Friday, May 25, 2007

Energy and Emissions: Local and Global Effects of the Rise of China and India

A new paper from the World Bank Policy Research paper series examines the impact of China and India on world energy demand.

The quality of the World Bank Research Papers can be mixed. This is a paper I must read before recommending.

"Energy and Emissions: Local and Global Effects of the Rise of China and India"
World Bank Policy Research Working Paper No. 4209

World Bank - Research Department

Full Text:

ABSTRACT: Part 1 of the paper reviews recent trends in fossil fuel use and associated externalities. It also argues that the recent run-up in international oil prices reflects growing concerns about supply constraints associated with declining spare capacity in OPEC, refining bottlenecks, and geopolitical uncertainties rather than growing incremental use of oil by China and India. Part 2 compares two business as usual scenarios with a set of alternate scenarios based on policy interventions on the demand for or supply of energy and different assumptions about rigidities in domestic and international energy markets. The results suggest that energy externalities are likely to worsen significantly if there is no shift in China's and India's energy strategies. High energy demand from China and India could constrain some developing countries' growth through higher prices on international energy markets, but for others the growth retarding effects of higher energy prices are partially or fully offset by the growth stimulating effects of the larger markets in China and India. Given that there are many inefficiencies in the energy system in both China and India, there is an opportunity to reduce energy growth without adversely affecting GDP growth. The cost of a decarbonizing energy strategy will be higher for China and India than a fossil fuel-based strategy, but the net present value of delaying the shift will be higher than acting now. The less fossil fuel dependent alternative strategies provide additional dividends in terms of energy security.

Thursday, May 24, 2007

Dutch Dikes and Climate Change - it is going to get expensive

It is high season for exam marking in the UK but there is always time for a story about the economics of maintaining Dutch Dikes.

This issue arose with New Orleans - at some point it will simply become uneconomic to maintain sea defences if sea levels continue to rise.

The obvious question for the "Dutch" therefore is that if the costs of maintaining their dikes continues to spiral will expenditure be subject to a "cap".

Dutch to Invest US$1 Bln to Shore Up Sea Defences
AMSTERDAM - After holding back the sea for 75 years, the 30 kilometre-long dike protecting much of the Netherlands from floods is due for a US$1 billion upgrade against mounting risks from rising sea levels and tsunamis.

"We plan to invest up to 750 million euros (US$1 billion) to strengthen the Afsluitdijk," said Hans Vos, senior adviser to the Dutch Transport and Public Works Ministry.

On Thursday, the Netherlands marks the 75th anniversary of the completion of the Afsluitdijk, the country's longest dike, which keeps the North Sea at bay. It protects the country's biggest freshwater lake and source of drinking water.

Water is a real threat to the Netherlands, two-thirds of which lies below sea level. Fears that huge waves could flood the country increased after the 2004 Indian Ocean tsunami that left some 230,000 people dead or missing, Vos said.

Rising sea levels due to global warming have also added to concerns. Memories of the 1953 flood when a massive North Sea storm breached the country's dikes and resulted in about 1,800 deaths still linger.

Vos said proposals to strengthen the Afsluitdijk by 2020, which stands about 7.5 metres above sea level, include raising its height, widening the barrier which now extends to 125 metres in some places, and building more sluice gates to improve water flow control.

"There is also a suggestion to plant artificial grass on the dike," he said.

In the aftermath of Hurricanes Katrina and Rita in 2005, US officials turned to the Dutch for their expertise on flood control and water management systems.

Finally, can you be said to "plant" articifical grass?

Sunday, May 20, 2007

Land-locked Laos joins the IWC

In a follow up to a previous post The Political Economy of Japanese Whaling comes news that the land-locked south east Asian country of Laos is to join the International Whaling Commission.

You might rightly wonder what a country that has never caught whales nor have any historic culture of hunting whales want with membership of the IWC.

Could it by chance have something to do with a recent Tokyo meeting between Shinzo Abe (Prime minister of Japan) and Bouasone Bouphavanh (his communist counterpart).

Could it also be a mere coincidence that Japan has recently announced $1m in fresh aid to Laos for clearing unexploded ordinance.

A little like the recent political voting in the Eurovision song contest it is not too difficult to predict the way Laos will vote.

From the viewpoint of an economist this makes for interesting reading - is the $1m in extra aid a lot of money? Does this help us put a value of whales? Could Japan not be outbid?

Given they could be a marginal country in the up and coming vote could some of the Green NGO's not offer more for Laos' vote against the resumption of commercial whaling? It would arguably be cheaper than the costs of endlessly chasing Japanese boats around the oceans.

I expect Laos have sold themselves cheaply - they should demand a higher price for their vote. Given the enormous subsidies Japan already provides to its fishing fleet an extra few million would be a mere drop in the whale free ocean.

