Thursday, August 24, 2006

Killing endangered animals to save them?

I’ve belatedly discovered YouTube and my girlfriend was showing me some very amusing Borat clips on the weekend. There’s one interview with a particularly ghastly big game hunter in the US whose comments are so offensive you can only laugh, or cry. In one scene he’s showing off the trophy heads of animals he’s shot. He points to one and says proudly "This one’s the most expensive. I had to pay $12,000 to shoot it. But it was worth it. [beaming] It’s extinct now!"

Hunters do not attract a lot of sympathy. But I’ve come across two thought-provoking articles this week on whether allowing hunting and trade in endangered animals and their products could actually help save them from extinction.

The first article* looked at recent efforts in China to commercialise tiger ‘production’:

like forests, animals are renewable resources. If you think of tigers as products, it becomes clear that demand provides opportunity, rather than posing a threat. For instance, there are perhaps 1.5 billion head of cattle and buffalo and 2 billion goats and sheep in the world today. These are among the most exploited of animals, yet they are not in danger of dying out; there is incentive, in these instances, for humans to conserve.

So it can be for the tiger. In pragmatic terms, this is an extremely valuable animal. Given the growing popularity of traditional Chinese medicines, which make use of everything from tiger claws (to treat insomnia) to tiger fat (leprosy and rheumatism), and the prices this kind of harvesting can bring (as much as $20 for claws, and $20,000 for a skin), the tiger can in effect pay for its own survival. A single farmed specimen might fetch as much as $40,000; the retail value of all the tiger products might be three to five times that amount.

Yet for the last 30 or so years, the tiger has been priced at zero, while millions of dollars have been spent to protect it and prohibit trade that might in fact help save the species...

If we truly value the tiger, this crisis presents an opportunity to help it buy its way out of the extinction it now faces. The tiger breeds easily, even in captivity; zoos in India are constantly told by the Central Zoo Authority not to breed tigers because they are expensive to maintain. In China, which has about 4,000 tigers in captivity, breeding has been perfected. According to senior officials I met in China, given a free hand, the country could produce 100,000 tigers in the next 10 to 15 years…

tiger-breeding facilities will ensure a supply of wildlife at an affordable price, and so eliminate the incentive for poachers and, consequently, the danger for tigers in the wild. With selective breeding and the development of reintroduction techniques, it might be possible to return the tiger to some of its remaining natural habitats...

Unfortunately, the article is long on free-market rhetoric and short on examples, theory or other information on how allowing trade promotes recovery. The argument seems to be that if trade was legal, farming would become cheap and widespread and there would be no incentive to hunt wild tigers. I’m not at all sure that’s right. Breeding or ‘farming’ tigers is no doubt difficult and expensive. I imagine it’s cheaper and easier to go into the jungle and just shoot one than breed and raise these animals from cubs.

It may well be that allowing trade in tiger products could assist wild populations, but it would have to be combined with well-resourced enforcement to prevent hunting of wild tigers, effective tracking of products to ensure the traded products didn’t include illegally hunted tigers and well-resourced reintroduction programs to re-establish wild populations. Simply legalising trade would only increase the demand for wild tigers and reduce the risks of prosecution and therefore costs of hunting them.

And, of course, this all ignores the objections that many people will have to the initially repulsive idea of commercially farming majestic wild animals like tigers to grind their claws into insomnia treatments.

The second article** (pdf), which is quite detailed and much more useful, examined elephant populations in Africa.

It found that countries where ‘ownership’ of elephants (ie, the power to make decisions about what to do with them and the right to the benefits of those decisions) was vested in local communities had elephant populations that grew much more than countries where ownership was vested in the government (eg, through wildlife reserves), was not vested in anyone (open access) or where hunting was banned. Bans were ineffective because the resources required for their enforcement were too high for governments which meant that poaching was rife (in effect the position was similar to if the elephants were an open access resource).

