The Impacts of Subsidies on Endangered Species

by Jeff Opperman

The Thoreau Institute
14417 S.E. Laurie
Oak Grove, Oregon 97267
April, 1996

Table of Contents


In 1973, the United States elevated the protection of the nation's disappearing flora and fauna to that of a national policy goal with enactment of the Endangered Species Act. The measure enjoyed broad bipartisan support, and since that time has often been hailed as one of the most progressive environmental laws ever passed in this or any other country.

However, implementation of the act's goals has not avoided controversy or politics. This is due in large part to a fact that was clear to scientists in 1973 and has become abundantly clear to most others since then--protecting species is inextricably linked to protecting their habitat. The public has become aware that the act is not simply about saving bald eagles and grizzly bears, it is actually a powerful legislative tool that often forces the country to confront the choices and trade-offs associated with economic development.

The language of the act does provide for the strong role that it has assumed; in fact the act replaced two earlier legislative attempts to preserve species that had lacked any real power of enforcement. The goal of protecting species by conserving their habitat is found in the original law, as well as in the act's implementing regulations.

Under Section 7, projects on federal land, or that require a federal permit, can be modified, relocated or terminated if the relevant agency--usually the Fish and Wildlife Service, but the National Marine Fisheries Service has responsibility for marine and anadromous species--determines that the project would have a significant adverse impact on a listed species. Activities on private land that harm listed species or their habitat can also be modified or prohibited under Section 10 of the act which forbids the "taking" of a listed species. Enforcement of these provisions has stirred controversies such as the conflict surrounding the Tellico Dam and the Snail Darter, the "environmental train wreck" of the spotted owl and logging communities, and a series of highly publicized debates regarding restrictions of private land use.

The reauthorization process has also stirred heated debate between those who claim that the current Act is too intrusive and economically burdensome, and therefore should be rewritten, and those who counter that the act currently contains sufficient flexibility to improve its effectiveness and reduce its economic impacts by working within the existing framework. However, even many supporters of the act admit that the burden of protecting species can sometimes fall disproportionately on a few people or a region, and agree that implementation of the act should include more incentives to encourage and reward private land owners for careful land stewardship.

Efforts to improve the equity and effectiveness of the act's implementation have focused on both sides of the incentives coin: creating and promoting positive incentives for conserving habitat, and modifying or removing "perverse incentives" that encourage the conversion or degradation of habitat. For years, environmentalists have pointed out that many government policies encourage or subsidize activities that lead to the loss of species and habitat (and in a few surprising instances, fiscal conservatives have joined forces with environmentalists to criticize the economic inefficiency of many of these policies). This report will focus on the perverse incentives created by government subsidies; subsidies that contrary to the stated goals and purposes of the act often promote destruction of endangered species habitat, underwritten with taxpayer money.

Cross Purposes

The Endangered Species Act requires that the federal government conserves and protects endangered species; however, not all federal policies are consistent with this goal, and in fact many may work at cross purposes. Policies or programs that provide subsidies for the conversion of endangered species' habitat are particularly noteworthy.

Taxpayer's Double Burden, a 1993 report by the Wilderness Society and the Environmental Defense Fund, describes subsidies that promote habitat conversion or degradation as a "double burden" because taxpayers must pay to subsidize a particular industry or activity, and then pay again to recover species and protect them from subsidized activities.[1]

That report was based on a database for all listed species that was developed by staff of the Wilderness Society and the Environmental Defense Fund. Most of its information was derived from the listing packages that Fish & Wildlife Service provides when a species is officially listed. Information that could not be acquired from this source was obtained from the World Wildlife Fund's Guide to Endangered Species.

Taxpayer's Double Burden showed that a majority of listed species on federal lands are threatened by subsidized activities. However, that report considered only species occuring on federal land and those threatened by federal water projects.

This paper updates Taxpayer's Double Burden to include species listed since 1993 as well as threats from federally subsidized activities that take place on non-federal land. Environmental Defense Fund ecologist David Wilcove has kept the database up to date as new species were listed, and generously provided the database to the Thoreau Institute for the preparation of this article.

This article assesses, on a broad scale, how many and which species are affected by activities that are subsidized. The article will focus on economic activities that are subsidized and contribute to the loss of endangered species and their habitat. Discussion will focus on how that activity contributes to the loss of species or habitat, which federal programs or subsidies influence that activity, and estimates of the extent of the subsidy, or potential savings to the Treasury if the policy were to be modified or eliminated.

Subsidized Activities

The word "subsidy" has been defined in many different ways and for different purposes. A Joint Economic Committee study on the economics of federal subsidy programs defined the word fairly inclusively as "any one-way governmentally controlled income transfer to private sector decision making units that is designed to encourage or discourage particular private market behavior."[2]

For the purposes of this article, a subsidy is defined as any government policy where income is directly or indirectly transferred from taxpayers in general to specific recipients, or where the beneficiaries of a specific policy do not pay full costs for a project, access to resources, or for a service. Programs that are largely or completely under government control, such as highway construction and defense, are also counted as "federal activities."

An example of a direct subsidy is the USDA's deficiency payment program--when the price of a crop does not meet a threshold level determined by the government, USDA pays farmers the difference between the fair market value and a predetermined price. The tariff and import quota for refined sugar is an example of an indirect transfer of income; sugarcane farmers do not receive direct payment from the government but they benefit from a greatly inflated price at the expense of sugar consumers.


For each listed species, Wilcove's database provides a variety of information. For the purposes of this paper, the most important data were: The database rates threats on a scale of one to five where: For the purposes of this paper, only magnitude 1 and 2 threats were considered. In the database, species may face from one to as many as ten magnitude 2 threats. Only about a quarter of the species are listed as facing a magnitude 1 threat, and by definition no species faces more than one such magnitude 1 threat.

The database included the following threats:

The database breaks each of these into as many as 13 subcategories. Water, for example, includes, among other things, "diversion of water for agriculture," "stream channelization," and "dams."

For the purposes of this article, "federal programs or subsidized activities" were defined to include:

Also counted, but only for species at least partly found on federal land, were: In total, 40 percent of the threats to listed species were considered federal programs or federally subsidized.

