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Strong progress – from a low base: here’s what’s in NSW’s biodiversity reforms

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Thursday, July 18, 2024

Wirestock Creators/ShutterstockThe laws designed to protect the environment in New South Wales are completely ineffective, according to the scathing Henry Review in 2023. In response, the state government this week announced a major overhaul of the Biodiversity Conservation Act, introduced in 2016. The Minns govermment has committed to introducing 49 of 58 recommendations made by the review, either in full or in part. First up will be reform of biodiversity offsets – the easily gamed and largely ineffective requirement for developers to offset their destruction of vital habitat with gains elsewhere. The state government is also promising to align reformed biodiversity laws with national and international goals, and set goals and targets to tackle threats, bring species back from the brink, and conserve landscapes at scale. Good news? Certainly – especially given the federal government has delayed reforms to national biodiversity laws. But there are still big gaps – especially around how to actually stop land clearing, which is a major driver of species and ecosystem loss in the state. These changes are essential, if we are to curb rapid and increasing rates of nature loss. Without them, around 500 species are predicted to become extinct in NSW over the next century and many nature-dependent industries – such as tourism, water supply and agriculture – will suffer. How do you fix the offset problem? Offsets are popular with governments because they offer the possibility of having your cake and eating it too. You want to develop a prime chunk of waterfront land, even though there are endangered koalas feeding in the trees? That’s fine, as long as you protect and improve koala habitat elsewhere to create an environmental gain equal to your destructive impact. Well, that’s the theory. In reality, research has demonstrated offset projects rarely achieve their promise of enabling development with no net-loss of biodiversity. Researchers have found biodiversity offsets in NSW are permitting major biodiversity losses to occur now in return for a “promise” of uncertain future gains. The biodiversity value of 21,928 hectare of habitat already cleared under this policy in exchange for averting loss’ elsewhere is estimated to need 146 years to be regained. The Minns government committed to reforming the biodiversity offsets scheme before winning the election. It will be the first nature law reform pushed through NSW parliament this year, while other reforms are not expected to reach state parliament until 2025. So what are these proposed reforms? Key measures include: requiring developers to take genuine steps to avoid and minimise impacts on biodiversity, before moving to offset their impact making payments into a biodiversity conservation fund only as a last resort. At the moment, developers often just make a payment to the government fund to “balance” their impact closing a loophole where mining companies can claim a “discount” against their environmental impact if they have plans to rehabilitate the mine site in future increasing transparency through public reporting. What else has the government promised? Other important promises in the NSW government’s plan include: bringing the state’s Biodiversity Conservation Act in line with national and international biodiversity conservation goals introducing a new nature strategy with targets for tackling threats, recovering threatened species, conserving landscapes and working to restore and connect fragmented landscapes across public and private land reviewing conservation programs to boost restoration efforts and support the goal of no new extinctions increasing recognition of First Nations cultural values and connection to Country, including bringing traditional ecological knowledge into environmental assessment processes expanding private land conservation agreements to recognise and protect Aboriginal cultural values and traditional ecological knowledge. What was missed? While these measures are positive, there’s one big gap – the failure to take stronger action against native vegetation clearing. The speed at which intact natural habitat is being destroyed in NSW has actually increased since the current biodiversity laws were introduced in 2016. The NSW Government’s own data show almost 100,000 hectares of native vegetation was cleared every year after the act was introduced. This is equivalent to a strip of land the entire length of the NSW coastline and almost 1 kilometre wide being cleared – every year. The lion’s share (83%) of the clearing was done for farming, though infrastructure claimed 10,000 hectares and forestry claimed more than 6,000 hectares a year. This week’s announcements included a commitment to review vegetation clearing codes. This is a welcome step but much more needs to be done to stop the large scale loss of habitat for native animals and plants in the state. Stopping the routine clearing of native vegetation will require both carrots and sticks – incentives and regulations. Clashing laws There’s another unresolved problem. The Henry Review found the effectiveness of the state’s biodiversity laws are being actively undermined by other state laws. When environmental conservation and economic growth clash, the economy usually wins. While the environment minister can comment on major projects with environmental impact, such as mine sites, in many cases their concerns can be ignored by other ministers and the project can be approved even if the environment minister objects. This needs to change. Genuinely protecting native species and ecosystems in NSW means the government has to elevate the environment as a priority with an equal seat at the table during decision making. No-go zones for development The Minns government announced it would increase the consideration of biodiversity in planning by producing maps which identify areas of current and future high biodiversity value. This is a step in the right direction. But the government did not take up the review’s recommendation to institute development no-go zones around natural places of particular value, such as vital Ramsar-listed wetlands and critical habitat of threatened species. No-go zones would provide clarity for developers and protect the habitat of our most critically threatened native species. Progress – from a very low base So how should we see these reforms? It’s progress, most certainly – but starting from a very low base. The natural infrastructure (functioning ecosystems, habitats and species) that underpin the economy and wellbeing of NSW has been steadily eroding since European arrival. The health of 90% of Murray Darling Basin rivers is rated poor or worse. Some 78 species have been driven to extinction and at least 1,000 more risk the same fate. Without major reform, half of these species are projected to go extinct over the next century, according to the Henry Review. We often take biodiversity for granted. Trees, shrubs, mammals, birds, insects, fish – they’ll always be there. But the natural world can only take so much punishment. Humans are also part of the natural world. We rely much more on functioning ecosystems than we would like to think, to provide clean water and air, pollinate and grow our crops, and attract tourist dollars. Read more: What will Australia's proposed Environment Information Agency do for nature? Hugh Possingham works for the University of Queensland, Accounting for Nature, and the Biodiversity Council. He currently receives grant funding from the Australian Research Council. He is affiliated with over 20 organisations providing pro-bono or limited renumeration, board or committee level advice. These include: BirdLife Australia (vice-President and board member), The University of Adelaide (Environment Institute Board Chair), various state and federal governments, the Terrestrial Ecosystem Research Network (Board Chair), AgForce, Conservation International, Queensland Trust for Nature, and several other NGOs. Most of his investments are in UniSuper - sustainable.Carolyn Hogg receives funding from the Australian Research Council and the NSW Department of Climate Change, Energy, the Environment & Water. She is a member of the Biodiversity Council and the NSW Koala Expert Panel. Jaana Dielenberg is a Charles Darwin University Fellow. She works for the Biodiversity Council and The University of Melbourne, and previously worked for the National Environmental Science Program Threatened Species Recovery Hub. James Trezise also contributed to this article.

