« politiques publiques et instruments économiques et réglementaires pour la préservation de la biodiversité et des services écosystémiques » 

Panel

• Julien Hardelin (Chef du bureau de la biodiversité et des ressources, Commissariat général au développement durable, La Défense)
• Harold Levrel (Professeur, AgroParisTech, CIRED, Nogent sur Marne)
• Julie Subervie (Directrice de recherche, INRAE, CEE-M, Montpellier)
• Laurence Tubiana (European Climate Foundation)

 “What public policies and economic and regulatory instruments are needed to preserve biodiversity and ecosystem services?”

Round table at the FAERE annual conference

PEGE, Pôle européen de gestion et d’économie à Strasbourg

5 September 2024

We are all aware of the impact our societies are having on nature, following a pattern of development that is dooming the future if we do not find solutions quickly.

Yet nature, with its diversity of living forms and the links that bind them together, is a highly complex system.

Under these conditions, how can economists produce relevant recommendations and document choices, particularly transition choices, based on such diversity? In extremely varied contexts and on extremely varied scales.

Added to these difficulties are a number of strategies adopted by economic players to slow down political initiatives which, in the name of the fight against climate change and the collapse of biodiversity, would lead to fundamental changes in their markets.

The setbacks observed around the Green Pact for Europe are a case in point.

Laurence TUBIANA, an economist, academic and diplomat, has headed the European Climate Foundation since 2017. She notes that it is becoming increasingly difficult for economists who include climate issues in their work to make their voices heard at European level.

In particular, there is the issue of financing the transition.

Over the last five years, the prospect of the private sector increasing its level of contribution to the financing of the ecological transition, alongside public funds, has fuelled hope. Unfortunately, the objectives have not been achieved.

For Laurence TUBIANA, we now need to focus on tax issues. Taxation on flows. Taxation by sector of activity, such as the maritime sector, which pays little for its impacts.

Not forgetting tax incentives.

For Julien HARDELIN, Head of the Biodiversity and Resources Office at the French General Commission for Sustainable Development, at a more local level, planning tax could, for example, help to combat the artificialisation of land. It could no longer be seen solely as a source of revenue, but as a real tool for public policy. More broadly, economic instruments (taxation, payments for environmental services, etc.) have a key role to play in offering stakeholders incentives aligned with the preservation of biodiversity.

One of the challenges facing economists is that the hidden costs of environmental degradation and its impacts on the economy, which are often time-lagged, are still poorly understood and need to be better documented.

 

The valuations are multifactorial and complex.

Apart from the fact that economists have to broaden their traditional range of skills to include biodiversity issues, economics sometimes struggles to keep up with the complexity of the subject.

If we take the example of ecosystem services provided by nature, their evaluation in economic terms often remains imprecise.

For Harold LEVREL, professor at AgroParisTech, the models used in economics are not really adapted to biodiversity, because they are too simplistic. This makes it difficult to guide decisions on the management of ecosystems and natural resources, from maximum yields for fishing to the sustainable use of forests.

The complexity of the parameters to be taken into account destabilises the discipline.

Economics probably has more to say about the costs of maintaining biodiversity and the challenges of coordinating a wide range of players in a common territory to protect it.

It also has more to say about the ecological compensation mechanisms that could be implemented to restore an environment degraded by human activity, with a view to seeking equivalence ‘in kind’ in terms of biodiversity itself or the ecosystem services it provides.

Or about the right way to establish and produce ecological debt indicators (in biophysical and monetary units) to be entered on the liabilities side of production and operating accounts, for inclusion in extra-financial reports.

As far as payments for environmental services are concerned, the main aim should be to make the systems more efficient by seeking to reduce transaction costs and setting premiums that are sufficiently attractive to encourage changes in practices.

As far as public policies are concerned, the issue of environmentally harmful subsidies also needs to be better addressed.

The proportion of harmful subsidies varies greatly depending on whether the studies are carried out by Bercy or by research institutes.

