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Does Burning Ivory Save Elephants?

by Michael ‘t Sas-Rolfes

This week marks the 62nd meeting of the Standing Committee of the Convention on International Trade in Endangered Species (CITES), taking place in Geneva, Switzerland. To coincide with this meeting, the World Wildlife Fund has released a “Wildlife Crime Scorecard” report which lists 23 countries in Asia and Africa that it claims could all do more to enforce trade bans intended to protect tigers, rhinos, and elephants.

But what about WWF’s scorecard? Unlike the governments it assesses, WWF has specifically purported to protect endangered species since its inception in 1961. It has also mostly endorsed the CITES trade ban approach to saving tigers, rhinos, and elephants for more than the last two decades, but the results of this have been unimpressive. Tiger numbers have plummeted, as have rhino numbers in all but a handful of former range states; elephants have fared slightly better since the ivory ban, but poaching is on the rise again. So while WWF can claim some individual successes with certain localized conservation projects, its broader policies on wildlife trade deserve closer scrutiny to see if they make sense.

For example, last month WWF commended the government of Gabon for burning a stockpile of almost 5 tons of confiscated ivory, estimated to represent the equivalent death of 850 elephants. Presumably the architects of this event think they can repeat the performance of the Kenyan government, which famously burned a pile of ivory (and rhino horn) back in 1989.

Kenya’s dramatic gesture had three effects:  First, as a media stunt it caught the attention of many people and helped to stigmatize the use of ivory products in the West. Second, this in turn appeared to reduce consumer demand (and therefore prices and the incentive to poach elephants). And third, Kenya was able to leverage this event as a means to raise significant donor funding.  (The funding benefits did not endure and other African elephant range states did not benefit in this way; instead many had to bear the cost of forgone ivory sales harvested from sustainably-managed populations.)

That was then, this is now. Ivory demand in East Asian markets has a deeper cultural imprint and was far less impacted by any stigma effect from the 1989 ban. With the rising affluence of East Asian consumers, black market prices and elephant poaching levels are increasing significantly.

Economists may disagree about many things, but one thing we do agree on is that if you reduce the supply of a product without a corresponding reduction in demand, prices will rise. In a 1990 peer-reviewed journal article*, economist Ted Bergstrom explains clearly why: If the goal is to protect threatened species, it does not make sense to destroy confiscated stockpiles, but rather to sell them back into the market to satisfy demand and restrain prices. If trade is already banned and consumers are still buying ivory, there is no reason to believe that reducing the supply will change their preferences. So burning ivory stockpiles at this time does not seem like such a great idea. Although intended to send out a message about the acceptability of buying ivory, this gesture may simply send out a different message to the market: that ivory is an increasingly scarce resource worthy of speculative investment.

WWF’s approach of constricting supplies is not restricted to elephants. It adopts similar policies toward tiger and rhino products. The same principles apply here and the black market values for such products only appear to be rising over time, with disastrous consequences for wild populations.

* Ted Bergstrom. “On the Economics of Crime and Confiscation.” Journal of Economic Perspectives 4.3 (1990): 171-178.

Michael ‘t Sas-Rolfes is an environmental economist based in South Africa and a 2012 PERC Lone Mountain Fellow. He is the author of Who Will Save the Wild Tiger? (1998, PERC Policy Series), a contributor to Tigers of the World: The Science, Politics, and Conservation of Panthera tigris (2010, Academic Press), and author of the recent PERC Case Study “Saving African Rhinos: A Market Success Story.” For more, visit his website: rhino-economics.com.

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Whatever happened to SO2 trading?

A decade ago, Dan Benjamin wrote that tradable permits seem to offer the advantages suggested by their proponents: “The total costs of achieving the current SO2 cap are at a minimum—and surely lower than under command-and-control. Perhaps now some serious consideration will be given to environmental protection systems in which there is even less administrative control by the government.”

Indeed, this scheme was considered by most economists to be the poster child of cap and trade. As Terry Anderson and Gary Libecap write in the Daily Caller by 2007 annual SO2 emissions dropped to 8.95 million metric tons at a cost of $747 million, “one-third less than it would have cost had the EPA used standard command-and-control regulation. The system worked beautifully—for a while.”

Today, however, the sulfur dioxide scheme is dead. The cause of death, according to Anderson and Libecap, is regulatory manipulation.

The Clean Air Interstate Rule and subsequent rules from the Obama administration have significantly undermined the sulfur dioxide trading scheme by preventing the use of 12 to 14 million pre-2010 banked allowances for future trading and changing the ratio of allowances per ton of sulfur emissions from 1:1 to 2:1 for 2010–2014 and to 2.86:1 for 2015 and beyond.

