Where to Listen:
How much would you pay to swim in a clean lake? How much to take a breath of fresh, clean air? To fish in a pristine stream? You may not ever think about that, but there is somebody who does — a lot.
On this episode, meet the professor who’s working to understand the economic value of a clean environment.
Host:
Amy Barrilleaux
Guest:
Dan Phaneuf, Professor, Agricultural and Applied Economics, Unversity of Wisconsin
Resources for You:
Clean Wisconsin: Fighting for Clean Water
Transcript:
Amy Welcome to the Defender, Wisconsin’s environmental podcast. The Defender is powered by Clean Wisconsin, your environmental voice since 1970. So how much would you pay to swim in a clean lake? How much to take a breath of fresh clean air, to fish in a pristine stream? You might not ever think about that, but there is somebody who does a lot. On this episode, meet the professor who’s working to find the economic value of a clean environment and what he’s finding out. That’s right now on The Defender. In the long list of our needs and wants, sometimes it seems like environmental protection takes a backseat to just about everything. But it turns out people actually do prize a pristine environment a lot more than we might think. Joining me is UW-Madison environmental and resource economist Dan Phaneuf. Thank you so much for being here.
Dan My pleasure.
Amy You are an economics professor. What got you interested in the environment side of economics?
Dan Yeah, good question. So I’ve always loved economics. By the time I was 20, I knew that I wanted to teach it, but I didn’t know what I wanted to teach. I went to Iowa State for my Ph.D. And in my second year, a new professor arrived and she had an expertise called environmental economics. I had no idea what that meant. But one of the areas that people study in environmental economics is the relationship between outdoor recreation and environmental conditions. And I’d always been a hunter and a fisher growing up in Minnesota, and it was pretty fascinating to be able to combine the idea of those personal interests with things that I would work on professionally. And so pretty quickly I adopted environmental economics as my field.
Amy First I want to back up to when you were 20, you knew you wanted to teach economics. Like, I don’t think that’s typical, so how did you arrive at that?
Dan It just was like magic when I took my first economics class. I went to St. John’s University in Minnesota, a small Catholic school, and I couldn’t believe how easy the course was. I didn’t miss a single point the entire semester, and I was shocked to find out that other people found it hard. It just clicked in my mind in a way that I can’t totally explain, and I just loved that way of thinking. And so, yeah, it was pretty clear that I wanted to do something with economics in my life. I grew up in a family of teachers so I really didn’t know any other profession besides teaching and so those two things came together.
Amy Well, I’m going to have you teach me for a second, because we always hear the term economics. We hear about the economy. It’s a word. It seems important. But how would you distill what is economics and what is that thing kind of that you love about it into kind of a brief statement for people to kind of get what we’re talking about?
Dan Yeah, let me give a try. So your first reaction when somebody says economics is, well, what’s going to happen to the stock market, right? And I am unequivocally not that kind of economist. I have no idea. At a more basic level, economics is about how people make decisions when they can’t have everything they want. And since we have limited time, we have a limited money, we have to make trade-offs. And to me it’s always been fascinating to study how people make those trade-offs and what causes them to select what they do. And so at heart, we’re really about trying to understand human behavior when people can’t have everything they want.
Amy I think that’s a really great way of putting things. We are at a time now when I think protecting the environment tends to be in a narrative where it’s pitted against jobs. So for example, right now up in northern Wisconsin, there’s a hearing going on about the Enbridge oil pipeline. And there’s bunch of folks there from Enbridge talking about jobs. So when you approach environmental protection, Are you, it seems like you’re trying to figure out what are the economic benefits of environmental protection? Because those aren’t as obvious as a construction project or a pipeline or something like that. Is that kind of fair to say what you’re looking at?
