Will insurance save mangroves?

Sarah writes*

Mangroves are trees in tidal tropical and subtropical ecosystems that are essential for providing storm protection to coastal communities in over 120 countries and territories (Conway and Mazza, 2019). The Dominican Republic (DR) is one of these countries where mangroves have been vital for protection against storms and erosion (Bryony Cottam, 2021).  In fact, conservationists in the province of Monte Cristi have seen a loss in shoreline, erosion and degradation in areas where mangroves have been removed (Bryony Cottam, 2021).

Even though mangroves are protected under the law in DR, weak enforcement has not stopped their removal (Bryony Cottam, 2021). Shrimp farms, fertilizer pollution, and other toxins have decreased mangroves by 30-50% (Chip Cunliffe, 2020).

This leads to the question: how do we encourage people to prioritize mangroves over tourism and agriculture?

Since tourism is one of the biggest industries in DR, it is more profitable to advance tourist infrastructure than protect mangroves (“Tertiary industries”, n.d.).  Thus, there needs to be a value placed on the mangroves to incentivize protecting them. In the insurance industry, new products are emerging to cover the $1.5 trillion global “blue economy” (Conway and Mazza, 2019).  Reinsurance companies such as Swiss Re implemented policies to protect dozens of km of coral reefs and mangroves in Mexico. These policies are putting a value on mangroves and coastal protection, which reduces the potential human and infrastructure loss. Axa XL also recognizes mangrove value. They found that a 100m-wide mangrove forest  can reduce flood damages by US$65 billion per year since mangroves can reduce wave heights by as much as 66% (“Tertiary industries”, n.d.).  Insurance companies will invest in mangrove rehabilitation when long-term benefits outweigh costs.

However, there are drawbacks to this insurance product. For one, insurance companies are likely to only provide coverage to areas that are mildly affected by global warming. Insurance companies are less eager to invest in protecting Dominican mangroves because there is more risk involved (Chip Cunliffe, 2020).

The second drawback is that pollution and over-fishing also contribute to the destruction of mangroves, which are difficult to value (Beck et al., 2020). Even if the mangroves are protected from being cut, they are not protected from pollution run-off. Additionally, over-fishing affects the balance of the food chain and, consequently, ecosystem health. Since it is difficult to quantify all the services that each aspect of an ecosystem offers, it is difficult to insure (Beck et al., 2020).

Although it is challenging, insurance companies such as Axa XL recognize the value of mangroves. They have already implemented policies in Mexico, and they are in the process of gauging the potential demand for an insurance product in the Dominican Republic and other locations in the Caribbean (Chip Cunliffe, 2020).

Bottom line: Mangrove protection is a nature-based solution to tropical storms that deserves investment. However, there are challenges in getting insurance companies to invest in countries that are highly affected by global warming. And it is difficult to implement a protection plan that not only prevents mangroves from being cut, but also reduces pollution and overfishing.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Ballooning carbon prices in the EU

Max writes*

As the price of EU carbon permits hits an all-time high of 70 euros per ton, questions of whether the EU Emissions Trading System (ETS) is living up to its promise are resurfacing.

The EU ETS, the world’s first emission trading system, was introduced in 2005 [pdf] to put a price tag on carbon emissions. The mechanism is built on cap and trade which assigns a finite number of carbon allowances to various greenhouse gas emitters in the aviation, electricity, and energy-intensive sectors of the EU [pdf]. The premise is that emitters who emit beyond their carbon allowances [pdf] must buy additional carbon permits from emitters who have not used up all their carbon allowances. As a result, excessive emitters are incentivized to reduce their emissions so that they do not incur additional costs. That is how it should work in theory; however, reality has shaped out to be completely different.

