Policy OptionsPolicy Options

TopicsTopics

Political issues: how do we overcome Political issues: how do we overcome political barriers?political barriers?

General design principlesGeneral design principles Policy sequencePolicy sequence Policy toolsPolicy tools Places to intervene: leverage pointsPlaces to intervene: leverage points

Opening Policy WindowsOpening Policy Windows

Problem streamProblem stream Defining existing condition as a problemDefining existing condition as a problem Getting policy makers to accept definitionGetting policy makers to accept definition

Policy StreamPolicy Stream Develop consensus around policies Develop consensus around policies

necessary to solve problemnecessary to solve problem Politics streamPolitics stream

National mood; leading politicians accept National mood; leading politicians accept gravity of problem and willing to implement gravity of problem and willing to implement necessary policiesnecessary policies

General design principles for General design principles for policypolicy

1. Every independent policy goal 1. Every independent policy goal must have an independent policy must have an independent policy instrumentinstrument

2. Attain necessary degree of macro 2. Attain necessary degree of macro control with minimum sacrifice of control with minimum sacrifice of micro-level freedom and variabilitymicro-level freedom and variability Market mechanismsMarket mechanisms

General design principles for General design principles for policypolicy

3. Uncertainty and irreversibility requires 3. Uncertainty and irreversibility requires considerable safety marginconsiderable safety margin Precautionary principlePrecautionary principle Which is more precautionary: quotas or taxes?Which is more precautionary: quotas or taxes? How does this relate to positive feedback loops?How does this relate to positive feedback loops?

4. 4. Start from historical conditionsStart from historical conditions Market economy and market mechanismsMarket economy and market mechanisms

General design principles for General design principles for policy (cont.)policy (cont.)

5.5. Adaptive managementAdaptive management How can we adjust feedback loops to cope with How can we adjust feedback loops to cope with

increasing strength of impacts?increasing strength of impacts? How does this relate to quotas?How does this relate to quotas?

6. Principle of subsidiarity: Institutions at 6. Principle of subsidiarity: Institutions at the scale of the problemthe scale of the problem Who should be making policy decisions?Who should be making policy decisions? How does this relate to feedback loops?How does this relate to feedback loops?

Policy sequencePolicy sequence

ScaleScale Determines how much there is to be Determines how much there is to be

distributed/allocateddistributed/allocated DistributionDistribution

Pareto optimal outcome possible Pareto optimal outcome possible from any initial distributionfrom any initial distribution

Decided before allocationDecided before allocation AllocationAllocation

Policy ToolsPolicy Tools

PrescriptionPrescription PaymentsPayments PenaltiesPenalties Property rightsProperty rights PersuasionPersuasion PowerPower

How Can we Change Complex How Can we Change Complex SystemsSystems

Leverage pointsLeverage points Where can we have the most impact?Where can we have the most impact?

See Meadows, Donella. 1997. See Meadows, Donella. 1997. “Places to Intervene in a System,” “Places to Intervene in a System,” Whole EarthWhole Earth, winter issue., winter issue.

Where should we intervene?Where should we intervene?

Where can our interventions have the Where can our interventions have the most impact?most impact?

We need to understand how the We need to understand how the ecological, social and economic ecological, social and economic objectives influence one anotherobjectives influence one another

Where is intervention the most Where is intervention the most feasible?feasible? ““the minimum that is ecologically the minimum that is ecologically

necessary is greater than the maximum necessary is greater than the maximum that is politically feasible” GOREthat is politically feasible” GORE

Candidates for interventionCandidates for intervention

Critical variables (strong influence on Critical variables (strong influence on others, strongly influenced by others)others, strongly influenced by others)

Active variables (influence others, but Active variables (influence others, but are not influenced by others)are not influenced by others)

Buffer variables (absorb impacts Buffer variables (absorb impacts without passing them on)without passing them on)

10 Leverage Points10 Leverage Points 10. Numbers (subsidies, taxes, 10. Numbers (subsidies, taxes,

standards).standards). Standard economists stuffStandard economists stuff Can still be powerfulCan still be powerful

9. Buffering capacity9. Buffering capacity E.g. acid rain and calcium carbonateE.g. acid rain and calcium carbonate

8. Material stocks and flows.8. Material stocks and flows. E.g. replacing transportation system, E.g. replacing transportation system,

10 Leverage Points10 Leverage Points 7. Regulating negative feedback loops7. Regulating negative feedback loops

Feedback has to be proportional to Feedback has to be proportional to problemproblem

Markets and feedback loopsMarkets and feedback loops 6. Driving positive feedback loops.6. Driving positive feedback loops.

