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Iridium-Cosmos debris illustration
Space sustainability seeks of avoid the creation of debris through collisions like the 2009 Iridium-Cosmos event, but current policy mechanisms are lacking. (credit: AGI)

The economics of space sustainability


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Over the last several years, the long-term sustainable use of outer space, specifically Earth orbit, has emerged as a significant public policy issue in the United States and among many spacefaring nations. Specifically within the United States, both the 2010 National Space Policy and the Department of Defense’s National Security Space Strategy emphasize space sustainability as a significant goal.

Although classical microeconomic policy mechanisms have been proposed over the last two decades to deal with space debris, none have gained significant ground in the policy arena.

A crucial element of space sustainability is the problem of human-generated space debris in orbit around the Earth and the risk it poses to active satellites. Recent events such as the 2007 Chinese antisatellite test and the 2009 collision between an American Iridium and Russian Cosmos satellite are only the most publicized elements of the issue. The changing geopolitical landscape since the end of the Cold War and the lowering of barriers to entry spurring an increase in the number of countries and non-state actors conducting activities in space are also significant elements.

Although classical microeconomic policy mechanisms have been proposed over the last two decades to deal with space debris, none have gained significant ground in the policy arena. This article examines the economic principles behind the failure of these proposals, which is due to both confusion over the type of good outer space is and the lack of private actors in outer space who would be responsive to such economic incentives. It concludes with a discussion of progress that is being made on several initiatives to enhance space sustainability, and traces their roots to the relatively new economic fields of information theory and sustainable management of common-pool resources.

Satellites and space debris

Nearly 1,000 active satellites are currently in orbit around Earth providing a wide range of social and private benefits including enhanced national and international security, more efficient use and management of natural resources, improved disaster warning and response, and reliable global communications and navigation. The vast majority of these active satellites exist in two distinct regions. Approximately 470 of these active satellites are in low Earth orbit (LEO) orbiting between 200 and 2,000 kilometers in altitude. Another 419 active satellites are in the geosynchronous Earth orbit (GEO) region approximately 36,000 kilometers above the Equator.

In economic terms, space debris is what’s called a producer-to-producer negative externality resulting from this use of space and consists of dead satellites, spent rocket stages, and fragments associated with humanity’s six decades of activity in space. In addition to the 1,000 active satellites, the US military currently tracks close to 21,000 pieces of human-generated debris in Earth orbit that are larger than 10 centimeters, each of which could destroy an active satellite in a collision. Research done by scientists and space agencies indicates there is also a population of another 500,000 pieces of space debris sized between 1 and 10 centimeters, each of which could severely damage an active satellite in a collision.

Outer space is often referred to as being a “global commons” in public statements. This view of outer space has led the historical economic policy discussions on space debris to focus on using environmental economics to price and regulate it as a pollutant to achieve the target amount released.

Because this debris is a product of human activity in space, it is concentrated in the most actively used regions (LEO and GEO), resulting in increasing risks of collisions with active spacecraft. This increased risk raises the private costs of operating satellites now through greater expenditures of fuel and interruptions of mission from avoidance maneuvers and, in the future, through increased production costs in designing and maintaining satellites. Taken together, these rising costs may make it financially unviable to perform certain types of space missions in the future, leading to a loss of social benefits.

Space as a public good and global commons

The volume of space around Earth as a whole is traditionally considered to be non-excludable and non-rivalrous, thus making it a public good. Non-excludability arises from the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space of 1967 (more commonly known as the Outer Space Treaty), which states that outer space is free for exploration and access by all countries and is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.

The non-rivalrous aspect is a function of the physical characteristics of the space environment and the physics of orbital mechanics. A satellite placed into orbit does not occupy a fixed location: it moves in an elliptical path (an orbit) whose size, shape, altitude, and exact dimensions are a result of the forward velocity of the object and the gravitational pull exerted by the Earth. The immense volume of space around the earth (trillions of cubic kilometers) means that the placement of a satellite into orbit by one country does not impede in a significant way the placement of a satellite into orbit by another country.

Outer space is often referred to as being a “global commons” in public statements, particularly by the military, and closely linked to other perceived global commons of the Earth’s atmosphere, oceans and the Internet. This view of outer space has led the historical economic policy discussions on space debris to focus on using environmental economics to price and regulate it as a pollutant to achieve the target amount released. Molly Macauley, one of the few economists to focus on space debris, presented the broad outlines of some of these economic approaches to the space community as far back as 1994. She states that at the time, space debris experts had not considered economic incentive-based approaches stemming from classic microeconomic theory and were instead focused on implementing traditional command-and-control approaches to regulation (Macauley, 1994). These regulations included the mandatory de-orbiting of spent rockets and satellites at the end of their operational lifespan. Macauley points out the drawbacks to the command and control approach, notably the costs of compliance and monitoring and the lack of flexibility (Macauley, 1994).

As an alternative, Macauley discusses some of the traditional incentive-based microeconomic approaches for dealing with an externality. One suggestion she made was to require a deposit on launch of a spacecraft, which would be returned in the event the spacecraft is de-orbited (Macauley, 1994). If unclaimed, the deposit could go to a fund for cleaning up legacy debris or compensating owners of spacecraft hit by debris. Another approach is the assessment of taxes or fees with creation of space debris and perhaps even a cap-and-trade regime to limit the amount of space debris produced (Macauley, 2003).

At the core of this failure are two root causes: the true nature of the most commonly used regions of outer space and the lack of private actors using these regions that would be responsive to market incentives.