To shield their industries from carbon paralysis, EU governments granted 99% of the carbon allowances between 2005 and 2012, or Phase I and Phase II of the project, for free — thereby giving up tens of billions of euros of potential auction revenue. This effectively made the cap-and-trade system void as emitters had no incentives to reduce their levels of pollution with the abundant supply of allowances. With the introduction of Phase III of the project, in 2013, this was set to change as permits would be primarily allocated through auctioning. Eight years later, they halved the number of free allowances; however, for most of the period, the price had been hovering between 5 and 15 euros per ton, considered by many economists as too low of a demand to incentive a significant change in emissions.  Albeit, some studies justify the lack of demand as a sign of polluters moving towards less pollution, therefore they did not need additional allowances as the supply was ample enough to cover their needs.  This leaves open the question of why did carbon prices double between 2020 and 2021 if the supply had not shifted that much?

The supply of allowances clearly remains way too abundant for major emitters to be incentivized to buy allowances. During Phase I and Phase II of the EU ETS the emissions of the 10 largest emitting sectors were 100% covered by free allowances, since 2013, there has been a gradual decrease to 60%. Despite a 40% decrease in free allowances, emissions, when accounting for emissions embodied in gross imports, i.e. gross leakage, have only decreased by 5-10%. In other words, the supply of free allowances remains far too ample to justify the EU ETS as an effective supply-constraining mechanism especially when considering that the majority of reductions were explained by the transition to natural gas from coal. Data for 2020 shows a familiar downward trend for emissions. Therein, the spike must have come from the demand side but not from emitters rather speculators. Speculators are anticipating that the price of permits will only continue to increase following the EU Commissions’ commitment in 2018 to pursue reductions more aggressively which has led to the price volatility that has been seen in recent years.  In times of price volatility, emitters postpone investment in low-carbon technologies as market signals are not clear and jumps in the price can backfire on abatement efforts.  In 2019, the EU introduced the Market Stability Reserve to soothe the worries of emitters, stabilize prices, and scare off the speculators; however, so far, the benefits have been scant.

Bottom line: The data for 2021, the year that carbon permit prices doubled, has not come in yet; therefore, the implications of the surge cannot be analyzed with certainty but, so far, ramifications in the EU have included a sharp increase in coal use (in response to permit price volatility) which can’t be good for the environment.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Salmon & mussels & kelp? Oh my!

Stephanie writes*

Anyone interested in sustainable food systems should be familiar with the First Nations’ “three sisters” farming method, which leverages synergies among maize, beans and squash. It’s often viewed as the archetype of polyculture.

Allow me to introduce a relatively new form of polyculture: the “three cousins” system for cultivating salmon, mussels and kelp. In 2004, a Canadian research project called AquaNet gave it a far less poetic name: IMTA (Integrated Multi Trophic Aquaculture).

Many believe IMTA could resolve the adverse impacts of salmon farming on marine ecosystems. Salmon farming is classified as monoculture because only one species is harvested. Typically monocultures suffer from unsustainable nutrient deficits, however, the issue with salmon farming is that they add nutrients to the ecosystem.

Is it possible to have too much of a good thing? Definitely! For decades, there have been concerns over excess salmon feed contributing to coastal eutrophication. Just Economics estimated this harm caused $29 million in damages to Canadian ecosystems in 2019.

One of the main contributors to early IMTA research, Thierry Chopin, argues that “the solution to nutrification is not dilution but conversion”. By uniting the “three cousins”, the Canadian salmon farming industry would be transformed from a throughput to a circular economy. Once farmers implemented IMTA technology, they would not only be absorbing the negative externality of nutrient waste, they would actually be profiting from it.

I swear it isn’t witchcraft, but something more magical: ecosystem services. Bivalves (such as mussels and scallops) are filter feeders. By placing mussel rafts around the salmon cage, they act as a buffer between the farm and the surrounding ecosystem. The mussels are fed by the excess nutrients from the salmon. A 2012 study found that mussels grown next to salmon cages are meatier than mussels farmed apart from salmon cages. Mussel and salmon farming are both prominent aquaculture sectors. It’s as simple as placing two already-existing aquaculture technologies side-by-side. The addition of kelp to the system provides another filter, via “nutrient scrubbing.” While there is no traditional market for kelp in North America, kelp demand is expected to increase.

