Category Archives: Policy

310 – Additionality can be tricky to assess

Many environmental policies and programs pay public money to people or businesses (or give them tax breaks or discounts) to encourage them to adopt more environmentally friendly practices and behaviours. A seemingly common-sense rule for these sorts of programs is that we shouldn’t pay people to do things that they were going to do anyway, without payment. But it can be quite a hard rule to apply in practice.

The idea that we shouldn’t pay people to do things that they were going to do anyway goes under the name of “additionality”. (It is also related to the with-versus-without principle in Benefit: Cost Analysis, and the concept of market failure – see PD272).

The idea behind “additionality” is that, when a program pays money to people to change their behaviours, the environmental benefits that result should be additional to the environmental benefits that would have occurred anyway, in the absence of the payments.

The reason this matters is that, if we are able to target payments to those behaviours that do result in additional environmental benefits, we’ll end up with greater environmental benefits overall, compared to paying for non-additional benefits – we’ll get better value for taxpayers’ money.

Some environmental programs do a poor job of checking for additionality. As I noted in PD272, much of the money given to farmers in US agri-environmental programs is not additional. In Australia, the Direct Action program for climate change doesn’t consider additionality well when selecting the winning bids in their reverse auctions (it compares practices before vs after signing up to the program, not with versus without).

So, environmental programs that allocate money to people or businesses should worry about additionality, but how? It can be harder than it sounds. It’s all very well to say, “only pay people if they would not have done it anyway”, but how do we know what they would have done anyway?

Sometimes it’s reasonably easy. There are cases where we can be pretty confident that people would not have done the environmental action, and will not start doing it in future, without a payment or regulation. I suspect that most of the work on Australian farms to fence off waterways to exclude livestock would not have happened without payments to cover the cost of fencing materials.

In the US, the Conservation Reserve Program pays farmers to remove agricultural land from production and plant environmentally beneficial species. This is probably mostly buying actions that lead to additional outcomes.

The nature of these additional activities is that they are things that are not normally done by farmers. This is largely because they cost the farmer money.

Judging additionality can be much trickier for environmental actions that also generate enough private benefits to be potentially worth doing by the private individuals or businesses. Zero tillage is a good example. Widespread adoption by farmers of zero tillage in Australia, Canada, the US and some other countries has substantially reduced soil erosion, with a range of off-farm benefits. But the reason this practice has been adopted so widely is that it can be very beneficial to the farmers who adopt it. Paying Australian farmers as a reward for doing zero tillage would be pointless, because most of them are already doing it. The public benefits would not be additional.

But imagine how it was in the early days of zero tillage. From the time when it was first developed, it took several decades for zero tillage to be taken up by most farmers. For the first decade, there were very few adopters. A program looking at subsidising zero tillage in 1990 would probably have judged that the payments would lead to additional benefits, and I would not have blamed them.

In fact, at that time, before the systems and technologies to make zero tillage work as well as it does now had been fully developed, payments in many cases would have satisfied the additionality condition. But only temporarily. At some point, the payments would have needed to be switched off, but judging when to switch them off would have been incredibly difficult. Most likely the payments would have continued for quite a while after additionality was lost.

For some practices, additionality comes and goes. For example, planting perennial pastures sequesters more carbon in soils than is found under annual crops, so it might be worth paying crop farmers to convert. But only if they would not otherwise have done so. The area of perennial pastures in Australia rises and falls over time in response to the prices of livestock products, the performance of available perennial pasture varieties, and the economic performance of cropping. If an agency started to pay farmers to plant perennial pastures, ideally they would keep a close eye on the economics of perennial pastures relative to cropping, in case additionality was lost. If it was lost for a period, then payments for that period are achieving nothing, and could be cut without losing the sequestered carbon.