Aside from these brief mentions by Macauley, there has been very little written in the literature providing further details on these concepts. A notable exception is work by Bradley and Wein (2009) to estimate various fees and costs for regulating space debris. They developed a model of space debris dynamics over the medium (centuries) and long (millennium) term and estimated damage to operational spacecraft from debris over that time period. By choosing an average cost of a destroyed satellite and a discount rate, the model calculates the fee a policy mechanism needs to implement to ensure a tolerable level of risk. For a discount rate of 5% and a satellite replacement cost of $500 million, Bradley and Wein calculate a launch fee of $980 to offset future expected damage of a satellite that will be deorbited at the end of its mission.

The shortcomings of microeconomic policy mechanisms for space debris

Despite this early recognition of the problem, these efforts to regulate space debris as an environmental pollutant have not gained significant traction and are currently absent from any of the serious national or international policy discussions. At the core of this failure are two root causes: the true nature of the most commonly used regions of outer space and the lack of private actors using these regions that would be responsive to market incentives.

LEO and GEO as common-pool resources

While space as a whole is indeed non-rivalrous, the heavily-used regions of LEO and GEO are both rivalrous and congestible, making them common-pool resources (CPRs) within the larger global commons of outer space in the same way that fisheries and oil fields are CPRs within the commons of the oceans. The orbital mechanics of these specific regions of space provide unique benefits, and the common engineering solutions used by almost all space actors result in a clustering of satellites at certain altitudes in LEO and at the same altitude in GEO. Thus, as an increasing number of countries place satellites into LEO and GEO, those regions have begun to exhibit the efficiency problems stemming from appropriators responding to marginal private costs instead of marginal social costs as commonly found in CPRs.

The congestion in GEO is particularly acute due to its small size, high demand, and the need for all satellites in the region to use the same or similar portions of the radiofrequency spectrum. This congestion made it economically feasible to create exclusion mechanisms in the form of international and national legal mechanisms to regulate and allocate the spectrum used by GEO satellites. Although the principles of non-appropriation from the OST are still in effect and only partial property rights are afforded to satellite operations in GEO, these exclusion mechanisms have led to a fairly efficient use of GEO and correspondingly less of a space debris problem relative to LEO.

Although there have been general discussions of developing similar regulatory exclusion mechanisms for the most congested parts of LEO (Weeden & Shortt, 2008, and Bilimoria & Krieger, 2011), these discussions have yet to gain traction. This is largely due to the high cost of putting such mechanisms in place and the lack of measureable economic benefits from LEO that would justify such expenditures.

Lack of private actors deriving private benefits

Although it is true that space as a whole is very valuable and humanity derives much benefit from use of space, an economic analysis reveals very little measureable private benefits from our current use of LEO. The most recent estimate values the total space economy at $290 billion in 2011. However, very little of this figure comes from private benefits in LEO: $107 billion is from commercial ground infrastructure and support industries and another $72.77 billion from government space budgets. Of the $110.52 billion in commercial space products and services, almost all of it is provided by satellites operating in GEO.

As the public sector is traditionally much less responsive to prices and markets, LEO is thus a poor candidate for microeconomic policy mechanisms aimed at incentivizing behavior.

In LEO the single biggest source of private benefit is the Earth observation sector, with an estimated total value in 2011 of $2.24 billion. However, this revenue stems largely from civil government and military customers, and governments are expected to fund development of most Earth observation satellites during the next ten years. Aside from Earth observation, the only other meaningful revenue from satellites in LEO comes from three communications satellite constellations: Globalstar (46 satellites), ORBCOMM (26 satellites), and Iridium (71 satellites). Collectively, these firms have annual earnings on the order of $100 million. Data from the insurance industry supports this as well: only 24 satellites in LEO are currently carrying commercial insurance, for a total insured value of about $1.4 billion, out of a total satellite insurance market of $20 billion.

The February 2009 collision between the American Iridium 33 and Russian Cosmos 2251 satellites also demonstrates this lack of private value in LEO. This was the first collision between two satellites in orbit. It destroyed both parent objects and created nearly 2,000 pieces of new debris greater than 10 centimeters in size in what was already the most congested region of LEO. Previous to the collision, an executive with Iridium had stated publicly that the company believed in the “big sky” theory and had ceased performing assessments to determine if there was a possible conjunction between one of its 65 satellites and another object because the data available at the time wasn’t precise enough to be actionable.

Neither the US nor Russia decided to pursue damages over the incident because the private loss for both parties due to the collision was near zero and the liability regime in space is based on actual damages (Jakhu, 2010). Cosmos 2251 had ceased functioning years earlier and Iridium 33 had been fully depreciated. And although Iridium 33 was being actively used, it was part of a large constellation and the loss of a single satellite had minimal operational impact; an on-orbit spare was maneuvered into Iridium 33’s slot in a matter of weeks. Most observers would agree that the debris field created by the collision did impose a social cost on other satellites in that region, but future liability claims for satellites hit by a piece of debris from the Cosmos-Iridium collision must prove fault by either the US or Russia to recover damages, which is a very unlikely scenario (Jakhu 2010).

Thus, the vast majority of economic value currently derived from LEO is either from satellites owned and operated by governments, or governments providing the bulk of demand for services provided by privately owned satellites. This value is almost entirely in the form of social benefits such as national security, science, climate and weather monitoring, management of natural resources, disaster response, and space exploration. As the public sector is traditionally much less responsive to prices and markets, LEO is thus a poor candidate for microeconomic policy mechanisms aimed at incentivizing behavior.

There have been many ideas and proposals in the past for ways of making money in LEO and growing the space economy there. Ideas such as orbital manufacturing, tether-based launch systems, space elevators, propellant depots, and space habitats have all been postulated as potential future private space sectors. However, while some of these ideas are promising and pioneers such as Bigelow Aerospace are pushing the frontier, for the near to mid term the chances are extremely slim of developing a thriving space economy in LEO that will provide a free market solution to space debris in LEO.

page 2: a new approach >>

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