The most daunting barrier to commercial IMTA implementation is the operational complexity, however supporters of IMTA push that these transition costs would be repaid with new revenue streams. Fish farmers should think of IMTA as an opportunity to diversify their investment portfolio.

Bottom line: Polyculture has real promise. Unite the three cousins. We’ll all be better for it.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

SCANDAL: EVs have a dirty little secret!

Juliet writes*

Policymakers and pro-climate groups want to address the climate crisis by replacing cars with internal combustion engines (ICEs) with electric vehicles (EVs). But can EVs be a true substitute for ICEs? Perhaps not. To fully grasp the potential benefits of EVs, it is important to know the extent to which EV owners actually end up driving them. This presents a challenge. Because EVs are primarily charged within homes, the existing charging data has been limited.

A 2020 study from the University of California – Davis [pdf] estimated that Californians drive their battery EVs 11,35o miles per year on average. These past analyses, however, were based on surveys and small sample sizes. Surveys are often inaccurate due to response bias, meaning that people have a tendency to respond to surveys with answers they believe to be more socially acceptable than true. This can be a subconscious phenomenon which skews the data. Small sample sizes can similarly affect data because a small subgroup may be unrepresentative of overall EV owners.

This year, another study at multiple universities including the University of California – Davis [pdf], using a much larger sample and direct measurements, indicates that EVs are being driven significantly fewer miles than their ICE counterparts. The study utilizes billions of California electricity meter measurements merged with address-level data about EV registrations in order to estimate the change in energy usage from EV charging. The result is an unexpectedly low change — a 2.9 kWh daily increase in electricity usage — signaling lower EV usage than previously thought. After adjusting for charging outside of the home, those results translate into battery EVs being driven only 6,700 miles per year. Data from the California Department of Public Health indicates that Californians as a whole typically drive around 9,000 miles annually.

The explanation for the low usage of EVs is not exactly clear, but the paper [pdf] cites a few possibilities. One possible explanation is that EVs might provide lower marginal utility per mile traveled when compared to ICE miles. The lower utility could stem from shorter distance range of EVs or insufficient charging networks. Another reason for less than expected charging could be that most EVs are owned by multiple-vehicle households. This would mean that EVs are a complement to ICEs instead of a substitute, and households who buy an EVschoose to drive their ICE more often than their EV. The last explanation I will touch on is that low charging rates could be a reflection of high electricity prices in California.

No matter the explanation, this information has important implications for future climate policy. The results indicate that policymakers should maybe reconsider making drastic commitments to EV technology in order to reach their decarbonization goals because it may not be as effective as it seems.

Bottom Line: EVs might not replace conventional gas-powered vehicles, so  policymakers might need to pump the brakes on EV promotion until they have better information and instead focus on other ways to  decarbonize society.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

How much are trees worth?

Anaïs writes*

I took the picture below from my apartment in The Hague. My quaint neighbourhood, Mariahoeve, has many identical apartment blocks and large populations of elderly people and trees. Greenbelts, ponds, parks, street trees and community gardens help compensate for the neighborhood’s dismal architecture.

I love waking up to the sound of birds, taking strolls through shady streets, and having a feeling of space and serenity.

Urban Green Spaces (UGS) offer residents many services and benefits These include water regulation, temperature cooling, and carbon sequestration, but cultural ecosystem services — often the most valued by residents — are the most difficult to represent in monetary values that must capture the benefits of mental and physical wellbeing, recreation and attachment to place. Why do we need to quantify these services and benefits? Well, many cities are growing rapidly, and densification of city space encroaches on existing greenery as a consequence. UGS tend to be ‘undervalued, underfunded and marginalized in favour of larger grey infrastructure development’ because decision-makers ignore these non-market values.

So how do we put a dollar value on the culture value of green space? Contingent Valuation is used to put a price on non-market services.