Slow them down, let negative feedbacks Slow them down, let negative feedbacks do their thingdo their thing

E.g. Financial crisisE.g. Financial crisis 5. Information flows.5. Information flows.

E.g. publicizing pollution, labeling, etc. E.g. publicizing pollution, labeling, etc.

Feedback loops as leverage pointsFeedback loops as leverage points

Can we increase the strength of Can we increase the strength of negative feedback loops?negative feedback loops?

Can we slow down/halt positive Can we slow down/halt positive feedback loops?feedback loops?

Can we create appropriate feedback Can we create appropriate feedback loops where none exist?loops where none exist?

Can we increase the strength of Can we increase the strength of negative feedback loops? negative feedback loops?

Strength of loop has to correspond to Strength of loop has to correspond to strength of impacts they are designed to strength of impacts they are designed to correctcorrect What has happened to strength of impacts in What has happened to strength of impacts in

the system over time?the system over time? How have external factors affected this?How have external factors affected this?

Can we increase the strength of Can we increase the strength of negative feedback loops? negative feedback loops?

Time lag must be appropriateTime lag must be appropriate How could we reduce the time lag?How could we reduce the time lag? Can we speed up information flows?Can we speed up information flows?

Role of communication/educationRole of communication/education How could we improve information flows?How could we improve information flows? Can we create information flows that are more Can we create information flows that are more

direct?direct?

Slowing/breaking positive feedback Slowing/breaking positive feedback loopsloops

Slowing the loopSlowing the loop Breaking the loopBreaking the loop

Information and feedback loopsInformation and feedback loops

Electric meter exampleElectric meter example Unique to human systemsUnique to human systems

Creating appropriate feedback Creating appropriate feedback loopsloops

Role of educationRole of education Price mechanism as a feedback loopPrice mechanism as a feedback loop

TaxesTaxes SubsidiesSubsidies QuotasQuotas

Community values as a feedback loopCommunity values as a feedback loop Relationship with price signalsRelationship with price signals

Regulations as feedback loopsRegulations as feedback loops

What characteristics should key What characteristics should key indicators have?indicators have?

Minimal time lagMinimal time lag Key indicators of change in the Key indicators of change in the

systemsystem Passive variables (weak influence on Passive variables (weak influence on

others, strongly influenced by others)others, strongly influenced by others) Critical variables (strong influence on Critical variables (strong influence on

others, strongly influenced by others)others, strongly influenced by others) Change is a constant. We need to Change is a constant. We need to

adapt.adapt.

10 Leverage Points10 Leverage Points 4. The rules of the system4. The rules of the system

Democratic control over the commons, the Democratic control over the commons, the media, and the problem of macroallocationmedia, and the problem of macroallocation

Cooperative provision/management of non-Cooperative provision/management of non-rival resources, including informationrival resources, including information

Return the right to seigniorage to Return the right to seigniorage to governmentgovernment

Just distribution of resources provided by Just distribution of resources provided by nature and societynature and society

3. The power of self-organization.3. The power of self-organization. Maintain diversityMaintain diversity

10 Leverage Points10 Leverage Points 2. The goals of the system.2. The goals of the system.

What is socially and psychologically What is socially and psychologically desirable? desirable?

Shared vision of a sustainable and Shared vision of a sustainable and desirable future. desirable future.

Continuous economic growth is Continuous economic growth is undesirableundesirable

Doom and gloom doesn’t win convertsDoom and gloom doesn’t win converts

10 Leverage Points10 Leverage Points 1. The mindset or paradigm out of 1. The mindset or paradigm out of

which the goals, rules, feedback which the goals, rules, feedback structure arise.structure arise. What is biophysically possible?What is biophysically possible? Economy is sustained and contained by Economy is sustained and contained by

the global ecosystemthe global ecosystem Continuous economic growth is impossibleContinuous economic growth is impossible Macroallocation is central problemMacroallocation is central problem Humans are social animals, not Humans are social animals, not

homogenous globules of desire, etc.homogenous globules of desire, etc.

10 Leverage Points10 Leverage Points 0. The ability to transcend paradigms0. The ability to transcend paradigms

Policy and property rightsPolicy and property rights

Excludability and property rightsExcludability and property rights Property rights as a bundleProperty rights as a bundle Changing conditions and the need for Changing conditions and the need for

changing property rightschanging property rights

Command and control regulations (standard Command and control regulations (standard setting) for negative externalitiessetting) for negative externalities

Typical approach to pollution control Adequate agricultural practices, BAT Setting effluent level/limiting channelization

Political factors involved in setting standards

Economically inefficient Does not respond to economic conditions, i.e.

increases or decreases in abatement costs

Command and control (cont.)Command and control (cont.)

