importance of economics for wwf south...

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Living Planet Conference 2012

Erinvale Estate Hotel, Somerset West

Importance of Economics for WWF South Africa Manisha Gulati

WWF SA Energy Economist

Economics relates to every aspect of our daily lives

• Economics is about much more than money, inflation, and supply & demand.

• Economics is about choice & the impact of these choices on the structure and

behaviour of society

• Economics is about decision making in everyday life

o Households: what goods and services to buy

o Firms: what goods and services to produce, how to produce them and in what

quantities

o Governments: investment, spending, trade, etc.

• Economics is about the allocation of scarce resources among alternative desirable

ends

Importance of Economics for WWF SA

Living Planet Conference 2012 16 November 2012

Economics is a science

• Characteristics of a “science” require

rigor, consistency, and mathematics

• Economics displays all these

characteristics

• Economics as a field is a science in

that all claims about reality must

ultimately be rooted in empiricism, and

models & paradigms must be falsifiable

& eventually tested against reality

• Like science, in the long-run economic

paradigms and methodologies are

judged by their ability to explain the

real world.

• Economics is interrelated with the

study of business, law, accounting,

politics, sociology, history, land and

property management,

engineering….the list is endless!



It fits easily in a scientific world And explains what we observe in reality

• Science can identify options and innovations that are now or could become

technologically feasible

• Economics can assess possible consequences of actions for the production,

consumption, and incomes of groups of people, regions, and countries

• Economics is often the ultimate arbiter of policy choices, because it seems to offer

something the other sciences do not: a framework capable of valuing the

consequences of different choices with a single metric



The reality is that economics triggered the Arab Spring…The other factors just followed

Tunisia – where it all started

• 2010 drought in Russia forced suspension grain exports

• 3 months later, a man set himself on fire in Tunisia over rising bread prices

Egypt – which took it to another level

• Since the days of Gamal Abdel Nasser, Egypt has had subsidized bread

• Population growth then surging grain prices in 2000s

• Rapidly rising oil use but amount extracted each year declining

• Cross-subsidies from oil to bread no longer affordable; food imports put more pressure

• First protests in Tahrir square

Arab Spring – lessons from economics

• Long term economic failure in a model of development that is financed through

external windfalls & rests on inefficient forms of intervention & redistribution

• Economies based only on oil, aid & remittances; no alternate revenue streams & no

private sector development



Can WWF SA afford to ignore economics?The answer lies in what we do & how…

What does WWF do?

• Secure the integrity of SA’s ecological assets

• Ensure ecosystem services underpin social & economic well being

• Build climate resilience

What is WWF’s role in the above?

• Serving as an informed and independent voice in policy debates

• Identifying, articulating, & evaluating current policy issues, proposals & programs

• Transforming ideas & emerging problems into policy issues

• Providing a constructive forum for the exchange of ideas & information between key

stakeholders in the policy formulation process

• Challenging the conventional wisdom and business as usual

How does WWF fulfill its role?

• Research, Analysis, Advocacy, Outreach



Rhino ConservationIs it possible

without

Economics?

Importance of Economics


Enforcement may be a necessary but not sufficient condition for conservation

Existing conventional law enforcement measures may not be the best

way to address the problem of rhino poaching, even if they are

intensified

Intensified enforcement may be counterproductive, as it may simply

drive up the black market price of rhino horn… raising the incentives

for poaching

Economics may provide important insights



Economic principles may have some relevance to rhino conservation

Trade-offs: Value of live rhinos vs value of dead rhinos

Allocation of scare resources: Rhinos compete with

humans & other species for scarce resources: territory,

food & water

Supply & Demand: How much resources at which end?

Can cost effectiveness of demand reduction approach be

assessed? Is it easier to assess potential net benefits &

results of supply side interventions?