In assessing the role of federal activities, species were classed in one of five different groups:


Table one shows that 526, or 58 percent, of the species in the database are at least partly threatened by federal activities. Of these, 112, or 12 percent, are primarily threatened by federal activities, while another 104 are mainly threatened by subsidies. These percentages exclude the 55 species with unknown threats.

Table One
Relative Importance of Federal Activities as Threats to Listed Species
(numbers of species in each threat category)

                	Primary	Main	Partial	Not	Unknown	Total
Amphibians      	  1	  4	  3	  4	  0	 12
Birds           	  6	 10	 16	 47	 12	 91
Crustaceans     	  1	  6	  4	  7	  0	 18
Fish            	 24	 14	 53	 16	  1	108
Mussels & clams 	 11	  8	 37	  1	  0	 57
Insects         	  1	  4	  8	 16	  1	 30
Arachnids       	  0	  0	  0	  3	  0	  3
Mammals         	  7	  5	 11	 33	  9	 65
Plants          	 56	 50	160	224	 29	519
Reptiles        	  2	  3	 10	 18	  0	 33
Snails          	  3	  0	  8	  6	  3	 20
Total           	112	104	310	375	 55	956
This table shows the numbers of species primarily, mainly, partly, or not threatened by federally subsidized activities; as well as the number for which threats are unknown.

The table also suggests that some classes of species are more threatened by subsidized activities than others. Mussels & clams, fishes, amphibians, and snails are the most impacted by federal activities. Of the mammals, birds, and reptiles, about 20 percent are primarily or mostly threatened by federal activities, while another 20 percent are partly threatened.

One reason for this disparity could be that the federal government is more highly motivated to protect charismatic species such as mammals and birds. The president's Northwest forest plan, which protected the spotted owl but neglected snails and clams, may be typical of the government's general response to endangered species.

Table two shows which programs tend to be the sources of the most threats. Agriculture is the leading problem, especially if grazing is included. Water projects are next.

Table Two
Numbers of Species Threatened by Class of Federal Activities

Category       	Number of Species
Agriculture1          	322
Defense              	 34
Fire suppression     	 19
Grazing2              	153
Highways & navigation	125
Mining (federal)3     	 57
Recreation (federal) 	142
Timber (federal)4     	 80
Water5                	271
Animal damage control	  3
  1. Includes agriculture, pesticides, clearing of land for agriculture, and diversion of water for agriculture.
  2. Includes livestock grazing, range improvements, and diversion of water for livestock.
  3. Excludes oil & gas and geothermal. Except as noted, items with the word "federal" include only species found on federal land.
  4. Includes thinnings and reforestation on private land because many are aided by federal cost sharing.
  5. Excludes diversion of water for agriculture and livestock, since they are included in other categories.
Surprisingly, recreation threatens more species than mining and timber combined. A close look at the database indicates that off-road vehicles are the leading offender, but hiking threatens 25 species. Defense, fire suppression, and animal damage control are rated as relatively unimportant.

Caveats and Limitations

The method used to obtain these numbers provides a broad brush measure of the effects of federal subsidies on endangered species. But it must be used with caution: the data have several limitations. The limits of the database can also be seen in the small numbers of species that it says are threatened by fire suppression or animal damage control. Animal damage control is not listed as a threat to the black-footed ferret; in fact, no threats are listed for the ferret. Although fire suppression has probably done far more to disrupt forest ecosystems than any other human practice, it is listed as a threat to only one mammal, one bird, and one reptile.

Because of these limits, the database does not reveal with precision whether any single species is primarily threatened by federal subsidies or whether an elimination of subsidies will automatically lead a species to recover. But it does suggest the overall importance of subsidized activities compared with other threats to endangered species.

The Case for Reevaluating Subsidies

Notwithstanding the above limits, these results do give an idea of how many endangered species are affected by activities that the government encourages through subsidies. The need to reevaluate these policies is based upon three premises--economic, ecological, and as a means of improving the effectiveness of achieving the goals of the act. This report will discuss three approaches that have been offered to remedy these weaknesses:
  1. The ecosystem approach;
  2. The broad-pattern approach;
  3. Building economic incentives into the act.
Identifying and reevaluating subsidies which distort the market and encourage conversion of habitat will improve the effectiveness of the act's implementation and can benefit all three of the above approaches.

The Ecosystem Approach

The number of species on the list has grown rapidly over the past several years (until a moratorium on new listings in 1995), and the number of candidate species is far greater than the number of listed species. Even more daunting are studies that show that a great number of species are declining which are not even candidates for listing.

It is clear that the Fish & Wildlife Service will most likely never have the numbers of personnel or level of resources necessary to evaluate, list, draft recovery plans, and implement the plans for this vast number of species. Recent initiatives from within the agency have encouraged the drafting of multiple species recovery plans. Many scientists have supported this and believe that focusing on a broad, ecosystem level will be a more cost-effective approach to conserving species. 7

The following benefits have been offered in favor of the ecosystem approach:

1. A great number of species can be accounted for by drafting recovery plans for entire ecosystems. This will avoid the need to list and draft recovery plans for each endangered species within the ecosystem.

2. The geographic scale of an ecosystem approach will be much larger than individual species' critical habitat. This will provide more flexibility to redirect development within the ecosystem. The flip side of the coin, however, is that individual species can still slip to extinction through the coarse filter of an ecosystem approach.

3. The ecosystem approach can be applied more proactively by determining which ecosystems with their associated species are declining before it is too late, as well as working with ecosystems that are not yet endangered, but would benefit both environmentally and economically from long range vision and planning.[8]

4. The public may be more receptive to some of the necessary decisions or sacrifices that may need to be made if these changes are to protect their regional ecosystem, rather than for the protection of an endangered, unknown or possibly uncharismatic salamander, fish, or rat.

While the direct causal relationship between a subsidy and a threat to a particular species is difficult given the scale of this report, the relationship between a subsidy and loss of habitat or the degradation of a particular ecosystem can be more clearly demonstrated. Thus, the reevaluation of subsidies in light of their impact on listed species and their ecosystems can be an important part of ecosystem level recovery plans.

This report was organized using a single species approach--sets of individual species were derived that were affected by a particular subsidy. A complementary report could examine the impact of subsidies on the level of ecosystems, with each ecosystem containing its complement of listed and candidate species.

