A note on permits, standards, and technological innovation

Montero (J. Environ. Econom. Manage. 44 (2002) 23) contrasts the incentives to invest in new abatement technologies under different regulatory instruments and argues that one needs to consider the induced output effects that derive from lower abatement costs. Montero shows that, once one takes into account these effects on output, command-and-control instruments can generate stronger incentives to innovate than market-based instruments. This result rests on strategic output effects under command-and-control. However, he maintains that, under perfectly competitive conditions, market-based instruments will continue to weakly dominate command-and-control regulation. This note clarifies two issues raised by Montero. First, I use Montero's approach to show that in fact performance (concentration) standards will generate greater incentives to innovate than market-based instruments in perfectly competitive markets. One does not require strategic effects to get this result. Second, Montero abstracts from production costs and concentrates solely on abatement costs. He implicitly assumes that marginal production costs are constant. I show that some of Montero's results change once increasing marginal production costs are considered. When marginal costs are increasing, the benefit of additional output is tempered and market-based instruments again look more favorable.     

Markets and the crowding out of conservation-relevant behavior

Markets are increasingly being incorporated into many aspects of daily life and are becoming an important part of the conservation solution space. Although market-based solutions to environmental problems can result in improvements to conservation, a body of social science research highlights how markets may also have unforeseen consequences by crowding out or displacing 3 key types of behaviors potentially relevant to conservation, including people's willingness to engage in collective action and civic duty; tolerance for inflicting harm on others (third-party externalities); and desire for equity. Better understanding of the contexts and mechanisms through which this crowding out occurs and whether specific market-based instruments are more prone to different types of crowding out will be crucial to developing novel conservation initiatives that can reduce or prevent crowding out.     

Accepting market failure: Cultural worldviews and the opposition to corrective environmental policies

To explore whether and why people sometimes reject environmental policies that improve individual and collective outcomes, we create an experimental market in which transactions generate a negative externality. Market participants endogenously determine whether to implement corrective policies. We consider three policy instruments (Pigouvian taxes and subsidies, and quantity regulation) and two levels of policy efficiency (full and half). We then explore how individual cultural worldviews might contribute to the rejection of policies that correct the market failure. Our results indicate that people often oppose policies that improve their material outcomes, and we find that such opposition is significantly explained by cultural worldviews. Interesting connections emerge between individual worldviews and specific policy instruments.     

Rent dissipation and efficient rationalization in for-hire recreational fishing

Recreational fisheries are increasingly important in fisheries management; for some species, recreational take rivals or exceeds the amount harvested by commercial fishermen. Most recreational fisheries are regulated with gear restrictions, bag limits, and time/area closures, but there is increasing interest in the market-based solutions employed in commercial fisheries — this despite the lack of an adequate bioeconomic theory of the joint commercial/recreational aspects of many recreational fisheries. This paper integrates a detailed production specification with traditional bioeconomic tools in order to better understand the implications of rationalization schemes targeted at the charter sector. While confirming some of the qualitative conclusions of the commercial fisheries literature on open access and regulated open access our model also generates rich and novel predictions with respect to input choices, the number of vessels and congestion externalities. We devise a system of instruments that generate efficient outcomes and extensively discuss issues associated with their real-world implementation.     

A note on the use of property values in estimating marginal willingness to pay for environmental quality

The principle purpose of this paper is to discuss the theoretical background of the use of property values in estimating damage function. In the first part of the paper a general equilibrium model is constructed in which environmental quality differences are capitalized into land rents. In the second part of the paper some of the assumptions needed for this result are scrutinized, and it is found that they are hardly realistic. The main conclusion is, thus, that the study of property values cannot give viable estimates of the marginal willingness to pay for environmental quality.     

An overview of the environmental finance policies in China: retrofitting an integrated mechanism for environmental management

Considering the significant roles of the policies in developing environmental finance, an overview is conducted on the environmental finance policies （EFPs） in China. This paper analyzed the definition, scope, evolution and main instruments of EFPs. The implementation progress of financial activities on each instrument are investigated respectively. Then the experiences learned from and failures discovered in the development of the EFPs are discussed well recommendations for further improvement of the EFPs and their implementation are provided. Our study found that the EFPs have been established in China after a four-phase evolution since the early 1980s. The policies have played a critical role in leading to a rapid development in environmental finance by involving more financial instruments to accomplish the objective-led environmental plans. Driven by the policies, the new green credit （GC）, green security （GS）, and green insurance （GI） instruments have been phased in as supplements to the conventional command and control approaches to improve the environmental governance of financial activities and pollution sources. However, the market mechanism of financial institution is limited due to their defensive and incapable performance on implementation some of EFP instruments. To further strengthen the effectiveness of EFPs in facilitating environmental man- agement, recommendations are made mainly on the aspects including developing more specific policy guidelines, enhancing information sharing and disclosure, providing sufficient economic incentives, establishing environmental liabilities with financial activities, and involving issues related to climate change, and biodiversity and ecosystem service.     

