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How can we conserve biodiversity?

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Presentation on theme: "How can we conserve biodiversity?"— Presentation transcript:

1 How can we conserve biodiversity?
The Futurability of Biodiversity Chapter 10 How can we conserve biodiversity? - Economic aspects - Which choice is more beneficial? Today, I would like to talk about the economic aspects of biodiversity conservation. Here we have a person who is thinking about making some money from a forest he owns. If he cuts down all the trees, and sells the timber, he can make a large sum of money quickly. And, If no other choice presents itself, he will opt to cut down those trees, which will result in the loss of forest biodiversity. Nevertheless, the circumstances change if the forest owner is able to obtain regular grants for the conservation of his forest. In this situation, he is faced by the dilemma of whether it is more profitable to take the one-off large sum for the logged timber or long-term regular sums of money in the form of grants for forest conservation. And, if he opts for the grant payments, the forest probably will be saved and its biodiversity protected. In this way, economic approaches are effective in biodiversity conservation. I will talk in greater detail about such approaches in the second half of today’s lecture.   Harvesting trees for trading, sale Conserving the forest to obtain subsidies

2 In review Biodiversity enriches human life economically, culturally and psychologically. To conserve biodiversity, however, human activities are often restricted. Up to now, we have looked at the roles of biodiversity and the necessities of such conservation, but we cannot ignore economic aspects when considering conservation in practical terms. It would seem that environmental conservation and development (in other words, economic progress) conflict with each other. An apt illustration of this conflict is seen in Asian and Latin American countries, where economic growth continues but the most rampant escalation of air pollution and forest destruction can be seen. However, if we turn our attention to leading nations, we see that the state of air pollution has tended to improve over the last 30 years. In other words, environmental improvements are progressing hand in hand with economic development. Conversely, there are quite a few impoverished areas where environmental destruction thrives. The world’s poorest countries are grouped on the south side of the Sahara desert. Desertification and forest destruction and the accompanying loss of biodiversity are all occurring amidst poverty. Therefore, the relationship between economics and environment – in other words, development and environmental conservation – is in no way a straightforward relationship. What needs to be emphasized here is that environmental conservation costs a lot of money. And, poor nations that are unable to bear such costs also are unable to stop environmental destruction. Moreover, environmental conservation will not be supported unless the value derived from environmental conservation corresponds to the cost of conservation.

3 1. Social decision making: conservation or development?
Today’s Topics 1. Social decision making: conservation or development? How can we demonstrate the environmental values of natural resources? 2. Economic incentives Other than legal institutions, what conservation measures are there?  With that in mind, I would like to start off this lecture by introducing economic approaches on how to decide whether or not environmental conservation is desirable for society. In other words, an introduction of the theories and practices for social decision making regarding the selection of conservation or development. If environmental conservation can be proven to be of value to society, then the environment can be saved. So, how can that value be shown? Development benefits are shown in numerical figures, whereas environmental values are often thought of as being subjective and therefore vague. However, in some areas, at least, conservation can be evaluated in terms comparable to development benefits. All over the world, people are disputing the pros and cons of whether development or environmental conservation is better. In contrast, in many cases, even though environmental conservation is clearly desirable, the progress of environmental destruction cannot be halted. A feature of such cases is that an extremely large number of people are contributing to the environmental destruction. And, as such, people are hardly aware of the environmental destruction they are part of, which makes enforcement of regulations concerning environmental destruction extremely difficult. Typical examples of where personal involvement is not consciously acknowledged include problems like desertification, deforestation and global warming. We use enormous amounts of energy everyday, which, in turn, causes massive emissions of greenhouse gases into the atmosphere. Many people realize that those emissions trigger climate changes that are highly likely to wipe out entire populations of organisms. However, there are not very many of those people who acknowledge that their own actions are part of the cause, and even less people who make an effort to curb their emissions. In the second half of this lecture, we will look at economic approaches for tackling such problems.

4 1. Social decision making: conservation or development?
How can we demonstrate the environmental values of natural resources? 1) Ski resort development / conservation - Travel Cost Method 2) Amenity Values capitalized in land - Hedonic Price Method 3) How to estimate Existence Value - Contingent Valuation Method 4) Social cost-benefit analysis  First, let us look at social decision making concerning the choice of conservation or development. Here we have 3 practical examples for evaluating environmental values: 1) Travel cost method, 2) Hedonic price method and 3) Contingent valuation method. All 3 methods are social cost-benefit analysis methods.

5 1. Social decision making 1) Ski resort development / conservation
Mineral King Valley – State of California, USA To start with, as a specific issue, let us take a look at the Mineral King Valley argument that took place in the 1970s in the USA. The photo shows an autumn scene in Mineral King Valley, an area in California surrounded by the Sequoia National Park. In the 1950s, the Walt Disney Company planned to invest 35 million dollars to develop an 80-acre site into a ski resort, and federal approval was granted in January   In the 1950s, the Walt Disney Company planned to develop the area into a ski resort, and federal approval was granted in 1969. Photo: Brian Michelesen

6 1. Social decision making 1) Ski resort development / conservation
Sierra Club petition Sierra Club Oldest, largest and most influential grassroots organization protecting natural environment in USA (established 1892). Plaintiff: Sierra Club (public welfare representative) Litigation content: Legality of the rights of National Park conversion Federal Court Judgment Appeal dismissed in 1972. …Development action does not encroach on the activities of Sierra Club or its members.  Now, let me introduce the group that disputed the Mineral King Valley development plan – the Sierra Club, an organization for outdoor lovers, and the oldest nature conservation group in the world, formed in 1892. The Sierra Club brought a lawsuit challenging the legality of the rights of the National Park conversion and demanding a halt to development action. In bringing the lawsuit, the Sierra Club, as the plaintiff, classed itself as the public welfare representative. The Federal Court dismissed the lawsuit in 1972, stating that the development action does not encroach on the activities of the Sierra Club or its members. This court case divided public opinion about the choice of development or conservation and has given us the Mineral King Valley argument. Public consensus regarding the choice of development or conservation has turned into a point of dispute. - Mineral King Valley argument -

7 1. Social decision making 1) Ski resort development / conservation
The legal status of trees ...The viewpoint of a legal expert Christopher Stone (University of Southern California) ‘Should trees have legal standing?’ The legal rights of nature or natural beings are independently recognized under the law. Please! In this court process, a legal scholar Christopher Stone from the University of Southern California developed the view that the legal rights of nature or natural beings are independently recognized under the law, and, in defense of the Sierra Club, wrote a thesis “Should Trees Have Standing?”, which explores the argument of whether trees have legal standing in a court of law. Don’t destroy our habitat! (Chistopher 1972)

