Category: EEcon

Fay writes*

The popularity of organic food has significantly increased over the past years. Many farmers have noticed the resulting business opportunities and shifted to organic production. With the amount of suppliers, competition has also increased, making the average organic food price drop. Nevertheless, due to lower crop yields, higher uncertainty and labour costs, the price of organically produced food is still 63% higher than that of food originating from conventional production.

Consequently, organic food is mostly consumed by citizens belonging to the higher socio-economic classes of the Dutch society, or by hipsters. Research has found that the most important factors incentivising these groups are the perceived health and environmental benefits accompanying organic consumption and production (Hughner et al., 2007). This same research finds that there are many consumers who share these concerns, but are reluctant to buy organic food because of its higher price.

 

The idea about perceived health benefits originates from the fact that organic production does not use chemical pesticides. Chemical pesticides used in conventional food production could have a long term negative impact on the health of consumers, due to the continuous intake of small proportions, or on that of farmers because of direct exposure. However, the debate about the health consequences of pesticide exposure is still ongoing. In addition, no evidence supporting the nutritional advantages or disadvantages has been found (Forman and Silverstein, 2012). Even though the perceived health benefits might not be as convincing, strong evidence has been found for the negative environmental consequences of conventional farming. For instance, the chemical pesticides that are used are harmful to biodiversity. Also, more water and energy is used during conventional food production, which significantly contributes to climate change (Forman and Silverstein, 2012). Furthermore, it has been estimated that due to soil degradation, agricultural land will only be productive for 60 more years . Organic production is not as damaging to the environment, as it does not make use of chemical pesticides, requires less energy and water and causes less soil depletion (Forman and Silverstein, 2012).

To reduce the negative environmental impacts of food production, organically produced food should be the norm rather than the exception. Because the prices of organic food are still higher than of conventionally produced food, a large group of consumers who actually want to consume responsibly refrain from doing so. In order to make organic food accessible for all, prices thus have to be driven down further. Making use of consumer preferences, increasing the supply of organic food can realize this. When more organically producing farmers enter the market, competition increases, decreasing the price. By making organic food accessible through the supply side of the market, the proportion of land that is farmed organically increases. This contributes to a transition to a less harmful food production system. All in all, it would be interesting to see which policy measures could be implemented to increase the organic food supply.

Bottom line: Organic food should be the norm rather than an exception, as it has a less harmful impact on biodiversity, soil quality and the climate. However, organic food is expensive, making people who want to consume responsibly reluctant to do so. An increase in the supply of organic food can decrease its price, which makes organic food accessible to all. It would be interesting to research what policy changes could generate such a supply increase.

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

Mo writes*

Everyone seems to be talking about climate change nowadays, it is becoming an increasingly important topic on the political agenda of several countries. Whilst one might typically think of carbon dioxide emissions, or other greenhouse gases, when thinking about action against climate change, there are several other ways in which countries are tackling climate change and its impacts. One of which is through green roofs!

Green roofs can be defined as an area squared off on the surface of a man-made structure to allow the growth of vegetation. Vijayaraghavan (2016) identifies several components necessary for the construction of a green roof: a vegetation layer, a substrate, filter fabric, drainage material, root barrier, and insulation. But don’t think you can’t get creative with it, different types of vegetation mean different drainage benefits as well as increased biodiversity.

If you live in a city in North America, you’ve probably come across a green roof. The chances double if you live in Toronto, which in 2016 had the greatest square footage of green roofing installed amongst cities in North America [pdf]. How did Toronto achieve this? This leadership in green roofs can be attributed to its green roof bylaw. This by-law mandates the construction of a green roof on new developments of industrial, residential, institutional, and commercial buildings if the surface area of the roof exceeds 2000 square meters.

North American cities are not the only places where you’d be able to spot green roofs. Several cities around the world are introducing green roofs as a means by which to mitigate climate change impacts on a local level (Vijayaraghavan, 2016). They provide a number of social and environmental benefits, but most importantly for cities, especially undergoing rapid urbanization, its provides the reduction in the urban heat island effect as well as providing better stormwater management (Vijayaraghavan, 2016). Not only do green roofs help cities mitigate and adapt to the impacts of climate change, but also brings in more green space into a built environment. The social value of living in an aesthetically-pleasing environment shouldn’t be overlooked.

