Climate Change and "The truth": The search continues

After reading Matt's post below which raises a number of interesting points I believe it is useful to link to two related Gristmill posts:

Where can you find the "truth" about global warming?

and

The scientists aren't even sure.

From the second post:

Objection: Even the scientists don't know that the climate is changing more than normal and if its our fault or not. If you read what they write it is full of "probably," "likely," "evidence of" and all kinds of qualifiers. If they don't know for sure, why should we worry yet?

Answer: Probability is the language of science. There is no proof; there are no absolute certainties. Scientists are always aware that new data may overturn old theories and that human knowledge is constantly evolving. Consequently, it is viewed as unjustifiable hubris to ever claim one's findings as unassailable.

When we consider Greenhouse gases specifically:

Greenhouse effect theory is over 100 years old. The first predictions of anthropogenic global warming came in 1896. Time has only strengthened and refined those groundbreaking conclusions. We now have decades of very detailed and sophisticated climate observations, and super computers crunching numbers in one second it would have taken a million 19th century scientists years with a slide rule to match. Even so, you will never ever get a purely scientific source saying "the future is certain."

But what certainty there is about the basic issue is close enough to 100% that for all practical purposes it should be taken as 100%. Don't wait any longer for scientific certainty; we are there. Every major institute that deals with climate related science is saying AGW is here and real and dangerous, even though they will not remove the "very likely" and "strongly indicated" qualifiers. The translation of what the science is saying into the language of the public is this: Global warming is definitely happening and it is definitely because of human activities and it will definitely continue as long as CO2 keeps rising in the atmosphere.

The rest of the issue -- how high will the temperature go, how fast will it get there, and how bad will this be -- is much less certain. But no rational human being rushes headlong into an unknown when there is even a 10% chance of death or serious injury. Why should we demand 100% certainty before avoiding this danger? Science has given the human race a dire warning with all the urgency and certainty we should need to prompt action.

We don't have time or reason to wait any longer.

As economists uncertainty plays a key role - 10% chance of death and serious injury? Is that a high risk? How much would it cost to reduce that risk? Could the money be spent elsewhere to reduce other "risks"?

The bottom line is that it will all come down to "costs" and "benefits" of reducing greenhouse gases. What price the earth's future?

Stern Report I: The Launch

Today marks the delayed release of the long awaited Stern Review on the Economics of Climate Change.

This intitial post is just to direct readers to the location of the report. The amount of headlines and column inches driven by the Stern Report is signficant. We will not review the reviews of this report but hope to provide our own views of this 700 page beast in the near future.

What we will say now is that this report is not without its critics. We will provide analysis in due course.

The report can be downloaded from the HM-treasury at the following link.

Stern Review.

Ozone hole has broken records for area and depth: but its not all bad

Although this sounds bad, there is a silver lining if one looks hard enough. The slowing down and reversal of ozone depletion shows what can be done if the world's economies act together. Plus this is a great picture. Article from Whats next in science and technology.

NASA and National Oceanic and Atmospheric Administration (NOAA) scientists report this year's ozone hole in the polar region of the Southern Hemisphere has broken records for area and depth.

The ozone layer acts to protect life on Earth by blocking harmful ultraviolet rays from the sun. The "ozone hole" is a severe depletion of the ozone layer high above Antarctica. It is primarily caused by human-produced compounds that release chlorine and bromine gases in the stratosphere.

Now for the good news:

As a result of the Montreal Protocol and its amendments, the concentrations of ozone-depleting substances in the lower atmosphere (troposphere) peaked around 1995 and are decreasing in both the troposphere and stratosphere. It is estimated these gases reached peak levels in the Antarctica stratosphere in 2001. However, these ozone-depleting substances typically have very long lifetimes in the atmosphere (more than 40 years).

As a result of this slow decline, the ozone hole is estimated to annually very slowly decrease in area by about 0.1 to 0.2 percent for the next five to 10 years. This slow decrease is masked by large year-to-year variations caused by Antarctic stratosphere weather fluctuations.

The recently completed 2006 World Meteorological Organization/United Nations Environment Programme Scientific Assessment of Ozone Depletion concluded the ozone hole recovery would be masked by annual variability for the near future and the ozone hole would fully recover in approximately 2065.

Only 60 years to go before we are back where we started.

Should the climate change bill call for annual targets?

Most people will welcome the climate change bill's attempt to remove setting long term targtets relating to carbon emissions from short term political interference. But how peculiar to see many people both from other political parties and NGOs insisting that the Government should set binding annual targets as opposed to five or ten-year targets. Given that the demand for energy is uncertain because of the weather and people cannot change their behaviour in the short run, having an annual target might occasion large swings in energy prices. In any case, ratified information on the UK's annual carbon emissions does not become available until well into the following year so what these people appear to be asking for is not even technically possible.

The government will today agree plans for a climate change bill setting new long-term targets to cut carbon emissions in Britain in response to intense pressure from environmental campaigners.

An independent body to advise on whether government policies will meet the green targets will be created under proposals to be tabled by the environment secretary, David Miliband, when he makes a presentation to the environment and energy cabinet committee today. The bill will be in the next Queen's Speech on November 15.

But the government is resisting the idea of a law requiring a cut in carbon emissions year on year, arguing that unforeseen factors, such as extreme weather or unexpectedly strong economic growth, can mean targets can be missed from one year to the next. Mr Miliband is more likely to back specific targets for each decade, probably in concert with European Union targets.

He will also discuss how the government can pursue international climate talks, in view of a warning yesterday by the foreign secretary, Margaret Beckett, that "the world is on the path to climate chaos".

Mr Miliband's move follows growing cross-party pressure, led by environmental groups, for a climate change bill amid evidence that Britain's C02 emissions have grown under the Blair government.

More than 400 MPs, including the Conservative and Liberal Democrat frontbenches, have backed the calls which they say should include a commitment to year on year C02 reductions.

Chris Huhne, the Liberal Democrats' environment spokesman, welcomed the decision to legislate but said the bill must include year-on-year targets.

Tony Juniper, head of Friends of the Earth, also called for legally binding targets for reductions of about 3% a year.

"We very much welcome the fact that the government has responded to the broad-based campaign that called for a new climate change law," said Mr Juniper. "But if the UK is serious about tackling the problem and about being a world leader, then there has to be something in law that places a commitment on the government to do something in the short term."

Econometrics and STATA: new text by Baum

Given most of the research of ours and that of our PhD's students is in applied econometrics using STATA, this new book by Christopher Baum "An Introduction to Modern Econometircs Using Stata" seems an ideal place to start for any new PhD student or researcher. A good way to learn STATA and econometrics at the same time - that has to be efficient.



We have added this book to our "Recommended Reading" in the side bar if more informtion is required.

Coase in the Real World: UK Nuclear Dumps

After teaching the "Coase Theorem" and as usual finding real world examples hard to come by, today's news that the UK government is attempting to use incentives to entice local councils to volunteer their land to be the repository of nuclear waste is an interesting approach. There is certainly scope for a "bargain" to be struck here between the "polluter" and those on the end of a nuclear waste site.

This article is from today's Financial Times.

Taxes will fund £20bn nuclear dump

The relevant paragraphs are as follows:

David Miliband, the environment secretary, told the Commons that discussions over financing would be "difficult and complex". The government would "in due course" need to set out how the country could meet what senior Whitehall officials conceded was a large and as yet uncalculated bill.

"This is something which needs to be done by government, not just by one department," said Mr Miliband. Privately, senior government insiders endorsed industry estimates that the construction bill could be £10bn-£20bn. Agreement on the design of a bunker and where it should be sited would take years.

Mr Miliband confirmed that councils would be invited to volunteer to host the proposed nuclear dump. Any town or city chosen would benefit from investment in local transport -networks and their social fabric. The devolved Scottish and Welsh administrations would take part in the -process.

No community would be forced to accept a burial site; that would only be built"in a geologically suitable area".

Independent: Our Green Paper

Once again the UK's Independent newspaper leads with a green agenda.


Articles include:

Blair condemned for 'toothless' approach to climate legislation

How the green shoots of change are sprouting around Britain

One day in the green life of a man on a mission

Leading article: The time for prevarication and warm words is over

Green journalism sells,...but who's buying?

Asthma and air pollution: No link?

Given my current Coase theorem teaching I was reminded to go and visit "The Commons" blog which has as it by-line "markets protecting the environment".

