Notice & Comment

Rationally Valuing Natural Resources Is Good Governance, by Eli Fenichel & Andrew Stawasz

As the term “natural resources” implies, society derives enormous value from the natural environment. Forests and clean waters support a large outdoor leisure industry, along with personal recreation, while wetlands protect homes from floods and storms and reduce insurance premiums. The idea that the federal government has an obligation to carefully manage these resources in the interest of citizens goes back well over a century, to at least President Teddy Roosevelt. 

Good governance requires that the federal government regularly account for its natural resources according to a standard set of evidence-based rules. It also requires a systematic approach to deciding when and how to account for environmental services, rather than doing so only when convenient to advance specific political objectives.  

Two recent federal documents take this task seriously, with the aim of creating a predictable system for how the government will take natural resources into account when making decisions. [Disclaimer: We helped draft both documents while serving in the executive branch, on leave from our academic roles.] 

First, in January, the federal government finalized a national strategy for producing statistics that will summarize how the country’s natural wealth is changing. These statistics will sit alongside, and work with, the same statistical information used to produce familiar economic indicators like GDP. The new measures will incorporate natural resources onto the nation’s balance sheet. 

Second, in August, the Office of Information and Regulatory Affairs proposed draft guidance on how to (and how not to) account for ecosystem services when tallying up the benefits and costs of a regulation or spending decision. Past analytical guidance from Republican and Democratic administrations left the details on the complex topic of ecosystems vague. But economists and scientists have reached considerable consensus on how to account for environmental benefits and costs, which now enables the federal government to adopt predictable standards.

Together, these documents bring decades of economic and scientific insights into government analyses. They account for services that have too often been omitted, while providing clear guardrails that prevent unsound pseudo-economics from carrying the day.

The statistical efforts will help people track how decisions can affect the value we have stored in our air, water, lands, minerals, forests, and other environmental sectors. This information can enable more accurate long-run federal budget forecasts and can help businesses that increasingly face sustainability demands. These efforts will also put the United States on more solid footing in global trade negotiations, where trading partners increasingly prioritize environmental concerns.

The ecosystem-service guidance similarly provides greater certainty regarding how the government counts environmental changes’ effects on things like health or tourism. It provides a roadmap for communities to follow when applying for federal funds, such as those available through the Bipartisan Infrastructure Law and Inflation Reduction Act. It will help the government account for environmental assets, which influence things that virtually all Americans care about like home prices, insurance premiums, and recreational opportunities.   

In an age when nearly any government decision generates fierce opposition, this balanced, evidence-based approach has yielded refreshingly little disparaging feedback. Even the harshest public critique of these efforts thus far admits that there is room to improve the government’s accounting of many natural resources.

But that commentary advances several arguments that don’t pass muster under the scrutiny of modern economics. 

The commentary starts by focusing on longer page counts rather than content, as if more and clearer instructions mean more work. Longer, more detailed furniture assembly instruction booklets would save Americans considerable time. Faced with the choice between less reading and better decision-making, the government chose right.

The commentary then argues that the government should prefer anything providing direct monetary returns—even a terrible investment that yields 1% returns annually—over hard-to-measure services, like the opportunity to view a sunset. But Americans vote for these services with their wallets all the time. Consider the premiums people regularly pay for hotel rooms with ocean or mountain views. Because these buyers seem to be making reasonable decisions, the government should respect them too.

The commentary also mischaracterizes the Natural Capital Strategy, claiming that the government will insert natural capital accounts “as an add-on to GDP.” The strategy explicitly says the opposite: these statistics will complement and work alongside GDP, but accounting for natural assets will not add to (or subtract from) GDP. They will fill out data in the statistical system underlying GDP, in line with reasonable accounting standards the United States adopted years ago. But the strategy does not propose to change the definition of GDP. 

Contrary to the commentary’s framing the environment as “priceless,” valuing the environment does not degrade its importance. While many agree that the total value of the environment is infinite, the government is (we hope) never considering ridding the country of, say, all its clean water. Instead, the government works on the margin, with policies affecting some finite amount of clean water. Those changes have real economic value, which the government should rigorously and consistently count.

These documents are victories for rational, evidence-based decision-making. Put simply, they do not come from an environmentalist agenda; they come from a good-government agenda—one that believes that Americans prefer informed decision-making. 

Eli Fenichel is the Knobloch Family Professor of Natural Resource Economics at Yale University and recently served as an Assistant Director in the White House Office of Science and Technology Policy. Andrew Stawasz is a Legal Fellow at the Institute for Policy Integrity at New York University School of Law and recently served as an Advisor in the White House Office of Information and Regulatory Affairs.

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