Month: March 2009

We are all excited that natural communities offset some of the carbon emitted by burning fossil fuels, but we have to put it all in context.   We have to recall that carbon offset is only one of the thousands of ecological services performed by natural communities.  I will say more about that below, but let’s start with the carbon.

Below is construction on a Hot-Lane interchange on I 495.  This area used to be covered with trees.  We traded trees for travel time. Everything we do is a tradeoff.  We should just be sure we know what trades we are making and make them well. More on congestion pricing at this link.  

Carbon is as necessary to life as oxygen.   Growing plants covert carbon dioxide to biomass and release it when they decompose or respire and this cycle has been going on for billions of years.   The processes have been roughly in balance.  

They have to be; otherwise all the carbon would have been used up billions of years ago and life on earth would have perished.  This explains why a mature ecosystem absorbs little carbon dioxide.  And this is the problem with offsets.  An established old growth forest doesn’t remove much carbon from the atmosphere.   A rapidly growing new forest soaks up a lot of carbon, and that is what we are growing now, but eventually it becomes a mature forest.   In the short run, offsets can compensate for a small percentage of industrial CO2 emissions but in the long run carbon absorption will balance carbon release.  

The USDA has a good online calculator for how much carbon is sequestered in various types of forests.   Forests can sequester carbon in the branches, roots, soils and understory of living forests, as well as long-lived wood products (the wood that in your house will be around a long time.)   Offsets will buy us some time and they are worth doing for that reason alone, but there are lots of other reasons to preserve natural lands and maintain the ecological services they provide.   

Below is a clearcut.  This was covered by a mixed hardwood forest and I don’t know why the owner decided to slick off the trees.  I don’t like it, but it is not my business and this is not necessarily the end of the forest.  It can be replanted or grow back naturally, unless it is coverted to other uses.  By the end of the summer, this bare ground will be covered with vegetation and provide good wildlife habitat.  In three years, it will be ideal bobwhite quail habitat, for example.  It looks really ugly to human eyes, however.

Don’t it always seem to go that you don’t know what you’ve got ‘till it’s gone

We are used to getting ecological services for free or by imposing costs on others.   Economists call them externalities.   Among ecological services these include things like carbon, sediment removal, water, air, biodiversity, open space and natural beauty.   But it’s getting harder to get these things free and others are increasingly unwilling or unable to provide them as a public service and we are facing a tragedy of the commons.  By 2025 Virginia will probably welcome 3 million new residents and we are projected to lose a million acres of forest land to development.  (When a forest is harvested, it can grow back.  When it is converted to other uses, such as homes or parking lots, it is lost for a long time or essentially forever.) As our populations grow and demands increase, it becomes clearer that we have to find prices for these priceless goods.    Otherwise they will continue to be wasted and abused.

Markets can handle risk, but they do less well with uncertainty.  A market in ecological services requires a lot of the same things as other markets.   It is harder in the ecological services market because definitions and measurements are difficult.  Any measures have to be science-based and compatible with regulations.  Beyond that, markets thrive when transaction costs are low; rules are clear; there are credible measures; an adequate number of buyers and sellers and – perhaps most important , trust – trust that contracts will be honored, goods and services will be more or less as represented and trust that markets will persist for a reasonable amount of time.

Below are mature beech trees in front of a new pine forest. This is great wildlife habitat, since it combines old woods, young woods and ground vegetation.

Given the unusual nature of ecological service, the dominance of regulation and the need for a long-lived authority to define products and enforce agreements, there is a useful role for government to jump start the creation of a such a market.   Section 2709 of the new Farm Bill gives the USDA the responsibility to study and foster markets for ecosystem services.   In our region we also have things like the Bay Bank.   

Markets are usually the best way to aggregate information,  allocate resources and organize diverse needs and contributions.  Now is an exciting time for ecological services markets.    This is how it looks at the early stages of a market formation.   There are lots of entrants, a plethora of good ideas and chaos.  We have to tolerate ambiguity, while reducing it.  From all this ferment I am sure solutions will come.

The problem with not putting a price on nature is that it becomes too expensive. Landowners may dread a visit by an environmental activist.   They fear the discovery of a rare species or a sensitive ecology on their land.  Why should that be?  

Below is the Lewis & Clark monument in Charlottesville, near the Omni Hotel where our conference on ecological services was held.

Think about what should be an analogous situation.   What if a geologist shows up at your house and says that he thinks there is gold on your land.   Do you throw him out of your house and avoid him next time he comes around?     If someone wants to show you a better way to grow pine trees or crops on your land, do you feel you have to call your lawyer to protect you?   Why not?

Of course you are delighted to find gold on your land and you are enthusiastic about making it more productive in terms of crops or timber because it makes your land more valuable and gives you more options.   Finding rare species or having local environmentalists take unusual interest in your land will have the opposite effect because the benefits of the ecological services are widely shared by the greater community, while the landowner bears the expenses and the downside risk.  This is more than unjust; it is stupid.