In their own words:

The Commons Blog is a collaborative web log dedicated to the principle of promoting environmental quality and human dignity and prosperity through markets and property rights. Put more simply, it’s about free markets protecting the environment.
The blog is named after the famous 1968 Garrett Hardin essay, The Tragedy of the Commons, where he established that common ownership of land and natural resources tended to lead to the degradation of those “common” resources. The free-market environmentalist movement exists to demonstrate that property rights have time and again proven the bulwark against such degradation. You can read more about the theory on our page “About Free Market Environmentalism.”

Today's post considers the recent EPA report "America's Children and the Environment". It is useful to take the following paragraph (the rest of the post can be read by following the link) and contrasting this with the numbers from my post yesterday.

First, a reminder from "EU Air Pollution Rules: a high death count?"

As a last minute edit metalfloss write:

Today, the World Health Organization estimates that 4.6 million people die each year from causes directly attributable to air pollution.

Then we consider the Common's post called "Enviros ignore EPA in favor of own story"

EPA's new report "America's Children and the Environment" notes that air pollution declined, but asthma prevalence continues to rise. One possible conclusion from this is that air pollution is not actually a cause of asthma. In fact, that's the most plausible conclusion. Every pollutant we measure has been dropping for decades pretty much everywhere, while asthma prevalence has been rising pretty much everywhere. This is true throughout the entire western world, not just the U.S. In fact, asthma incidence is highest in countries with the lowest levels of air pollution. Asthma is rare in developing countries with much more polluted air. Asthma incidence is simply unrelated to air pollution. Asthma attacks are probably unrelated as well. But even if air pollution can cause asthma attacks, it is a minor cause, responsible for less than 1% of all asthma attacks. EPA's own published estimates implicitly say this, but EPA never makes the percentage explicit, because that would undermine one of the agency's most potent weapons for creating unwarranted public fear.

It is certainly worth reading the whole article and other posts on this site for an interesting perspective on many of the issues discussed in this blog.

Green Taxes: Parking permit plan targets 'gas guzzlers' :

The UK appears to be embracing the concept of "persuading" individuals to change their behaviour via the imposition of "green taxes". Richmond upon Thames in south west London is one of Britain’s most affluent boroughs - its solution is to introduce a sliding scale of charges for residents’ parking permits.

Certain cars will be exempt from resident parking charges (to park on the road outside your house) while others will have to pay up to three times the current level.

Two articles in the British press are here in the Independent and for a lowbrow version in the Sun.

From the Independent:

The scheme would introduce a sliding scale of charges for parking permits from band A, which would be free, to band G, which would charge three times the current cost of annual parking permits.

Band A would consist of electric cars while band G would be made up cars such as 4x4s, the Porsche 911 Carrera, the Jaguar X-type, Range Rover 4.4 litre and the Renault Espace people carrier.

A spokesman for the council denied the scheme was a money-making exercise.

He said: "We have calculated that it could make up to £1 million. However, as people, as we expect, switch to cars in the lower bands, it is obviously going to take revenue.

"This is not being done as a revenue-raising exercise, it is being done as an exercise in cutting down on CO2 emissions."

This exercise is a good first stage. Whether it will make a difference is debatable. If one can afford to drive a Porshe911 an extra £300 a year will make little difference against general running costs. Moreover, most drivers of cars of this type do not keep them on the road anyway. Then there is the question of collection costs - how much will this scheme cost to monitor and enforce relative to revenues. Still, something is generally better than nothing.


Finally, the odds of this scheme actually becoming reality are still slim - time will tell.

How Many of Me? 300 million and counting

Now the US population has reached the 300,000,000 landmark, many environmental bloggers have waxed lyrical on what this means given US consumption patterns and energy use and inevitably comment along the lines that "the last thing the environment can afford is more Americans" Here and here.

But how many have worked out how many other US citizens have the same name?

Given the British continued obsession with class I would prefer the title "How common am I".

See HowManyOfMe

Name Number of US citizens

Robert Elliott : 2,458
Matthew Cole : 791
David Maddison : 4

I blame my Scottish roots and the fact the Americans like the name Bobby. For that I blame Dallas (the TV program and not the place).

EU Air Pollution Rules: a high death count?

This sort of news article is all well and good but one wonders where the data comes from. 350,000 deaths - is this high or low? Increasing or decreasing?

EU Governments Back New Air Pollution Rules

October 24, 2006 — By Associated Press
LUXEMBOURG -- European Union governments on Monday backed new rules to combat air pollution by setting binding limits on levels of harmful dust particles, which the EU blames for up to 350,000 deaths every year.

The bill requires the EU's 25 members to reduce levels of such particles _ emitted by a range of sources that includes diesel engines, industrial processes and household boilers _ by 20 percent between 2010 and 2019.

"This is a very clear signal for European citizens of our commitment to combat air pollution," said Finnish Environment Minister Jan-Erik Enestam, who chaired the EU talks.

The bill still needs approval from the European Parliament where some parties have sought to reduce its impact on industry, which complains the new rules will cost it billions of euros (dollars). The EU says those costs will be more than offset by health care savings.

EU Environment Commissioner Stavros Dimas said the bill would be an important tool to reduce deaths from respiratory diseases, cancer and heart complaints. "The scourge of air pollution is still shortening European citizens' lives by an average of eight months," he told a news conference.

Source: Associated Press

As a last minute edit metalfloss write:

Today, the World Health Organization estimates that 4.6 million people die each year from causes directly attributable to air pollution.

SUVs, Bright Lights, Externalities: Angry Bear speaks

Having just lectured on "Externalities" as part of an "Environmental Economics" introduction I must say that I like this post by the Angry Bear who describes his Blog as "Slightly left of center economic commentary on news, politics, and the economy."

The 53 comments left on this thread shows it obviously touched a nerve. Interesting reading.

SUVs, Bright Lights, Externalities, take 2

I normally don’t revisit old posts, but I don’t always get my point across. I’m going to try again on the SUV externality issue, and I’m going to be more concise.

1. Being in an SUV increases the visibility of the vehicle driver
2. The presence of SUVs reduces the visibility of other vehicles on the road
3. As a result of #2, SUVs impose negative externalities (e.g., reduced safety, wasted time) on occupants of other vehicles.

Similarly,

a. Driving with one’s bright lights on increases the visibility of the vehicle driver
b. The presence of vehicles driving with their bright lights on reduces the visibility of other vehicles on the road
c. As a result of item b, vehicles with their brights on impose negative externalities (e.g., reduced safety, wasted time) on occupants of other vehicles.

I assume none of this is in dispute. So… why is driving with one’s bright lights on illegal, and driving an SUV legal?

Conjecture… the difference is that SUVs are externalities imposed by the wealthy, whereas bright lights are externalities that can be imposed by anyone. (A Hummer costs $100K, while even very poor car owners can afford to strap a searchlight to the hood of their vehicle.) Agree? Disagree? Am I missing something?

Researcher Incentives and Empirical Methods: Glaeser's 10 recommendations

Following up on a couple of posts on this blog about the methods (dubious or otherwise) of applied economists (econometricans) comes this post from Economist's View discussing a new paper from Ed Glaeser (Harvard).

In the October 2006 paper "Researcher Incentives and Empirical Methods, by Edward L. Glaeser, NBER Technical WP 329." the author provides 10 recommendations for empirical researchers.

Here are the ten recommendations although I suggest visiting the Economist's View link or to go straight to the paper for further detail and motivation.

In this essay, I make ten points about researcher incentives and statistical work. The first and central point is that we should accept researcher initiative as being the norm, and not the exception. It is wildly unrealistic to treat activity like data mining as being rare malfeasance; it is much more reasonable to assume that researchers will optimize and try to find high correlations. This requires not just a blanket downward adjustment of statistical significance estimates but more targeted statistical techniques that appropriately adjust across data sets and methodologies for the ability of researchers to impact results. Point estimates as well as t-statistics need to be appropriately corrected.

The second point is that the optimal amount of data mining is not zero, and that even if we could produce classical statisticians, we probably would not want to. Just as the incentives facing businessmen produce social value added, the data mining of researchers produces knowledge. The key is to adjust our statistical techniques to realistically react to researcher initiative, not to try and ban this initiative altogether.

The third point is that research occurs in a market where competition and replication matters greatly. Replication has the ability to significantly reduce some of the more extreme forms of researcher initiative (e.g. misrepresenting coefficients in tables), but much less ability to adjust for other activity, like data mining. Moreover, the ability to have competition and replication to correct for researcher initiative differs from setting to setting. For example, data mining on a particular micro data set will be checked by researchers reproducing regressions on independent micro data sets. There is much less ability for replication to correct data mining in macro data sets, especially those that include from the start all of the available data points.

