1

6.

THE POLITICAL ECONOMY OF NATURAL RESOURCE

MANAGEMENT (SPRING 2006)

Larry D. Sanders

Dept. of Ag Economics Oklahoma State University

2

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.

3

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

4

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

5

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

6

7

Public Policy Tools Regulation

– EPA, U.S. Army Corps of Engineers, National Oceanic and Atmospheric Administration, USDA

Conservation Compliance– 1985 Food Security Act; require implementation of

approved plans to remain eligible for USDA benefits Rental and Easement Payments to take land

out of Production– oldest policy tool

8

Public Policy Tools (continued)

Subsidies for Conservation and Conservation Related Public Works Project Activities– used for expensive capital investments and

large scale watershed protection. Cost-Sharing or Incentive Payments and

Technical Assistance– most prevalent in the EQUIP, specific practices

for specific fields.

9

Public Policy Tools (continued)

Trading/Banking/Bonding– market based approaches, increases flexibility

provided to producers in meeting environmental goals.

Education/Research/Data Development– develop an information base and improve

conservation practices and program delivery.

10

The Social Contract with Agriculture & the Environment--Focus on Farm Bills of Past 20 Years

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

» Erosion & supply focus

– Conservation Compliance (CC)– Sodbuster– Swampbuster

2. 1990 Farm Act– Continue CRP --erosion & supply focus– Wetlands Reserve (1 mil. ac.) (WRP)– Water Quality Incentives Program (WQIP)– Pesticide users’ regulations

11

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)

12

Social Contract (cont.)

4. 1996 Farm Act --new CRP (fair market value; average loocal cash rental rates)

--“Environmental Benefits Index”» Soil erosion» Water quality» Wildlife habitat (temp. or permanent)» Bid level» Conservation priority area» Conservation compliance requirements

--WRP --Environmental Quality Incentive Program (EQIP) --Conservation Farm Option (CFO)

13

14

15

The Farm Security & Rural Investment Act of 2002 (FSRIA): Conservation Programs

Quadruples EQIP Conservation Security Program (Harkin)

$2 billion total Adds 4 bil acres to CRP, WRP

– Continues CRP focus on environmental benefits (wind, water, erosion, air)

Provides other new programs

16

FSRIA: An Evolving Conservation Philosophy

Previous programs focused on protecting environment/natural resources & compensating producers/landowners

New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs)

Farmers and ranchers should manage farmland to provide cheap, high quality food and fiber and environmental amenities (e.g. clean air and water, wildlife habitat, open space, sequestered carbon).

Additional $9 bil thru 2007 authorized

17

FSRIA 02: Conservation Programs

TOTAL $17.1 billion for 2002-2007 CRP– 39.2 (36.4) million acre cap- $1.517 billion Conservation Security Program - $2 billion Environmental Quality Incentives Program- $9 billion Wetland Reserve Program – 2.6 (1.1) million acre cap -

$1.726 billion Grassland Reserve Program – 2 million acres – $254

million Farmland Protection Program - $1 billion Wildlife Habitat Incentive Program - $700 million Small Watershed Rehabilitation Program - $275 million

18

19

20

CRP—Active Contracts, Aug 2005, US & OK

Type Contracts Farms Acres $mil $/acreGeneral 407,642 267,762 32,408,029 1,417 43.74

continuous

--non CREP 250,233 155,356 2,371,742 211 88.93

--CREP 42,990 28,648 681,336 82 120.30

--subtotal 293,223 179,769 3,053,078 293 95.93

Farmable Wetland

8,481 6,859 130,875 16 118.71

TOTAL 709,346 410,867 35,591,982 1,726 48.49

OK Total 9,137 6,240 1, 052,162 34,188 32.49

Annual Rental Payments

21

22

OK CRP 2004

Half CRP acres in Panhandle 35,542 acres recently accepted in Signup 29 –

state total beginning FY 2006 = 1,074,312 acres

OK (OSU-NRCS 2000) study suggested 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

23

OK CRP 2004(Prepared by R. Wanger, OK FSA)

24

FSRIA 02: Conservation Programs--EQIP

Established in 1996 Farm Bill Voluntary program addressing soil, water & other

natural resource concerns on agricultural lands. Administered by NRCS, funding through CCC,

facilitated by FSA Technical & financial assistance for…

– regulatory compliance, – environmental enhancement, – conservation planning.

5X over subscribed.

25

EQIP Contracts 1997-2003year $mil contracts Farm ac.

(1,000)Crop ac. (1,000)

1997 4.4 951 273 70

1998 4.1 845 206 74

1999 3.6 702 195 57

2000 3.5 588 159 50

2001 4.0 573 139 47

2002 8.3 856 221 76

2003 11.3 1059OK avg 97-02

$6,197 264 83

US avg 97-02

$9,131 438 110

26

27

WRP Acres

28

Wetland is Defined as..

“An area inundated or saturated by surface or ground water at frequency and duration sufficient to support …life adapted to saturated soil conditions.”

Has “water-loving” species

29

Wetland Benefits

Ecological Benefits Floodwater storage Trap nutrients and

sediment Groundwater recharge Habitat Buffer shorelines

Human Benefits• Outdoor Recreation• Timber Production• Livestock Grazing• Educational Activities

30

Wetland Conversion, Restorationand Net Change

31

“No Net Loss”

Average costs range from several hundred dollars per acre for wetlands in their natural state that have little potential for conversion up to hundreds of thousands of dollars per acre of wetlands with potential value for urban development.

