Monthly Archives: October 2004

23 – Capacity building? The role of communication and education in NRM

I can remember the bemusement I felt when I first heard the term “extension” used to describe communication and education. It seemed an odd usage of the word, and it still does, but I am habituated to it now. These days in Australia there is a new dominant euphemism for these activities: “capacity building”. In theory capacity building is apparently meant to be a broader term than “extension”, but in practice when you look at what gets funded it seems to amount to much the same thing.

Education and communication are commonly used tools in environmental programs around the world, including Australia. Their attractiveness to politicians in understandable: they are relatively cheap, they have a high “feel good” factor, and, compared to other policy tools, they are less likely to require tough decisions that result in winners and losers. Capacity building is absorbing a substantial share of the funding in Australia’s two largest environmental programs, the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality.

Education and communication are not the only tools available to attempt to achieve desirable changes in the environment, so the question arises, in what circumstances are they among the most appropriate responses?

For capacity building to be a wise investment for the environment, there are two conditions that ideally should both be met.

  1. The capacity building should be expected to result in changed practices or actions “on the ground”.
  2. The anticipated changes or actions should be sufficient to make a real difference to environmental outcomes.

Too often, environmental programs have fallen back onto communication and education without considering whether either of these conditions is met.

Within agriculture, meeting the conditions will be more or less likely for different environmental problems in different regions. Paying attention to this will allow much better targeted usage of capacity building.

To satisfy condition 1, the action or innovation being advocated to the target audience must be “adoptable”. That is, if people knew all about it, they would choose to adopt it. There are many factors that influence how adoptable a practice is, but if the intent is for it to be taken up by commercial business operators on a large scale, the most crucial factors are the economic costs and benefits of the practice.

Evaluating condition 2 requires us to take the anticipated scale of adoption that is likely to result from capacity building (condition 1) and compare that to bio-physical evidence about the scale that is required to generate the desired environmental benefits.

For dryland salinity, in particular, evidence about the two conditions has been growing in recent years. In 2003, a crew of economists across Australia reviewed the economics of high-water-using perennial plants, the main preventative option for dryland salinity, in grain growing areas. Their results were variable, but they found many cases where planting a small to moderate area of a perennial species is economically attractive. If planted on larger areas, the existing perennial plant options can result in major economic losses. Considering condition 2, there is wide variation in the responsiveness of groundwaters to perennial vegetation, with “local” groundwater systems being the most responsive. The larger “regional” groundwater systems have low responsiveness to perennials, even if they are planted at large scale. Combining the two aspects, in most locations the scale of plantings that would be needed to fully contain salinity is substantially larger than the area that would currently be adopted as a result of capacity building (that is, the area that would currently be economically viable for farmers).

So, within salinity alone, as well as between different environmental issues, there is considerable variation in how adoptable existing environmental practices are (condition 1), and considerable variation in how responsive the environment is to those practices (condition 2). Common sense says that, to be effective, capacity building would need to be targeted to locations where the available practices are adoptable, and where the environment is responsive to the likely level of adoption.

This clearly isn’t happening. Indeed, it often appears that neither question is asked before capacity building is embraced. At least in the case of dryland salinity, much of the current money that is being spent on capacity building does not meet either of the conditions.

There is apparently some concern in policy circles that the investment in capacity building may not be paying off. Unfortunately, the mind-set of some involved seems to be that if we could just do the capacity building better, it would be more effective. Of course it may be possible to improve the processes or techniques used, but far more important is to address the fundamental question of whether any form of capacity building is the appropriate response to a particular problem in a particular location. There are plenty of readily identifiable situations where it is not.

If not capacity building, then what? There is a range of other policy responses that can be appropriate in particular circumstances, including economic policy instruments, regulation, direct funding of works, do nothing, acquisition of land, and R&D to generate improved management options (e.g. better species of plants) that would be more likely to satisfy the first condition above. The latter option, in particular, deserves much more attention than it usually receives.

All this is not to say that capacity building does not have a role, just that we need to be more systematic in determining what that role is and when it is appropriate. In some ways, the emphasis on funding for capacity building has come out of sequence. It would have been far better to invest in the generation of more adoptable practices first, and only then to encourage their adoption through communication and education. We have been putting the cart before the horse.