I am continually astonished by the passion among landowners I meet to be good stewards of their land.   Most want to leave a legacy to future generations.  They are willing to spend money and time to protect and improve the environment, but landowners need to be concerned about open-ended liability and uncertainty related to changing standards.   And they are afraid that self-appointed “stakeholders” will dictate expensive or specific solutions and that they will lose control of their land.

Above is spring-time coming to Charlottesville, VA on March 13

Environmental gold 

Endangered species are rare and precious, like gold.  Ecological services are valuable and useful products of the land, just like timber and crops.   But unlike gold, timber or a corn crop, we lack a good way to price most ecological goods and services.  I am not advocating that we find the price of everything and value of nothing.  But value has to have some relation in price society is ready to pay.  As it stands today, beyond the rewards of virtue, landowners have few incentives to produce ecological services and little financial support to make needed investments.   Let me return to my gold analogy.  You discover gold on your land. The estimated value of the gold is $1,000,000 but it requires a $50,000 investment to get it. You would be foolish not to make this investment because you will make twenty times as much as you spend. Now imagine that you still are required to make that $50,000 investment and let the miners use your land, no matter how inconvenient, but all the gold that you get from your land is distributed equally to everyone in the country. How generous. Your share is less than a penny, but you also get the satisfaction that you have done something nice.  Of course, other stakeholders might still demonize you (it cost them nothing to complain) if you are less than 100% enthusiastic about paying the full costs or if you cannot come up with the $50k. 

Welcome to the priceless world of ecological services.

The incentives are wrong.  We have to change them and make it more profitable to produce or protect clean water, air, wildlife and natural beauty.  This will give the incentive and the means to those who do the work and make the decisions.  When I mentioned this incentive problem to an apartment dwelling friend, he scoffed and told me that landowners just had obligations and that we should just pass laws forcing them to comply.  Let’s overlook the totalitarian aspects implied by this statement and consider only the practical implications for our environment.  Is a command, compel and control paradigm the best way to move forward or should we try to get cooperation?   

Governments can make all sorts rules, but enforcing them is difficult w/o general support. (Many of the most environmentally degraded countries in the world have beautiful laws on their books, but nobody pays attention.  Don’t be fooled by so-called international comparisons,)  This is especially true in out-of-the-way places, i.e. places like forests.  A lax & casual attitude toward rules you don’t support is easy when nobody is watching.   But making one-way, difficult to enforce, rules has worse implications than simple non-compliance.  We also lose the ideas and intelligence that may solve some of our worst problems.

Enthusiasm needed, not mere compliance

Nobody is saying we should just get rid of the rules.  Anybody who remembers how things were thirty or forty years ago knows that we needed to take action and it worked.  But a generation ago, environmental protection was simpler.  Big sources were easy to identify.  You could look up to the smokestack or down to the pipe and make a rule to stop it.  We did a good job of cleaning up and we have eliminated most of the easy ones already.   I tried all day to find a dirty smokestack so that I could put the photo with this post; I couldn’t find one.  Today we not only have a challenge controlling pollution; we have even a bigger problem finding and identifying them.  More than 70% of the pollution entering Chesapeake Bay comes from non-point sources.   It is no longer the end of the pipe, or even the end of the cow, but pollution may be run–off from suburban lawns or fertilized fields.  It might be from your house or car.   Beyond that, environmental degradation can occur both from things you fail to do and from things you do.  We have a big storm water problem in Northern Virginia because people make sure water quickly runs away from their houses, but they don’t provide a place to soak in.  And drivers demand that tons of salt be dropped on any ice or snow that dares form on roads.  (BTW – we essentially require people to pollute the Bay by allowing the threat of lawsuits to fall heavily on anybody who fails to salt.  Sometimes bad things happen because of not in spite of our best efforts.)

In this more complicated environment, we really need to use the power of people’s imagination and intelligence. But you cannot force people to be creative.  The rule makers cannot even know which rules to make. With the right incentives, however, individuals all across America will be actively looking for opportunities to make things better.  The best way to  harness this “people power” is through a decentralized, distributed decision-making method, where individuals are autonomous but aggregated.   That way we can take advantage of all the information available to the masses of unrelated individuals and allow those people closest, most affected and most knowledgeable to have the greatest impact.   All these things together is what we usually call a market.    We need market solutions to environmental challenges.

Typical economic statistics do not include most of the things that keep us alive.   A big reason is that we just don’t understand that “ecological services” we get for free because we have not figured out good ways to measure them.     Estimates of the true worth of ecological services can range from near zero (a free good) to absurdly astronomical figures.   I suppose we can say that they are priceless in both cases.   

But we do indeed need to find a way to measure these services, because anything that doesn’t get measured gets wasted.  Anything that belongs to everybody gets abused by anybody.   And anytime the ones getting the benefit are not the ones paying for it … you get the picture. 

Above is a spring time robin.  

We discussed how to value and compensate ecological services and compare them to more conventional economic measurements at an ecosystems services seminar in Charlottesville.   There was a lot to think about and  I will write more about it tomorrow. 