Economics can easily put a figure on the losses associated with incentive measures that are rendered obsolete by subsidies with opposite effects. And so help to ensure that policies are more coherent.

For decision support, and there are many decisions to be made at all levels in the context of transition, the question arises as to whether it is preferable for environmental economists to concentrate on producing detailed assessments or to devote themselves to an economy of orders of magnitude.

For Julien HARDELIN, when it comes to biodiversity, economic evaluations in monetary form will always be imprecise, and will always need to be placed in a particular context. Let’s accept that.

But economic evaluations, used and interpreted appropriately, can provide orders of magnitude that are a valuable aid to decision-making, with the benefits of preserving biodiversity possibly exceeding the costs by several multiples. Valuations can also highlight the variety of ecosystem services and the multiple values associated with ecosystems.

Whether we are talking about nature-based solutions, the cost of restoring a wetland compared with the creation of civil engineering works and their maintenance, the benefits derived from public consultation, planning choices or economic development, local elected representatives and ministerial departments are often looking for economic arguments.

In these times of transition and adaptation, economic analysis services to support decision-makers are more necessary than ever. An economy of orders of magnitude is expected.

Harold Levrel believes that over the past 40 years, the evaluation of ecosystem services has done little to save natural areas. One indicator of this situation is the decline in spending on biodiversity by businesses in France since 2000, according to the CGDD’s environmental accounts, despite the fact that businesses are increasingly speaking out on the subject of their dependence on ecosystem services.

Julie SUBERVIE, Director of Research at INRAE, argues that recent work in the field of behavioural economics can contribute to the development of more relevant public policies.

The starting point is simple: the unexpected effects of non-rational choices cannot be covered by the usual economic theories.

When it comes to environmental issues, it is not uncommon to see economic players making choices that lead them to saw off the branch on which they are sitting. What are their decision-making mechanisms?

Behavioural economics is trying to find out.

At the same time, the social experiments it conducts with other economists make it possible to produce causal analyses of the effectiveness of certain measures, when economic theory is unable to predict what will happen.

In concrete terms, this method is essential when it comes to estimating the abatement cost of a tropical forest conservation project, in order to better calibrate ‘carbon credits’, for example.

On the issue of pesticides, too, recent research based on natural experiments has shown that there is a causal link between an increase in the doses of plant protection products used on farms and a rise in infant and child mortality.

Today, environmental economists are able to provide evidence that the doses are problematic in certain regions of the world (in the USA and Brazil in particular) because they worsen human health indicators.

However, as causal links become more clearly established, there are several signs that public policy is taking a step backwards.

Laurence TUBIANA wonders about this crossover.

Julie SUBERVIE points out that this accumulation of scientific evidence is in fact concomitant with a propensity on the part of public authorities to spend a lot of money supporting research that does not seem to be moving in the direction of a profound ecological transition. One example is the PARSADA programme (Strategic Action Plan for the Anticipation of the Potential European Withdrawal of Active Substances and the Development of Alternative Techniques for Crop Protection), the short-term objective of which is clearly stated and does not suggest any societal paradigm shift.

Behavioural economics has a bright future ahead of it.

Valéry DUBOIS

Thank you to Laurence TUBIANA, Julie SUBERVIE, Julien HARDELIN and Harold LEVREL

 “Comment sortir des pésticides ?”

Roundtable on “Is nuclear power green?” Aude Pommeret, Philippe Quirion and Benoît Laignel

Introduction

The association launched the initiative to organize this roundtable in the winter of 2022, following the disclosure by the European Commission of the taxonomy of financial instruments contributing to the energy transition. Press headlines announced that the EU considers nuclear power as “green energy”, provoking those who publicly express their concern over the civil nuclear sector’s environmental impacts. This sector that is rooted in the Normandy region, where the association’s annual conference was held. Nuclear power became topical since the return of the war in Europe and stress on the energy markets, as well as in the political debate during the French election campaign on the program to launch a new wave of construction of nuclear plants.