David Pannell, The University of Western Australia

Postscript, 29 Oct 2004. I am referring above to capacity building for land managers. There is also capacity building for policy makers and catchment management organisations (CMOs), for which the issues are somewhat different. The logic, though, is the same. For example, the capacity building would need to be expected to change the decisions of CMOs, and those changes would need to matter environmentally. Ironically, successful capacity building for CMOs might result in them relying less on capacity building for land managers.

Further reading

Kingwell, R., Hajkowicz, S., Young, J., Patton, D., Trapnell, L., Edward, A., Krause, M. and Bathgate, A., 2003. Economic Evaluation of Salinity Management Options in Cropping Regions of Australia. Grains Research and Development Corporation, Canberra.

Ridley AM and Pannell DJ (2005). SIF3: An investment framework for managing dryland salinity in Australia. SEA Working paper 1901. CRC for Plant-based Management of Dryland Salinity, University of Western Australia, Perth. Available at SIF3 project page

Pannell, D.J. (2001). Dryland Salinity: Economic, Scientific, Social and Policy Dimensions, Australian Journal of Agricultural and Resource Economics 45(4): 517-546. Final journal version (212K pdf file) also available via the Journal homepage: http://onlinelibrary.wiley.com/doi/10.1111/1467-8489.00156/abstract

Pannell,D.J. (2001). Explaining non-adoption of practices to prevent dryland salinity in Western Australia: Implications for policy. In: A. Conacher (ed.), Land Degradation, Kluwer, Dordrecht, 335-346. full paper (49K).

Pannell, D.J. (1999). Social and economic challenges in the development of complex farming systems, Agroforestry Systems 45(1-3): 393-409. full paper (65K)

22 – Thinking like an economist 5: Public goods and public benefits in NRM

“Public goods, “public benefits and “private benefits” are concepts clouded in confusion. “Public good” has specific technical meanings in economics that don’t exactly coincide with what people tend to think of when they speak of governments doing things “for the public good”. And when economists use terms like “benefits” and “costs”, they encompass more issues than are sometimes considered by non-economists.

Public goods

Public goods are potential causes of “market failure”, which economists usually see as being necessary for government action to be justified, at least if the aim is to maximise the overall benefits rather than to redistribute them. Without appropriate government action, some public goods will be under-supplied, over-exploited and/or over-priced.

There are two different types of public goods: non-price-excludable goods and non-rival goods. They are explained in the two paragraphs below, but the key point is that they don’t necessarily relate to “the public” as any identifiable group. They are simply goods that have particular characteristics that mean it is often worthwhile for government to manage their use in some way.

A non-price excludable good is one that consumers cannot be prevented from consuming, leading to problems of free-riders, under-provision or over-exploitation. Consumers have open access to the good and the provider or owner of the good is unable to charge a fee for access (or there is no owner). In the case of a good that must be produced by human efforts (e.g. information from research), the result is under-provision or non-provision of the good in a private market. In the case of a good which exists even without human activity (e.g. a natural resource such as a fishery), the result of non-price excludability is over-exploitation of the good. Possible government responses include public provision of the good, or regulation of the exploitation of a natural resource, such as quotas on fishing.

For a non-rival good, consumption by one person does not reduce the availability of that good to others. An example is knowledge of the successful conservation of a threatened species. The fact that one person benefits from (“consumes”) the knowledge does not reduce the benefits available to others. There is no cost of providing the non-rival good to an additional consumer. Economic theory says that if providing a good to an extra consumer costs nothing, then the price charged to consumers should be zero, and that is the problem. If we enforce a zero price, profit-oriented private firms will not be interested in supplying the good. Possible government responses include: providing the good as a free public service, or allowing the private sector to charge a non-zero price and tolerating the resulting losses of welfare.

Public benefits

The context I’m interested in here is public funding to private landholders to undertake environmental works. In that context, “private benefits” refers to benefits that are generated for the private landholder, and “public benefits” refers to benefits generated for others. For example, if a farmer were to be funded to plant a highly profitable tree crop in place of grain crops, they may generate both private benefits (greater commercial returns) and public environmental benefits.