Not surprisingly, sulfur dioxide allowance prices began falling in 2005 from $1,600 per allowance and hit an all-time low in April of $0.56 on the spot market and $0.12 on the seven-year future market. For all intents and purposes, the EPA’s taking of banked allowances and manipulation of the trading ratio wiped out billions of dollars worth of assets held in the form of allowances.

The original SO2 trading scheme, according to Benjamin, had some characteristics of property rights; for example, anyone was legally permitted to buy or sell allowances at market-determined prices: “Because the allowances are standardized (each represents the right to emit one ton of SO2) and the major potential traders (electric utilities) are likely to be well-informed, trade should be feasible at low transaction costs, just as we find in stock and bond markets.” But as Anderson and Libecap state, when allowances are not treated as property rights and are “given and taken at the whim of regulators,” the system fails.

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How Not to Save Wild Tigers

by Michael ‘t Sas-Rolfes

Captive tigers in the U.S. have become the latest target of a misguided campaign aimed at saving their wild brethren. According to the World Wildlife Fund, perhaps 5,000 captive tigers live in the U.S., many of which are privately-owned pets – more than the estimated 3,200 that survive in Asia in the wild. WWF has called for a ban on private ownership of tigers and proposed various other laws at both federal and state levels to control the U.S. captive tiger population. Why? Because WWF fears that body parts from captive U.S. tigers may enter the illegal trade and “stimulate demand” in Asia, leading to further poaching of wild tigers.

WWF will no doubt celebrate the recent passing of a New Jersey Senate bill that establishes new strict in-state permitting requirements for captive tigers “to prevent their illegal trade.” This measure is being held up as a model for the rest of the country to follow. However, some New Jersey residents are skeptical about this bill and wonder whether this is not a misguided allocation of the state’s resources (see comments here). They are right to be skeptical.

First, a 2008 survey by TRAFFIC, the WWF-affiliated trade monitoring network, did not find any evidence whatsoever that U.S. captive tigers were involved in illegal trade in tiger parts. Second, a recent census by the U.S. Feline Conservation Federation documents only 2,884 tigers, most of which are found in licensed zoos and sanctuaries. Third, of those, only 24 are found in New Jersey, spread over 5 zoos. Even if body parts from those tigers did enter the trade (highly unlikely) the effect would be trivial.

Not only is the New Jersey bill of questionable relevance, its basic premise is also flawed. WWF’s assertion that body parts from U.S. captive tigers must be kept away from the market to protect wild tigers is in fact illogical. It assumes that if the supply of a product to the market is increased, the demand will automatically increase by an even larger amount, thereby leading to a price increase. This would make tiger products a retailer’s dream — a unique product that actually rises in price as supply increases.

In reality, if body parts from captive tigers were supplied to the market, their price would most likely drop (in line with basic principles of supply and demand). And lower prices would mean reduced rewards and incentives for poaching and illegal trade. The theoretical argument for trade stimulating demand is phony. What about empirical evidence?  Conservationist Brendan Moyle analyzes data from the commercially-exploited Louisiana alligator population and finds no correlation to support WWF’s claimed relationship.

The argument that the U.S. captive tiger population poses any sort of threat to Asia’s wild tiger population is based on nothing more than dubious conjecture and WWF’s campaign probably amounts to little more than a waste of donors’ and taxpayers’ money.

Michael ‘t Sas-Rolfes is an environmental economist based in South Africa and a 2011 PERC Lone Mountain Fellow. He is the author of Who Will Save the Wild Tiger? (1998, PERC Policy Series), a contributor to Tigers of the World: The Science, Politics, and Conservation of Panthera tigris (2010, Academic Press), and coauthor with Kirsten Conrad of the recent paper “Making Sense of the Tiger Farming Debate.” For more information visit his website: rhino-economics.com.

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Considering the Costs of Climate Adaptation

Yesterday afternoon I attended a lecture by Michael Greenstone, the 3M Professor of Environmental Economics and former chief economist of the Council of Economic Advisers during the first year of the Obama Administration, addressing the question, “Will Adaptation Save Us from Climate Change?” This lecture was the keynote address at a PERC workshop on “Human Adaptation to Climate Change” I’ve been attending this week.

