Ecology and Economics

The Indicators Paradox

Next week I wander up to very scenic, but very cold Jackson Hole, Wyoming to work with US Forest Service colleagues on monitoring and evaluation measures for a forest plan, related to an agency strategic plan, related to governmental obligations writ large for the US as part of the global community. Forest plan indicators must therefore, somehow, link to broader Criteria and Indicators for Sustainable Development.

I find the work paradoxical. Too often we come up with 'indicators' that don't indicate, but rather abstract too much or focus too narrowly. We find ourselves either overwhelmed by too many indicators, or tend to develop summary indices that conceal more than they reveal. Either way we lose. But maybe we, along with others are learning.

My continual prodding is that we need to address indicators in a functioning management system, where people both within government organizations and beyond can "own" (can resonate with) parts of the system, and relate parts to wholes in meaningful management settings. (Here, by the way is a little framing thing I'm working on titled Effective Organizations, linked to a "post" in my Adaptive Forest Management blog titled Rebuilding Public Trust.)

Years ago, I attended the first conference of the International Society for Ecological Economics, (Washington, DC, 1990) and listened to promises for greening up national income accounts, among other metrics to help policy-makers do better, and do more for "sustainability" re: ecology, economics and environment. I've been tracking "indicator" and "story line" progress and retrogress since. I even participate in minor ways, no doubt in both arenas, depending on who you talk to.

Yesterday, while prepping for my forest-related travels I decided to scan the Ecological Economics literature to see what I could find on recent developments. I was pleasantly surprised to find Accounting Technologies and Sustainability Assessment Models, In Press, Corrected Proof, Available online 22 December 2006, by Jan Bebbington, Judy Brown, and Bob Frame:

Abstract: Within ecological economics there is recognition of the need for new approaches to decision-making to support sustainable development initiatives. There is an increasing acknowledgement of the limitations of cost–benefit analysis approaches as a measure of the (un)sustainability of organizational activities. These are viewed as particularly inappropriate within the participatory settings that sustainable development proponents seek to foster. They also fail to deal with the highly contested nature of sustainable development discourse in contemporary pluralist democracies. While advances have been made in the field of multi-criteria decision-making, there is still a relative dearth of versatile models that accommodate monetization in a way that recognizes the limits of calculative technologies. This article introduces readers to developments within the accounting discipline designed to support sustainable development decision-making and evaluation. In particular, it proposes sustainability assessment models as a viable alternative to cost–benefit analysis. Sustainability assessment models are based on an inter-disciplinary approach that recognizes the need for “accountings” that facilitate more participatory forms of decision-making and accountability. As such, they address many of the weaknesses in current approaches to cost–benefit analysis. The authors’ first experiences with sustainability assessment models were with BP and the United Kingdom oil and gas sector, where models were developed as a means of making previously external costs more central to organizational decision-making. Later work has included exploration of a range of decision-making situations in private and public sector organizations in both the United Kingdom and New Zealand. This has involved more explicit attention to plural values and issues of participation, dialogue and democracy.

I was delighted to see this update on what I'll call "nails in the coffin" re: cost-benefit analysis. I have already been mining the "references" to update my own Critiques of Cost Benefit Analysis (embedded in this post along with 13 suggested books dealing with "CBA not!" and much more.)

I was even more impressed to see the authors carry the argument forward re: summary indices in the "social and environmental accounting" arena. I wish I could daylight the article, but I'm afraid it is in the "pay for view" category. I got to it via my 'Science Direct' subscription.

Ultimately, the authors endorse a social accounting medium that allows for practitioners, decision-makers, and the public to simultaneous test (in real life settings) various approaches to environmental/social accounting and evaluation, The vetting of various methods is immediate and ongoing, as interactive dialogue. Although I'm not yet familiar with the particulars I hope they somehow incorporate blogs (or blog-like feedback mechanisms) in the systems.