Fourth, changes in technology generally decrease the costs of running tests and increase the availability of potential explanatory variables. As a result, the ability of researchers to influence results must be increasing over time, and economists should respond for regular increases in skepticism. At the same time however, improvements in technology also reduce the cost of competitors checking findings, so the impact of technology on overall bias is unclear.

Fifth, increasing methodology complexity will generally give the researcher more degrees of freedom and therefore increase the scope for researcher activity. Methodological complexity also increases the costs to competitors who would like to reproduce results. This suggests that the skepticism that is often applied to new, more complex technologies may be appropriate.

My sixth point is the data collection and cleaning offers particularly easy opportunities for improving statistical significance. One approach to this problem is to separate the tasks of data collection and analysis more completely. However, this has the detrimental effect of reducing the incentives for data collection which may outweigh the benefits of specialization. At the least, we should be more skeptical of results produced by analysts who have created and cleaned their own data.

A seventh point is that experimental methods both restrict and enlarge the opportunities for researcher action and consequent researcher initiative bias. Experiments have the great virtue of forcing experimenters to specify hypotheses before running tests. However, they also give researchers tremendous influence over experimental design, and this influence increases the ability of researchers to impact results. .

An eighth point is that the recent emphasis on causal inferences seems to have led to the adoption of instrumental variables estimators which can particularly augment researcher flexibility and increase researcher initiative bias. Since the universe of potential instruments is enormous, the opportunity to select instruments creates great possibilities for data mining. This problem is compounded when there are weak instruments, since the distribution of weak instrument t-statistics can have very fat tails. The ability to influence significance by choosing the estimator with the best fit increases as the weight in the extremes of the distribution of estimators increases.

A ninth point is that researcher initiative complements other statistical errors in creating significance. This both means that spurious significance rises spectacularly when there are even modest overestimates in statistical significance that are combined with researcher initiative. This complements also creates particularly strong incentives to fail to use more stringent statistical techniques.

My tenth and final point is that model driven empirical work has an ambiguous impact on researcher initiative bias. One of the greatest values of specialization in theory and empirics is that empiricists end up being constrained to test theories proposed by others. This is obviously most valuable when theorists produce sharp predictions about empirical relationships. On the other hand, if empirical researchers become wedded to a particular theory, they will have an incentive to push their results to support that theory.

China, the economy and pollution control: an unexpected benefit?

Today's PlanetArk news item that China has shut 43 Cement factories tends to underplay a number of important points that are raised in the article.

Although I would usually pick out the more pertinent paragraphs I will include the whole article as it touches on a number of issues in the "globalisation and environment" debate. It reveals that all is not lost in China and that perhaps China will reach its EKC turning point sooner rather than later (or indeed the EKC will shift downwards and to the left).

What is interesting is that in an attempt to slow an overheating economy the central government is targeting heavily polluting industries. Whilst the "free market" would not approve as the result may be the closure of efficient but dirty firms whilst leaving inefficient clean firms to continue, in the absence of strict and enforcable regulations this may be the best solution.

China City Shuts 43 Cement Factories for Pollution

DONGGUAN, China - A city in China's booming southern province of Guangdong has closed 43 cement factories for pollution, a vice-mayor said on Thursday, a move that was in line with a government campaign to cool the overheating economy.

Three other cement factories in Dongguan, a haven for Taiwan investors, were still operating but were environmentally friendly, Dongguan Vice-Mayor Zhou Zhina said, adding that none of the 43 was foreign invested and that all have been compensated.

"Pollution from cement factories is pretty severe and they are not very safe," Zhou said in an interview with Reuters and a small group of foreign media.

"For the sake of bringing Dongguan's environmental protection up a step, we closed the 43 cement factories" over the past two years, Zhou said.

The central government is also trying to temper the pace of its economic rise with a focus on balanced growth and greater respect for the environment.

The closures of the cement plants were in line with a central government move to cool the economy by curbing investment and bank lending which have spawned production overcapacity. Gross domestic product in the first nine months grew 10.7 percent from a year earlier.

Economists say the central government has had difficulty reining in provincial governments eager for breakneck growth, but Guangdong officials appear to be toeing the central government line after Shanghai party boss Chen Liangyu was sacked last month for corruption after defying the central government's macroeconomic measures.

Hong Kong's Beijing-funded Wen Wei Po newspaper said Dongguan authorities also closed down 206 brick factories and 90 quarries, and pledged to spend 21.193 billion yuan (US$2.65 billion) to curb pollution.

Sulphur dioxide emitted by cement factories in Dongguan accounted for about 10 percent of the city's total sulphur dioxide emission, the daily said.

China has set a goal of cutting pollution output by 10 percent, adjusted for economic growth, over the next five years.

But China's official environmental monitor State Environmental Protection Administration (SEPA) found that sulphur dioxide emissions had grown 5.8 percent in the first six months of this year, the Economic Daily reported, quoting data from 17 provinces.

China's key measure of water pollution -- "chemical oxygen demand" or COD -- had risen 4.2 percent compared with the same period last year, the newspaper said.

SEPA chief Zhou Shengxian blamed soaring energy consumption, unbridled construction investment and spotty enforcement of environmental due diligence for the emissions increases, the daily said.

On Wednesday, state media cited China's State Oceanic Administration as saying the Bohai Sea, the body of water between China and the Korean peninsula, was so polluted it would "die" within 10 years. (Additional reporting by Ian Ransom and Benjamin Kang Lim)

IUCN Environmental Law Colloquium October 2007

After today's lecture on different methods of pollution control it is interesting to note that the enforcement of environmental regulations is still generating significant academic interest.

A quick glance at the large number and of papers from across the world at the recent 4th IUCN Academy of Environmental Law Colloquium at PACE Law School demonstrates that having regulations (however stringent) is not enough.

Click here for a PDF of the agenda.

The aim of the IUCN Academy of Environmental Law is as follows:

The Academy’s research program is intended to illuminate the legal aspects of major environmental issues, and to frame law reform proposals with sufficient clarity that they may be considered for action by organizations and governments worldwide.
Academy research will be clustered around the following themes:
· Environmental jurisprudence and the normative foundations of environmental law
· The conceptual development of environmental law, designing new concepts or means for societies to provide more effective environmental stewardship
· Law reform, to identify and eliminate perverse provisions of law
· Refining legal tools to enhance the effectiveness of existing legal regimes
· Synthesis and restatement of environmental law to improve its understanding, effectiveness and acceptance.

Academy research projects will typically engage scholars from several countries in order to minimize inter-regional bias, to build a better understanding of the common elements of environmental law across cultures, and to elucidate the concept of “common but differentiated responsibility” for resolving international environmental problems. Research will also be aimed at building an understanding of the relationship among science, law and decision-making. Wherever possible research teams will include universities in countries where access to research funding has traditionally been limited.

Problems with carbon offsets

This is an amusing thought piece on the problems involved in purchasing carbon offsets. Unfortunately it is somewhat blighted by the author attempting to paint a misleading comparison between carbon offsets and the mediaeval practice of paying for "indulgences". But I do not disagree with the author's assertion that many claims made by the companies involved are hard if not impossible to verify.

There is one interesting claim, namely that future carbon emissions have a value which differs to current emissions. This claim is true because of economist's habit of discounting future impacts and the fact that in the future the stock of carbon emissions will be greater and hence the marginal damage will differ.

Rejoice! We have a way out. Our guilty consciences appeased, we can continue to fill up our SUVs and fly around the world without the least concern about our impact on the planet. How has this magic been arranged? By something called "carbon offsets". You buy yourself a clean conscience by paying someone else to undo the harm you are causing.

This week, the Co-op's holiday firm Travelcare started selling offsets to its customers. If they want to fly to Spain, they pay an extra £3. Then they can forget about their contribution to climate change. The money will be spent on projects in the developing world, such as building wind farms and more efficient cooking stoves. In August, BP launched its "target neutral" scheme, enabling customers to "neutralise the CO2 emissions caused by their driving". The consequences of an entire year's motoring can be discharged for just £20. Again, your money will be invested in the developing world - "a biomass energy plant in Himachal Pradesh; a wind farm in Karnataka, India, and an animal waste management and methane capture program in Mexico" - and you need have no further worries about what you and BP are doing to the atmosphere (or, for that matter to the tundra in Alaska).

It sounds great. Without requiring any social or political change, and at a tiny cost to the consumer, the problem of climate change is solved. Having handed over a few quid, we can all sleep easy again.