Koalas in trouble, land clearing at speed – nature in New South Wales is not well. Now the government is proposing significant changes to its ineffective biodiversity laws.

Wirestock Creators/Shutterstock

The laws designed to protect the environment in New South Wales are completely ineffective, according to the scathing Henry Review in 2023.

In response, the state government this week announced a major overhaul of the Biodiversity Conservation Act, introduced in 2016. The Minns govermment has committed to introducing 49 of 58 recommendations made by the review, either in full or in part.

First up will be reform of biodiversity offsets – the easily gamed and largely ineffective requirement for developers to offset their destruction of vital habitat with gains elsewhere.

The state government is also promising to align reformed biodiversity laws with national and international goals, and set goals and targets to tackle threats, bring species back from the brink, and conserve landscapes at scale.

Good news? Certainly – especially given the federal government has delayed reforms to national biodiversity laws. But there are still big gaps – especially around how to actually stop land clearing, which is a major driver of species and ecosystem loss in the state.

These changes are essential, if we are to curb rapid and increasing rates of nature loss. Without them, around 500 species are predicted to become extinct in NSW over the next century and many nature-dependent industries – such as tourism, water supply and agriculture – will suffer.

How do you fix the offset problem?

Offsets are popular with governments because they offer the possibility of having your cake and eating it too. You want to develop a prime chunk of waterfront land, even though there are endangered koalas feeding in the trees? That’s fine, as long as you protect and improve koala habitat elsewhere to create an environmental gain equal to your destructive impact.

Well, that’s the theory. In reality, research has demonstrated offset projects rarely achieve their promise of enabling development with no net-loss of biodiversity.

Researchers have found biodiversity offsets in NSW are permitting major biodiversity losses to occur now in return for a “promise” of uncertain future gains.

The biodiversity value of 21,928 hectare of habitat already cleared under this policy in exchange for averting loss’ elsewhere is estimated to need 146 years to be regained.

The Minns government committed to reforming the biodiversity offsets scheme before winning the election. It will be the first nature law reform pushed through NSW parliament this year, while other reforms are not expected to reach state parliament until 2025.