To the extent that the issue is one investment choice, we could expect a voluntary implication of economists in this decision-making process. There is a demand for more economic analysis on the investments in nuclear power. In France, this call is highly topical since the National Commission for Public Debate will launch a large-scale consultation of stakeholders on the possibility of engaging in a long-term public program for the development of new nuclear plants. Contributions from economists are expected and welcome, particularly from economists specialized in the fields of energy, environment and natural resources. This panel offered the opportunity to address this complex issue, the answers to which have very long term implications.

From the outset, the speakers proposed to reformulate the question posed. Indeed, nuclear power, even if it provides decarbonized electricity, exerts a variety of environmental impacts that clearly preclude us from referring to it as a green technology. However, each of the alternative technologies for producing decarbonized electricity also has multiple environmental impacts. The question, then, is rather which gradation of green would best qualify nuclear power.

Economic evaluation and prospective studies

To what extent investment in nuclear power is cost-effective to meet the target of carbon neutrality by 2050? Prospective studies typically suppose that this technology, as compared to other carbon neutral energies, has the advantage of being dispatchable and the drawback of being relatively costly. What is the efficient share of nuclear power in the future carbon neutral energy mix?

The studies recently published by RTE, ADEME, the Négawatt association and CIRED do not carry a clear-cut and unanimous conclusion. The answer varies according to crucial parameters (future costs and performance) that are highly uncertain. In the RTE analysis the option with a share of nuclear power is slightly less costly, while in the ADEME studies, the cost with and without nuclear power is almost the same. In CIRED’s work, nuclear power might play a role only if the future cost of building nuclear power plants proves to be 50% below current costs. The historical records do not show any such development. EDF announced an estimated cost for the 7^th EPR plant at only 700 million euros less than the cost of the 1^st plant, estimated to 12.7 billion euros.

Given that the role of nuclear power in the energy mix of carbon neutral scenarios is very sensitive to the estimated construction cost, its role is seriously undermined once one takes in to consideration externalities that are usually overseen. These include external costs related to the risks of accidents or attacks. These risks are substantial, in light of the current geopolitical developments and the emergence of new means of sabotage, as shown by the digital attack on enrichment facilities in Iran. Given the great uncertainty about the reduction of the costs of nuclear power, some observers conclude that massive investments in this technology should be avoided, and rather suggest focusing investments on renewable energy production and storage technologies, such as hydrogen, batteries and pumped storage in hydroelectric power plants. The development of the green hydrogen sector seems to be a crucial issue, also able to meet specific niche uses, such as air transportation.

The costs of tackling for the intermittency of renewable energies are taken into account in prospective studies, whereas that is most often not the case for nuclear power, which is assumed to be dispatchable. The cost of intermittency accrues mainly form the investment in storage infrastructures. It is worth noticing though, that also the availability of nuclear electricity is somewhat intermittent, as the result of unexpected shutdowns of reactors for extraordinary maintenance or security inspections. A large share of the power supply could be affected if the issue the issue concerns elements of the industrial design used for several reactors. Moreover, climate change should increase the frequency of unscheduled shutdowns due to water.

Methodological issues and challenges

In the 1980s and 1990s, economists took part to the public debate with their analyses on the development of nuclear power plants. The issues of irreversibility and waste were notably addressed. What progress has been made since then? What are the most difficult challenges for economic analysis in this field?

Discounting plays a crucial role in these analysis on very long term horizons (as in the study of climate policies). The choice of the discount rate for long-term public investments has evolved considerably. Today this discount rate includes three elements: a rate of preference for the present (almost zero in applications), the expected rate of economic growth (for intergenerational justice), and finally an insurance element related to the correlation between the return on the specific investment and economic growth.  The approach adopted for the counter-assessment of the socio-economic evaluation of the CIGEO radioactive waste disposal site involved the formulation of two scenarios without uncertainty, based on scenario specific discount rates. In a second step the uncertainty on the realization of the different scenarios is explicitly taken into account.