8 1. Social decision making 1) Ski resort development / conservation
Economists’ viewpoints If the ski resort development project increases the happiness of the society as a whole (social welfare), such development is considered good. But… What is meant by the happiness of a society as a whole? What is the relationship between individual happiness and social welfare? …cannot be objectively estimated. At least insofar as that part of the benefits which is accrued from the development of the ski resort project and which can be monetarily estimated (social happiness monetarily measured) is less than the development cost, then such development project is deemed not desirable. Likewise, economists also became involved in the Mineral King Valley argument. Regarding choice of development or conservation, the general view of economists is that if development increases the happiness of the society as a whole (social welfare), such development is considered good. But, what is meant by the happiness of a society as a whole? What is the relationship between individual happiness and social welfare? A little consideration tells us that this cannot be objectively estimated. In fact, it goes without saying that there is no logic to evaluating the happiness of a society based on a summary of these points. Therefore, society’s choice is based in an extremely difficult problem. (Those of you who are interested should refer to documents on social choice, ethics and jurisprudence.) Because this difficult problem exists, economists gave further thought to it, and came up with the following based on the Mineral King Valley argument. “At least insofar as that part of the benefits which is accrued from the development of the ski resort project and which can be monetarily estimated (social happiness monetarily measured) is less than the development cost, then such development project is deemed not desirable.” Well, then, how can the benefits to be derived from development of a ski resort be evaluated? In this case, the studies of Cicchetti, Fisher and Smith (1976) that covers the Travel Cost Method was applied. This method states that people who travel (go skiing) gain pleasure which exceeds the cost. The valuation method for the monetary benefit: Travel Cost Method … People who travel (go skiing) gain pleasure which exceeds .the cost.

9 1. Social decision making 1) Ski resort development / conservation
Travel Cost Method (TCM) The relationship between the number of ski trips and the cost of travel for Mr. Yamada from his home …for example, if it costs 4,000 yen per trip, 4 times; if 6,000 yen, 3 times; if 8,000 yen, 2 times and if 10,000 yen, one time. Let the actual cost be 5,000 yen. Then… 1st trip: His willingness to pay (WTP) for a new experience is 10,000 yen. The balance is 5,000 yen after paying the travel cost. This amount, called net benefit, is the monetary equivalence of his happiness. 2nd trip: his WTP is 8,000 yen. So, the balance is 3,000 yen. 3rd trip: his WTP is 6,000 yen. The balance is 1,000 yen. 4th trip: his WTP is 4,000 yen. He will not go skiing, because of the negative net benefit. Now I would like to explain this Travel Cost Method using a specific example. Let us look at Mr. Yamada who is thinking about going on ski trips. The number of ski trips Mr. Yamada makes depends on the cost of travel. For instance, Mr. Yamada wants to go skiing 4 times if the cost of 1 trip is 4,000 yen, 3 times if it is 6,000 yen per trip, twice if the cost is 8,000 yen and once if the cost is 10,000 yen. Let us say that the cost of 1 ski trip will cost 5,000 yen. As Mr. Yamada wants to go skiing even if the cost is 10,000 yen for the single trip, and the actual trip cost is 5,000 yen, Mr. Yamada’s happiness is calculated as 10,000 – 5,000 = 5,000 yen of happiness. For the second trip, Mr. Yamada is prepared to pay 8,000 yen. Like the first trip, the actual cost is 5,000 yen, so Mr. Yamada’s happiness is calculated as 8,000 – 5,000 = 3,000 yen of happiness. Calculated in the same way, the third trip’s happiness is 1,000 yen. But, as the trip cost Mr. Yamada is prepared to pay for the fourth trip is less than the actual amount needed, Mr. Yamada will not go on the fourth trip.

10 1. Social decision making 1) Ski resort development / conservation
Recreation Demand Curve The relationships between the number of ski trips and the cost of travel are depicted graphically below. A+B: WTP (Benefit) The maximum amounts willingly paid for the trips A Recreation Demand Curve   Number of trips 1 3 6000 10000 B Travel cost B: The total cost of traveling A=(A+B)-B: Net benefit Happiness measured in terms of money A Recreation Demand Curve is used to plot this travel cost against trip frequency. Please look at the graph. The combined areas of pale blue A and pink B denote the amount of money willingly paid to go on 3 trips. This amount is known as the willingness to pay (WTP) or benefit. B is the cost of going on 3 trips. Subtract cost B from benefit A+B to derive A, which is the monetary expression of the happiness obtained from skiing. This amount is called net benefit. Calculate out the net benefits for all visitors, and the totaled amount becomes the recreational value of the ski resort, as evaluated by the Travel Cost Method. Aggregate the net benefits across all visitors. …The recreational value of the ski resort estimated by TCM

11 1. Social decision making 1) Ski resort development / conservation
Economists’ studies: Cicchetti, Fisher, and Smith (1976) Number of Visitors Travel cost Number of visitors Travel cost Benefits of Mineral King ski resort development Impact on the other ski resort — in case of decrease in the number of visitors (-) (+) The above thinking was applied to Mineral King Valley. By developing a ski resort, a recreation demand would be created for the Mineral King Valley ski resort (click). And, for the same aggregation of travel costs, the area in the graph showing net benefit is derived. Next, by calculating the total net benefit for all the visitors, we can obtain the net benefit for the whole of society that will be generated by the development of the ski resort. However, in the science of economics, there is always concern about the ripple effects. In the case of the study we are looking at here, (click) the ripple effect caused by the development of the new ski resort will concern the fluctuation in the number of visitors to a nearby existing ski resort. That number may go up or down. (Click) Here, in this slide, the graphs show that the number of visitors to the other ski resort have dropped because visitors have been lured to the Mineral King ski resort. This means that the other nearby ski resort has lost some of its social value because the number of visitors has dropped. The study was used to estimate the shifts in the recreation demand curves of the Mineral King ski resort and the other nearby ski resort. The study then looked at the net benefits that would be derived from the development of a new ski resort – in other words, the study estimated the recreation value that would be generated by the development of the Mineral King ski resort. The results of these estimations showed (click): that even if actual development cost was conservatively quoted, it would be 61 million US dollars, whereas, even if the development value was generously quoted, it would only amount to 27 million US dollars, which would mean that the development was unlikely to be desirable for the society. Results: The cost was estimated to be at least US$61,000,000 and the benefit of the development was at most US$27,000,000. The development was unlikely to be desirable for the society.

12 1. Social decision making 1) Ski resort development / conservation
What has become of Mineral King Valley? Well, do you think the Mineral King ski resort was built? At the beginning of this example, I said that Mineral King Valley was surrounded by the Sequoia National Park. (Click) Well, in fact, Mineral King Valley was incorporated into Sequoia National Park in 1978, and development of any kind (including ski resorts) in the area is permanently disallowed. It was incorporated into a national park, and ski resort development in the area is permanently and legally disallowed.