Not cost effectiveNot cost effective Different marginal abatement costs for Different marginal abatement costs for

different pollutersdifferent polluters

No incentive to reduce emissions No incentive to reduce emissions below standardbelow standard no incentive not to increase pollution in no incentive not to increase pollution in

attainment areasattainment areas little incentive to develop new little incentive to develop new

technologiestechnologies

Marginal restoration cost

Landowner 1 Landowner 2 Landowner 3

First 20% $5000 $1000 $2500

2nd 20% $20,000 $2500 $5000

3rd 20% $40,000 $5000 $10,000

4th 20% $80,000 $10,000 $17,500

Final 20% $160,000 $50,000 $20,000

Marginal costs of restoring floodplains.

Channelization with smooth cost Channelization with smooth cost curvescurves

Pigouvian taxPigouvian tax

tax

Marginal restoration cost

Landowner 1 Landowner 2 Landowner 3

First 20% $5000 $1000 $2500

2nd 20% $20,000 $2500 $5000

3rd 20% $40,000 $5000 $10,000

4th 20% $80,000 $10,000 $17,500

Final 20% $160,000 $50,000 $20,000

Marginal costs of restoring floodplains.

Pigouvian taxes and subsidiesPigouvian taxes and subsidies

Cost effective Efficiency requires full knowledge of

costs and benefits Issues with taxes

Politically difficult May be higher cost to farmers than

alternatives, though cost effective for society

Not possible for international problems

Pigouvian taxes and subsidiesPigouvian taxes and subsidies

Issues with subsidyIssues with subsidy May lead to more entrants into industryMay lead to more entrants into industry Ignores polluter pays principle (negative Ignores polluter pays principle (negative

externalities)externalities) Excellent for activities with positive public good Excellent for activities with positive public good

externalities externalities May be most feasible alternative for some May be most feasible alternative for some

international problemsinternational problems

Addresses allocation first, scale and Addresses allocation first, scale and distribution only indirectlydistribution only indirectly

Channelization quotasChannelization quotas

quota

Marginal restoration cost

Landowner 1 Landowner 2 Landowner 3

First 20% $5000 $1000 $2500

2nd 20% $20,000 $2500 $5000

3rd 20% $40,000 $5000 $10,000

4th 20% $80,000 $10,000 $17,500

Final 20% $160,000 $50,000 $20,000

Marginal costs of restoring floodplains.

Tradable channelization quotasTradable channelization quotas

Cost effectiveCost effective Distribution of permitsDistribution of permits

GrandfatherGrandfather AuctionAuction Equity basedEquity based

Tradable channelization quotasTradable channelization quotas

Purchase of permits by downstream communities public goods problem

Problems with market thinness Spatial issues

Erosion damage: local problem--impacts on downstream farm

Flood damage: Lewis creek watershed problem Phosphorous emissions: Lake Champlain

watershed problem Pollution quotas: CO2, SO2, Mercury

Tradable quotasTradable quotas

Addresses scale first, distribution second, allocation third

Actual results SOx permits in US

CBA financed by industry vs. actual costs

Fisheries quotas Kyoto protocol

Problems with distribution

What should quota be?What should quota be? Renewables (forests, fisheries, etc.)Renewables (forests, fisheries, etc.)

Cannot exceed rate of renewal In general, balance between structure and function, raw

materials and ecosystem services, stock-flow and fund-service

Waste absorption capacityWaste absorption capacity Cannot exceed ecological constraintsCannot exceed ecological constraints Must also focus on human impactsMust also focus on human impacts

Non-renewablesNon-renewables What would be a just distribution across generations?What would be a just distribution across generations? set quota so that price stimulates creation of substitutes set quota so that price stimulates creation of substitutes

before resource is exhaustedbefore resource is exhausted Must not leave future worse off than it would have been Must not leave future worse off than it would have been

in absence of resourcein absence of resource

Tax or quota?Tax or quota?

Tax or quota?Tax or quota?