Until then, there is a good Congressional Budget Office (CBO) explanation of how a Federal cap & trade on CO2 would work. 

A solution is elegant if it is gracefully concise and simple; admirably succinct.  Elegance also implies beauty and a profound understanding.   The opposite of elegant solutions are clumsy, complicated and cumbersome.  The parts fit together poorly and there are too many of them.  We are working toward this sort of non-elegant solution to our problem of CO2.  

I read today in Scientific American that the EPA will begin a carbon register.  This will be a sort of Doomsday Book of carbon emissions, detailing emissions great and small with the eventual intent of regulating and taxing them.   (You will recall that William the Conqueror commissioned the original Doomsday Book precisely so that he could squeeze the maximum taxes out of the newly subjugated Saxons.) 

The announcement of the carbon Doomsday Book was greeted with ecstasy and enthusiasm by the chattering, regulating and taxing classes.   They anticipate this will be as useful to them as the medieval version was to the Norman barons.  If it moves, tax it; if it keeps moving, regulate it and if it stops moving subsidize it.   This becomes much easier if you have detailed records.  I am not against taxing carbon.  On the contrary, I think we should tax it a lot.  It is the most elegant way of reducing greenhouse emissions and weaning us away from oil, which is often controlled by bad men in unstable places.  (We don’t fight wars FOR oil, but we certainly have trouble BECAUSE of it.)  The carbon tax is elegant in its simple form.  It creates the proper incentive and it has a minimal effect on freedom.  It actual solves the problem while letting people and firms use their intelligence, imaginations and energy to find innovative ways to  benefit from the new situation.   That is why we won’t get the simple version.  

Inelegant solutions persist because they create opportunities for well-placed people to squeeze out fees, skim off profits & collect tolls.   A good metaphor, in fact, is a bumpy, winding toll road full of steep turns and choke points.  Lots of people can collect tolls at these places.  Others exploit the traffic charging higher prices to those who inevitably get stuck on the road.  Garages make money by fixing flat tires and broken axles.  The authorities can reward their friends with permits and special exemptions.  And all the crooks can pretend that they want to fix the problem. They probably hold telethons; celebrities attend; politicians make promises. All this frenetic activity distracts the mass of people like a shinny object.  They may even thank the perps for being inconvenience and ripped off.  Occasionally, someone will smooth down a few bumps or fill some pot holes.  Regulators will force some of the greediest exploiters to lower their prices, and everybody is grateful, but those who could really solve the problem in a systemic way make sure that nobody builds a bypass that will improve conditions at the expense of their sweet deals.
 
So the carbon Doomsday Book will form the basis of some kind of cap & trade.  Cap & trade can work. It worked beautifully, inexpensively and elegantly to reduce the pollution (SO2, NOX etc) that led to acid rain.  But it requires as preconditions a relatively small number of participants with an easily measured output working under roughly similar conditions enjoying available alternative options all subsumed under a system that can ensure against cheating and/or excessively gaming the system.   Carbon cap & trade meets none of those conditions because carbon is everywhere. 
 
Every human activity produces CO2.  Notice I did not use the qualifier “almost”, because you are producing CO2 as long as you are breathing and even after you stop doing that, you continue to emit CO2 when you decompose.  When you include other greenhouse gases, such as methane, you covered almost anything you can think of doing beyond breathing.   

CO2 is not pollution.  It is a necessary part of the ecological system.  We just may have added a bit too much of it for the current balance.   That means that regulating this is extremely difficult through anything except a very simple tax on the fossil forms of CO2 (oil, coal, gas etc). 
 
You can imagine the absurdities & shenanigans that will come from a political interpretation of the cap & trade on ubiqutous carbon.  Politically powerful groups will get exemptions.  Others will figure out elaborate ways to game the system.  Maybe if all our employees just held their breath … I am not completely unbiased.  My forests produce carbon credits, which I could sell to rich celebrities, who can then devastate the atmosphere with guilt-free impunity. I explained how I rationalize this in an earlier post, but you will find people a lot smarter than I am with even better rationalization.  They will all form long lines at the government trough.  Most will get more than the couple hundred dollars a year my forest land earns by doing things less useful than growing trees. 

The cap & trade will cost us at least $646 billion (yes billion with a b) by 2019.  I think that is a price we must be willing to pay.   Price is the only thing that reliably stimulates conservation and energy innovation.  Experience shows that CAFE standards just make activists feel good and provide political cover.  And all the talk about conservation is just people talking until the prices go up.  In 2006, the U.S. succeeded in reducing its CO2 emission during a time of rapid economic growth.  No other major country had ever done that.  How?  The only thing that was different was price of oil.  

Besides, it doesn’t have to be all downside.  The potential energy solutions are related to some very cool technologies (nanotech, biotech, better materials etc) and the advances might well be worth more than the cost – IF the incentives are right.   We need to keep it simple and elegant.  A simple tax on carbon will do that.    Cap & Trade might work for carbon too, but given the fecklessness of politicians it will probably cost more than it should and produce less innovation than it could.

You can read more about the advantages of a carbon tax v cap & trade at this link.