I expect Japanese aid levels are higher for other "for" voters. This is a good example of price discrimination by the Japanese government. Laos should wise-up and demand more money.

h/t: FT observer.

Saturday, May 19, 2007

"Climate Change Myths" Explained

A quick link to a recent New Scientist article that exposes the myths behind many of the climate change sceptic arguments. Useful pub conversation material - whenever climate change is mentioned in a group of people most of the following with be smugly raised at some point. Be tooled up and ready (to be called a smart a***).

*"Alec" is the missing word I think.

Climate change: A guide for the perplexed

You find the answers to the following questions (links to primary sources included). Recommended reading.

Human CO2 emissions are too tiny to matter

We can't do anything about climate change

The 'hockey stick' graph has been proven wrong

• Chaotic systems are not predictable

• We can't trust computer models of climate

• They predicted global cooling in the 1970s

• It's been far warmer in the past, what's the big deal?

It's too cold where I live - warming will be great

• Global warming is down to the Sun, not humans

It’s all down to cosmic rays

• CO2 isn't the most important greenhouse gas

• The lower atmosphere is cooling, not warming

• Antarctica is getting cooler, not warmer, disproving global warming

• The oceans are cooling

• The cooling after 1940 shows CO2 does not cause warming

• It was warmer during the Medieval period, with vineyards in England

• We are simply recovering from the Little Ice Age

• Warming will cause an ice age in Europe

• Ice cores show CO2 increases lag behind temperature rises, disproving the link to global warming

• Ice cores show CO2 rising as temperatures fell

Mars and Pluto are warming too

Many leading scientists question climate change

It's all a conspiracy

• Hurricane Katrina was caused by global warming

Higher CO2 levels will boost plant growth and food production

• Polar bear numbers are increasing

Friday, May 18, 2007

Research Paper: Uncertainty in "Environmental Economics"

Whenever we consider the economics of climate change the whole debate revolves around "uncertainty". The IPCC, Stern etc. all base their conclusions dependent on probabilities.

The issue is complex and there are no easy answers. This paper makes this important point clearly and concisely.

This is a timely NBER paper by Robert Pindyck at MIT.

"Uncertainty in Environmental Economics"
NBER Working Paper No. W12752

Massachusetts Institute of Technology (MIT) - Sloan
School of Management, National Bureau of Economic
Research (NBER)

Full Text:

ABSTRACT: In a world of certainty, the design of environmental policy is relatively straightforward, and boils down to maximizing the present value of the flow of social benefits minus costs. But the real world is one of considerable uncertainty - over the physical and ecological impact of pollution, over the economic costs and benefits of reducing it, and over the discount rates that should be used to compute present values. The implications of uncertainty are complicated by the fact that most environmental policy problems involve highly nonlinear damage functions, important irreversibilities, and long time horizons.
Correctly incorporating uncertainty in policy design is therefore one of the more interesting and important research areas in environmental economics. This paper offers no easy formulas or solutions for treating uncertainty - to my knowledge, none exist.
Instead, I try to clarify the ways in which various kinds of uncertainties will affect optimal policy design, and summarize what we know and don`t know about the problem.


The climate change news in 2057

In an interesting piece of creative writing, students from University College Falmouth have written a 4 page supplement for the little known "falmouth packet" describing the sort of newpaper articles we may get in 50 years time if we do nothing about climate change.

Falmouth is a fishing port in the very south west for none UK residents. Having spent many a day in Falmouth in my youth I whole heartedly recommend a visit.

The line is that none of these stories are true ..... yet!

Falmouth Packet Online

Front page[PDF]

Second page[PDF]

Third page[PDF

Some of the headlines include:

BANNED SHIP FEARED LOST: Outcry as climate change refugees sent back out to sea

Malaria warning for county as deaths mount

Shark nets to disappear from local beaches

Cornwall escapes worst of nuclear fall out

Weather domes to bring back the beauty of spring

Cool-tan salons to expand

Jail for heartless carbon-credit fraudster

Cornwall coast on new storm surge alert

Petrol-car rally amazes local crowds

Thursday, May 17, 2007

The Political Economy of Japanese Whaling

We have posted a number of times on the issue of whaling. Norway, Iceland and Japan appear keen to resume commercial whaling. In fact, you could argue that they already are:
Campaigners note that southern hemisphere blue whale numbers have slumped to 1,700 from 240,000 in 1990. The humpback whale population has fallen to 25,000 from 115,000, and there are only 120 western gray whales left alive.

Since 1993 the number of whales killed each year has surged to more than 1,900 from 550, and over 30,000 have now been killed since the ban came into force.

Japan kills some 700 whales a year for research. Norway killed nearly 1,000 last year and Iceland killed 60.

That is a hell of a lot of scientific research. How much can you learn about yet another dead blue whale?

