Plenary Keynote Lectures
Thursday, June 28, Opening Ceremony and the David Pearce Lecture
ECONOMIC ANALYSIS FOR ECOSYSTEM SERVICE ASSESSMENTS
Recent years have seen increased interest in the 'ecosystem service' conceptualisation of the support which the natural environment provides for human wellbeing. We argue that this approach is entirely compatible with environmental economics and indeed is best seen as a call to ensure that economic analyses are grounded upon a firm base of natural science.
The paper examines the application of economic analysis to ecosystem service assessments. Taking as an example the recent UK National Ecosystem Assessment (UK-NEA), we apply methods for valuing changes in the services provided by the natural environment. Particular attention is given to the incorporation of spatial variation in the environment within such valuations. Findings highlight the substantial improvements in welfare that can arise from shifting the emphasis of decision making away from a focus upon market priced goods towards a broader conception of economic values. We also consider weaknesses in such techniques, particularly with respect to the assessment of non-use values and draw upon ongoing work in developing countries to suggest a potential solution to such problems.
We conclude by highlighting the need to go beyond valuations of ecosystem service flows to consider the sustainability of natural asset stocks.
Professor Ian Bateman is director of CSERGE and also leads the Economics team for the UK National Ecosystem Assessment (NEA). He is Principal Investigator of the NERC Valuing Nature Network which seeks to bring together natural scientists, economists, social scientists, the policy community and business leaders to provide an integrated basis for environmental decision making. He is also Principal Investigator of the ESRC SEER Large Grant award which seeks to put the ecosystem services approach to decision analysis into practice. While it is human economic activity which has resulted in the major global environmental problems facing present and (to a greater extent) future generations, it is clear that reform of that economic activity provides the only viable solution to such problems. His interests lie in attempting to achieve this reform by bringing the environment into everyday decision making whether at the highest level, by informing government policy, or at the supermarket checkout by ensuring that prices reflect the true resource costs of production. Much of his research therefore seeks to value the true cost of pollution and the true worth of environmental improvements.
Friday, June 29
INTEGRATED ASSESSMENT MODELING IN ECONOMICS AND CLIMATE CHANGE
The special contribution of economics to the understanding and policy of climate change has been the development of integrated assessment models (IAMs). In this talk, I will sketch the development of IAMs. Integrated assessment models can be defined as approaches that integrate knowledge from two or more domains into a single framework. These are sometimes theoretical but are increasingly computerized dynamic models of varying levels of complexity. The talk will illustrate how IAMs approach climate change using the DICE/RICE family of models as an example. The discussion will then describe some of the open issues in IAMs: the social cost of carbon, complexity and transparency, the discount rate, uncertainty for thin-tailed distributions, higher-moment uncertainty ("fat tails"), catastrophic climate change, strategic considerations and the game-theoretic aspects of climate-change policy, and modeling technological change. It will conclude that there is much fruitful work for environmental economists working with other scientists to develop our understanding in these areas.
William D. Nordhaus is Sterling Professor of Economics at Yale University, New Haven, Connecticut, USA. He is the author of many books, among them Invention, Growth and Welfare, Is Growth Obsolete?, The Efficient Use of Energy Resources, Reforming Federal Regulation, Managing the Global Commons, Warming the World, and (joint with Paul Samuelson) the classic textbook, Economics, whose nineteenth edition was published in 2009. His research has focused on economic growth and natural resources, the economics of climate change, as well as the resource constraints on economic growth. Since the 1970s, he has developed economic approaches to global warming, including the construction of integrated economic and scientific models (the DICE and RICE models) to determine the efficient path for coping with climate change. From 1977 to 1979, he was a Member of the President's Council of Economic Advisers. He has served on several committees of the National Academy of Sciences including the Committee on Nuclear and Alternative Energy Systems, the Panel on Policy Implications of Greenhouse Warming, the Committee on National Statistics, and the Committee on the Implications for Science and Society of Abrupt Climate Change. He recently chaired a Panel of the National Academy of Sciences that produced a report, Nature's Numbers, that recommended approaches to integrate environmental and other non-market activity into the national economic accounts.
Saturday, June 30, Closing Ceremony
VALUING NATURE IN A GENERAL EQUILIBRIUM
Economic analysis of environmental policies emerged about fifty years ago. Research in this area was regarded as narrow and specialized, with limited relevance to other fields in economics. No one could make that claim today. While the progress in non-market valuation methods, the design of policy instruments, and a host of other research areas in environmental economics has been dramatic, the analysis of environmental problems remains detached from main stream economics. It is assumed that analyses undertaken can be separated from the rest of the economy, especially in macro-economic analyses. Economic conditions affect the state of environmental resources but there is limited recognition of feedback effects at the scale of aggregate economies.
Changing this perspective poses significant challenges. This presentation uses a simple general equilibrium analysis of the effects of air pollution on ecosystem services to identify three areas confounding progress in integrating environmental economics with mainstream economic analysis. First, we do not know how to measure environmental services. Crude proxy variables are norm. This is important because they can be manipulated in ways that change the tradeoff measures used to evaluate their economic importance. Second, the spatial scales for ecosystems and economic systems are not aligned. This disparity implies that the decisions to model one system consistently run a risk of misrepresenting the other. Moreover the implications of discrepancies in these types of scale decisions, as influences to the results from linked ecological and economic models, have not been systematically evaluated. Finally, we don't know how to include environmental services in the primitives used to define fundamental economic relationships. Differences between substitution versus complementarity relationships between different ecosystem services as well as with market goods in contributing to these relationships create large differences in outcomes. This finding is especially relevant to general equilibrium modeling of the welfare effects of major policies that impact environmental resources. Addressing these issues requires that a general equilibrium perspective guide research on non-market valuation, policy evaluation, and the design of instruments for policy.
To develop the motivation for the analysis results from different approaches to developing general equilibrium analyses will be discussed. Specific focus is given to the effects of changes in the characterization of ecosystem services for assessments of the economic implications of policies that are responsible for enhancing these environmental services. The empirical findings are derived primarily from considering alternative modeling assumptions within a linked computable general equilibrium model with three different types of ecosystem services affected by two types of air pollution.
V. Kerry Smith is a Regents Professor of economics at the W.P. Carey School of Business at ASU. He directs the Center for Environmental Economics and Sustainability Policy in the L. William Seidman Research Institute, which serves as a link between the local, national and international business communities and the W.P. Carey School of Business. He is a member of the National Academy of Sciences and a University Fellow at Resources for the Future, a nonprofit think tank based in Washington, D.C.. He is also a fellow of the Association of Environmental and Resource Economists, and of the American Agricultural Economics Association. Smith came to ASU from North Carolina State, where he was a University Distinguished Professor and the Director of the Center for Environmental and Resource Economic Policy.