With a tax, you can theoretically get With a tax, you can theoretically get right amount, but amount will right amount, but amount will change with economic changechange with economic change

Is it better to let prices vary Is it better to let prices vary (economic) than amount of resource (economic) than amount of resource to be used (ecological)to be used (ecological)

Impacts of shift in MNPB under Impacts of shift in MNPB under taxes and quotastaxes and quotas

quota

tax

Impacts of shift in MNPB under Impacts of shift in MNPB under taxes and quotastaxes and quotas

quota

Shift in MNPB

Distribution issuesDistribution issues

Increasing price of resources leads to Increasing price of resources leads to increase in price of consumer goods, so increase in price of consumer goods, so regressive.regressive.

But, rich consume more than poor, so But, rich consume more than poor, so receive a higher subsidy from the futurereceive a higher subsidy from the future

gov’t gets more money, can get rid of gov’t gets more money, can get rid of more regressive taxes.more regressive taxes.

If resource prices are kept low, resources If resource prices are kept low, resources must inevitably run out. Who will this must inevitably run out. Who will this affect more, the rich or poor?affect more, the rich or poor?

Other policiesOther policies

Financial assurance bondsFinancial assurance bonds

Polluter pays precautionary principlePolluter pays precautionary principle Potential forms:Potential forms:

BondingBonding InsuranceInsurance

Why is this needed?Why is this needed? Can these handle uncertainty?Can these handle uncertainty?

Uncertain outcomesUncertain outcomes Uncertainty regarding cause and effectUncertainty regarding cause and effect

Could there be any role for these in Lewis Could there be any role for these in Lewis Creek?Creek?

ICMS EcologicoICMS Ecologico

Ecological value added taxEcological value added tax Municipalities (counties/townships) Municipalities (counties/townships)

are rewarded for their provision of are rewarded for their provision of ecosystem servicesecosystem services

Promotes competition for resourcesPromotes competition for resources Helps address subsidiarity problemHelps address subsidiarity problem Could this work for Lewis Creek?Could this work for Lewis Creek?

Conservation easementsConservation easements

Separating the property rights bundle into Separating the property rights bundle into individual sticksindividual sticks

Are these similar to a tax, quota or Are these similar to a tax, quota or neither?neither?

Net present value of an annual subsidyNet present value of an annual subsidy Impact on land valuesImpact on land values

Tax implicationsTax implications Legal costsLegal costs Strictness and costStrictness and cost

Macro goals, micro freedom

Precautionary principle

Starting from historical conditions

Adaptive management

Subsidiarity

Taxes/subsidies

Strong OK OK Weak Local, state and federal

Tradable quotas

Strong Strong OK Strong Depends

Conservation easements

OK OK Strong OK Depends

Financial bonding

OK Strong OK OK Depends

ICMS ecologico

Strong OK Strong OK Strong

Scale Distribution Efficiency

Taxes/subsidies

OK Polluter pays, OK

strong

Tradable quotas

Strong Can be strong Strong

Conservation easements

Can be strong OK depends

Financial bonding

OK Polluter pays OK

ICMS ecologico

Can be Strong beneficiary pays, OK

Strong

SummarySummary

The Macro-allocation problemThe Macro-allocation problem

How many resources should be How many resources should be devoted to market goods, and how devoted to market goods, and how many to public goods?many to public goods?

Can translate into quotas for Can translate into quotas for ecosystem goods/servicesecosystem goods/services

Decision cannot be made by marketDecision cannot be made by market How can this decision be made?How can this decision be made?

Distribution policiesDistribution policies

4 sources of income4 sources of income human capital (wage)human capital (wage) built and financial capital (interest)built and financial capital (interest) natural capital (rent)natural capital (rent) entrepreneurship (profit)entrepreneurship (profit)

Human capital (wages)Human capital (wages) Minimum wageMinimum wage Job trainingJob training Maximum wage? Maximum wage?

Built capitalBuilt capital ESOPs: building a capitalist society ESOPs: building a capitalist society CSOPs: building capitalism while CSOPs: building capitalism while

internalizing negative externalitiesinternalizing negative externalities Financial transaction taxesFinancial transaction taxes Stock taxesStock taxes

Natural capitalNatural capital Capturing rent: Capturing rent:

eliminating perverse subsidieseliminating perverse subsidies land rentland rent royalties (non-renewables)royalties (non-renewables) natural dividend (renewables)natural dividend (renewables)

Social capitalSocial capital

Land rentLand rent PatentsPatents Luxury tax?Luxury tax? Wealth tax?Wealth tax?

Slowing/breaking positive feedback Slowing/breaking positive feedback loopsloops

Positive feedback in the newsPositive feedback in the news What happens when positive What happens when positive

feedback loops run their course?feedback loops run their course?