Let's hope that now more people will change focus toward value pluralism and civic discovery, i.e. "participation, dialogue, and democracy." Permit me one snip:

… In New Zealand, we have sought to explicitly address the issue of competing ideological orientations. By comparing how different stakeholders explain and illustrate their perspectives, we have encouraged actors to articulate their ideological standpoints on SD (e.g. their perspectives on monetization, the use of market valuation methodologies and views on the materiality of particular dimensions of SD). We see this as crucial in facilitating dialogic learning and interaction in polyvocal environments. We also envisage groups with different ideological orientations constructing their own SAMs. Separate SAMs rather than synthesis into a "unified" account leaves stakeholders with the ability to exchange SAMs as a way of explaining and justifying different courses of action and allows them to interrogate each others’ ways of knowing. We see this as important to protect against monologism and to provide a challenge to eco-modernist "business as usual" approaches.…

For the record, I find myself intrigued with summary indices like Ecological Footprint. Maybe it's the "star power." Take a look at Who's Who for the Global Economic Footprint Network. Alternatively, Amartya Sen's name is found among the proponents and developers of the Human Development Index. See, e.g. this [PDF] and this.

No doubt efforts at furthering development of more comprehensive indices have merit, as public and political discourse and more. And some of us will continue to follow the chatter (pro and con) that swirls around them. Some of us will also follow other efforts, some related to the more comprehensive measures, some not, where people try to make sense (political, social, and problem-solving) of various sets of measures, situationally defined and refined to fit whatever context is judged to be appropriate.

Sustainability, Science, Practice, and Policy

New e-Journal: Sustainability, Science, Practice and Policy Have a look! No doubt we will be talking more about this one. Ok.. I'm a bit slow on the uptake. It's new to me, with first issue published in the Spring of 2005.

Kenneth Arrow: Beyond Impossibility

Over at Natural Capital Rob Metcalfe points to a wide-ranging interview with Kenneth Arrow ([PDF], 2005), noting that "the future should be bright for env econ as it attempts to incorporate rational models with behavioural models and neuroeconomics." Juan Dubra introduces the interview: "Arrow argues that the biggest failures of economic theory are: our failure to explain the business cycle; the missing explanations for the size of fluctuations of prices; our failure to explain the causes of growth and the spread of innovation. He then discusses several … alternatives to the rational expectations paradigm."

Although the interview is only tangentially related to environmental economics, I believe it important since env econ practitioners take their lead from practitioners in other fields of economics (and ecology, and many other of the "sciences", natural, biological, and social). Remember that it was Arrow who caused economics practitioners much soul-searching consternation with his Impossibility Theorem.

As I reflect on the interview, I find it odd that Arrow does not acknowledge the work of Hyman Minsky and other Post Keynesians who I argue (frequently at Economic Dreams … Nightmares) have dealt with (continue to deal with) all of Arrow's stated concerns in great detail. (Minsky overview here, or in-depth: The Economic Contributions of Hyman Minsky: Varieties of Capitalism and Institutional Reform.)

Oversights or deliberate omissions aside, the interview proves interesting as history and in suggesting paths forward. Arrow does point to the work of his under-study Brian Arthur in complexity theory (which I've followed for years), and to the work of Daniel Kahneman and Amos Tversky on inter-relating decision theory and psychology, here for example, and questioning "expected utiltity theory", here for example.

Finally, does anyone know if Arrow and Minsky had a falling out? Or are there other explanations for Arrow's seeming oversight re: Minsky and others who are (and have been) dealing with Arrow's "biggest failures of economic theory"?

Key Questions on Energy

We dabble a bit in "energy" here. Over at The Oil Drum they adress energy squarely and thoroughly. Here is a teaser:

Key Questions on Energy Options (and Thoughts on the SOTU), by Robert Rapier 01/24/2007: A question was recently posed here: What is the most important question concerning ethanol production? That got me to thinking about important questions regarding not only ethanol, but all of our energy sources. There are a number of issues that we must carefully consider for any of our potential energy sources.

In my opinion, they are:

1. Is the energy source sustainable?
2. What are the potential negative externalities of producing/using this energy source?
3. What is the EROEI?
4. Is it affordable?
5. Are there better alternatives?
6. Are there other special considerations?
7. In summary, are the advantages of the source large enough to justify any negative consequences?

Go there for answers and commentary.

Are Biofuels Moving Us in the Wrong Direction?