So what are these proposed reforms? Key measures include:

  • requiring developers to take genuine steps to avoid and minimise impacts on biodiversity, before moving to offset their impact

  • making payments into a biodiversity conservation fund only as a last resort. At the moment, developers often just make a payment to the government fund to “balance” their impact

  • closing a loophole where mining companies can claim a “discount” against their environmental impact if they have plans to rehabilitate the mine site in future

  • increasing transparency through public reporting.

What else has the government promised?

Other important promises in the NSW government’s plan include:

  • bringing the state’s Biodiversity Conservation Act in line with national and international biodiversity conservation goals

  • introducing a new nature strategy with targets for tackling threats, recovering threatened species, conserving landscapes and working to restore and connect fragmented landscapes across public and private land

  • reviewing conservation programs to boost restoration efforts and support the goal of no new extinctions

  • increasing recognition of First Nations cultural values and connection to Country, including bringing traditional ecological knowledge into environmental assessment processes

  • expanding private land conservation agreements to recognise and protect Aboriginal cultural values and traditional ecological knowledge.

What was missed?

While these measures are positive, there’s one big gap – the failure to take stronger action against native vegetation clearing.

The speed at which intact natural habitat is being destroyed in NSW has actually increased since the current biodiversity laws were introduced in 2016.

The NSW Government’s own data show almost 100,000 hectares of native vegetation was cleared every year after the act was introduced.

This is equivalent to a strip of land the entire length of the NSW coastline and almost 1 kilometre wide being cleared – every year.

The lion’s share (83%) of the clearing was done for farming, though infrastructure claimed 10,000 hectares and forestry claimed more than 6,000 hectares a year.

This week’s announcements included a commitment to review vegetation clearing codes. This is a welcome step but much more needs to be done to stop the large scale loss of habitat for native animals and plants in the state.

Stopping the routine clearing of native vegetation will require both carrots and sticks – incentives and regulations.

Clashing laws

There’s another unresolved problem. The Henry Review found the effectiveness of the state’s biodiversity laws are being actively undermined by other state laws. When environmental conservation and economic growth clash, the economy usually wins.

While the environment minister can comment on major projects with environmental impact, such as mine sites, in many cases their concerns can be ignored by other ministers and the project can be approved even if the environment minister objects. This needs to change.

Genuinely protecting native species and ecosystems in NSW means the government has to elevate the environment as a priority with an equal seat at the table during decision making.

No-go zones for development

The Minns government announced it would increase the consideration of biodiversity in planning by producing maps which identify areas of current and future high biodiversity value.

This is a step in the right direction. But the government did not take up the review’s recommendation to institute development no-go zones around natural places of particular value, such as vital Ramsar-listed wetlands and critical habitat of threatened species.

No-go zones would provide clarity for developers and protect the habitat of our most critically threatened native species.

Progress – from a very low base

So how should we see these reforms? It’s progress, most certainly – but starting from a very low base.

The natural infrastructure (functioning ecosystems, habitats and species) that underpin the economy and wellbeing of NSW has been steadily eroding since European arrival. The health of 90% of Murray Darling Basin rivers is rated poor or worse. Some 78 species have been driven to extinction and at least 1,000 more risk the same fate.

Without major reform, half of these species are projected to go extinct over the next century, according to the Henry Review.

We often take biodiversity for granted. Trees, shrubs, mammals, birds, insects, fish – they’ll always be there. But the natural world can only take so much punishment. Humans are also part of the natural world. We rely much more on functioning ecosystems than we would like to think, to provide clean water and air, pollinate and grow our crops, and attract tourist dollars.


Read more: What will Australia's proposed Environment Information Agency do for nature?


The Conversation

Hugh Possingham works for the University of Queensland, Accounting for Nature, and the Biodiversity Council. He currently receives grant funding from the Australian Research Council. He is affiliated with over 20 organisations providing pro-bono or limited renumeration, board or committee level advice. These include: BirdLife Australia (vice-President and board member), The University of Adelaide (Environment Institute Board Chair), various state and federal governments, the Terrestrial Ecosystem Research Network (Board Chair), AgForce, Conservation International, Queensland Trust for Nature, and several other NGOs. Most of his investments are in UniSuper - sustainable.

Carolyn Hogg receives funding from the Australian Research Council and the NSW Department of Climate Change, Energy, the Environment & Water. She is a member of the Biodiversity Council and the NSW Koala Expert Panel.