Dan That’s such a nice way to put it. You’re exactly right, and such a great segue into why my general interest in economics translates to the environment. So whenever we’re discussing environmental protection, it is the first thing that people talk about, the jobs, the costs, prices are going to be higher, all of those things. And those may be legitimate concerns, it’s gonna depend case by case, but we should definitely consider those costs. The discussion is incomplete if we don’t also consider what we get for environmental protection. And my observation is that when we’re discussing the environment, we have one side of the discussion that focuses on quantitative things like jobs and higher prices and lost profits. And then another side of debate where it says, well, it’s the right thing to do, we owe it to our children. You know, sort of more philosophical debates that make a lot of sense, but I don’t feel help the discussion because we’re not debating on the same terms. And so I was always drawn to this area of economics because it says if we’re going to have this debate, let’s try to put the benefits of environmental protection on the quantitative footing as we do the costs, and then let’s have a rational decision about trade-offs. Instead of an emotional decision about jobs versus the right thing to do. And so that’s where my interest comes from.
Amy So what are some of the specific things that you’ve looked at then? Have you looked at maybe a lake or a river or something like that here in Wisconsin, or where do you kind of start?
Dan Yeah, good question. So I’ve worked on almost all types of environmental media, air pollution, water pollution, but as of lately, I’m very focused on surface water quality. And I’ve been interested in that question at many scales here in Wisconsin, at the national scale. And a lot of times, my research is about trying to understand what people would pay to have better water quality in lakes and rivers.
Amy So what are you finding out when you go to people and really have them think about making that choice? How much is clean surface water, clean lakes and rivers, how much is that worth?
Dan Like everything, it’s context dependent and I’ve looked at this in a few different ways. It might be helpful to quickly review the way that we think about this question. So first of all, why are we interested in willingness to pay? The answer is that that’s a metric that tells us how much people care about something. Economists often talk about, you know, putting your money where your mouth is. So if you see me buying a bottle of wine for $20, I’ve told the world that it’s worth at least that much to me. If we could go to the store and buy water quality and you saw me buying water quality for$ 20, you would know that I value it that much. But we don’t do that. Markets don’t exist for environmental conditions. And so we need to find ways to measure what people would pay, how much they value something. Uh… While recognizing that we just don’t have markets to help us.
Amy So in my mind, I’m coming up with all kinds of ways to measure that that probably aren’t what you do, but I think about, well, people choose where they live. Maybe if you’re talking about air quality, they’re not living next to a power plant. They’re not live next to big interstate. I’m gonna talk about water quality. They’re choosing to live in a more pristine area than one that’s been heavily polluted for decades. Is that the kind of thing that you’re looking at or what are some of the factors that we might be able to understand?
Dan Amy, I think you’re a secret economist, because you’re hitting all of the super intuition exactly correct. So what you just described is what we call revealed preference, kind of a complicated name for a simple idea, that we can look out and see what people are doing, and they leave clues as to how important the environment is in their actions. So you alluded to the idea of where to live. So, indeed… We find that people prefer to live close to water, away from dirty factories, in places where air is better, and they’re willing to pay more in housing values to have those things. So in the specific case of water quality, I’ve done work looking at home prices, both here in Wisconsin and nationwide, that shows that homes that are near lakes. Are more valuable if the water quality in the lake is more. So for example, in one nationwide study we found that if the clarity in the lakes, so measured by a Secchi depth device, increases by 10 percent, then homes are 1.6 percent more valuable for near shore property. And so that’s way that we quantify this willingness to pay for water quality. Through home prices.
Amy People hearing this would be kind of like, well, that’s no surprise. People want to live in a cleaner place. How does that translate, though, into putting that kind of, I guess into motivating policymakers are the powers that be to take environmental protection seriously.
Dan Right, so we know that the home values would be more valuable if environment was better. That’s a directional thing. The quantification I think is important. So I did some work here locally with the non-profit Clean Lakes Alliance where they wanted to know how improvements in water quality in the Yahara chain of lakes would translate to a higher value of home stock and hence higher property tax revenues which could then fund additional public services. So that’s one way that type of thing works. The other tools that we have can contribute even more directly. So a second method that we use is called stated preference, and this is a fancy term for survey-based approaches, where we will ask people to fill out a survey that simulates a referendum. So households are familiar with the idea of local referenda, where they might be about yes or no. On increases for school funding, where they know that if they vote to increase their taxes, they would get some improvement in, say, school quality. We can replicate that with the environment by putting people in a situation where we might say, would you be willing to accept some increase, say, in your taxes in exchange for better local environmental quality? And so in this way, we would simulate this idea of a referendum. And we can say… You know this fraction of people would vote in favor of policies that would reduce say the frequency of harmful algal blooms uh… In exchange for uh… Some additional tax per year and so this is kind of directly informative for public officials where they can sort of see the so-called demand that their constituents might have uh… For higher environment and their willingness to pay for it.