Communities in these successful countries could decide which of the elephants in the vicinity of their village would be killed for their products, which kept for tourism benefits and which licensed for hunting. The communities made the decisions and the economic costs and benefits of their decisions accrued to them in the form of fees from tourist operators or hunting licences and food and/or income from selling elephant products. These communities could also effectively monitor their local elephants and had enough information and resources to stop poaching.

This is an interesting topic and one I’d like to know more about. It seems to me that, in theory, allowing trade in endangered animals / animal products could improve their prospects of recovery but only under fairly limited conditions:

  • The animals must be able to be either bred in captivity or their hunting regulated at a rate at which their wild populations will grow;

  • Illegal hunting must be enforced at a level such that poaching is more expensive than legal breeding / harvesting;
  • If we care about having the animals survive in the wild and not merely in zoos etc, captive bred individuals must be able to be returned to the wild and there must be some incentive or funding for that.
The main benefit of allowing trade seems to be that it allows for more effective enforcement against illegal hunting since poaching becomes a direct cost to the local community and it is often only the local community that has the local knowledge and incentive to actually enforce a hunting ban. Alternatively, it could be argued that the revenue from allowing trade could be directed into enforcement of illegal hunting.

Ultimately, it’s an empirical question (but also one of values) and it depends on the local conditions. I’ll try and track down some more empirical studies / articles. Does anyone know of any?

*Barun Mitra, The Value of wildlife: selling the tiger to save it (New York Times, 15 August 2006) via The Commons blog

** The Ivory Bandwagon:International Transmission of Interest-Group Politics
(Kaempfer and Lowenberg, 1999) via the Conservation Finance blog

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Tuesday, August 22, 2006

The economic case for reducing emissions

As I’ve discussed before, debates about reducing greenhouse gas emissions in Australia often pit ethical arguments in favour of reducing emissions against economic arguments that support doing nothing.

However, increasingly, there are good national economic reasons for taking strong efforts to start reducing our emissions.

In April, the Australian Business Roundtable on Climate Change put forward ‘The Business Case for Early Action’ on emissions. The Roundtable is a group of large Australian companies representing a cross-section of the Australian economy (including financial, energy and manufacturing companies). A group of businesses asking to be regulated by government? Asking for government to cap or tax their emissions? Why?

The same thing has been happening overseas. Also in April, CEOs of large energy and other companies such as General Electric, Wal-Mart, Shell and Duke Energy made submissions to a US Senate Committee saying they would welcome or accept mandatory caps on their emissions.

The Australian State and Territory governments last week released a very detailed discussion paper proposing a national emissions trading scheme. It also outlines some of the economic advantages of instituting a national scheme that provides some long-term guidance on what Australia’s climate change policy will be – whether by a national trading scheme, a carbon tax, or a long-term emissions reduction target.

So, here are some of the economic benefits of instituting a national scheme to reduce emissions:

Certainty is important for business

In the energy sector in particular, decisions often have long lead-times and long pay-off times. It can take a decade from the decision to build a large power station to the time it becomes operational and the station can operate for half a century.

Not knowing what rules will apply to greenhouse gas emissions in the future significantly increases the risks for investors, who are concerned about the risks of very expensive, long-lived assets. The current atmosphere of uncertainty can cause delays in investment until the policy position is clear. If this situation continues, it could mean higher electricity prices and less reliable supply than if the rules were clearly established in advance.

(NETS Discussion paper)

Delaying action could create economic shocks

The Roundtable’s ‘Business Case’ modelled the impacts of taking sustained action, starting in 2013, achieving 60% reductions by 2050 and also the impacts of the same reductions but starting in 2020. Under the ‘early action’ pathway, economic growth and employment growth would be higher, and the risk of recession and electricity prices lower than the ‘delayed action’ pathway. Of course, you can argue that the ‘no action’ pathway is best of all, but in a world where action is more and more likely to be demanded, adopting a ‘no action’ approach now increases the risk that the delayed action approach will be forced on us.

