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Division of Resource Economics Institutional Resource Economics I: the Necessity of Institutions of Sustainability DAAD Workshop on: “Developing Multi-level and Decentralized Implementation Capacity for Natural Resource Management and Environmental Policies: a contribution to polycentric governance in an emerging democracy“, Kiev, September 7-11, 2009 Konrad Hagedorn Humboldt University Berlin Division of Resource Economics Philippstrasse 13, 10099 Berlin, Germany Phone: + 49-30-2093 6305, Fax: + 49-30-2093 6497 E-mail: [email protected] www.agrar.hu-berlin.de/wisola/fg/ress/ BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Current Situation Hunger, poverty, diseases, social exclusion Resource degradation, evironmental destruction A triangl of fundamental global threats Increasing scarcity of fossil energy, climate change / 40 04.05.2017 Division of Resource Economics Basic Insights Entropy Law: „Second Law of Thermodynamics“ Energy and Matter are preserved: but change form! Georgescu-Roegen: „Transition from low to high entropy“ Economists: scarcity can be „substituted away“! Only applies to relative, not to absolute scarcity! Low entropy is subjected to absolute scarcity (Herman Daly) Fortunately the Earth is no isolated but a closed system Future efficiency of using solar radiation will determine consumption and reproduction („humans and artefacts“) Can this be based on natural resources: soil, water, biosphere, genetic diversity, etc.? Can these deliver both: food and energy for the world? BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Interdependencies between resource degradation and nutrition and energy • • • • Hunger: 2005 to 2008 - 850 mill to 1 bill (> 20 % of population) Malnutrition: about 160 Mio children (about 30 % of children); Food prices from 2005 to 2008: wheat + 80 %, rice + 100% 2009 food prices dropped due to financial crisis and better harvest • Energy prices: prices of crude oil more than doubled from 2005 to 2008, then dropped drastically due to financial crisis • Rivalry for natural resources, particularly for water and land: Will provision of bioenergy gain priority over food production? • Remember: energy and food have always been substitutes • Applies to products and allocation of production factors • But: this is different in a globalised economy!!! BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Worldwide Resource Degradation 1/3 • Increase of soil degradation: 1945-1990 17 % of the biomass producing area on the world lost; productivity of 16 % of the land in developing countries will be considerably reduced (IFPRI) • Increasing desertification: 34,75 mill km2 of agricultural area threatened by desertification (= 8 % of the worlds’ grazing land, 6 % of the worlds’ rain-fed crop land, 20 % of the worlds’ irrigated crop land); > 250 mill people affected • By 2050 3 bill people more will need additional area for settlement and traffic: 120 mill ha (= 1-200 % of the European Unions’ agricultural area). Only for cars: + 60 mill ha for traffic and parking needed • Competition for land between agriculture and nature conservation: in Germany 4588 FFH sites = 3,3 mill ha = 9,3 % of the overall land area. 120 ha per day are converted non-agricultural land use. BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Land and Soil Issues in Ukraine 1/2 53,8% of total Ukrainian land is arable land! Ukraine is rich in terms of land-man ratio! Soil degradation: Erosion is the main factor of soil degradation in Ukraine: Water erosion affects 32 % of arable land In years with wind storms, wind erosion affects up to 60.4 % of arable land In general, the area of degraded and low productivity soils is more than 20 % on arable land BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Land and Soil Issues in Ukraine 2/2 Soil pollution: 20% of Ukrainian territory is significantly polluted by toxic compounds 8.4 mill ha of land (including 3.5 mill ha of arable land) is contaminated by radionuclide 1.5 mill ha recreational land radionuclide contaminated Contamination with petroleum products is dangerous (not stored in soil but migrate into ground water). Extraction of 1 ton of oil causes destruction of pollution of 1.3 m3 of soil BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Worldwide Resource Degradation 2/3 • Water scarcity : 1.1 bill people in developing countries have no clean drinking water; 2.6 bill in these countries live without sanitation. In 2025 1.8 bill people will have to live in regions with absolute scarcity of water. China: 300 mill people have no clean drinking water • Water pollution by industries, agriculture, waste, etc. also in Ukraine • Overfishing of the Sea and reduced fish resources: global availability of fish will decline by 25 % until 2025 compared to 1990 • Reduction in diversity of species and varieties: cultivated plants by 75 % since 1920; 34.000 plant and 5.200 animal varieties and about 30 % of used animal breeds threatened by extinction • Loss of genetic resources: e.g. in the Fifties about 30.000 rice varieties existed in India, today 50 % of world nutrition is achieved by 5 grain species, 95 % of world nutrition by 30 plant species BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Worldwide Resource Degradation 3/3 • International Panel for Climate Change: Agriculture contributes 13,5 %, forestry 17,4 % to the global greenhouse gas emissions; not much less than industry (19,4 %) and the energy sector (25,9 %) Methane from cultivation rice and cattle • CO2 sinks reduced worldwide: deforestation of natural tropical and nontropical forests: tropical forest -14,2 %, non-tropical forests + 1,7 %, taken together -12,5 % (1990-2000); the process of deforestation continues! • Germany had 9000 km2 of natural mires; today only 600 km2 are preserved under natural conditions (< 7%). Mires in Ukraine? • Decrease of permafrost soils in Siberia causes additional greenhouse gas emissions:, but also shift of the South Siberian corn belt BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Adaptation Requirements to Climate Change Differ between Regions The eastern part of Germany is particularly affected by climate