Property rights: Rights to benefit from resources such

as rhinos & obligations to pay the costs can play a critical

role in determining how humans manage & use them



Rhino poaching is driven by economic forcesUnderstanding risks, rewards & incentives can be key

� Poaching takes place when the expected return

from poaching is greater than the expected return

from the best alternative activity

� Potential to reduce poaching by managing returns

or costs

� Intensified enforcement can provide higher returns,

thereby incentivizing poaching

� Reduce incentives for poachers, if not remove

them altogether

� Appropriately structured legal horn trading regime

may reduce incentives, reduce price of horn &

generate resources to reinvest in conservation

Economics of Poaching

Expected Returns Costs

• Price of rhino horn• Return from

alternative activities

• Direct costs• Risks (detection,

capture, punishment)



Conserving Ecosystems The role of

Economics

The importance of Economics


Degradation of ecosystems can be explained through economics

Most ecosystems are public goods associated with the

problems of open access & overuse

Willingness to pay for ecosystem services is generally

not captured because of a lack of markets in these

services

Ecosystems are destroyed because market signals –

subsidies, taxation, pricing and state regulation, land

tenure & use rights – make it a logical & profitable thing to

do

Failure to account for the full economic values of

ecosystems & biodiversity has been a significant factor in

their continuing loss & degradation



Conservation depends on how we define the problem…Economics can help

Ecology & economic interface: Goods vs Service,

Externalities vs Inputs affecting flow of goods & services

Allocation of finite ecosystem: Between economic

production & production of life sustaining ecosystem

goods & services

Economic value of ecosystems: Direct use, In-direct

use, non-use

Distribution of ecosystem resources: Who is entitled to

ownership of ecosystem goods and services?

Distribution of ecosystem goods and services: Among

different beneficiary groups spatially & over time periods



Conservation efforts will depend on the good or service being assessed & the beneficiary…

Value of agro-ecosystems goods & services

Value of wetlands goods & services

Tables are illustrative not exhaustive



… As will the level and nature of measures, incentives & impacts...making economics an important factor



Water Conservation

New York City’s Options

Pay land-owners in Catskill mountains to improve farm

management techniques & prevent run-off waste & nutrients into water

bodies

Build new water treatment facilities

• Costs: US$ 1 bn & US$ 1.5 billion

• Impact: Increase in water bills by 9%

• Costs

o Capital - US$ 6 bn to US$ 8 bn

o O&M US$ 300 mn to US$ 500 mn per annum

• Impact: Doubling of water bills

Source: TEEB (2010)

Low Carbon Economic DevelopmentIts about

Economics

The importance of Economics


If it weren’t for the economics of green technologies, we wouldn’t be having this discussion

Climate change poses risks to humanity: costs & impacts

It costs to mitigate these risks - In some form or another,

whatever policies are put in place, someone, somewhere &

at sometime, will have to pay for those policies

Mitigation provides benefits to future generations by

avoiding dangerous levels of climate change. We pay the

price now, but the benefit comes later

Need to develop policies that would promote the necessary

mitigation but at the lowest or most efficient overall cost to

the community



And if you still believe science alone has promoted action against climate change, have you wondered…

How until the Stern Report, climate change was seen as an environmental issue...

Then it became a mainstream issue.

Why did this happen?

The Stern report turned climate change from being an environmental and moral issue

into an economic issue

� Risks from climate change estimated at an average 5-10% loss in global GDP, with

poor countries suffering costs in excess of 10% of GDP

� Costs of mitigation of around 1% of GDP



To conclude, WWF’s work cannot ignore the ‘Economics’

• WWF cannot expect stakeholders to support the fabulous causesthat WWF represents - just because there is a fabulous causeo The cause has to make economic sense to them

• If WWF goes to stakeholders with a moral imperative, there will beappeasemento If WWF wants action, WWF must go with an economic answer

to an economic problem

• The causes WWF represents are profoundly economic.o There is just the need to remind stakeholders of that economic

reality over & over againo And for that WWF cannot do without economics



Thank youwww.panda.org

© 2010, WWF. All photographs used in this presentation are copyright protected and courtesy of the WWF-Canon Global Photo Network and the respective photographers.


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