But how would the agency know? The economics of a mixed farming system are very complex, and highly context specific. I worked on nothing but the economics of mixed farming systems for about 15 years, and it would take me quite a bit of effort to assess the additionality of perennial pastures on a particular farm. It would likely vary from paddock to paddock within the farm. The agency could potentially pay consultants to regularly assess the economics, but the costs of doing so on an individual farm would probably outweigh the value of the additional stored carbon.

What the Australian Government’s Emissions Reduction Fund does instead is a before-vs-after comparison of soil carbon, and it assumes that all of the increase is additional for the life of the agreement. This works initially, but the longer the agreement goes on, the larger the chance that additionality will be lost. If it is lost, then the public money allocated for converting to perennial pastures will just be a gift to farmers who would have done it anyway. The gifts could be small and short term or large and long-term; it’s impossible to know in advance. If it turns out to be large and long term, it is the farmer’s good luck – there is no mechanism in the program to turn the payments off.

Should the program have been designed differently? As I said earlier, rigorously assessing additionality on each farm over time is probably not feasible for this practice. It would cost so much that the investment in soil carbon sequestration was not worthwhile.

Additionality could be assessed for a region, rather than for many individual farms. That would make it more affordable, but given the high heterogeneity of the economics of perennial pastures within a region, or even within a farm, the assessment would be wrong in many cases. Still it might be judged to be acceptable as a compromise.

The other alternative is not to provide payments for soil carbon sequestration at all. Personally, that would be my recommendation. There are other problems with paying for soil carbon as well – leakage and permanence, not just additionality (Thamo and Pannell 2017) – and I don’t believe it’s possible to develop a sound policy that is worth the transaction costs.

Although assessing additionality can be difficult, I’m not saying that it is irrelevant. It is always worth thinking it through carefully when setting up an environmental program, and sometimes it is feasible to do a reasonably reliable assessment of it at reasonable cost. But not always. If not, then the program managers have to judge whether the risk of non-additionality is so high that it is not worth proceeding with the program. That’s a difficult judgement that should not be made lightly.

Further reading

Thamo, T. and Pannell, D.J. (2016). Challenges in developing effective policy for soil carbon sequestration: perspectives on additionality, leakage, and permanence, Climate Policy 16, 973–992. Journal web page

309 – Why do fishers in Chile put up with poachers?

Fishers in Chile have been given exclusive rights to fish in particular areas, to give them an incentive to avoid over-fishing. In theory, they should be looking out for illegal poachers and reporting them to authorities, but they often don’t bother to do this. We wondered why.

Many fisheries around the world are over-fished, in some cases to the extent that the total catch of fish is less than it would be if fishing effort were reduced. Often, the over-fishing occurs because individual fishers have no incentive to reduce their own catch; if they do so, the fish they leave will be caught by other fishers, because the fishery is “open-access”.

Various policy approaches have been used to try to address this, including limits on fishing gear, limits on the length of a fishing season, and quotas on how many fish can be caught. A relatively recent approach has been the creation of Territorial User Rights for Fishers (TURFs). In this system, a group of fishers forms a cooperative, and they are given exclusive rights to catch the fish in a certain area (Wilen et al. 2012; Gelcich et al. 2012).

The idea is that, because other fishers outside the cooperative cannot come in and poach the conserved fish, members of the cooperative have an incentive to keep their own level of catch at a sensible level. Of course, this only works if the poachers are actually kept out.

One of my PhD students, Katrina Davis, was working on fisheries management in a part of Chile, and she found that fishers who were part of a TURF cooperative were often making no effort to detect poachers or report them to authorities. She wondered why.

One could imagine various reasons:

  • A judgement that the benefits of reducing poaching would be small. (Katrina’s previous research had shown that this was not true (Davis et al. 2015), but the fishers may have had a different perception.)
  • Concerns about the cost of monitoring TURF areas, especially those that were located at some distance from home.
  • Social norms that would make people uncomfortable about reporting others.
  • Concerns about personal safety if the poachers responded with violence.
  • Lack of action by government to penalise poachers who are reported.