This is not the first time such schemes have been sold. In his book The Rise of the Dutch Republic, published in 1855, John Lothrop Motley describes the means by which the people of the Netherlands in the 15th and 16th centuries could redeem their sins. "The sale of absolutions was the source of large fortunes to the priests ... God's pardon for crimes already committed, or about to be committed, was advertised according to a graduated tariff. Thus, poisoning, for example, was absolved for 11 ducats, six livres tournois. Absolution for incest was afforded at 36 livres, three ducats. Perjury came to seven livres and three carlines. Pardon for murder, if not by poison, was cheaper. Even a parricide could buy forgiveness at God's tribunal at one ducat; four livres, eight carlines."

Just as in the 15th and 16th centuries you could sleep with your sister and kill and lie without fear of eternal damnation, today you can live exactly as you please as long as you give your ducats to one of the companies selling indulgences. It is pernicious and destructive nonsense.

Irreversible melting

The problem is this. If runaway climate change is not to trigger the irreversible melting of the Greenland and West Antarctic ice sheets and drive hundreds of millions of people from their homes, the global temperature rise must be confined to 2C above pre-industrial levels.

As the figures I have published in my book Heat show, this requires a 60% cut in global climate emissions by 2030, which means a 90% cut in the rich world. Even if, through carbon offset schemes carried out in developing countries, every poor nation on the planet became carbon-free, we would still have to cut most of the carbon we produce at home. Buying and selling carbon offsets is like pushing the food around on your plate to create the impression that you have eaten it.

Any scheme that persuades us we can carry on polluting delays the point at which we grasp the nettle of climate change and accept that our lives have to change. But we cannot afford to delay. The big cuts have to be made now, and the longer we leave it, the harder it will be to prevent runaway climate change from taking place. By selling us a clean conscience, the offset companies are undermining the necessary political battle to tackle climate change at home. They are telling us we don't need to be citizens; we need only to be better consumers.

BP and Travelcare, like other companies, want to keep expanding their business. Offset schemes allow them to do so while asserting they have gone green. Yet aviation emissions, to give one example, are rising so fast in the UK that before 2020 they will account for the country's entire sustainable carbon allocation. A couple of decades after that, global aircraft emissions will match the sustainable carbon level for all economic sectors, across the entire planet. Perhaps the carbon offset companies will then start schemes on Mars, as we will soon need several planets to absorb the carbon dioxide we release. Offsets, then, are being used as an excuse for the unsustainable growth of carbon-intensive activities.

But these are not the only problems. A tonne of carbon saved today is far more valuable in terms of preventing climate change than a tonne of carbon saved in three years' time. Almost all the carbon offset schemes take time to recoup the emissions we release today. As far as I can discover, none of the companies that sell them uses discount rates for its carbon savings (which would reflect the difference in value between the present and the future). This means they could all be accused of unintentional but systemic false accounting.

And while the carbon we release by flying or driving is certain and verifiable, the carbon absorbed by offset projects is less attestable. Many will succeed, and continue to function over the necessary period. Others will fail, especially the disastrous forays into tree planting that some companies have made. To claim a carbon saving, you also need to demonstrate that these projects would not have happened without you - that Mexico would not have decided to capture the methane from its pig farms, or that people in India would not have bought new stoves of their own accord. In other words, you must look into a counterfactual future. I have yet to meet someone from a carbon offset company who possesses supernatural powers.

At the offices of Travelcare and the forecourts owned by BP, you can now buy complacency, political apathy and self-satisfaction. But you cannot buy the survival of the planet.

The top 10 most polluted places on earth

An interesting list from the Blacksmith Institute (that I had not come across before) of the top 10 most polluted cities in the world.

Their aim:

"Founded in 1999, Blacksmith Institute's vision is a clean planet for our children. We develop and implement solutions for pollution-related problems in the developing world. We work cooperatively with partnerships of donors, governments, NGO's and others, and provide strategic, technical, and financial support to local champions as they strive to solve specific, pollution-related problems in their communities."


World's Worst
Polluted Places 2006

Chernobyl, Ukraine
Dzerzhinsk, Russia
Haina, Dominican Republic
Kabwe, Zambia
La Oroya, Peru
Linfen, China
Maiuu Suu, Kyrgyzstan
Norilsk, Russia
Ranipet, India
Rudnaya Pristan/Dalnegorsk, Russia

Each city link provides a fairly gruesome site description and outline of the causes of the pollution. Futher reading is also listed.

To quote from thePlanetArk: article:

Blacksmith Director Richard Fuller said environmental problems cause up to 20 percent of deaths in developing countries. And environmental toxins in these towns put residents at risk of being poisoned, developing cancers and lung infections and having mentally retarded children, the group said.

"The worst problem is the damage it does to children's development ... and that damages the future of the countries,"

A related articles on China are worth reading if this post has been of interest:

"The Most Polluted City in the World: Sixteen of the 20 most polluted cities in the world are in China." The Epoch times. (2006) June 10, 2006. (refers to air pollution and particulates)
http://www.theepochtimes.com/news/6-6-10/42510.html

Mary Kay Magistad "Land of Pollution." The World. (2006) July 17, 2006.
http://www.theworld.org/?q=node/4059

Anyone who has read Matt Kahn's book "Green Cities" will understand the economics behind the process of cleaning cities from the discussion of Urban Environmental Kuznets Curves to Greener Governance and finally how to achieve urban and global sustainability.

Trade-Environment.org

Just to highlight an excellent website that provides an extensive range of links and academic resources for those interested in "trade, environment and sustainable development" - which includes this blog. We have included a link in the sidebar.

In their own words:

Conceived by the International Centre for Trade and Sustainable Development, trade-environment.org contains a wide range of key resources related to trade, environment and sustainable development. It includes the latest news on T&E, a calendar of T&E events, links to institutions working on T&E, relevant legal texts at the international, regional and bilateral levels, and a collection of submissions by WTO Member on trade and environment. You can also explore trade and environment issues of primary interest to developing countries through the Southern Agenda project.

China's student environmental movement

An interesting article on the rise of environmental activism in China from the Grist.

Here are three seperate paragraphs from the article.

Coverage of China's environmental problems by international media has been extensive in recent years. Less widely reported is the valiant work being done quietly across China by as many as 5,000 grassroots environmental organizations that have sprung up over the last decade to clean rivers, plant trees, recycle, and put China on a cleaner path of development. Among these organizations, one can find, as we did, hundreds of university associations and the passionate, energetic students who run them.

These activists are starting from scratch, in a society with little or no popular understanding of citizen involvement in public affairs, with large barriers to citizen involvement, and with unknown dangers of running afoul of government officials. Their activities are limited by their schools' regulations. Nonetheless, to ask them about their motivation for environmental work is to see the universal dedication one finds in environmental activists in countries rich and poor alike. They use words like "duty" and "honor" to refer to their role in protecting China's environment. Doing her best to convey her feelings in English, Pei Yonggang from the China University of Geosciences in Hubei Province told us that "our flame and sense of duty are the causes of our inspiration."

It's hard to overstate the environmental challenges the country faces. The simplest, starkest way to put it may be that in some provinces, double-digit GDP growth is cancelled out each year by the cost of natural capital and human health lost to pollution and environmental degradation. But we have hope. There are almost as many university students in China as in the United States, and these students will soon take a leading role in business and government -- hopefully after having been inspired, like us, by the environmental advocates on Chinese campuses.

Globalization and the next dimension: Multinationals enter Second Life

As the forces of globalisation continue to exert themselves as powerfully as ever, the forces of global competition appear to be entering the final dimension - massive online multiplayer universes known simply as MOGS. One of the most well known MOGS is Second Life.

There have been numerous posts on Econblogs about the virtual economy that has sprung up with items being bought and sold for hard cash on ebay and elsewhere. For example Second Life gold has a value as do fully formed characters. Brings a whole new meaning to the term "selling your granny".

Now though the multinationals are coming - will they take over the virtual world? Can any government stop them?

Can we get housing price booms and busts?

What about the environment? Will second lifers use up all the natural resources and land available to bring about their own destruction? Such a question deserves its own post when I have done a little more research.

Firstly Vodafone plan to open their own island (from 3pointD.com)

Mobile telecomms company Vodafone plans to open its own Vodafone Island in the virtual world of Second Life later this year or early next, according to virtual world services company Rivers Run Red, which is building out the project for them. The company is being brought in as part of a campaign designed by ad agency BBH, which Rivers brought to Second Life in September. Vodafone content should start appearing on the Grid in coming months. Besides activities like sports, music, film and events that are planned for Vodafone Island, the company will also try to give SL residents new ways to interact with each other and with the real world. Vodafone will apparently be working up applications that allow instant messaging and/or other forms of communication between SL and other online and mobile locations. While these won’t be the first such apps, they will have the weight and marketing power of a real-world telecomms company behind them. It will be interesting to see whether they gain broader adoption as a result. If they add to the functionality available in-world, so much the better.

