The Environmental Performance Index (EPI) acts as a standard of measurement for a countries environmental performance in relation to its government policy. This baseline acts as a reference point, contributing countries can then be compared or assessed and in the case of EPI ordered and ranked. These results are significant to many audiences; the government needs to see tangible results from investments in environmental protection in order to keep allocating resources to the environment.  Private and public firms could potential see increases in costs from carbon taxes or new environmental requirements, contrary there could be a potential for a new emerging green sector where innovative investors could profit.  The populace would also be able to use the results to evaluate the government, are whether the concerns for health and environment being replicated into policy.  Overall the government can look at the ranking and use this as a benchmark on the evaluation of the current policy in place, is this a success or failure are we seeing improvements or deteriorations, and what are the plans for the future.

The EPI builds on the 2000 Environmental Sustainability Index (ESI) data-driven evaluation through quantitative metrics.  2012 EPI ranks 132 (*193 countries world wide) countries on 22 performance indicators in 10 policy categories, The 10 policies are grouped under 2 objectives “Environmental Health & Ecosystem Vitality”. 2012 EPI uses a set of core indicators that meet high standards, (direct measurement over modeled data) standardized time series and institutional commitments to maintain current and future data. Historical data has been recorded for the last ten years which allows governments to track overall performance. In each country an indicator or “proximity-to-target” value is created, this measures the gap between perceived and actual outcomes of a policy.  The generic formula for the proximity-to-target indicator calculation in the context of the global EPI is as follows:

(International range) – (distance to target)

              —————————————————-          x 100

(International range)

Data is collected from international sources, research institutions, government agencies and academia. Data analyzed comes from formal reporting, spatial data, observations and modeled data.   Raw datasets are initially cleaned, sorted, nulls recorded and general preparation from there data is transformed by dividing by GDP  – (creates comparability across countries). After the data has been transformed other distortions need to be adjusted for, logarithmic instruments differentiates between performers. Lastly the transformed and logged data is converted into indicators, the indicators are uniform and with a common unit to assess aggregate up to the index.

[(low performance benchmark – target ) – (indicator-target)]/     *100

(low performance benchmark – target )

Air Quality – Effects on Human Health

2012 EPI captures the health risks posed by particulate matter in two indicators: Outdoor air pollution and indoor air pollution.  The indoor air pollution indicator is measured % of country using solid fuels indoors (biomass – wood, charcoal etc) captures exposure to indoor smoke risks (WHO EBD study Smith et al., 2004) The target level is set at zero as per the theory that all fuel used indoors poses a threat to health.  The second measure of air quality is the particulate matter, “Using relationships between MODIS and MISR Aerosol Optical Depth (AOD) and surface PM2.5 concentrations that were modeled by van Donkelaar et al. (2010), monthly MODIS and MISR AOD retrievals were used to estimate annual average surface PM2.5 concentrations from 2001 to 2010[1]” Annual average concentrations >10 micrograms PM2.5 per cubic meter are considered hazardous therefore a measure of this average PM2.5 per annual can identify those at risk the range to the target.

Water – Effects on Human Health

2012 EPI identifies two indicators: access to water and access to sanitation as good determinates of water quality: Access to water is measured by % of the population with access to improved water (piped, well, non-contaminated water etc.) the other indicator is access to sanitation, this is measured by the % of the population with access to improved sanitation (sewer, septic, private/public)

Water – Ecosystem Effects

2012 EPI is measured by change in water quality, this is represented by the % change in river flow (pre-industrial <–> water use & impoundments) “Water withdrawals and consumptive water use are estimated separately for the sectors irrigation, livestock, households and industry. Water impoundment is based on a beta version of the Global Reservoir and Dam data set (GRanD) (Lehner et al. 2011). The percent change in river flow owing to both factors was calculated on a 0.5 degree grid cell basis Döll et al. (2009). CIESIN used these data to calculate an area weighted average of the percent change by country.  The target is 0% change.[2]”

Country                     Rank     Score                        Country                     Rank                Score

Switzerland               1         76.69               Iraq                             132                  25.32

Air (Health)                1         100                  Air (Health)                119                  38.4

Water (Health)            1         100                  Water (Health)            99                    28.6

Water Resource           17        50.8                 Water Resource           112                  10.6

EPI Indicator Name – Variable – Variable Code.

Historical EPI Ranks & Historical EPI Data Input and Products.

Air pollution (effects on humans)              Indoor air pollution              Target – 0% of population exposed

Particulate matter                Target – 10 ug/m3

Water (effects on humans)              Access to drinking water     Target – 100% of population with access    

Access to sanitation              Target – 100% of population with access

Water (effects on ecosystem)          Change in water quantity   Target – 0% reduction

 Switzerland – Iraq.  2000 & 2012

Historical EPI Ranks & Historical EPI Data Input and Products.

Switzerland Time Trend 2000-2010

Iraq Time Trend 2000-2010

The two countries that have been paired for this analysis represent the highest and the lowest achieving nations.  Having the top and bottom performers creates a scope in which you can scale other countries, (you can visualize what is needed to achieve top performance levels) Switzerland has the top ranking position and has held that position since the beginning of the analyzed data in 2000, ironically Iraq is the lowest preforming nation and has also held that position 132^nd since the beginning on the data collection in 2000, this could suggest movement within the standing is difficult and would require further investigation.

CIA National Statistics 2012

To further understand the position of these two counties we look to the performance indicators set out by the EPI.   We do a direct comparison across EPI data inputs and products we see that Iraq scores significantly lower then Switzerland.  In overall effects on air and human health Iraq scored 53.8% of the target population is exposed, whereas Switzerland has 100% of the population with 0% exposure.  These results are replicated in all of the indicators between the two countries and this is to be expected with choosing the opposite ends of the spectrum. Overall Iraq preforms at a rate of 20% – 40% of Switzerland.

There will be many reasons that contribute to the spread in performance levels between countries; political stability – The role of the environment in policy, country specifications, (location, resources, population etc.) Government resources and motivation are just a few. Comparing Switzerland and Iraq from an economic and population standpoint also supports the spread in EPI ranking; overall Iraq has a higher population above poverty, lower GDP per capita higher rates of unemployment, in combination with lower levels of healthcare and access to water and sanitation these negative factors all position themselves above the environment when it comes to government support.

Iraq has significant disadvantages when it comes to maintaining a strong environmental policy performance index standing.  Iraq is suffering from 20+ years of political instability, military operations spanning back to 1980 and significant environmental damage as an externality of these three wars. There is substantial damage to infrastructure (which lowers the indicator for access to water and sanitation) increases in disease and mortality rate and economic pressure all of which take precedence over the environment.  Air quality and water resources were also lower due to wartime activity, and construction of the Glory Canal, which would change the % flow of rivers affecting the EPI specific indicator. With lack of access to water and sanitation, as well as a poor allocation of water usage these are just a few monumental problems that Iraq will have to address in order to see improvements in the EPI ranking.  Iraq does have in place environmental laws such as “The Law No. 27 of 2009 [PDF, Arabic], For the Improvement and Protection of Environment, issued in Official Gazette No. 4142 of 2010. This detailed and strict law sets forth punishments for companies and individuals that violate environmental standards. It also upheld and affirmed existing regulations that outline environmental standards in specific detail. The Kurdish region has a similar law, No. 8 of 2008 [PDF, Arabic].[3]” Unfortunately there are insufficient funds and resources allocated to the enforcement and protection of these laws.

