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Governments are catching up with economic theory and practice by increasingly integrating ecosystem service values into national planning processes, including benefit-cost analyses of public policies. Such analyses require information not only about today’s benefits from ecosystem services but also on how benefits change over time. We address a key limitation of existing policy guidance, which assumes that benefits from ecosystem services remain unchanged. We provide a practical rule that is grounded in economic theory and evidence-based as a guideline for how benefits change over time: They rise as societies get richer and even more so when ecosystem services are declining. Our proposal will correct a substantial downward bias in currently used estimates of future ecosystem service values. This will help governments to reflect the importance of ecosystems more accurately in benefit-cost analyses and policy decisions they inform.

info:eu-repo/semantics/published

Data for reproducing Figures of the manuscript Trends in tropical forest loss and the social value of emission reductions by Thomas Knoke et al. Full data sets and spreadsheets are available via 10.5281/zenodo.8016364, Data for reproducing Figures of the manuscript Trends in tropical forest loss and the social value of emission reductions by Thomas Knoke et al. Full data sets and spreadsheets are available via 10.5281/zenodo.8016364

Lemoine and Rudik (2017) argues that it is efficient to delay reducing carbon emissions, due to supposed inertia in the climate system's response to emissions. This conclusion rests upon misunderstanding the relevant earth system modeling: there is no substantial lag between CO2 emissions and warming. Applying a representation of the earth system that captures the range of responses seen in complex earth system models invalidates the original article's implications for climate policy. The least-cost policy path that limits warming to 2°C implies that the carbon price starts high and increases at the interest rate. It cannot rely on climate inertia to delay reducing and allow greater cumulative emissions.

Having its roots in the financial system, the world economic downturn at stake since 2008 has revealed the importance of capital requirements for banks. Reinhart and Rogoff (2009) have shown that financial crises have substantial economic impact, reducing the GDP of 10% or more, with a non- neglecting part being permanent. This highlights the importance of a stable financial market for the entire economy. As a consequence, the new Basel III agreements have substantially increased capital requirement, which has generated important debates on the cost of raising capital for banks. In particular, banking associations have argued that this new regulation would increase funding costs for banks and therefore increase the cost of bank-credits. However these arguments generally focus on short-term feedbacks, whereas in order to define an adequate legislation and prevent new crises, a long-term perspective is essential. Using a large worldwide database of 98 banks over a period of 25 years, we have tested the Modigliani and Miller theorem, which states the neutrality of capital structure on the value of the bank - and hence on the weighted average cost of capital.1 Our main results reveal that financial market tends to underprice leverage risk compared to M&M predictions. Leveraging increases market value of banks making rational the shareholders’ decision of opting for very high leverage.2 We also show that the gain of leverage is much higher during the crisis period (after 2007) than during the preceding more stable period (1990-2006). This gain is also higher for systemically important banks, which are very likely to be bailed out by the government in case of distress. We argue that the underpriced transfer of risk from banks’ shareholders to governments is the most convincing theoretical argument explaining this departure from M&M theorem. The three other possible explanations - tax advantages, agency costs between managers and shareholders, and role of completing financ

Carbon markets have emerged in recent decades as one of the most important tools for curbing industrial greenhouse gas emissions, but they present a number of novel enforcement challenges as compared to more conventional pollution regulations—new regulators with narrow authority, lack of legal precedent, and more. To shed light on the practical issues involved in policing carbon markets, we present the first comprehensive analysis of the EU Emissions Trading System, a single program that was policed by 31 different national regulators. We find generally high rates of compliance coupled with low rates of enforcement, a pattern that is known in the literature as ‘Harrington’s paradox.’ Variation in the probability and severity of fines explain just one tenth of the variation in compliance rates. Meanwhile, other enforcement strategies that have been pointed to as resolutions to Harrington’s paradox in other applications, such as ‘naming and shaming,’ appear to have had little discernible effect.