Reuters have also recently announced that they are to open up a virtual news bureau in Second Life. See here. To quote:

SAN FRANCISCO/NEW YORK (Reuters) - Reuters Group Plc is opening a news bureau in the simulation game Second Life this week, joining a race by corporate name brands to take part in the hottest virtual world on the Internet.

Starting on Wednesday, Reuters plans to begin publishing text, photo and video news from the outside world for Second Life members and news of Second Life for real world readers who visit a Reuters news site at: http://secondlife.reuters.com/

Created by Linden Lab in San Francisco, Second Life is the closest thing to a parallel universe existing on the Internet. Akin to the original city-building game SimCity, Second Life is a virtual, three-dimensional world where users create and dress up characters, buy property and interact with other players.

Other multinational mentioned in the same article include:

Car maker Toyota, music label Sony BMG, computer maker Sun Microsystems, and technology news company Cnet are among the companies taking part in Second Life. Adidas and American Apparel sell clothes and accessories for people to dress their avatars. Starwood Hotels has built a virtual version of "aloft," a new hotel chain it plans to open in the real world in 2008.

Now it appears Amazon are entering the battle. From The Stalwart comes the following article:

Amazon in Second Life
Did anyone realize that Amazon (NSDQ:AMZN) pitched its new web services within the virtual gaming world of Second Life?

On Tuesday, October 10, Jeff Barr (Jeff Batra in Second Life), Web Services Evangelist at Amazon.com, will discuss the full line of Amazon’s web services from a technical and business perspective at 5 pm sl. The presentation will include a review of developer activity within Second Life and there will be ample time for discussion and Q&A. Open air auditorium, Info island, 141, 81, 33. This author is contemplating becoming the first virtual hedge fund manager within Second Life.

This innovative advertising comes in addition to the company's Web Services Blog which uses a hired product evangelist. At the site, we noted some exercised subtlety in that the blog is hosted on Typepad, rather than amazon.com. The company seems to be implementing a grassroots internet strategy as implied by their following post.

Nowadays, Anything and everything that has a high "coolness-factor" gets immediate attention from the crowd. This is indeed leveling the playing field. With services like Amazon S3 and Amazon EC2, I believe there will be no difference between the student in the dorm room and the executive in the board room. The one with the best idea or coolest idea will win the game. And the one who gets there fast will be rich ;-)

As we've said before when referring to a viral-style video from IBM (NYSE:IBM), we see innovative web-based marketing strategies as cheap ways to potentially hit marketing home runs. It will be interesting to see how the Amazon's web services develop and heck who knows we could end up being a customer one day.

Talking of which we have put some of the books that we have mentioned on this blog in an "astore" that we have called the "globalisation and the environment bookstore". This seems to be a neat way of allowing people to see our reviews and comments on a book without cluttering up the sidebar (even more).

Does anyone think Second Life needs some economists? Surely there must be room for at least one environmental economist even if there is no actual environment.

Fisheries: Sharks in the soup

Following the revelation in last weeks post "Fisheries: Dolphin friendly tuna - don't believe it." where it was revealed that tuna fishing had accounted for the killing of 450,000 sharks comes today's news that "38 Million Sharks Killed for Fins Annually, Experts Estimate." Now that is a lot of shark fin soup. All-in-all it appears that it is not a good time to be a shark.

Some choice quotes:

Some chicken stock, a few mushrooms, chicken breast, scallions, a little sherry, oil, spices—shark fin soup is fairly easy to prepare. But to make soup for six, you'll also need about a pound (half a kilogram) of shark fin meat.

Demand for that crucial ingredient has led to the killing of a median of about 38 million sharks a year, according to a new study that offers what may be the first reliable estimates of the number of sharks killed for their fins.

Murdoch and his colleagues' new, mathematical estimating method uses trade records from commercial markets and genetic techniques to identify species.

In their effort to accurately estimate the number of fins harvested—and therefore the number of sharks killed—the scientists conducted interviews with traders and studied almost 400 fin samples.

In the end the researchers concluded that from 1996 to 2000 26 to 73 million sharks were traded yearly. The annual median for the period was 38 million—nearly four times the UN estimates but considerably lower than those of many conservationists.

Coal and China: One step forward, two steps back?

Is this good news or bad news? China raises coal mine threshholds .

The National Development and Reform Commission (NDRC) said it will not approve the opening of new coal mines that have an annual production capacity of less than 300,000 tons, state media reported. Construction of previously approved coal mines that produce less than the threshold will be halted, unless they can be consolidated with other mines. Thresholds for approval previously varied between regions: 300,000 in Inner Mongolia, Shanxi and Shaanxi; 150,000 in Henan, North, Northeast and Northwest China; and 90,000 tons in other areas. China plans to produce 2.45 billion tons of coal in 2010, up from 2.2 billion tons in 2005, with 75% produced by middle and large-sized coal mines. Mines currently under construction have a total production capacity of 600-700 million tons.

While the removal of inefficient small mines should be good, the fact that coal production is forcast to rise to 2.45billions tonnes will not help China gets its emissions under control.

Don’t you know that you’re toxic?

Following the long tradition of trying to write papers with titles or lyrics from the history of popular music the title of this blog relates to the recent news that "Asbestos Kept Off Global List of Toxic Substances".

It is remarkable that clearly toxic substances are not classified as such because certain Western countries believe that such a classification would result in job losses and have an adverse effect on "trade". Forget the health of those in developing countries - nothing must come in the way of jobs and votes.

GENEVA - Chrysotile asbestos, a known human carcinogen, will remain off a global "watch list" of toxic substances for at least two more years after countries led by Canada blocked consensus in United Nations talks on Friday.

While it is now rarely used in Western nations because of health concerns, asbestos remains common in developing world construction, mostly as an additive to cement.

Parties to the Rotterdam Convention, an international treaty governing trade in toxic substances, failed to agree to add chrysotile, which represents 94 percent of world asbestos consumption, to a list of more than 30 substances about which exporting countries must inform importers before shipping.

"The lack of a decision at this time to list chrysotile asbestos raises concerns for many developing countries that need to protect their citizens from the well-known risks of this hazardous substance," UN Environment Programme chief Achim Steiner said after the Geneva meeting.

Once used widely as an insulating and fireproofing agent in buildings, ships and consumer products, asbestos has been shown to cause cancers of the lung and other organs as well as breathing disorders.

The World Health Organisation (WHO) estimates at least 90,000 people die every year of asbestos-related diseases.

Canada, whose French-speaking Quebec province is a major asbestos producer and exporter, led opposition to its addition to the list, according to environmentalists tracking the talks.

INTERNATIONAL TRADE

Canadian officials say putting chrysotile asbestos on the list would be tantamount to banning international trade in it and threaten jobs.

But Alexander Mueller of the UN Food and Agriculture Organisation said listing the substance would not prompt serious restrictions. "It would not constitute a recommendation to ban its global trade or use," he said in a statement.

Proponents such as the European Union, Australia and Chile say the watch list gives poor countries the chance to decide which potentially hazardous products they want to receive and to exclude those they cannot manage safely -- an issue with huge resonance following the dumping of toxic substances in August in the Ivory Coast capital Abidjan.

"At least 200,000 workers will be killed by asbestos disease before the proposal to list asbestos can be tabled again," said Laurie Kazan-Allen of the International Ban Asbestos Secretariat, who called the failure to act "truly tragic."

But several developing countries including Kyrgyzstan, Ukraine and India spoke against the addition of asbestos, largely due to concerns that tighter trade rules would led to pressure for tighter domestic regulations.

Countries will revisit the asbestos issue at a 2008 meeting of the Rotterdam Convention signatories, where they will also consider the addition of tributyl tin, used in paints for ship hulls, and the insecticide endosulfan.

For a related story from PlanetArk see "Ivory Coast Toxic Waste Death Toll Rises to 10"

Energy Bulletin blog

An interesting blog that has some good economics related posts on energy related issues. The "peak oil" debate is an interesting one that we hope to comment on in more detail here in the future.

Some of these posts are "leftfield" but do provide an interesting take on energy events.

http://www.energybulletin.net/

Posts include:

Economics: The Sound of Aunt Edna's Knitting

Economics: Hallucinated Wealth

Economics

Environment

Environmental divide: Ecological vrs Environmental Economics

Continuing the "Ecological vrs environmental economics" debate the "How the World Works" blog has done an excellent job of summarising the article we referenced here a while ago called "How Ecological and Neoclassical Environmental Economists Think about Sustainability and Economics"

With the title "Environmental Divide" a number of paragraphs are worth pulling out but I recommend reading it in its entirety.