Amy Do you ever look at direct costs of environmental pollution? Like, for example, in Iowa, there’s a lot of runoff from farms that has to be treated for drinking water, and there’s a whole secondary drinking water facility that has be opened when those farm chemicals get quite bad in the water supply. And it’s expensive. Is there a way to, or is that something you kind of look into, that sort of specific like, to make this drinkable or to make this swimmable, this is what communities are actually spending.
Dan Right, so that’s the kind of cost side of things, right? So this conversation that we’ve been having is about the demand for environmental quality. What you’ve just asked about is essentially the supply of environmental quality, and so I personally don’t work a lot on trying to figure out what it costs to improve surface water quality through, say, municipal wastewater treatment or through best management practices in agriculture. But I have colleagues who do, and a lot of what we do is try to see if the costs as manifest through these actions are lower than the benefits of the type that I might estimate.
Amy What is the reaction when you bring this information to people, showing them, OK, here’s what the general population thinks or wants in terms of environmental protection?
Dan So generally quite well received. So people are interesting. They can hold multiple viewpoints simultaneously that are sometimes contradicting, right? That’s a fact of human nature. And so. To sort of answer your question, let me just describe kind of an attitude. So in my classes with my undergraduates and my graduates, I describe our job as making the environment boring. And I say that only half joking because the environment is a space that has a lot of emotion and I say our contribution can be to bring quantification, rationality and dispassion to the event. Fits my personality, too. You can see from my voice that it’s very deep and boring. So I find that when I present these ideas without a political agenda, without passion, people are very appreciative of the quantitative trade-offs, the care that we take. And I feel like you can get people to really think in a way that is pro-social about trade-off, about recognizing that, yes, I maybe care about the cost, but now I do see that there’s these benefits. And so on. I tend to think that the most important thing that I do is to sort of show these ideas as ways that we can further rational discussion about difficult problems. In the moment, there’s a lot of success. I’m not sure it sticks around though, because people can fairly quickly revert back to their, oh, this is going to cost jobs, or the environment is very important, we should do it no matter what. But in the moment I often feel like it’s well received.
Amy I think if you walked up to somebody on the street and said, tell me what an environmentalist is like, their mind would go to the person holding signs, the people out in a valuable forest trying to get attention on that value, that kind of passion that you’re talking about. Why is there value in this dispassionate approach to environmentalism that I think people don’t always, doesn’t always come to people’s minds when they think about environmentalism.
Dan That’s a really great question, and I’m not necessarily suggesting it’s one or the other. I’m suggesting that there probably isn’t enough of one. And so I think you can sort of take a lesson from history. The environmental movement was very, very bipartisan in its early days. The Clean Water Act passed overwhelmingly in the Congress. Nixon vetoed it, and the veto was overridden. Something almost inconceivable today that sets your supermajority for something environmentally related could exist. And so there was a time when the environment was very non-controversial by bipartisan. For reasons I don’t fully understand, I’m not qualified, It’s not like that today. But I think we would make more progress if it was a little bit more bipartisan and broadly supported and I believe my contribution can be simply these ideas of quantification and some discussion of rational trade-offs as a complement to the passion that we do have.
Amy You talk about the Clean Water Act that was passed in the 70s. And we went through some historical photos recently of moments leading up to that time. And one of them was an image of the Wisconsin River. Some boats were docked in a dock. And there was this foam. It almost looked like a bubble bath all over the Wisconsin river. And it was from a paper manufacturer. And these things, from what I could tell, seemed to happen with regularity. Do you think it’s more that… People can see what they’re losing in real time, maybe they kind of snap into this mode that you’re talking about, where they’re kind of seeing the value of what could be kind of right in front of them.
