29 April 2016

Friday party!

Excellent!

Can the Philippines save its mountains from popularity?

Erica writes:*

Within the last ten years, mountaineering has surged in popularity in the Philippines. However, the lack of systems and measures to regulate these activities has taken a toll on many areas experiencing an influx of trekkers. The Department of Environment and Natural Resources (DENR) collects fees at some of the more popular mountains and the areas it considers as national parks. Although it also establishes and maintains trails in these areas, the DENR has not been doing much else to manage impact.

Mt. Pulag, one of the most popular mountains in the country to both seasoned climbers and amateurs alike, has suffered tremendous damage in the past decades (see right). Until December 2015, there had been no limit as to the number of climbers allowed in the park. Climbing the mountain costs less than PhP300 (about US$6) in DENR fees, grossly understating costs of the impact of trekkers on the area and leaving quantity demanded in a much higher level than it should be in. Several other mountains charge even less (Mt. Pico de Loro, another popular mountain suffering damage to its trails, charges fees less than US$1).

The DENR, in addition to handling certain mountains as protected areas, is also in charge of regulating corporations and managing resources and industries all over the country. Even the Biodiversity Management Bureau under DENR, which is directly tasked with the management of these areas, has other responsibilities outside the realm of national parks. A dedicated agency or bureau, much like the National Park Service of the United States, will be better able to manage mountaineering activities and ensure that prices paid by reflect all costs and generate the right level of demand. A national park service will also be able to direct trekkers to mountains with less traffic to be able to distribute impact.

Bottom Line The creation of an independent national park service in the Philippines could potentially help internalize unaccounted costs of mountain tourism, which has caused significant negative impacts on ecosystems.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Something smells fishy along the West African coast

Monica writes:*

The world is experiencing an overfishing crisis, one-third of which can be blamed on China (pdf). Nevertheless, the Chinese demand for fishing products keeps increasing as Chinese consumers are switching from grain-based diets to animal proteins. In combination with the pursuit of economic interest of fishermen and fishing companies, a new growth policy was implemented in 2010. The growth policy is supported by generous fuel subsidies, which aim to expand the sector even more. This is a surprise to many since the country experienced a zero-growth period between 2000 and 2010 (see figure 1). At that time, policies were implemented to halt further damages to local fishery grounds caused by overfishing and destructive fishing practices like bottom trawlers.

Figure 1. China’s Annual Marine Catch Production
Does this mean their fishing grounds have recovered? No. The species found in local fishing grounds merely exist in name. China's fleets are expanding into many foreign Exclusive Economic Zone’s (EEZ’s). Especially Chinese Distant Water Fishing (DWF) along the coast of West Africa has increased since the start of the first dispatch fleet in 1985 to 230 in 2015. This is problematic since China did not learn from its mistakes and is transferring its bad fishing practices to this part of the world. Bad fishing practices are estimated to cause the same effects along the West African coast since 50% of the resources are “overfished” (pdf). Furthermore, China is only reporting 8% or less of its catch from these waters (total of 368,000 tons per year) to the FAO. The actual estimated catch of 3.1 million tons per year shows that by underreporting its catch, China is avoiding licensing fees.

Why are West African nation’s not doing enough to avoid the depletion of their coastal fisheries? First, due to the difficulty of detecting Illegal, Unregulated and Unreported (IUU) fishing practices. Second, the West African coast is known as "the Wild West" of the sea where law enforcement is weak. But more importantly, West African nations have a high economic dependence on the Chinese DWF agreements that are in place. The legal DWF are nonetheless impactful since China’s licensed footprint is twice the size of the entire DWF fleet of the United States. As West African countries are still developing, they depend on licensing money and aid packages. For example, in Mauritania, DWF fees make up 27% of the total national budget. This means that if they are too harsh on overfishing and/or harmful fishing practices, they could face severe economic consequences.

