Course:ECON371/UBCO2010WT1/GROUP5/Article 1: Amazon May Be Headed For Another Bad Drought

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Summary

Peru's Amazon River has lowered to record-breaking levels, after a pronounced dry spell. The drought has damaged other areas of the Amazon rainforest, as the humidity is sucked from the rainforest to the Atlantic. The head of Peru's meteorological service, Marco Paredes, believes it is due to the formation of hurricanes- ones that promise to be particularly nasty- which drain the humidity off the Amazon area of Peru.

He states that there is an "inverse relationship" between the formation of Hurricanes and rain. When there are hurricanes, there is less rain, according to his formula. Paredes expects the water level to drop 20 to 30 centimetres two weeks from early September. Roberto Falcón of Peru's Civil Defence Agency says that people are rather worried. The situation is bound to repeat and possibly worsen, as scientists al-ready say that intense hurricane formation will become more frequent due to climate change.

Aside from deterioration of the rainforest, communication canals are severed, as the river dries up and cannot bear any craft past certain areas. If precedent is to be believed, the intensity of the drought will be marked by the intensity of the hurricane, as the harsh drought of 2005 was borne from the formation of the storms which lead to hurricane Katrina.

(Photo: Reuters)

Analysis

This is a paragon of an event riddled with negative externalities. For starters, communications between little settlements scattered along the Amazon River in Peru have been shut down, or at least made more difficult with the water nearly gone in wide stretches. This has adverse effects for both consumers and producers, who did not directly cause the damage. At a micro-level, the supply of products like fish (who have certainly perished) and other goods that might have been traded in those markets will necessarily decrease, as the prices of production rise and capital decreases for each individual producer.

On a wider scale, the environmental impact is a huge negative externality- one that is not easily measured. On one hand, there is the loss of trees and nutrients, associated with the destruction of a riparian system; furthermore, the draught will destroy a portion of a unique habitat that is renowned for containing 1 out of 5 species in this Earth. The biodiversity loss is a damage not easily measured but nonetheless intuitively grave.

Another important factor is the apparent positive feedback loop that the draught has created. The National Oceanic and Atmospheric Administration claims that several storms have been identified, and some hurricanes have started to form or are suspect of forming in the near future, as detailed in the article. This means that the draught will persist, as rainfall is not bound to happen in a few more weeks. The positive feedback loop has the effect of a multiplier, further shifting the supply curve of each individual producer to the left, and increasing costs for every industry dependent on the riparian system of the Amazon in the area.

One last noteworthy point to bring forth is the abatement cost involved with the draught. As the rainfall is delayed further and the rivers dry more and more, the cost of abatement increases: cracked and dry river basins, dead fish scattered across the river, boats not being used and deteriorating, etc. compound into one big cleanup and repair bill. More importantly, the price of abatement on a larger scale would involve decreasing pollution emissions and cleaning up the atmosphere, and at this point would likely be astronomical.

Conclusion

The draught has brought about several negative externalities which include, but are not limited to, increases in production prices, hindrances in communication, reduction of capital, destruction of the system, loss of biodiversity, among others. The associated cost of cleanup and abatement is difficult to measure, but likely be very big and multiplying as periods advance. The crafting of policy to address the issue is bound to be tricky, as the costs are not easily identified, and would require not only the co-operation of those immediately involved but of polluters world-wide. There are existing policies in place, such as the Kyoto Protocol which seek to reduce emissions. However, it is clear that this is not enough to avert the negative externalities.

Prof's Comments

There are few externalities mentioned in this article, but for the issue of climate change. Drought is an event that imposes costs - more difficult and expensive communication and transportation, loss of habitat, etc. However, these are not in and of themselves externalities. Remember that externalities occur when the actions of one person creates costs (or benefits) for another who is not part of the original action or decision.

An interesting question that could be commented on is the costs of drought events. What is the loss? How should it be adapted too? Are there policies or practices that make the costs more than they should be? Who bears the costs - poor people, rural people, etc.?