Dan Yeah, great allusion. So there’s a famous quote where one of the Clean Water Act officials said, our waters may not be swimmable or fishable, but at least they’re not burnable. So we did make a ton of progress. And it may be that some of these environmental problems are sort of less dramatic than burning rivers or foaming rivers. But at the same time… Some things are pretty visceral. So I work a lot on harmful algal blooms, and these are very visceral, people really notice surface water scum, they seem very aware of the dangers of cyanobacteria in freshwater. So maybe this will be the vehicle similar to what you discuss when, you know, it’s very visceral and galvanizes support.
Amy Part of your approach, I think, depends on people actually knowing what you’re talking about. So being familiar with lakes and rivers, things I’m guessing become harder when you’re talking about other kinds of environmental protection, like protecting wetlands, which people may not really care about. You’re not going to canoe across a wetland that’s only there six months of the year. So how do you get sort of then economic value for those types of environmental priorities? Wetlands. I think air pollution to some extent is a good example because people can’t see it or don’t really think about it so much. What is the approach there?
Dan Yeah, really excellent question. Again, you’re really hitting key points. So, what I described as these sort of revealed preference methods where we look out and observe people’s choices, they require that people, in fact, are making choices in response to the conditions. And there are many environmental attributes like wetlands that provide services that are a couple of steps removed from people’s actual behavior. So how do we think about those? I guess I would return to this referendum idea again. Um, so when we think about a referendum for school quality, um, we don’t just simply say vote yes or no, here’s the cost. We try to provide information to people about why it’s necessary. We try provide information about what will be provided. Um, it may be that part of the debate is that pro, uh, school quality people will explain what it could. Buy and anti will explain what it will cost. That’s all part of the process. We try to simulate that with these survey-based simulated referenda, where we don’t just ask people, would you pay something to protect wetlands? We give them the background on what wetlands do. We often do it with graphics, careful design. And so a big part of it is conveying an information set that is accurate, accessible. Reasonably neutral in tone and ultimately informative, so people can vote not just based on would you pay something, but based on an information base that helps them perhaps know what they’re voting for.
Amy Have you encountered any environmental topics where it seems like people really don’t assign a value? Or I mean, I think surface water and drinking water are kind of visceral in a way. We all know what that is, and we all have kind of feelings around that. But have you reached out or done these kinds of surveys or this research around other environmental topics where people were kind of like, yeah, I don’t see the value in that?
Dan Most of the time, the things that we look at, we’re doing so because we have some preliminary evidence that they care about it. So it’s not very often that we’re going in cold. But to kind of give you an answer in the spirit of what you’re asking, there are some things that people care about locally, but they don’t care much about globally. So when you are trying to learn what people would pay for surface water quality of the examples that I’ve been giving, people do care a great deal about what’s near them. They may care less about things that are a hundred miles away or two states away. And so sensibly enough, uh, location matters. So people care when it’s local, care less when it is not. And I think that’s pretty rational and an example of what you’re asking.
Amy So when we think about maybe the big challenges of today, climate change is one, ocean health and pollution and acidity is another. So how do environmental folks who are really passionate about these issues, who want people to care, get people to care about something that, in particular, with climate change, is global? It’s not immediate. It’s hard to quantify the impacts in your day-to-day life. What is the key, I guess, for moving from that emotional passion to the more analytical apples to apples cost comparisons that you work on?
Dan So I have kind of two ideas, and this is getting into the range of speculation a little bit outside my scientific expertise, but one is that we do actually have pretty good evidence that impacts of climate change have measurable effects on individuals. So there’s good evidence that higher heat leads to higher mortality. There’s evidence about droughts and so on. And so those are things that we can try to communicate. But let me try out a somewhat different take on your audience. So we know that particulate matter pollution is a large and immediate killer. So even here in the United States, fine particulate matter still has a sizable premature mortality impact. And these are fatalities that are here now. We also know that ozone, sulfur dioxide, have morbidity effects, so people who are asthmatic suffer more asthma attacks when we have higher levels of these conventional pollutants. I’ve always observed that these conventional pollutants that have these large health effects in the here and now are very correlated with things that cause climate change. And so. I’ve always thought that asking people to think about and care about more conventional pollution impacts that affect health in their local communities is good policy and perhaps also good persuasion since doing something about fossil fuels that are producing those local pollutants also helps us address climate change. So I mean, this is far away from my expertise. I guess this is more in your area of how do we persuade people, but, um… You know, those things are not abstract. Those are very real. They’re very here and now. Lower income people suffer more. Disadvantaged groups suffer more in the here and now, and those issues, I think, are a little easier to communicate than things in the far future. And we can make a lot of progress on climate change by addressing those.
