Research Shows that Multi-Variable Dependence Should be Taken Into Account to Protect Valuable Ecosystems
Image Credit: National Oceanic and Atmospheric Administration (NOAA)
Against a backdrop of rising uncertainty driven by a warming climate, environmental policy has become increasingly reliant on precautionary buffers to safeguard public health, prevent irreversible environmental damages, and limit the likelihood of exceeding critical thresholds. In a new paper published in the Journal of Environmental Economics and Management, Jorge Holzer and Lars Olson, professors in Agricultural & Resource Economics at the University of Maryland (UMD), explore the implementation of environmental policy when precautionary buffers are mandated by law, treaty, or agreement.
Buffer limits are recognized throughout the world as a way to guide environmental policy in areas as diverse as climate change, marine fisheries, invasive species, food standards, transport of hazardous waste, and chemicals regulation. Some of the most recognizable of these regulations include the U.S. Primary National Ambient Air Quality Standards, the U.S. Clean Water Act, and International Standards for Phytosanitary Measures to prevent the introduction of pests and disease through trade. Likewise, one goal of the Magnuson-Stevens Fishery Conservation and Management Act is to maintain the profitability of fisheries while keeping the probability of overfishing below a regulatory threshold.
“The paper is about the precautionary principle, which is key to environmental policy. We want to prevent large and irreversible changes from happening, and environmental systems are typically subject to a lot of uncertainty. We cannot predict them perfectly,” explains Holzer. “Here we are thinking about ecosystem-based fisheries management where managers look at a collection of species that are all interlinked. You want to prevent the system from failing.”
The application of the research is set in the Gulf of Maine, one of the most productive marine ecosystems in the world. It is also one of the fastest-warming ocean ecosystems on the planet. Holzer and Olson focus on the iconic Northeast cod and haddock fishery. The Northeast multispecies groundfish fishery comprises hundreds of vessels targeting species managed by the New England Fishery Management Council. The Council sets catch limits individually for these stocks, effectively treating them as separable and independent. The cod population is currently overfished, while the haddock stocks are deemed healthy.
“The way managers typically work is by setting safeguards one piece at a time, in this case one species at a time, by saying a year in advance, ‘Okay, I’m going to set a limit for the catch for the fleet for an entire year, this much for cod and this much for haddock.’ The manager sets the limit of the probability of the catch of cod going above a threshold and the same for haddock,” says Holzer.
“We come along and say, ‘Well, wait a second. If you care about the integrity of the entire system, in this case the ecosystem, maybe you should not set safeguards one species at a time, but you might want to think about how the shocks the system experiences are also dependent. Maybe you have to not only look at all the different pieces but also how those shocks that impact all the different pieces are also dependent’.”
Stochastic dependence is a central theme. Stochastic dependence refers to how likely whatever variables being studied move together either down or up. Similar to an investment portfolio, the portfolio manager needs to assess how the stocks move together to optimally balance risk and return. In particular, the manager tries to avoid what is called an extreme downsize event when all of the stocks suddenly exhibit losses simultaneously.
The research finds that effective fisheries management will need to adapt to shifting dependence across species and to increased management uncertainty caused by warming oceans.
“As far as we know, ours is the first work to address general stochastic dependence across multiple environmental variables and its impact on precautionary policy buffers,” says Holzer. “The model provides useful insights in contexts involving interactions across natural resources or joint production of environmental pollutants and it may help inform environmental regulation more broadly.”
The research provides analytical results that characterize how stochastic dependence among outcomes of interest influences optimal environmental policy.
Holzer and Olson conclude, “Our model basically assumes that the manager wants to maximize the profits of the industry, subject to the constraint of keeping the system, that is the ecosystem, healthy. So, that’s the objective function and the way to keep the system healthy is to account for those dependencies. Not only does dependence matter now, but it might become more of an issue as climate change hits. There is this push for ecosystem-based fisheries management and thinking about an entire system, not just one species at a time. Our paper sits squarely in that type of discussion.”
This paper, entitled “Precautionary Buffers and Stochastic Dependence in Environmental Policy,” is published in the Journal of Environmental Economics and Management, DOI: 10.1016/j.jeem.2020.102406
