Transcript Non Regulatory Solutions to Isolated wetlands

Environmental Services
David Zilberman
University of California Berkeley
Categories of Environmental Services
(ES)
 Pollution
Prevention. Farmers may be paid to
modify environmental damaging activities and
engage in sustainable practices(farmers may have implicit
historical rights to pollute that have to be bought).
 Conservation.
of natural resources, life styles,
ecosystems etc. Including forest resources and
wetland, agricultural communities ( slow urban
sprawl), traditional varieties and species, etc.
 Amenity creation-restoration and built up of natural
resources Include clean up activities, planting of
forests, restoration of wetlands etc.
Environmental Services & Land Use

Most ES are embodied in land use and management
In situ conservation of crop bio-diversity
 Soil carbon sequestration through no tillage
 Provision of habitat in wetlands
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ES can be attained by
 Working land programs-promoting green practices
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Conversion of lands to “greener” use
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Transition to IPM
From farming to forest
prevention of land use conversions
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Controlling development
The Multidimensionality of ES
The same land may provide a multitude of ES
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No tillage sequesters carbon and reduced soil erosion
 A wetland may purify water and support wild life
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ES may be complementary or substitutes
Growing Wetland acreage may areas with native plants
 Reduction in runoff may be accompanied in less wind erosion
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ES may provide regional, national & global benefits
 Benefits of ES vary across individuals &groups
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Bird watchers & hunters benefit from better bird habitat
 All citizens gain from flood control-but the risk reduction vary by
location
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The Dimensions of Wetland Services
Local
National
International
Wildlife habitat
Public
Private
Public
Public
Flood control
Public Private
Public Private
Public Private
Water purification
Private
Public
Public Private
Aesthetic value
Public Private
Public
Public
Recreation
Private
Private
Private
Existence
Public
Public
Public
Public &Private Sectors &Wetland Management
Responsibility and finance of wetland should correspond to
nature of their benefits
 Government should concentrate on providing public good
aspects- utilized by many

No exclusion - e.g Existence value
Private agencies have important role in financing wetland
aspects that benefit their members-wildlife habitat.
 Private action is indication of willingness to pay for
wetland services- it may be understated because of public
good aspects
 There is a role for public-private cooperation
 Matching fund
 Tax credit
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Mechanism to Obtain ES

Aggregate targets of ES with Tradable permits
No reduction target led to wetlands banking in U.S.
 Kyoto targets may be attained by CO2 Sequestration
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Purchasing Funds-target & buy assets or pay for ES
Nature conservancy buys lands & development right
 USCRP pays for farmland use modification for a period
 Utilities pay for carbon sequestration in Costa Rica &Iowa
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Incentives-payments for ES, penalties for damages
 Direct controls
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Zoning: restricting land use to certain activities
 Permitting:conditional approval of development activities
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Institutional Setup to Create ES
 Private
parties may invest in excludable amenity
creating ES (habitat to birds or fish,recreation area)
 NGO’s may finance and control specialized ES
 National & Local governments may
 Pay
directly for or subsidize private provision of
amenity creating ES
 Establish legal framework to require generation of
resource conserving or pollution preventing ES
 Global
ES may be generated & controlled by
 International
agreements (Kyoto, Debt for nature)
 Voluntary agreements initiated by NGO’s
Management of Purchasing Fund
Heterogeneity -ES benefit &cost per acre vary
 Consider first the case with the No Scale effects Suppose there are N locations, identified by n=1,N .
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 An= Land of location n,
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Bn = Benefits per acre of location n.
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Cn = Costs per acre( value of land in alternative use)
Targeting criteria
 Acreage maximization Buy the lands with the lowest Cn
(regardless of benefits) given the budget
 Benefits targeting Purchase the highest quality lands
(lands with highest Bn) within budget
 Benefit /cost Targeting Purchase lands with the highest
Alternative Forms of Targeting
Benefit
per
acre
Cost per acre
Implication of Targeting Schemes
Benefit cost targeting are optima,Maximizing ES for budget
 Cost targeting maximize acreage &preferred by land owners.