Even different municipalities in The Netherlands have started their own ventures into getting green roof construction going throughout their respective cities. Most notably, the city of Rotterdam has shown greater interest in green roofs and the benefits it would provide [pdf]. In order to increase the square footage of green roofs throughout the city of Rotterdam, the municipality offers a subsidy for those constructing one. This subsidy currently offers 15 euros per square meter of realised green roof and will be available to residents until the end of 2020 or when the money runs out. Other than this subsidy, there doesn’t seem to be other incentives pushing residents or building owners to build green roofs.

This mechanism is quite different compared to how Toronto is green roofing its city. Both mechanisms are valid means of constructing green roofs, one relies on legislation and regulation, whereas the other makes use of a market mechanism. But a question emerges, which mechanism is the most effective in order for municipalities to increase green roofs throughout the city?

Bottom Line: Green roofs are one of the ways cities can locally mitigate climate change impacts and there are different mechanisms by which municipalities can get more green roofs throughout a city. What are the costs and benefits of the two mechanisms, and which is the most effective?

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

Rachele writes*

Most of the air pollution detected worldwide is unsurprisingly concentrated in big cities, being the result of coal consumption, gridlocked traffic, heavy industries and incremental population density, i.e., high energy demand. All these factors greatly contribute to increase air pollution and, interestingly enough, it was found that traffic and cars are the main source of a whooping 25% of total worldwide production of particulate matter which increases cities’ air pollution, where traffic jams are the norm.

Other than contributing to increase CO2 concentration and our poor earth’s fever (e.g. Climate Change), air pollution is considered as the most proliferous and silent killer currently existing, accounting for 8.8 million deaths worldwide and 800.000 deaths in Europe every year; the numbers seems destined to increase. This extremely high number makes air pollution the number one environmental cause of death worldwide. To put these results into perspective, water pollution is the second source of death from pollutants, accounting for approximately 1.8 million casualties every year. This lower data is due to the fact that polluted water affects mainly underdeveloped countries whereas air pollution affects 92% of the global population. 

Due to the rising issues generated by air pollution, many cities around the world decided to open their eyes on this issue and implemented alternatives to decrease pollution from traffic jams.

One policy that was applied in different ways, but with the same aim of reducing air pollution, is the Limited Traffic Zone (LTZ) policy.

Milan can be taken as an example of a successful implementation of such policy. Due to its precedent extremely high concentration of air pollutants, policy makers decided to introduce the LTZs policy through the installation of EcoPass [pdf] aimed at reducing the input of cars in the centre of the city. This operates through the concept of ‘congestion charging’ meaning that vehicles that are fuelled through diesel have to pay 5€ to enter the area, whereas public transportation and cleaner vehicles are exempted. This application resulted in a decrease in air pollution of approximately 18%, an increase of public transportation usage of 6.2%, a reduction of polluting vehicles of 49% and an overall increase in share of cleaner vehicles of 16.6%. Finally, traffic congestion was found to be 28% lower than the original baseline [pdf].

The operational and investment cost of EcoPass reached €21 million per year, which is usually directly funded by the revenue obtained from the project. The Ecopass is thus estimated [pdf] to have generated a yearly net benefit of approximately €15.7 million from 2008 to 2010. This net gain however, does not include the revenue made from fines, which if it was to be taken into account, would raise the net profit to about €50 million per year [pdf].

However, the total revenue generated from the EcoPass policy was found to be decreasing steadily since the first year of its implementation. This is because this project also created incentives for citizens to buy cleaner vehicles, which is indeed a good thing for the environment, but eventually reduces revenue [pdf]. That said, it’s important to remember that Milan’s main goal [pdf] was to reduce air pollution and increase liveability, which has been achieved.

The lower emissions and higher share of sustainable vehicles, demonstrates that the application of such policy is effective in environmental terms. This still raises financial concerns on sustainability of this project in the long-term, as the revenue made from EcoPass struggles to compensate for its costs. This means that such policy may require some adjustments. A potential solution could be removing the exemption from some vehicles [pdf], which would increase revenue. It’s important that Italy keeps on pursuing this policy despite its flaws. Even though this might require some precautions, LTZ seems to be on the right path to reduce air pollution in urban areas.