One previous post on this blog is:

Icelandic whaling: kicking them in the Baugurs

In today's PlantArk they return to the subject of the International Whaling Commission meetings and the intriguing political battle between pro-whalers (Japan) and anti-whalers (UK). The interest stems from (1) the closeness of the vote and (2) the fact that Japan is buying votes sometimes from landlocked countries.

Economists would be no doubt happy to see votes being bought and sold for their market value. If the Japanese want to eat whale meat so badly and then elect a government to use their tax Yen to buy votes to allow them to eat more whale meat or indeed to buy whale meat more cheaply in the short term (although not necessarily in the long run) who are we to intervene.

However, buying votes does have the perception (rightly of wrongly) of being a little distasteful and undemocratic.

It is interesting that the UK has been lobbying anti-whaling countries to join the IWC to overturn the majority of one from the last meeting in St Kitts. Is Britain having to pay for these votes I wonder?

This time the US seem to want to get a whaling licence back - do Americans really want to renew commercial whaling? What does the US environmental lobby think about this?
"The US is desperate to have the quota for its aboriginal Bowhead whale hunting renewed," Papastavrou said.

Japan Raises Stakes in Pro-Whaling Campaign

LONDON - Japan, accused of buying votes with foreign aid, will renew its campaign against the ban on whaling when the International Whaling Commission meets in Alaska later this month, campaigners said on Wednesday.

At last year's meeting on St Kitts and Nevis, Tokyo managed by one vote to get the IWC to agree a weakly-worded declaration that the 21-year-old moratorium was unnecessary, but it did not mount a frontal attack on the ban itself.

Since then it has been continuing its efforts, triggering a counter-campaign led by Britain to woo anti-whaling nations like Slovenia, Croatia and Cyprus to join the 74-nation IWC.

"It looks like the anti-whalers may have a majority of one or two votes to overturn the St Kitts declaration, but that could easily change," said Vassili Papastavrou from the International Fund for Animal Welfare.

"Japan does not have enough votes to overturn the moratorium -- for that it would need a three-quarters majority -- but its strategy is to continue to undermine it," he told reporters.

Campaigners say Japan has been giving development aid to non-whaling nations, particularly in Africa, in return for them joining the IWC and voting in favour of Tokyo's pro-whaling proposals.

This year Japan comes to the negotiating table with an extra bargaining chip -- renewal of the five-year Bowhead whale quota for indigenous hunters which is shared between Russia and the United States but which Tokyo blocked in 2002.

"The US is desperate to have the quota for its aboriginal Bowhead whale hunting renewed," Papastavrou said.

He said Japan was offering two options in return for its Bowhead vote -- broadening the definition of aboriginal whaling to include its coastal whalers or an IWC declaration endorsing widescale scientific whaling.

Both, said IFAW, would breach the code and the spirit of the body founded in 1946 to protect whales from over-exploitation and which brought in a global hunting ban 40 years later.

A loophole allowed so-called scientific whaling for cetacean research which is widely dismissed as a hunting smokescreen by anti-whaling campaigners.

"We regard scientific whaling as commercial whaling by another name," said Papastavrou.

Campaigners note that southern hemisphere blue whale numbers have slumped to 1,700 from 240,000 in 1990. The humpback whale population has fallen to 25,000 from 115,000, and there are only 120 western gray whales left alive.

Since 1993 the number of whales killed each year has surged to more than 1,900 from 550, and over 30,000 have now been killed since the ban came into force.

Japan kills some 700 whales a year for research. Norway killed nearly 1,000 last year and Iceland killed 60.

Despite claims that the killing is for scientific purposes, whale meat is openly sold in Japan where it is a delicacy and Iceland is trying to open up a commercial trade with Tokyo.

So far this has been rejected by Japan because it has a glut of whale meat, so much that a report last year said it was being sold as dog food.

The meeting in Anchorage from May 28-31 is not Japan's only line of attack. It will at the meeting in The Hague from June 3-15 of the Convention on International Trade in Endangered Species call for a review of all whales on the endangered list.

Wednesday, May 16, 2007

"Drought in China" - economic consequences

In the UK there is usually uproar in the press and the chattering classes about the dreaded "hosepipe ban". This is where the UK's nation of gardeners despair because they are unable to pump gallons of water onto their lawns to keep them looking nice and green. The government and the privatised water companies then get the blame.

Such hysteria is usually accompanied by TV images of reservoirs down by 30% from their highs.

A quick glance at the real economic and social costs of severe (or maybe not that severe yet) drought should put things in perspective. Moreover, the economic impact of a China suffering heavy climate change related costs may eventually be felt elsewhere. If Chinese growth begins to stall we can be confident that their will be repercussions.

China Drought Threatens Water Supply for Millions
BEIJING - A spring drought is intensifying across north China thanks to scarce rainfall and high temperatures, drying up reservoirs and farmland and threatening drinking water supplies for millions, state media said on Tuesday.