Governments from China and West African countries need to understand that fishing unsustainably for economic interest will harm their countries in the long run. As the West African waters are also depleting, it will not take long before Chinese DWF will lose their jobs or will have to find other fishing grounds to deplete. Also, West African nations will lose the rent they collect from selling fishing licensing as well as their profitable fishing industry, thereby destabilizing their economies even more.

Bottom Line China and West African nations have both created dependencies on marine resources. From past experience, China should take the responsibility and start changing is fishing practices. Short term gains over less developed countries in West Africa will backfire. Without West-African nation’s capacity to intervene, soon one of the most fertile fishing grounds of the world will be gone.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

28 April 2016

Who pays the bill? Water pollution in Brazil

Laurent writes:*

The metropolitan area of São Paulo is with over 20 million people one of the biggest cities in the world. But not just as a living space São Paulo represents an enormous important role in Latin America, the metropolitan area is also one of the most important economic hotspots and generates around 15% of Brazil’s GDP. The region of São Paulo is responsible for a third of all industrial production and generates a third of all exports and around 40% of all imports in Brazil. Those key numbers briefly illustrate the importance of this region but also the density-related stress that occurs in such regions. São Paulo is known as one of the cities with the highest air pollution. However, not only the air condition is a problem for São Paulo but also the wastewater management is in this area with around 20 million people and over 33’000 factories is a massive undertaking.

It is paradoxical that humans are destroying their own environment in order to make business. This business does not take into account the negative externalities created through wastewater which is discharged into the Tietê River. Life would be impossible without potable water, nevertheless the costs for cleaning the river occur rarely or never in the products that we are buying. The National Geographic pictures impressively illustrate how polluted the Tietê River is with toxic foam. All the waste created by the metropolitan area of São Paulo, the companies and the inhabitants are responsible for the waste that flows through the river. In 1992, the Tietê Project has started and it was the beginning of an ambitious plan to clean the river. Dilma Seli Pena, the CEO of São Paulo’s state water sanitation company (Sabesp), explains in an interview that the last of the four phases to build the new wastewater facilities for the cleaning of the Tietê will be finished by 2018, a project that has cost US$ 2.65 billion so far. The Economist also picked up the problem of the high polluted Tietê located to a high number of factories and close to a megacity and predict a cleaner river in the future.

However, none of the articles raises the question of who is paying for the pollution. Everyone is satisfied to see a cleaned river without thinking of the costs for the cleaning of heavy metals from industrial runoff or other toxic chemicals in the river. The polluter pays principle has not reached in this case. The State of São Paulo will clean the Tietê river and will sensitize the industry and agriculture to reduce the negative impacts to the environment; the implementation of laws will also hopefully have a positive effect.

Bottom Line In the end the costs for the cleaning of the environment are paid by every taxpayer, this includes companies, but they do not pay directly for the pollution. The negative externalities are shared with the society that have to pay for the pollution but the benefits are privatized.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Understanding poachers to save African elephants

Psymon writes:*

In South Korea, Korean tigers, also known as Siberian tigers, are one of the classic national symbols. It is as old as a legend about Dangun’s founding of Dangun Choseon, the first country in Korean history that is known to have existed in 2,333 BC. However, the last time Korean tigers were spotted was in 1943. The cause was Japan’s ruthless overhunting during its colonial occupation of the Korean peninsula. From 1910 to 1942, official record of caught and killed tigers were 141, and the unofficial death is estimated at more than 500. Considering only 7,000 tigers are left in the wild today, that is a huge number. It feels like a part of my Korean spirit is gone, and I believe that we should prevent a repetition of this tragedy. Yet, something very similar is happening again in the world.

Similarly, African elephants have long been held sacred, as the wise chief who impartially settles disputes among the forest creatures in African fables. They once roamed across most of the continent from the northern Mediterranean coast to the southern tip. Numbering three to five million in the last century, the population is down to approximately 470,000. Approximately 100,000 elephants were killed annually in the 1980s because of hunting. Lately, the growing ivory demand in China increased illegal poaching of African elephants. The international trade in elephant ivory recorded the highest ivory seizures since 1989, when trading ivory became illegal. Some say at this rate, African elephants will disappear in less than 150 years. Chinese government, as a member nation of CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) announced that the trade of ivory will be dealt with zero tolerance policy.