Financial Mechanisms for Conservation in Brazil

Abstract:  I reviewed some of the financial mechanisms for biodiversity conservation activities in Brazil. There is a heavy dependence on the public sector, but macroeconomic policies aimed at reducing government spending have resulted in reduced budgets dedicated to public conservation measures. The financial constraints for environmental protection have also increased because of a reduction in foreign aid. Positive signs for the immediate future, however, come from new initiatives that create economic instruments to finance conservation. The most important initiatives include conservation criteria for tax redistribution; environmental compensation; water charges; royalties for electricity, petroleum, and natural gas; tradable obligations for forest reserves; and voluntary measures on the part of the business sector. Resources created from these initiatives have different origins and are managed by different public agencies according to varying laws and policies, so their efficient implementation will require that the institutions involved in biodiversity conservation in Brazil establish a minimum set of common priorities and objectives.     

Crediting uncertain ecosystem services in a market

The margin of safety (MOS) approach is an increasingly prevalent tool for ensuring the integrity of market-based programs for providing ecosystem services. Over-crediting is reduced by setting aside mean estimates of uncertain services in favor of a more conservative estimate. Like many environmental policy problems, ecosystem service markets involve the aggregation of uncertainty over multiple scales, e.g. from landowners to market intermediaries to the overall market. We examine how the MOS instrument affects, and is affected by, an ecosystem services market. We show that the common bottom-up approach of imposing risk preferences at a local, disaggregated level—held over from earlier development in the context of toxics and command and control-style health risk regulation—leads to several unintended consequences. Furthermore, discounting landowner services can actually increase their profits, conditional on the elasticity of credit demand. We illustrate theoretical insights with an empirical application to greenhouse gas offset crediting in agriculture.     

Foster,but not genetic,father plumage coloration has a temperature-dependent effect on offspring quality

Secondary sexual characters have most likely evolved through sexual selection because such traits indicate the genetic or phenotypic quality of the bearer. While genetic variation in such fitness-related traits should be depleted by directional selection, there are many cases in which variation is higher than expected. One hypothesis explaining this variation is that different phenotypes within a population are adapted to different environmental conditions. We tested this hypothesis by comparing the offspring quality of male pied flycatchers, Ficedula hypoleuca, with different degrees of melanin-based dorsal plumage coloration under different environmental conditions. To create different environmental growth conditions and to be able to separate offspring genotype effects from paternal effects on offspring body mass, we used a partial cross-foster design where the brood size was reduced or enlarged by one chick. We also examined the interactive effects of temperature and male phenotype because previous correlative studies suggest such temperature-dependent effects in this species. We show that, while manipulated brood size did not interact with male phenotype to affect offspring quality, temperature during the nestling period influenced the offspring quality of dark and brown foster (but not genetic) fathers. When the temperature was relatively low during the nestling period, foster offspring of black males were lighter than those raised by brown males; the opposite was true if temperature was relatively high. These results add a new aspect to our understanding of how variation in the degree of melanin-based coloration is maintained in wild populations and how phenotypic variation may be maintained in general.     

Constructing meaningful environmental indices: A nonparametric frontier approach

Environmental information disclosure programs seek to motivate firms to reduce their environmental impact. A variety of environmental impacts are reported in these programs and often this information is aggregated into a composite environmental index (CEI) for easier communication. The challenge is to create a meaningful index that allows environmental performance to be compared over time and space without ambiguity. In this paper, we argue that it is important to develop a cardinally meaningful and standardized CEI and use a nonparametric frontier approach to constructing such an index. This approach has the advantage to handle issues associated with data irregularity and the mixed measurability of underlying variables. We apply this approach to constructing a CEI for evaluating the environmental performance of manufacturing facilities in different industrial sectors in Los Angeles based on data from the toxic release inventory. We show how the CEI can be used to improve facility-level environmental performance. A sensitivity analysis is conducted with respect to the uncertainty in data accuracy, which demonstrates the robustness of the nonparametric frontier approach in constructing meaningful environmental indices.     