A top meteorological official warned last week that China was likely to be hit by more extreme weather, including typhoons, floods and drought, this year than at any time in the past decade because of global warming.

Among the hardest hit is Henan province, the country's bread basket, where rainfall since March has been down 70 percent on the average for the last two years, with no significant rain expected this month, Xinhua news agency said.

A total of 157 reservoirs in the northwestern region of Ningxia, or about 77 percent, and 186,000 wells had dried up, Xinhua said. Drought had damaged or destroyed 11 million hectares of crops and left 4.8 million people and as many cattle short of drinking water, it added.

In Hebei province, another major wheat- and corn-growing area, more than 200 reservoirs had dried up and 1.87 million hectares of farmland had been damaged or destroyed.

China suffered heavy agricultural weather-related losses last year, with parts of the southwest suffering the worst drought in more than a century last summer.

Saturday, May 12, 2007

Carbon tax or cap and trade?

As my Econ211 Environmental Economics students knuckle down to some revision ahead of the exam it is worth posting this article about externalities, market failure and global warming.

Hopefully this article makes sense.....carbon emissions are under priced. "It has a cost. But it has no price."

This article sets out the arguments for and against both carbon taxes and a cap and trade system. This is how to structure an argument. Which do you think is better? How does the EU differ from the US?

Bold highlights are mine.

H/T Ecological Economics

Getting on a low-carbon diet by Ronald Brownstein.
President Bush will probably succeed in blocking any serious effort to combat global warming until he leaves office. But for the next president, the question will be how, not whether, to reduce American emissions of carbon dioxide and the other gases contributing to climate change. And that debate, like the planet itself, is heating up.

Scientists, economists and political leaders who support action against global warming all construct their proposals on a simple foundation: attaching a cost to carbon emissions. Since the U.S. (and most other big polluters, like China and Russia) does not regulate greenhouse gas emissions, factories and power plants and cars can pump carbon into the atmosphere for free; to the polluter, carbon today has no cost. This despite all the costs global warming could impose on the world, from lower crop yields to destabilizing migrations and the greater international conflict that a group of retired generals and admirals warned about in testimony before the Senate Foreign Relations Committee Wednesday.

Since none of those costs are internalized to fossil fuels like coal and oil, the effect is to artificially lower their price. That distortion encourages overuse of fossil fuels and discourages investment in clean energy alternatives (such as wind, solar, and above all, greater efficiency) that don't produce greenhouse gases. "The biggest market failure we have in the world is the fact that [carbon emissions], which are potentially threatening our ability even to survive on this planet, has no price," says environmental consultant Roger Ballentine, the chairman of the White House climate change task force under President Clinton. "It has a cost. But it has no price." So for almost every political leader at home and abroad who accepts the need to pursue mandatory reductions in greenhouse emissions—a group from which the dead-ender at 1600 Pennsylvania Avenue remains conspicuously absent—the first priority is to create a cost for carbon. The question now sharpening in Congress and the 2008 presidential race is how best to do that.

To the extent American politicians in recent years have talked about controlling carbon emissions, they have almost entirely focused on a system known as "cap and trade" that attempts to harness market forces to drive reductions. The first regional efforts to combat global warming—one multi-state consortium in the Northeast and the collaboration among California and four other Western states—each rely on a cap-and-trade system.

But now a group of skeptics is questioning whether that approach by itself will achieve the reductions in emissions necessary over the next several decades to stabilize global temperatures at a sustainable level. Their alternative has a sharper edge: a tax directly on the carbon emissions of fossil fuels.

The most prominent supporter of a carbon tax is former Vice President Al Gore, who touted the idea in his high-profile global warming testimony before the House and Senate earlier this year. Sen. Christopher Dodd (D-Conn.) is promoting a carbon tax in his campaign for the 2008 Democratic presidential race.

That sets Dodd apart from the field in both parties. Most of the leading Democrats have endorsed a cap-and-trade response to greenhouse gas emissions—as has Republican presidential contender Sen. John McCain, who has for several years co-sponsored with Sen. Joe Lieberman (ID-Conn.) legislation establishing such a system. (Regular readers will recall my wife works in McCain's Senate office.)

But Dodd is the only prominent presidential candidate talking about a carbon tax. And he's not surprised to be standing under that banner alone. "Why I suspect the other candidates are not talking about this, is all their pollsters and handlers have said 'you are looking for trouble here,'" Dodd says. "I think…there is a larger constituency for [this] than people believe today."

Both a carbon tax and a cap-and-trade system are designed to place a cost on carbon emissions. A carbon tax does so directly: It would tax each fossil fuel based on the amount of carbon it emits when burned. Under that system, coal would be taxed the most, oil less and natural gas least. Dodd's staff estimates that setting the carbon tax at around $30 to $37 per ton of carbon pollution would provide the right incentives for polluters to control emissions and shift to cleaner fuels—and also raise the federal government about $50 billion annually. A carbon tax set at that level would raise the price of gas about 10 cents a gallon.