 Benefit maximizing result in lowest acreage reduction
 The importance of correlation when low cost lands has high ES
(negative correlation of Bn and Cn) the welfare loss of cost targeting
is small. It is big in case of positive correlation.
 The Importance of variability Benefit targeting is optimal when
benefits are positively correlated to costs &variability of benefit is
much larger than of costs
Cn 1 2 3 4 5 6 7 8 9 10 11
Budget = 21
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Bn1 1 3 5 7 9 12 15 18 20 24 28 Optimal policy-Buy Highest Q
Bn2 1 2 2 3 3 3 3
(in particular n ≤ 6 )
3 3 4
4 Optimum -Maximize Acreage
Scale Effects
 When
ES/acre increases with size targeting may
radically change with budget
number of
units
 Unit type
1
2
3
Size
6
3
1
Benefits/unit
2
4
12
When Budget is 8 Buy 2 units type 2
total cost
2
6
24
Benefits 12
When Budget is 10 Buy 2 units type 2 &1type1 Benefits 14
When Budget is 12 Buy 1 unit type 3
Benefits 24
When budget is 15 buy 1 unit type 3 & 1 type 1 Benefits 26
2
4
12
Difficulties of Trading in ES
Trading requires quantifiable observable commodities- it is
not always feasible with ES
 Quantification of output is difficult when ES are aesthetic
values or bio-diversity.It is easier for soil carbon.
 .When benefits are random (flood control) or unobservable
directly (sequestration) agreements for estimation of
benefits are needed. A critical element is establishing a
bench mark- benefits are improvements
 Monitoring & enforcement are problematic-especially given
that ES require large areas at remote locations
 The ability to trade in ES improves with scientific
knowledge- need to quantify&measure: benefits of
wetlands, bio-diversity gains,reduced risks etc.
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Distribution of ES Earnings
Cost of ES may be born by endogenous or local populationwho may be constrained & sometimes removed to attain
conservation etc.
 But they may not receive the earnings that may go to
governments, NGOs, or legal owners
 Even when they receive earnings they may not gain - they
rarely participate in negotiations and their overall cost may
exceed benefits
 ES gains are not a panacea-soil carbon may result in
gross gain of $150 per acre- with much lower net
 Average Bio prospecting benefits/acre are likely to be
very small- Bio knowledge is crucial to identify a
priory location with high potential and target them.
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Private Sector Regulations and ES
Permitting is major tool to regulate ES (especially wetland)
use by private sector.
 Criteria for optimal regulation of wetlands
Maximization of net public and private benefits
Private cost of regulations should be considered in policy
design
A less ambitious objective
Minimize public & private costs of wetland targets
Agencies may aim to maximize wetland provisions given the
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agency budgetignoring regulation costs leads to inefficiency
Institutional Setup for Various ES
A wetland with purely local benefit should be regulated by the local
government.
Differences policy approaches between regions allow for choice
given heterogeneity of preferences.
Decentralized solutions may be costly in terms of transaction and
regulation costs
Regional cooperation can
* Reduce fixed cost of research and management&design of
restoration and conservation of wetlands
` * Reduce transaction cost of regulation
* Address issues of spillover of benefit and costs
Division of Responsibilities in a Federalist
System
ES may provide a variety of benefits across constituenciesAll benefits may be considered and compensated for in ES
design and management
 Funds for managing credits for provision of benefits to
National and Global ES may be created. That will require
international agreement or national policies, but will
provide the right incentives
 Activities that compromise ES(wetland modification)
activities may be constrained to protect national and global
amenities-or be taxed to pay the fund.