Jaana Dielenberg is a Charles Darwin University Fellow. She works for the Biodiversity Council and The University of Melbourne, and previously worked for the National Environmental Science Program Threatened Species Recovery Hub. James Trezise also contributed to this article.

Read the full story here.
Photos courtesy of

EPA approves pilot project to make road out of radioactive material in Florida

The Environmental Protection Agency (EPA) has approved a pilot project that would allow a company to build a small road made out of a radioactive fertilizer byproduct — drawing environmentalist ire. The Biden administration's approval allows Mosaic Fertilizer, LLC to construct a road made of phosphogypsum on its property in New Wales, Fla.  Phosphogypsum contains...

The Environmental Protection Agency (EPA) has approved a pilot project that would allow a company to build a small road made out of a radioactive fertilizer byproduct — drawing environmentalist ire.  The Biden administration's approval allows Mosaic Fertilizer, LLC to construct a road made of phosphogypsum on its property in New Wales, Fla.  Phosphogypsum contains radium, which decays to form radon gas, both of which are radioactive and can cause cancer, according to the agency. In the past, the agency has raised concerns about the use of this material in road building. It said in 1992 that use of phosphogypsum in road construction created risks for both construction workers and also anyone who later builds a home where the phosphogypsum road had once been.  The agency now says that members of the public are not expected to come into contact with the road. However, Mosaic, which will build the road, has described the effort as part of a pilot project that will “demonstrate the range of … road construction designs.” It’s not clear if additional road construction will follow — though doing so would likely require further approvals.  Ragan Whitlock, an attorney with the Center for Biological Diversity, said in a written statement that the EPA’s decision was “mind-boggling.” “That dramatically increases the potential for harm to our road crews and water quality,” Whitlock said. “The EPA has bowed to political pressure from the phosphate industry and paved the way for this dangerous waste to be used in roads all over the country.” In 2020, under the Trump administration, the EPA approved the use of phosphogypsum in government road construction.  That approval was withdrawn under the Biden administration, which described it as a broad, generalized request. It’s not clear whether the incoming Trump administration will seek to reinstate it.  Typically, phosphogypsum is held in “stacks” as part of an attempt to limit public exposure, though this approach has also spurred environmental concerns — particularly in states like Florida that are prone to storms. In approving the road plan, the EPA said that it was "as protective of human health as placement in a stack."

El Salvador overturns metals mining ban, defying environmental groups

President Nayib Bukele pushed for the legislation that will grant government sole authority over mining activitiesEl Salvador’s legislature has overturned a seven-year-old ban on metals mining, a move that the country’s authoritarian president, Nayib Bukele, had pushed for to boost economic growth, but that environmental groups had opposed.El Salvador became the first country in the world to ban all forms of metals mining in 2017. Bukele, who took office in 2019, has called the ban absurd. Continue reading...

El Salvador’s legislature has overturned a seven-year-old ban on metals mining, a move that the country’s authoritarian president, Nayib Bukele, had pushed for to boost economic growth, but that environmental groups had opposed.El Salvador became the first country in the world to ban all forms of metals mining in 2017. Bukele, who took office in 2019, has called the ban absurd.All 57 of Bukele’s allies in the Central American country’s 60-seat legislature voted for the president’s legislation to overturn the ban.The legislation will grant the Salvadoran government sole authority over mining activities within the country’s land and maritime territory.“By creating a law that puts the state at the center, we are guaranteeing that the population’s wellbeing will be at the center of decision making,” the lawmaker Elisa Rosales, from Bukele’s New Ideas party, said in a speech to the legislature.The legislation does prohibit the use of mercury in mining, and seeks to declare some areas incompatible with metals mining as protected nature reserves.El Salvador’s economy is expected to grow 3% this year, according to the International Monetary Fund, but it has a heavy debt burden that hit a level of around 85% of gross domestic product earlier this year.Bukele, who enjoys wide popularity among voters after a sweeping gang crackdown, has touted mining’s economic potential for the country of roughly 6 million people.By locking up more than 1% of the population, Bukele has turned one of Latin America’s most violent countries into one of its safes – but human rights organisations have documented arbitrary arrests, enforced disappearances, torture and massive violations of due process.The president shared on social media last month that studies conducted in just 4% of Salvadoran territory where mining is possible had identified gold deposits worth some $132bn, equivalent to about 380% of El Salvador’s gross domestic product.“This wealth, given by God, can be harnessed responsibly to bring unprecedented economic and social development to our people,” Bukele wrote at the time.Dozens of people protested on Monday near Congress against the reauthorization of mining, arguing that future projects could affect the communities and ecosystem of the smallest country in Central America.“We oppose metals mining because it has been technically and scientifically proven that mining is not viable in the country,” the environmentalist Luis Gonzalez told reporters.“The level of contamination that would be generated in the water, soil and biodiversity is unacceptable for life as we know it.”