A cap-and-trade system operates very differently. The cap part works like this: The government would set an overall limit on the amount of carbon the country will emit each year, and then allocate "credits" that establish emission limits for individual companies. At that point, the trade component would kick in. The credits would create a right to emit carbon; firms that can reduce their emissions more efficiently could sell some of their credits to other companies (say utilities heavily reliant on coal-fired plants) that find it more expensive to control carbon. A trading system would develop that establishes a market price for carbon pollution.

There are some other fine points under debate, particularly whether the credits should be provided free to polluters or auctioned off (by all indications, a better option.) But the bottom line is that when a cap-and-trade system works well, it leverages the power of the market to encourage innovation and efficiency. Because firms can directly profit from achieving the maximum reduction in pollution at the minimum cost, the opportunity to do well reinforces the desire to do good. The cap-and-trade system Congress approved in 1990 to fight acid rain has produced greater reductions in sulfur dioxide pollution at less cost than initially expected and minimal economic disruption.

That's the precedent fans of the cap and trade say should guide the carbon debate. "We can replicate that [experience] at least for the utility sector," says Tom Williams, director of energy policy communications for Duke Energy Corp., a major utility that is among the most prominent industry supporters of mandatory greenhouse gas reductions. "We know how to do it; the regulators know how to do it; and it worked."

Skeptics, though, point to the troubles of the cap-and-trade system the European Union has used since 2005 to reduce carbon emissions. Under pressure from industry, European governments gave away too many credits to polluters; the result was that the price of the credits collapsed, undermining the incentive to cut emissions or use cleaner fuels. (Some analysts say the cost fell so far it was cheaper for European utilities to buy credits and burn coal than to burn cleaner natural gas.) A second round of mandated emission reductions scheduled for next year could ameliorate the problem, but at the least, the European experience suggests that designing a successful cap and trade is an enormously complex undertaking which may require some trial and error before it works.

That prospect is at the heart of Dodd's argument for a carbon tax. A cap-and-trade system, he says, "is confusing, it's complicated and it takes forever." Enforcement could also be a challenge, he says, as "people move stuff around" and perhaps try to generate phantom reductions. By contrast, he argues, a carbon tax sends an instant, unambiguous signal discouraging the use of the fuels that contribute the most to global warming.

For all his doubts about a cap-and-trade system, Dodd says he supports one, but as a complement to a carbon tax, not an alternative. And in fact linking these two ideas may be the best long-term answer in this debate.

Jennifer Layke, deputy director of the climate program at the World Resources Institute, an economic-oriented environmental think tank, correctly points out that the two policies have complementary strengths. While the cost to industry of carbon emissions fluctuates under a cap-and-trade system, she notes that a carbon tax would establish "price certainty" by telling companies exactly how much it will cost them to emit a ton of carbon. That would help firms make rational long-term decisions on whether to invest in less polluting sources of energy.

Conversely, a carbon tax does not guarantee any specific reduction in greenhouse emissions; it only attempts to drive down emissions by driving up their price. That's where a cap-and-trade system could provide what Layke calls "environmental certainty" by establishing specific reduction mandates. Al Gore, in his Congressional testimony, reached a similar conclusion about the two ideas, testifying that he believed "the most effective approach is to do both."

This discussion may seem wildly premature. In today's political climate, weighing the relative virtues of a cap and a tax is a little like the Tampa Bay Devil Rays deciding whether they would rather face the Dodgers or the Mets in the World Series. At the moment there's no sign Congress is ready to approve even a cap-and-trade system; the last time the Senate voted on the McCain-Lieberman plan, in 2005, it attracted only 38 votes. And a carbon tax proposal—because it includes that three letter word—is a much more incendiary proposition than a cap-and-trade proposal (which would also raise electricity and gasoline prices, though in a more muffled and indirect way).

But the political climate on these issues could change as abruptly as some experts fear the global climate might change in a warmer future. More leaders from different segments of American society—from utility and auto executives to the retired military officials who testified before the Senate this week—are endorsing meaningful, mandatory action against global warming. A path-breaking business/environmentalist coalition that supports compulsory reductions in greenhouse emissions this week doubled its membership from 14 to 28 by adding, among others, General Motors and Shell. With a new president committed to crystallizing that consensus, rather than resisting it, decisive change could come much faster than now appears possible.

When Washington is ready to act, the real lesson it should take from this brewing debate over the best way to discourage carbon pollution is that there is no best way. Progress against a challenge as vast as global warming will require us to use all the tools available to us: direct regulation (tougher fuel economy standards for cars, requirements on utilities to generate more of their electricity from renewable sources); economic carrots and sticks (a carbon tax that helps fund tax breaks for investment in greater energy efficiency and alternative energy sources); a cap-and-trade system that sets a hard limit on emissions; federal procurement that nurtures clean new technologies; and steps beyond all of these that we can't yet imagine.