The time trend from 2000-2010 shows a decline in all performance levels with the exception of access to sanitation, which saw a small gain.  Since the situation further deteriorated in Iraq it is understandable to see how they would retain their 132 ranking.  Currently government rebuilding and stabilization supersedes environmental concerns, to make changes Iraq will have to integrate an extensive environmental management plan with focuses on infrastructure rebuilding to gain access to water and sanitation and improved indoor air quality, as well as conservation policy to prevent water pollution, reclaim land, protect the environment.

EPI Specific Indicators Air, Water, Water Resources 2000-2010 Iraq

Switzerland does well in the EPI standing for many reasons; EPI measures performance of a country’s policies and Switzerland has had strong national environmental policies in place since the 1970s.  There is strong public and political support of resource allocation to the environment in addition to government funding and regulation.  “Opinion polls regularly identify environmental concerns among the top ten long term priorities of the Swiss population, and the protection of the natural resource base is one of the five priorities of Switzerland’s foreign policy.[4]” Switzerland has in place substantial infrastructure and technology; these benefit the populace in achieving the optimal target of 100% access to water and sanitation. There have been significant government investments in water quality and control of water. There is a successful integration between policy instruments and targeted outcomes in Switzerland, for example Switzerland banned the use of phosphates, as a result the watercourses are now of sound physical-chemical quality.

Currently new waste water management policies have been enacted to aid with existing problems, pricing systems will reduce the interconnection problems and create economic incentive for better management (similar to a carbon tax). Air quality in Switzerland is unsurpassed, “Switzerland has met or will shortly meet all its international commitments for atmospheric emissions reduction. Since the early 1980s it has achieved remarkable declines in emissions of the main air pollutants (SOx, NOx, VOCs, CO, particulates, heavy metals) and substantial improvements in air quality. These results are largely attributable to a consistent and ambitious federal strategy for air pollution abatement and to efficient implementation of regulatory measures by the cantons. Associated with the country’s economic characteristics (low energy intensity, economic stagnation in the 1990s) and energy structure (almost entirely hydro and nuclear power, relatively high energy prices), this environmental policy has ensured that Switzerland’s emissions per unit of GDP are the lowest or among the lowest in the OECD area. In addition, considerable progress has been made with the Energy 2000 action program, which is contributing to a decline in emissions of CO2 and conventional pollutants.[5]”  Overall Switzerland benefits from such things as global location, abundant natural resources, political stability and comprehensive infrastructure and with the combination of public and private support it is easy to see the strong correlation between policy and performance level.

EPI Specific Indicators Air, Water, Water Resources 2000-2010 Switzerland

In summary the two countries are drastically different, and it is these differences that cause them to end up on opposite end of the EPI spectrum.  Lessons learned from comparing these two countries included the importance of political stability and effects of war on the environment, the relevance of public and private support (legislative and financial) in implementing environmental policies, as well the role pre-existing policies play in maintain your performance level.  The EPI is a suitable measure because it sets up a critical value based on the countries own projected target, this way the government has some individual quantitative results to help analyze if the instrument or policy was successful or not. These result and standards should help guide policy planners in the future as to where society could see the most gains overall.

Reference

http://epi.yale.edu

http://epi.yale.edu/sites/default/files/downloads/2012%20EPI%20Full%20Report.pdf

http://iraqidinarnews.net/blog/2012/02/27/international-report-iraq-the-last-country-interested-in-the-environment/

http://www.nationsencyclopedia.com/Asia-and-Oceania/Iraq-ENVIRONMENT.html#b

 http://postconflict.unep.ch/publications/Iraq_ESA.pdf

http://jurist.org/dateline/2010/06/iraq-environmental-policy.php– IRAQ: Environmental Policy

http://www.oecd.org/dataoecd/8/31/2451893.pdf

http://www.bafu.admin.ch/dokumentation/umwelt/09249/09355/index.html?lang=en

http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P099809

http://www.indexmundi.com/iraq/environment_current_issues.html – Iraq Environment – current issues

http://www.odi.org.uk/resources/docs/397.pdf – Humanitarian action in the new security environment: policy and operational implications in Iraq

Abstract

The objectives of this paper are to understand the factors leading to biodiversity loss and examine possible solutions to this problem. Market failure causes environmental degradation; this is one of the primary causes for losses in global biodiversity. The paper will examine four leading causes of biodiversity loss, examine the relationship between market failure and policy failure it will examine the role of measurement tools such as the Environmental Performance Index (EPI) and give some recommendations for a sustainable strategy to mitigate these market failures in the future.

 “In the model that we grew up with, governments rule physical territory in which national economies function, and strong economies support hegemonic military power. In the new model, already emerging under our noses, economic decisions don’t pay much attention to national sovereignty in a world where more than half of the one hundred or two hundred largest economic entities are not countries but companies.”

Amory Lovins

Market failure causes environmental degradation; this is one of the primary causes for losses in global biodiversity. The ongoing deterioration of the environment through the depletion of natural resources, destruction of ecosystems combined with the increased effects of climate change can only be reduced through policy instruments aimed at correcting these market failures. The paper will examine four leading causes of biodiversity loss, examine the relationship between market failure and policy failure it will examine the role of measurement tools such as the Environmental Performance Index (EPI) and give some recommendations for a sustainable strategy to mitigate these market failures in the future.

Scarcity is the fundamental problem that the world is facing today; with growing populations and a limited amount of natural resources how we value these goods is significantly important. Without the understanding of this initial resource problem it will be difficult to adequately respond to the pressures of biodiversity loss. Market failure can be described by the failure to recognized three problems: Uncertainty of tenure, undervaluation of land resources and under-regulation of negative externalities.  When these three questions remained unanswered and unaccounted for market failure ensues.

Uncertainty of tenure results from the lack of secure property rights.  When people lack ownership there is loss of incentive and motive to add value to the land. therefore deterioration continues. With unsecure property rights the roles and responsibilities are ambiguous, having land and then having property rights that are without a legal definition, that are not enforced and are poorly valued will lead to market failure.  Land owners, whether it be the government or private firms are left without confidence and have feelings of insecurity with a lack of property rights. Therefore these problems would need to be initially solved in order to not have market failure.