Most of the time, someone would come up to on the street and ask you some details about your income, education and occupation and then ask whether and how much you would be ‘willing to pay’ (WTP) for a park or green space, like in the picture I showed in the beginning. Since people are not accustomed to pricing environmental quality, it’s difficult to find accurate values. It also depends how much information you, as the respondent, are given. If, before asking, I told you that you are already paying 2.20 Euros for street cleaning and 1.5 Euros for maintaining green spaces through your city tax, maybe you would have a clearer idea of how to answer. The fact that the outcome of these surveys is so dependent on proper design makes them susceptible to a range of reliability and validity issues.

Your WTP depends on many factors, especially income. Budget constraints could prevent you from paying for urban green spaces. A study on WTP for improved water quality in a lagoon in Malawi found a genuine inability to pay among 33% of respondents. However, attempts to address this issue in low-income settings, by using ‘Willingness-to-Work’ instead of WTP, found little differences between these payment vehicles.

Bottom-line: Measuring the value of green spaces is difficult for individuals, never mind for those charged with valuing spaces for the community. Willingness-to-Pay, if used carefully, can help us include the cultural benefits of urban green spaces in cost-benefit analyses. Hopefully, Mariahoeve can always be home to ugly buildings, the elderly and trees.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

New dimensions of food production

Miqui writes*

While we are finding ways to recuperate from the current health crisis, another existential threat demands urgent action. In recent decades we have become kings of the world by dominating the natural environment. One of our instruments was the expansion of agriculture. Although agricultural production has become much more efficient in the use of the land (we need only 30% of the farmland relative to the production in 1961), agriculture now uses half of all habitable land, and it is estimated to be responsible for more than 20 % of the greenhouse gas emissions. An even more worrying prospect is that if we do not change the way we produce our food, we only have 60 years of farming left. Although conventional farming practices have spurred an extraordinary jump in our production efficiency, with this method we are simultaneously removing the foundation on which it all depends, a healthy soil and stable climate.

Instead of further explaining why the conventional farming poses an existential threat, I would like to look ahead and tell you about relatively new practice of food production that has the potential to significantly reduce the pressure we put on the natural environment. It is called vertical farming. NASA has been one of the first to explore this practice to potentially use it in their space missions, bringing us closer to what we see in science fiction. As the words already hint at, it is a practice that grows crops in vertically stacked layers. It often involves growing in soilless, highly controlled environments that optimize plant growth. As a result, it drastically reduces the need of inputs such as water and nutrients, eliminates the use of pesticides, has the potential to reduce emissions, and needs 10-20 times less land than conventional farming (WUR).


Besides the environmental need to shift some of our agriculture production indoors, it can also play a big role in food security. The pandemic has shed a light on how vulnerable our (food) supply chains are. With vertical farming we can bring our food production closer to our dense urban population to provide them with safe, sustainable, diverse and nutritious food.

Food supply diversity will also help cope with the imminent threat from climate change. Farmers over the world are already affected by more extreme weather events like prolonged droughts and intense rainfall, which destabilizes our global food networks. By growing crops in controlled environment, we protect our food production, guaranteeing quality food all year long independent of the weather, climate and any other extremes (Al-Chalabi 2015).

Critics argue that vertical farming is very limited in providing us the food security as it mainly produces leafy greens while other more calorie dense crops are less easily grown. Moreover, it could seriously distract us from transitioning to organic farming practices. It is true that we cannot feed the world with salad, and there is also a dire need to change conventional practices to organic ones. However, like any other global challenge, there are no one-size-fits-all solutions to the crisis in the food supply system. Vertical farming could work in harmony with organic agriculture and at the same time return some of our farmland to its original ecological function.

Bottom Line: We have to start treating earth like an enormous space ship because our (natural) resources are finite. Treating it like anything else will eventually lead to the destruction of our species.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Can concrete be better than trees?

Mario writes*

Nineteenth century lithographs show the beginning of urban pollution in London. The coal driving the industrial revolution was wrapping the British capital in a thick smog. Since then, the number of cities with polluted air has increased on all continents. Urban areas suffer pollution from their concentration of people and factories.