Greenstone set the stage by observing that there are three possible approaches to the threat of climate change: 1) mitigation — reducing emissions of greenhouse gases; 2) adaptation — responding to climate change by seeking to ameliorate its negative effects, and 3) geoengineering — attempting to modify the climate in some way to offset the effects of increased greenhouse gas concentrations. The first of these is unlikely to happen in the near term, as the United States and other nations have shown themselves to be quite resistant to adopting meaningful mitigation measures. The third, whether or not it is viable or desirable, is generally not considered an acceptable approach geo-politically. As a consequence, he suggested, in all likelihood we will have to engage in some degree of adaptation to climate change.

In Greenstone’s view, the question is not whether or not human civilization will survive. It almost certainly will. Nonetheless, climate change could have substantial negative conseuqences. Rather, the relevant questions are how adaptation will occur over various time frames, the cost of such adaptation, and how effective adaptive responses will be. There is some research that has investigated the costs and potential of near-term response to some degree of climate change, but not nearly enough on longer term responses to climate change and its consequent environmental effects. Insights can be drawn, however, from other research that documents individual responses to changes in environmental conditions. For example, Greenstone co-authored a paper showing that some individuals respond to local air pollution levels by, among other things, purchasing medications that relieve some of the respiratory effects of higher pollution levels. Such adaptation may reduce the negative effects of pollution, but it still comes at a cost.

Adaptation takes many forms. Some adaptation to climate change would involve changes in infrastructure and the like, but much adaptation is likely to occur at the individual level. To take a simple example Greenstone used in his talk (based on this paper): on hotter days, people use more air conditioning. This matters because high temperatures tend to correlate with increased mortality. Therefore, were it not for air conditioning (and other means of adaptation), an increase in temperature would cause a greater increase in mortality. With air conditioning, the mortality increase is less, though energy use is greater.  This illustrates how individuals can alter their behavior to compensate for some of the consequences of higher temperatures, albeit at some cost.

In poorer, less-developed nations, such as India, on the other hand, the results are somewhat different. As Greenstone explained, compared to the United States, India has less adaptive capacity, so the mortality effects of warming would be greater – far greater. There is a lot of adaptive capacity in wealthy, industrialized nations, but not so much in poorer, less-developed nations. Moreover, the United States’ adaptive capacity has improved dramatically over the course of the past century. That is, the relationship between high temperatures and increased mortality in the United States has weakened over time as the nation has become wealthier and more technologically advanced, making it easier for individuals to adapt to temperature changes.

One possible response to Greenstone’s analysis is that if wealthier nations can adapt to climatic changes more readily than poorer nations, as much attention should be paid to making poorer nations wealthier – and improving their adaptive capacity – as to figuring out how to reduce global greenhouse gas emissions so as to mitigate the threat of climate change. From an economic standpoint, the costs of mitigation could be compared to the costs of adaptation, and if the costs of mitigation are greater, this would provide an economic justification for focusing on adaptation instead of mitigation – and some would certainly endorse this view. Indeed, many in developing nations embrace this view. In any event, even if mitigation policies are eventually adopted, there will need to be some degree of adaptation, some of which will be undertaken at the individual level.

Originally posted at the Volokh Conspiracy.

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Bootleggers, Baptists, and Global Warming Revisited

Bjørn Lomborg draws upon the work of Bruce Yandle of PERC to warn against climate solutions touted by emerging green activist/big business alliances:

This sort of reaction—activists and big energy companies uniting to applaud anything that suggests a need for increased subsidies to alternative energy—has been famously described as the so-called “bootleggers and Baptists” theory of politics. The phrase comes from the South, where many jurisdictions required stores to close on Sunday, thus preventing the sale of alcohol. The regulation was supported by religious groups for moral reasons and by bootleggers for market reasons. Politicians would adopt the Baptists’ pious rhetoric, while quietly taking campaign contributions from the bootleggers.

Bruce Yandle has written extensively on the “bootleggers and Baptists” theory of regulation in a variety of contexts, including this PERC Policy Series on global warming. Lomborg succinctly describes how the theory relates to climate change policy:

The climate-change “Baptists” provide the moral cover that politicians can use to sell regulation, along with scary stories that the media can use to attract readers or viewers. Businesses see opportunities for taxpayer-funded subsidies, and to pass on inevitable cost growth to consumers. Unfortunately, this convergence of interests can push us to focus on ineffective, expensive responses to climate change. Whenever opposite political forces attract, as activists and big business have in the case of global warming, there is a high risk that the public interest will be caught in the middle.