Secondly the undervaluation of natural resources is a common problem worldwide. The undervaluation not only discourages open markets, it also cuts market opportunity, which could possibly lower the price. Without some valuation of the natural resource we cannot show how this would effect society in a cost/benefit analysis.  There is also no measure to show the reflection of value to society. Lack of markets leads to a lack of opportunity it also leads to policy driven market distortions. Distortions such as export bans, increase profit margins, vertical price integration all lead to an undervaluation of natural resources and again market failure.  Policy instruments that may have good intent can in turn lead to an under valuation of a countries natural resource, for example, a subsidy that could encourage environmental degradation by subsidizing a harmful fertilizer “If market failures are severe, farmers could become locked into low levels of productivity, even when the technology and economic opportunity exist, since they cannot access and afford the seeds and inputs to take advantage; and thus they remain trapped in poverty, too poor to work themselves out of this condition” (Dorward et al., 2004; Duclos & O‘Connell, 2008).  Another error made by governments is inappropriate resource taxation, whereas the governments over tax the resource instead of the negative externality or producer extracting the good, ultimately leading to overuse and market failure.

Lastly what is import in moving out of market failure into successful governance and ultimately environmental protect is the adequate regulation of negative externalities. These initiatives must adhere to specific codes of conduct that are: transparent, inclusive, responsive, timely and accountable.  Policy failure occurs when this under regulation and un-enforcement takes place in the market place. As a result there is corruption and the government is seen as centralized which creates a displacement between the land and the government.  There are potential problem in the supply chain for corrupt blending, or arbitrage from rent seekers.  Market failure has a causal relationship on environmental degradation, the disconnect that occurs been physical and economic value of the resource manifests itself into market failure that will then require various supplementary environmental management plans to remedy.

The previously mentioned market failure can be further explained by the disconnect that occurs between resources and policy. When policies fail to incorporate the linkages of resources to: a) scarcity and price, b) benefit and cost c) rights and responsibilities, the tradeoffs that typically occurs can further exacerbate the problem.  Factors that lead to loss of biodiversity come directly from the market failure.  Now that there is an understanding of what market failure is and how it originates it will now be used as an instrument to demonstration the factors that lead to loss in biodiversity.

Under provision of environmental assets is a problem because it fails to attribute a value to such factors such as physical/human value, social value or natural resource value. Assets are typically under provided and create waste and deadweight loss, which are inefficient.  Most natural resources are pure pubic goods; the idea that they are limitless abundant renewable resources often creates a challenge in management of the resource as a result there is overuse and under pricing.  Subsequently the result of this under provision leads to increased environmental degradation: rapid deforestation, land degradation, soil depletion and erosion, water contamination, over fishing, depletion of biological diversity and increased air pollution are all negative effects due to market failure. This problem is further hindered by development implications and constrains on development.

There is a lack of understanding between root and proximate causes of a problem, and because of this misinterpretation inappropriate policies are implemented and typical responses from institutions are insignificant.  In some countries there is the presence of misleading measurement indicators – there is overharvesting, draconian policy and zero compliance for the preservation of what the state owns. The constraints highlight the differences between physical indicators and economic indicators. Problems arise when there is deterioration in natural capital, this can transition is a qualitative reduction in that capital, the resource then ends up depreciated and devalued.  From an economic perspective there needs to be better use of natural capital, stronger laws, rules and regulation to alleviate the negative externalities.  Generally policies that fail are counter-intuitive and inefficient, they lack investment and have high costs, in addition there is insufficient valuing of biodiversity and ultimately improvements do not occur.

Loss of biodiversity continues because there is a lack of property rights defining who owns what.  An example of a government intervention that increased the likelihood of a policy failure was the government support for the Trans-Amazonian highway through Brazil, this was a national development, resulting in extreme deforestation and encroachment issues and as a result should little sustainable economic development. (V. Dale, S.Pearson, H. Offerman R. O’Neill 2002) These property rights are essential in outlining what rights and responsibilities the property owner has, they should be enforceable, transferable and legally permissible but unfortunately this does not exist in all cases where biodiversity is threatened.  Some developing countries have the added constraint of political instability and inadequate public institutions; these challenges make it difficult to focus support on environmental sustainability programs.  Frequently there is corruption in both the public and private sector, which leads to mistrust in the government and the policies they implement further adding to market failure and loss of policies to support the environment and protect biodiversity.  Ideally governments would deregulate polices which are detrimental to the environment and the economy and correctly regulate and tax macroeconomic initiatives instead for example moving from a subsidy to an incentive. This deregulation would help in the reduction of further induced market distortions.  Consequently losses in biodiversity result from a mismanagement and misallocation of natural resources.  The government’s failure to respond to this leads to market failure.

There are four primary sources that will be further investigated to help explain loss of biodiversity, these direct causes: Land-use changes, pollution, unsustainable natural resources and climate change substantially impact the maintenance of global biodiversity.

Changes in land-use have a significant effect on the current and future stages of biodiversity levels globally.  Modifications that transform the existing ecosystem into something new are key sources of biodiversity loss. According to the World Bank, world population growth annual change 2010 was 1.1%( http://www.worldbank.org) with the growing population, demand for food and food production also increases.  Agricultural expansion in developing countries will shift land use into food production and as a result habitat is lost and converted into food crops.  This also occurs in developed nations where the food for fuel debate has developed in the past decade. “biofuels have already been shown to negatively impact biodiversity when direct conversion of natural ecosystems or indirect land conversion of non-degraded land occurs. The expansion of biofuel production in the tropics has resulted in the loss of tropical forest and wetlands, and in temperate regions biofuel production has encroached into set-aside lands. Biofuel feedstock plantations (particularly oil palm and maize plantations), have been shown to support far lower levels if biodiversity than natural ecosystems, and can cause soil erosion and the pollution of watercourses.” (A. Campbell, N. Doswald 2009)

Pollution is defined as the presence or introduction into the environment of a substance or thing that causes instability, disorder, damage or distress to the ecosystem. Pollution is another direct cause for losses in biodiversity it can effect the air, water and land. For example only 15% of mangrove forests in Pakistan are considered healthy, the mangroves have deteriorated due to increases in upstream pollution from the industrial sector and forest degradation.  Currently 7 of the 8 species of mangroves have become rare or extinct in Pakistan, unfortunately environmental laws are largely unenforced and there is little accountability for the pollution producers to stop polluting and little incentive on conservation. (A.Wood, P. Stedman-Edwards, J. Mang 2000) Pollution simply eradicates ecosystems and results in losses to biodiversity.

Unsustainable natural resources that are pure public goods are very difficult to manage. In 1986 the New Zealand government implemented a quota management system (QMS) it attempted to stop the overfishing of inshore fisheries; this overfishing was thought to be the result of a 1970s initiative to increase fishing and expand exports, it wasn’t until this policy was implemented did the policy failure start to subside.  Pure public goods are non-excludable and non-rival this causes people to overuse the resource to maximize their own profits, unfortunately this theory does not align with conservation theories.  Fisheries, mines, and commercial farms are annex land and extract the natural resource; this depletes the current ecosystem and reduces biodiversity.  “In case of wood extraction as a proximate cause for biodiversity loss, commercial logging is mostly mentioned and fuel wood collection is mentioned to a lesser extent. After the 1950s, increasing demand for Asian timber led to the extension of commercial logging activities.” (N.Sodhi 2004)

Climate change increases stress on the environment; it can aggravate the effects of other pressures, including loss of habitat, conversion of land, over-exploitation, introduction of alien species, and pollution.  Climate change is broadly defined as a significant statistical change in properties over time in a climate system.  As global temperatures rise fragile ecosystems that are unable to cope become extinct directly impacting ecosystem biodiversity. Climate change is having significant impacts on the health of the ocean, coral reefs, artic ice and some species that lack the natural ability to adapt will assume the negative externalities of climate change. Contrasting yet similar to the effects on the ocean desertification also negatively effect other ecosystems globally, for example “Climate change has also been implicated in the decline of amphibians in tropical montane forests. (Pounds, Fogden and Campbell 1999)  Overall increases in climate change increase the likelihood for biodiversity loss, due to increases in global temperature and vulnerable species inability to adapt loss in biodiversity is inevitable.