Bottom Line: Besides its limitations, Limited Traffic Zones Policy can be considered a good solution to reduce the level of toxicants generated by traffic jams in the air of big cities and could be potentially improved and applied in different contexts.

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

Hanna writes*

While the dictionary definition of “offsetting” refers to “something that counterbalances, counteracts, or compensates for something else,” in the context of climate change it refers to the compensation for negative externalities of a specific activity or whole business operations on the environment, especially greenhouse gas emissions.

Carbon offsetting has recently become one of the more popular strategies to contribute to carbon emission reductions for individuals, corporations and institutions alike. In the long run, the ambition is to reach the goal of carbon neutrality.

Now, while there is a trend to offset carbon footprint, there are still many who don’t. Why is that?

Confusion remains on how exactly carbon offsetting is done and whether the sum of small monetary contributions to pay to allow an organisation to plant trees can build towards that goal or if it’s more like greenwashing to polish the annual report or fool customers.

There is actually no one way to do it and options range from the improvement of cooking stoves in households in India to planting trees to strategic investments in the development of renewable energy.

Reasons why people chose not to offset their footprint say when they purchase a flight, are multi-fold. The most common ones are: “I feel like I do enough by reducing my meat consumption and recycling” or “I am not sure if my five euros will actually have an impact.”

These may be valid doubts, but something needs to be done. The first argument puts recycling and offsetting in the same bucket while in reality this is like comparing apple and pears. “Just two hypothetical short-haul return flights and one long-haul round-trip in a given year would outweigh otherwise exemplary behaviour.” The second doubt relates to the effectiveness and the low costs associated with it. But certain measures used to offset, such as providing energy-efficient lightbulbs or cooking stoves are actually quite inexpensive.

The lack of trust in some of the mentioned offsetting schemes stems from insufficient transparency and a lack of internationally recognized standards and regulations. A critical task ahead!

Bottom line: While mindset shift and systemic change are needed to really tackle climate change, every contribution counts. Individual, corporate and public offsetting of all sizes needs to become part of how we go about our lives and prepare the ground for the adoption of regulation and large-scale solutions.

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

Lea writes*

Since the 17th of November 2018, the “gilets jaunes” or yellow vests have been in the streets of France every weekend, to protest against a government, they claim, that only supports the very rich.

At its start, the movement was ignited by a fuel tax, which was supposed to gradually increase the price of diesel by 7.6 cents per litre and the price of petrol by 3.9 cents per litre starting from 2019. The implementation of this tax on top of other unpopular measures, such as a speed limit reduction on country roads from 90km/h to 80 km/h, was enough to push 300, 000 people on the streets to block roundabouts and voice their anger on the streets for the first week of protests.

The protests have since turned sour. It is estimated that 11 people have died as a consequence of the yellow-vests movement, while more than 144 protesters and journalists have been severely injured, as they lost an eye or even sometimes a hand. The cost of the insured damages caused by protesters are evaluated to be around €200 million.

In response, Macron’s government had to make several concessions. It froze its plans of a fuel tax indefinitely, decreased existing taxes on diesel and fuel, and promised to increase the monthly minimum wage by a 100 € before 2020. The prime minister also announced that electricity prices would not increase for several months. On the 25th of April, as the “gilets jaunes” entered their 23rd consecutive week-end of protest, Macron promised tax cuts of €5 billion on the income of average and lower earners.

What is sure is that this fuel tax and the ensuing protest was a disaster for the government who did not predict such an uproar. What is unclear is whether they are any social and economic benefits to any parties as an outcome of the protests, and if the environmental costs of the frozen fuel tax are recoverable or not. Would it have been better to abandon the idea of a fuel tax from the start, as the social costs would be too big?

When Macron pushed for a fuel tax during the summer of 2018, he disregarded the comments of Matthieu Oprhelin, an “En Marche” deputy, whom told him to create a temporary fuel subsidy for people living in rural areas with a low income. Maybe he should have listened.