According to Tom Milliken, TRAFFIC’s Elephant and Rhino Programme Leader, the final destination for ivory shipments is primarily China. So we have demand in China, and supply in Africa. As mentioned earlier, Chinese government employed stubborn policy against the growing demand, and the punishment for illegal poaching in Africa is death sentence. But apparently, neither side is working very well. One of the main reason is the price incentive. In China, it went up from 157 USD per kilo in 2008 to 7,000 USD per kilo in 2011. However, it is not the price incentive that drives people to actually kill another elephant. In fact, the criminal organizations involved in brokerage are the main beneficiaries of the illegal trade. What poachers get for killing elephants is food and clothes for the family, means of subsistence. The decision making of hunting is not incentive-driven, but survival-driven. In other words, high demand in ivory raises the price high enough for crime syndicates to have incentives to tempt hunters to illegal poaching. That is what’s really going on in the illegal ivory trade.

The direction of laws and regulations are mainly following precautionary principle, which is to restrain illegal poaching and control the ivory supply. But, as we now understand killing elephants is based on survival motives, precautionary measures such as threat of life sentence against poachers seems redundant. One possible alternative direction that can offer a rational solution is the polluter-pays principle. In that case, there remain two possible suspects in the ivory trade market: the intermediary agent and the demand. The intermediary agent is crime organizations while most of the demand is the rising upper class, yet ordinary, Chinese citizens. It naturally gives an impression that crime organizations are the core of the problem. But I believe the rising upper class is the key to the solution. As long as there exist demand and profit opportunities, some kind of an intermediary or a broker will emerge whether it is a legal corporation or a criminal organization. Then the question is how to control the demand.

Martin Dufwenberg and Giancarlo Spagnolo’s (2015) article “Legalize Bribe Giving” is a good example that demonstrates how a legislation can correct behavior of individuals. Inspired by that article, I came up with a game theory model that would theoretically cease the illegal poaching. If we legalize Ivory trade market under strict government control and find a way to persuade the poachers not to fall into temptations of illegal poaching at the same time, the demand will fall into the shadow and there will no longer be profit opportunities. I believe carefully designed law using delicate game theory model can correct poachers’ decision making, preserve African elephants, and eventually help Mother Nature thrive.

Bottom Line Current legislations on illegal poaching and ivory trade are not carefully designed and do not take the circumstances that poachers face into consideration.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

27 April 2016

Do we need Austrian nobility to protect land?

Flip writes*

Even though sometimes forgotten, nature provides many great economic services that we all benefit from on a daily basis. In The Hague the dunes’ ability to purify water has provided clean drinking water for its inhabitants for many generations. Through trial and error mankind has discovered that letting self-interested people have free access to a depletable resource leads to over-extraction of given resource if there is not enough of the common good. In the dune example, people might extract more purified water than the dunes provide. This is a big problem. Some might even call it a tragedy.

As a solution to this problem, Ed Dolan suggests that an extremely radical solution would be to put the commons all up “for auction, and let the highest bidders regulate and economize on their use."1 Dolan calls this solution extremely radical, but how radical is it really?

The setting of the answer to this question is Austria -– a medium sized country in central Europe. Before Austria became Austria, they formed the ‘Austria’ part in Austria-Hungary, a large central European empire ruled by the almost divine (linked to the Vatican) and powerful Habsburg family. This family ruled the empire from its capital Vienna (but sometimes switched to Budapest to make that part of the empire feel respected also). In the provinces of the empire, noble families ruled from their castles and citadels and owned most of the land surrounding it. Just like a modern-day state, they let people use the land to make a living (they leased it).