A policy should be implemented when it corrects real or perceived market failures.  To ensure that the benefits of the government intervention exceed the costs suitable planning, implementation and enforcement must occur. Before examining some ways to solve the market failure and make correct policy decisions, we will explore a realistic measurement tool currently in place to help assist countries in making environmental policy decisions. The Environmental Performance Index (EPI) acts as a standard of measurement for a countries environmental performance in relation to its government policy. This baseline acts as a reference point, contributing countries can then be compared or assessed and in the case of EPI ordered and ranked. These results are significant to many audiences; the government needs to see tangible results from investments in environmental protection in order to keep allocating resources to the environment.  Private and public firms could potential see increases in costs from carbon taxes or new environmental requirements, contrary there could be a potential for a new emerging green sector where innovative investors could profit.  The populace would also be able to use the results to evaluate the government, are whether the concerns for health and environment being replicated into policy.  Overall the government can look at the ranking and use this as a benchmark on the evaluation of the current policy in place, is this a success or failure are we seeing improvements or deteriorations, and what are the plans for the future.

The EPI builds on the 2000 Environmental Sustainability Index (ESI) data-driven evaluation through quantitative metrics.  2012 EPI ranks 132 (*193 countries world wide) countries on 22 performance indicators in 10 policy categories, The 10 policies are grouped under 2 objectives “Environmental Health & Ecosystem Vitality”. 2012 EPI uses a set of core indicators that meet high standards, (direct measurement over modeled data) standardized time series and institutional commitments to maintain current and future data. Historical data has been recorded for the last ten years which allows governments to track overall performance. In each country an indicator or “proximity-to-target” value is created, this measures the gap between perceived and actual outcomes of a policy.  The generic formula for the proximity-to-target indicator calculation in the context of the global EPI is as follows:

(International range) – (distance to target)

              —————————————————-          x 100

(International range)

Data is collected from international sources, research institutions, government agencies and academia. Data analyzed comes from formal reporting, spatial data, observations and modeled data. After the data has been transformed by dividing by GDP  (creates comparability across countries) other distortions need to be adjusted for, logarithmic instruments differentiates between performers. Lastly the transformed and logged data is converted into indicators, the indicators are uniform and with a common unit to assess aggregate up to the index.

The EPI is a suitable measure because it sets up a critical value based on the countries own projected target, this way the government has some individual quantitative results to help analyze if the instrument or policy was successful or not. These results and standards should help guide policy planners in the future as to where society could see the most gains overall.

To overcome market failure there needs to be a reform of unsuccessful government policies: new or amended laws, taxes, subsidies, direct market interventions are a few examples of improvement policies that could ease market failure. In addition to the reform the strategy must have benefits that exceed costs, there should be a distinction between direct and indirect costs as well as an outcome based versus input based cost benefits analysis.  Policies should aim to correct previous objectives that override the environment. They should also correct national competitiveness to increase sustainability of resources. The government needs to pay special attention to social equity, rent seekers and inefficient & inadequate policies; these will all need to be improved in order to stop increases in biodiversity loss.

In order to fully correct the market failure you need to also evaluate the previous policies in place, there are various market distortions that would have to be addressed. Typically taxes undervalue natural resources, for instance an export tax that causes distortionary prices in the market, the same goes for subsidies that encourage environmental degradation for example a fuel subsidies, decreased costs resulting from the subsidy lead to increased fuel use, subsequently increasing CO2 emissions. Another example is a policy supporting production is the use of quotas, this leads to wasteful or high grading extractions (deforestation, over fishing) a solution to this could be the incorporation of Individual transferable quotas (ITQ) The ITQ quotas are considered permanent but are subject to specific rules and regulations set out in the policy, such examples include restrictions on species type and fishable area. The quotas aggregate to a total allowable catch (TAC) this total acts as a safeguard to ensure that only a sustainable number of fish are harvested. The TAC can be increased or decreased depending on the health of the fish stock and the desired sustainable demands of the government. 
The benefit of this is mechanism is tradable individual property rights create the elasticity to lower production without large-scale losses in profits.  Ideally governments would like to build on what is already preexisting, more importantly decision makers will need to reflect on the nature of the problem.

Once they identify proximate and root causes of the problem they can apply a practice of good governance to the new policies implemented. This implementation should be: transparent, inclusive, responsive, timely and accountable.  Globally there needs to be a re-establishment of a link between resource scarcity and resource price, this will help stimulate efforts to seek out substitutes or green alternatives and focus attention on conservation.

A successful policy reform will include comprehensive development, planning and investment. It will remove distortionary subsidies and deregulate and reallocate rules and regulation with appropriate taxation.  It should also allocate land tenure and maximize utilization.  Policies should be decentralized and have a focus on determining a full value of the natural resource. This valuation will be difficult, valuing of natural resources is unexplored there needs to be value that reflects both a value to society as well as market value.  Once these market and policy failure have been accounted for, policy planners and decision makers can then choose reform actions to create sustainable solution that will ideally reduce global biodiversity loss.

References

D. Pimentel, M. Tort, L. D’Anna, A. Krawic, J. Berger, J. Rossman, F. Mugo, N. Doon, M. Shriberg, E. Howard, S. Lee, and J. Talbot, 1998. Ecology of Increasing Disease 
Population growth and environmental degradation Bioscience Vol. 48 No. 10. Available from http://dieoff.org/page165.htm

A. Lovins, 2002. Real Security, What is security? Where does it come from and who is responsible for it? Resurgence issue 218 Available from http://www.ngws.org/service/Articles/real_security.html

Dorward et al., 2004; Duclos & O‘Connell, 2008, Agricultural Policies for Poverty Reduction: A Synthesis. By Organisation for Economic Co-Operation and Development OECD (2012), Agricultural Policies for Poverty Reduction: A synthesis, OECD Publishing http://dx.doi.org/10.1787/9789264167698-en

Available from http://www.oecd.org/dataoecd/50/35/46340359.pdf

V. Dale, S.. Pearson, H.Offerman^†, R.O’Neill, 2002. Relating Patterns of Land-Use Change to Faunal Biodiversity in the Central Amazon DOI: 10.1046/j.1523-1739.1994.08041027. Available from http://onlinelibrary.wiley.com/doi/10.1046/j.1523-1739.1994.08041027.x/abstract