Regulator reputation, enforcement, and environmental compliance

This paper explores empirically the impact of enforcement efforts on environmental compliance, focusing on the role of regulator reputation spillover effects. We find that, on the margin, the impact of a fine for water pollutant violations is about a two-thirds reduction in the statewide violation rate in the year following a fine. This large result obtains through the regulator's enhanced reputation; the deterrence impact on other plants in a state is almost as strong as the impact on the sanctioned plant. Focusing only on the response of the sanctioned plant, as in previous studies, may therefore seriously underestimate the efficacy of fines and other sanctions. This paper also examines the relative effectiveness of monitoring and enforcement instruments. Non-monetary sanctions contribute no detected impact on compliance, and the marginal fine induces substantially greater compliance than the marginal inspection.     

Negotiating a voluntary agreement when firms self-regulate

Does self-regulation improve social welfare? We develop a policy game featuring a regulator and a firm that can unilaterally commit to better environmental or social behavior in order to preempt future public policy efforts. We show that the answer depends on the set of policy instruments available to the regulator. Self-regulation improves welfare if the regulator can only use mandatory regulation, but it reduces welfare when the regulator opts for a voluntary agreement. This suggests that self-regulation and voluntary agreements are not good complements from a welfare point of view. We derive policy implications, and extend the basic model in several dimensions.     

Environmental policy à la carte: Letting firms choose their regulation

Under uncertainty, the optimal choice between price and quantity instruments depends on the technology of the regulated firms, which is often private information. We consider an environmental policy that delegates the prices-versus-quantities decision to the firms by offering them the choice between an emissions tax and permit trading. Such an approach is currently used in Swiss climate policy. We provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit-trading regime. We demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints, and that all firms gain from the introduction of the instrument choice compared to optimally designed single-instrument policies. Furthermore, we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation.     

Transitional politics: emerging incentive-based instruments in environmental regulation

This paper proposes a positive theory of environmental instrument choice. We study a democratic society that seeks to lower the level of pollution from industrial sources to a pre-specified target. The target can be implemented by one of three instruments: [S]: uniform emission standards; [P]: tradeable permits; and [T]: emission taxes. The conflict of interest between special-interests, representing polluters, and the electorate is resolved by an elected politician. We characterize when each of the three policy instruments is chosen in political equilibrium and show that the transition, observed in many countries, from [S] to either [P] or [T] can be understood as a natural consequence of increasingly ambitious environmental targets.     

Can household consumers save the wild fish? Lessons from a sustainable seafood advisory

Conservation organizations seeking to reduce over-fishing and promote better fishing practices have increasingly turned to market-based mechanisms such as environmental sustainability labels (eco-labels) in order to shift patterns of household consumption. This paper presents an analysis of consumer response to an advisory for sustainable seafood adopted by a regional supermarket in the United States. The advisory consisted of a label in which one of three traffic light colors was placed on each fresh seafood product to inform consumers about its relative environmental sustainability. Green meant “best” choice, yellow meant “proceed with caution,” and red meant “worst choice”. Using a unique product-level panel scanner data set of weekly sales and taking advantage of the random phase-in of the advisory by the retailer, we apply a difference-in-differences identification strategy to estimate the effect of the advisory on overall seafood sales as well as the heterogeneous impact of the advisory by label color and whether the seafood met additional health-related criteria. We find evidence that the advisory led to a statistically significant 15.3% decline in overall seafood sales, a statistically significant 34.9% decline in the sale of yellow labeled seafood, and a statistically significant 41.3% decline in the sale of yellow labeled seafood on a mercury safe list. We find no statistically significant difference in sales of green or red labeled seafood.     

An economic evaluation framework for land-use-based conservation policy instruments in a changing climate

Climate change is a key threat to biodiversity. To conserve species under climate change, ecologists and conservation scientists suggest 2 main conservation strategies regarding land use: supporting species’ range shifts to enable it to follow its climatic requirements by creating migration pathways, such as corridors and stepping stones, and conserving climate refugia (i.e., existing habitat areas that are somewhat buffered from climate change). The policy instruments that could be used to implement these conservation strategies have yet to be evaluated comprehensively from an economic perspective. The economic analyses of environmental policy instruments are often based on ecological effectiveness and cost-effectiveness criteria. We adapted these general criteria to evaluate policy instruments for species’ conservation under climate change and applied them to a conceptual analysis of land purchases, offsets, and conservation payments. Depending on whether the strategy supporting species’ range shifts or conserving climate refugia is selected, the evaluation of the policy instruments differed substantially. For example, to ensure ecological effectiveness, habitat persistence over time was especially important for climate refugia and was best achieved by a land-purchase policy instrument. In contrast, for the strategy supporting range shifts to be ecologically effective, a high degree of flexibility in the location of conserved sites was required to ensure that new habitat sites can be created in the species’ new range. Offset programs were best suited for that because the location of conservation sites can be chosen comparatively freely and may also be adapted over time.     

