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NZIER (where I work) has just published a new Insight on the next steps for water policy. The Royal Society recently published an issues paper on ecosystem services. Natural capital and the value it creates for the economy is clearly topical.

It isn’t just a neat research area, either. I had an interesting conversation today with some District/Regional Council people, and they are grappling with ecosystem degradation. In their case, the amount of water available is declining, and the quality of drinking water is falling below international standards. If their ecosystem weren’t overloaded, then the aquifers would be recharging and the natural water-cleaning processes would be adequate. That’s not happening.

I’ve spent a little time on environmental/ecological issues. I keep coming back to the saying, ‘what gets measured, gets managed.’ If we want to manage our ecosystems, we have to measure the aspects of it that we think are important.

At the NZAE conference, Tim Harford had some interesting things to say about measurement. He pointed out that when we enact policies, we are in effect conducting experiments. We should take measurements just like we would in a laboratory. Often, though, the funding isn’t available to take measurements. We conduct experiments but let them go to waste. Sometimes, measurement is even actively avoided.

When it comes to ecosystem services, I don’t think we have that luxury. These are big, complex systems that we don’t fully understand. We need as much data as we can get so we can continue to enjoy New Zealand’s relatively clean environment and profit from it (depending on our preferences).

But we also need the right data, so there is an important role for economists. As the Royal Society paper points out, the value of ecosystem services is bound up in human activity. It is about the services provided to people, and how they value them. It isn’t just about water chemistry, or about how the chemistry leads to clean water, but also about what value people put on the clean water. So economists are integral to this work.

The NZIER and Royal Society publications are helpful additions to the discussion. I hope we can build on them.


The Government’s new energy policy was released, apparently by accident. Groups and businesses involved in the energy sector have already started commenting on it.

As a general picture of New Zealand’s energy future, the summary on pages 6 and 7 is pretty good. There is a solid economic framework underneath. For example, it includes both supply and demand factors. On the supply side, nearly every source of energy gets a mention (nuclear energy is absent). On the demand side, the policy mentions new technologies to help consumers manage their energy costs. The idea of assessing marginal impacts almost makes it, such as in this passage: ‘Oil is used efficiently and where it is most highly valued.’ Technological growth is given its due, too, with a nod to ‘continuous improvements in energy efficiency’.

Reading just these two pages, you get a sense that there is a lot to think about. Our modern economy is based on cheap energy. An illuminating example is Nordhaus’s research on the historical price of lighting. The amount of lighting one could obtain with 5 hours of labour in 1800, had become nearly too cheap to measure in 1992. If the energy era truly is ending, what does that mean for our economy?

On the other hand, the report also shies away from fully facing up to the potential conflicts. Early the report, we are told that ‘the government is interested in pursuing energy initiatives that have both an economic benefit and a positive overall effect on the environment’. This is a clear statement of non-satiation: we would like to have more of everything. But economics tells us that we also need to consider our budget constraint. It’s when we have to give up some of one good to have more of another that things get interesting.

There has been a lot of attention given to nuclear power given Fukushima. I don’t know what the real story is, but there are alternative viewpoints to consider. For illustration, here are a few links suggesting difficulties in measurement and comparison of options, and the possible sensationalisation of the current crisis.

1) Several articles have been critical of the reporting. There is one at:

2) Some have been concerned at misinformation. For some details on the nuclear issue, see this by Josef Oehman of MIT:

3) Here is a piece from the (UK) Guardian by someone saying how the incident has changed his view of nuclear power:

4) This is an article from Scientific American mentioned in (3) which compares radiation from nuclear reactors and from coal-fired power plants:

The title as given in the URL is misleading. The key point is made in the sentence, “In fact, the fly ash emitted by a power plant—a by-product from burning coal for electricity—carries into the surrounding environment 100 times more radiation than a nuclear power plant producing the same amount of energy.”