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8.

THE POLITICAL ECONOMY OF NATURAL RESOURCE

MANAGEMENT (SPRING 2002)

Larry D. Sanders

Dept. of Ag Economics Oklahoma State University

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INTRODUCTION Purpose:

– to become aware of the political economy of natural resource management

Learning Objectives. To understand/become aware of:1. the concept of political economy.

2. the political economy of agriculture and the environment.

3. the political economy of forest/public land policy.

4. the political economy of habitat/biodiversity policy.

5. the nature of US incentive enforcement systems.

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The Political Economy of Environmental & Natural Resource Issues

Theories/concepts that treat systems as integrated relationships of economic, political & social institutions

Institutional mechanisms to affect the environment & natural resources have evolved over time

Political Institutions

Economic Institutions

Social Institutions

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Political Economy--Basics

Market failure historically leads to the “protective response”: – Government intervention

– Private sector seeking advantage or market power

Government failure may lead to reversion to the market or refinement of government institutional mechanisms

Private failure often leads to market concentration Models/theories:

– Public Choice--politicians maintain position

– Rent-seeking--interest groups seek govt support

– Capture theory of regulation--firms control process

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The Political Economy of Agriculture & the Environment

Environmental Policy– Point vs. Nonpoint

– Property Rights

– Incentives vs. Regulations

Government Support a Reality– But evolving as a “Social Contract”

– Depression-Era Support Gone

– Idealized Farm Image Persists

– Budget Deficit Reduction top goal for 1990s

– W/budget surplus, crisis funding for ag returned to near-record highs

– Environmental Concerns Persist

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The Social Contract with Agriculture & the Environment--Focus on Farm Bills

1. 1985 Farm Act --Conservation Reserve Program (CRP)

--Conservation Compliance (CC)

--Sodbuster

--Swampbuster

2. 1990 Farm Act

--Continue CRP

--Wetlands Reserve (1 mil. ac.) (WRP)

--Water Quality Incentives Program (WQIP)

--Pesticide users’ regulations

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Social Contract (cont.)

3. Pesticide Regulation --Federal Insecticide, Fungicide & Rodenticide Act (FIFRA)

--Endangered Species Act (ESA)

--Federal Environmental Pesticide Control Act (FEPCA)

--Food Quality Protection Act (FQPA)

4. 1996 Farm Act (expires 2002)

--new CRP, WRP

--Environmental Quality Incentive Program (EQIP)

--Conservation Farm Option (CFO)

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1996 Federal Agriculture Improvement & Reform Act: Conservation Reserve Program (CRP) CRP maintained at 36.4 mil. ac.

– New enrollments permitted with rental rates at fair market value

– Early Out permitted w/restrictions

1.Payment rates: --Avg local cash rental rate by soil type

--Oklahoma rates by county vary: --Panhandle: $13-$36 --Western OK: $15-$48

--Eastern OK: $17-$58

2. State designated 10% of cropland as “conservation priority area”

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1996 FAIR--REVISED CRP RULES:

3.Eligibility:--EI > 8 or conservation compliance HEL definition

--Planted/Considered Planted 2 of 5 past crop years

--Owner, operator, tenant of eligible land for 1 year

4.Selection Process:a. Applicant meets w/NRCS to determine max rental rate

b. Applicant estimates a bid < max rate

c. Agency evaluates/selects highest environmental

benefits to bid levels

d. Per person total CRP payments limited to $50,000

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REVISED CRP RULES FOR 1997+ (continued):

Note on “ENVIRONMENTAL BENEFITS”– An index developed that considers:

» Soil erosion

» Water quality

» Wildlife habitat (temp. or permanent)

» Bid level

» Conservation priority area

» Conservation compliance requirements

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REVISED CRP RULES FOR 1997+:

Continuous Signup 10-15 yr. contracts (same eligibility; not subject to environmental index; county limit waived)– Filter strips/grass waterways– Riparian buffers/salt tolerant vegetation– Shelter belts/shallow water areas for wildlife– Living snow fences– Acreage w/in designated wellhead area– Field windbreaks

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CRP UPDATE (Feb 2000)

CRP Rental Rates ranged from $37-$43/ac. for OK during 1986-1995

CRP Rental Rates ranged from $28-$34/ac for Ok during 1996-2000

OK: current land in CRP--994,559 ac; $32.43/ac OK (OSU-NRCS) study suggests CRP more profitable

than returning to production for CRP land terminating existing contracts:– Participate in new CRP: $25 net income

– Return to wheat/sorghum: ($16)-($32) net loss

– Keep in grass for grazing: $17-$24 net income

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Environmental Quality Incentive Program (EQIP) Cost share, incentive payments & technical

assistance; 5-10 yr. plan Moderate/small livestock producers ($100 mil.) Combines several recent ag land environmental

programs ($100 mil.) Replaces most NRCS assistance w/competitive bid

process

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Conservation Farm Option (CFO)

Pilot Program for producers w/govt support contracts (Production Flex Contract-PFC)

Develop & implement 10-15 yr. plan In exchange for CFO payments, producers forego

participation in/payments under CRP, WRP, EQIP

Payment equivalent to foregone payment plus PFC payment

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Other Key Environmental Provisions

Conservation Compliance– Continued– Self-Certification

Wetlands Conservation Program– Improvements in Mitigation Allowance– Pilot Wetlands “Bank”/No-net Loss

Farmland Protection--170-340,000 ac. Wildlife Habitat Incentive Program

– Cost-share; 10 yr.+ agreements

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Wetlands Reserve Program (WRP)

WRP capped at 975,000 ac.; new enrollments:– 1/3 Permanent Easements– 1/3 30-year/less Easements– 1/3 Wetland Restoration w/cost-share