13 1. Social decision making 2) Amenity values capitalized in land
When the green in your town may be lost… June 9, The Asahi Shimbun, morning edition Conservation of the opposite bank of ‘the forest of Fuchi’ “Overall considerations” by Takashi Watanabe (Mayor of Higashi-Murayama city) In response to the public movement concerning the conservation of secondary forest located on the opposite bank of ‘the forest of Fuchi’, which is commonly known as ‘Totoro forest’, the mayor of Higashi-Murayama city, Takashi Watanabe, has on June 8th indicated that priority would be given to list Kitayama Park as a public area under the town planning project. At the same time, the mayor recognized that the protection and promotion of green/satoyama was an important issue. He further pointed out that the director, Toshio Yasuda of ‘Fuchi Green Preservation Liaison Council’ (headed by Hayao Miyazaki) had, on May 18th, requested that the secondary forest be transformed into a public domain. The mayor conceded he would take all of this into consideration before putting his plan into action. The next topic covers the issue: “when the green in your town may be lost…” Doubtless, people living in the suburbs of major cities have experienced the loss of nearby secondary forest due to housing development. Furthermore, the people living nearby such secondary forest often turn to their local government for action in protecting such forest. One example I would like to show you today comes from a newspaper article about the conservation problem regarding a forest adjacent to “the forest of Fuchi”, which is the model for the forest that features in the animation My Neighbor Totoro (Tonari-no-Totoro), and the director of that animation, Hayao Miyazaki, is the chairperson of the citizen’s group “Fuchi Green Preservation Liaison Council”, set up to conserve the forest of Fuchi. In a case like this, if development costs can be shown in economic terms to be greater than the development benefits, development can be prevented. Conservation should be justified if cost of development is proven to be more expensive than its benefit.

14 1. Social decision making 2) Amenity values capitalized in land
Can the valuation of the forest be estimated by TCM? Most visitors are neighbors who can travel to the forest at very little cost. TCM can only assess a small fraction of the forest’s value. For the valuation of the forests near residential areas and other ingredients of those living environments… It would seem that the Travel Cost Method (TCM) that we looked at a little earlier could be applied to the forest of Fuchi problem. However, recreation value evaluated using TCM would perhaps be smaller than the benefits derived by developing the forest concerned. The reason being that local inhabitants live right next to the forest of Fuchi, so the cost of traveling to the forest is negligible. What is different to the Mineral King example is that the forest of Fuchi not only has value as a recreation site but also has value as part of the local inhabitants living environment. Thus, TCM is unable to evaluate the role of a secondary forest, or satoyama, in the daily lives of local inhabitants. Therefore, another evaluation method is required. Here, I would like to introduce the Hedonic approach as another evaluation method. Hedonic approach Valuation method which focuses on real-estate values (land prices, etc.)

15 1. Social decision making 2) Amenity values capitalized in land
Hedonic approach Land value is affected by various environmental factors. Natural disasters Exposure to sun Transportation & Communication access Noise Drinking water quality Presence or absence of greenery The Hedonic approach is a method for evaluating environmental services concerned with the value of property. In this case, let us look closely at the value of residential land. For those of you renting rooms, I think it will be easy to imagine in terms of the rent you pay for your lodgings. Land value is affected by various environmental factors – for instance, whether or not transportation is convenient, whether or not natural disasters occur frequently, whether or not there is exposure to sun, or noise or greenery exist. Differences in these environmental factors express themselves as differences in land value. Using those land value differences, environmental value can be converted into numbers – in other words, quantified. Environmental value indicators = Changing land value caused by changing environmental conditions …Environmental value can be quantified.

16 1. Social decision making 2) Amenity values capitalized in land
Example: values of two land parcels whose environmental conditions are the same except for a forest existing or not nearby. Residence A Land value 100,000 yen/m2 10 minutes 5 minutes Residence B Land value 70,000 yen/m2 10 minutes 5 minutes  Now let us look at an actual example. Here we have 2 identical residences. Both are 10 minutes away from a train station and 5 minutes away from a supermarket, plus, they both have the same size gardens. In fact, there is just 1 difference between them – that is, residence A is near a forest and residence B is not. As a result, the land value of residence A is 100,000 yen per square meter, whereas it is only 70,000 yen for residence B. That 30,000-yen difference comes from the environmental value of the nearby forest. With regard to the forest of Fuchi, to evaluate the value concerned with the living environment, we need to use data to study just how much land value increases when there is a forest nearby, and then study just how much total land value of the ambient area will decrease due to development of the forest in question. The value reduction is the living environmental value of the forest, and the cost of development. 100,000 yen – 70,000 yen = 30,000 yen, which is the environmental value of the nearby forest In the case of the forest of Fuchi, we can predict how much the total land value of the ambient area will decrease by losing the forest. The reduction is estimated by the living environmental value of the forest.

17 1. Social decision making 2) Amenity values capitalized in land
What has become of the forest of Fuchi? October 9, The Chunichi Web Higashi-Murayama City tendered a 73.7 million yen budget acquisition offer . ‘Totoro forest ‘ to be turned into public land from next month Higashi-Murayama City disclosed that they would present a supplementary budget proposal of about 73.7 million yen to the city assembly, which includes the cost for acquiring the secondary forest which animated movie director Hayao Miyazaki and others appealed to conserve. Out of the amount, 25 million yen would be applied from the donations to ‘Fuchi Green Preservation Liaison Council’ whose chairman is Mr. Miyazaki. After the resolution was passed, the forest was expected to turn into a public area within the next month. And, if you were wondering, the secondary forest adjacent to the forest of Fuchi was purchased by Higashi-Murayama City, and turned into public land. To make the purchase, the city budgeted 73.7 million yen, of which 25 million yen was provided from donations collected by Fuchi Green Preservation Liaison Council.

18 1. Social decision making 3) How to estimate Existence Value
Capturing an environmental value for people who enjoy the environment without visiting or living nearby. Tropical rain forests in Southeast Asia – treasure-house of natural life There are people who do not live in the nearby areas nor visit there. However, they feel a sense of grief if the nature is destroyed. … it is necessary to take into account such a feeling as a cost of environmental destruction when assessing environmental value. Next, I would like to introduce an evaluation method that deals with environmental valuation that is slightly different to the types we have looked at so far. In a terrestrial ecosystem, one of the regions with the highest biodiversity is, for example, the rainforest land of Southeast Asia. If this biodiversity was to be lost, many people would be saddened, even if they were living away from the rainforests in places like Japan. Yet, the methods I have introduced so far – TCM and Hedonic approach – are unable to assess the value of such biodiversity for the Japanese people. The reasons being that most Japanese people never get to visit such nature and they do not get to enjoy the living environment services that come from living in close proximity to a rainforest. So, leaving the explanation of existing value for later, I would like to first introduce a method for measuring environmental value when the people concerned do not visit or live nearby or enjoy the scenery. That method is the Hypothetical Valuation Method or Contingent Valuation Method, known as CVM Hypothetical Valuation Method (Contingent Valuation Method)