There is a large body of theory on public goods in the economics literature, but the indexes of economics textbooks on my shelf do not include any entries for public benefits or private benefits. And yet the terms do have currency. The argument one hears is that governments should focus on funding works that generate public benefits, not private benefits. Some Australian Government funding progams (e.g. the Natural Heritage Trust, or NHT) have included the criterion that works that generate private benefits should not be funded. I will refer to this position as the “public benefits argument”.

It is important to be clear about what we mean by “private benefits”. Economists would look at the overall net benefits to the landholder of undertaking the environmental works. The criterion used in NHT seems to have focused on whether there are positive net returns per hectare without considering the opportunity cost of land used for the works. But that is a crucial omission. If, for example, the farmer switches land from highly profitable cropping to less profitable tree production, that comes at a cost.

Using my more comprehensive definition of “private benefits”, the public benefits argument is usually a reasonable guide. If the overall private benefits of adopting a new practice are sufficiently positive, the practice will be taken up without government funding, so the funding should be saved for other uses. Using the NHT definition of “private benefits”, the public benefit argument can be terribly counter-productive. The greatest public environmental benefits per dollar of public funding will often come from supporting environmentally beneficial land uses that are nearly, but not quite, commercially competitive with existing land uses. They would be land uses that generate commercial returns, but not large enough to be more attractive than what the farmer is currently doing. For these land uses, the level of public funding to make them sufficiently attractive will be low, whereas public funding required to support land uses with no commercial return will be very high. By tending to move funds to the latter category, the NHT criterion actually reduces the likely environmental outcomes of the program.

Note that the public benefits argument presented above is not derived from the theory of public goods. It is a relatively simple application of logic on how to maximise environmental bang for the public buck. The sound version of the public benefits argument identifies situations where consideration of market failure due to public goods is irrelevant, because the adoption of environmental works can be driven by private benefits alone. If private benefits are not sufficient for that, then the subtler question of whether there are public-good issues comes into play.

Despite the way they are sometimes discussed, “public” and “private” are not categories of winners or losers that have any status in economic theory. From the point of view of economics, benefits to one part of the “public” (e.g. taxpayers, people who value the environment, consumers) are not more or less special or relevant than benefits to another part of the “public” (e.g. big business, shareholders, small business owners, polluters). The public is simply an aggregation of many private individuals. The public benefits argument is not founded on who in society ought to benefit from public funding. Indeed economics has nothing much to say about that (PD#21).

David Pannell, The University of Western Australia

Acknowledgment

Thanks to Michael Burton.

21 – Thinking like an economist 4: Who should pay for the environment?

Who should pay for environmental works? Some of the advice we have been given by environmental thinkers has misled us into thinking that there is a clear answer. Rules like “polluter pays” and “beneficiary pays” have acquired an undeserved status as truths.

Environmental works can be expensive, so there is plenty of attention to the question of who should pay for them. Polluters? The beneficiaries from environmental works? Consumers? Taxpayers?

Given the vested interests of each group to ensure that they are not the ones bearing the costs, it would be nice if we could side-step politics and apply some objective rule for resolving the question of who should pay. Three rules often discussed are:

  • Beneficiary pays,
  • Polluter pays, and
  • Sharing costs according to the share of benefits.

The “beneficiary-pays principle“, closely related to the “user-pays principle“, says that the beneficiary of a good or service should bear the costs of its provision. Perhaps it is fair enough that if a group wants something, they should be prepared to pay for it. After all, that’s the rule that applies to most goods and services.

The “polluter-pays principle” moves the financial burden onto those who are creating the environmental problem. This was recommended as the default position in a well-known report prepared by the OECD. Perhaps it is fair that someone who is causing problems for someone else should be required to make amends. After all, that’s the rule that often applies in law. The guilty must pay!

Proponents of the “cost-sharing principle” recognise that there can be multiple winners from some environmental works, potentially including some benefits to the polluters. Perhaps it is fair that the costs are shared out according to those benefits. There is another obvious example where we bear a share of the costs in order to get a share of the benefits: buying shares in a company.

