Friday, September 09, 2005

Why clean air isn't free

Economist explains forest 'costs and benefits'

Kenneth Arrow of Stanford University has been heralded as one of the most prominent economic theorists of the 20th century. Among many other accomplishments, he was a 1972 Nobel Laureate in Economics. When Earth & Sky's Jorge Salazar spoke to him in December of 2004, Arrow told us some of the issues "hot on the agenda" of 21st century economists.

There's a lot of discussion. For example, one of the discussions is how, overall, do you measure the impact of the anthropogenic causes of Earth change? How do you balance the impact?

There are lots of things going on in the world. We're using up fossil fuels. We're putting carbon dioxide into the atmosphere. On the other hand, we are making technological progress. We're inventing methods of cleaning up things as well as methods of destroying them. These are very disparate activities, so one problem is how do you measure the balance between these activities in some overall way? How do you measure the overall impact of these things? That was the focus of our paper (Are We Consuming Too Much? Journal of Economic Perspectives, Summer 2004).


Of course, the typical situation is using up fossil resources, for example oil and coal. Or the degradation of farmland. Those things are profitable today, but don't take the future into account. Or consider dumping carbon dioxide into the atmosphere, which for many years, didn't create any significant problems. Now the dumping, which has been going on since the 1800s, since the Industrial Revolution began, is beginning to show up.

The point being, once stuff goes in, you can't take it out. So, the result is that there is a permanent effect, and -- from the perspective of an economist -- you don't pay for it. You don't pay a tax, a price for putting carbon dioxide into the atmosphere. This is what you call a dynamic effect, an effect over time.

Or think about what they call ecosystem services. If you have a forest, not only do you have wood, but the forest also tends to control the flow of water. When you start deforesting, you start to get erosion, you start to get floods, because the forest acts like a big sponge.

These things are very indirect. You think of forests, you think of the wood. And of course there are a lot of subtle things. Of course, the forest is a habitat for many pecies, and so forth.

And those are just a few topics that are rather hot on the agenda of economists.