19 1. Social decision making 3) How to estimate Existence Value
Hypothetical valuation method (CVM) Cumulative ratio of those who answered “yes” 100% Actual value Estimated value 1 2 3 4 5 6 7 8 million yen Creeping in forest deterioration Plantation forest which has not been looked after well tends to lose undergrowth and develop soil erosion. This in turn leads to drought, flood and landslides. Furthermore, in such a forest, the branches or roots of trees do not grow well in comparison with their height, so they become vulnerable to disasters or pests. If we leave the forest as it is, it may not play its important roles well, such as regulation of natural disasters, protection of watershed, prevention of global warming, etc. Moreover, the landscape of the discarded satoyama or bamboo grove will become worsened. It will also make it difficult for people to enter the area, denying them the opportunity to interact with the natural environment. People are directly asked about their WTP or WTA, namely, the monetary value/loss of their pleasure or grief due to environmental change. (Example) Do you agree with the spending of one million yen for conserving the forest?...Yes/No 1) Provision of information for understanding the hypothetical environmental change and its various pervasive effects through markets and other channels 2) Questionnaire technique for getting accurate and honest answers 3) Statistical method for estimating the sum of WTP/WTA in the society based on the data In simple terms, CVM is a method for asking people directly about the environmental value each one of them has. Here, environmental value is classed as either the maximum amount a person would be prepared to pay if the environment could be conserved or the minimum amount of compensation needed by that person to maintain a sense of happiness if the environment in question was destroyed. With CVM, let us first look at change in a certain environment (click). Here (click), in these slides, we have an explanation of forest in an state of deterioration and actual damage caused by loss of forest (click). Once the explanation is given (click), people are asked to answer “Yes” or “No” as to whether or not they would pay money to conserve this forest. Finally, each person’s reply is added together (click), to find the total value for society overall (click). This method is often used in business development and valuation of products, but it has several problems. First, knowing whether or not environmental changes have been portrayed correctly is a problem. If we think about reading and explaining the text we looked at a little while ago, I think you will agree that the explanation would be quite different depending on whether an ecologist or an economist was doing the explaining. Also, there are probably people who think that having 2 possible answers is a problem. In actual fact, in questioning, methods such as a free-question format (any sum of money can be given as an answer), payment card system (several choices are available, and people choose an answer from among them) and a bidding system (like actual bidding, this system raises or lowers the price of the initially displayed monetary amount in accordance with answer). In addition, even in the 2-choice method, there is the double-bound dichotomous choice that can be used according to the answer given. Nevertheless, it is known that with these methods the answers become biased. For this reason, a statistical method is used to estimate the sum a person is willing to pay from an answer taken from 2 choices made available for a randomly selected sum of money chosen from several sums. I will not explain that technique here, but for those of you who are interested, please do internet searches on the key terms probit analysis and logit analysis. (Comment) Among environmental valuation researchers, there are some who prefer to use the double-bound dichotomous choice. However, there is resistance to this method from people in other fields because it can lead to the respondent telling a lie (in other words, it does not fulfill incentive compatibility).

20 Column 1: Dichotomy of environmental values
Use value Value elicited when the environmental service is enjoyed with other goods in an activity (Example) scenic beauty … scenery + ecotourism Use value can be measured based on behavioral data from each individual. Existence value Value derived from only the knowledge of the existence of environmental properties/services. (Example) Rural nature full of organisms … People feel nostalgic about their birthplace. … People feel sadness and longing over the changing environment of their hometown due to development. Environmental asset values can be economically divided into to 2 types of value. First, there is “use value”. This is value generated by combining an environmental service with other goods. For instance, the value of scenic beauty is realized when that beautiful scenery is combined with tourism. The other value is “existence value” – a term used to describe further human joy derived from knowing that environmental properties/services exist, without even being combined with other goods. This kind of value is difficult to understand, but, suffice it to say that the perception of happiness and sadness is very much a personal thing, and, for that reason, goods and services do not have values that transcend that personally perceived one (here, it is religion – not science – that recognizes that transcendency) . It is easy to think of the term “existence value” as the value of an environmental asset – such as an actual ecosystem – but that is not what “existence value” means. This dichotomy of environmental values is necessary when evaluating the value of an environmental asset. If “use value” is analyzed carefully, estimates can be made in principle from the behavior data of people. Whereas, the definition of the term “existence value” tells us that only self-reported data can be estimated. The science of economics has developed on the basis of the behavioral hypothesis that people will behave in ways that benefit themselves (economically rational person, being an altruistic one is okay) or will most likely behave in such a way (bounded rationality). For this reason, there are no lies in the behavioral data, but there may be lies in the reported data. Indeed, the search for a method that expresses truthful selection and technique has given shape to an individual field of economics – namely, mechanism design. Therefore, as a rule, economists strive to accurately measure, as best as possible, the use value. For example, the satisfaction derived from viewing television coverage or magazine pictures of rare flora and fauna from the tropics of Southeast Asia can be measured as use value. Furthermore, the values of that flora and fauna as genetic resources probably can be estimated from data on the probability of discovering raw materials for past medical drugs and from the peculiarities of the ecosystem in question. Conversely, there are also some environmental evaluation specialist researchers who try to make constructive use of reported data such as CVM. It is believed that such researchers consider it a grave mistake to ignore existence value when evaluating environmental value where the problem emerges in the choice between conservation and development. Existence value cannot be measured based on behavioral data, so it is measured by CVM or conjoint method which is based on self-reported data (questionnaire) of the respondents. (Problem) The ability to derive accurate valuations and incentives for truth-telling.

21 1. Social decision making 4) Social cost-benefit analysis
Cost-Benefit Analysis (CBA) When a society has to decide on the most desirable option, the monetary cost and benefit arising from the options should be compared. Multiple evaluation Environmental richness Why can the decision be made based on monetary terms? A (Reason 1) Need for a unified indicator. B - How is the desirability of A and B in the figure determined with multiple indicators or criteria? C (Reason 2) Economics elaborates a theory on how changes in land use can be measured in monetary terms. Okay, now let us recall the Mineral King argument that I talked about at the beginning of the lecture. In that argument, economists compared the benefits that would be derived from developing a ski resort against the enormity of expenses for developing it. The method for comparing the magnitude of the benefit against the magnitude of the cost is known as cost-benefit analysis (CBA). (By the way, the travel cost method, Hedonic approach and hypothetical valuation method [contingent valuation method] are all forms of cost-benefit analysis.) Notably, when overall welfare of society is considered, where just the mere calculation of monetary income and expenses is not everything, there is also a “social” form of cost-benefit analysis used when a distinction needs to be made as to whether or not benefits, such as environmental services that cannot always be calculated in terms of money, can be calculated. Cost-benefit analysis uses a unified indicator to judge a project as being beneficial to society if the benefit surpasses the cost. Well, why is a unified indicator needed? The answer is simple. If 2 or more evaluation criteria exist, a final decision cannot be made. However many evaluation axes are set, they will need to be combined to derive the final decision. The next question to ask is, “Why can the decision be made based on monetary terms?” There are probably people who reject the idea of using money to valuate. There is no fast rule – if another indicator exists, it can be used. The valuation parameter is that it be a clear valuation criteria for the desire of the society in question, and it must allow a choice between “to do/not to do” in relation to the problem in question without contradicting that valuation criteria. Note that at the end of today’s lecture, one of the questions will urge you to think of your own indicators. Pareto efficiency is the value criteria underpinning cost-benefit analysis. Pareto was an Italian social scientist (1848 to 1923) who invented the concept of Pareto efficiency. Economic wealth - Implementation of an option for which the net benefit is positive improves the society in the sense of Parato efficiency (See Column 2). Unification (-) (+)