It’s likely that at some stage in the next few decades there will be a strong response (globally and/or domestically) and the ‘price’ of emissions may jump – perhaps strongly and suddenly. Taking action now reduces the risk of a shock in the future.

Encouraging action by other countries

Climate change will have substantial economic impacts on Australia. It’s in our interests that the world takes effective action to reduce its impacts. Taking active measures now gives us a more credible bargaining position later. Taking measures that help develop effective commercial technologies and institutions to reduce emissions will also make it easier for other countries (especially developing countries) to reduce their emissions. It also makes it more difficult for leaders of other countries to justify a lack of action on the basis that heavy emitters such as Australia are not taking action.

Encouraging commercialisation of technology

Australia is committing considerable funding to the politically uncontroversial route of supporting emissions reduction technologies. To get a return on these investments (in an environmental as well as economic sense), they need to be commercialised and adopted by industry. That is unlikely to happen (domestically at least) in the absence of measures that put a price on emissions and hence provide an incentive to adopt these technologies.

Until we have a strong international agreement to reduce global emissions, the economics for going it alone with a domestic scheme are unlikely to be compelling. But it is important to acknowledge that there are economic benefits of a strong domestic reductions scheme, the economic costs are more modest than is often assumed and there are strong ethical and political reasons for taking a national stand on this issue. Australia’s environment and economy are going to be heavily affected by climate change. In coming years, Australia may be pleading with other countries to take a stronger stand. We’ll be in a better position if we’ve taken a stand ourselves.


Thursday, August 10, 2006

An inconvenient truth: Coming soon to a cinema near you

Al Gore's climate change movie An Inconvenient Truth opens in cinemas across Australia on 15 September.

In the meantime, WWF is hosting an advanced screening in Sydney at Dendy Opera Quays on Wednesday 6 September.

For more info about the film check out the Inconvenient Truth website.

(Thanks to Vincenze for the heads-up.)

Update 9/11/06: I saw the film and my thoughts are here: An Inconvenient Truth: My thoughts


Australian economics blogs

There's some excellent economics blogs in Australia, from academics and others.


Harry Clarke is Professor of Economics at La Trobe Uni. His blog examines environmental and urban transport economics and the economics of public health - in particular, alcohol, tobacco and other drugs.

Joshua Gans is Professor of Management (Information Economics) at Melbourne Business School (Uni of Melbourne). His blog mainly looks at economics of technology, strategy and public policy.

Andrew Leigh is an economics lecturer at the ANU's Research School of Social Sciences in Canberra. His blog focusses on public policy economics.

John Quiggin, an academic economist at the University of Queensland, is a long-time and well-known Australian blogger. He approaches economics from a 'social-democratic perspective' so his stuff is a bit more lefty than the usual neoclassical fare.

Other economists

Institutional economics is a blog by Stephen Kirchner, a financial market economist based in Sydney. It has a macro and international focus, looking at economies, capital markets, monetary policy and similar wacky stuff.


Catallaxy and Club Troppo I guess you'd describe as broadly right-of-centre political group blogs but they have some good economic pieces in between the usual political, um, discourse.

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Wednesday, August 09, 2006

Why won't someone do something about fuel prices?

Australia always seems to be a bit behind the US and so it is that the frantic whingeing about fuel prices has reached our shores.

After seeing our venerable politicians and wise TV commentators going on and on about this over the past few days (Beazley reckons Howard has 'taken his eye off the ball' in letting fuel prices get so high) and getting that ridiculous chain email "Boycott Mobil, they'll HAVE to lower their petrol prices, then their competitors will have to lower theirs too", I thought I'd post something on this topic this morning. Then I noticed that the Sydney Morning Herald had done it for me with two good articles.

Brendan Bouffler in Heckler presents a blunt demand and supply analysis:
The rise in the price of fuel seems to be a worldwide phenomenon driven by a worldwide increase in demand for oil products. Think: China gets the FJ Holden craze.