32

Factors That Influence Wetland Conversion

Decline in profitability Swampbusters and Farm Bills CWA (section 404) Public Interest Federal, State, Local Wetland Restoration

Programs

33

FSRIA 02 Conservation Programs: Summary

CRP/WRP– if you can’t manage land to meet environmental restrictions

EQIP – if you need technical or financial assistance to mange land

Other Programs to preserve desired landscape– CSP – if you want to try new management or be

compensated for existing conserving practices on working lands

– FPP – protect against urban sprawl– GRP – protect fragile grasslands– WHIP – maintain or improve wildlife habitat

34

Factors to Consider in the Effectiveness of

Conservation Systems Frequency Timing Severity of wind Precipitation Exposure of land forms to weather Ability of exposed soil to withstand erosive forces Plant material available to shelter soils Propensity of production practices to reduce or

extenuate erosive forces

35

FSRIA 02: Energy Title (Title IX)

1.Federal Procurement of biobased products 2.Biorefinery development grants 3.Biodiesel fuel education programs 4.Energy audit and renewable energy development program 5.Renewable energy systems and energy efficiency

improvements 6.Hydrogen and fuel cell technologies 7.Biomass research and development 8.Cooperative research and extension projects 9.Continuation of bioenergy program

36

FSRIA 02: Energy Title

Key provisions – Federal agencies required to procure biobased

products.– Biobased “products will be purchased to the

maximum extent possible.” » Energy from bio-mass including ag crops and animals

waste.

» Energy from renewable sources, wind, solar, biomass or geothermal or hydrogen produced from water or biomass

37

FSRIA 02: Energy Title--Bio-Based Preference

Key Points– Each federal agency required to have specs for bio-

based products within one year. – Optional, allows some wiggle room to opt out.– Labeling for bio-based products.– Office of Federal Procurement Policy coordinated

program.– Preference in contracting goes to item with highest

% bio-based product.– $6 million

38

FSRIA 02: Energy Title—Other Bio-Based Provisions

Bio-Refinery Grants:– Grants to defray cost of development and construction

of bio-refineries.– Farmers, national lab, institutions of higher ed, state or

local agency, tribe, consortium.– Gov’t cost not to exceed 30% of cost.

Bio-Diesel Fuel Education Program– Grant to educate public and government about the

benefits of bio diesel.– $1 million/year.

39

CCC Bio-Energy Program

– Payments to eligible producers to encourage increased purchase of eligible commodities for purpose of expanding production of bio-energy and supporting new production capacity for bioenergy.

– Contract required» Producers < 65K gallons reimbursed 1 feedstock unit for

every 2.5 feedstock units of commodity used for increased production

» Producers 65K or more gallons 1 feedstock unit for every 3.5 feedstock units.

» No farmer gets more than 5% of total funds» Proration allowed» Total authorized $150M/yr. 2003-06; $0 in 2007

40

Other Energy Provisions Energy Audit and Renewable Energy Audits Grant

– Cost share gov’t pays 75%.

Renewable Energy Purchase Grants– Loan and Loan guarantees for farmers to purchase renewable

energy systems or to make energy efficiency improvements.

– Grant not to exceed 25% of cost.

– Grant and Loan not to exceed 50% of cost of system.

– Must be cost effective.

– $75 million

41

Other Energy Provisions Hydrogen Cells and Fuel Cells

– Sec. Ag. to work with Sec. Energy to disseminate info.

Biomass Research and Development– Reauthorizes the Biomass Research & Development Act of 2000

– CCC gives $5M 2002; $14M 2003-2007;

– Additional authorized $49M 2002-2007.

CSREES Carbon Sequestration Research & Extension– Such sums as are necessary are authorized .

42

Energy Policy in FSRIA02--2005 update

Biomass Research & Development– Oct 05: 11 research, development & demo

projects selected to receive $12.6 mil. » Cost share brings total to $19 mil.

» Joint effort USDA & DOE

» Noble Foundation, Ardmore: $670,166

43

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

44

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)

45

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)

46

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)

47

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)

48

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 2004-Healthy Forests Act

49

Habitat/Biodiversity Policy

Endangered Species Act (ESA) 1973– under review for past decade

– Little changed

Criticisms:– Species over Humans

– Ignores Economics

– “Taking” of Property Rights

Response– Species Critical to Ecosystem

– Economics may favor Species

– Property Rights Evolve

50

ESA--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

51

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

52

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

53

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

54

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 Many states & some federal programs have

versions Industry coalitions: paper mills, chemical/

energy/waste management companies Environmental groups generally skeptical

55

EPA Self-Monitoring Policy

Reduced penalties for firms self-reporting & taking corrective action

Eliminates punitive penalties if no major health hazard

56

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

57

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

58

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

59

Water Quality Programs

Federal Water Pollution Control Act Amendments of 1972 (Clean Water Act)

Administered by EPA and the USDA.

60

Section 404, CWA

Clean Water Act. Federal Program that regulates wetland

conversion. EPA oversees Section 404 . States can set their own standards

independent of federal standards.

61

Mitigation Banking

Section 404 (C.W.A.) Compensatory mitigation Offset unavoidable wetland losses. Amendments to 1990 Farm Act.

62

EPA Programs Affecting Agriculture

Coastal Zone Management Act Reauthorization Amendments

Safe Drinking Water Act Comprehensive State Ground Water

Protection Program

63

REFERENCES

R. Asay, J. Grossman, R. Mayes, W. Miller, J. Sharp, S. Stewart, D. Wood, “Conservation & Environmental Policies”, Spring 2004.

Sanders, L. & J. Stiegler, various assessments of CRP transition.

USDA, various publications/websites.