22 Column 2: Pareto improvement
- If it makes at least one individual better off without making any other individual worse off - The value criteria that CBA relies on Cf. Pareto Efficiency - A situation that has been Parato-improved as much as possible - One of the social goals Now, let us have a look at Pareto improvement. A Pareto improvement is one where at least 1 individual is better off without making any other individual worse off (click). This is the value criteria that cost-benefit analysis relies on. In fact, Pareto improvement has 2 goals. First, is the achievement of an efficient situation. Pareto improvement is able to indicate all the improved situations. The other goal is equitability - in simple terms, equality. The goal must be that everyone (whoever he or she is) has an equal share of the happiness provided by a project, without anyone envying any other person. The following are some examples. A father and daughter want to divide 4 cans of juice and 2 slices of cake (click). Here, the equal distribution is 1 slice of cake and 2 cans of juice each (click). Neither regards the other with envy about the distribution. So, here we have equally distributed the items. However, the father likes cake, but he really likes juice, and he would forego the slice of cake if he could get an extra can of juice. Conversely, the daughter likes juice, but cannot resist cake, and would willingly go without any juice if she could get an extra slice of cake. So, the father and daughter exchange cake and juice (click). As a result, the father has 4 cans of juice and the daughter 2 pieces of cake, which results in both the father and daughter being even happier than they were at the time of the original distribution. This is Pareto improvement. You probably will have noticed in this example that the equal distribution created waste. But, once all of the juice was given to the father and all of the cake to the daughter, efficiency is achieved to the point where there is no more room for Pareto improvement. Further, it is an equal distribution in terms that there is no envy. Nevertheless, efficient distribution is not always equitable. In fact, more often than not, distribution is not equal. For instance, a situation where the daughter receives all the cake and all the juice would be regarded as efficient in terms of there being no room to improve on the Pareto improvement. However, such a distribution is clearly not equal. Surely, the father would be envious of the amount given to the daughter. Cf. Another important and complementary goal: equity - No one envies any other.

23 Summary 1. Social decision making: conservation or development?
Cost-benefit analysis suggests desirable social decision making between conservation and development of an environmental asset or a natural area. If the net benefit of an option is proven positive by CBA, then its implementation potentially Parato-improves the society. Although it is generally difficult to estimate the benefits from an environmental asset, there are some useful valuation methods such as the TCM and hedonic approach for specific use values and the CVM for all kinds of values, including the existence value. Now let me summarize our first topic. In making a decision about whether to conserve or develop a certain environmental area, economics use cost-benefit analysis methods to compare the size of the benefit against the size of the cost that will emerge with development. Among these cost-benefit analysis methods, travel cost method and Hedonic technique can evaluate only the use value of the environmental area; whereas, the hypothetical value method can evaluate the combined values derived from use value and existence value.

24 1) What are economic incentives? 2) Conditions for economic incentives
What are the measures of conservation other than legal institutions?  1) What are economic incentives? 2) Conditions for economic incentives Now let us move on to the theme for the latter half of this lecture – it is: “The Importance of Economic Incentives”.

25 2. Economic incentives 1) What are economic incentives?
Political process vs. economic incentives Value assessment (CBA) is reflected in political decisions. If the government is legitimate and can enforce its laws, a solution to an environmental conservation / development issue is simply to make a proper political decision which follows as a result of appropriate CBA, taking into account several tangible and intangible benefits of the environmental asset under consideration. However, the political process is not always reliable. (1) Political decisions are one-off incidents. They are capricious by nature. (2) Government’s errors / presence of corruption may prevent the right decision. The cost-benefit methods I talked about slightly earlier are utilized nowadays in various political decisions. For instance, when a conservation or development problem is recognized by the general public, and raised as a social problem, government is able to respond by using cost-benefit analysis to evaluate the value, and make an appropriate decision based on scientific reasoning. Nevertheless, government implemented policy can as easily fail as succeed. There are many countries or regions where governments are corrupt and cannot be relied upon. Yet again, there are also environmental problems – namely, creeping environmental problems - that a government cannot control for reasons such as the society in question may not have recognized the problem yet, or, conversely, the problem is happening in numerous locations, or many of the people in that society are causing the problem. In such cases, what is the best approach? The answer is that a scheme is needed to urge people to take environmental conservation action on their own. In other words, in a situation where centralized administration is not successfully implementing environmental conservation, arrangements must be made to achieve decentralized environmental conservation. (3) There may be too many people and phenomena, like global warming and desertification, for one government to control. (4) Government may not recognize the problem (e.g., a creeping environmental problem) or may intentionally ignore it.

26 Column 3: Creeping environmental problems
Examples where the political process fails Here, I would like to present some examples of creeping environmental problems. The first example is deforestation occurring in the Amazon region of Brazil. Logging companies that gained logging rights from government triggered this deforestation. Nonetheless, useful tree types (profitable trees) are limited, and logging limits are stipulated in contracts made with the government, so, as a rule, logging companies do not completely destroy forests. The yellow regions in the left photo are regions that were logged from 1970 to 1978, but the destruction highlighted in yellow was done by poor people who moved into the area after the logging companies had left. These poor people first take whatever wood that can be sold in local markets as construction material and firewood. Once the wood supply diminishes, and the forest becomes well ventilated, it can be easily burnt off. The land is then used for swidden farming. Compared to sustainable land utilization, inconsiderate swidden agriculture turns forest into barren grassland. The major cause of this kind of deforestation is poverty. Thus, however much the government tries to limit the use of forests, poor people – being marginalized to start with - go undetected by government, and destroy forests in order to survive. The example shown in the right photo is one where government has approved conversion to agricultural land. As environment NGOs often state in protest: a single-produce plantation is not desirable from the point of view of biodiversity. However, vegetable oil derived from oil palm is an important export product, and, therefore, an important source of foreign currency. Strictly speaking, this is probably not a case of creeping environmental problem, but what this example does have in common is that government is unable to resolve the problem via political process. Incidentally, the various skin-friendly, 100-percent-plant-extract detergents and shampoos as well as chocolate and other food products utilizing palm oil are obvious indicators that show that we are using extreme amounts of palm oil as a source of vegetable oil for products. Penetration of the poor into vacant, logged-over forested land Oil palm plantation development (Moran et al. 2002)

