The Long Run Effectiveness of Social Cost-Benefit as a Policy Tool
Evaluating the Oxford Tract Proposal in an Ecological and Environmental Economics Framework
Cost-benefit Analysis (CBA) is a common economic modeling tool designed to aid policymakers by weighing costs and benefits to social welfare of a proposed policy. UC Berkeley is considering development of multiple sites for student housing, including the Oxford Tract Research Facility (OTFR). If conducted, a CBA could provide economic insight into the impacts of development of OTFR as an economic analysis was tasked by the OTFR Planning Committee in Spring 2017. But in the context of climate change, uncertainty in valuation methods leads to inaccurate estimations of future costs and benefits of a project. How do we make technical recommendations which include methods to capture long run risks and uncertainty associated with increasing scarcity of resources? How is this best applied?
Financial and welfare data was collected from UC Berkeley’s annual budget, funding and recharge costs to estimate operating expenses. Social and welfare estimations were pulled from previous literature that analyzed returns to public research on agricultural productivity. To conduct the CBA, a discount rate of 6.1% was chosen, as it is the expected rate of return on long term US debt assets, the most secure and most invested in debt financing option of the university. Time was chosen based on UC Berkeley accounting principles of longevity of assets. A literature review performed from studies in welfare, environmental, and public economics was conducted for history and current debates in the methodology under climate change scenarios. Documents relating to the University’s political strategic goals regarding housing and environmental goals were used to design the parameters of the cost benefit analysis.
The results of my work are a production of the sociopolitical mapping of the stakeholders involved in this decision-making which mapped both the referent group and structure of institutional goals under the Office of the President. Committees served as the main functional bodies which engage in the question of evaluating the OTFR for its functions. OTFR itself consists of agricultural research labs, greenhouses, growing fields, a bee garden, and 1 acre garden. When evaluated under a traditional CBA framework, development of land for student usage yields a higher Net Present Value (NPV) estimate and would lead policymakers to select Policy Scenario 2. Despite this result, upon conducting an overview of CBA literature from environmental and ecological economic perspectives, this methodology operates within a framework that cannot capture volatility in environmental assets or a low growth assumption that yields different intergenerational consumption preferences.
While both policy scenarios presently provide returns on investment, many factors were not considered in CBA and these limitations should be addressed with further recommendations as outlined in conclusions. Transportation costs, increased emissions, light and noise pollution, and destruction of native bee garden are environmental factors that were not evaluated under social welfare. Calculated separately with the Stern discount rate, Benefits to Cost Ratio is lower for both policy scenarios, demonstrating less deference of future costs but still does not fully capture qualitative and environmental concerns. To avoid making policy decisions under assumptions that do not accurately reflect future scenarios under climate change impacts, CBA needs to be more sensitive to institutional and social contexts of decision making.
An alternative CBA, considering principles of ecological economics and environmental economics would include the constraints of natural resources as a primary assumption in the model – restricting reliance on growth and altering the discounting methodology. This can be done in tandem with a steady state or de-growth model, that demands a constant capital stock, almost identical returns on future consumption, and increasing values of environmental goods and costs of environmental pollutants.
While both policies result in positive NPV, Policy 2 yields a higher NPV due to revenue generating. But, methods used to derive this estimate fail to account for an increasing demand for agriculture research/education given climate change’s impact on agriculture production, increased future costs of pollution, social and institutional goals of waste reduction, food system development, and environmental protection.
Alternative solutions must be considered when evaluating assets that are directly linked to the valuation of future consumption of natural resources given uncertainty in the context of climate change. This uncertainty creates volatility in our pricing of goods and services, especially those related to natural resources. All neoclassical methodological approaches to CBA hold paradoxical assumptions in climate change models and their demands on social preferences and costs of goods and services. CBA performs necessary economic analysis, but needs to be constrained by growing scarcity of natural resources, increasing value of said resources, and increasing variability in value given changes in future societal preferences.
- Make land use decisions which reflect the goals of the University of California Zero Waste by 2020 and the UC Global Food Initiative, which include but are not limited to “us[ing] the power of UC research and extension to help individuals and communities access safe, affordable, and nutritious food while sustaining our natural resources.”
- Account for UC Berkeley’s role as a public sector entity that is obliged to ‘optimize’ California’s public welfare, by considering both the larger context of food and agriculture and the housing to be provided for students. Ask how much social benefit Californians receive through market relief of housing students on campus instead of private rentals, and how much social benefit Californians receive from the public research, teaching, and innovation occurring at Oxford Tract.
- Engage students, faculty, and community members in expanding cost-benefit models to include more advanced and progressive metrics that use ecological economics premises, include a much broader range of costs and benefits, move away from just relying on readily monetized measures, and properly assess the issues according to the needs of of generations of students and Californians over the next few decades.
- Investigate other viable student housing sites before any decision to use Oxford Tract or other Berkeley-owned agricultural lands, with priority being given to options that would provide affordable housing for low-income students, meaning below market-rate.
- Any prospective alternative field research sites require expert assessment with regard to requirements for instructional and research purposes. This calls for expanding input into evaluation beyond the current emphasis on administrator, financial, and real estate advice. Many on-campus organizations and researchers can provide this expertise, including: the College of Environmental Design’s Terner Center for Housing Innovation; College of Environmental Design’s Institute for Urban and Regional Development; the College of Natural Resources many ecological, agricultural economics, and social science experts, including those with the Energy and Resources Group; and the Center for Business, Law, and the Economy at Berkeley Law.
- Undergo a transparent and inclusive decision-making process in addressing the campus housing crisis.. Increase engagement in campus decision-making through progressive strategies such as participatory budgeting, outreach to the City of Berkeley and to the campus community, and distributive weighting toward the needs of affected faculty, students, and researchers at the Oxford Tract.
- Work toward strengthening UC Berkeley’s field/garden, scientific infrastructure, and teaching facilities as part of a concerted campus-wide strategy to make the university a world-leading place of sustainable agriculture and food innovation. This is not incompatible with rapidly increasing affordable student housing: UC Berkeley can lead the way in showing we can have both better housing and better urban food systems, and thus rethink the prevailing paradigm of urban development.