Katrina conducted a survey of the fishers to get to the bottom of this (Davis et al. 2017). She’s pretty fluent in Spanish, which would have helped.

She found that it was mainly about failures of government.

Fishers believe that “the judicial process in Chile does not sufficiently recognise the negative impacts of poaching, and that punishments are not sufficiently severe to deter poachers. Fishers also complained that government institutions, such as the navy or fisheries service, do not always respond to their distress calls when they detect poachers in their management areas.” (Davis et al. 2017, p.676).

Thus the government often fails to meet their side of the bargain. It would be really frustrating to fishers who went to the bother of reporting poachers only to find that their report was ignored, or that the poachers got off with trivial fines. No wonder they stopped monitoring or reporting the poachers.

What this amounts to is that the rights that have been allocated to the fishers’ cooperative are greatly diminished. They are rights in name but not in reality.

It highlights that even where a kind of privatisation approach is used to manage a natural resource, there continues to be a critical role for government to protect and enforce the rights that have been created.

Further reading

Davis, K., Kragt, M., Gelcich, S., Schilizzi, S. and Pannell, D.J. (2015). Accounting for enforcement costs in the spatial allocation of marine zones, Conservation Biology 29(1), 226-237. Journal web page

Davis, K., Kragt, M., Burton, M., Schilizzi, S., Gelcich, S. and Pannell, D.J. (2017). Why are fishers not enforcing their marine user rights? Environmental and Resource Economics 67(4), 661-681. Journal web page

Wilen,. J.E., Cancino, J. and Uchida, H. (2012). The economics of Territorial Use Rights Fisheries, or TURFs, Review of Environmental Economics and Policy 6(2), 237-257. Journal web page ♦ IDEAS page

Gelcich, S., Fernández, M., Godoy, N., Canepa, A., Prado, L. and Castilla, J.C. (2012). Territorial User Rights for Fisheries as ancillary instruments for marine coastal conservation in Chile, Conservation Biology 26(6), 1005–1015. Journal web page

308 – Vote yes for marriage equality

Australians currently have a chance to vote for marriage equality by postal ballot. I know this is a bit off the usual topics for this blog, but it’s something I feel strongly about. If you have the right to vote, here are six reasons to vote yes.

1. Because it’s the kind and decent thing to do. It would create joy for many thousands of people without hurting anybody.

2. Because gay people still face prejudice in many forms, and still attempt suicide at higher rates than their peers. Voting yes would be one small step towards turning this around.

3. Because we should not let the religious beliefs of a minority dictate how the rest of us live our lives. There is and should be a separation of church and state in Australia. Nobody should be required to follow the dictates of a religion to which they do not voluntarily subscribe. That is the real issue of religious freedom here – quite the opposite of what some “no” advocates are claiming.

4. Because the position of some Christians against same-sex marriage is not supported by the Bible anyway (Whitaker, 2017). The Bible has vastly more to say about being kind and generous than the few vague fragments it includes on homosexuality. Nowhere does it actually proscribe same-sex marriage. In the Old Testament, it does say that a man lying with another man instead of his wife is an “abomination”. But (a) this is about adulterous sex, not marriage between a loving couple, and (b) there is an interesting list of other things that the Old Testament also describes as abominations, including wearing mixed-fabric clothing, tattoos, mocking the blind by putting obstacles in their way, and trimming your beard. Why are we not having a postal plebiscite on the trimming of beards? The highly selective focus of some Christians on homosexuality is hypocritical. Neither testament of the Bible says anything whatsoever against lesbians.

5. Because Australia is lagging behind the rest of the civilised world. Same-sex marriage is already legal in The Netherlands, Belgium, Spain, Canada, South Africa, Norway, Sweden, Portugal, Iceland, Argentina, Denmark, France, Brazil, Uruguay, New Zealand, the UK, Ireland, the US, Luxemburg, Colombia, Greenland, Finland, Slovenia, Germany and Taiwan.

6. Because this change is inevitable, and saying no now would needlessly delay us doing the right thing. It prolongs the debate and increases the number of public expressions of anti-gay prejudices.