Case in point: the ethanol boondoggle? Lomborg also describes the dire, yet poorly sourced, claims of rising food prices caused by global warming. Such predictions have led to a recent Oxfam report calling for collective political climate action to combat rising food prices. Yet even the rosiest scenario, in which all politicians agree to reduce carbon emissions by 80 percent by 2050, would result in almost immeasureable reductions in temperatures by 2030. Lomborg has a better idea:

If we want to help the world’s poor avoid the pain of higher food prices, we should focus on developing better and more nutritional crop varieties, getting more fertilizer to farmers, fighting for freer trade, and, of course, the elimination of biofuel support. Those are the policies that would make a real impact on food prices.

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2,000 Years of History in One Chart

This chart from The Economist is worth staring at for a while:

The vertical axis is the percentage of total economic output or person-years lived over the past two millennia. According to the chart makers:

By this reckoning, over 28% of all the history made since the birth of Christ was made in the 20th century. Measured in years lived, the present century, which is only ten years old, is already “longer” than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.

In other words, in terms of years lived, one third of post-1AD human history has occurred since 1900, and more than three quarters of total economic output. What accounts for this phenomenon? Matt Ridley’s latest book, The Rational Optimist, provides a great explanation. (Hat tip to Mark Perry)

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Q&A with Michael ‘t Sas-Rolfes on Rhino and Tiger Economics

Editor’s Note: Summers are an exciting time at PERC as we welcome dozens of visiting scholars to our summer fellowships programs. Throughout the summer, The PERColator will be bringing you a new Q&A series with many of our outstanding visiting fellows.    

Michael 't Sas-Rolfes

Michael ‘t Sas-Rolfes is an environmental economist with a focus on the role of markets for biodiversity conservation. He has been actively involved in various private conservation initiatives for 25 years, starting as a financial manager of a private game reserve in South Africa and later conducting research on the role of private markets for wildlife conservation in Africa.

Michael worked with Francis Vorhies to set up Eco Plus, an innovative consultancy on business, economics, and the environment. His consulting experience includes work on trans-frontier conservation areas, wildlife trade policy, and institutional reform in protected area management. He has written extensively on various conservation issues, especially relating to trade in endangered species.

Michael is a 2011 PERC Lone Mountain Fellow researching international wildlife trade policy. Thanks to Michael for taking time to answer our questions.

Q: In 1998, you authored a PERC Policy Series called “Who Will Save the Wild Tiger?” What has changed in the world of tigers since you wrote the paper?

A:  A lot has been done. There have been many conservation initiatives, much money spent, and many, many meetings. A wide range of conservation NGOs and even the World Bank established initiatives, culminating in last year’s grand “Tiger Summit” in St. Petersburg in Russia. Unfortunately, however, wild tiger numbers have continued to decline. When I wrote the PERC Policy Series paper, the most recent estimate of wild tiger numbers was between 4,800 and 7,300. Last year the official World Wildlife Fund estimate was 3,200. So in another sense, not much has changed at all – the wild tiger remains in trouble.

Interestingly, during this time the Chinese government also announced plans to investigate the feasibility of using farmed tigers to provide a legal supply of tiger bone medicines to their domestic market, citing my PERC Policy Series as a partial justification for this. Conservation NGOs (and the World Bank) reacted in a very hostile way to these proposals and the Chinese have not pursued them any further.

Q: In your paper you wrote, “Tiger conservation is, ultimately, an issue of incentives.” What are the incentives and who faces them?

A:   Conservation NGOs benefit from the tiger’s charismatic high profile as a means to raise funds, and conservation scientists like to study tigers, so one could argue that they have an incentive to prevent them from becoming extinct. By contrast, rural people living near tigers have to deal with threats to their livestock and children, and human-tiger conflict is a serious problem over most of the wild tiger’s range. Rural people have less of an incentive to conserve tigers, especially when offered large sums of money for tiger carcasses.

I believe that the main challenge for tiger conservation is that people living next to wild tigers are the ones who actually control their destiny, and right now those people typically don’t benefit much from the presence of wild tigers. The people who do benefit are mostly far away and don’t have much real control over what happens to tigers. There is a mismatch between who pays the costs and who gets to benefit from tiger conservation.

Q: How can tigers become assets instead of liabilities?

A:  For something to be an asset, it has to be owned by someone. Right now most wild tigers are typically ‘owned’ by governments, but that is a weak and dispersed form of ownership, which does not benefit or incentivize specific people who control the wild tiger’s destiny. Those people are typically rural subsistence farmers and poorly paid government employees. By creating stronger property rights – i.e. more direct ownership of tigers – one could create ways for more specific groups, communities or agencies to control and benefit directly from tigers. Ways to benefit could include genuine “adopt-a-tiger” schemes, contractual agreements with local people, tourist viewing, and possibly trophy hunting (although this is currently banned). This would give tigers much greater asset value.