As the political fuel behind biofuels propels us forward, is it time to take a step back for reflection? Craig Mackintosh says yes. Here is a glimpse of his very good work:

Biofuels from the Frying Pan to the Fire? Craig Mackintosh, 12/29/06:…When we take into account the scale of our past, present, and future transport requirements - are biofuels going to cut it? Do they hold the promise of securing our futures — nationally, economically, and ecologically? … Grist has an excellent collection of articles on the Biofuel subject …. Given the rate and scale of biofuel developments, I think it’s appropriate for me to bring their 'Not so fast: Issues and Implications' section to your notice. …

Throughout tropical countries like Indonesia, Malaysia, Brazil, and Colombia, rainforests and grasslands are being cleared for soybean and oil-palm plantations to make biodiesel, a product that is then marketed halfway across the world as a "green" fuel.

In Southeast Asia, and increasingly in the Amazon, plantations of the African oil palm have become wildly lucrative. After monocropping the palms on recently cleared rainforest land, growers press the palm fruit and kernel for oil that can be used in both food and industrial applications, including — and increasingly — as biodiesel.

The palm oil industry is booming: global exports increased more than 50 percent from 1999 to 2004. To meet the growing demand, producers in Malaysia and Indonesia have ramped up production by clearing thousands of square miles of rainforest for new plantations.

In Indonesia, rainforest loss for oil palms has contributed to the endangerment of 140 species of land animals, while in Malaysia animals like the Sumatran tiger and Bornean orangutan have been pushed to the brink of extinction. Fish kills have become common in waterways surrounding plantations and palm-oil mills, as soil erosion from the cleared land and mill effluents have left waterways clogged with sediment and unviable.

The boom hasn't been limited to Southeast Asia. In one of the most disturbing examples of the biofuel hype’s hidden effects, right-wing paramilitary groups in Colombia — a country mired in a four-decade-old civil war — have in recent years begun planting oil palm plantations over wide swaths of the territory they control. …

Farther south, another biodiversity hotspot is being rapidly cleared to plant a biodiesel crop. Nearly 80 percent of Brazil’s Cerrado region — a woodland savanna mix — has been cleared for agricultural production, mostly for soybeans, according to a Conservation International report.

Despite being home to thousands of endemic plant and animal species, the Cerrado has been promoted as "the last agricultural frontier" by green-revolution hero and Nobel Peace Prize winner Norman Borlaug. Low land and labor costs and high yield potential have sent investors from as far away as Iowa scrambling to buy up these Brazilian grasslands, frequently in collaboration with U.S. agribusinesses like Archer Daniels Midland, whose first Brazilian biodiesel production facility is currently in the works.

Tad Patzek, a professor in UC-Berkeley’s Department of Civil and Environmental Engineering who's known primarily as a critic of corn ethanol, says what's happening in tropical ecosystems is much more serious than the biofuel situation in the U.S. "We've already destroyed the prairie, and the topsoil in the Midwest is going, going, gone," Patzek says. "But the expensive noise we’re making here is being translated there into the total obliteration of the most precious ecosystems on earth." — 'What about the Land?'

I'd like to stimulate some discussion on this topic, as its importance cannot be underestimated. If we are considering using every available piece of land on the planet (and taking down our most valuable forests in addition) to fuel a ballooning population of vehicles, then discussion is the least we can do. …

I’m fairly sure the world still has serious issues with food and water shortages . As it stands, our dietary habits have us using more land per capita than the rest of the world (and not just our own land…). Combine this with the insatiable appetite our vehicles have, and will we not be taking this already out-of-proportion ratio into the realms of the obscene, and absurd? …

In the meantime, biofuel plants are going up everywhere and politicians are setting biofuel quotas into law. I guess I'd like to ask, where are we going with this? Are we not jumping straight from the frying pan into the fire? …

For a bit of hope (maybe?) re: Biodiesel from algae, see our earlier post on the subject, as well as another very good Mackintosh post titled As Corn Ethanol Threatens, Algae Makes Promises, 1/7/2007.

