Science Q&A: Nicholas Flores, Environmental Economist

There’s growing talk of dam removal across the county, from east to west, and even talk of removing Glen Canyon Dam. And in 2015, the biggest dam in America was removed in the Pacific Northwest, as part of restoration efforts on the Klamath River.

But why are dams now being removed? Why were they constructed in the first place? What considerations take place when looking at both of these events?

As part of a larger effort to answer these questions and understand the history of dams, the modern movement to remove them, and the impacts on ecological systems and fish recovery efforts, I started at the source of all decisions in America: money.

Nicholas Flores, professor of economics and department chair at the University of Colorado Boulder, is an environmental economist with a long history and knowledge of economic in the western United States.

I sat down with Flores to ask some basic questions about environmental economics and how it interacts with and approaches the issue of dam building and removal.

How does environmental economics relate to dams?

So the interesting thing about dams in relation to environmental economics, is a lot of the analysis that went into dams created environmental economics. So, benefit-cost analysis took off post-WWII in a very big way because the main purpose of benefit-cost analysis was to see if there were enough benefits to justify the costs–usually federal dollars–of these big projects, right? And really they were more to screen out ridiculous projects.

But in those early analyses it was a guy named Otto Eckstein, a Harvard professor, he wrote books on benefit-cost analysis and it was a lot to do with water projects. And at the time, you can think about what they would call benefits that were measurable, but… What wasn’t measured at the time, even things like benefits for recreation were not included. Those were relegated in the benefit-cost analyses to the intangibles. So a lot of times there were benefits that were being eliminated because we’re changing the ecosystem and the flow of a river and all that stuff, and so those intangibles were kind of written off on the side–and mentioned, but in passing–but not really measured.

How did environmental economics come to consider these intangible ecological benefits? 

So the paradigm shifted because of this interest particularly in thinking of the benefits of the alternative of not developing it. John Krutilla, he was Otto Eckstein’s student. And he created the natural environments program in about the mid 60s. And he wrote a famous paper called “Conservation Reconsidered,” where he laid out problems, really it was an economic analysis in its relation to the preserved environment. This is mostly to do with dams, right? And he was really opposed to one project… Hell’s Canyon. He was very worked up about this, because the analysis without environmental stuff tilted it towards development and the creation of the dam, versus the other side. So dams played a central role in the intellectual development and the concepts that were created for dams, for environmental economics, the impact–because it was really in the context of benefit-cost analysis.

There are a lot of techniques that have been developed to capture benefits of the preserved environment. But all much more sophisticated methods for measuring the economic benefits of recreational activities, and how they relate to things like congestion. So I could create a reservoir, and it creates recreation of a certain type, but then that might displace a different type of recreation that has solitude associated with it. So economists have worked on those problems. In the context of dams, recreational benefits have been refined as well as benefits for the preserved environment, included ecosystem function and stuff like that.

How does environmental economics specifically inform the creation of dams?

Dams present an interesting problem, because everything associated with them plays out over a long time. When you build a dam, you have a high up front cost and then you have a stream of benefits that happen over time. So that creates some problems because a lot of environmental economics, the value of things depends on the substitutes.

One of the things that you can think about is that it’s very hard to project what the future will look like. It’s very easy to determine what today’s costs look like, because those are pretty concrete. And so that’s a problem in the idea of economists discount future benefits and costs, using present value calculations in order to deal with the temporal nature of it. You know, bird in the hand is worth two in the bush kind of a thing. And the discount rate that you use, it reflects your patience. And the profession has struggled a bit with that, and a lot of it is because it’s been dictated by the federal government. We tend to use too high of a discount rate, because we use stuff that’s based on market rates. Although now a days, the savings rate is almost zero, so that suggest real patience. The future isn’t discounted very heavily because the interest rate is close to zero. Having to make those decisions then, looks a little bit like snake oil. I’m selling you snake oil because I can change the discount rate and really give you different answers, right? So that’s something that [affects] dams in particular, because their life span is a long time.

What about dam removal?

There has been a movement, dam removal is getting to be a big thing. A lot of it is because the ecological, the foregone ecological benefits, have been real the drivers of it. But taking down dams runs into the same problem. It’s very expensive to remove a dam, and a big problem is because they impound sediment. You’re going to create, for short term, a pulse that’s going to look like an environmental disaster. So that is a weird thing, right? John Loomis up at Colorado State, he’s actually the person who studied this the most. He did a study of the removal of the dams up on the Olympic Peninsula, the Elwha.

There haven’t been that many that have come down, but there are a lot that are slated to come down. Some of them I think because of safety reasons. But again, they’ve got a lot of impounded behind them, full of toxins. So the short term, could really choke out the system below. It’s interesting, in environmental economics it’s a different type of problem. It’s one of, ‘we want to return things to their natural state, but maybe the benefits don’t outweigh the costs.’ So, it’s complicated.

How do you measure ecological benefit in economic or monetary terms?

There are different techniques for doing that. One of them, we can think about how the ecosystem is impacted, and how that would affect types of recreation. Those are called ‘use values.’ In environmental economics we kind of think about direct use of the resource and economics activities that may be non-market, but they’re directly associated with it.

So we usually think of recreation. Remove the dam and what would be a good one? Kayaking. So now we’ve got a free run of the river, creates kayaking opportunities, people go out and do that, right? And so we can pretty easily measure that. You could also think about how sport fishing would be changed. So if a lot of fly fishermen show up, once things have settled down in the system and we’ve got free flow and it makes better fishing, there are methods that have been developed that basically look at, well how does recreation demand change by catch rates? So those models can be applied to look at a use value benefit for the improvement of the ecological system.

What about less visible changes, that aren’t associated with recreational activities?

Then there are ‘non-use values’ as well. So you go in and improve an area, and a lot of stuff lives off the stream, directly and indirectly, and then you can use what are called ‘stated preference techniques’–it’s a survey technique.

Think about the following. So let’s say you wanted to raise money, you’re going to tax people to remove the dam. And it’s a big upfront cost. Deconstructing a dam is really expensive, too. I don’t think it’s quite as expensive as constructing a dam, but it’s still pretty expensive because you have to haul everything off. And you’ve gotta come out and tear it down, and you gotta divert the water, like usually when they build the dam.

So these stated preference techniques are survey based, and what they do is try to create in a survey a way to reflect individuals contacted using a random sample, how they would react to raising their taxes to remove this dam. These have been used a lot. I mean that methodology–contingent evaluation is one of them, the other one is choice experiments.

Those are the two big stated preference techniques, and what they do is–you have a representative sample, you present them with the problem of dam removal: there’s an environmental problem that’s caused by the presence of the dam and we’re going to take it down and here’s what it’s going to cost, and here’s what we believe to be the ecological outcomes of this. And then the choice in most of these would be, would you vote for this policy if it cost you so much? And that gives you at least a bound on where that individual’s value lies, and when I look across the sample, and vary that cost amount a little bit, I can start tracing out the distribution of values for that. That technique for a large category of stuff like this, that would technically be used. That technique has also been used a lot in natural resource damage assessment.

Where is environmental economics today more generally?

A lot of environmental economics has transitioned into more policy analysis. So looking at, lot of emphasis on policies like CAFE [Corporate Average Fuel Economy] standards, clean power plants and stuff like that. Different methodologies have come into environmental economics.

We’re very integrated into the profession. Environmental economists used to be kind of a lower order, and now they are famous environmental economists in all the top departments. So our standing has raised up over my career. There are serious environmental economists at the University of Chicago, at MIT, Stanford and all those places.

Stay tuned for more coverage on dams, dam removal, and ecological restoration efforts around dams in the western U.S.

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