Post your completed survey form back by 31 October to be sure of meeting the deadline.

Further reading

Whitaker, R.J. (2017). Same-sex marriage: What does the Bible really have to say? Here

307 – John Kerin’s memoirs

John Kerin was Minister for Primary Industries in the Australian Government between 1983 and 1991. His memoirs are now available as a free download. Having seen him speak several times since he ceased being a minister, I think his memoirs should be fascinating and very informative. Agriculture was very lucky to have him as minister during this period of great change and disruption. 

John Kerin was unusual as a minister in that he knew a lot about the issues he was responsible for. Not only was he experienced as an agricultural producer, but he was also trained as an agricultural economist, and worked for a while in the Bureau of Agricultural Economics.

Apparently, his expertise was not always appreciated by his department. In the last part of the book he says “the ethos of some government departments was that they preferred ministers who knew nothing – the better to manage or control them. However, I thought that it was not necessarily an impediment to know something about your portfolio areas. The constant rotation of ministers is not good for policy making.”

Not only did he know a lot, he was clearly very thoughtful and remarkably frank. “Nor … do I want to give the impression that I was always sure about what I was doing, what the outcome of some policy options may be or where the changes and reforms we were introducing may lead. … By nature I am a pessimist, slow to come to decisions and generally believe that I am wrong until convinced of the path to take.”

A landmark event during his term as minister was the wool crisis. His eventual decisions for the industry were critically important and rather heroic as they faced fierce opposition from the whole industry, which seemed determined to do itself almost unlimited damage.

Some of his perspectives are all too relevant in our current political climate. “I have always been terrified by people in politics who are absolutely sure they are right, have God on their side or tell me they are ‘men of principle’. Such people seem able to blind themselves to their own hypocrisy and humbuggery – and are dangerous.”

I’m really looking forward to reading the book.

Further reading

Kerin, J.C. (2017). The Way I Saw It; The Way It Was: The Making of National Agricultural and Natural Resource Management Policy, Analysis and Policy Observatory, Melbourne. Available here: http://apo.org.au/node/76216

Pannell, D. (2014). Supply and demand: the wool crisis, Pannell Discussions no. 266.

302 – India impressions

In February I spent two weeks on holiday in the north of India, visiting Delhi, Agra, Jaipur and Jodhpur. For many years, I had been reluctant to go there, afraid of being overwhelmed by the culture shock and the poverty. In the end, there was plenty of both, but perhaps less than I expected, and I really enjoyed the visit.

Here are some quick impressions about some of the main things that stood out to me.

Poverty and prosperity

There is plenty of evidence that India is developing rapidly. Between 1980 and 2014 its Human Development Index increased by 68 percent, and its Gross National Income per capita (in constant dollar terms) increased from $1255 to $5497. Their economy is continuing to grow rapidly: at 7.6% (real) in 2016.

Still, there are many people doing it very tough – e.g. sleeping under overpasses or in train stations. There was more begging on the street or at traffic lights than I had previously encountered elsewhere.

On the other hand, there was less of that than I expected. We were able to give to many of the beggars we encountered without feeling like it was overwhelming.

The huge majority of people look like they are doing OK. And there are plenty of people who are clearly doing very well indeed.

Traffic and crowds

The population of India is 1.27 billion, and it’s growing at 1.19% (15 million people) per year. It will overtake China as the world’s most populous country in about 2022.

Sometimes in Delhi it feels like they are all on the streets! Indian traffic is like nothing else I’ve ever encountered. Countless millions of cars, tuk tuks, motorbikes, trishaws, and sometimes buses and trucks. Not to mention cows and pedestrians.