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Farmland Protection--State/Local

FREE MARKET VS. REGULATION

– Zoning Laws

– Development Rights Market

– Right-to-Farm Laws

– Preferential Assessment

– Ag Districts

Subsidies– 1996 FAIR Act ($17.2 mil. for easements in 98)

– State initiatives

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Crop Residue Management (CRM)

Government Intervention– Conservation Compliance & Highly erodible land

(1985 Farm Act)– Supported Compliance, other environmental programs

(1990 Farm Act)– CRM action plan (1991)– Conservation Farm Option, other programs (1996

Farm Act)– Ongoing educational & technical assistance by NRCS,

FSA, & landgrant programs (extension & research)

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Grazing--Common Property Issues A major use of public lands (BLM, FS, NPS)

– Predates government management– Ecosystem stress forced govt. intervention

» Taylor Grazing Act (1934)--management system for non-FS public lands by BLM; right-to-use based on:

prior use commensurability (sufficient alt. lands off-season) dependency (insufficient alt. lands in-season) grazing fee (permits, #head, area, other restrictions)

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Forest/Public Land Policy

Pinchot vs. Preservation vs. Development 1891-Forest Reserve Act (public forest reserves

from public land; Western US) 1897-Forest “Organic” Act (establishes national

forest system for water flow & timber sustainability)

1905-USFS established 1911-Weeks Act (okays purchase of private land

for national forests; Eastern US)

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Forest/Public Land Policy (cont.)

1916-National Park Organic Act (creates NPS & system to conserve scenery, wildlife, historic objects)

1960-Multiple Use & Sustainable Yield Act (MUSYA) (adds watersheds, recreation, wildlife, fishing, hunting, soil concerns to national forests)

1964-Wilderness Act (begins preservation of unique natural areas)

1968-Wild & Scenic Rivers Act (preservation of unique rivers)

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Forest/Public Land Policy (cont.)

1974-Forest & Rangeland Renewable Resources Planning Act (RPA) (creates planning process)

1976-National Forest Management Act (adds economic, wildlife, wilderness & recreational uses to USFS planning)

1980-Alaska National Interest Lands Conservation Act (ANILCA)(adds 13 national parks, 16 wildlife refuges, 56 mil. Ac. To wilderness system)

1970s-1980s-added to wilderness system thru US 1990s-move to privatize some national forest areas

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Habitat/Biodiversity Policy

Endangered Species Act (ESA) under review

Criticisms:– Species over Humans– Ignores Economics– “Taking” of Property Rights

Response– Species Critical to Ecosystem– Economics may favor Species– Property Rights Evolve

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ESA (1973)--Background

Expired 1992, but most statutes in effect until repealed

Primary Goal: Conservation of endangered, threatened species & their ecosystems

Key Elements:– Listing;– Protections, Prohibited Activities & Enforcement;– Relief/exemption from sanctions

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ESA--Process

1. Listing: – Species based solely on biological considerations– Requirement of designation of “critical habitat” must

consider economic impacts; potential sites may be excluded if opportunity costs too hi

2. Regulatory Constraints– Protects listed species against “taking” (harming or

degrading habitat); private land not protected– Prohibits federal actions that jeopardize species or

adversely modify habitat– Can’t consider economics

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ESA--Process (cont.)

3. Regulatory Relief

--Allows granting of permits to take listed species

--Incidental/conditional to approved conservation plan

--Economics may be considered

--Exemption possible

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ESA--Property Rights

Some claims that ESA is unconstitutional “taking” private property rights w/o compensation (violates Fifth Amendment of Constitution)

Property rights always evolving, subject to limitations, & not inalienable nor absolute

Current ESA reform bills may ignore historic precedence, but do contribute to debate on redefinition of rights by society

ESA was amendment of property rights; standard practice to not compensate when prohibiting a “bad”; courts very cautious

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ESA--Administration Proposals (95-96)

Early identification of allowable activities by FWS & NMFS (exempt from “take” prohibitions)

Expedite habitat conservation planning (HCP)--streamline permitting process, especially for lo- & medium impact cases

“No Surprises” policy--if unforeseen circumstan-ces, no further penalty if landowner under HCP

Small landowners exemption--if used as residence & 5 ac./less, or negligible effect

Market mechanisms being considered

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Incentive Enforcement Systems

Incentive for polluting firms to self-report or self-monitor

Govt monitoring & collection of penalties Benefits: Less govt cost; More flexibility

& privacy for firms By ‘96, 18 states & some federal programs Industry coalitions: paper mills, chemical/

energy/waste management companies Environmental groups generally skeptical

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EPA Self-Monitoring Policy

Reduced penalties for firms self-reporting & taking corrective action

Eliminates punitive penalties if no major health hazard

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EPA Enforcement

Emissions inspection once/yr Requires firms to submit water pollution discharge

records & compliance Random hazards difficult to monitor

– toxic waste– nonpoint source water pollution– proper chemical use/container disposal

Chemical sales relatively easy to monitor Education & “jawboning” are key Sanctions: penalties, criminal/civil prosecution

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1990 Clean Air Act & Amendments--less federal court time/expense

Penalties up to $200,000 Appeal to Administrative Law Judge Field Citations up to $5,000/day for serious

violations Emergency actions: threats to environment and/or

threats to human health– fines $5,000 - $25,000/day – criminal penalties up to 5 years

$10,000 reward for citizens who report Self-reporting required

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Citizen Suits

Private citizens who are harmed may sue polluters in many cases

Expands enforcement efforts May force compliance, require damages

restitution, impose sanctions Evidentiary requirements make it difficult Often counter political power of firms/industry