A. Campbell, N. Doswald 2009, The impacts of biofuel production on biodiversity: A review of the current literature December 2009. UNEP-WCMC, Cambridge, UK Available from http://www.cbd.int/agriculture/2011-121/UNEP-WCMC3-sep11-en.pdf

A.Wood, P. Stedman-Edwards, J. Mang 2000, Root Causes of Biodiversity Loss. Earthscan Publication Ltd. UK. Available from http://books.google.ca/books?hl=en&lr=&id=haIGoPpqTRgC&pgis=1&redir_esc=y

N. Sodhi, L. Koh, B. Brook, P. Ng (2004). Southeast Asian biodiversity: an impending disaster. TRENDS in Ecology and Evolution Vol.19 No.12

December 2004. Available from http://rmbr.nus.edu.sg/news/pdf/sodhietal-tiee2004.pdf

Pounds, J.A., Fogden, M.P.L., and J.H. Campbell 1999. “Biological response to climate change on a tropical mountain.” Nature 398(6728): 611-615. Available from http://www.eoearth.org/article/Talamancan_montane_forests?topic=49597

A.Slingenberg, L. Braat, H. van der Windt, K. Rademaekers, L. Eichler, K.Turner 2009. Study on understanding the causes of biodiversity loss and the policy assessment framework, In the context of the Framework Contract No. DG ENV/G.1/FRA/2006/0073 Specific Contract No. DG.ENV.G.1/FRA/2006/0073

Final Report.  Available from http://ec.europa.eu/environment/enveco/biodiversity/pdf/causes_biodiv_loss.pdf

Environmental Performance Index (EPI), Yale University. Available from http://epi.yale.edu, full report http://epi.yale.edu/sites/default/files/downloads/2012%20EPI%20Full%20Report.pdf

K.Lock, S.Leslie 2007. New Zealand’s Quota Management System: A History of the First 20 Years. Motu Working Paper No. 07-02 Available from http://ssrn.com/abstract=978115

Anuar Tuleshov

Nicole Hannay

Economic Instruments – Charges and taxes

Sweden Nitrous Oxide Charge

Introduction

One of the most destructive creations of human-made-pollution is acid rain, sulphur dioxide (SO2) and airborne emission of nitrogen oxides (NOx) are the main components of acid rain, this rain causes significant widespread damage throughout Sweden and the rest of the world. Acid rain is especially harmful to vegetation and wildlife. The consequence of airborne emission (NO2) could be further eutrophication of forestland and marine ecosystems. This reaction that the ecosystems are forced to endure act as a response to increases in additional external affluences (nitrates & phosphates). Consequently that leads to high concentrations of unnatural nutrients, especially phosphates and nitrates. These typically promote excessive growth of algae, as the algae die and decay high levels of organic matter and the decomposing organisms deplete the amount of available oxygen. This depletion causes the death of other organisms and is felt the entire way up the food chain resulting in overall losses in biodiversity.

Sweden initiated a new agency in 1967; the Sweden Environmental Protect Agency (SEPA) it was founded with the purpose to implement environmental policies.  Acid rain or any kind of acidification is harmful to Sweden because most of its areas are covered by granite bedrock, which is very vulnerable and can be heavily affected by acidification. The main problem Europe is facing is that even if a country for example, Sweden will reduce its pollution their environment will still be affected by pollution that was produced in the nearest country or elsewhere. This has made the producers of acid rain elements, nitrogen oxides (NOx) and sulphur dioxide (SO2) important factors as environmental policy targets in Sweden (and Norway). In 1985 the Swedish Parliament established a target to reduce nitrogen oxide emissions to 30% below their 1980 level by 1995. By 1991 emissions had been reduced by over 70% (OECD, 1997) the objective was met in 1998 (Hőglund, 2000). Existing regulatory policy was not deemed sufficient to meet the target, thus the NOx charge was introduced. This policy was initiated in 1991 and implemented by the government in 1992.

Changes were taking place as early as 1990 when some companies took the initiative to reduce emissions in anticipation of the charge. In 1992, the initial year of the charge, emision levels dropped 36%. (R.Branlund, B. Kristron 1997)

Primary sources of nitrogen oxides (OECD, 1997, pp43):

• road transport 41%;
• industrial machinery and processes 27% ;
• power generation 11%

Main goals

In combination with the reduction of the pollution, the policy aimed to rise and foster investments in new technologies that will further reduce emissions. Moreover, the policy was introduced in order to improve the existing policy and its regulatory measures. (Barde & Smith, 1997) and ‘to allow cost-effective implementation of measures to reduce emissions below the levels required under the permit procedure’ (OECD, 1997). The NOx charge has been directed at reducing emissions from the power generation sector and large combustion plants in industry, and is thus aimed at a relatively small proportion of total emissions (OECD, 1997).

Coverage and how it works

The mechanism can be considered partially implemented because only large combustion plants had to pay the compulsory charge. There were also high costs of metering and abatement, which were unreasonable for small plants, thus small plants were excluded. If a tax without refunds had been applied to only a subsection of some industry then this would have been unfair compared to other firms in the same industry. In this case, if the tax were applied only to the large plants, large companies would have an incentive to set up several small combustion plants instead of one big one and this is typically not environmentally friendly or economically feasible.  As the system progressed and turned out to be effective, costs for abatement and metering have dropped and the criterion for inclusion has been lowered twice: in 1996 plants producing at least 40 GWh useful energy per year were included and in 1997 the boundary was lowered to 25 GWh. In 1992, only 200 plants were subject to the charge, compared to 400 plants in 1998.

SEPA has approved technology for measuring pollution. Firms should measure their emissions by this equipment otherwise standard assessment was used for measuring. There is a form that all firms and plants must fill out. This form was pertaining to their NOx emitted and energy produced. SEPA audits the firms and randomly selects a number of firms each year for inspection. The goal is to make an inspection of each firm every fifth year. In the beginning of each calendar year the plants send in the form declaring their respective emissions and energy produced. The firms have to pay their net charge before October 1st and SEPA refunds the plants before December 1st each year. Each firm can have several production units, which are monitored separately. This two-month period keeps cash flow problems to a minimum. The policy instrument was well adopted and firms reduced emissions. (incentive effect) (Sterner, 2003)

Tax & Taxation Rate.

The tax rate emissions charge that is applied to firms is 40 SEK per kg NOx that operate beyond 10MW, approximately 66.6% of plants and industrial factories were subject to the tax. The NOx charge is in place to help combat the effects of the power-generating sector, hence the rate for large and medium firms emissions. The rate was set at 40 because the range showed costs varing from 20-80 SEK per kg. Taxed plants have been able to reduce emissions on an average cost of 10SEK in the initial year.