Air pollution harms quality of life and health. Reducing pollution and its effects have been the focus of urban policies almost everywhere around the world, especially in China, whose major cities are the ones that suffered the most from this problem on a world scale. Nonetheless, reducing the levels of pollution emitted by factories has not solved the problem. Although modern factories are much cleaner than Victorian-era ones, zero-polluting cities are today impossible. Residual pollution will continue to affect the health of inhabitants, and this will continue to cause social and economic losses (Brunekreef and Holgate, 2002).

As Adedokun (2013) argued, trees cannot “solve” this problem since they are too few to sequester carbon emissions or counteract pollution. Cities and industrial areas have abundant concrete and asphalt, so these surfaces need to sequester carbon.

What if the concrete of our buildings and roads could sequester the pollution from nearby cars? What if buildings and factories could trap pollution more effectively than trees?

Such “carbonation” could — according to Haselbach and Thomle (2014) — mean that concrete exposed to pollution could sequester its carbon. But that sequestration needs to be compared to the environmental and economical costs of producing such carbon-sequestrating concrete in the first place, as the net impact could be negative for the environment, especially if “green cement” is used as an excuse to build more (Dwarakanath Ravikumar, 2021). That said, Andersson (2019) claims there is a potential to modify existing concrete buildings so they can sequester carbon. Clearly, there are still questions to resolve.

Bottom-line: The challenge posed by climate change requires us to find all possible ways to save ourselves. Carbon-sequestrating concrete has potential, but its viability remains uncertain.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Greening Swedish steel

Stella writes*

Steel is the most important material in the world for engineering and construction. It is employed in almost every area of our life, including automobiles and construction equipment, refrigerators and washing machines, cargo ships, and surgical scalpels. Accordingly, the industry also emits 7% of the world’s total CO2 emissions. In Sweden, steel production accounts for over 10% of the country’s CO2 emissions.

According to the Prime Minister of Sweden, Stefan Löfven, Sweden’s ambition is to become the first fossil-free nation in the world. Cutting 7% of the country’s CO2 emissions would be a crucial step in the right direction. Thus, three Swedish businesses; LKAB, SSAB, and Vattenfall, have joined forces to develop the world’s first fossil-free steel. The initiative is called HYBRIT (Hydrogen Breakthrough Ironmaking Technology) and the plan is to be able to produce entirely fossil-free steel in a demonstration facility by 2026 and on an industrial scale by 2035. The pilot project produced fossil-free steel in August this year.

Traditional steel-making uses blast furnaces to add coking coal to the iron ore, which in turn releases CO2. The new process would add hydrogen from renewable sources to the already fossil-free iron ore in a so-called direct reduction process that emits only water vapor. But this transition will require immense amounts of hydrogen and renewable energy for production.

The fossil-free value chain for steel (Vattenfall)

HYBRIT will use renewable electricity from wind, water, and solar to extract hydrogen from water via electrolysis . Electrolysis requires large quantities of reliable electricity, which creates challenges. Vattenfall asserts that more fossil-free electricity is produced than consumed in Sweden but the energy is not evenly distributed in the country. A short term goal is therefore to invest in distribution grids that can bring fossil-free electricity where it’s needed. In the long-term, more renewable electricity needs to be found.

Another factor is hydrogen storage, which would allow hydrogen to be produced when electricity is abundant and used when the electricity system is strained. To ensure a steady supply of fossil-free hydrogen, it is critical to be able to store it safely and efficiently.

Bottom line: Fossil-free steel is possible, but transitioning from carbon to green hydrogen for producing fossil-free steel on an industrial scale necessitates changes to business models and upgrades to infrastructure. Research at the intersections of technology, infrastructure, markets, and society can help identify the policies needed for conversion.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Buy-out programmes on thin ice

Eduardo writes*

Two crucial issues in the Netherlands are deeply intertwined. On the one hand, nitrogen deposition levels are being contested by environmentalists and the European Court of Justice for threatening ecological quality (Economist, 2019). On the other hand, there is a huge housing shortage associated with rising prices, the lack of free space, tourism, and the nitrogen crisis (Lalor, 2021). Although nitrogen deposition in the Netherlands is mainly associated with ammonia emissions from intensive livestock farming, the housing sector is the second-highest domestic contributor (Rijksoverheid, 2019).