For example, the longleaf pine forests of the Southeast contain 27 listed and 99 candidate species. A recovery plan for this ecosystem could potentially provide for the protection of the majority of these 126 species (as well as others that may be declining, and myriad additional species). An analysis of which subsidized activities are contributing to the loss of longleaf pine forests would be an important part of drafting this ecosystem recovery plan. Other ecosystems that contain significant numbers of listed and candidate species include the Everglades, rivers and streams of the Southeast, and Southwestern riparian forests (to name just a few).

Broad-Pattern Approach

Criticism of the ecosystem approach has focused on its inherent complications, not the least of which is the difficulty of defining and determining ecosystems. Curtis Flather describes the "broad-pattern" method that can potentially complement and augment either a species or ecosystem oriented approach. This method evaluates trends in species endangerment such as location of range, land type, taxa, and threat.[9]

By identifying and addressing these large scale trends conservation efforts may be able to accomplish a great deal that would have been otherwise difficult with a species by species, or even an ecosystem, approach. This report identifies large scale trends of threats to listed species that have a subsidized component. The reevaluation, modification and/or elimination of these subsidies will be useful to a broad-pattern approach to conserving endangered species.

Building Economic Incentives into the Act

Economic incentives are potentially a very important tool for the conservation of endangered species. Economic incentives can be a valuable component of the current act's single-species approach, and would also be essential for successful implementation of either an ecosystem or broad-pattern approach.

Subsidies often serve as perverse incentives that encourage habitat conversion and degradation. To address species conservation on a large scale, we must eliminate the existing misincentives and create positive incentives to conserve habitat.

Congress can focus on economic incentives while creating a broad structure that gives biologists flexibility to use the best tools for any particular situation. The objectives of this approach would include:

Several proposals for improving the act have included provisions, such as tax credits and deductions, that would give landowners an economic incentive to maintain their land as endangered species habitat. These economic incentives will be much more effective if the "perverse" incentives of subsidies that encourage the conversion of habitat are removed.


1. Agriculture

Subsidies for agriculture are among the largest discussed in this report. A study by the Environmental Working Group found that USDA payments to farmers totaled 108.9 billion dollars in the ten years between 1985 and 1994.[10] Agriculture is also the single largest contributor to water pollution and wetland conversion, and consequently, agricultural activities have a significant impact on endangered species as well.

The database indicates that, in terms of impacts on listed species, agriculture, with 332 species, ranks number one among federal activities. Among all activities, agriculture is second only to urbanization, which threatens 336 species. Subsidies to irrigation are significant enough that they are discussed separately below.

In a recent USDA survey of threats to listed species, agriculture ranked first with 256 species affected out of 667 listed species surveyed; urban growth ranked third with 228.[11] The disparity is probably due to different definitions of urban growth; threats such as forest clearing (for development) and diversion of water for municipal uses were included under urbanization in this report, and were included separately in the USDA report.

The impacts of agriculture on endangered species are through the conversion and fragmentation of habitat, and through the degradation of water quality due to stream channelization, increased sedimentation, and run-off of fertilizer, herbicides and pesticides.

Subsidies for agriculture include:

Due to the combination of heavy subsidies and the documented impact that agriculture has on endangered species, one may conclude that this is a clear case of the government subsidizing an activity that negatively impacts endangered species. This is true--but do the subsidies exacerbate this situation or are they merely incidental?

A 1990 study by the Office of Technology Assessment (OTA) concluded that the current subsidy system may increase the environmental damages associated with agriculture. For example, price supports are greater for crops that require higher levels of agrichemical input (corn, cotton, wheat) than for less chemically intensive crops (oats and barley). Thus the commodity programs promote more acreage of these chemically intensive crops than the market would demand. Farmers also have a disincentive to diversify their crops and rotations because of the need to maintain base acreage of commodity crops to continue enrollment in subsidy programs. Reducing crop diversity and rotations requires a higher input of fertilizers and pesticides.[16]

Subsidized crop insurance, disaster payments, and subsidized credit from FmHA have reduced the risk of planting in flood prone areas. Removal of these subsidies may result in less planting in frequently flooded areas, and wider buffer strips along rivers and streams. Riparian corridors provide habitat for wildlife and greatly improve water quality by reducing the load of sedimentation, fertilizers and pesticides that enters streams and rivers. The presence of wider buffer strips along rivers has been shown to have dramatic benefits for aquatic biodiversity, including endangered fish, crustaceans and mussels.[17]

The Everglades ecosystem provides an excellent example of an ecosystem that has been significantly altered by the influence and interactions of several subsidies. Federal flood control and drainage projects created the 700,000 acre Everglades Agricultural Area. Agricultural and residential development have reduced the Everglades to 1.1 million acres, or 48 percent of their original extent.

Sugarcane is the largest single crop in the Everglades Agricultural Area with 457,000 acres, and benefits from a system of price support, and quotas and tariffs on imported sugar.[18] This system keeps the price of sugar two to three times the world level, and costs U.S. consumers hundreds of millions of dollars per year in higher sugar prices.

Growing sugarcane also has serious consequences for the Everglades ecosystem; drainage from sugarcane fields inputs large quantities of nitrogen and phosphorous into the marsh, as well as high levels of mercury following the burning of cane after the harvest.[19] High levels of these nutrients have serious ecological consequences for the Everglades and the 56 listed species that are found there.

Congress is currently considering major changes in the structure of the farm program, and many agricultural subsidies may be phased out within seven years. It is difficult to predict how this would affect the environment in general, or endangered species, especially since several significant subsidies are exempt from this phase out.

Conservation payments may or may not be eliminated, and the government will lose leverage for preventing certain activities. For example, the Swampbuster program denies subsidies to farmers who convert wetlands; no subsidies, no Swampbuster.

Due to price supports, many of the major crops have excess capacity currently. For example excess capacity for the seven major crops in commodity programs ranged from 24 percent for rice to 50 percent for cotton in 1986. Excess capacity for non-subsidized crops was less than 6 percent.[20] However, participation in commodity programs often requires acreage set-asides and retirement. Without these programs, planted acreage in some areas may increase.

Agriculture will restructure in the absence of subsidies, both at the level of an individual farm (more less acreage planted, different crops) and the regional and national level (predominant crops, total acreage added or taken out of production). The implications that this restructuring may have for endangered species will be discussed in more depth in a later section.