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Regions with Vulnerable Isolated Wetlands
(Duck Unlimited study)
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Vulnerability is the result of weak law & high concentration of
isolated wetlands
Great Basin(excluding California,Oregon& Washington)-Wetlands
occur on agricultural land in Nevada and Idaho
Prairie Pothole region( excluding Minnesota and Iowa)-Prairie
Pothole Region is located on ag land, especially in Dakotas.
Southern Great Plains- The majority of playa lakes in Texas occur in
intensively farmed region of the Panhandle
Gulf Coastal Prairie-,many wetlands occur on farmlands east of
Houston,,
Mississippi Alluvial Valley(excluding Tennessee)
Great Lakes(excluding Michigan, Minnesota & Wisconsin) Not much
wetland on agricultural land
Wetlands in Agricultural Lands
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In 5 of the regions isolated wet lands are agricultural
lands entitled to CRP-There are 6 millions of
wetlands acres in agriculture
46 millions of the U.S. 300- million acres of the U.S.
farm lands are converted wetlands.
A large acreage of wetland occurs in rangelands (the
Sandhill region of Nebraska) who are not part of
commodity programs
Alternative Approaches to Wetland Protection
Carrot
Stick
Land retirement
Working lands
CRP, WRP
EQIP
Swampbuster
Conservation Reserve Program:
Background
 The CRP is a land retirement program. It aims to
reduce farm acreage so to increase supply and to
increase farm income.
 The biggest program of U,S. agriculture is excess
supply. Another problem has been soil erosion.
Conservation programs traditionally paid farmers to
take erosive land out of production
 Conservation programs are “Green” policies, and are
looked favorably by international trade agreements
aimed to reduce farm support. They are likely to
increase in importance.
CRP-Basic Features
CRP provides owners or operators with an annual per-acre
rental payment and 1/2 the cost of establishing a permanent
land cover for retiring cropland from production for 10- to
15-years.
 Producers can offer land for competitive bidding based on
an Environmental Benefits Index (EBI) during periodic
signups.
 Producers can automatically enroll more limited acreages in
practices such as riparian buffers, field windbreaks, and
grass strips on a continuous basis
 Enrollees in selected practices program receive enhanced
rental rates, 50-percent cost-sharing and a per-acre
maintenance payment.
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CRP Rents
CRP Rental Rate (Dollar/Acre)
12 - 40
40 - 50
50 - 60
60 - 70
70 - 113
No CRP
CRP Historical Background
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CRP Established in its current form in 1985 to be
administered by USDA’s Farm Services Agency (FSA) ad funded
through Commodity credit corporation.
In 1996, CRP was reauthorized, limiting enrollment to 36.4
million acres at any time.
 In 2000, enhanced incentives for continuous signup:
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 A signing
incentive payment of $100 to $150 per acre
 A practice incentive payment equal to 40 percent of costsharing for all continuous signup practices
As of October 2001, about 1.5 million acres had been
enrolled in the continuous signup,
 The 2002 Farm Act increased the enrollment limit to 39
million acres.
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The Wetland Reserve Program
WRP was authorized under the 1985 Farm Act.
 Under the 2002 Farm Act, the acreage cap is increased from
1.075 million acres to 2.275 million acres.
 Objective is to enroll 250,000 acres per year
 Options: a permanent or30-year conservation easement or a
10-year cost-share restoration agreement
 USDA pays 100 percent of restoration costs for permanent
easements, and 75 percent for 30-year easements and
restoration cost-share agreements.
 Conservation vs . was around $1,300 per acre. The study
also concludes that the WRP achieves restoration at around
$600 per acre.
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Retirement Program and Wetlands
 The
2002 Act expands land retirement by 4 million
acres, WRP enrollment cap more than doubles, from
1.075 million acres to 2.275 million,. In the CRP,
500,000 acres could be used to enroll farmed
wetlands and associated buffer acreage.
 CRP serves to support farmers income-not
environmental needs. Has limits as wetlands policy
framework.