Albanese government approves four coalmine expansions as Greens condemn ‘despicable’ move

Tanya Plibersek says projects in NSW and Queensland produce coal for making essential steel as critics say move ‘opposite of climate action’Follow our Australia news live blog for latest updatesGet our breaking news email, free app or daily news podcastThe Albanese government has approved the expansion of four coalmines that climate campaigners estimate will release more than 850m tonnes of CO2 over their lifetime – equivalent to almost double Australia’s annual emissions.The four mines will target mostly coal to be used for steelmaking with some thermal coal for burning in power stations.Sign up for Guardian Australia’s breaking news email Continue reading...

The Albanese government has approved the expansion of four coalmines that climate campaigners estimate will release more than 850 million tonnes of CO2 over their lifetime – equivalent to almost double Australia’s annual emissions.The four mines will target mostly coal to be used for steel making with some thermal coal for burning in power stations.The approvals have angered climate and environment groups, including groups in the Pacific, who said the expansions would put people at increased risk from extreme weather events and undermined the country’s case to host international climate talks in 2026.The office of the environment minister, Tanya Plibersek, said the four projects approved were the Boggabri coalmine in New South Wales and, in Queensland, the Caval Ridge Horse Pit, the Lake Vermont Meadowbrook coalmine and the Vulcan South coalmine.Plibersek attempted to downplay the decisions, saying the projects were “all extensions of existing operations” and were producing coal for making steel that was essential for “homes, bridges, trains, wind farms, and solar panels”.“There are currently no feasible renewable alternatives for making steel,” she said.She said the projects would support up to 3,000 jobs and had to comply with Australia’s commitment to reach net zero emissions by 2050.The government had issued “240 strict conditions across the projects to ensure the environment is protected,” she said.The projects would be assessed under the government’s revised safeguard mechanism, which only accounts for emissions generated in Australia.The bulk of the emissions caused by the projects come when the coal is burned overseas, and is therefore not counted under Australia’s climate commitments.Plibersek said she had “ticked off a record 68 renewable energy projects” and “no new coalmines” this year. In September, Plibersek approved three coalmine extensions and approved a new coalmine in 2023.Greens leader Adam Bandt said the approvals were “despicable”.Greens environment spokesperson, Senator Sarah Hanson-Young, said Labor had “given coal for Christmas” and that approving mines that threatened koala habitat and worsened the climate crisis “should be illegal”.Joseph Sikulu, of the Pacific arm of campaign group 350.org, said: “Australia’s commitment to climate destruction makes a mockery of the ‘family’ they claim to call the Pacific.”The approvals would emit 7.5 times more carbon the Pacific nations produced in a single year, he said.The Australian government is bidding to co-host the United Nation’s climate talks in 2026 – known as COP31 – but Sikulu said to be “true hosts” Australia must “get off this dangerous trajectory”.“They can’t cover up the wound they are creating with adaptation finance or diplomatic pandering, no matter how hard they try,” he said.Gavan McFadzean, climate program manager at the Australian Conservation Foundation, said approving coal projects was “the opposite of climate action” and was “undermining Australia’s emissions targets and our claims to be a good global citizen and a good neighbour to Pacific nations.”He said Jellinbah’s Lake Vermont project in the Bowen Basin threatened the habitat of koalas, greater gliders and ornamental snakes that were all endangered species.BHP Mitsubishi’s Caval Ridge project threatened endangered habitats, and Idemitsu’s Boggabri project, which will also target thermal coal, threatened habitat of the regnet honeyeater songbird, he said, as well as microbats.“Coal is fuelling the climate crisis, making bushfires, heatwaves and floods more frequent and more intense,” he said.“These coalmine approvals will have consequences for Australians who are forced to live with the reality of a damaged climate.”Carmel Flint, national coordinator at Lock the Gate, said the approvals “will not only damage land, water and nature but will also put all Australians at risk of more extreme weather caused by climate change”.She said the government had failed to legislate promised reforms to national environment laws.“They’ve failed us all, in order to smooth the path for mining giants, and the real world consequences for all Australians could not be more severe,” she said.In October, the ABC reported that clearing had started at Vulcan South, including of koala habitat, before the federal environmental approvals had been granted.Dr Claire Gronow, of Lock the Gate in Queensland, said: “Any last residue of hope that we had in the Albanese Government to do the right thing for the environment and endangered species like the koala has vanished with this outrageous coalmine approval.”