2. Federal Water Projects

Federally sponsored water projects such as dams, levees, canals, and the channelization of rivers and streams, have been inextricably linked to the economic growth of many regions of the country. These projects serve multiple purposes including flood control, hydropower, irrigation, drainage and the facilitation of navigation.

These projects have also contributed significantly to the loss of habitat and species. For example, a series of dams built by the Bureau of Reclamation along the Missouri River inundated 390,000 acres of wetlands and oxbow lakes.[21] 1.2 million acres of wetlands in the Everglades were opened for agriculture or development through the drainage and flood control provided by the Central and South Florida Project. 80 percent of this project was financed by the Federal government.[22]

The formerly aptly named Muscle Shoals (Mussel Shoals) along the Tennessee River was once famed for its amazingly high diversity of mussel species--63 different species were recorded in 1930. Following extensive federal water projects on the Tennessee River, the species count dropped to 30, reflecting a wave of extinctions of mussel species throughout the Southeast.[23]

Due to a series of federally financed dams, only 44 miles of the 1,240 mile long Columbia river are now free flowing. This has contributed to an 80 percent decline in salmon and steelhead populations.[24] Army Corps of Engineers' projects in the Mississippi Basin have led to the loss of 17 million acres of wetlands, and actually shortened the river by 150 miles.[25]

Two federal agencies--the Army Corps of Engineers and the Bureau of Reclamation--have primary responsibility for constructing and operating water projects.

Army Corps of Engineers

Federal subsidies for water development projects have been, and continue to be, extensive. Until passage of the Water Resources Development Act of 1986 (WRDA), the Army Corps of Engineers provided nearly all the funds for their flood control and navigation projects; contributions of local beneficiaries were generally restricted to payments in kind, such as the land and rights of way.

After WRDA, local beneficiaries were required to make some payments in cash, with a minimum contribution to project costs of 25 percent, and 50 percent sharing of feasibility studies. However, federal contributions are still significant and cover the majority of project costs, and all costs for maintenance and operation of levees and navigation systems.[26]

Bureau of Reclamation

The Department of the Interior's Bureau of Reclamation built a series of dams throughout the Western United States beginning in 1902. Water is the most valued and scarce resource in the West, and these projects opened up vast areas for agriculture and urban growth. The costs of Bureau projects were originally intended to be paid back by beneficiaries within ten years. This has not happened, and the subsidies for construction, operation and sale of Bureau services (hydropower, water for irrigation) continue to be substantial. A later section will discuss irrigation in greater depth.

The impacts of water development projects on endangered species are extensive. As discussed below, these include physical alterations of habitat, changes in river hydrology, and induced impacts.

Physical changes include alterations of river bank and bed morphology (straightening, channelizing and dredging rivers), which can then modify vegetation and sedimentation patterns; destruction of riparian zones and wetlands due to levee construction or inundations from reservoirs; and construction of structures that block water flow, preventing or hindering migration and movement of aquatic species.

Changes in river hydrology include: the creation of warm, slackwater reservoirs behind dams; reduced flows due to the diversion of water to other uses; changes in the timing, duration and volume of flow downstream from a dam; increased sedimentation from dredging; settling out of nutrients and sediments in reservoirs.

Induced impacts include the expansion of urban and agricultural growth due to drainage, irrigation or flood control, and increases in river traffic and subsequent development along shores. The expansion of exotic predator and competitor species is another secondary impact of water development; many changes in river hydrology favor introduced over native species.[27]

Water development projects have significantly affected 198 listed species; for 33 of these species, water development projects are considered to be the only or clearly most significant threat. Other studies have similarly found that the high rate of loss of aquatic biodiversity can be attributed to water projects. A recent survey of aquatic biologists conducted by the Nature Conservancy found that physical modifications of habitat were the most common cause of aquatic extinctions and that water development projects continue to be the most common source of threats faced by aquatic species. [28]

The impacts of water development projects on species and habitat can be considered either "historical/permanent" or "operational". Much of the damage to endangered species from water projects is historical--numerous species are either extinct or currently isolated in small, vulnerable populations due to federal water projects.

Permanent impacts are the result of large scale landscape changes--most of the physical alterations of rivers, and most of the induced development following drainage and/or flood control can be considered permanent, impacts that will undoubtedly remain even if current subsidies are eliminated. These structures and developments can now be considered part of the local landscape, and efforts to protect endangered species must account for this new environment. However, removing subsidies for the construction and operation of water development projects may substantially reduce the demand for new projects in the future.

The restoration of natural systems is not economically or ecologically impossible, though. In some habitats, economic activities are encouraged and protected by a variety of subsidies, and a comprehensive reevaluation of the economics of activity in these habitats may favor reversion to more natural systems.

For example, farms along the banks of the Mississippi receive the benefits of federal flood insurance, subsidized crop insurance, periodic disaster relief payments, federal assistance with levee construction, repair and maintenance and commodity support payments. Bruce Hannon, an agricultural economist at the University of Illinois assessed the impact of the Great Flood of 1993 on crop prices and deficiency payments.

The floods removed ten million acres from production for that season (some is still out of production), and crop prices rose in response to the decreased supply. The rising prices greatly decreased the total amount of deficiency payments provided by USDA, and these savings nearly equaled the rise in prices. When annualized costs for levee reconstruction and maintenance were included, the agricultural land that was taken out of production by the flood proved to be more expensive to taxpayers as cropped land than left in a more natural state.[29]

"Operational" impacts result from ongoing processes that influence the hydrology of a system, and include maintenance, dredging, and the amount and timing of water flows through control structures. These impacts are more likely to be modified if their subsidies were removed. Higher rates for irrigation would promote water conservation efforts, leaving more water for instream use and wetlands (irrigation is discussed in a later section).

A Congressional Budget Office report predicted that removal of subsidies for transport on inland waterways would improve the efficiency of the system, direct some transport to cheaper means, reduce traffic on some of the most subsidized (i.e. highest maintenance cost) waterways, and would reduce the demand for new construction due to congestion.[30]

3. Irrigation

Irrigation can be discussed under either water development or agriculture, but is discussed separately in this report--partially because the database can be searched for species directly affected by irrigation, and because much work has been done to estimate the subsidy for irrigation.

