From the NYTimes Comes a great example of climate change issues in developing countries (Tree Harvester Offers to Save Indonesian Forests). First, we get the formulaic two paragraphs describing the environmental problem:
From the air, the Kampar Peninsula in Indonesia stretches for mile after mile in dense scrub and trees. One of the world’s largest peat swamp forests, it is also one of its biggest vaults of carbon dioxide, a source of potentially lucrative currency as world governments struggle to hammer out a global climate treaty. The vault, though, is leaking.
Canals — used legally and illegally — extend from surrounding rivers nearly into the peninsula’s impenetrable core. By slowly draining and drying the peat land, they are releasing carbon dioxide, contributing to making Indonesia the world’s third biggest emitter of greenhouse gases, after China and the United States....
Second, we get the hated* insight that private property is often a potential solution to environmental problems. One driver of deforestation is the lack of property rights over forests. People slash and burn and have no incentive to replant the trees because they don't own the land [the bracketed excerpt is out of sequence]:
The arguments over the Kampar have become particularly heated, not just because of its ecological importance, but because, so far, the most detailed plan to stop the leaks from the peat land comes from an unlikely source: a giant paper and pulp company that, according to its critics, has been one of the driving forces of deforestation in Indonesia. The company, Asia Pacific Resources International Limited, or April, says it wants to create a ring of industrial tree plantations around the peninsula’s core to preserve it.
[Illegal loggers have also clear-cut vast chunks of forest. Migrants often slash and burn land for farming, sometimes inside national parks; like people elsewhere in Indonesia, they are often encouraged by local governments seeking to populate areas for economic or political reasons, in defiance of officials from the understaffed Forestry Ministry.]
Third, we get another hated* insight that private property and incentives is often a potential solution to environmental problems.
What is more, it hopes to receive carbon credits for doing so under a United Nations program to reward nations for conserving forests and reforesting degraded ones. The program, Reducing Emissions From Deforestation and Forest Degradation, or REDD, is expected to be part of a new climate treaty. ...
Developing nations that preserve forests would be paid with carbon credits that they could sell to industrialized nations seeking to meet emissions reduction targets. ...
If you are paid to do something you are much more likely to do. Those behind the REDD program seems to understand this.
Fourth, we get the hated* insight that sunk costs:
Environmental groups say the paper and pulp companies, after years of despoiling Indonesia, should not be rewarded under the program. ...
... don't matter. Some environmental groups hate business firms that pollute. They hate them so much that they totally reject the idea that profit-maximization can be harnessed to solve environmental problems. A sunk cost is a cost that accrued in the past and can't be captured. Rational decision makers ignore sunk costs because they don't factor into the current costs and benefits associated with a decision. If the benefits of harnessing incentives to encourage tree farmers to mitigate climate change are greater than the costs then we ought to do so.
Don't let your hate get in the way of good economic policy!
*These insights are hated by economics-haters.
