Policies to reduce ecological deficits

What will it take to reduce or eliminate ecological deficits? The task is huge, but it does not necessarily involve high economic costs in all cases. Most ecological deficits arise from the GDAE Working Paper No. 19-01: Responding to Economic and Ecological Deficits 11 exploitation of “free” or low-priced natural resources. Putting a proper price on these resources can be consistent with both good economic theory and sound ecological principles, and generally implies a shift in economic techniques and activities rather than an absolute cost. In some cases, greater efficiency in resource use can save money as well as reduce ecosystem impact. In terms of the specific ecosystem deficits identified above, some policy options include:

1. Carbon: as noted above, an elimination of the atmospheric carbon deficit implies reducing net carbon emissions to zero, or possibly below zero to reduce atmospheric accumulations. At a minimum, this requires a complete transition away from carbonbased energy to energy efficiency and renewable energy. But it also almost certainly involves significant additional carbon absorption by forests, soils, and wetlands. Some aspects of this massive project will have major economic costs, specifically the infrastructure investment needed to create a new energy and transportation economy. Some of these costs will be borne by private companies, responding to economic incentives such as carbon taxes or cap-and-trade programs. But some will require government investment, which could in theory be offset at least in part by carbon tax revenues. Since carbon taxes are regressive, a portion of the revenue stream associated with them needs to be channeled into individual per capita rebates (which have the effect of changing the net tax impact from regressive to progressive or at least proportional), or into social investment that primarily befits lower-income individuals and families, such as health care and education. To the extent that necessary infrastructure investment is not covered by remaining carbon tax revenues, it will need to be funded out of general government budgets.

2. Forests and Wetlands: Protecting existing forests and wetlands and expanding forested area through reforestation is more a matter of implementing good policies than of major government expenditures. There may even be net positive government revenues from moving away from policies that currently subsidize exploitation of public lands through low access fees.

3. Soils: Agroecological practices that build up soil carbon and nutrients also do not necessarily involve large government expenditures. To the extent that costs are involved, for example through subsidies for organic and agroecological farming practices, these may be covered through redirecting existing, mostly ecologically damaging, subsidies currently favoring industrial agriculture. Another potential funding stream is certified carbon credits for carbon-storing farming and forestry practices, which can be sold to industries subject to cap-and-trade schemes. The latter raises institutional issues, specifically the need to avoid rewarding middlemen and land speculators at the expense of smallholders, but these issues are not unresolvable.

4. Water: In almost all areas of the world, water management and groundwater overdraft and pollution is a major issue, and in some areas it is a critical limiting factor on economic development. Climate change is likely to make these issues more pressing. But as with forests and soils, the necessary policies involve reform of current management strategies in order to conserve water, promote efficient and equitable water use, and prevent pollution. Significant expenditure is involved for water infrastructure, and since water privatization has a clear record of serious problems with inequity and corporate water overdraft, this area is an important aspect of infrastructure investment. Water GDAE Working Paper No. 19-01: Responding to Economic and Ecological Deficits 12 pricing, if appropriately managed for equity using increasing block rates, can provide some necessary revenue.

5. Fisheries, Grazing Lands, Biodiversity: All of these require sustainable management techniques and protection of ecosystems. Large expenditure is likely not necessary, and as with agriculture and forests, the redirection of current perverse subsides and the imposition of appropriate license fees, replacing e.g. giveaways of public land for grazing, can generate some additional revenue. Effective species and ecosystem protection requires limits on economic activity, which carry an implicit cost in terms of reduced production and possibly associated tax revenues, but direct government expenditures, for example for land acquisition, are probably not large.

In summary, the elimination of ecological deficits requires massive reform of current policies and significant modification of economic production techniques, but not necessarily a major increase in public expenditure, except for necessary infrastructure investment. This will be significant especially for restructuring energy systems. Some market-based reforms can shift costs within the private sector, in accordance with the principle of internalizing externalities, and some current government expenditures can be redirected from ecologically damaging to ecologically restorative functions.

Selected paragraphs of a Working Paper published by the Global Development and Environment Institute

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