Environmental economics is muddy


These days, everyone wants a say in how you manage the natural resources of your land.
Your water, your soil, your manure, your air – you’re bombarded from all sides with input.
The voices are growing louder because natural resources are a “public good” on your private land. What you do on your farm affects those living off your farm, too.
But if they want to dictate your actions, will they throw any money your way? After all, you are a steward of the “public good.”
What’s it worth? Landowners do make significant adjustments to protect resources, but they often have to eat the cost of implementing the practice or suffer a related loss in income (i.e. by removing land from production).
Economists think the market works for most goods and services; why can’t it work for agriculture’s external benefits?
Isn’t having farmland surround you “worth” something in terms of green trees, open space, and scenic fields of grain? Natural resources are raw materials; they sustain human life, biodiversity, food, products. But how does the market capture that value? How do farmers?
Downstream shift. Ten years ago, I listened to Ohio State ag economist Fred Hitzhusen discuss this subject. His point: How well do we value each quality of a natural resource when one goes up at the expense of others?
Even then, Hitzhusen observed the entitlements we deem through our property rights – to possess it and use it – “are shifting downstream, downwind.”
He was prophetic.
Hitzhusen also recommended then that policy reforms should focus on increasing economic incentives for conservation. One could argue we’ve done that, but I’d argue we haven’t done enough.
Cap and trade. What worries me is that over the last five years, I’ve read too many references to “credits” – water quality credits; carbon credits; ammonia emission credits; wetland credits.
Here’s the theory behind the whole credit, or “cap and trade,” theory: Set the goal (i.e. carbon dioxide emissions), then allot “polluters” permits equal to the total. The “light polluters” can trade their credits to the “heavy polluters.” You’ll recognize the process as the acid rain-sulfur dioxide trading system among power plants that’s been in place since 1990.
The carbon sequestration/credit gets the most press now, but economists fill publications with ideas of soil erosion credits, energy credits, TMDL credits, you name it.
I am not convinced a cap and trade system will put more money into farmers’ pockets without numerous strings that negate any savings. Someone will make money, but not farmers.
My musty college economics textbook lays it on the line: “Potential gains are present, but they may go unrealized because the pricing mechanism does not make it possible for a decision-making to appropriate or capture the gain that he bestows on others.”
The name of the chapter? “Problem Areas for the Market.”
(Editor Susan Crowell can be reached at 1-800-837-3419 or at editorial@farmanddairy.com.)


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