Two approaches are predominant in climate models: cost-benefit and cost-effectiveness analysis. On the one hand, cost-benefit analysis maximises welfare, finding a trade-off between climate damages and emission abatement costs. On the other hand, cost-effectiveness analysis minimises abatement costs, omits damages but adds a climate constraint, such as a radiative forcing constraint, a temperature constraint or a cumulative emissions constraint. These constraints can be applied from today onwards or only from 2100 onwards, allowing to overshoot the target before 2100. We analyse the impacts of these different constraints on optimal carbon prices, emissions and welfare. To do so, we fit a model with abatement costs, capital repurposing costs (stranded assets) and technological change on IPCC and NGFS scenarios. The welfare-maximizing scenario reaching 1.5°C in 2100 has almost no net negative emissions at the end of the century (-2GtCO2/y). A constraint on cumulative emissions has the best welfare properties, followed by a temperature constraint with overshoot. A forcing constraint with overshoot has insufficient early abatement, leading to a substantial welfare loss of $29 Trillion, spread out over the century. As to the paths reaching 2°C, all cost-effectiveness analysis abate too late, but the welfare impact of this dynamic inefficiency is milder. Again, a forcing constraint with overshoot scores worst.

Reducing global forest losses is essential to mitigate climate change and its associated social costs. Multiple market and non-market factors can enhance or reduce forest loss. Here, to understand the role of non-market factors (for example, policies, climate anomalies or conflicts), we can compare observed trends to a reference (expected) scenario that excludes non-market factors. We define an expected scenario by simulating land-use decisions solely driven by market prices, productivities and presumably plausible decision-making. The land-use allocation model considers economic profits and uncertainties as incentives for forest conversion. We compare reference forest losses in Brazil, the Democratic Republic of Congo and Indonesia (2000–2019) with observed forest losses and assign differences from non-market factors. Our results suggest that non-market factors temporarily lead to lower-than-expected forest losses summing to 11.1 million hectares, but also to phases with higher-than-expected forest losses of 11.3 million hectares. Phases with lower-than-expected forest losses occurred earlier than those with higher-than-expected forest losses. The damages avoided by delaying emissions that would otherwise have occurred represent a social value of US$61.6 billion (as of the year 2000). This result shows the economic importance of forest conservation efforts in the tropics, even if reduced forest loss might be temporary and reverse over time.

Societal Impact Statement Humankind is facing both climate and biodiversity crises. This article proposes the foundations of a scheme that offers tradable credits for combined aboveground and soil carbon and biodiversity. Multidiversity—as estimated based on high-throughput molecular identification of soil meiofauna, fungi, bacteria, protists, plants and other organisms shedding DNA into soil, complemented by acoustic and video analyses of aboveground macrobiota—offers a cost-effective method that captures much of the terrestrial biodiversity. Such a voluntary crediting system would increase the quality of carbon projects and contribute funding for delivering the Kunming-Montreal Global Biodiversity Framework. Summary Carbon crediting and land offsets for biodiversity protection have been developed to tackle the challenges of increasing greenhouse gas emissions and the loss of global biodiversity. Unfortunately, these two mechanisms are not optimal when considered separately. Focusing solely on carbon capture—the primary goal of most carbon-focused crediting and offsetting commitments—often results in the establishment of non-native, fast-growing monocultures that negatively affect biodiversity and soil-related ecosystem services. Soil contributes a vast proportion of global biodiversity and contains traces of aboveground organisms. Here, we outline a carbon and biodiversity co-crediting scheme based on the multi-kingdom molecular and carbon analyses of soil samples, along with remote sensing estimation of aboveground carbon as well as video and acoustic analyses-based monitoring of aboveground macroorganisms. Combined, such a co-crediting scheme could help halt biodiversity loss by incentivising industry and governments to account for biodiversity in carbon sequestration projects more rigorously, explicitly and equitably than they currently do. In most cases, this would help prioritise protection before restoration and help promote more socially and environmentally