Aware of these issues, I went a few days ago to the housing crisis protest here in The Hague, and I noticed that the leading group in front of the march was the GreenLeft party followed by some members of the D66 and Bij1 parties. I thought to myself, isn’t that contradictory in some way? Measures within the nitrogen law passed in 2019 – and supported by D66 and GreenLeft – included cutting livestock herds by half and restricting construction emissions. is the nitrogen law perpetuating the housing crisis? D66 argues that livestock reductions will leave more “space” for the construction sector (Sawbridge, 2019).

When we look at the specific measures aimed at tackling the nitrogen crisis there is no evidence for quick ways to reduce emissions or ameliorate the housing crisis. The Dutch government is instead focussing on buying-out farms to reduce emissions (Flach, 2021). These buy-out programs involve the expropriation or voluntary sale of farms near nitrogen-sensitive areas (Boztas, 2021). In this way, farmers are paid an amount to relocate (or shut down) their farm and agree to a limit of nitrogen emissions from livestock. Simultaneously, the natural areas that are freed up are used for nature restoration and developments (Rijksoverheid, 2020).

These buy-out programs seem to offer an innovative solution to both the nitrogen and housing crisis. Farmers are paid and ecosystems at risk are protected. At the same time, the reduction in nitrogen from livestock production allows space for more houses to be built. Nevertheless, these measures face limitations. Buy-out programs may induce farmers to move to cities, increasing the demand for housing. Moreover, leaving more space for housing construction will only lead to increased emissions of both nitrogen and CO2. A reduction of livestock production may reduce exports and shrink markets for dairy, pig, and poultry, leaving animal-product consumers worse off.

It is necessary to estimate the benefits and costs of these measures. Are the environmental benefits from buy-out programs sufficient to cover its costs and potential impacts on housing? An “environmental equivalent” approach (calculating the environmental value of buy-out programs) can provide useful information (Schmitz, 2012).

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Agroforestry: the future of farming

Marthe writes*

It is time for agricultural reform in the Netherlands. Biodiversity is declining at alarming rates, and the predicted increase of extreme weather calls for a more resilient production system.

Since the second agricultural revolution that began in 18th century England, scientific knowledge has moved farms toward monocultures (the same crop is grown on the same land). Without crop rotation, soil fertility decreases, and years of these practices have resulted in less nutritious, less tasty food.

Furthermore, monoculture is causing soil depletion and it is one of the main sources of nitrogen emissions. Too much nitrogen has a negative effect on nature and biodiversity (the richness of species in nature). It also acidifies soil, reducing concentrations of minerals such as calcium and magnesium that trees and other plants depend upon to live. Plants that prefer nutrient-poor soil, such as flowering herbs, which are important for meadow birds and insects are also disappearing due to this acidification. According to TNO, Dutch emissions of nitrogen per hectare are the highest in Europe, almost four times the average value. The Dutch agricultural sector is responsible for 45% of nitrogen emissions. Over 72% of the Dutch nature reserves are getting too much nitrogen.

Agroforestry could be the solution. A ‘food forest’ is a vital ecosystem designed by humans following the example of a natural forest with the aim of producing food. A richly varied food forest increases biodiversity, enhances soil health, and can curb GHG emissions of CO2, CH4, and N2O. Through the incorporation of trees within farms, the development of soil organic matter and nutrients is promoted. Tree cover also increases microbial activity and decreases erosion.

The Seven Layers of a Forest garden. Source: Permacultuur Nederland

It’s unclear if these small-scale projects can be scaled out to the rest of the Netherlands, but there’s no doubt that we need to reform our agricultural practices.

Bottom line: The current food production system is depleting the soil, decreasing biodiversity, making our food less nutritious, and overall an unsustainable practice (in all senses of the word). Agroforestry could be the solution to all of these problems, but it’s unclear if it could completely replace the current production system.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).