Revenue from the tax are rebated back to taxpayers, the rebated amount is established on the amount of energy generated.  Firms record and measure the NOx emissions generated in within the year and submit the information to SEPA.  Total revenue and refunds are calculated on a per MwH rate, the charge shifts the income from high to low emitting plants creating a balance. “In 1992, for example, approximately 15,300 metric tons on NOx emissions were subject to the charge, generating about 610 million SEK ($90 million). As a result of the revenue and rebate calculations, over 100 million SEK ($15 million) was transferred from high-emitting to low-emitting facilities.” (yosemite.epa.gov)

(for 1992 reductions of 9,000 metric tons) Source: Swedish Ministry of the Environment and Natural Resources (1995), p. 47.

Overall it is an idyllic policy, unfortunately as is the nature of the environment and air pollution until all producing countries sign on to the same initiative results we be inconclusive.  Not all NOx emissions are captured in the charge; companies still operate just below the threshold and avoid the tax. Until the minimum level is lowered firms will use this as a loophole.  Generally speaking emission levels have decreased in Sweden since the implementation of this NOx charge, that is ultimately a benefit to Sweden nationally as well as a benefit to the global community.  Other countries could benefits from the research and development and advances in technology Sweden has made and future policy planners and implementers can look to Sweden for a successful model for this type of tax

References

http://www.economicinstruments.com/index.php/air-quality/article/73-

Barde, JP. and Smith, S. 1997. Do Economic Instruments Help the Environment? The OECD Observer, No.24, Feb/Mar 1997, pp22-26

http://www.oecd.org/publications/observer/209/ART_IDXE.HTM

Hőglund, L. 2000. Evaluating Economic Instruments for Environmental Policy, OECD 1997, pp43-46 (order form at http://www.oecd.org//env/policies/publications.htm#eistrpub ) Review Meeting First Draft Update Taxes Report: Agenda Updated

R.Brännlund and B. Kriström  Energy and Environmental Taxation in Sweden: Some Experience from the Swedish Green tax Commission Invited Paper ”Environmental Implications of Market Based Policy Instruments” Gothenburg, Nov 20-21, 1997

http://www-sekon.slu.se/~bkr/gbg.pdf

Parry, I. W. H. (1995). Pollution Taxes and Revenue Recycling. Journal of Environmental Economics and Management, November 1995, 29 (3).

G. Harrison, and B. Kriström, 1997 Carbon Taxes in Sweden, i Skatter, miljö och Sysselsättning, SOU 1997:11, underlagsrapporter till Skatteväxlingskommitténs slutbetänkande.

http://yosemite.epa.gov/EE/epa/eed.nsf/fa6512c6e51c4a208525766200639df2/f5f2680e0a67338385257746000aff2d!OpenDocument

http://www.rspo.eu/docs/rspo_presentation_extended.pdf

I think that overall this initiative alone is insufficient to be the solution to forest conversion problems in Indonesia.

Inherent market failure is occurring in Indonesia, there appears to be a lack of understanding that the problem lies with the concept of scarcity and not just sustainability. Without the understanding of this initial resource problem it will be difficult to adequately respond to the pressures of forest conversion.  In this case there needs to be identification of 3 things to help bring success to the policy: uncertainty of tenure, under valuation of resources and under regulation of negative externalities.

Presently in Indonesia there is a problem with uncertainty of tenure. Having land and then having property rights that are without a legal definition, that are not enforced and are poorly valued will lead to market failure.  Land owners, whether it be the government or private firms are left without confidence and have feelings of insecurity with a lack of property rights. Therefore these problems would need to be initially solved in order to not have market failure.  This would be important because the goal of this initiative is the conversion to sustainable land and development. These developments need to have visible benefits to farmers and land owners in order for them to change there farming practices, without long term benefits these initiatives become unappealing. With 25-year contacts you would profit maximize, take as much as you could and leave. Where is the initiative to choose sustainable?

The presentation acknowledges there could be conflict with social issues such as: land ownership, workers rights, conditions, and the treatment of small-holders. What it appears to be missing is the social, and economic valuation of the land.  This under valuation of the forest is a real problem. The undervaluation not only discourages open markets, it also cuts market opportunity, which could possibly lower the price. Without some valuation of the natural resource we cannot show how this would effect society is a cost/benefit analysis.  There is also no measure to show the reflection of value to society.

What helps is having measurable goals/targets and a baseline to work of from. These should be transparent and can create a total economic value

(RSPO) has preliminary regulation in place – Codes of conduct, certification bodies, principles, supply chain certification and guidelines on communication.  What is import to make this initiative successful is governance of these programs to make sure that they are adhering to these codes of conduct and that they are: transparent, inclusive, responsive, timely and accountable.  Policy failure occurs when this under regulation and un-enforcement takes place in the market place. As a result there is corruption and the government is seen as centralized which creates a displacement between the land and the government.  There are potential problem in the supply chain for corrupt blending, or arbitrage from rent seekers. Therefore Indonesia would need to increase this enforcement, which appears to be lacking in the presentation.

“pathology of resource management” Holling et al. (2002a: 6)

Hollings quote is a simplistic description of the summary of Alaska Tongass case study whereby the authors are investigating the linkages between market failure and policy failure.

Although concise this case study is both analytical and logical in its questions and findings.  Primary strengths of this brief include the identification of key dynamic interactions (resource governance and management supply) and the role they play within the theoretical framework and diagnostic methods. They apply a realistic measurement approach (adaptive cycle), and clearly identify 4 distinct phases within the cycle backed by empirical data (ex. longitudinal analysis).  This case sets up a strong research inquiry with 6 key questions they intend to answer. The questions presented unfortunately are insufficient in themselves to provide a full scope of the Tongass National Forest failure.

The initial question is left incomplete as the case study identifies many policy and market failures but is unable to identify a primary offender, instead creates a grouping of institution, policy and economic subsystems, which lacks transparency.  The second question is innovative in trying to identify the weakness of the strategy this will be beneficial in identifying recommendations for the future.  The third and fourth question, are well answered in the case study with evidence and valid correlations, they are impartial and also attribute world market fluctuations into the analysis which is a positive.   The last 2 questions are where there could be improvements in the study, more perspective is needed on the social and environmental impacts, as well there could be room for stronger recommendations for the re-organization phase 5. As well there is a lack of additional examples of this specific type of market/policy failure.  Overall it was a strong case study that positively identified key issues that caused this market failure.

References

Beier, C., A. L. Lovecraft, and T. Chapin. 2009. Growth and collapse of a resource system: an adaptive cycle of change in public lands governance and forest management in Alaska. Ecology and Society 14(2): 5. URL: http://www.ecologyandsociety.org/vol14/iss2/art5/

Holling, C. S., and G. K. Meffe. 1996. Command and control and the pathology of natural resource management. Conservation Biology 10:328–337.

Australian Policy

Clean Energy

Nicole Hannay

Anuar Tuleshov

February 29, 2012

“The world’s most emission-intensive advance economy is prepared to use a market mechanism to cut carbon emissions in a low-cost way.”

Deutche Bank Carbon Agent

Tim Jordan.