Clearly, there are large uncertainties on the scenarios of the evolution of societies and technologies. Faced with such large uncertainties, how can one provide policy guidelines without running the risk of discredit? The first step is to refer to the estimates obtained by researchers in the relevant fields, and to allow oneself the possibility of updating them. It is also useful to distinguish the type of uncertainty. Decision makers shall be fully aware of the uncertainties that characterize future scenarios. The method used for the counter-expertise commission for the CIGEO project illustrates a useful approach. Using information on the characteristics of the radioactive waste disposal project, the commission built two scenarios that are very different in terms of long-term socio-economic developments. In an optimistic scenario, economic growth continues for a long time before fading away, and institutions remain strong, namely to allow continuing maintenance of a surface waste repository and management of a possible incident. In a pessimistic scenario, the economy experiences a long-lasting and irreversible decline, and the society loses its ability to manage surface waste storage. In the latter case, the evaluation suggests to invest for the permanent deep-ground repository option because of its insurance feature. Instead, the optimistic scenario suggests avoiding deep-ground disposal, preferring the alternative of perpetuating non-permanent surface waste storage because its recurrent costs, though perpetual, matter less for the net present value of the project than in the case of the very high upfront cost of the permanent deep-ground waste disposal. This approach allows us to identify the critical factors (in particular the probability associated with the optimistic scenario) that tip the balance in favor of the permanent deep-ground repository towards an unfavorable advice. Thus, the approach offers public authorities a decision-making tool, relying on economic evaluation based on cost-benefit analysis. The same approach could be used to evaluate investments in building new power plants or dismantling old ones.

Political divides and economic analysis

In the French context, public investment in nuclear power is subject to an additional, political, consideration. Indeed, French political parties are polarized around two opposing stances, one criticizing the intermittency of renewable energies, the other criticizing the cost and risks of nuclear power. If these positions become central in defining political affiliations –as was the case for GMOs or shale oil and gas, will the results of economic analysis be able to affect investment choices?

When building scenarios, one should carefully consider the political acceptability of the technologies involved. To be fair, in some of the scenarios the energy transition turns out to be economical. For example, in the scenario estimated by France Stratégie, the average cost of the electricity system in 2050 (100% carbon free with 30% nuclear) is lower than that which would prevail for the current energy mix. Prospective studies often abstract from the diversity of impacts among actors, depending on their sector of activity, their income or their assets. Nevertheless, the most common approaches use models that make it possible to represent the trade-offs of intergenrational justice.  Recently, heterogeneous agents models have been applied to climate policy analysis, delivering results on the distributional impacts of energy transition policies. This approach makes it possible to take into account the redistributive consequences of various scenarios. Hopefully it will stimulate a dispassionate public debate.

Trust and a symmetry of information seem crucial for a calm and useful public and scientific debate. In this respect, concerns have been raised about the transparency of the expertise in terms of methodology, as well as autonomy from special interest groups. Concerning the French government plan to invest in new nuclear plants, the Cours des Comptes pointed out the lack of transparency of the expertise involved. The cost estimates and scenarios taken into account by the public administration are based on a model developed by the EDF company and applied to internal data. Neither the scientific community, nor the NGOs, could evaluate the relevance and the structure of the model, nor access the data used.

Conclusion

With such a subject on the table, given the political context and the current geopolitical context in the background — which unfortunately reminds us of the nexus between civil and military nuclear power — one could have expected an explosive debate. This was not the case during this panel discussion. The lively exchange of views suggests a shared willingness to contribute to collective decision-making for a choice that is both strategic and long-lasting, possibly irreversible.

[1] The roundtable discussion took place on September 9, 2022 during the FAERE annual conference in Rouen, organized by Olivier Beaumais (University of Rouen-Normandy, LERN) and Mouez Fodha (University of Paris 1, PSE), with presentations by Aude Pommeret (University of Savoie Mont-Blanc, IREGE) and Philippe Quirion (CNRS, CIRED). This summary is based on the remarks of the two panelists and the interventions from the audience, recorded by Francesco Ricci (University of Montpellier, CEE-M). It does not represent the position of the FAERE association on the subject matter.