27 2. Economic incentives 1) What are economic incentives?
An alternative to political decision: Economic incentives …something which makes people voluntarily take a certain action, for example, an action to conserve the environment. If conservation of biodiversity potentially Parato-improves the society, there should be mechanisms in which environmental conservation is economically beneficial and thus promoted. - We should not only estimate values derived from conservation of biodiversity or the environment, but also establish a system in which conservation activities actually produce benefits in the form of monetary revenues. To conserve the environment without relying on political process, requires that people be given economic incentives to conserve the environment. In other words, a structure has to be set up that will persuade people that taking environmental conservation action is the most practical (beneficial) action they can take. For example, a structure that makes it more beneficial for everyone to use the forest as it is intact rather than sell it to a logging company for logging. As this slide shows, if the forest is useful in conserving biodiversity, then grants should be paid for conservation, and if the forest is reducing carbon dioxide emissions, then grants should be paid to maintain that status. If such grants are paid, people will start to weigh up the options of whether to sell lumber from the forest and forego the grant money or cultivate the open land between trees to get both agricultural produce and grant money. And, as long as the grant money is sufficient, people will surely choose to conserve the forest. When it comes to environmental problems, reliance on the moral and charitable spirits of people is often advocated to achieve environmental conservation. If environmental conservation can be achieved through the goodwill of people, there is nothing better. However, that is hard to count on. Self-seeking feelings are far stronger and universal among people than altruistic feelings. Therefore, providing economic incentives is a way of aligning people’s self-seeking interests with environmental conservation. Harvesting trees for trading Conserving the forest to obtain subsidies

28 2. Economic incentives 1) What are economic incentives?
Successful example: co-management of state forest in India Seva Mandir, NGO in India, From the 1980s, afforestation of deforested land begins. …failure (Planting efforts are frustrated by the villagers’ domestic stock. …Young trees eaten up by pastured goats.) Why? How to resolve the problem? …Trees are state-owned. No incentive for villagers to protect the forest. Seva Mandir encourages the state government to impose a duty on the villagers to protect the forest and at the same time giving them the right to use the forest on a long-term basis (state forest co-management proposal). …State government: agrees on a trial basis Result: great success From 1990s the measure spreads through the whole of India. The implemented area is more than 150 million hectares. Here, I would like to share with you a success story in terms of protecting the environment by providing economic incentive. (Click) In India, from the 1980s, the NGO Seva Mandir started supporting tree planting. However, this tree planting (click) ended in failure. The planted saplings were completely eaten up by the villagers’ grazing goats. (Click) This was because the villagers did not benefit from protecting the forest, as the tree-planting land did not belong to the villagers but to the state. At this point, (click) Seva Mandir petitioned the state government to provide the villagers with long-term forest usage rights in return for protecting the forest. State government approved this on an experimental basis. And, as a result, (click) the project turned into a great success, with this policy spreading out to all regions during the 1990s. Now, there is more than 1.5 million hectares of land protected in this way. (State of the World )

29 2. Economic incentives 2) Conditions for economic incentives
Conditions for economic incentives in conservation of biodiversity A mechanism whereby benefits will accrue to those who conserve biodiversity and vice-versa is established. 2) Ownership of, or rights to utilize, the targeted areas are clearly indicated. There are 3 important parameters to take into consideration when using economic incentives in government policy aimed at conserving biodiversity. First, benefits will accrue to those who conserve biodiversity, but those benefits will be taken away if biodiversity is lost. Using organisms directly links to economic benefits – whereas, conserving organisms does not provide direct economic benefits. Therefore, to conserve biodiversity, there must be a mechanism where the people who have taken conservation action will benefit in some way. Second, ownership of, or rights to utilize, the targeted areas must be clearly indicated. Third, the social environment or natural environment is stabilized. I will explain the second and third parameters in detail later. 3) Social environment or natural environment is stabilized.

30 2. Economic incentives 2) Conditions for economic incentives
Let’s think about dynamite fishing preventive measures Problem concerning biodiversity: The detonation of dynamite leads to the destruction of coral reefs. Make sightseeing / diving activities into an additional source of revenue for the fishermen. Right, taking those 3 parameters into consideration, let us think about how to prevent dynamite fishing. As you probably know, dynamite fishing involves throwing dynamite into a fishing ground, where the detonation impact kills or knocks senseless the fish, so that they can be easily caught. The problem with this fishing method is that it destroys coral reefs. Here, what is necessary is a structure that will provide fishermen with benefits if the reef is protected. One approach is to give some of the earnings made from coral reef tourism to the fishermen, which would create an incentive to protect coral reefs. This comes under the first parameter introduced in the previous slide. Nevertheless, if other fishermen can use those reefed fishing grounds freely, it is highly likely they will move in and blast the coral reef away in a bid to get at the fish. And, if the coral reef is lost, the share of profits from tourism also will be lost. If that becomes the case, the local fishermen probably will move fast to blast the coral and get the fish before anyone else tries to do the same. With that in mind, exclusive fishing rights become a necessity. This comes under the second parameter – in other words, ownership of, or rights to utilize, the targeted areas must be clearly indicated. Finally, even if government proposes the above kinds of policies to the fishermen, the fishermen may not see how such policies can really help to make their lives better in the future. And, if that is the case, they probably will refuse the government proposals, and, from a short-term perspective, probably choose to carry on destroying coral reef in the process of catching fish. Furthermore, how ever much fishermen protect the coral reef, they will not accept the government’s proposals if there is a risk of the coral reef being spoiled by something like crown-of-thorn starfish. Thus, it is not just socio-economic parameters but also the caprices of natural environment concerned that determine whether or not the provision of environmental conservation incentives will be successful. And, here, it is the third parameter – the necessity to stabilize social environment or natural environment – that is important. In the following slide, we will look in detail at the second and third parameters. 2) Accord exclusive fishing rights in the fishing zones concerned to the fishermen. 3) Ensure that these sources of revenue and fishing rights continue to be given to the fishermen.

31 2. Economic incentives 2) Conditions for economic incentives
Why is it necessary to clarify the rights of ownerships / right of utilization? … because behaviors of the others affect one’s behavior. Example: the use of common resources… two typical cases (Case 1) Villager A: To enable sustainable use of resources, uses a part of them and conserves the rest. Villager B: Uses up the rest of resources (unsustainable use) Villager A: Attempts to use up resources before others can, using them all … disastrous use of resources Cf. G. Hardin ‘The Tragedy of the Commons’ (Case 2) Villager A: To enable sustainable use of resources, uses a part of them and conserves the rest. Villager B: With the assent of A, uses a part of the resources and conserves the rest. … sustainable use of resources is possible. To start with, let us look at ownership or right of utilization. Why is it necessary to clarify the rights of ownership or right of utilization? Well, because behaviors of other people lead to a change in your own behavior that benefits you. An example that demonstrates this easily is one where a couple of brothers share a packet of chocolate. Both of them want to enjoy the chocolate over a long time. So, if the older brother slowly eats the chocolate over several days, the best thing for the younger brother to do is to eat slowly too. If both brothers eat slowly, there is no need to change the slow eating strategy. However, let us say that the younger brother starts to worry that perhaps the older brother will quickly eat the chocolate in no time, and that worry turns to full suspicion, from where the younger brother decides to the best strategy is to eat all the chocolate before the older brother does. Upon seeing the younger brother starting to fervently tuck into the chocolate, the older brother also will take that to be the best strategy – in other words, the strategy they have chosen is “most rapid extinction”. Consequently, the younger brother’s suspicion is correct, and the older brother starts eating the chocolate in a frenzy. Due to that, the younger brother will not change his strategy of eating the chocolate in a frenzy. I am sure you will agree that this example could happen with resource utilization on common land. (Click) In this slide, we have 2 typical cases about resource utilization on common land used by villagers. With resource utilization on common land, your behavior changes depending on how other people behave, and, in some cases, utilization will be sustainable, in others, unsustainable. In social research (see Chapter 7) related to common land (commons), there are reports of various cases showing this behavior, which also can be explained in terms of economic theory. (Hardin 1968)