Q: Should conservationists look toward tiger farming as a viable solution to the decline in wild tiger populations?

A:  Tiger farming is one of a range of options to consider. It has the potential to satisfy some of the persisting demand for products such as tiger bone, thereby competing with the black market, which currently provides the only channel of supply. It is not a panacea, but it is also not the threat that some conservation groups claim it to be. The Chinese captive tiger population already exceeds the world’s wild tiger population, and conservation groups worry that some products are ‘leaking’ illegally into the marketplace. However, if market demand for these products persists, it would be a bad idea to try to stop this leakage, because it will simply drive up the value of poached tiger products and stimulate poaching even further.

Q: You have also done similar work on protecting wild rhino populations in Africa. You recently launched a website called Rhino Economics. What is the purpose of the website?

A:  Rhino Economics provides an information source to a wide audience on all of the economic issues relating to rhino conservation, especially the rhino horn trade. The public tends to be poorly informed on this issue. Most people still think that rhino horn is used as an aphrodisiac and that the rhino horn trade ban is a good idea. My research over the past 22 years shows that the smartest way to protect rhinos is to create strong property rights and market incentives, and the example of the southern white rhino success story provides concrete proof. My research also suggests that the greatest threat to rhinos today is in fact the ban on rhino horn trade. The ban is causing an artificial supply shortage that is driving the price up to outrageous levels and thereby attracting highly-sophisticated organized crime syndicates into the trade.

The website aims to provide information at three different levels: 1) a quick overview of the issues for the general public, 2) a more detailed explanation of the issues for those who are more interested or involved in rhino conservation and 3) a comprehensive listing of past academic and policy work I have done for students and practitioners of wildlife policy.

[Read more…]

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No Surprises Here: The Geography of Ethanol Support in the Senate

The debate over ethanol subsidies rages again in the halls of Congress. Today the Senate voted 73-27 in favor of repealing a $6 billion tax credit for ethanol producers. The measure would end a 45-cent-per-gallon tax credit for ethanol refiners and a tariff of 54 cents per gallon on imported ethanol.

The bill’s passage may be a pleasant surprise — ethanol is, after all, not so great for the environment. But which senators voted in favor of the tax credits is all too predictable (click images for more details):

Senate vote on amendment to end ethanol tax credit. Red indicates votes in favor of ethanol tax credit. Horizontal bars indicate the two senators from a state voted differently.

As Michael Giberson concluded earlier this year: “If you are among those few people who still believe U.S. ethanol policy is driven by something other than the demands of the U.S. ethanol industry, then you might be surprised. For the rest of us: no surprises here.”

(Hat tip to Knowledge Problem)

UPDATE: The WSJ reports that the legislation is not expected to be taken up by the House of Representatives, “possibly limiting the vote to symbolic significance.”

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Is fair trade coffee fair?

The conventional view is that the premium paid for fair trade coffee results in higher wages and better living standards for coffee farmers in the developing world. A new study published in Ecological Economics this month challenges that view. The study finds that the effects of certified fair trade coffee production on poverty levels are not so clear cut. Over a period of ten years, “organic and organic-fairtrade farmers have become poorer relative to conventional producers.”

The results did not surprise Lawrence Solomon, the president of Green Beanery, who has worked with such coffee producers. Solomon writes:

The fair-trade business is filled with contradictions.

For starters, it discriminates against the very poorest of the world’s coffee farmers, most of whom are African, by requiring them to pay high certification fees. These fees–one of the factors that the German study cites as contributing to the farmers’ impoverishment–are especially perverse, given that the majority of Third World farmers are not only too poor to pay the certification fees, they’re also too poor to pay for the fertilizers and the pesticides that would disqualify coffee as certified organic.

Their coffee is organic by default, but because the farmers can’t provide the fees that certification agencies demand to fly down and check on their operations, the farmers lose out on the premium prices that can be fetched by certified coffee.

To add to the perversity, it’s an open secret that the certification process is lax and almost impossible to police, making it little more than a high-priced honour system. Although the certification associations have done their best to tighten flaws in the system, farmers and middlemen who want to get around the system inevitably do, bagging unearned profits. Those who remain scrupulous and follow the onerous and costly regulations–another source of inefficiency the German study notes in its analysis–lose out.

The results are also consistent with a 2010 study from the Institute of Economic Affairs which argues that the fair trade movement’s claims are “seriously exaggerated.”