All of these “principles” are discussed by economists and appear in economics text books, so people are often surprised to learn that they actually have no status at all in economic theory. None of them is really a principle in the sense of a scientific or mathematical principle: a truth that can be proved based on some other truths. Indeed, polluter pays and beneficiary pays are usually in direct contradiction, so they can’t both have the status of truths. In reality they are nothing more than rules of thumb that might or might not be considered fair.

The question of who should pay for environmental works is a good example of something that economists cannot do: provide definitive advice about the most desirable distribution of benefits and costs. Economic theory focuses on how to maximise the size of a cake (which we call “efficiency”), but not on how to share it out. Of course there are plenty of economists interested in the share question, and lots of good thinking has been done about it, but there is no clear-cut answer. In my view, there never will be; it will always be a matter requiring subjective judgement, so the intrusion of politics is inescapable.

Despite this, economists can still make a number of useful contributions to questions about the distribution of benefits and costs from government policies, including the following.

  • Quantifying the distributional effects of alternative policies. Who wins, who loses and how much?
  • Testing the policies against the various rules of thumb that might be considered fair (polluter-pays, etc.).
  • Pointing out what the rules of thumb imply about property rights.
  • Pointing out some practical limitations of trying to apply any particular rule of thumb about who should pay.

The last point is important because there are problems in trying to rigorously implement any of the rules. One of the problems is lack of information. For diffuse environmental problems, we often don’t know in any detail who is the source of the problem. Often the cause-and-effect relationships between any environmental works and environmental outcomes are unknown or highly uncertain. For environmental issues that have non-market benefits and costs (e.g. existence values) we don’t know who the beneficiaries are. Lack of information means that if a government sets out to implement any of the above three rules as being the most fair, it could easily end up with a distribution of benefits and costs that deviates a long way from the chosen rule.

The market will also have an influence on the distribution of benefits and costs, irrespective of government wishes. For example, if farmers’ production costs go up due to legal requirements to protect biodiversity, the farmers may or may not be able to pass on the increase to consumers of their products, a group which may include many of the beneficiaries of the new law. Whether costs can be passed on depends in part on how responsive consumers are to price changes. If consumers of their products are too responsive and dramatically cut consumption as prices rise, farmers lose more than they gain by attempting to pass on the extra costs. In an unregulated market, the distribution of costs between farmers and consumers is completely outside government control as it depends on the responsiveness of supply and demand to price changes, and these depend on producers’ cost structures and consumers’ preferences, not on government policy. The capacity to pass on costs also depends on the market structure in intervening steps of the supply chain. Costs could potentially be absorbed within the chain such that neither polluters nor beneficiaries pay.

Application of any simple rule may be compromised, as governments’ decisions about the distribution of benefits and costs are influenced by a range of considerations. These may include political gain, parochialism, the activities of lobby groups or a wish to benefit particular groups due to perceptions that they are disadvantaged in some way.

In my observation, an approach that is commonly judged to be politically feasible is to give precedence to the status quo. This means that polluter pays would be applied to prevent a change to a more polluting activity, while beneficiary pays (or an approximation of it in the form of government funding) would be used to encourage a change to a more environmentally beneficial outcome. A group with particularly high political power can over-ride this system, but apart from that it often seems to work out this way. Economists couldn’t say they have anything against this system from a distributional perspective. Depending on the issue and how it is addressed, they may have concerns about efficiency. For example, the proposed solution may create high transaction costs or perverse incentives, or do-nothing might be a better option.

Who should pay? There is no easy answer, so we need to be careful that so-called “principles” like polluter pays and beneficiary pays don’t acquire a God-given-truth status that they don’t deserve. In truth they have no real status other than as rules of thumb that can be applied or ignored as circumstances suit.

David Pannell, The University of Western Australia

Acknowledgment

Thanks to Allan Buckwell for help with this piece

20 – Thinking like an economist 3: What is your objective?

In Pannell Discussion 18, I touched on the need to select a clear objective when tackling a complex decision problem. Without a well-defined and well-considered objective, one cannot sensibly choose among the available decision options. It’s like the old saying, “If you don’t know where you are going, any road will get you there.”

For financial problems, selecting the objectives is often easy (e.g. maximum profit, or a balance between profit and risk), but for environmental problems, it can be more difficult. But that makes it particularly important to work on getting the objective right.