32 2. Economic incentives 2) Conditions for economic incentives
Can privatization be a solution strategy? Successful case: Privatization of forest in Japan after the Meiji Restoration (about 150 years ago). … Forest resource that used to be common lands were equally distributed among the people in the village. Failures: Privatization of forest resources in India or Kenya …Unequal distribution of forest resources. The poor sectors were allocated only a small portion of forest resources. …Poor sectors grabbed forest resources from privately- or publicly-owned areas much more aggressively than before privatization. …Resources in the publicly-owned areas were exhausted, and the problem of poverty became more serious. Some people might think it better to privatize land if common land presents such problems. Undoubtedly, there are some problems that could be solved by privatization. One such successful case in Japan after the Meiji Restoration was the privatization of forest. Compared to common land usage, privatization really achieved extremely efficient utilization of forest. However, more and more artificial plantations appeared, which was probably a bad aspect for biodiversity. Nevertheless, not all cases of privatization are successful. In India and Kenya, there are actual reports of privatization leading to greater waste of resources and increased poverty. Here, because of inequalities in villages, the poor sectors were allocated only small portions of the assets available. This led to poor sectors grabbing forest resources from privately and publicly owned areas much more aggressively than before privatization. And, as a result, the resources of the remaining common lands were used up, and poverty took an even stronger grip in the villages. The success of forest privatization in Japan was due to forest being divided equally amongst the villagers. Therefore, when considering privatization, attention should be paid to whether or not equal distribution can be achieved. It is necessary to pay attention to equal distribution.

33 2. Economic incentives 2) Conditions for economic incentives
Why it is necessary to stabilize the social or natural environment? …The higher the degree of uncertainty, the lower the estimation of the value of future benefit. Present value of future benefit = future benefit x discount factor Anticipated future uncertainties Economy: If depressions occur, the return may reach zero. Politics: Instability may lead to confiscation of resources or loss of business management rights. If biodiversity in the country is vulnerable to destruction, resources may be ruined. Next. Why is it necessary to stabilize the social or natural environment? In simple terms, people prioritize the certainties of today over the uncertainties of tomorrow. Let us look at a concrete example. Let us say that a certain man is currently earning 100,000 yen. If he quits, he may find a job with a far bigger income in the future. However, due to political instability, before that brighter future arrives, his resources and management prerogative might be confiscated, or his resources may be ruined because the ecosystem is unstable. In addition, if there is economic instability, increases in future earnings will become uncertain. In such a case, people choose current earnings over un-assured future earnings. Countries that are politically or economically unstable or have unstable ecosystems surely will give scant regard to the value of ecosystem conservation, when that value may or may not provide future benefits. In such countries, investment for the future – especially, investment in environmental conservation that takes a long time for the rewards to be realized – will be far less. This is why stable social or natural environment is necessary. When future value appears smaller, exploitation of present value will be prioritized. …Encouraging unsustainable use of resources

34 Column 4: Environment and economy
Without global environmental conservation, sustainable growth is not possible. Without economic growth, it is not possible to stabilize global population. Without stabilizing global population, it is not possible to conserve the global environment. Economy Production Capital accumulation Consumption Recycle Now I would like to introduce the macro relationships between environment and economy. Economic activities in macro terms involve the repeated process of production, with some of the products being consumed, and the rest invested – namely, accumulated as capital. Similar to the growth of plants, don’t you think! Please look at the arrows linking economy and environment in the slide diagram. You will see very soon how the economy is utilizing the environment in 2 ways. The first way is as a supply “source” of natural resources and environmental services, and the second way is as a waste disposal “sink”. From this diagram, we can organize environmental conservation policy. If we focus on the environment as a “source”, we see that the natural resource flow volume of resources plundered from the environment must be reduced; whereas, if we focus on the sink side, we see that the amount of garbage discarded in the environment must be reduced. Reuse and recycle play important roles to reduce this amount of garbage. Of course, along with the amount of garbage, the quality of the garbage is important too. On the environment side, we can see the arrowed term “natural purification”. For garbage, it is best that this natural purification works quickly. A readily understandable example would be to say that biodegradable plastic is better than non-biodegradable plastic. And, an example of a troublesome substance is Freon gas, which destroys the ozone layer. Freon gas has an average lifespan of about 50 years. For that reason, it will take the ozone layer until the middle of this century to recover, even though the use of ozone depleting substances has been fully restricted. Carbon dioxide, the main cause of global warming, has an average lifespan of 120 years, which means that we need an extremely long time to resolve the problem of global warming. Substances with long average life spans are stable substances in the natural world, that is why they are harmless to our bodies. And, that is why we used them, and, without a thought, threw them away in the natural environment. However, they are the substances that are most likely to deprive nature of its natural purification function. And, mankind has finally realized this. Well, this slide carries 3 slogans. The first one is: “Without global environmental conservation, sustainable growth is not possible.” At present, there are many cases where environment and economy are viewed in terms of confrontation, but, seen in the long term, destroying the global environment that is fulfilling an important role as the source and the sink would render economic growth impossible. The next slogan is: “Without economic growth, it is not possible to stabilize global population.” Not long ago, the global population was pushing toward a 100-million annual increase, but, in recent years, the speed of that increase has slowed a little to something like an 80-million increase annually. Where is this population increase taking place? Well, nearly all of it is taking place in developing countries. And, trends show that the poorer the country the higher the growth rate of population. Conversely, the populations of some advanced nations are stable with no reductions while others are undergoing population reductions. Economic demography can be used to explain why this kind of pattern has emerged. Many factors are involved in this, but suffice it to say in condensed terms that the growth rate of population decreases with increase in income, which is the meaning behind the second slogan. Now, let us move on to the third slogan: “Without stabilizing global population, it is not possible to conserve the global environment.” The content of this slogan is obvious. If the global population doubled, and we managed to keep environmental load per person at the present level, the environmental load exerted on our planet would double. When all is said and done, the environmental problem is ultimately a population problem. The 3 slogans are cyclic, and are basically stating that both environmental conservation and sustainable economic growth have to be achieved simultaneously. The standoff between environment and economy is a short-lived phenomenon, because if one of them is neglected, both will fail in the long run. In conclusion, I would like to describe what is the most important point about the sustainable balance between environment and economy. Recent research has revealed that garbage quality is a factor that influences the balance between reducing dependence on natural resource flow and maintaining without loss the effect of natural purification. By comparison, the importance of recycling and garbage volume is secondary. What we need to do is dematerialize (enjoy music and sports, etc., without using up resources), and when we return garbage to nature, we should make sure that it is in a state that nature can break down easily. Garbage like greenhouse gases and radioactive waste is the complete opposite to that. Waste disposal Natural resource flow Natural resources / environmental services Supplies Waste disposal sink Environment Natural purification

35 Summary 2. Economic incentives
In cases where environmental conservation In cases where environmental conservation does not depend on political process, it is necessary to establish some economic incentives whereby environmental conservation efforts are considered beneficial to the conservationist concerned. For economic incentives to be in place, it is necessary to define clearly the extent of private ownerships or right of resource use as well as to stabilize the social or natural environment. Now let me summarize the second topic. In cases where environmental conservation does not depend on political process, it is necessary to establish some economic incentives whereby environmental conservation efforts are considered beneficial to the conservationist concerned. For economic incentives to be in place, it is necessary to define clearly the extent of private ownerships or right of resource use as well as to stabilize the social or natural environment.