The private ownership of the land by these families meant that they were governed sustainably, with an eye on the future. Strict controls made sure that people did not overuse the land they had been given or the common resources. Noble families ruled the lands with long-term in mind. This was so because:
  • The chances of nature being bought or stolen from you were very small. Large-scale theft of for example wood required machinery that had not been invented yet, whilst the market for large patches of land was quite small (you needed quite a bit of money and nerves to approach a landlord to buy his land).
  • There was a lot of pride involved in handing over as much of your lands intact as possible to your offspring (only sons though, daughters couldn’t possibly be asked to take on such heavy responsibilities like managing lands).
All of the above made sure that Austria’s many natural resources were not exhausted, but were kept alive for current generations to destroy use.

Bottom Line No. The bottom line is not that we should reinstall Austrian nobility. The core message of this story is that for much of the world (everything but the ‘new world’ really) the idea of privatized commons isn’t as radical as libertarian economists think.

(1) Page 64 of TANSTAAFL. The full title -- There Ain’t No Such Thing As A Free Lunch: A Libertarian Perspective on Environmental Economics -- is rather long, but the 2011 book suggests good market solutions to environmental problems (DZ's review)

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

The paradox of China’s photovoltaic industry

Margot writes*:

China, with once its fledgling solar photovoltaic industry has now become the world's largest manufacturer of solar-cells with an anticipated manufacturing capacity to produce 51 GW of photovoltaics per year by 2017. China’s policy approach has prioritised developing its export-orientated renewable manufacturing industry as opposed to the generation of renewable energy and ensuring sustainable practices to protect the domestic environment. This has ultimately led to exporting “the positive externalities of consumption” whilst leaving the “negative externalities of production” largely unaddressed in a country with mounting environmental costs.

Ironically, the manufacture of PV-systems that ultimately produce clean energy are not so ‘clean.’ Polysilicon production within the industrial chain is highly pollutive as it creates a toxic and degradative byproduct: silicon tetrachloride. To avoid incurring higher costs of reprocessing the waste, enterprises dump this compound along with other pollutants (see PDF of this interesting Greenpeace report). Lax corporate responsibility, lack of adequate regulations, insufficient enforcement capacity to discourage such behaviour is one area that is largely to blame. However the institutional opacity, high transfer costs and collective action issues make regulatory change very difficult in the short-term. However, inducing greater innovation to increase sustainability and efficiency of photovoltaics may be an alternative.

A severe capacity surplus induced by government initiative to bolster PV industry has led to favourable loans and subsidies for PV manufacturing resulting in vicious competition between a multitude of enterprises. The low profit in the industry inhibits research and innovation within the sector whilst reinforcing “cheap” manufacturing and scaling back on greater environmental regulations. Additionally China lacks a substantial domestic market for solar. Its growth of production has outstripped of installed solar capacity, thus over 90% PV devices are exported to the US and EU where solar energy is subsidised. It is highly dependent on foreign markets, but due to its maintained low prices of its devices China has incurred anti-dumping and anti-subsidy duties that only decrease profitability.

China’s PV is stuck in the middle of the industrial chain -- at the bottom of the "smile curve" -- with backward technology, meaning low-tech and low-profit production, lack of core technology and weak international competitiveness.1 These limits underly the incentive structure in the industry restricting producers to cheap and more unsustainable production methods just to break-even. To address the pollutive nature of production calls for a more expansive approach that reaches farther than domestic regulation involving trade relations, complex value chains and many struggling enterprises.

Bottom Line China’s Photovoltaic industry ensures clearer skies abroad, but damages already vulnerable domestic ecology. The production of cheaper photovoltaics comes with a higher environmental price-tag that is enforced by both domestic and foreign policies. Altering the incentive structure within industrial policy could encourage sustainable innovation and pose as a viable solution.

(1) Illustrates a concept in value chains where the added value is generally distributed along the production where high value added is located in both the far upstream (basic and applied R&D, and design) and far downstream (marketing, distribution, and brand management) stages, with the lowest value-added activities occurring in the middle of the value chain (manufacturing and assembly). This is where China is “stuck.”