This report will focus on irrigated water from Bureau of Reclamation projects. As described in the water development section, beneficiaries of Bureau projects were intended to repay construction costs with interest within ten years. Beginning in 1914 Congress began extending the repayment period, granting moratoria or forgiving payments outright. The repayment period goal has been increased to fifty years.[31]

The Central Valley Project in California was the Bureau's largest undertaking ever, and provides an excellent example of both the economic and environmental aspects of subsidized irrigation. The project includes 20 dams and reservoirs, 1,437 miles of canals, and provides irrigation and power for much of the state.[32]

The Central Valley Project, along with state financed projects, reduced the vast central valley wetlands to 10 percent of their original 4 to 5 million acres, and those that remain are completely dependent on controlled inputs of water. Dams on the two largest rivers, the San Joaquin, and the Sacramento, have almost completely eliminated their formerly prodigious salmon runs.

The reduced flows into San Francisco Bay have altered the mix between saline and fresh water and several federal or state listed species have been affected by the resulting changes in estuarine conditions. Wetlands and refuges have often received some or all of their water from irrigation return flows, and consequently high levels of selenium and other toxic compounds found in return flow have had negative impacts on aquatic species and water birds.[33] In the database survey, 39 listed species were found to be significantly affected by irrigation activities.

Economists estimate the subsidy for irrigated water as the difference between the costs of construction, operating and maintenance, including interest on the investment, compared to the share of these costs paid by beneficiaries. After 40 years, irrigators using Central Valley Project water have repaid $10 million, or roughly 1 percent of the $1 billion that they owe. Even after the Central Valley Improvement Act of 1992, irrigators only pay the full cost for the last 20 percent of water they receive, and current rates do not even cover the bureau's operating costs.[34]

A Department of the Interior (DOI) study estimated that irrigation subsidies in 17 western states totaled $534 million in 1986. Using different interest rates and definitions, the Bureau calculated the subsidy at $2.2 billion.[35] The Congressional Budget Office determined that the total value of subsidies for Bureau irrigation water from 1902 to 1986 was between $33 and $70 billion dollars, not including costs of operating and maintaining the system.[36]

Additionally, the USDA subsidizes much of the cropland that receives subsidized water. The aforementioned DOI study estimated that $203 million worth of subsidies for water flowed to crops in 1986 that received deficiency payments from USDA; the Bureau's estimate was again higher at $830 million.[37] A USDA study found that in 1986, $496 million worth of crop support payments went to farms that received subsidized water.[38] Therefore, this doubly subsidized cropland received somewhere between $700 million and $1.3 billion worth of government support in 1986.

Subsidies for irrigation promote an inefficient use of water. Currently, 80 percent of developed water in California is used for irrigation.[39] In 1988, 43 percent of California's irrigated acreage was planted with crops that were in surplus; nationally, 38 percent of irrigated acreage was planted with crops in surplus.[40] Four "water thirsty" crops use half of California's irrigation water, but contribute only 10 percent to the state's $15 billion agricultural output.[41]

Full cost pricing would promote water conservation efforts and reduce the amount of water used for irrigation. Farmers would have incentives to switch to less "thirsty" crops, and to use more efficient irrigation methods and technologies.

Market pricing would also promote water transfers for other uses; the Central Valley Project Improvement Act of 1992 includes provisions for water transfers and purchases. Water transfers would promote a more efficient allocation of water resources to those who are willing or able to pay full cost. Water conservation and transfers would reserve more water for instream use, wetlands and wildlife refuges. A portion of the increased revenue from full cost pricing could be used to finance projects for mitigation and restoration, and to buy water rights to transfer to wetlands and refuges.

4. Grazing

The monthly fee that ranchers pay to graze livestock on federal land is significantly less than grazing fees paid on private or state land. Federal land charges are $1.86 per animal unit month, whereas AUM fees on state lands are $4.58 and $9.80 on private land.[42] Ranchers have asserted that these fee comparisons are often not valid, because private lands tend to be more accessible and provide better forage than public lands. However, even accounting for these differences, federal grazing fees are consistently below their market value.[43] The Green Scissors Report estimates that the potential savings to the Treasury of charging full market rates for grazing is $50 million per year.[44]

Even if estimates of the full market value are inflated, it would seem reasonable that grazing fees would at least cover the cost of managing federal rangeland. Even by this standard, grazing fees are not set high enough. The Bureau of Land Management (BLM), which oversees the majority of federal range land, spends tens of millions more on range management and improvement than they recoup in grazing fee receipts.[45]

This subsidy is exacerbated by the Emergency Feed Program, which provides feed to livestock on both public and private land during droughts or other low forage conditions. Some feel that this program condones or encourages overgrazing due to the high numbers of ranchers who participate, and the frequency with which their livestock require emergency feed.

Grazing animals can affect endangered species by: direct competition for forage, trampling plants and burrows, degrading riparian vegetation and habitat, and contributing to increased stream sedimentation and non point source pollution from animal waste.[46] 75 listed species found on federal land are in part threatened due to grazing, and for 12 species, grazing activities are the only or primary threat.

Increasing grazing fees to market levels would most likely reduce the amount of grazing on federal lands and, combined with the elimination of emergency feed programs, would reduce the overgrazing of sensitive or marginal lands. A portion of the revenue generated by higher grazing fees could be dedicated to the restoration and protection of riparian areas. In the arid West, riparian zones are exceptionally important habitat. For example, in south east Oregon, 75 percent of terrestrial animals are dependent on riparian zones, and in Arizona, 80 percent of vertebrates require riparian habitat at some point in their life cycle.[47] Protecting or improving these ecosystems would reap significant benefits for endangered species and wildlife in general.

5. Recreation on Federal Land

Users of recreation on Federal lands rarely pay the market value for this activity. Recreational activities that affect species on set four include the use of off-road vehicles (ORVs), ski development, boating, hiking or climbing. 112 listed species found on federal land were affected by recreation, and for 22 this was the only or clearly most significant threat.