Bottom Line: The abandoned fuel tax of Macron’s government provides us with an example of a failed environmental policy that put too much burden on those who relied on their cars while failing to meet its environmental purpose. Indeed, only 20% of the money from this tax would have gone to a sustainability fund, raising questions about the policy’s legitimacy.

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

Outi writes*

In the Western diet, meat has for a long been a fundamental source of protein on people’s plates. However, research has revealed that in the we consume more meat than we should from the perspective of public health, and the climate. In fact, a study published in Science [pdf] finds that a vegan diet is the most efficient means of reducing one’s impact on the planet. Besides the greenhouse gas emissions, agriculture, and production of meat and dairy in particular, is also “the largest source of human-related nutrients in the Baltic Sea”, and is therefore one of the major causes behind the toxic algae blooms, which made the Baltic Sea unswimmable last summer, not to mention the impacts on the sensitive ecosystem.

In economic jargon, the cost of meat production for the environment would be described a negative externality, since it affects third parties who did not incur the cost. Due to this property, the free market is inefficient in allocating the socially optimal quantity, leading to too much of meat being produced. In the graph below, the lower supply curve represents the production cost without externalities, and the upper line is the social production cost where the externalities are taken into account.

Thus, economic theory suggests that a tax that reflects the external costs to the third parties could internalize these externalities and bring the production to the socially optimal level, as seen from the graph. Or would it? According to a study [pdf], the value added tax on sugary products in Finland did not reduce their consumption, which is accounted to the inelasticity of demand since there are no close substitutes.

Although every supermarket nowadays has an ever-increasing variety of meat-substituting products, many still have a suspicious attitude towards them, and do not deem them as viable option, although people and the food industry would probably adjust in the long run. Therefore, a drastic increase in prices might be necessary to truly change people’s behavior, as the graph illustrates. Increases of the prices of such a staple good would also make the tax regime more regressive, thus hurting the people with lower incomes. Currently, meat substitutes are quite expensive. This is because the volume of production is low, and the competition is oligopolistic since there are only few producers who produce differentiated products.

In the future, if the market for meat substitutes grows, the price might decrease due to increased competition and economies of scale. On the other hand, if the tax increased the demand for meat substitutes, their prices might increase. Therefore it is somewhat tricky to forecast how much the consumers would be hurt if the tax would force them to move to meat substituting products. It might also be the case that some people would then replace lean meat products with sausages, or other processed meat products with even worse nutritional values. If people would not be willing to move to meat substitutes, adjusting the tax so that it accounts for the different health and environmental impacts of different meat products could be a good policy solution, but implementing such tax regime would also be costly and complicated.

On the supply side, the tax would obviously hurt the Finnish meat producers. Due to its Northern location, the production of plant-based protein in Finland is also relatively costly, and the meat producers are therefore worried that moving to production of plant-based proteins would be difficult, although the industry has been developing at a fast-pace in Finland. Importing plant-based protein would obviously be an option but might hurt the security of supply of protein before the production of plant-based proteins is advanced enough.

Bottom line: Meat production has many externalities, which could be internalized with a tax. However, especially in the short run, the demand for meat might be relatively inelastic, and the farmers and people with low incomes might be hurt, which is why costs and benefits of different meat tax regimes should be evaluated carefully.

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

 Tory writes*

High-Occupancy vehicle (HOV) lanes have been constructed on many U.S. highways throughout recent decades. These lanes were originally open to public transport and vehicles with two or more passengers. The intention was to provide these vehicles a less congested lane to travel in and thus, reduce travel time in comparison to the ‘non-HOV’ lanes. Additionally, researchers have pointed towards alternative aims of these lanes with broader implications. Schijns and Eng (2006) [pdf] proposed that HOV initiatives, by promoting carpooling, are “increasing the person-carrying capacity of the roadway, reducing per-capita emissions and energy consumption, and promoting a more sustainable urban transport situation”. The intentions of HOV lanes described above highlights the all-encompassing nature of this policy initiative. These lanes are attempting to tackle congestion and travel time issues, while also trying to drive behavior change in an ‘environmentally friendly’ direction. On the outside, approaching policies with multiple aims seems like it could be beneficial across a wide variety of issues. However, in attempting to ‘do it all’ this policy initiative has, in many instances, failed in meeting any of the aims it set out to achieve.

