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January 2013

The NSW Environmental Protection Agency (EPA) has recently released the 2012 edition of the State of the Environment (SoE). This report is published every three years (the last was in 2009), and its purpose is to take stock of the available information on the state of the environment in NSW.

The news is generally good! The environment in NSW has been improving over the last three years. This is a broad trend across environmental themes surveyed (corresponding to the chapters in the report): people and the environment, atmosphere, land, water and biodiversity. However, not all news delivered in the report is good, and this was noticed by environmental activists. They picked on declines in biodiversity, and on stubborn persistence of number of days where concentrations of two air pollutants: coarse particulate matter (PM10) and tropospheric photochemical ozone, exceed the nationally set air quality standards.

I was particularly intrigued by the air pollutants, as together with colleagues we have recently completed a study on the effects of environmental taxation policies (Load Based Licensing) on emissions of major air pollutants in NSW, including PM10; and NOx and VOCs (volatile organic compounds), both of which are precursors in formation of photochemical ozone.

Figures 2.10 and 2.11 in the SoE 2012 report show that emissions of PM10, NOx and VOCs have declined in the Sydney region over the last 20 years. However, when the Lower Hunter (Newcastle) and Illawara (Wollongong) are added to Sydney (all three together referred in the report as the Greater Metro Region – GMR) emissions of both PM10 and NOx have increased, and substantially so. This is consistent with the findings from our own study, which showed that emissions have not declined in spite of environmental taxation. In particular, some specific features of the environmental taxation policy can offer explanation of why emission trends in Sydney are so different to the emissions trends in the overall GMR. This is mainly due to the so-called spatial weighting where emissions from industries in densely populated areas (Sydney) are taxed at a significantly higher rate than emissions in less densely populated areas (Lower Hunter and Illawara).

All this just reiterates that environmental taxation is as good as the match between the rate at which emissions are taxed and the cost structure of the emitters. If the rate is set at a correct level relative to the costs of reducing emissions, we will see emissions dropping and air quality improving. If the rate is set too low, emissions are going to keep rising, and there will be many days when national ambient air quality standards are exceeded.


This was published in the SMH in the last few days. Good to see that people think about it.


Summer in Australia is about beach, cricket, BBQ, tennis and … bushfires! Indeed, the beginning of 2013 has been marked with series of very serious bushfires, destroying a lot of property, but thankfully not taking many lives.
And this is far from the end: the summer is long and hot!

What do economics in general, and environmental economics in particular have to say about bushfires? A quick search of the literature shows that there is limited published work on this general topic, with notable exception of the more specifically focused papers on e.g. economics of prescribed burning (e.g. a recent nice work by colleagues from WA)

The notion of environmental economics in relation to bushfires is even more limited to fires as a cause of air pollution, and to economic valuation studies that look into fires (and smoke) as reducing the values of property or reduction in benefits that hikers, bikers and campers suffer as a result.

I could not find anything that looks into bushfires as environmental event in their own right: naturally occurring fires have always existed and have an important role to play in the overall ecosystem. So, preventing and avoiding bushfires certainly saves on cost of damage (to property, human life and health, and recreational benefits), but does it impose costs in addition to the usual costs of abatement (i.e. costs of prevention: like prescribed burning)? What are the damages to the ecosystem (perhaps altered populations of pests and weeds, changed hydrological balance, etc.) that is associated with bushfire prevention?

These are some of the questions that await to be answered. And until we answer them, we will not have a good sense about how much bushfire prevention should be done. We have ventured so deep in the environment, that we now think that everything that the nature does, which annoys us, should be prevented. One of the first lessons learnt in environmental economics is that zero pollution is almost never optimal or desired by society. Does the same hold for bushfires?


A fierce debate is currently taking place about NSW Government Legislation that allows hunting in some NSW National Parks from March, 2013. The legislation itself is purely politically motivated as a concession by the Government to the Shooters and Fishers party, in a deal related to balance of power in the NSW State parliament on other issues . Concerns have been raised about the safety of other National Park users (e.g. bushwalkers, campers) as well as environmental consequences of allowing hunting (increased incidence of bushfires, and water pollution) . On the other side, the shooting lobby claims that hunting will target feral species, and that will in fact be a beneficial activity.

So, how de we rationally think about this issue? Natural Parks are there because society is willing to reserve some of its natural resources for the purpose of keeping them in their natural state. As a society we have agreed that some of the forests and other lands will be kept undeveloped to provide a range of use and non-use values. Many studies have shown that the non-use values far outweigh the use values. These are the values that are placed on National Parks by people who rarely or never visit them, and simply value their existence and the opportunities that they conserve for the future. How is hunting in National Park likely to affect these values? The real answer is that we do not know exactly, and that a proper valuation study should be done to answer that question for the particular case of National Parks in NSW. The evidence from the literature elsewhere points that it is likely that allowing hunting in National Parks will reduce the non-use values provided by them, but this cannot be taken at face value.

Given that those who place non-use values on National Parks are not very vocal, because they are numerous and not organized in any particular way, the debate is effectively taking place between those stakeholders that represent relatively smaller portion of values (use values) that are derived from National Parks: these are the users, bushwalkers and campers on one side, and hunters on the other. It is very hard to weigh in favor of one or the other side of the argument without strong reliance on personal judgment, which by the way, I personally have in favour of campers and bushwalkers.

But the point is beyond that: we should be asking the wider public, which is not as engaged or affected by this legislation but still values highly the National Parks. Without a sense about how allowing hunting affects the non-use values that the wider public places on National Parks, we are just getting into a highly politically charged argument, without a hope for a rational resolution.