change! Quelle: Zebisch et al. (2005) / 40 04.05.2017 Division of Resource Economics Influence of Climate Change on Agricultural Production ECHAM4 2080 BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Climate Change Impact in Ukraine 1/2 The results of scientific research … show that climate change in Ukraine has significant impacts on agriculture, forestry, water and coastal resources. It is highly probable that crop yields could be changed significantly. Transformation of types, species composition, productivity and stability of forests is likely to take place in the course of climate warming within the territory of Ukraine. Coastal zone vulnerability is already a reality: the Black Sea level is rising 1.5 mm per year. Source: The United Nations Framework Convention on Climate Change, The First National Communication on Climate Change, Kyiv 1998 BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Climate Change Impact in Ukraine 2/2 Number and magnitude of extreme weather events (storms, floods, droughts, heat waves, heavy rains and winds) increased almost twice during 2001-2005 in comparison with 1980s and early 1990s. Changes in precipitations: In South, Eastern and Central Ukraine rain is expected to decrease by 35-40%, in Winter – decrease by 20%. Annual river stock decrease by 50% in South and East. Shortage of water for local population. In particular where access to water is insufficiently organized. Source: National Ecological Centre of Ukraine and Working Group on Climate Change BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics What Questions Arise? • Although agriculture has made large progress in increasing food production (see India and China), it is still unable to feed the world • At the same time natural resources are rapidly degrading due to human impact • The Green Revolution is weakening: growth of productivity down from 4 % p.a. to 1 % p.a. • Can the natural resource base – additionally provide energy to – fill the gap resulting from the depletion of fossil resources – meet energy demand from the fast growing countries? / 40 04.05.2017 Division of Resource Economics „The End of Ancient Sunlight“ Quantity of energy Burning „ancient sunlight“ in one „earth second“ Energy delivery from solar radiation Sustainable energy provision from renewables Pre-industrial energy consumption Which level will we arrive at? BBAW, Wandel der Märkte für Earth time / 40 04.05.2017 Division of Resource Economics Global population growth, 1950-2050 Year Population (millions) Average annual population growth (millions) 38 1950 2557 1975 4084 71 2000 6072 76 2025 7959 68 2050 9402 46 Quelle: Harald von Witzke, Steffen Noleppa and Gerald Schwarz: Global agricultural market trends revisited: The roles of energy prices and biofuel production. Working Paper 89 (2009); HU Berlin, p. 8. BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Agricultural commodity prices and the price of crude oil, 2007-2008 Quelle: Harald von Witzke, Steffen Noleppa and Gerald Schwarz: Global agricultural market trends revisited: The roles of energy prices and biofuel production. Working Paper 89 (2009); HU Berlin, p. 8. / 40 04.05.2017 Division of Resource Economics Food and Energy Prices Show a Parallel Development ! Wheat Crude Oil BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Real world market prices of selected agricultural commodities 2003/2005 – 2015/17 Market 2003/05 (US$/mt) 2015/17 (US$/mt) base scenario 2015/17 in per cent of 2003/05 Wheat 158 Corn 106 219 107 Other grains 91 137 51 Oilseeds 288 492 71 Sugar 250 493 97 272 72 Quelle: Harald von Witzke, Steffen Noleppa and Gerald Schwarz: Global agricultural market trends revisited: The roles of energy prices and biofuel production. Working Paper 89 (2009); HU Berlin, p. 8. BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Real world market prices under alternative scenarios (US$ per metric ton) Market 2003/05 2015/17 base scenario 2015/17 with 2003/05 energy price 2015/17 with 003/05 biofuel production Wheat 158 272 186 237 Corn 106 219 157 158 Other grains 91 137 104 129 Oilseeds 233 492 398 394 Sugar 250 493 326 405 Quelle: Harald von Witzke, Steffen Noleppa and Gerald Schwarz: Global agricultural market trends revisited: The roles of energy prices and biofuel production. Working Paper 89 (2009); HU Berlin, p. 8. BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Main Conclusions 1/3 Mankind – individuals, governments and other actors – must change their behaviour fundamentally! Towards more sustainable resource use! This raises three questions: 1. What has this to do with institutions and governance structures? 2. How is this related to institutional diversity, polycentric governance, decentralization and participation? 3. Why does this require changes towards democracy, open society and legal state? BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Main Conclusions 2/3 Ad 1: Social behavior is regularized by norms and rules. This also applies to human-ecosystem interaction! Conceptualized by the IoS framework Ad 2: Natural systems are different from systems designed by humans - complexity and interconnectedness – plurality of types of institutions and combinations of governance modes Shown by properties of of nature-related transactions Ad 3: It seems likely that there are mutual dependencies and synergies: Successful resource management may depend on successful democratic development and progress in resource governance may enhance democracy Examples from the CEESA Project BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics Main Conclusions 3/3 We will follow the sequence of topics mentioned above IoS framework, nature-related transactions and CEESA Project results Before we will explain selected basics of institutional analysis Definitions of institutions, transaction cost economics, coase theorem, etc. Tomorrow additional basic approaches will be explained IAD framework and Property Rights Regimes BBAW, Wandel der Märkte für / 40 04.05.2017 Division of Resource Economics THANK YOU for your attention! --------------------------Institutional Resource Economics I: the Necessity of Institutions of Sustainability BBAW, Wandel der Märkte für / 40 04.05.2017