How can economists best make Gaia happy? By "getting the prices right" on environmental issues like pollution, deforestation, resource depletion and species extinction, thus ensuring sustainable growth in a resolutely market economy? Or by concluding that economic growth as we know it may not actually be sustainable, and humans must radically rework existing socioeconomic structures?

Very roughly speaking, these two poles of thought represent two schools within the sphere of all economists who focus on environmental issues: environmental economics and ecological economics. I am chagrined to note that until last week I didn't even realize that this division formally existed. But then a pair of environmental blogs that I've been following of late referenced a study by two German economists who surveyed German environmental and ecological economists to find out what their areas of commonality and difference were on the all-important issue of sustainability.

A couple of decent defintions:

Ecological economists believe that the economy is "dependent for its existence on the ecosystem" and that the value of nature can't be monetized. Humans aren't the center of the universe, they contend, and human values need to change: "ethical dimensions should be part of economic thinking about sustainability." Achieving sustainability means recognizing that the ecosystem can't handle endless, unlimited growth, and that people must live within its means.

Environmental economists reject "fundamental changes of the economic system and restrictions on material consumption." If the right prices are set for environmental goods, i.e., if such things as the climate-change costs of carbon emissions are incorporated into the corporate bottom line, then growth can continue merrily along. Environmental economists fit squarely into the neoclassical economic tradition -- markets know best.

I like this penultimate paragraph.

From a distance then, ecological economics looks like something of a grab bag, a place where long-standing political critiques of how human society is organized merge with idealized conceptions of the proper human place in the natural ecosystem. But there is a fundamental worldview: For ecological economists, pollution and species extinction and climate change are consequences of capitalism. For environmental economists they are bugs in the system that can be fixed with some clever tinkering.

A well written and well observed article. I hope Andrew Leonard continues to post in this area.

Fisheries: Dolphin friendly tuna - don't believe it.

An interesting article in todays Independent on the plight of the Blue Fin tuna and its on-going collaspe. The sharks don't come out of this very well either. Below are some selected quotes.

Dolphin-friendly tuna? Don't believe it

Thanks to a growing fashion for sashimi, stocks of bluefin tuna are on the brink of collapse. So which fish should be on the menu? Peter Marren reports

Every chunk of tuna comes from a wild fish. Because tuna are wide-ranging, fast-moving ocean fish, fisheries have developed awesome techniques for catching them. Fleets use vast purse-seine nets to scoop them out of the sea, while Japanese vessels, in particular, trail lines of baited hooks many miles long.

Such methods are undiscriminating. The bycatch - that is, the non-target species - routinely includes sharks, turtles and albatrosses. The ratio is about four sharks caught for every tuna. According to the Shark Trust, longlines operating off New Zealand have snapped up 450,000 blue sharks in 10 years.

Surely supply and demand can save the tuna? It appears that the tuna is rapidly becoming a fashion victim.

Two things are combining to bring down the bluefin. One is their slow breeding rate -they take at least 10 years to become sexually mature, and so are vulnerable to overfishing.

The other problem is that bluefin are expensive. A full-sized fish can fetch tens of thousands of dollars. And a market that was once centred in Japan is widening by the year. Many countries, including Britain, have acquired a taste for sashimi - thin slivers of raw tuna dunked in soya sauce. Last year we imported 1,600 tons of the stuff, worth £8.6m. But that is small beer compared with the potential market in China, where a fast-growing middle class eyes bluefin sushi as the ultimate gastronomic status symbol.

This isn't sustainable. Although bluefin can be farmed, no one has yet worked out a way of rearing them from eggs. All farmed tuna are simply wild-caught from the sea and fattened up. But stocks are becoming dangerously depleted. Catches around the Balearic Islands are down to just 15 per cent of what they were a decade ago, and six Spanish tuna farms have gone out of business.

This species is currently classed as "critically endangered". Without urgent intervention, the southern bluefin is probably doomed to commercial, if not actual, extinction. But so long as Japan continues to allow only Japanese inspectors on board its fishing vessels, and refuses to install satellite monitoring systems, there is no way of checking its catches. All scientists know is what that country imports. It looks like stalemate unless Japan can be persuaded to see reason.

Environmental Economics and Policy - Lesser, Dodds and Zerbe

I am just re-reading the 1997 textbook by Lesser, Dodds and Zerbe called "Environmental Economics and Policy" ahead of today's lecture.

Given this text is still used for our undergraduate environmental economics course I thought I would post a little information on it here. I have also added it to the textbooks in the sidebar.

Although not as good as Perman et al. (the set text for this course) it is useful for background reading and is excellent on certain topics.

Book Description
Environmental Economics and Policy provides students with a unique problem-solving approach and cost/benefit perspective. Its strong use of case studies drawn straight from today Us toughest environmental debates and its focus on international issues, sets this book apart from the rest.

Synopsis
Designed to show how the basic economic model used in evaluating environmental issues can be applied to the pressing policy issues of today. Unique approach includes an emphasis on environmental cost-benefit analysis, including how to apply this analysis to policy decisions and the appropriate discount rate.

Table of Contents

I. BUILDING BLOCKS.
1. Introduction to Environmental Economics.
2. Economic Activity and the Environment.
3. Foundations of Economic Efficiency and Equity.
4. Ethics, Public Policy, and the Environment.
5. Defining Policy Goals.
II. ECONOMIC WELFARE, EQUITY, AND RIGHTS.
6. Externalities and Economic Inefficiency.
7. Policies to Address Efficiency Goals.
8. Externalities, Equity, and Fairness.
9. Policies That Address Non economic Goals.
10. Balancing Policy Goals.
III. ENVIRONMENTAL VALUES- MEASUREMENT AND APPLICATIONS.
11. Measuring Environmental Costs and Benefits.
12. Measuring the Value of Life and Health.
13. Discounting Environmental Benefits and Costs Over Time.
14. Risk, Uncertainty, and Environmental Policy.
IV. SELECTED POLICY AND TOPICS.
15. Exhaustible Resources.
16. Renewable Resources.
17. Water Resources.
18. Energy Resources.
19. Economic Growth, the Environment, and Sustainability.
20. International Environmental and Resource Issues I- Local Effects.
21. International Environmental and Resource Issues II- Global Effects.
22. The Future of Environmental Economics and Policy.

Chinese growth and the environment continued

In a series of posts on the impact of Chinese growth (aka globalisation) and the environment we have another snippit from China Economic Review with the snappy title:

More children poisoned by lead.

Authorities confirmed that nearly 1,000 children in Gansu province have "excessive" levels of lead in their blood, nearly four times as many children as originally reported after a massive lead-poisoning case uncovered last month, the Wall Street Journal reported, citing state media. Of 954 children found with high lead levels, 62 were being treated for moderate-to-severe lead poisoning. The children all come from Xinsi and Mouba, two villages in northwest China contaminated by a smelter that ignored basic health and safety regulations even after being ordered to stop purifying lead ore earlier this year. About 34% of children in China have blood-lead levels that exceed the World Health Organization limit, according to a recent report by researchers at Peking University Health Science Center in Beijing, compared to fewer than 1% in the US.

Stiglitz Q&A - Globalisation, China and Saving the Planet

In today's Q&A session with Stiglitz he again manages to get his "Saving the Planet" chapter mentioned with reference to a potential world wide "water crisis".

JS's views are always interesting and are posted here in full.

This latest interview is part of a series by Managing Globalisation.

We’re truly fortunate to have Joseph Stiglitz’s responses to readers’ questions today.


Joseph StiglitzI sent Professor Stiglitz nine representative questions and asked him to answer five or six. He answered them all - thoroughly - which is a boon for us. As you can probably tell by reading below, there are plenty more insights in Professor Stiglitz’s latest book, Making Globalization Work. Next month’s guest will be Jeffrey Sachs.

Q. Since the beginning, economics has sought to perfect “economic well-being” as in, lay down the conditions to maximize well-being and explain faltering well-being. What does this well-being entail? There should be a definition of economic well being that functions independently of capitalist or socialist classifications. Would you care to explain your definition of the one entity that guides all economic theories: “economic well-being”?

Himanshu Kothari
United States

A. There is no simple measure of economic well-being, and unfortunately, the standard measure, gross domestic product per capita, is misleading. This is important, because what we measure affects what we do; and if we try to “maximize” the wrong thing, there can be serious adverse consequences.

I stress the importance of equitable and sustainable development and growth. GDP can be going up, yet most individuals can be worse off (as has been happening in the United States during the past 5 years).