"The reality is we are going to spend most of this century trying to figure out how to crank down our global warming emissions," says Dan Becker, the director of the Sierra Club's global warming program. "We are going to need everything we know how to do and probably a whole lot more."

Thursday, May 10, 2007

China and environmental accidents

Excellent post from ChinaDialogue on the level of environmental accidents in China and the relative weakness of the environmental lobby in the face of strong opposition from business. It is always useful to put these things in context.

Click on the link to read the full article.

Weathering the storm
Tang Hao
May 10, 2007
China’s State Environmental Protection Administration (SEPA) has launched three major crackdowns known as “environmental storms” in the past three years. The first one, in the early part of 2005 halted 30 unapproved construction projects, and 56 projects were not approved in 2006. Regional permit restrictions were used to block four major energy projects this year; 82 other projects have also been criticised for falling foul of the rules on environmental impact assessments. But despite the continued crackdowns, China has faced more and more environmental problems. Over the same period, the number of environmental disasters has increased, with one pollution incident occurring every two days on average. Public complaints about environmental concerns have increased 30% and central leadership statements on the subject have increased 52%. Moreover, pollution emissions continued to rise in 2006. SEPA's high hopes for the success of the environmental storms have not been realised.

How can this be the case, with rising concerns from the public and the media, not to mention SEPA’s repeated statements? Why is it so hard to put effective measures in place – and make local governments and businesses fall into line? Understanding the answers to these questions requires taking a broader view, which reveals the rise of an anti-environmental interest group – of which local governments are only one part – who want to take an active role in environmental decision-making. And at the same time, this wider view exposes a void at the heart of China's environmental movement.

Further on in the article comes the following quote. The role of transnational corporations in a complex one but in general transnational corporations are generally perceived as better employers than domestic employers so in one sense things may be considerably worse if there was no foreign involvment.
Anti-environmental interests are also represented by business. Inadequate legal enforcement in energy-saving and environmental protection allows domestic firms to profit from polluting their environment, while transnational companies relocate their waste and polluting industries to China. Local media, beholden to the rich and powerful, fail to speak out. Special interest groups have thus formed an unspoken alliance against the environment.


Another article (from PlanetArk) on China's fight against pollution and the internal corruption of local officials. It is reassuring to see just how much importance China is placing on at least attempting to clean up or control pollution. In some respects this is easier in China than in a free market.

China Says to Automate Monitoring of Big Polluters

BEIJING - China plans to set up an automated system to monitor big polluters by 2008, the official Xinhua news agency said on Thursday, underscoring government efforts to clean up the country's dirty air and water.

These are the telling quotes and sums up the problem - this is what economists find hard to get a handle on.
Many Chinese factories, smelters and power plants have bought equipment to minimise pollution from smokestacks, but are notorious for turning off the equipment as soon as government inspectors leave their gates.

Scrubbers and other equipment can be expensive to operate, or can reduce the energy efficiency of a plant, tempting owners to flout the rules.

Understaffed environmental bureaux lack the manpower or the clout to enforce compliance, since they often report to local governments that own stakes in local industry.

Finally, it is clear much remains to be done:
Last year, China failed to meet its target of a 2 percent reduction in the emission of pollutants. Sulphur dioxide emissions, which can cause acid rain, increased by 463,000 tonnes in China, 1.8 percent higher than the previous year, and chemical oxygen demand increased by 1.2 percent, SEPA said.

Environmental Regulations in China: The battle between Beijing and the regions

The article below is a timely reminder of the difficulties China faces in trying to control its emissions of pollution. Along with a PhD student, Shanshan Wu, we have recently written a paper looking at the determinants of Chinese industrial pollution and include numerous measures of environmental regulations and how they differ at the regional level even if, centrally, they should be identical.

A full PDF will be up on the academic website soon (see sidebar).

Industrial Activity and the Environment in China: An Industry Level Analysis

Matthew A. Cole
Robert J.R. Elliott
Shanshan Wu
Department of Economics, University of Birmingham, UK

Given China’s rapid industrial expansion a detailed understanding of the linkages through which industrial activity affects the environment is crucial if the resultant environmental impact is to be minimised. This paper utilises a dataset of Chinese industry specific emissions for a variety of pollutants between 1997 and 2003 to provide the first study of its kind for China. For instance, we find an industry’s emissions to be a positive function of its energy use and human capital intensity and a negative function of its productivity and R&D expenditure. We also investigate the role played by environmental regulations, both formal and informal.

JEL Classification: O13, L60, Q21, Q25, Q28
Key words: Chinese manufacturing; air pollution; environmental regulations.

