Brandt Forum 2022-23: Agricultural and Environmental Science-Based Policy
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Today's event forum will focus on agriculture's social and policy implications and environmental science-based policy. While economists recommend using market incentives, policymakers often use regulation to achieve agricultural and environmental resource management objectives. In the case of environmental policies, we have various forms of command and control. In addition, we have semi-market-based policies and regulations in agriculture, such as crop insurance, inventory control, biotechnology regulation, and conservation-reserve programs. Understanding the impact and motivation for these alternative policies is challenging yet valuable. In the first two Brandt Forum events, we offer an overview of existing environmental and agricultural policies and regulations. To this end, the Brandt Forum will begin with a conceptual discussion of the design and selection of science-based policy, followed by a panel of scholars to discuss policy in agriculture, the environment, and electricity markets.
The event included three panelists: Catherine L. Kling (Tisch University), Dallas Burtraw (Resources for the Future), David Zilberman (Agricultural and Resource Economics Department), whose were preceded by an introductory talk by Gal Hochman (Rutgers University), which offered an introduction and overviewed the use of policy in agriculture and the environment.
Gal Hochman opens the webinar with his presentation titled, "The design and selection of policy: theory and practice." When discussing policy intervention, we need intervention to facilitate disseminating information, such as food, safety, and resilience. In addition, we need to address what economists call externalities caused by missing markets. For example, if the market for air pollution is missing, market forces will not lead to efficient provision. We might also want to see public policy intervention in the case of public goods or transfer policies. The need for government intervention highlights the Pigouvian tax, which explains why we need a tax to correct these externalities.
However, when we look at reality, we see politicians often use command and control where the regulation is directly imposed on the parties' activities. It is distinct from the market approach, which affects market prices and thus incentivizes the stakeholder to change their behavior from competitive behavior to the optimal outcome.
Weitzman's seminal work presents one explanation. In that work, Weitzman argues that the way we want to choose the design and selection of policy is guided by uncertainty. That work suggests that the efficiency of price instruments (e.g., pollution tax) versus quantity instruments (e.g., quotas) depends on the relative slops of the expected marginal benefit and marginal cost functions. Other explanations for the frequent use of command and control regulation include concerns with the short-term impacts of environmental policies on profitability, prices, and economic welfare and with regulation affecting politicians' reelection prospects. To this end, heterogeneity among firms exists even within narrowly defined industries and is key to understanding how policy affects those industries.
However, when taking a different perspective as opposed to a welfare perspective and looking from a political perspective, political uncertainty matters. When we introduce irreversibility, we get interesting insight that the desire of the incumbent governments to establish irreversible outcomes given a political uncertainty sets facts on the ground and leads to policy durability.
Designing policy to support and deliver innovation breakthroughs is essential, and Gal Hochman explains three main ways to do this.
Push policies: policies directly funded by the government for RD&D)
Pull policies: policies targeted at the private sector, leading the private sector to spend on innovation via price support and incentives like feed-in tariffs (FITs)
Empowering policies: policies aimed at connecting and unlocking various parts of the supply chain, thus facilitating the delivery of the innovation.
Next, the first panelist, David Zilberman (Agricultural and Resource Economics Department), begins with his presentation titled, "The Regulation of Agriculture and the Bioeconomy." In this presentation, Zilberman speaks about the regulation of agricultural biotechnology and the challenges ahead, and how we can mitigate those as they arise. Other challenges we face as we move forward include food security, loss of biodiversity, and climate change. To this end, humanity responded to climate change through the Kyoto Protocol, the Paris agreement, and achievements in solar, wind, and electric cars. However, Zilberman points out that humanity's responses are too little, too late.
There are three agricultural paradigms that David Zilberman discusses in this presentation being; Organization/ecological agriculture, Food+, and the Bioeconomy. When analyzing each vision of agriculture, Zilberman argues that the bioeconomy is essential.
The bioeconomy was birthed from the discovery of DNA and the increased systematic modeling of biological processes and described economic activities benefiting from new knowledge and capacity in the life sciences. The old bioeconomy was based on fermentation, while the new bioeconomy was based on molecular biology and information technology. Agriculture was a vital element of the traditional bioeconomy, but many modern industries relied on mechanical, chemical, and economic knowledge. The bioeconomy is not a new concept and is updated over time to reflect new findings.