36 Summary of today’s topics
How can we conserve biodiversity ? - Economic aspects - 1. Where problems are within governmental control, the economic value of the environment can be assessed by CBM, and compensation or fee collection arrangements are included in the implementation process. 2. For creeping environmental problems (beyond governmental control), it is necessary to establish a mechanism to enable users of environmental resources to realize that conservation would bring them greater benefits (the use of economic incentives / market creation). Now let me give you an overall summary. The economic methods used to conserve biodiversity vary depending on whether or not government is in control. Where problems are within governmental control, the economic value of the environment can be assessed by the cost-benefit method (CBM), and the results reflected in government policy. For creeping environmental problems (beyond governmental control), it is necessary to establish a mechanism to enable users of environmental resources to realize that conservation would bring them greater benefits than unsustainable use. (Comment) Business markets are prime examples of dynamism via economic benefits. A market combines both the demand curve and supply curve for consumer demand (preferences) and information related to the technology needed to meet those preferences, to automatically achieve the best situation in terms of efficiency (first fundamental theorem of welfare economics states that competitive equilibrium is efficient). A wonderful thing about markets is that they achieve the above efficiency without the help of government. In other words, markets automatically achieve efficiency without force from elsewhere – moreover, there are no outlays involved (like the employment of government officials, etc.). On the reverse side of market usefulness, we can see that the environmental problem is a problem bought on by a lack of suitable markets. Therefore, apart from providing economic benefits in order for people to conserve the environment, the best thing we can do is to establish suitable markets. For example, the emissions trading market for global warming gases was established as a market dealing with an earth atmosphere that did not exist up to now. See Chapter 11 for details on the establishment of a biodiversity conservation market.

37 Let’s do the exercises below:
1. About the standard value of social desirability a) Let’s discuss the needs of the criterion for a unified value. b) Let’s investigate the various definitions of “sustainable development” and think about their merits and demerits. Answer examples a) As the final decision is a direct choice between 2 alternatives: “desirable or not desirable”, ultimately the answer will be narrowed down to a unified index, whatever the multifaceted value index used. b) Example: Strong sustainability where all natural resources are maintained without degradation or reduction. Merits: As usefulness is not acknowledged, this method contributes to protection of natural resources that get developed and used up. However, if a natural resource really is not useful (no one now or in the distant future would grieve physically or mentally about its loss), then it could be said that there is no need to protect it. Essentially, what should be emphasized is that an unusable resource does not exist. And, what is essentially needed is the appropriate evaluation of resource value. Problems: (1) If the above evaluation was applied before the white man settled America (before forest where turned into agricultural land), it would be impossible for food production to feed the current world population. (2) If that were applied to exhaustible resources like oil and coal, not only would the current generation not be able to use those resources but future generations also would not be able to use them. Would such situations be desirable?

38 Let’s do the exercises below:
2. In a case where one wishes to halt the expansion of oil palm plantations to protect the tropical rain forests, the following three strategies are mentioned. Let’s discuss their feasibility of implementation and their efficiency. a) Consider the protocol of a global convention (agreement) on the restriction of agricultural land development. b) Impose an environmental tax on those importing countries / consumers who are not liable to bear the environmental cost of destruction. Reply examples a) If the government of a country with plantations finds it undesirable to have agricultural land development restrictions, that government either will refuse to adopt the relevant agreements or refuse to be a signatory of such agreements. Accordingly, it may be that an effective policy is place, in which case, the assumption will be that the government is using mechanisms that target conservation of tropical rainforest. b) As a condition, sufficient tariffs need to be set to act as a brake to slow the expansion of palm oil plantations. However, more often than not, opposition from the production industry and voters means that either ineffectual low tariffs will be opted for or taxation will not be achieved from the outset. Furthermore, alternative land uses must be taxed as well, because failure to do so would be detrimental to tropical rainforest conservation, and the initiative probably would just end up with alternative land utilization increasing. And, what is more, an importing country only can control imported goods. For example, in a region where urbanization is progressing, housing development probably will cause deforestation. c) The above tell us that in order for the tropical rainforest owner (often the government of the country in possession of such forest) to keep tropical rainforest as it is, there must be a benefit system (economic benefits) provided. Carbon absorption credits provided by the Clean Development Mechanism of the Kyoto Protocol give developing nations the incentive to plant trees. In addition, with the trial establishment of a carbon “stock” credit market by REDD, there now is hope that conservation incentives can be created to save present existing forests (especially primary forests). Please see Chapter 11 for details. c) Establish a market cover with economic incentives. What are the targeted sales?

39 Cost and benefit analysis (CBA)
Glossary Economic incentives A stimulus which causes a certain action (e.g., biodiversity conservation) because of resulting financial punishment or reward). (Opportunity) cost The enjoyment forgone as the result of making a choice. Cost and benefit analysis (CBA) Cost and benefit evaluated in monetary terms. The aggregate of the evaluation from the society at large is reflected positively or negatively. Benefit The enjoyment gained as a result of making a choice. Discount factor Coefficient factor used when converting the value of future transaction into present value. It is normally below 1.

40 References & Cited Website
Christopher, D. S. (1972) Should trees have standing? - Towards legal rights for natural objects. Southern California Law Review 45: Cicchetti, C. J., Fisher A. C. and Smith V. K. (1976) An econometric evaluation of a generalized consumer surplus measure: The Mineral King Controversy. Econometrica 44: Hardin, G. (1968) The tragedy of the commons. Science 162: Lester, R. B. (ed.) (1994) State of the World Worldwatch Institute Moran, F. E., Brondízio, S. E. and McCracken (2002) Trajectories of Land Use. Soils, Succession and Crop Choice. In Wood, C.H. and Porro, P. (eds.) Deforestation and Land Use in the Amazon. University Press of Florida Flickr

41 How can we conserve biodiversity ? - Economic aspects -
Authors & Credits The Futurability of Biodiversity Chapter 10 How can we conserve biodiversity ? - Economic aspects - Authors Ken’ichi Akao Ayumi Onuma Hiroshi Hasegawa Wataru Fujita Masahiro Ichikawa Shoko Sakai Aya Hatada Choy yee keong Stewart Wachs Martin Piddington Application software Microsoft PowerPoint® Illustration & design Be4°TECH Koubou Yecoruka Photos Biodiversity Photos Brian Michelesen Masahiro Aiba Masahiro Ichikawa Tohru Nakashizuka

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