Working Land
 Working
land conservation programs can benefit
wetlands mostly indirectly by reducing agricultural
pollution.
 $5.7 billion is available from 2002-2007 and $12
billion from 2002-11 for the Environmental Quality
Incentives Program (EQIP), Wildlife Habitat
Incentives Program (WHIP), and Conservation
Security Program (CSP).
The Environmental Quality Incentives
Program EQIP
*EQIP-Provides technical assistance, cost
sharing (up to 75 percent), and incentive payments to assist
livestock and crop
producers with environmental improvements.
*60%of EQIP's funding earmarked for livestock producers,
No size limits on livestock operations,
Payments are limited to a total of $450,000 per operation
over the 6-year life of the Act.
Conservation Security Fund & The Wildlife
Habitat Incentives Program
 The
Conservation Security Program will focus on
land-based practices and specifically excludes
livestock waste-handling facilities. Producers can
participate at one of three tiers; higher tiers require
greater conservation effort and offer higher
payments. The lowest cost practices that meet
conservation standards must be used.
 The Wildlife Habitat Incentives Program provides
cost sharing to landowners and producers to
develop and improve wildlife habitat.
Swampbuster Established 1985
. "Swampbuster" - farmers or ranchers lose eligibility for farm
program benefits if they produce an agricultural commodity
on a wetland converted after December 23, 1985, or if they
convert a wetland after November 28, 1990,.
 Swampbuster recognizes four categories of wetlands:.
Wetlands, or areas that contain hydric soils which support mostly
hydrophates
 Converted wetlands, defined as areas drained or altered after
December 23, 1985
 Farmed wetlands, or areas partially drained or altered to produce a
crop prior to Swampbuster, but which still retain some wetland
characteristics
 Prior converted wetlands, or areas that were used for farming prior
to Swampbuster and which no longer exhibit any wetland
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Permitting vs. Voluntary Programs
Permitting cuts down on uncertainty. It can lead to a more
accurate assessment of the inventory of wetlands. With
incentive programs, more work is necessary to measure
wetland gains and losses
 In a permitting system, applicants must bear significant
fixed application costs. With voluntary program, the
government pays for targeting
 Voluntary program may be captured.
 Targeting criteria matters acreage maximization benefits
farmers.Should target lands with highest benefit cost ratio.
 Slippage-high commodity prices lead to reuse of marginal
lands or wetlands-should be considered in design
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Activities of Private Groups
Easements, Duck Unlimited DU rarely buys wetlands
outright, but negotiates conservation easements. These
agreements are for 10-years.
 The nature conservancy has a diversified approach
 Ownership Type
Acres
 Conservation Easement
1,400,453
 Management Agreements
1,389,099
 Leases
2,146,745
 Owned by TNC
2,098,950
 TOTAL
7,035,246
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Conservation Partnerships
One such collaboration between DU and the federal
government is the River CARE project in which DU and the
NRCS have cooperated in implementing the WRP in the
Mississippi Alluvial Valley (MAV). By 1998, more than
1,500 private landowners in the MAV were active partners
with DU and WRP to provide and restore wildlife habitat on
their lands.
 TNC’s Glacial Ridge Project, one of 12 habitats targeted in
the “Saving the Last Great Places” campaign, received $1.6
million from NRCS as part of the USDA’s WRP program
for a partial easement payment to restore nearly 2,800 acres
of previously drained wetland and 1,500 acres of tall grass
prairie in Minnesota. Saving the Last Great Places,
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Private vs. Public Approaches
Public sector is not forced to pay attention to factor prices.
Private groups have better incentives to target the land with
the highest level of environmental amenities per dollar
spent.
 Private investment in wetland conservation, includes land
purchase expenditures and investment in improvement on
wetland quality.
 From the Corps perspective, the land has no opportunity
cost, from a societal perspective the land is valuable in
providing other services. This, there may be a tendency to
over-regulate and acquire more land than is socially
optimal.
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