{Update Feb. 1}: Here's the latest on the Palm Oil mess, from The Oil Drum, Jan 30

Growth is Madness! A new blog

John Feeney recently started a new blog, with title and main theme, Growth is Madness! Looks promising. Here's a snip from the first post:

Our earth is in trouble. And that means we're in trouble. It's no exaggeration today to say we face a looming global ecological collapse. Scientists have warned us of this for more than a decade. The warnings, from individual experts, and organizations grow more urgent.

Yet, most people's attention is on other news. There is little awareness of the gravity of the environmental problem we face and the likely consequences if it is not vigorously addressed.

There is even less awareness of the root causes of our environmental plight. This is not too surprising as their role in creating the problems we face has been suppressed by those with vested interests in shielding us from the truth. …

Let's start with some truth right now. The root causes of the ecological collapse of which scientists are warning are:

1. Global population growth to levels near or beyond the earth’s carrying capacity.
   
2. Corporate economic growth, as defined by Herman Daly, in the form of increased physical throughput, from the extraction of raw materials, through their manufacture into commodities, to their output as wastes.
   
3. Excessive and growing per capita resource consumption rates.

…But before you close this site in dismay at what, up to here, seems a profoundly pessimistic message, I’ll point out that there is room for much hope! …[T]there are effective actions we can take to avert disaster. It will take serious commitments from many nations, intergovernmental cooperation, corporate and individual efforts. Part of those efforts needs to be the spreading of accurate information to inspire others to help….

Is Economics Still Relevant?

The question was addressed in Policy Options in April 1999, in Is Economics Still Relevant? What has become of the discussion since? Does anyone know who has picked up this ball since, other than those who belong to the Post-Autistic Economics Network. Here are abstracts and downloads:

• Mark Blaug, "Ugly Currents in Modern Economics"
  
• Lester C. Thurow, "The Strengths and Weaknesses of Economists"
  
• Robin Boadway, "Economic Theory Dictates a Rethinking of Policy"
  
• Daniel M. Hausman and Michael S. McPherson, "Beware of Economists Bearing Advice"
  
• Thomas Mayer, "On the Usefulness of Economics"
  
• Mark Setterfield, "Are Academic Economists Concerned About Public Policy?"
  
• Jack Mintz, "Economists Are Relevant And Could Be More So"
  
• Jon Mulberg, "Economics: Who Needs It?"
  
• David Longworth , "Economics at the Central Bank"
  
• David Mayes, "The New Zealand ‘Experiment’: Using Economic Theory to Drive Policy"
  
• Alex McLeod, "Government Deficits and Debt: Their Cause and Cure"
  
• C. Lloyd Brown-John, "Self-Determination and Separation"

Biodiesel from Pond Scum

I should never trust things I see on local TV. Or maybe, sometimes, I should. Last night I saw my old alma mater, Utah State University, unveil an ambitious plan to build a large scale production facility to convert pond scum into biodiesel. I wondered, Is this the next big Utah embarressment in the wake of the cold fusion debacle in 1989? Or is this really a possibility? Being a biodeisel skeptic. I thought I'd at least air this, and maybe do a Google search and a Google blog search to see what I might find. Here is the TV feed:

Pond Scum Offers Promise for Biodiesel, Ed Yeates, KSL.com: …Utah State University researchers are looking at biodiesel fuel made from pond scum. That's right, the green, slimy stuff that grows virtually anywhere appears to produce as good, if not a better, quality biodiesel fuel than soybeans.

Lance Seefeldt , USU Biofuels Program: "For soybeans, you get about 48 gallons per acre. And right now, the idea is for algae, we could get about 10-thousand gallons of oil per acre. So you can see it's about 200 times more oil per acre compared to soybeans."

Instead of prime agricultural land needed for soybeans or corn, pond scum can be grown rapidly on meshes or grids inside huge structures, fed by rooftop solar dishes. It's not a refinery, but a bioreactor.

Bright light comes through fiber optics from one single solar dish on the roof of the lab. Now, imagine what thousands of dishes could do in a massive bioreactor. Bioreactors built not on productive farmland, but on remote desert soils with thousands of grids inside growing the pond scum from solar energy.

"For every square meter of parabolic dish, we can illuminate 10 square meters of algae surface."