"Taxpayers Double Burden" reported that ORV use was the most frequently cited known threat from recreation, and noted that the contribution of ORVs to this category was particularly noteworthy given the limited areas open to this form of recreation, compared to more common and widespread activities such as hiking or swimming.[48]

The Forest Service's own studies estimate the yearly market value of recreation on their land to be $6.6 billion. Currently the Service collects less than $50 million, or less than 1 percent of the estimated market value. Randall O'Toole has extrapolated these numbers to include recreation on BLM lands, national parks and wildlife refuges, and estimates the potential market value for recreation on federal lands to be $11 billion per year. This is far greater than the value of commodities, such as timber and grazing, on federal lands.[49]

Market pricing of recreation would benefit endangered species in the following ways:

1. Variable rates could be charged that account for the environmental impacts of different activities in different locations. Higher fees for destructive activities or recreation in environmentally sensitive areas would redirect recreation to less sensitive areas.

2. A percentage of income generated from recreation on public lands could be dedicated to projects that enhance habitat for endangered species.

3. Due to the high recreation value of many public lands, and the demand for activities such as hiking, fishing, camping, photography and wildlife viewing, managers would have an incentive to enhance and conserve recreational amenities. This could mean fewer clear cuts, cows and mines, and more wilderness areas, restored trout streams and wildlife habitat.

6. Infrastructure

Two types of infrastructure were counted as federally subsidized activities: Highway construction and navigational maintenance. Highway construction is only partly subsidized, since much of the costs are paid out of gasoline taxes. These taxes are often described, with partial accuracy, as a "user fee."

However, the tax creates at best a weak link between the users and the highway builders, so money is often spent on construction that no one really needs. For example, interstate highways in unpopulated areas such as South Dakota and Wyoming are built to the same width and standards as interstates in New York and California.

Other roads are built with clear federal subsidies. For example, a quarter of national forest timber sale receipts is transferred to the counties in which the national forests are located. By law, this money must be used for roads or schools, and many states prescribe that a high percentage go to roads. In Oregon, which historically has received 40 percent of these funds, 75 percent of the funds must be spent on roads. Thus, many Oregon counties have lavish road systems.

Navigational maintenance is a clear subsidy. Most is done by the Army Corps of Engineers for the benefit of inland barge and river traffic. The Corps constructed and operates the nation's Inland Waterway system that facilitates barge transport along rivers. Taxpayers paid $700 million of the Corps' $800 million budget for maintaining this system in 1995.[50]

A user fee collected from a tax on barge diesel fuel was intended to pay for 50 percent of all new construction and rehabilitation of the Waterway, but in reality the users' contribution has been roughly 23 percent.[51] The Congressional Budget Office estimated that imposing user fees to cover a greater percentage of the operation and maintenance of these waterways would save close to $2 billion over five years.[52]

7. Timber Sales on Federal Land

Timber from federal land is sold at market value, however, the sale preparation often costs the Forest Service more than the timber is worth. For example, a significant portion of the costs of road construction are not included in the Forest Service's profitability calculations, even though these costs are generally included in private sector accounting.[53] When the full cost of sale preparation is included, more than 80 percent of the nation's national forests operate at a loss; this represents an annual drain on the Treasury of between $300 and $400 million dollars in recent years.[54]

Logging activities can contribute to the loss of species and habitat in several ways. Most obviously, clearcuts or other intensive timber practices lead to a direct loss of habitat, and forests that are managed for timber rotations often do not attain the old growth, or complex physical structure that many forest interior species require. Deforestation and logging roads can cause erosion, and increase sedimentation in streams, diminishing their value as aquatic habitats and spawning beds for fish.[55]

Logging roads can also open previously remote lands to hunting, poaching, and other human disturbances. This can have a significant impact on animals that are not tolerant of high levels of human presence. For example wolves will generally not occupy habitat with greater than .9 miles of roads per square mile.[56]

Timber is an important resource, and a vital part of national and regional economies. However, the fact that many timber sales actually cost more than the wood's market value raises serious questions. Such timber sales cost taxpayers a significant sum of money, while simultaneously contributing to the loss of endangered species and their habitat. The database survey reveals that 52 listed species with much or all of their range on federal land are significantly affected by timber activities. For twelve of these species, timber activities are the only or primary threat.

Studies by the Forest Service indicate that recreation is by far the most valuable resource on its land. Currently recreation is also subsidized, and beneficiaries pay a fraction of the market value of national forest recreation.[57]

Were both subsidies removed concurrently such that managers could charge full market value for both timber and recreation, they would have incentives to manage the forests to maximize whichever were the more valuable resource. Where timber sales were profitable, logging would continue. Elsewhere the land would be more efficiently managed for values appreciated by hikers, campers, hunters, anglers, bird watchers, paddlers etc.

While recreation is not always benign, the aforementioned activities often depend upon the conservation of habitat and wildlife, management goals that can serve as a proxy for endangered species and biodiversity. The fact that a high percentage of timber sales lose money indicates that timber activities would be reduced if subsidized road construction was eliminated.

8. Incentives for Plantation Forestry

Many species are affected by the conversion of native woodlands to plantation forests of a single species. Single age monoculture forests have much reduced structural complexity and are generally considered to be biologically impoverished relative to natural forests, which are composed of trees of several species and varying ages.

The longleaf pine forests, which formerly stretched from Texas to Virginia, have been particularly impacted by conversion to plantations of faster growing species, such as loblolly and slash pine. The long leaf pine ecosystem has been reduced to 2 percent of its original extent. Twenty-seven listed species are found within this ecosystem.[58]

In the database survey, 12 species were shown to be impacted by forestry practices on private lands. This number is low, however, because the search was restricted to species found exclusively on private land. Many of the species on the federal timber set, such as the red cockaded woodpecker, are also found on private lands and are affected by conversion to plantation forests.

Three federal programs provide incentives that may encourage the creation and management of plantation forests. The Agricultural Stabilization and Conservation Service (ASCS) administers the Forestry Incentive Program, which provides cost-sharing assistance to forestry projects on private land. $12.4 million was spent on this program in 1993.[59]

The FmHA offers farm ownership loans to buy or develop forest land, and also provides refinancing and operating loans that can be used for forestry activities. In the 1985 Food Security Act, a provision was included that allowed farmers who were delinquent on their FmHA loan to reamortize and delay repayment if they planted at least fifty acres of softwood timber. This may have served as incentive to clear natural forest to plant softwood monocultures.[60]

The Federal Tax Code provides a 10 percent income tax credit for reforestation activities up to $10,000. Silviculture does not qualify for the same provisions of Swampbuster, and therefore silviculture can lead to the draining of wetlands. Additionally, the tax credit is directly tied to management activities related to the establishment of commercial timber stands, which are often monoculture plantations.[61]

It is difficult to gauge the affect that removing these incentives would have on private land forestry. However, the government could follow the lead of Swampbuster, and not offer any incentives, tax credits or cost-sharing assistance for activities that drain forested wetlands or convert natural forest to plantation.