But given there is a somewhat fixed supply of oil, it pretty much follows (I learned about this "supply-and-demand" thing at high school) that the price goes up when people want to buy more of the stuff than there is to sell. Think: bananas.
He thus suggests possible demand-side and supply-side solutions:
Hence the best collective action we can take to bring prices down is to buy less of the stuff. Take the bus once a week, or walk to the shops every now and again instead of driving. God forbid, ride a bike to work if you don't live in Dee Why. If you do, car pool...
If you want supply to increase (to satisfy your apparently unrelenting demand), you probably only have two choices:
- Write to councillors advocating that more oil refineries be constructed in your suburb or
- invade OPEC nations, and Russia.
Ross Gittins weighs in too:

ONE thing I hate about politicians is the way they pretend to indulge us rather than level with us. They rarely tell us the unvarnished truth about what problems they can fix and what they can't, preferring to string us along. They act as though they can fix everything, which encourages a culture of complaint and a focus on the alleviation of symptoms rather than a search for fundamental solutions.

Take all the whingeing about the price of petrol. No pollie's prepared to tell us that since the problem is a global shortage of oil, the rise in price is a healthy development because, by encouraging both producers and consumers to adjust their behaviour accordingly, it offers the best solution to the problem.

He also makes some good observations about the related issue of traffic congestion:

...traffic congestion isn't the problem. Actually, it's the solution to the problem - the only solution the public finds acceptable.

The real problem is that we all want to live together in big cities and travel to and from work or school at pretty much the same time of day. Now, it makes economic sense for us to live in cities and it makes social as well as economic sense for us to want to work when others are working.

But the problem is greatly compounded by our desire to live in low-density suburbs and to travel in our own cars - by ourselves.

So the demand for road space at peak times of the day greatly exceeds the supply of space available. The result is traffic congestion, which is merely a way of rationing the space on a first come, first served basis. It's a queue, in other words...

When demand exceeds supply we have to ration. And when you won't ration by price (which is what economists advocate) you have to ration by queue. So congestion isn't the problem, it's the solution to the problem - the only solution we're prepared to accept, our unending complaints notwithstanding.

I think some things are best handled by governments and some things left to markets. But if there's anything markets are good at, and governments bad at, it would have to be coming up with solutions to high energy prices.


Tuesday, August 08, 2006

Environmental economics blogs

I'm updating my list of links to other blogs and thought I'd take the opportunity to highlight some that I enjoy.

Today: environmental economics blogs. When I started blogging only late last year, there were only a couple of blogs devoted to this area (as far as I'm aware). Now there's a handful.

Environmental Economics
These guys have the self-confidence to call their blog simply 'Environmental Economics', and rightly so. It's authored by US academic environmental economists John Whitehead from Appalachian State University and Tim Haab from Ohio State University (with contributions from other US economists) and provides relevant, regular and very readable articles.

Ecological Economics
I'm an occasional contributor to this international group blog with the aim of providing a somewhat greener alternative to the mainstream (and, dare I say, conservative) Environmental Economics.

Environmental and Urban Economics
A more serious academic-style blog by Matthew Kahn of Tufts University (Massachusetts), it contains the full text of interesting articles with some brief commentary.

The Commons
Devoted to 'free market environmentalism', this blog is a bit hit-and-miss. The 'property rights are the answer to everything' perspective is interesting but the posts are more likely to be rants about how global warming is a myth than discussions of markets, property rights and environmental protection.

Robert Metcalfe (UK)
Robert is a student at London School of Economics and provides a UK perspective on environmental economic issues.

Brad Ewing (Ohio)
Brad is an economics and ecology student at Ohio State University. He posts some interesting articles and has a useful list of resources.

Conservation Finance
Lots of food for thought on the 'business' of biodiversity conservation.

Harry Clarke
I'm going to put Harry's blog 'Kalimna' in the 'Australian economics blogs' category, but worth mentioning here as he has a focus on environmental (and urban transport) economics.