Since its inception, we have learned the importance of a multiple-stage supply chain of production, the need for multidisciplinary knowledge, the importance of efficiency, and the fact that prohibition does not work. David Zilberman explains that the bioeconomy is significant because it harnesses the power of biological knowledge, technology, and the living organism to address critical societal challenges. The bioeconomy is part of a considerable restructuring toward sustainable development, which requires recycling and conservation and aims to decarbonize GHG emissions and sequester carbon while preserving valuable environmental and cultural amenities. Biotechnology is evolving as we have access to gene-editing, investments in research, and more palatable regulations. We can combine biotechnology and agro-ecology with leading to a circular sustainable economy using science.
The next presenter, Catherine L. Kling (Tisch University), continues the webinar with her presentation titled, "Why don't we regulate agricultural water pollution?". Kling's presentation emphasizes the complete lack of regulation in this area when there is support for incorporating problems with externality. Current U.S. water policy is centered around the Clean Water Act, limiting pollution into our nation's waterways. In addition, there is a permit system called NPDES permits imposed on what are called point sources. However, important sources of pollutants and emissions in our waters are industrial and municipal sources, which are currently regulated.
However, the CWA exempts agriculture sources, except for large animal feeding operations, treated as point sources. Instead, our approach federally is more of a voluntary approach. Although there are few federal regulations, states can regulate, and a few have, including winter bans on manure spreading, buffers along streams, and the Florida Everglades Agricultural Area required permits based on pollution reduction practices.
Achieving the nutrient reduction goal of 40% will require more pollution control on 90%+ row crops, reduced manure and fertilizer, cover crops, perennials, wetlands, drain management, bioreactors, flood zone restoration, and more. These changes are extensive and beyond existing "BMPs" on reduced fertilizer, new land-management practices, land-use change, and land retirement. During the presentation, Catherine L. Kling highlights three central policies that could achieve this scale of change.
Expansion and targeting of conservation programs
Florida Style permit program. This permit program was a requirement for growing crops and required per acre points, each associated with known effective abatement actions.
Taxes on fertilizer
The Everglades is another regulation example as they have an agricultural regulatory program of their own. In the first 23 years of the program, they achieved pollution reductions of significant size, 55%, surpassing the original 24% goal. Therefore, it is essential to analyze existing regulatory programs to shape future agricultural and environmental science-based policy.
The final panelist, Dallas Burtraw (Senior Fellow at RFF), wraps up the webinar with his presentation titled, "The Companion Role of Regulations and Market-Based Incentives in the Energy and Electricity Sectors." First, Burtraw begins with explaining that most economists would prefer emissions pricing – "first best policies", however the substantial majority of emissions reductions have been achieved with regulation and not pricing. Even for SO2, where emissions cap and trade is viewed as the "grand experiment," most emissions reductions have been achieved via regulatory authority under the Clean Air Act. In the electricity sector, first best emissions pricing attempts to align marginal social costs with prices. But, in the power sector, marginal costs already differ substantially from electricity prices and by time of day and season. Nonetheless, there has been substantial historical progress in the electricity sector with the Clean Air Act, technological change, and falling electricity prices.
Dallas Burtraw explains that by employing the attributes of carbon pricing within regulations, there are a number of ways that emissions improvements and environmental performance has improved throughout the economic system. Regulations that continue to evolve in the power sector include technology forcing standards such as relatively inflexible coal combustion residuals, increasingly flexible performance standards such as mercury and air toxics standards, and very flexible tradable performance standards which includes a revised ozone rule, clean energy standards, and renewable portfolio standards.
Many governments and many corporations have committed to Net Zero goals. To ensure that these commitments are upheld for years to come, it is imperative that there is an evolution of policies that include factors touched on by Gal Hochman earlier within the discussion such as performance standards, R&D, Supply Push, Demand Pull, and Pricing. The more that regulations are created with these ideas in mind, the more likely it is that the power sector will provide renewable options for consumers. In all, it is essential to recognize that we will need both kinds of policies in the effort to address climate change. Market-based policies improve cost effectiveness, while regulation can drive innovation even more forcefully than pricing because price changes are muted for consumers lessening distributional impacts.
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