9. Mining on Federal Land

Despite recent attempts at legislative reform, mining on federal lands, (excluding oil, gas and coal), is still governed by the Mining Law of 1872. Under this law, individuals or corporations can patent a claim and buy federal land for between $2.50 and $5.00 an acre. The government has sold 3.2 million acres of public land at this price (an area roughly the size of Connecticut) in the past 120 years.

The purchaser is not required to return any royalties to the government for minerals extracted from public land. (As a comparison, oil and gas developers pay a royalty of 12 percent to the government.) In 1990, $1.2 billion worth of hard rock material were taken from public lands, and the total known, economically recoverable reserves on public lands are estimated at $64.9 billion.[62]

Furthermore, the government is often left responsible for expensive environmental cleanup once mining operations have terminated. In 1992, the Department of the Interior (DOI) reported that $283 million worth of restoration would be required to reclaim 280,000 acres of suspended, abandoned or unauthorized hard rock mines on public land.[63]

Mining can affect endangered species by directly destroying habitat, through water pollution from tailings or chemicals used during extraction, or through other disturbances from related activities such as building roads, pipelines, etc. 34 listed species found on federal land were found to be affected by hard rock mining, and for 8 of these, mining activities were the only or clearly most significant threat.

Imposing a 12 percent royalty would not prevent all mining on federal land, but it would likely reduce operations with marginal profits. Therefore, it is not clear to what extent removing this subsidy would directly benefit endangered species. However, a significant portion of the royalty could be dedicated to mitigation or land acquisition that would help biodiversity and endangered species in general.

10. Defense

Defense impacts a small number of species, mainly because the Defense Department controls a significant number of acres in military bases across the U.S. While not clearly "subsidized," activities on these acres are clearly under the control of the federal government. Full compliance with the Endangered Species Act should require a cessation of such activities.

11. Fire Suppression on Federal Land

For ten thousand or more years, most North American terrestrial ecosystems were periodically burned by indiginous peoples. European settlers often continued this practice, and many large nineteenth century fires in the Midwest and West were purposely or carelessly started by settlers.

Such periodic fires were halted shortly after the turn of the century, mainly through the efforts of the Forest Service. Built on a mythology that warned of an impending "timber famine," that agency sought to protect all forests from fire as if the nation's very survival depended on it.

But forest fire suppression programs were based on more than just an ethic of fire protection. In 1908, Congress passed a law that effectively gave the Forest Service a blank check for putting out fires. The agency was given little funding for fire prevention. But when a fire did take place, the agency could spend whatever it took to suppress the fire with the confidence that Congress would reimburse it at the end of the year.[64]

This law created a perverse incentive that ended up doing far more damage to America's forests than clearcutting. No matter how remote the forest, no matter how worthless the timber, fires were quickly suppressed. This radically altered the vegetative composition of the forests.

Even where private landowners insisted that fires were good for forests, as they particularly did in the Southeast, the Forest Service insisted on suppressing fires. This led to serious conflicts, as the Forest Service called anyone who started a prescribed fire a "vandal," while landowners accused the Forest Service of spreading insects and disease from its fire-suppressed forests.[65]

Today the Forest Service claims it is learned from its mistakes. But Congress still provides little funding for prescribed fire. Instead, the only way for the Forest Service to gain such funding is to sell timber sales--even if such sales lose money--and use the receipts for prescribed fire. In most sales, such funds can only be spent in the areas cut by the sale, leading to a new misincentive: Treatment of forests damaged by fire suppression requires timber cutting even if such cutting is neither economically or ecologically sensible.

The database indicates that only 19 species are threatened by fire suppression activities. But this refers to direct threats only; species threatened by changes in ecosystems resulting from long-term fire suppression are not counted.

12. Animal Damage Control

The database indicates that only six species are impacted by animal damage control activities, and three of these are marine species that are impacted mainly by commercial fishing operations. The other three species are counted as impacted by federally subsidized activities. However, this is a tiny number compared with the total that are truly affected by federal animal damage control programs.

The animal damage control program, part of USDA, conducts active, and often lethal campaigns against livestock predators such as coyotes, and other animals that may damage agricultural interests. A recent report by Randal O'Toole revealed the economic inefficiencies of the USDA's programs, and found that this is a service provided free to private landowners at taxpayer expense.[66]

Animal damage control has frequently poisoned prairie dogs, and continues to do so today in many states. The prairie dog is a keystone species due to the significant ecological role that these animals play in creating and maintaining suitable habitat for other species. It is estimated that 163 vertebrate species are dependent or closely associated with prairie dogs, either for a source of food, or for the habitat modifications that prairie dog towns provide. These include several endangered species, including the black footed ferret, and the burrowing owl, as well as several candidate, or state level endangered species.[67]


The reevaluation, modification or elimination of subsidies can benefit endangered species in three ways: generating funds (from market pricing of previously subsidized resources) that can be used to finance mitigation for the activity or protection of habitat elsewhere; eliminating market distortions that promote loss of habitat; and directing development away from endangered species habitat by denying subsidies for activities in these areas that destroy or degrade habitat.

Generating Funds--Randal O'Toole has proposed charging market prices for resources on federal land, and then dedicating a portion of the increased revenue to a Biodiversity Trust Fund. The Fund would support mitigation projects, finance the purchase of grazing, timber or water rights destined to be retired rather than used, and the acquisition of critical habitats. Money for the Fund could be generated from a portion of the receipts from timber, grazing, mining, and recreation on federal lands, and from the sale of federal water.[68]

Eliminating Market Distortions--Many government subsidies influence markets and promote activities that result in the loss of species and the conversion of habitat. As discussed earlier, determining the relative contribution of a subsidy to a specific species' status, and predicting the effect on the species of removing the subsidy, can be quite difficult. For example, eliminating subsidies for water development may greatly curtail future projects, but it is not as clear how the operation of current water systems will respond.