Wen hits at failure to cut pollution

Wen Jiabao, China's premier, has delivered a scathing assessment of his government's inability to meet long-stated goals to cut pollution and energy use, saying this must be corrected to sustain growth. The speech, delivered in late April but re-leased in full only yesterday, sets the scene for a battle between Beijing and provincial and city authorities over implementing the central government's energy and pollution standards.

Beijing is often forced to make high-profile arrests to assert its power over recalcitrant provinces and cities that habitually ignore the central government, even on economic policy.

The government is also debating whether to introduce more stringent export controls, for steel-related industries in particular - which it may choose to announce before a top-level economic dialogue with US officials in Washington later this month.

China has already begun to cut tax rebates for exports of steel, but Mr Wen signalled that further reductions were in the pipeline.

"This year is crucial for China in its efforts to meet the energy saving and pollutants emission reduction target set for the 2006-2010 period," he said. "We will continue to curb the energy-guzzlers by further adjusting export rebates, levying more export tariffs and reducing export quotas."

Beijing has promised for three years to rein in heavy industries, and set targets early last year for cuts in energy use and pollution emissions, but has fallen short on every marker.

In his speech, delivered to an internal party meeting, Mr Wen said the six sectors using 70 per cent of energy for industry had grown by 21 per cent in the first quarter of this year, seven percentage points more than for the same period last year. The sectors are power, steel, oil refining, chemicals, construction materials and metals, according to an account of the speech by Xinhua, the official news agency.

"Without faster restructuring and an efficient method of economic growth, China's natural resources and the environment will not be able to sustain its economic development," Mr Wen said.

"Outmoded production facilities must be eliminated at a faster pace, and how this policy is implemented by local governments and companies will be open to the public and subject to social supervision."

Mr Wen said inefficient use of energy and other resources would force the government to reform prices for natural gas and water, something it has been reluctant to do because of the poverty of many consumers, especially in rural areas.

Mr Wen's self-censure also takes into account mounting foreign criticism of the contribution to global warming made by China's energy-intensive economic model.

China could overtake the US as early as this year as the world's biggest emitter of greenhouse gases, according to the International Energy Agency, although its economy is only about a fifth as big.

"China must take responsibility for reducing polluting emissions," he said. China remains steadfastly opposed, however, to mandatory cuts in emissions.

Wednesday, May 09, 2007

Nordhaus on the Stern Review - NBER working paper

Acadmic subscription required for the full text version. Some friendly academics may be able to supply a copy if asked nicely.

"The Stern Review on the Economics of Climate Change"
NBER Working Paper No. W12741

Yale University - Department of Economics, National
Bureau of Economic Research (NBER)

Full Text:

ABSTRACT: How much and how fast should the globe reduce greenhouse-gas emissions? How should nations balance the costs of the reductions against the damages and dangers of climate change?
This question has been addressed by the recent Stern Review on the Economics of Climate Change, which answers these questions clearly and unambiguously. We need urgent, sharp, and immediate reductions in greenhouse-gas emissions. An analysis of the Stern Review finds that these recommendations depend decisively on the assumption of a near-zero social discount rate. The Review's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today's market place.

Tuesday, May 08, 2007

Foamhenge - ancient monument American style

As I was getting my daily dose of Environmental-Economics I was skimming some article about flogging off national parks when this line struck me over the head..

"A natural wonder may be priceless, but the owners of Natural Bridge in Virginia's Shenandoah Valley want $32.5 million. The price includes the limestone arch, bearing the initials of George Washington when he surveyed the site, as well as 1,600 acres containing a hotel, gift shop, wax museum, caverns, and an attraction called "Foamhenge," a Stonehenge look-alike."

How could I have lived this long without knowing about the existence of Foamhenge. This strikes me as one of the best ideas since Vegas.

See env-econ for the full and environmental economics relevant article. Otherwise read on.

A little more digging provides some great pictures of "foamhenge".

Which is only bettered by some of the close ups.

Of course, what is the first photo we would all take:

Having visited the English equivalent on a number of occassions in the days of yore I must say that the US version appears far cleaner which is either a result of the fact that it is built out of white foam or that the UK version is close to a very busy road (and the natural aging process that a few thousand years imparts).

Does Foamhenge also have the associated Druids?

I finish with a competition. Foamhenge or Stonehenge?

Friday, May 04, 2007

Climate Change and Suicide

Climate change gets the blame for a lot of things and sometimes I read an article and am somewhat perplexed.

In an ENN article today called "Arctic Leaders Blame Warming for Wolves, Suicide" the title and leader seem to suggest that global warming is causing rising levels of teenage suicide among the Inuit people of the Arctic.

There is clearly an issue with high teenage suicide - the question is how to measure the impact of climate change on Inuit suicide rates. Correlations, spurious or otherwise, seem to get everywhere.

As for the Wolves I will the reader to click on the link to read why wolves are turning ugly.