Take, for example, the HOV lanes in California. This state-led initiative was two-pronged in that it aimed to reduce traffic congestion and improve air quality. However, as studies using census data have shown, carpooling continues to decrease in popularity. Moreover, as Schijns and Eng (2006) concluded in their study, there has been no HOV implementation whereby a transformation of single-occupant drivers into carpoolers has made a significant impact on congestion issues. In response to this policy failure, the State of California has allowed single-occupant drivers to use these lanes, for a price. This simple change in policy undermines the environmental intentions of the original designing of the HOV lanes. The ‘pay-for-access’ adjustment also signifies the social value of HOV lanes. Faster travel time, even if one must pay for it, is more attractive than altering one’s transport to be more ‘sustainable’. Moreover, this seemingly minor adjustment only addresses one of the aims it set out to achieve, namely reducing travel time. However, this was exclusionary in nature as only those who could afford the fee were able to take advantage of the lanes. If the aim of reducing emissions was of focus, the State would need to address deeper issues rooted in a lack of infrastructure for public transportation and changing the norms of behavior surrounding what transportation looks like. In this instance, reducing emissions seemed to take a back-seat to reducing travel time for some individuals.

So, has the State of California addressed this seemingly forgotten environmental aspect of this initiative? Why would they? In 2017, San Francisco Bay Area governments collected over 9 million dollars from HOV lanes. It would be difficult to imagine the State having any incentive to change a policy that is providing a source of revenue. From this perspective, the pay-for-access drivers and the government are benefitting off a policy at the expense of environmental action.

Bottom Line: HOV lanes were implemented with the aims of decreasing congestion and reducing emissions. However, the ‘pay-for-access’ adjustment to the policy undermined the environmental aspect of this initiative. This has resulted in revenue for the government at the expense of the planet.

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

Willem writes*

Founded in 1862 along the historic Singel canal, the Bloemenmarkt in Amsterdam was the world’s only floating flower market and a landmark of the city of Amsterdam. Some tourism blogs call it a must-see, but on TripAdivsor the market only receives 3.5 out of 5 stars, most recent reviews being bad. TripAdvisor user 678mvi calls the market a “terrible disappointment”, mostly selling “cheap merchandise for tourists”.

On the 16th of April 2019, Dutch newspapers reported that the last florist of the Bloemenmarkt had closed down. “The tourists have ruined my business”, he told a reporter. According to municipal policy, only 25 percent of the products sold at Bloemenmarkt flower stalls are allowed to be ‘related products’, but this policy is not enforced. In reality, most stalls focus on selling souvenirs which tourists can easily take home, such as plastic tulips, tulip bulbs, or marihuana seeds.

The Bloemenmarkt is illustrative of the effects of an unsustainable form of tourism which many popular destinations face. According to the World Tourism Organization, sustainable tourism is tourism which meets “the needs of present tourists and host regions while protecting and enhancing opportunity for the future”. Both tourists and residents are attracted to the Bloemenmarkt because of its cultural value, but because the market attracts so many tourists who photograph but don’t buy fresh flowers, the unique floating flower market transforms into a bunch of floating souvenir shops. As a result of this, Amsterdam’s cultural environment is damaged, needs of tourists and residents cannot be met (the TripAdvisor reviews are testimony to this) and future opportunity to visit this cultural heritage is lost.

With regard to the negative externalities of tourism, the Bloemenmarkt is only the tip of the iceberg. In other parts of Amsterdam, tourism causes congestion and pollution, and pushes up house pricescausinggentrification and transforming the character and ‘livability’ of many neighborhoods. With the number of visitors expected increase even more rapidly in the future, the pressure on the municipality of Amsterdam to design policies to put a stop to this unsustainable form of tourism is rising. Whether any of these policies will lure the florists back to the Bloemenmarkt, however, remains to be seen.

Bottom line: Tourism to Amsterdam in its current form threatens the livability of the city and the opportunities of future generations of tourists and local reisdents to enjoy the city’s cultural heritage.

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