Tena Moore, Freelance Writer

Interview with Dr. Geoffrey M. Heal

Dr. Geoffrey M. Heal is Paul Garrett Professor of Public Policy and Corporate Responsibility, professor of finance and economics at the Graduate School of Business at Columbia University, Director for the Center for Economy, Environment & Society, as well as the Director for the Union of Concerned Scientists. As an economist and an environmentalist, Dr. Heal shares our vision of a global ecological economy, and provided the following answers during our interview.

EAG: Hello Dr. Heal. Thank you so much for agreeing to be our first profile on the Earth Assets Group website. We believe congratulations are due on the formation of The Earth Institute at Columbia University. I understand that you are the Director for the Center for Economy, Environment and Society. Can you tell me more about The Earth Institute, as well as your responsibilities as Director?

GH: CEES, the Center for Economy Environment and Society is a part of The Earth Institute, which is an umbrella organization that pulls together all the different entities at Columbia that work on environmental issues. CEES's mission is to focus on market-based approaches to environmental conservation, and in this context we are cooperating with the conservation biology group, in CERC (Center for Environmental Research and Conservation), on a project on market-based approaches to biodiversity conservation. This project picks up some of the ideas in my book Nature and the Marketplace ( Island Press 2000).

EAG: What do you anticipate The Earth Institute will accomplish in the coming years? What are your personal goals and accomplishments for The Earth Institute?

GH: Our aim in this project is to try to understand when and how market-based approaches will work, and to build up a library of case studies showing how these ideas can be implemented in different ecological and economic contexts. We then want to run short non-degree courses for practitioner conservationists from all over the world, to help in getting these ideas out and into practice.

EAG: Now that you're familiar with the mission statement of EAG, how do the goals and objectives for The Earth Institute compare with those of EAG?

GH: There is clearly overlap between what CEES wants to do and EAG's goals, and I hope we can collaborate. We need to bring together academics; practitioners and possible customers to make some of these ideas take off. We have academics and some practitioners, and with your connections you must have possible users of these ideas, and we should be able to develop valuable interactions.

EAG: It seems that a global ecological economy is truly developing; despite the many social and political changes the world is grappling with. The new economy seems to be based on sustainability and government support for much needed enhancements to ecosystem services.

The government seems to focus on rewarding public and private partnerships for taking responsibility for the environment. You've been supporting this type of change for a long time. What are your personal dreams for this new economy? Now that it's in the early stages, how do you see this new economy growing in future years?

GH: I agree that there is momentum developing around the idea of market-based approaches to conservation. I think this will be the big new movement in conservation, and will be a critically important element over the next decade. We have to make conservation pay if we are to make the investments in conservation that are needed to keep the earth's biosphere even roughly intact: we won't get the investments from NGOs or volunteers, but only from customers for the services that the environment provides.

EAG: Where, in your opinion, are government agencies having the greatest success with these new incentive based programs?

GH: I don't think there are any government agencies, here or elsewhere, even trying to make these ideas work. They are too new and innovative. Government agencies are too used to regulation, to the command and control framework, to which the market-based approach is the antithesis.

EAG: There seems to be many examples of government agencies taking the initiative to create incentive based programs, in the forms of wetlands, species, habitats, aquifers... If you believe government agencies aren't responsible for these initiatives, how have eco-asset markets come into being at all?

GH: There is a difference between markets for ecosystem services and environmental markets more generally. Environmental markets, such as the market for SO2 emission permits established by the 1990 Amendments to the Clean Air Act, have been around at least since 1990 and probably for longer, and emerge from the Coasian* and property rights approach to internalizing externalities. This is the intellectual heritage from which mitigation banking emerges - mitigation banks are an application of the tradable permit concept to the conservation area. These are markets that are created by regulatory actions, as was the SO2 permit market, yet markets for ecosystem services are in principle a different concept. Of course they are often connected to external effects and missing property rights as well, but they are markets in which one buys and sells a valued and consumable service rather than markets in which one trades a government-issued permit created by regulatory fiat. There are few such markets and none of the ones I know were established by governmental agencies.

EAG: Earth Assets Group, and perhaps the Columbia Earth Institute too, is dedicating a substantial part of its energy to overcoming eco-asset market fragmentation and market invisibility. Apart from these obvious shortcomings, where, in your opinion, have the markets failed outright thus far? And do you have any recommendations for correcting those failures?