However, the elimination of many of the above subsidies can be debated purely on the basis of economics or equity. Along with these considerations, a subsidy's influence on activities that significantly affect endangered species should be accounted for. Eliminating many subsidies would reap savings for the Treasury, reallocate resources in a more efficient and equitable manner, and allow the federal government to adhere to something similar to a provision of the Hippocratic Oath with regard to endangered species--"First, do no harm." And therefore, while it may be difficult to predict which species will benefit from the elimination of a subsidy, at least the government would not be contributing to a problem that it is also trying to fix.

We can predict with more confidence that removing subsidies will have an influence on marginal economic decisions--meaning projects that are only profitable with a subsidy will not be profitable in its absence. For example, a mine in a particularly remote location may only be profitable if the land can be acquired at next to no cost, and if no royalties are paid. Were the federal government to charge market values for the land and require payment of a 12 percent royalty this mine would no longer be profitable to build and operate. These marginal gains may not be insignificant in terms of their benefit for endangered species.

The elimination of subsidies for agriculture provides an example of the potential benefits of marginal gains. Without subsidies, agriculture would still be incredibly important to the nation, and the demand for food will ensure that most current farmland will stay in production. But as discussed earlier, agriculture will likely restructure, both on the scale of an individual farm, and on a regional basis. How this restructuring unfolds could be significant for endangered species.

Farmers may switch to a wider variety of crops and rotations, which would entail lower usage of agrichemicals, and subsequent benefits for aquatic species. Some land may be taken out of production, or fields may be rested more often.

Benefits for species and habitat may not be dramatic in terms of total acreage in the nation taken out of production, but may be significant nonetheless. The reason for this lies in the non-uniform biological value of some habitat areas over others. For example, in the earlier section on agriculture, the value of wide strips of natural vegetation along rivers and streams was discussed. These natural buffers filter out much of the pollutants from agriculture (or other sources), and improves aquatic habitats.

Vegetation along streams and rivers serves as important habitat in its own right, as well as providing corridors for migration, dispersal and genetic exchange. Imagine a hypothetical farm where 10 percent of its acreage was taken out of production following the elimination of commodity supports and subsidized insurance. If this 10 percent of acreage widened the strip of natural vegetation along a stream, then the elimination of subsidies would have a much greater impact on the aquatic habitat of the stream and for local wildlife than the total acreage would indicate.

The Conservation Reserve Program demonstrated the benefits to endangered species that could be gained by taking marginal and patchily distributed land out of production. USDA paid farmers to retire highly erodable lands for ten years, and to dedicate this acreage for the benefit of wildlife and watersheds. 36 million acres were retired between 1985 and 1995 at an average rental cost of $50 per acre. The CRP reaped significant benefits for the flora and fauna of the Great Plains states. Numerous bird populations rebounded and two endangered species were specifically documented as improving their status due to lands retired through the CRP.[69] This program is actually another subsidy for agriculture, but it demonstrates the potential environmental gains that can be achieved by retiring marginal lands.

Directing Development--Three federal laws provide a precedent for denying subsidies for activities that may damage the environment.

Swampbuster--After the value of wetlands became better understood, the government stopped providing tax incentives for draining wetlands and instituted a program to slow the conversion of these habitats for agriculture (agriculture has been the largest contributor to the loss of wetlands). The Swampbuster provisions of the Food Security Act of 1985 denied any agricultural subsidies (deficiency payments, crop insurance, loans) to farmers who destroyed wetlands. While Swampbuster has not always been implemented effectively, it does represent an example of the government influencing land use by refusing to provide subsidies to a person engaging in environmentally destructive actions.[70]

Coastal Barriers Resource Act (CBRA)--The CBRA withholds federal subsidies or development assistance along coastlines that are included within a Coastal Barrier Resource Unit. The most significant aspect of the CBRA is the denial of federal flood insurance (often the only insurance available) to individuals or developers who build within a Coastal Barrier Resource Unit. The rationale behind the CBRA is two-fold: to discourage development along environmentally sensitive shores, and to reduce the government's liability (both insurance and disaster funds) for coastal construction.[71]

The National Flood Insurance Program (NFIP)--Instituted in 1968, the NFIP requires that communities adhere to certain building codes and zoning laws within floodplains in order to receive the benefits of federal flood insurance.[72]

These three laws provide examples of where the federal government denies the benefits of subsidies for actions that it wishes to discourage, such as the conversion of wetlands, development along pristine coasts, or over development and poor construction within flood plains. A similar policy could be adopted to discourage the loss of species and habitat. Activities that convert or degrade natural habitat can be denied subsidies, to direct such activities to more benign locations.

Several economists have suggested mechanisms of assessing impact fees for new development that destroys natural habitats. Impact fees for conserving biodiversity could be based on the existing policies that many states have for assessing impact fees for the conversion of agricultural land to other uses. In theory, the extra costs imposed on development that destroys natural habitat would direct new development to less environmentally sensitive or biologically rich areas.[73] A similar concept is found in many Habitat Conservation Plans for endangered species. Developments within the designated recovery area are required to pay into a fund for habitat protection or restoration elsewhere. A system of tradable credits has been proposed to accomplish this mixture of development and habitat protection in the most economically feasible manner.

Rather than imposing an impact fee, the government could deny subsidies for new developments that convert natural habitat. For example, new home owners within a habitat conservation plan region would forgo the benefits of the home mortgage interest deduction.

A second option would be to require that the equivalent of the deduction, or a certain percentage of the deduction, be dedicated to a fund for habitat restoration or acquisition. The percentage could be scaled to the quality and amount of habitat that was destroyed for the development. Builders, who would be required to tell potential buyers about this arrangement, would thus have an incentive to develop sites with the least environmental degradation. Builders could avoid this requirement on their new construction if they paid to restore or acquire habitat of equal biological value elsewhere.

People across the nation are currently embroiled in a debate over the Endangered Species Act and the economic consequences of its implementation. Many market forces in our economy contribute to the loss of endangered species and their habitat; controversies and "train wrecks" result when these forces conflict with the goals of the ESA. Numerous federal policies distort markets and promote activities that contribute to the continuing loss of species. The debate regarding the economic impact of the ESA should include the reevaluation of these policies and subsidies. The various innovations and incentives that have been proposed to improve the efficiency and equity of the act will have a much more reasonable chance of working if the perverse incentives for habitat loss are eliminated.

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