Article // Nexus governance – not so unique after all?

In theory, governing the water-energy-food nexus is not so different from governing any other issue area characterized by complexity, conflicting interests over scarce resources and questions around their fair distribution. For instance, nexus-type governance is at the heart of any budget decision about the distribution of public funding to line ministries. Those decisions are facilitated by simplification, measuring the importance of an entire segment of society in terms of a budget share. The main difference, then, is that the water-energy-food nexus is mostly concerned with aspects that either don’t have a price, or have a price which may reflect a narrow view, as it cannot take into account the diverse set of values they may hold for different actors. This includes: “externalities”, “commons” like rainwater, biodiversity, intact ecosystems, a safe climate, but also undervalued resources like groundwater, food, and land. One commonly used solution is to attach a price to these common goods, to “internalize” them into the economy.

One example of using price-based valuation is the use of a carbon tax as a means of signaling a preference for low-carbon solutions in the economy, while leaving the selection of optimal solutions to the private sector. A carbon tax does not technically turn a safe climate into a commodity for the market to work with, as the resulting carbon price is fixed and does not react to scarcity the way the other fixed carbon price scheme - permits in an emissions trading scheme - would. Pricing through either instrument introduces economic incentives to reduce emissions up to the point where it is cheaper to pay or trade than to avoid paying and leaves it to the market to determine that point. Capping through permits further defines that point as the amount of permits issued for trading, offering no incentive for further emission reductions beyond that point and sending a wrong signal that emissions up to that point are not problematic. In both cases, governance requires a defined benchmark for either the national price of carbon emissions or size of the national carbon budget.

Determining the value of a carbon price or the size of a budget is in itself a subjective decision taken through a process of political deliberation, considering a number of economic trade-offs involved like the impact on profitability of existing business operations and repercussions on the job market and social inequalities, in addition to scientific deliberation about the safe limits for global emissions and political-philosophical deliberation about the just distribution of a hypothetical global carbon budget among nation states. Many political decisions involve a similar level of complexity (e.g. trade policy, humanitarian interventions). However, the pricing of impacts related to climate change is unique among such political decisions as it heavily relies on benchmarks and targets that are defined outside the political system and, to a large extent, through the development and application of highly complex scientific models. Scientists cannot be held accountable in the same way policy makers can be, insofar as they are not elected to govern the community and their work is also rarely scrutinized by a wider public. Policy makers end up being responsible for the impacts of decisions they base on scientific advice regarding the costs of emissions or the global carbon budget. Adding to that, the impacts of decisions around climate change, and more broadly sustainable management, often only materialize in the long term, and hence those constituencies who would hold politicians accountable for their decisions can only do so in the more distant future. With respect to nexus-governance, there is not so much of a complexity problem as there is an accountability problem.

Part of the benefit in using a methodology such as Quantitative Storytelling lies in its ability to examine the underlying narratives of decision-making and policy recommendations. The use of carbon prices and the prioritization of decisions based on economic parameters is just one example of these policy narratives: the narrative that natural resources and environmental goods can be valued economically and that the trade-offs among them can be managed via monetary means. By using the QST framework of evaluating not only the feasibility of options, but also their viability and social desirability, narratives can be evaluated against a policy-relevant range of indicators which better captures the more intangible components of their value. By examining the underlying narratives surrounding a policy, more information is also made available regarding its inherent assumptions on what should be valued how much, thereby helping to hold policy-makers accountable for what they choose to value in their decisions and why.

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March 2020

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MAGC Nexus: Nexus governance – not so unique after all?