GH: Markets haven't really failed so far. Failure means that market solutions have been attempted and haven't worked, and I don't know of any cases like that. The issue is really that market solutions haven't been tried in enough different areas yet. We need a more proactive roll out of markets in this area. The real problem is that the potential of markets is not yet well understood, and people just don't realize they can make money out of conservation. We really need to push the idea that you can do well by doing good!

Market-based approaches are not a panacea: there are real cases in which markets do not work, and economists have documented the characteristics of these well. But most people think that all environmental problems fall within this category and what we have learned recently is that this is not the case. There is a well-defined class of environmental problems that can be solved by using the market.

EAG: What are some examples that fit into this class?

GH: These are problems that do not involve serious cases of what economists call 'market failure' - cases in which property rights exist or can be defined, and in which the goods produced are private rather than public goods or substantially so. Ecotourism is a good case, and one that I consider at length in my book Nature and the Marketplace. People who go on safaris in Africa are consuming ecosystem services and the ecotourist market is a market for ecosystem services. Some of these services are public goods, but there is enough of a private element to them to let the market work - for details see my paper on Bundling Biodiversity on my web site**.

EAG: I understand that a favorite research area of yours is the interaction between society and its natural resource base. Are you currently doing any studies to develop this area further? Are you working on any other research areas that you would like to tell us about?

GH: On the topic of society and natural resources, I am working on a project on the Endangered Species Act (ESA), which has its thirtieth anniversary this November. An interdisciplinary group of which I am a member is organizing a conference on "The Endangered Species Act at 30: Lessons and Prospects" at the Bren School at UC Santa Barbara ***. The ESA is one of the most important items of environmental legislation in the U.S. and also one of the more controversial, so it is important to evaluate how it has worked.

My particular interest is in finding ways of attaining the aim of this Act that are more attractive to the owners of land supporting endangered species - I am looking at ways of providing economic incentives for species conservation. Some of these have been implemented recently through the safe harbor and mitigation banking provisions that the U.S. Fish and Wildlife Service has introduced into the operation of the Act.

Beyond the environment, I am working on issues related to national security and the risks posed by terrorist threats. An overview of the work I have done in this area (in conjunction with Howard Kunreuther of the Wharton School at Penn) can be found on my web site in the Brookings Policy Brief on interdependent security, the technical paper "You Only Die Once"** and my letter to the Financial Times on the blackout of '03. The essence of this research is to bring ideas from game theory and risk management to the field of antiterrorist policy, and we have been working with governmental agencies to apply some of these ideas in practice. In the process we seem to have discovered some interesting new issues in game theory.

EAG: In your approach to environmental conservation titled, The Environment, An Economic Perspective, you stated, "America needs a new generation of environmental policies explicitly recognizing the economic value of the environment and drawing on this, where appropriate through markets, to provide conservation incentives..." This is now beginning to happen through the creation of eco-assets in the marketplace. How do you envision this changing our present economy? How do you see this changing the interaction between society and its natural resource base?

GH: We will see more market-based approaches, in all sorts of areas: ecotourism, mitigation banking, ecosystem services, etc. We will then see the value of these operations reflected in our national income statistics, so that the value of the environment will begin to show in our official figures. We need to highlight this and then to go further and show how much the non-marketed services contribute.

EAG: Earth Assets Group is working to facilitate the development, certification, management and exchange of ecological assets valued in environmental markets worldwide. How do you see companies such as EAG fitting into your present idea of a global ecological economy?

GH: Certification is an important technique and is essential if we are to realize the full potential of market-based approaches. It has already shown its value in many different areas. Groups like EAG can play a really valuable role here in establishing standards and helping markets develop: markets need standardized products that everyone understands. Consumers are willing to pay for eco-certification too, provided they understand what it stands for and believe that it is genuine. Again, the impartial outsider role matters here.

EAG: Thank you so much for your time Dr. Heal. We wish you much good fortune in your future endeavors!

Interviewer's notes:

*The motivating principle behind creation of emissions markets is the Coase Theorem, which proposes that, in the absence of transaction costs (costs incurred indirectly while trading goods or services) parties can bargain to a mutually beneficial and efficient outcome. This concept is critical to market based environmental policies because reducing transaction costs better enables people to use markets to manage and optimize pollution.

Source: Kiesling, Lynne 2002. CO2 Emissions Trading, The Coase Theorem, and Creating New Markets. Reason Public Policy Institute, October 23. Information available here.

** available here.

*** details available here.

For more information about Dr. Peter Raven, please explore the following links:

Published Link: http://earth-assets.com/pdfs/profile.pdf

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