Similarly, GDP can be going up, yet standards of living going down, as the environment becomes degraded, so much so that life expectancy can even decrease. When I was chairman of the Council of Economic Advisers, I pushed for the use of Green GDP, where account is taken both of the depletion of natural resources and the degradation of the environment.

If a country’s growth is based on depleting renewable natural resources, its growth will not be sustained. Neither will growth be sustained if it is based on borrowing—when debt is used to finance consumption, not investment. Argentina’s growth in the early 90s was based on debt financed consumption, and selling off its national assets (often at unreasonably low prices). The inevitable day of reckoning came, and the country’s economy collapsed. Today, many are worried about America, whose growth is based on borrowing more than $3 billion a day from abroad.

GDP may be a misleading measure for another reason: it measures the value of what is produced in the country, not the income of the citizens of the country. When a developing country opens up a mine, with low royalties, most of the value of what is produced may accrue to the foreign owners; and when account is taken of the environmental degradation and resource depletion, the country may actually be worse off.

Q. What I find difficult to imagine is why a “superior authority,” such as the government or an international organization, would be able to regulate/decide what is the best trading strategy for any given country/region/community. Why shouldn’t we let the free market forces determine what is the best for the world? What is your opinion on the issue on free worldwide market forces vs. regulation?

Guillermo Bona
Switzerland

A. Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.

Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. Some of the important instances have been long understood—environmental externalities. Markets, by themselves, will produce too much pollution. Markets, by themselves, will also produce too little basic research. (Remember, the government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and most of the advances in bio-tech.)

But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights.

The real debate today is about finding the right balance between the market and government (and the third “sector”—non-governmental non-profit organizations.) Both are needed. They can each complement each other. This balance will differ from time to time and place to place.

Q. What is the future of globalization where there is an increasingly greater disproportion between the movements of capital and goods and that of people?

Nabil El Aid El Othmani
Morocco

A. This disparity in the liberalization of capital and labor is a major problem. Enormous energy has been focused on facilitating the flows of investment and capital, while movements of labor remain highly restricted. This is so, even though the gains to global economic efficiency from liberalizing labor flows are an order of magnitude greater than the gains from liberalizing capital flows. Indeed, liberalizing movements of short term speculative capital has been associated with increased instability, but does not bring enhanced economic growth. (Premature capital market liberalization was the basic cause of the East Asian crisis of 1997.)

This disparity has large distributional consequences. Because capital can move easily, it threatens to leave a country if it is taxed, or if wages are not tamed, or worker benefits are not cut. The disparity in liberalization is one of the reasons for the growing inequality in incomes that have marked most countries around the world. It is one of the reasons that even when globalization has brought increases in GDP, it has led to the lowering of incomes of many workers.

There is a risk that unless globalization can be made more fair, so that there are more winners and fewer losers, there may well be a back lash. We should remember that globalization is not inevitable. The degree of global integration, as measured, for instance, by the ratio of trade or capital flows to GDP, was higher before World War I than during the interwar period.

Q. Poverty continues to remain a big problem in the emerging economies. Poverty alleviation programs have failed to lift millions from the grip of hunger and disease. How can we marry the goals of globalization with reducing poverty as rich are getting richer with globalization while the poor remain where they are for centuries?

Dev Chatterjee
India

A. The impact of globalization is complex. The world is not flat—and in many ways, it is not getting flatter. The good news is that India and China, two huge countries with 2.4. billion people, have been narrowing the gap between themselves and the advanced industrial countries. China has managed globalization in a way that has led hundreds of millions out of poverty (even though there has been increasing inequality within China.)

But inequality within most countries, and the disparity between the richest and the poorest countries, have been increasing, and globalization, as it has been managed, has sometimes contributed to these problems. The last global trade agreement, the Uruguay round, was so unfair that the poorest countries of the world were actually worse off. As I explain in Making Globalization Work, the North American Free Trade Agreement did not live up to its promise of reducing the disparity between the U.S. and Mexico; in its first decade, the disparity actually increased, and in some ways, NAFTA contributed to the problems.

Globalization can be made to work, and work in a way that the number of people in poverty are reduced. But it has not been working that way. These are among the central messages in my book, where I spell out a wide agenda of what needs to be done. For instance, there is a rich trade agenda—going well beyond agriculture on which the Development Round seems to have become bogged down—which would help the poorest countries grow; but that agenda is a far cry from the trade agenda that America and Europe tried to sell as the Development Round.

We have the knowledge to deal with many of the diseases confronting the developing countries; but the Agreement on Trade-Related Aspects of Intellectual Property Rights (part of the Uruguay Round) was designed to make generic medicines less accessible. The result was that thousands are dying unnecessarily because they cannot afford the brand-name medicines.

But the current system also provides little incentive for drug companies to do research on the diseases, like malaria, that are largely found in developing countries, simply because even if a cure or vaccine were found, they don’t have the money to pay the high prices the drug companies demand. The current system clearly is not working. Again, there are alternative ways of financing research and the delivery of drugs, alternatives which are both more efficient and more equitable.

Q. What is the long-term future of globalization, and indeed the global economy as whole, if core problems like the world’s coming water crisis are not addressed? In what innovative ways can we think about harnessing the power of the global economy to address big questions that are for now being left unanswered? Will it take government regulation, an expanded international framework (such as Kyoto), or both? Where would you start?

Hasan Jafri
United States

A. The concerns you raise are real. That was why I devoted one of the chapters of my new book to “Saving the Planet.” What good would it do, I argued, if we made economic globalization work if, at the same time, we all fried as a result of global warming. Worse still, too often the poor are the most vulnerable. A third of Bangladesh will be underwater as a result of global warming, and with more people crowded together, incomes there, already miserably low, will fall even further.

On the other hand, globalization has the potential of helping us address these problems. The Montreal Convention, dealing with ozone-destroying gases, included a provision for trade sanctions against any country that did not comply. The threat of these sanctions was one of the reasons that the agreement was so effective.

The WTO seems to have recognized that trade sanctions can legitimately be imposed to ensure compliance with global environmental agreements. Indeed, one can argue that American firms today have an unfair trade advantage over others because they do not have to pay the full cost of their production—a hidden subsidy. They do not have to pay the cost of their greenhouse gas emissions, as firms in Europe and Japan do. We can actually measure the magnitude of this implicit subsidy.

Q. I would like to know what your thoughts are on China’s ever-increasing strength (dominance) in the global trading system and its effects on small, wealthy, developed nations. Will there be serious consequences to domestic production and exports, and are there areas in which Iceland could gain an advantage?

Linda Björgvinsdóttir
Iceland

A. China will have an impact on almost every country in the world, rich or poor, small or large, but its impacts will differ markedly from country to country. Overall, I believe that growth is positive sum, not zero-sum: China’s growth benefits not only the citizens of China, but contributes to a strong global economy. Many around the world benefit from the inexpensive goods it produces; China’s large purchases abroad have benefited many producers around the world; and competition from China has kept inflation in check, and that has allowed Central Banks to maintain lower interest rates than they otherwise would have had; and that too has contributed to strong global growth.

But the impacts are varied. China’s rapid growth has been contributing to high commodity prices, which have been enormous benefit to the producers of these commodities, but imposed additional costs on competing users. Many factories both in the advanced industrial countries and in developing countries have found that they cannot compete; factories have been shut down and workers face unemployment, or, when they do get another job, lower wages.

Small economies both are more vulnerable and face more opportunities. They are more vulnerable, because they are often less diversified, and an industry in which they have specialized can be wiped out almost overnight. But they face more opportunities, because if they find a niche in which China has a strong demand, their prospects may be very bright. Parts of Ethiopia are doing so much better today than they have in the past, because China has begun to buy sesame seeds. Iceland, with its highly educated labor force, will almost surely find a niche in which it will excel.

Q. You have suggested a ‘tax switch’ and expenditure cuts as possible solutions to the United States fiscal deficit - without hurting growth significantly. What monetary and fiscal steps should China take to reduce its over-dependence on United States consumers and settle down to more sustainable growth rates?

Litcy Kurisinkal
India

A. China has been intensely concerned about its over-dependence on the United States consumers. As part of its 11th five year plan, announced last March, it has stressed increasing aggregate domestic demand, including consumption.

China is in a good position to make the switch. In effect, it has been providing “vendor finance” to the United States, both sending the goods and providing the money. But China can as well provide vendor finance to others—including its own consumers.

The challenge facing China (unique in the world) is how to get its citizens to consume more. One way is to provide better public social security, health care, and education. Its citizens save as much as they do (savings has amounted to 42 percent of GDP) because they worry about the future; savings are required to protect them. Again, its recent initiative to provide free education in the rural areas seems a step in the right direction.

