Ecological Economics of Hypoxia

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In the jargon of economics, hypoxia is called a negative externality. A negative externality is a cost incurred by the economic production that is not paid by the producer. Negative externalities often involve an element of spacial scale. Because the consequence (hypoxia) is so far from the source (Corn Belt), the two are not economically linked, and no one picks up the costs of the consequences. Prices of wheat and corn products pay for the fertilizer to be obtained and applied, but consumers do not pay to clean up afterwards.

That statement begs the question: what is the clean resource worth? A whole discipline of “Ecological Economics” has sprung up over the last twenty-five years or so which attempts to understand the value of ecological capital to our economic system. Ecological economics can derive monetary values for ecological resources. The valuations are used by policy makers in cost/benefit calculations, which have gained massive weight since the Reagan era. The most common method is the “contingent valuation method” or more simply: willingness to pay (WTP). The WTP method involves intensive surveying to reveal the public’s WTP for an ecological service.

Since it can be assumed that all people do value ecological “goods” like air and water quality, then we must be willing to pay for them. Ideally, nitrogen restrictions would cause higher fertilizer prices which would be borne by the consumer of the finished product, food. (The current state of the fertilizer market may prevent price rises.) However, it is difficult to determine how much people will be willing to pay for diffuse, uncertain environmental benefits. The government must choose between varying scientific recommendations while concerned with the economic vitality of a large industry. People often do not know the worth of ecological goods like high water quality because the effects of impairment are not widely known. This is the case with the Gulf of Mexico. The cost to the fishing industry can be disputed, but no one can deny that there are examples of fisheries that have been completely lost to eutrophication.

Possible solutions to this ecological economic dynamic can be grouped into three groups: traditional environmentalist, traditional economic, and synthesis. The traditional environmentalist solution is a “command and control” reduction in pollution according to scientific recommendations. The drawback is insensitivity to human social concerns such as individuals’ income, employment, and choice. The traditional economic solution is to let the markets work out an equilibrium and to trust in technology. In the case of hypoxia, this equilibrium would be between agriculture and aquaculture. The synthetic solution is to take assumptions from both traditional approaches and attempt to combine them. The environmentalist assert that a certain reduction must be made in order to ensure ecosystem health. The economists assert that the market is the most effective mechanism for action in a society. A synthetic approach would accept both assertions and implement a constructed or idealized market operate within the new environmental standard to bring about reductions of pollution. Recently, much attention has been given to market-based environmentally oriented policies like pollution credits for air quiliaty and wetlands mitigation banking. To move directly to a discussion of synthetic solutions to hypoxia use this link. Or, click on the NEXT button for information, education, and media solutions.

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