Amy I think it’s eye-opening for people to learn about particulate matter and other sorts of pollution that come from gas and coal-fired power plants. Another thing that I think, it surprises me, isn’t touched on more is, for example, you have a big energy company recently announcing it’s going to keep its coal plant online longer. And that impacts the amount of mercury in the environment, and that impacts amount of mercury and fish. And people like to fish in Wisconsin from what I can tell. So I think it’s those direct impacts that help people kind of understand, well, if this, if we keep this, then this thing that you care about is going to get harmed. But that’s a lot of work to do that with every single environmental issue. And it’s obviously it’s your career is to kind of help people think that through how their lives are being impacted or could be impacted. What is the challenge, I guess, for you to get people to listen to this research or to really consider it as decisions are being made?
Dan Wow, big question. So let me try to answer it kind of in relation to how science is funded. We often have a hard time getting social science research funded at scale because I think people think of environmental research as being engineering, sort of the more ecology, the more so-called hard sciences. I and my colleagues have been making the case that for a lot of environmental science, we kind of know the basic science and we kind of what we need to do, the difficult part is the human side. And a lot the types of research that I do, we suffer from a dearth of data. So you mentioned the idea of looking at where people go for fishing. I’m going to ask. The USDA in a grant coming up in a few weeks for a couple hundred thousand dollars to do a nationwide survey of people to learn where they go for water recreation as a vehicle to really understand the use of water resources and the impact of pollution on their use at scale. That’s a huge ask. Very rarely have they funded that kind of data gathering. And so. Trying to convince people that investing in that type of socioeconomic data is critical for us to understand how to solve some of these problems along with the investment in the physical science. So I don’t know if that gets at your question, but it sort of speaks to, you know, the scale of the challenge, right? You know, really understanding how humans interact with the environment, quantifying at scale. And communicating it to a skeptical public is a heavy lift.
Amy It is a heavy lift, but it’s what you’re doing every day. Are you hopeful that this work is making a difference or will make a difference in terms of how we, how seriously we take environmental protection?
Dan It depends on the day, right? It’s not an easy time to be a scientist, but overall, I really believe in this. Hopefully that’s clear from our conversation. I think it creates a lot of good. I think that anytime I have conversations like this, people seem appreciative of the way that we think about the problem, even if they don’t fully agree, they appreciate the perspective. And so yeah, I have some hope in the big picture that this type of work makes a difference. You know, maybe the evidence is in history. So the field of environmental economics is only about 50 years old. I have a textbook on the subject for graduate students. And we start out with a little history that, you know, the first journal in the field published in 1974, it kind of grew with the environmental movement. There was a tiny handful of people doing the kind of stuff that I do as late as the 90s when I was in graduate school. Now it’s very mainstream. You know, it’s a mainstream big field, all universities have environmental economists, and so this way of thinking has grown, at least in the academy, and hopefully that means the scale of what we’re producing is growing and having a positive influence.
Amy Well, I think this has been fascinating. You’ve at least changed slightly my opinion of economics. I took one class in college. But I really appreciate your time. Thank you so much.
Dan This has been super fun and give yourself more credit. Your questions suggested that you’re an economist in the making.
Amy Maybe so, we’ll see. I’ll go back for that grad degree someday. Thank you again, I really appreciate it. And thank you for listening to The Defender for the latest on work to protect Wisconsin’s lakes, rivers, and streams. Take a look at the show notes or log on to CleanWisconsin.org. And if you have something you want me to talk about or just want to share your thoughts on the podcast, send me an email, podcastat@CleanWisconsin.org. I’m Amy Barrilleaux. Talk to you later.