Australia is a country that widely supports the idea to halt the growth of the countries carbon dioxide emissions they contribute to worldwide. Different approaches and policies have been attempted so far by the government in order to meet requirements of the Climate Change Convention and Kyoto Protocol.  Australia’s The Clean Energy Bill (2011) is a policy that was introduced into Australian legislation in October 2011; it is a groundbreaking movement in the Carbon Tax and Emissions Trading Scheme (ETS) seen as a policy tool for reducing emissions.  Overall this policy has revolutionary potential for being a leader in global climate change.

Leading up to this bill Australian political parties had already agreed upon a common goal – reduce carbon dioxide emission and limit global warming.

The coalition government (John Winston Howard) coincided with the labor party (Kevin Michael Rudd) on an emissions trading scheme strategy, they agreed ETS was the direction to move Australia forward.   The election of 2007 secured the win for the labor party, and resulted in the implementation of the Carbon Pollution Reduction Scheme.  The opposition liberal party took a contradictory stance on the ETS model after a leadership change in December 2009 and consequently opposed further movement in the policy. Ironically more leadership change is what reignited the ETS debate. Julia Gillard successful defeated labor party leader Kevin Rudd in June of 2010, and in the federal election in August 2011 formed a minority government with support of 3 independent members of parliament (MPs) and Australian Greens MP.  The controversy ensued when the Clean Energy Bill was announced in February 2011, it would consist of 2 mechanisms: First starting out as a fixed price carbon tax (July 2012) and then it would progress into a floating price emissions trading scheme after 3 years, essentially a cap and trade policy (July 2015).  This was seen as controversial because Gillard had made political promises to not implement a carbon tax while in power– this was a political concession the party made to the Australian green party in order to secure a minority government.  Such is politics.

There are a few primary goals that the Australia government has decided to aim towards in this carbon policy.   It introduces the carbon pricing mechanism in such way that deals with assistance for emissions-intensive trade-exposed industries (the Jobs and Competitiveness Program) and the coal-fired electricity generation sector.

Australia has the highest level of emissions per capita of the developed nations and even though they are only responsible for 1.5% of global emissions that fact that they are emitting at the highest rates is cause for concern.  The reason for the high per capital emissions stems from Australia’s dependency on coal, coal generates 80% of electrical energy for Australians and is a high source of carbon emissions.

Clean Energy

Objects:

• to achieve Australian`s obligations under Climate Change Convention and Kyoto Protocol
• -5% of 2000 by 2020,
• increase global awareness about climate change
• take action to reach Australian`s long-term goals (reduction GHG emissions to 80% below 2000 levels by 2050
• take that actions in a cost effective way
• put a price on GHG emissions that fosters and encourages investment in Clean Energy usage
• support economic growth of Australia
• jobs and competitiveness of the economy
• Cut 120 million tonnes in Australian carbon pollution by 2020 (ie 45 million cars off the road over the same time)

Another objective the Australian government has is to increase the energy efficiency of existing and new firms.  Australia is pushing towards power generation in the renewables sectors as well as in natural gas, these are some of the long term goals of the policy.  This is important in evaluating the effectiveness of achieving the policy goals.  This policy has already seen an increase in spending and exploration by 62% this has not deterred new investment it has encouraged it.

The 2 phase mechanism is initially a fixed carbon tax that is applied on a per tonne rate. A$23.78, this will affect the top 500 polluters in Australia starting July 2012.   The 500 polluters will be required to purchase permits for each tonne of CO2 they emit.  To ease the burden of this new policy, emission intensive trade industries (steel, aluminum, zinc) will receive 94.5% of the carbon permits for free for the first 3 years, this ideally will buffer them into the new policy.  The carbon price is equal to the cost per tonne emitted; this results in financial incentive for a firm to cut emissions.  By 2015 ETS will be in full effect, the companies involved will need a permit for every tonne they emit.

Since Australia is trying to reduce carbon pollution, basically it requires strong legislative law in order to abate pollution. If Australia takes no action by 2020 our carbon pollution could be 20 per cent higher than in 2000, not 5 to 25 per cent lower as the Australian Government intends. The Australian Government’s targets are equivalent to a reduction in every Australian’s carbon footprint of nearly one third to one half. To help reach these ambitious targets of lowering these emissions, the Australian Government is developing and putting in place the policies we need through clean energy to support Australian businesses and households, reduce their carbon pollution, to create the new green-collar jobs of the future and to transform our economy.

How could goals be achieved? First and foremost, the Government should have right and appropriate law. Then it has to encourage investment in clean energy.($5 billion dollars were invested for developing new clean energy technologies). The technologies that will be developed in Australia also can be helpful to the rest of the world to reduce their carbon pollution. Moreover, the tax that will be imposed to any entity that emits pollution, will encourage the use of clean energy technologies. Also the comprehensive plan aims to introduce a carbon price and invest money in renewable energy. It includes transforming the energy sector away from high polluting sources such as brown coal and storing carbon in the land through better land management strategies.

Implementation over time. The mechanism begins on 1 July 2012, and operates on a financial year basis.  The financial years beginning on 1 July 2012, 1 July 2013 and 1 July 2014 are fixed charge years.  However, in the flexible charge years beginning on 1 July 2015, 1 July 2016 and 1 July 2017, some carbon units may be issued for a fixed charge (to act as a cap).

What Australia was able to do was identify the externality and assume the cost into the market price.  The carbon emitted was external to the market price, Australia then used that cost to make the decision on its price. This carbon tax or pigovian tax is levied on market activity that creates the negative externality (carbon) essentially it is intended to correct the market failure so that social costs are covered by private costs.  This is where Australia is so successful.  The government is gaining tax revenue from the companies who are emitting CO2 and instead of just raising the tax base they are redistributing the taxes elsewhere.  This is revolutionary because the tax is being reallocated to lower the income tax of the poor.  In a Robin Hood like metaphor they are stealing from the rich to feed the poor, or taxing the bad and lowering taxes on the good.  The bill also creates income tax reductions for those earning <$80,000 a year and will increase the tax free minimum earning from $6,000 currently to $18,200 in 2012 and further to $19,400 by 2015.

These mechanisms positively impact the poor because they are working from the bottom up, a very socialist perspective. In addition to helping the lowest income earning and giving cuts to the essential middle bracket, the bills also offers personal tax cuts for 90% of workers.  Overall this is a comprehensive scheme when it comes to maximizing social benefits for the citizens of Australia. It is innovative, revolutionary and has strong financial support from both the public and private sector. Notwithstanding more political interjections the Clean Energy Bill (2011) could be the first step towards a successful global climate change initiative.

Even though implementation of this policy requires tremendous investments, it is worth every dollar spent. Australia and the rest of the world will benefit from it.