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

26 April 2016

Who are you too?

Last year, I posted about my DNA "origins" results, which indicated that about 15% of my "DNA heritage" comes from India. The test was useful for explaining my proclivity to tan (not kidding!), recessive "thalassemia" blood condition, and more about my father's birth and upbringing in India.

The troublesome thing, if you will, was that my father has always had a "English" nationality and heritage separate from Indians (see the first post for my definitions of these words). Yes, he had a cultural affinity for India -- the food, the movies and love of heat -- but now he has a genetic link. His test revealed that one-third of his DNA originates in the subcontinent.*

Now I had an inconsistency to investigate: how is it that my father's eight great-grandparents were "English" but he was one-third "Indian"? It seemed that some of these Englishers were not "pure" but mixed into the rest of the people. Indeed, it seems that his family was a different kind of Anglo-Indian:**
The term Anglo-Indians can refer to...  "Of mixed British and Indian parentage... or (chiefly historical) of British descent or birth but living or having lived long in India" [dz: without mixing]. This article focuses primarily on the modern definition, a distinct minority community of mixed ancestry, whose native language is English.

During the centuries that Britain was in India, the children born to British men and Indian women began to form a new community... These Anglo-Indians formed a small but significant portion of the population during the British Raj, and were well represented in certain administrative roles.
These definitions allow me to match the DNA with the "official history" in a way that makes sense (my grandfather Andrew worked for the Raj), rather than carrying on some assumption about English and Indians staying separate.

Rather than worry about "the milkman," I can just say that these Jameses, Williams and Susans were Indian in more than a few ways. I'm curious to know how they lived among the relations they ruled, but most of them are dead, and the novels and movies about Anglo-Indians seem to exaggerate a bit.

Bottom Line Nobody is "born to rule" just as nobody is "born to a nationality." We are all people from places and cultures who have mixed in different ways. Is there one, pure, correct way? Not unless you're a hypocrite.

* My born-in-Romania girlfriend got her results: 99% Romanian/Balkan, which is suspicious for a region that's been criss-crossed for ages. Perhaps these tests are vulnerable to a "baseline" bias of who's considered to be "from" somewhere, but let's ignore that issue.
** I had never heard this term applied to my family.

25 April 2016

23 April 2016

SoS: 18-24 Apr 2015

These posts are still useful. Please comment on the original if you have updates...

22 April 2016

Friday party!

Amsterdam.


Introduction to Water in California -- the review

I bought the first edition of this book (2004) while I was living and working in California, so I was glad to receive a review copy of the revised Second Edition (2015) <== fixed the link!

This book, as the title promises, provides an excellent introduction to water in California. It begins with a overview of the water cycle, explains California's hydrologic regions in detail, and then moves into the engineered distribution system that has aided California's growth but disturbed its ecosystems.* Readers are now set for the chapter on "challenges" of draining aquifers, water pollution,  "dewatered" rivers, paved wetlands, and so on. The final chapter reviews current (and ever-popular) "solutions" to these challenges, i.e., dams, Twin Tunnels, desalination, conservation, and so on.

Anyone reading this book will have an excellent idea of how things were, how they are, why current conditions are unsustainable, and how difficult it is to change current conditions. I applaud Carle for his thorough, mostly reasonable review of the topics, but I feel like he spent too little time on the perverse incentives and potential economic solutions that might improve matters. This oversight is perhaps expected when a biologist rather than an economist is writing, so let me just suggest that readers turn to my (shorter, free) Living with Water Scarcity after reaching the end of Carle's excellent Introduction.

Bottom Line: You cannot hope to fix a "broken" system without some basic understanding of its history, function and opportunities for change. I give Carle's book FIVE STARS for providing that information.

* Happy Earth Day! Do you know how much benefit the Earth gives you, as an individual? About $20,000/year [pdf]

Addendum: Carle's Water and the California Dream is ALSO out in a revised, second edition (my review of the first edition).