Tomorrow: Australian economics blogs.


Friday, August 04, 2006

The rise of the electric car?

Cars have transformed history, lives and cities in the past century. Cars have allowed people to travel further, more easily, comfortably and cheaply than previous modes of transport. They have also transformed landscapes, with substantial amounts of land devoted to roads and cities that are larger and more spread-out. Cars inspire passion. The fact that they are inherently individualistic - you travel in them alone or with your family and you can buy one that expresses your tastes and tells people who you think you are – I think does a lot to polarise opinions about them. They are often portrayed as being symbolic of freedom – go where you want to go, but to detractors they can represent a selfish individualism where people enter little metal boxes and disengage with their communities.

The connections between cars and other modes of transport, urban planning, economics, productivity and the environment are strong and complicated. Posts about urban transport policy invariably elicit strong debates on this blog. But some environmental impacts of cars are relatively straightforward, In particular, they are large contributors to urban air and noise pollution and global greenhouse gas emissions.

Electric cars promise to reduce some of these environmental impacts. They can be quieter, more efficient and less polluting. And with high petroleum prices, they have been attracting attention lately.

Pure electric cars run on a rechargeable battery than can be recharged just by plugging them into a power point in your garage. (note we’re not talking here about hybrids – they run on petrol but have a battery that’s recharged from the engine and from braking and they can be thought of just as a much more efficient petrol vehicle). From a consumer point of view, electric powered cars have two main advantages: they’re pretty cheap and they have a much lower running cost (about 1 – 2 cents per kilometre, less than 20% of the cost of petrol vehicles). But they have had two major limitations: low range between recharges and low speed. They’ve been kind of souped-up golf carts.

But new models can go further and longer between recharges and can achieve much higher speeds. USA Today earlier this week looked at two models on the US market: a US$100,000 electric "high-performance" sports car and a US$9,000 "city car".

The sports car version has a range of over 400km (which would allow an easy Canberra – Sydney drive with some detours and a margin of error) and a top speed of over 200km an hour which is a great deal more than anyone should be thinking about doing anyway. The city car has a range of just over 60km and a top speed of just over 60km/hr. Other models to hit the market soon start at US$5,000 for a 40km/h 2-seater with a 50 km range. The technology is advancing rapidly, with speed and range increasing.

What about the environmental impacts?

The biggest environmental benefits compared to regular petrol cars is in local noise and air pollution. These cars are much quieter and cause no particulate pollution in the city because they run on electricity. Of course, there’s air pollution created in generating the electricity that they run on (particularly in Australia where it’s likely to be generated by coal) but there’s still a substantial net benefit in terms of health etc because Australia’s power plants tend to be located in sparsely populated areas and where the particulates disperse before damaging people’s health (as opposed to cities where people breathe within metres of a car’s exhaust).

In terms of greenhouse emissions, electricity’s no better than petrol (unless it’s from low-emission sources such as wind or solar) so electric cars are only beneficial if they’re much more efficient (or if consumers choose to power them from ‘green’ electricity – which I guess is a real possibility for the segment of the market who’d be interested in these vehicles).

So are they much more efficient?

Well yes they are – much more. The typical electric vehicle today uses 0.3 to 0.5 kilowatt-hours per mile (0.2–0.3 kWh/km) while the average car in the US is equivalent to 1.58 kilowatt-hours per mile.

But will people buy these cars? And if so, who?

Well it doesn’t take a marketing genius to figure out people aren’t going to sell their Commodores and buy a zippy electric car that can do 60km at 60kph before the battery dies. But they’re cheap and getting cheaper and really cheap to run. So I can imagine a family getting one as their second car to drive the kids to school and soccer, go to the supermarket, maybe drive to work. The sportscars are going to have a limited market, but they’re pretty cool. They accelerate and handle better than a petrol car and there’s got to be some status in having an electric car, particularly if you sign up to green power with your power company. Very green chic, very sci fi - or something. If only DeLorean made one. That would be cool.