Endangered Whales Found Entangled in Rope off Massachusetts, and 1 Is Likely to Die

The federal government says that two endangered whales have been spotted entangled in fishing gear off Massachusetts and that one is likely to die from its injuries

Two endangered whales have been spotted entangled in fishing gear off Massachusetts, and one is likely to die from its injuries, the federal government said.They are North Atlantic right whales, which number less than 400 and face existential threats from entanglement in gear and collisions with ships. An aerial survey found the whales swimming about 50 miles southeast of Nantucket on Dec. 9, the National Oceanic and Atmospheric Administration said.One of the whales is a juvenile that has a thick line that passes across its head and back and is likely to succumb to the injury, the agency said in a statement. The other whale is an adult female who biologists think has suffered a sublethal injury from the entanglement, NOAA said.NOAA said in a statement Tuesday that it would “work with authorized responders and trained experts to monitor the whales” and that it will “further document the entanglements and determine if entanglement responses will be possible.”The news of the entangled whales follows the release of new data from researchers this fall showing a slight uptick in the whale's population. A group of researchers said two months ago that the population increased about 4% from 2020.However, those researchers and environmental advocates cautioned at the time that the whales still faced the threat of extinction. The animal's population fell about 25% from 2010 to 2020.The entanglement of the two whales illustrates the need for new safeguards to protect the animals, said Gib Brogan, campaign director at Oceana. Environmentalists have pushed for new restrictions on commercial fishing and shipping to try to protect the whales.“These whales are not statistics; they are living beings enduring unimaginable suffering caused by human activities,” Brogan said.The whales migrate every year and usually arrive in Cape Cod Bay in early winter and stay until around the middle of May. They give birth off the coasts of Georgia and Florida and are slow to reproduce, which is one of the reasons conservationists say they can't withstand additional mortality.The whales were once abundant off the East Coast, but they were decimated during the era of commercial whaling. They have been federally protected for decades.Some scientists have said climate change is a major threat to the whales because it has changed the availability of their food. That has caused them to stray from protected areas of ocean.“North Atlantic right whales continue to be entangled at levels that could push this critically endangered species to extinction. It is distressing that multiple generations of right whales have been affected by the devastating harm of entanglements, which is resulting in deaths, health declines, and slower reproductive rates," said Amy Knowlton, senior scientist at the Anderson Cabot Center for Ocean Life at the New England Aquarium.Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.Photos You Should See - Sept. 2024

Miracle, or marginal gain?

Industrial policy is said to have sparked huge growth in East Asia. Two MIT economists say the numbers tell a more complex story.