For example, imagine that you are asked to design a policy to protect or enhance “biodiversity”. You might start with an objective of maximising the level of “biodiversity” per dollar spent. However, definitions of biodiversity tend to be broad and non-specific. An extreme example comes from Wilson (1994, p.359) who defines biodiversity as:

“the totality of hereditary variation in life forms, across all levels of biological organization, from genes and chromosomes within individual species to the array of species themselves and finally, at the highest level, the living communities of ecosystems such as forests and lakes.”

A similarly broad definition is given in the National Strategy for the Conservation of Australia’s Biological Diversity.

“the variety of all life forms – the different plants, animals and micro-organisms, the genes they contain, and the ecosystems of which they form a part.”.

These are not helpful definitions for the purposes of decision making. The test is whether they could be used to select one environmental project ahead of another – clearly, they could not.

Practical decision making requires much more specific objectives to be specified. A key task for ecologists and environmental scientists is to provide advice to the community on specifically which environmental outcomes are more and less important, including supporting rationales for this advice.

One possible response to this challenge is to say that we should find out which environmental outcomes the community wants and values, perhaps by conducting surveys, such as non-market valuation studies. This may be part of the solution, but it misses one of the key issues. The quality of the information that surveys provide is constrained by the quality of information that respondents have about the ecological, environmental and social significance of the environmental assets in question, and often they have little idea about these things. Collecting and interpreting information of this type is a task for ecologists (among others) and it is a task that has barely commenced, at least in terms of providing information that is useful for community decision making. The significance of particular species or habitats to the community may depend on biology-related characteristics such as

  • scarcity or uniqueness,
  • the extent to which other desirable species or habitats depend on them,
  • similarity to undisturbed natural habitats (although that seems rather arbitrary to me, given the dynamic nature of natural habitats in the long term)

as well as on socially-relevant characteristics such as:

  • visual aesthetics,
  • whether the species has an appealing lifestyle (honeyeaters versus intestinal parasites),
  • proximity to human population centres,
  • visibility, and
  • provision of specific environmental services.

Biological scientists might, perhaps, feel that the former list is a more respectable target for their attentions than the latter, but the practical reality is that the items in the second list are relevant to the community. Consider, for example, whether the arguably-more-frivolous factors on the list would influence the results of community surveys, including non-market valuation studies.

This is not to say that it is ecologists’ role to find out what is important to the community in the way of biodiversity conservation. As I am conceiving it, ecologists (in concert with other specialists) would provide information that helps the community and its representatives and institutions select appropriate objectives. The objectives chosen should be specific, measurable and supported by a rationale. The objectives should not fully specify the courses of action to be taken (since that pre-empts the decision and may rule out more cost-effective options). Instead, they should specify the desirable outcomes.

Ideally, the objectives would be expressed in terms of the high-level benefits to society that biodiversity provides (e.g. specific ecosystem services, a source of genetic resources for medicine or agriculture, values related to recreation and tourism, non-use values such as existence value). In practice, planning on the basis of such broad high-level objectives is very difficult, primarily because of lack of information (e.g. about the contributions of different biodiversity outcomes to each of these objectives).

A practical fallback position is to select narrower and more specific objectives for biodiversity outcomes that are judged to provide high levels of one or more of the relevant values. A good example is provided by “Victoria’s Native Vegetation Management: A Framework for Action”, which selects an objective of overall “Net Gain” in vegetation values based on a specific vegetation quality rating system known as “habitat hectares”. Other Australian policy documents tend to express their objectives in broader, non-specific terms, such as “Protect and restore high value wetlands and natural vegetation, and maintain natural (biological and physical) diversity”, which, unfortunately, provides little real guide to decision making.

David Pannell, The University of Western Australia

Further reading

Pannell, D.J. (2003). Heathens in the chapel? Economics and the conservation of native biodiversity, Presented at a workshop of the Cooperative Research Centre for Plant-Based Management of Dryland Salinity, “Biodiversity Values in Agricultural Landscapes”, Rutherglen, Victoria, 14-15 October 2003. Forthcoming in Pacific Conservation Biology. full paper (109K)

Wilson, E.O., (1994). Naturalist. Island Press, Washington D.C.