Byard Wood, USU Biofuels Program: "We're talking about thousands of acres with these kinds of bioreactors to produce in quantity the amount of liquid fuel that we need to make an impact."

From prototypes, to a fuel, to the pump, the technology appears so promising it's got the backing of the Utah Science and Technology Research Initiative to the tune of six million dollars in seed money.

The first large experimental facility would be built in Utah. USU expects pond scum biodiesel fuels could become cost competitive by 2009.

In his "How the World Works" column, Salon's Andrew Leonard had this to say on biodiesel in late 2005:

Pond Scum to the Rescue, Andrew Leonard, 12/16/2005…Ethanol from corn, and biodiesel from soybean or French fry grease are two fairly well-known [biodiesel] examples. I started looking into federal funding of this kind of research this morning, because I'd gotten curious about a comment a reader made about algae in a response to my earlier post about biodiesel and tropical forests. (Incidentally, Grist Magazine has an excellent article up today about how Brazil is kicking ass on the biodiesel production front.)

I've had a soft spot for algae ever since one of my first stories for Salon, an investigation into the mysterious "super-food" blue green algae harvested from Klamath Lake in southern Oregon. My reader was telling me that algae could be converted to biodiesel at far greater efficiencies than soybean or palm oil. Algae? Pond scum to the rescue? Could it be?

Turns out there are some promising hints that algae could be a fantastic source of biodiesel. In a paper last updated in 2004, Michael Briggs, a researcher at the University of New Hampshire, lays out an ambitious goal for replacing all petrochemical fuels consumed for transportation in the U.S. from algae-derived biodiesel. Fast growing and containing high concentrations of oil, certain species of algae, writes Briggs, would require far less land than crops like corn or soybeans. Even better, from a holistic point of view, algae could be farmed using sewage effluents as nutrients! In cryptic comments posted at a biodiesel forum hosted by Briggs, the UNH scientist notes that his university is developing a proprietary conversion technique that should start being deployed in the next couple of years.

More from Briggs and others here, in a Dec. 27, 2006 update on Biodiesel from Pond Scum from CNET.com

{Update 1/23/07} See also: As Corn Ethanol Threatens, Algae Makes Promises: … Lester Brown, the highly respected President of the Earth Policy Institute, has essentially requested a cessation on further development of ethanol plants, …

Stern Report Buzz

Almost three months after publication, The Stern Report on the costs of climate change still generates much buzz. Some of the buzz echoes methodological concerns we have aired earlier about use and abuse of cost-benefit analysis. (Or, if in a hurry: Top 10 Reasons why CBA fails ….) Here is an condensed version of Jane Galt's recent commentary:

Discount rates, again, Jane Galt, Asymmetrical Information, 01.09/2007: …[T]hough I essentially agree with the Stern Report's conclusions, I am bothered by its methods. …

It is really, really hard to price the costs of climate change. This is true for many reasons. First, some regions will benefit: Siberia and Canada will probably blossom under global warming. A true cost benefit analysis would net those benefits out, but how do you price them? How do you price losing Bangladesh? Is that a one-time loss, or should be impute to each generation a new cost for not being able to visit Bangladesh, and how do we counterbalance that against the new pleasures of visiting the Minnesota Tropical Rainforest? Should we take into account happiness research which indicates that people are roughly as happy after a big loss as they were before?

The uneven distribution of the benefits presents another pricing problem, particularly since there are wide income disparities between the affected countries. I'm not entirely clear which way this cuts, since Britain and Ireland get hosed along with Bangladesh, but it's hard to dodge the moral injustice that the United States, which produces more carbon per capita than these countries, may end up a net beneficiary of global warming.

The biggest problem is the easiest one to state: what is a cost and what is a benefit? How do you value the changes?

