental problems might be due to a lack of sufficient economic development, rather than the reverse, as was conventionally thought. This alarmed others because a simplistic policy prescription based on this idea, while perhaps addressing some issues like deforestation or local air pollution, could exacerbate environmental problems like climate change. Additionally, many of the econometric studies that supported the EKC were found to be statistically fragile. Some more recent research integrates the EKC with alternative approaches and finds that the relation between environmental impacts and development is subtler than the simple picture painted by the EKC. This research shows that usually, growth in the scale of the economy increases environmental impacts, all else held constant. However, the impact of growth might decline as countries get richer, and richer countries are likely to make more rapid progress in reducing environmental impacts. Finally, there is often convergence among countries, so that countries that have relatively high levels of impacts reduce them more quickly or increase them more slowly, all else held constant.