Ironically, some outsiders have been advising China to adopt the same consumption-based value-added tax that has been sold elsewhere; but it has been sold to countries that need to encourage savings, while China’s problem is just the opposite. That is why I have been arguing for a broad-based VAT., not a consumption-based VAT.

There is considerable debate about what a sustainable growth rate is. China has to grow very rapidly if it is to provide jobs for the new entrants into the labor force and those wishing to migrate from the rural sector. Part of its growth is based on investments in human and physical capital, but part of its growth is based on reducing the gap in knowledge between it and the advanced industrial countries. Standard economic theories have discussed the pace at which savings can be invested well—and the limits that that provides for sustainable growth. But there is no economic theory that specifies a limit on the rate at which the knowledge gap can be closed. It may well be that China can sustain growth rates in excess of 7, 8 or 9 percent.

Q. I would like to have your opinion on the recent reconfiguration of voting powers at the International Monetary Fund, and your assessment of how it compares to the dictates for stability of the international financial architecture of the realities of global payments-settlement imbalances and the prevailing situation of accumulated foreign exchange reserves.

Malleck Amode
Canada

A. As the IMF has increasingly lectured others about the importance of governance, problems in its own political legitimacy have increasingly impaired its efficacy. Granting more voting powers to China and a few other countries that are under represented is a step in the right direction. But even the IMF recognizes that it is only the first step. Critics point out that these changes are unlikely to have much effect on its decisions, and they worry that having granted the most powerful of the underrepresented more voting power, the drive for further reform will weaken.

That would be a shame. The U.S. still is the only country with veto power. The choice of the heads of both the IMF and the World Bank make a mockery of legitimate democratic governance. Neither asks who is most qualified, regardless of race, color, nationality. The American president appoints the head of the World Bank and Europe chooses the head of the IMF. The recent selection of the head of the World Bank highlighted the problems.

The IMF’s new focus on global imbalances is also a step in the right direction. These imbalances are at the root of much of the financial instability and uncertainty of recent years, and portend even more serious problems in the future. The IMF should have long been focusing on such issues—its real mandate—rather than on development and the transition from Communism to the market economy, areas that are clearly not within its core competence, and where its policies were often badly misguided.

The problem is that it has been focusing on symptoms rather than underlying causes; and curing some of the problems without dealing with others may actually make matters worse. If, for instance, China were to revalue its currency, it would do little to improve America’s overall trade deficit; America would simply buy its apparel and textiles from Cambodia or Bangladesh rather than China. But China is more willing to buy U.S. Treasury bills than these other countries, who are more likely to want to put their export earnings to work at home, or if they send them abroad, to invest them in a strong Euro rather than in a weak and weakening dollar.

There is a fundamental problem—the dollar global reserve system. It is a system which is unstable, and inherently so. And as hundreds of billions of dollars are put into reserves every year, global aggregate demand is diminished; the only reason that it has performed as well as it has is America’s willingness to be the consumer of last resort. But there is something unseemly about a global financial system that requires the richest country in the world to spend beyond its means in order to keep it going. More importantly, it is not sustainable. Indeed, the dollar reserve system is already fraying.

Keynes proposed an alternative, and as I explain in my new book, his ideas can be adapted to today’s global economy: we can have a global financial system which is both more stable and more equitable.

Q. Has the World Bank changed since you were there, and if so, is it for better or for worse?

Michel Monette
Canada

A. Of course, the World Bank has changed, and it will continue to change. The world is changing, and any institution that did not change would quickly find itself in deep trouble.

During my time there, the World Bank began to take on an advocacy role—advocating policies that are needed for the successful development of poor countries, even when they were opposed by some of the advanced industrial countries. It has continued to do that, most notably in its opposition to agricultural subsidies by the U.S. and EU which depress agricultural prices and so hurt the developing countries which depend on agriculture.

But a central achievement of this period was the recognition that successful development requires a comprehensive approach—there is no magic bullet. For instance, trade liberalization unaccompanied by policies that lead to new jobs replacing the old jobs that are lost may simply lead to a growth in unemployment, not growth in GDP. We took a comprehensive approach to poverty as well, recognizing that the poor also lacked security and voice.

Today, it often seems that the only issue that the Bank talks about is corruption. It sermonizes, but does not have a comprehensive set of policies and approaches to attack it. For instance, secrecy in Western banks facilitates this corruption. The Bush Administration vetoed an OECD effort to circumscribe bank secrecy in August 2001; it then found that these secret bank accounts are also used by terrorists. Since, it has shown that bank secrecy can be effectively attacked, but the U.S. has only been willing to do so to curtail terrorism, not to curtail corruption. The World Bank should add its voice in criticism of the Bush Administration’s policies.

But even were it to succeed in addressing the corruption, that would not be sufficient to address poverty in the Third World. Money can be spent honestly, but incompetently; and even when money is well spent, unless there are appropriate institutions and policies in place, success will be limited.

The challenges facing the Bank are enormous. There is now a consensus on the failures of the Washington consensus; the free market ideology one size fits all policies failed almost everywhere they were tried. Iraq, already suffering from so many other afflictions, is the latest country to be afflicted with the imposition of these policies, part of the conditions for debt relief. The failures there go, of course, well beyond economic policies; but that is all the more reason to be worried about imposing a set of doctrines with a proven track record of failure.

Hopefully, as the Bank strives to devise a strategy for itself going forward, it will not revert to these failed doctrines, even if put in new terms. What is needed is a new vision.

Immigration and climate change

Although the article linked to below only touches on the subject of "immigration and climate change" it is my prediction that we will see many more stories on this topic in the next few years. Although academic research in this area is limited I suspect we will see many more more papers on this in the next year or two.

There are real issues and real numbers here that the West needs to include in their "economic calculations" when they all sit down to design policies that are intended to reduce global emissions of greenhouse gases.

Climate Change May Hurt Asian Economies

SYDNEY, Australia -- Hotter temperatures and higher sea levels could devastate Asian economies, displace millions of people and put millions more at risk from infectious disease, according to a climate change report released Monday.

Global temperatures will rise by up to 4 degrees by 2030, particularly in the arid regions of northern Pakistan, India and China, predicted the report, conducted by Australia's main research agency, the Commonwealth Scientific and Industrial Research Organization.

All standard stuff so far.

It also predicted that millions of people living in low-lying coastal communities in Bangladesh, Vietnam, China and many Pacific islands could become displaced as sea levels rise by up to 20 inches over the next 65 years.

"Local and regional economies will be hit hard from chronic food and water insecurity and epidemic disease, as well as extreme weather events," said the report, which was commissioned by 12 environmental, church and nongovernment organizations.

The final two paragraphs may provide an indication of how pressure on Western governments will begin to build.

The report calls on the Australian government to help developing countries in the region invest in renewable energy sources and better prepare for large-scale natural disasters.

It also encourages Australia to review its immigration laws to take in people displaced by climate change.

Sweden and the congestion tax that works

An interesting post from Salon.com linked to originally by Economist's View.

Sweden Watch

WorldChanging contributor and sustainable development consultant Alan AtKisson has intriguing news from that Scandinavian country formerly known as the world's most successful welfare state. The recent electoral victory by a center-right coalition resulted in many predictions of a swift turn to Milton Friedmanism in Sweden. But take a look at one of the first major decisions by the new government, says AtKisson -- the reinstitution of a congestion tax in Stockholm. Since members of the coalition campaigned against the tax, and since in a referendum on the tax held at the same time as the general election the majority of voters who lived outside of Stockholm voted against it, the decision came as a bit of a surprise.

Why the change of heart? Simple, really. A trial of the tax conducted for six months earlier this year resulted in lower traffic and cleaner air. Then, after the the trial ended, congestion started to build up again. So, in other words, the tax worked. And in Sweden, whether you're on the right or the left, you like things that work.

The government's plan is to devote revenue from the tax to completing a ring road around the city, which is disappointing to environmentalists. But in the meantime, notes a report on the trial, one in five new cars purchased in Stockholm this spring was a "clean car" -- running at least partially on electricity or alcohol -- and thus exempt from the congestion tax.

Perhaps the most telling stat: At the start of the trial, 55 percent of Stockholm residents opposed it. But after a few months sans traffic jams and breathing cleaner air, only 41 percent were against it. Which in turn suggests that the world could really be made a better, cleaner place, if we just bit the bullet and made people pay for the pollution they cause.

It is interesting to note that people do like clean air and are willing to pay for it. When I was in Stockholm for the EEA meeting a couple of years ago I thought they city was amazingly clean and the air appeared postively rural in quality. Then again, I was living in Manchester at the time.

The UK government should look at this experiment in Sweden closely.