References

http://www.climatechange.gov.au/en/government/reduce.aspx

http://www.pc.gov.au/projects/study/carbon-prices

http://www.carbontax.net.au/

http://www.cleanenergyfuture.gov.au/

http://www.forbes.com/sites/timworstall/2011/10/12/the-australian-carbon-tax-finally-someone-gets-it-right/

http://agneyablog.wordpress.com/2011/12/06/australian-carbon-tax-facing-the-uncertainity/

http://www.reuters.com/article/2011/07/17/us-australia-politics-idUSTRE76G2ZQ20110717

http://www.reuters.com/article/2011/11/08/us-australia-carbon-view-idUSTRE7A70IV20111108

http://www.reuters.com/article/2011/11/07/us-australia-carbon-idUSTRE7A60PO20111107

A week in Review

The goal for this week was to just not lose any more money but instead just to finish with a strong positive move.  Overall I made some small gains for the week, this week with my current position I made an additional 5000.  This was great it brought me closer to net zero but unfortunately I finish in the black for the trading game.

The good news it my lowest point in the game was  Nov 8^th and since then it has been nothing but gains +14500 in the past 10 days.

The week started off with a drop off last weeks close rally Tuesday and Wednesday for wheat and corn, then I made my gains as the market dropped Thursday and Friday.

Soybean which I hold currently no position is followed the same pattern as the other commodities this week.

Overall I found it difficult to recover from my losses from the first 4 weeks when there was such a dramatic series of price drops in mid October. The lack of movement made it difficult to make sizable gains and continuously move towards any direction on more of a weekly strategy.

Generally  I enjoyed the game, I wish it could extend long now that I have a better understand of the market and the movements these 3 commodities will make.

The Great Offset

Friday November  11^th – Ready for the comeback! Monday I watched the open and closes for the commodities,  Everything open slightly lower then last weeks closes with the exception of Wheat but it was still tight. I planned to get rid of all my short contracts I bid long to offset was successful in only soybeans and wheat, my price was 650 a bit to aggressive and therefore was not accepted. I am still looking at a weekly long position instead of day trades so I had hoped to place bids slightly higher then my current offset prices later for Friday.  Finally I made some gains back on my losses my offset this week pushed me up 5000.  Since these past 3 weeks have been so uneventful it has been difficult to apply technical indicators or anything other then new sources for your trading strategy.  The grains market has been uninteresting with higher volumes trading but the prices really close only trading between ¾ -1%.

http://www.bloomberg.com/news/2011-11-07/soy-corn-may-open-lower-on-europe-debt-crisis-wheat-may-rise.html

This article is what I reviewed on Monday – and its predictions were pretty accurate with the over turnout of the week.  When I compared this to the technical indicators reviewed for the week :

–       Wheat – Bullish/Extremely

–       Soybeans – Bullish

–       Corn – Bearish ?

There is still some anticipation as to what is going to happen with the EU Debt crisis and with Berlusconi agreeing to step down it was strange not to see a more dramatic reaction in the prices. I think this is why is has been so difficult in the past few weeks, in a reactionary market big moves are what are used to adjust back and forth so in these past week with little movement there is also nothing to move against. This week I will stick with the conservative numbers close to 1% of the price until there are some definite indicators that the market is going to make a move!

Things that I am looking into over the weekend; what happens to the price of Soybeans as the November 2011 contract draws near its expiration.  Also Most US farmers are also done with the Soybean harvest so it will be interesting to see some final numbers and to look into what the storage cost and options are just to see what occurs to the Nov 2012 prices.

For wheat I am looking maybe to see if there will be a little shock to the price since poor weather is expected in Russia, Ukraine and domestically in the US as well.  I predict wheat prices rising and will definitely be in a long position for the week.

Corn – is unpredictable as the US debt crisis plays the wildcard with the quantity demanded decreasing being something speculators are forecasting.

The goal this week was to start the total overhaul, get out of short contacts and into long territory.  I thought the market had bottomed out and that there would be nothing but gains from here on out. Ha ha if only it was that easy. Then I read a convincing report from Bloomberg

http://www.bloomberg.com/news/2011-10-31/grains-soybean-futures-may-fall-as-dollar-s-rally-erodes-export-prospects.html

there was a prediction that Corn would open 6 to 8 cents lower…. (short…) the artcle further forcasts lower prices in all 3 commodities, wheat corn and soybeans. So this put my overhaul on hold.  I will attempt to with Wheat and Corn hold my short position and see if I can make some gains for the week.  Mondays prices 647 I figured 6-8 points down I placed a big of 640…. Tuesday surprise, up to 654. Loss!

On a side note the article has some specific times to watch, it is interesting to align these times to the daily trade prices.

11:00 U.S Export Inspections. – the reaction to price was decrease in 4 points from 10:30 to 11:00   – the USDA released 3 public reports on commodity exports.

1. daily press releases, lists sales or cancellations of large scales
2. weekly report of outstanding export sales during the current and next marketing year and level of export ship ent during the current year
3. weekly report of export inspections, which are the quantities loaded on carriers for export.[1]

Must have been a negative report to cause the drop in prices. This is just interesting to see what sort of effect certain reports have on prices.

The prices for the rest of the week bounced back and forward for corn and wheat. Soybeans instead had a minor drop on Monday and a steady recovery of its drop all week. I placed a 1180 bid November 1^st figuring that there would be a continuation in the downward trend but instead I saw a steady climb up for the rest of the week. (should be confident in moving long for next week)

I find it really difficult to use the technical indicators when the chart is so tight and there is not a lot of movement like we observed in September. October itself had remained pretty stagnant. I looked at what happened in the last 5 years for November to predict some trends for 2011.

2010 – Rising

2009 – Falling

2008 – Falling

2007 – Rising

2006 – Rising

great – nothing really consistent to move off of.

My prices this week were pretty close to the actual trading price it just was unfortunately in the wrong direct for contracts.

I am thinking this lackluster 2 past weeks of trading will result in some big moves next week. I am poised to move long. Moving 5 contracts in both wheat and soy and taking my current netted out position in Soybeans also into long territory .

Overall for the week, the NASDAQ, S&P and DOW Jones are all down this is also the case with Currency (Euro-USD). It will be interesting to see how the numbers look at todays close.

Weekly trading –

I started off thinking I needed to offset my 5 short contracts with Corn into a more conservative amount to 2 short contracts; therefore I would be offsetting 3 long contracts. I did this at a price of 651 this was an alright estimate as it was higher then the daily low. I looked at the range between low and high daily’s and it seemed to be getting more narrow hence my strategy to move 1% off the daily low. Overall for the week I made a good move by offsetting my short contracts at such a low price and I am now in a more stable position for next week. Corn this week only showed 1 read significant day where there was a minor drop in the price overall it finished at 651 a rather monotonous week for movement.

Soybeans I thought I would be moving down, I went short, and made some progress until the weeks end when the price rebounded back.

I made the same move for Wheat, short contracts this worked all week for me until the Friday rebound.

This week it looks as if the MACD lines will cross, this could issue a buying signal like in late August. The EU leaders met this week and have moved closer to securing a plan to help ease the European debt crisis, this Euro Deal could be encouraging news could have caused some positive re-enforcements in the market prices. I think I am starting to change my mind on the short contracts for the future… if speculators are taking more long contracts, this as we know will lower future prices and increase today prices. I am going to start off the week with a total over haul and move into long contacts for the next week for corn and wheat.

I still think that soybeans could drop lower in the market.

More to come