Decision-making Bias Toward Optimism

Ever wonder why politicians, government administrators and policy-makers, CEOs and other power-brokers tend toward over-optimism and illusions of control? Daniel Kahneman and Jonathan Renshon help us understand why. A sampler:

Why Hawks Win, Daniel Kahneman, Johathan Renshon, Foreign Policy, Jan/Feb 2007: Why are hawks so influential? The answer may lie deep in the human mind. People have dozens of decision-making biases, and almost all favor conflict rather than concession. A look at why the tough guys win more than they should…. Social and cognitive psychologists have identified a number of predictable errors (psychologists call them biases) in the ways that humans judge situations and evaluate risks. Biases have been documented both in the laboratory and in the real world, mostly in situations that have no connection to international politics. For example, people are prone to exaggerating their strengths: About 80 percent of us believe that our driving skills are better than average. In situations of potential conflict, the same optimistic bias makes politicians and generals receptive to advisors who offer highly favorable estimates of the outcomes of war. Such a predisposition, often shared by leaders on both sides of a conflict, is likely to produce a disaster. And this is not an isolated example.

In fact, when we constructed a list of the biases uncovered in 40 years of psychological research, we were startled by what we found: All the biases in our list favor hawks. These psychological impulses—only a few of which we discuss here—incline national leaders to exaggerate the evil intentions of adversaries, to misjudge how adversaries perceive them, to be overly sanguine when hostilities start, and overly reluctant to make necessary concessions in negotiations. In short, these biases have the effect of making wars more likely to begin and more difficult to end.

None of this means that hawks are always wrong…. The biases that we have examined, however, operate over and beyond such rules of prudence and are not the product of thoughtful consideration. Our conclusion is not that hawkish advisors are necessarily wrong, only that they are likely to be more persuasive than they deserve to be.

Several well-known laboratory demonstrations have examined the way people assess their adversary's intelligence, willingness to negotiate, and hostility, as well as the way they view their own position. The results are sobering. Even when people are aware of the context and possible constraints on another party’s behavior, they often do not factor it in when assessing the other side’s motives. Yet, people still assume that outside observers grasp the constraints on their own behavior. With armies on high alert, it’s an instinct that leaders can ill afford to ignore.

…Even when alerted to context that should affect their judgment, people tend to ignore it. Instead, they attribute the behavior they see to the person's nature, character, or persistent motives. This bias is so robust and common that social psychologists have given it a lofty title: They call it the fundamental attribution error.

The effect of this failure in conflict situations can be pernicious. A policymaker or diplomat involved in a tense exchange with a foreign government is likely to observe a great deal of hostile behavior by that country's representatives. Some of that behavior may indeed be the result of deep hostility. But some of it is simply a response to the current situation as it is perceived by the other side. What is ironic is that individuals who attribute others' behavior to deep hostility are quite likely to explain away their own behavior as a result of being "pushed into a corner" by an adversary. The tendency of both sides of a dispute to view themselves as reacting to the other's provocative behavior is a familiar feature of marital quarrels, and it is found as well in international conflicts….

If people are often poorly equipped to explain the behavior of their adversaries, they are also bad at understanding how they appear to others. This bias can manifest itself at critical stages….

Excessive optimism is one of the most significant biases that psychologists have identified. Psychological research has shown that a large majority of people believe themselves to be smarter, more attractive, and more talented than average, and they commonly overestimate their future success. People are also prone to an "illusion of control": They consistently exaggerate the amount of control they have over outcomes that are important to them—even when the outcomes are in fact random or determined by other forces….

Indeed, the optimistic bias and the illusion of control are particularly rampant in the run-up to conflict….

If optimism is the order of the day when it comes to assessing one's own chances in … conflict, however, gloom usually prevails when evaluating another side's concessions. Psychologically, we are receptive not only to hawks' arguments … but also to their case against negotiated solutions. The intuition that something is worth less simply because the other side has offered it is referred to in academic circles as "reactive devaluation." The very fact that a concession is offered by somebody perceived as hostile undermines the content of the proposal. What was said matters less than who said it. … Some of that skepticism could be the rational product of past experience, but some of it may also result from unconscious—and not necessarily rational—devaluation.

Evidence suggests that this bias is a significant stumbling block in negotiations between adversaries…. [U]nderstanding the biases that most of us harbor can at least help ensure that the hawks don't win more arguments than they should.

Cross-posted from Economic Dreams—Nightmares. See also John Quiggin's Pro-War Bias.