From 1960 to 1989, South Korea experienced a famous economic boom, with real GDP per capita growing by an annual average of 6.82 percent. Many observers have attributed this to industrial policy, the practice of giving government support to specific industrial sectors. In this case, industrial policy is often thought to have powered a generation of growth.Did it, though? An innovative study by four scholars, including two MIT economists, suggests that overall GDP growth attributable to industrial policy is relatively limited. Using global trade data to evaluate changes in industrial capacity within countries, the research finds that industrial policy raises long-run GDP by only 1.08 percent in generally favorable circumstances, and up to 4.06 percent if additional factors are aligned — a distinctly smaller gain than an annually compounding rate of 6.82 percent.The study is meaningful not just because of the bottom-line numbers, but for the reasons behind them. The research indicates, for instance, that local consumer demand can curb the impact of industrial policy. Even when a country alters its output, demand for those goods may not shift as extensively, putting a ceiling on directed growth.“In most cases, the gains are not going to be enormous,” says MIT economist Arnaud Costinot, co-author of a new paper detailing the research. “They are there, but in terms of magnitude, the gains are nowhere near the full scope of the South Korean experience, which is the poster child for an industrial policy success story.”The research combines empirical data and economic theory, using data to assess “textbook” conditions where industrial policy would seem most merited.“Many think that, for countries like China, Japan, and other East Asian giants, and perhaps even the U.S., some form of industrial policy played a big role in their success stories,” says Dave Donaldson, an MIT economist and another co-author of the paper. “The question is whether the textbook argument for industrial policy fully explains those successes, and our punchline would be, no, we don’t think it can.”The paper, “The Textbook Case for Industrial Policy: Theory Meets Data,” appears in the Journal of Political Economy. The authors are Dominick Bartelme, an independent researcher; Costinot, the Ford Professor of Economics in MIT’s Department of Economics; Donaldson, the Class of 1949 Professor of Economics in MIT’s Department of Economics; and Andres Rodriguez-Clare, the Edward G. and Nancy S. Jordan Professor of Economics at the University of California at Berkeley.Reverse-engineering new insightsOpponents of industrial policy have long advocated for a more market-centered approach to economics. And yet, over the last several decades globally, even where political leaders publicly back a laissez-faire approach, many governments have still found reasons to support particular industries. Beyond that, people have long cited East Asia’s economic rise as a point in favor of industrial policy.The scholars say the “textbook case” for industrial policy is a scenario where some economic sectors are subject to external economies of scale but others are not.That means firms within an industry have an external effect on the productivity of other firms in that same industry, which could happen via the spread of knowledge.If an industry becomes both bigger and more productive, it may make cheaper goods that can be exported more competitively. The study is based on the insight that global trade statistics can tell us something important about the changes in industry-specific capacities within countries. That — combined with other metrics about national economies — allows the economists to scrutinize the overall gains deriving from those changes and to assess the possible scope of industrial policies.As Donaldson explains, “An empirical lever here is to ask: If something makes a country’s sectors bigger, do they look more productive? If so, they would start exporting more to other countries. We reverse-engineer that.”Costinot adds: “We are using that idea that if productivity is going up, that should be reflected in export patterns. The smoking gun for the existence of scale effects is that larger domestic markets go hand in hand with more exports.”Ultimately, the scholars analyzed data for 61 countries at different points in time over the last few decades, with exports for 15 manufacturing sectors included. The figure of 1.08 percent long-run GDP gains is an average, with countries realizing gains ranging from 0.59 percent to 2.06 percent annually under favorable conditions. Smaller countries that are open to trade may realize larger proportional effects as well.“We’re doing this global analysis and trying to be right on average,” Donaldson says. “It’s possible there are larger gains from industrial policy in particular settings.”The study also suggests countries have greater room to redirect economic activity, based on varying levels of productivity among industries, than they can realistically enact due to relatively fixed demand. The paper estimates that if countries could fully reallocate workers to the industry with the largest room to grow, long-run welfare gains would be as high as 12.4 percent.But that never happens. Suppose a country’s industrial policy helped one sector double in size while becoming 20 percent more productive. In theory, the government should continue to back that industry. In reality, growth would slow as markets became saturated.“That would be a pretty big scale effect,” Donaldson says. “But notice that in doubling the size of an industry, many forces would push back. Maybe consumers don’t want to consume twice as many manufactured goods. Just because there are large spillovers in productivity doesn’t mean optimally designed industrial policy has huge effects. It has to be in a world where people want those goods.”Place-based policyCostinot and Donaldson both emphasize that this study does not address all the possible factors that can be weighed either in favor of industrial policy or against it. Some governments might favor industrial policy as a way of evening out wage distributions and wealth inequality, fixing other market failures such as environmental damages or furthering strategic geopolitical goals. In the U.S., industrial policy has sometimes been viewed as a way of revitalizing recently deindustrialized areas while reskilling workers.In charting the limits on industrial policy stemming from fairly fixed demand, the study touches on still bigger issues concerning global demand and restrictions on growth of any kind. Without increasing demand, enterprise of all kinds encounters size limits.The outcome of the paper, in any case, is not necessarily a final conclusion about industrial policy, but deeper insight into its dynamics. As the authors note, the findings leave open the possibility that targeted interventions in specific sectors and specific regions could be very beneficial, when policy and trade conditions are right. Policymakers should grasp the amount of growth likely to result, however.As Costinot notes, “The conclusion is not that there is no potential gain from industrial policy, but just that the textbook case doesn’t seem to be there.” At least, not to the extent some have assumed.The research was supported, in part, by the U.S. National Science Foundation.

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