Would hotelling kill the electric car?

In this paper, we show that the potential for endogenous technological change in alternative energy sources may alter the behaviour of resource-owning firms. When technological progress in an alternative energy source can occur through learning-by-doing, resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology. We show that in such a context, it is not necessarily the case that scarcity-driven higher traditional energy prices over time will induce alternative energy supply as resources are exhausted. Rather, we show that as we increase the learning potential in the substitute technology, lower equilibrium energy prices prevail and there may be increased resource extraction and greenhouse gas emissions. We show that the effectiveness and the incidence of emissions reduction policies may be altered by increased potential for technological change. Our results suggest that treating finite resource rents as endogenous consequences of both technological progress and policy changes will be important for the accurate assessment of climate change policy.     

Betriebliche Umweltinformationssysteme (BUIS) Anforderungen und struktureller Aufbau

Appropriate organization structures, environmental controlling systems, and corporate environmental information systems (CEIS) are generally considered to be the essential instruments of a modern environmental management. Frequently, acceptance problems have been observed with respect to the installation of a CEIS due to the facts that there are no legal demands to implement such a system and, on the other hand, that theoretically based definitions of standards and structural principles of an CEIS are not yet available. As a consequence, different isolated solutions with rather low efficiency were hurriedly implemented by various companies. Regarding more precise request profiles for CEI systems, the present paper deals with the structural environment and the priority targets of an enterprise and with the organizational integration of environmental tasks. The operationalization into typical function fields yields tools to derive rough enterprise models, to analyze information streams and to select enviromentally relevant information as well as the routes which they tend to go. Based on these fundamental instruments, a CEIS architecture (structure and organization) can be developed whose realization is eventually supported by a ten-step plan. Existing EDP solutions are deliberately excluded in order to verify the general validity of the system architecture and to encourage creative potentials. The CEIS concept presented here, however, requires a transformation into operative practices, i.e. adjustment, completion, and combination of the elements concerning the detailed conditions of the enterprise under study.     

Indicators of ecosystem function identify alternate states in the sagebrush steppe

Models of ecosystem change that incorporate nonlinear dynamics and thresholds, such as state-and-transition models (STMs), are increasingly popular tools for land management decision-making. However, few models are based on systematic collection and documentation of ecological data, and of these, most rely solely on structural indicators (species composition) to identify states and transitions. As STMs are adopted as an assessment framework throughout the United States, finding effective and efficient ways to create data-driven models that integrate ecosystem function and structure is vital. This study aims to (1) evaluate the utility of functional indicators (indicators of rangeland health, IRH) as proxies for more difficult ecosystem function measurements and (2) create a data-driven STM for the sagebrush steppe of Colorado, USA, that incorporates both ecosystem structure and function. We sampled soils, plant communities, and IRH at 41 plots with similar clayey soils but different site histories to identify potential states and infer the effects of management practices and disturbances on transitions. We found that many IRH were correlated with quantitative measures of functional indicators, suggesting that the IRH can be used to approximate ecosystem function. In addition to a reference state that functions as expected for this soil type, we identified four biotically and functionally distinct potential states, consistent with the theoretical concept of alternate states. Three potential states were related to management practices (chemical and mechanical shrub treatments and seeding history) while one was related only to ecosystem processes (erosion). IRH and potential states were also related to environmental variation (slope, soil texture), suggesting that there are environmental factors within areas with similar soils that affect ecosystem dynamics and should be noted within STMs. Our approach generated an objective, data-driven model of ecosystem dynamics for rangeland management. Our findings suggest that the IRH approximate ecosystem processes and can distinguish between alternate states and communities and identify transitions when building data-driven STMs. Functional indicators are a simple, efficient way to create data-driven models that are consistent with alternate state theory. Managers can use them to improve current model-building methods and thus apply state-and-transition models more broadly for land management decision-making.