The congestion is absolutely terrible of course, but just as remarkable is the way the traffic works. It feels like one is in a school of fish rather than a flow of traffic. Lanes are completely ignored. One moves forward into any available gap, seemingly no matter how narrow it is. When roads intersect, the cars just sort of inter-mesh and weave their ways through. You can’t wait for a break in the traffic before you cross, because there will never be one. I never got used to the alarming way that our drivers turned left onto roads or into roundabouts – they just drive on, seemingly without even looking whether there is room for them. The traffic just has to make room.

People are also quite relaxed about driving into oncoming traffic if doing so would be convenient. Our own drivers did it several times, and we once encountered a large truck coming straight at us in our lane: the inside lane of a dual carriageway road! Pauline screamed, but our driver was quite unruffled. He just shuffled to the left as if it wasn’t surprising. Because it wasn’t.

Apart from the traffic, it can be pretty crowded for people as well. Walking through the market area in Old Delhi it sometimes seemed about as crowded as being inside a bus in peak hour in Perth, but we were in the open.

Crowding was most intense inside some of the vehicles. I was part of a group of three, and we felt quite packed in in the back of a tuk tuk, but I saw plenty of tuk tuks with about eight passengers and one that surely had more than 10. It was common to see three passengers in the front with the driver, and he only has a single seat. One person would often be sitting under the driver, the other two teetering on a few inches of seat on each side.

On the other hand, we did manage to find plenty of relatively uncrowded places too, particularly some nice parks. The crowds are intense but not continuous.

Animals in the street

I’ve never seen so many different types of animals in urban areas: cows (of course), dogs, camels, horses, donkeys and monkeys are commonplace, and in Jaipur there are elephants. I witnessed a pitched battle between rival monkey gangs near the Taj Mahal.

 Environment

Delhi is famous for its poor air quality. According to the World Health Organisation, Delhi has the worst air quality of any major city in the world.  I had previously visited Beijing and experienced its appalling air quality, but Delhi is 43% worse (in terms of fine particles, which are the most damaging to health).

Fortunately it wasn’t too terrible while we were there, but on average air pollution kills about 1.5 million Indians per year – their fifth highest cause of death.  There is increasing awareness of the problem, but they’ve got a long way to go. For example, burning rubbish (including plastics) in the streets is still common.

The other local environmental issue that stood out was garbage in the streets. Particularly in Delhi and Agra, the garbage situation is absolutely woeful. Jaipur and Jodhpur were much better, apparently due to official efforts to raise awareness and clean things up. They are also much better for air pollution. Hopefully, rising incomes will result in people in other cities wanting to follow the examples of those two.

With so many people to fit in, you have to go looking for relatively natural areas. We went to Keoladeo National Park south of Agra, and it was absolutely fantastic. The range of birds, especially water birds, was just amazing, and there are plenty of other animals as well. We saw jackals, mongooses, deer, antelopes and bats. Highly recommended.

Selling

I’m completely hopeless at haggling. When buying small items, my heart is not in it, because fundamentally I am quite happy not to pay the lowest possible price, on the basis that it is still cheaper than I’d be happy to pay in Australia, and these people need the money more than I do. Add to that the fact that Indian sellers are masterful and incredibly persistent persuaders, and you can see the risks I faced. Oh well, it was an experience. I’ve always wanted 12 crudely hand painted plastic elephant key rings.

Food

I love Indian food. There were lots of great dishes you never see at an Indian restaurant in Australia.

Health

I used to always get really sick in developing countries, but over time I’ve developed a relatively effective strategy: carry hand wash and use it regularly, be cautious when choosing where to eat, and take Travelan before each meal. (And of course only drink bottled water.) I’ve now used this approach in Indonesia, Vietnam and India without getting a single serious stomach problem. In India I added another element to the strategy: only eat cooked vegetarian food. This was no hardship at all, given how good their vege food is.

Crime

We read a bunch of horror stories about the dangers before we went there, but never felt in any danger (apart from on the roads). Our guides warned us a lot about pickpockets, but we kept our valuables in pickpocket-proof bags, with metal reinforcing, so felt safe.

Overall, it was a great experience. Despite the various challenges, I’m really glad I went.