Arctic Leaders Blame Warming for Wolves, Suicide

Megan Alvanna-Stimpfle, who is from Nome, Alaska, and heads the Inuit Circumpolar Youth Council, said the change in climate undermined a supportive culture and may be one cause for suicide among the young.

"There's a high rate of youth suicide in Inuit villages and we think it's correlated to our loss of language and the ability to live healthily in isolated Arctic communities," Stimpfle said in the interview.

The youth council aims to revive Inuit culture, she said, "but it's complicated by the change in the climate, because people are unable to read the ice."

"Reading the ice" means relying on millennia of Inuit observation to determine when and where ice is safe, Stimpfle explained. The changing Arctic climate has undermined that traditional system, and some Inuit have fallen through ice in places where it used to be safe, she said.

20 simple ways to reduce your "Carbon Footprint"

Following an email we now present "20 simple ways to reduce your carbon footprint". Thanks to

Although we tend to steer clear of such "green" issues the 20 tips are useful for the statistics associated with each "tip". As an empiricist I can never resist a good set of interesting numbers. The tips themselves are common sense but the savings estimates are interesting although I don't fancy the idea of having too many cold showers.

The economics of 12 are also dubious (see Economist acticle). Eating locally but inefficiently grown food is not necesarily better than having it flown half way around the world. I am sure the UK could grow oranges and lemons and some of the best grapes in the world if we used hot houses and threw enough energy at it - this would not help the environment.

Assuming a proportion of readers of this blog are interested in economics it would be interesting to know whether such information is useful. I believe that research shows that Economists give, on average, less money to charity than academics of other subjects. I suspect the same will apply to following the tips below - the following of every tip will involve a costs of some description - do any of them pass an individual level cost-benefit analysis?

See 20 Simple Ways to Reduce your Carbon Footprint from
This year humans will generate around 26 billion metric tons of excess carbon dioxide (CO2) – that’s 4.3 tons per person. All that extra CO2 precipitates global warming and leads to severe human and animal respiratory problems.

The average European emits close to 10 metric tons of CO2 per year. Not to be outdone, the average American emits over 20 metric tons - more than 6 times the world average. Worldwide, idle computers alone generate 45 million metric tons of CO2, enough gas to fill 810,000,000,000 (810 billion) balloons. But while much discussion focuses on the need for government regulation, little has been said about the very practical things we can do in and around our homes to reduce our own carbon footprint.

There is a temptation to feel that as individuals we can't do much to fix the problem of carbon emissions - this is simply not true. Just by making the 20 simple changes outlined in this article, you can reduce CO2 emissions by 40 metric tons per year, enough to entirely offset the global warming effects of you and another person. So without further ado, here are 20 things you can do in and around your home to help decrease CO2 emissions.

1. Adjust your hot water heater: Is the temperature of your shower scalding hot? You shouldn't even have that option. If you reduce the temperature of your water heater from 60°C to 49°C (140°F to 120°F), you'll prevent burns and save 217 kg CO2. Insulate your water heater for an additional savings of 454 kg CO2 and €30 (£20). If you're in the market for a new water heater, go tankless and save 136 kg CO2 and €287 (£195) every year. CO2 savings: 617 kg.

2. Shut down and unplug devices: Electronic devices, even when not in use, use electricity just by being plugged in. Do you leave your mobile phone charger plugged in at all times? It's using electricity even when your phone is far away. Turn off and unplug items like your hair dryer, coffee pot, TV and computer for carbon and electricity bill savings. Do this all year, and the average person can prevent 567 kg of CO2 from being released into our atmosphere. The cost saving is around €188 (£128) each year. Make it easy by plugging items into a power strip, and turning off and unplugging the power strip when not in use. CO2 savings: 567 kg.

3. Wash your clothes in cold water: Hot water is not necessary for general clothes washing. In fact, it's only needed for greasy or extremely dirty items. There are even special detergents that promise to get clothes hot water clean in cold water temperatures. Wash your clothes in cold water instead of hot to save 228 kg of CO2 this year. CO2 savings: 228 kg.

4. Hang clothes out to dry: Save the environment the old-fashioned way: invest in a clothesline. Your tumble dryer is one of the worst household offenders for CO2 emissions. Do you really need to use it? Try hanging you clothing outside, in the utility room or even your shower instead of throwing them in the tumble dryer. If you forego drying for 6 months out of the year, it represents a CO2 savings of 318 kg and €55 (£37) from your electricity bill. Make it a year-round practice to bump it up to 635 kg of CO2 and €110 (£75). CO2 savings: 635 kg.

5. Make life easy for your fridge: Your fridge joins the dryer on the worst-offender hit list. Make it easy for your refrigerator to stay cool by putting it in a cool place and letting hot food cool down to room temperature before you put it in. Clean your coils, clear clutter off the top and defrost on a regular basis to save 318 kg of CO2 every year. CO2 savings: 318 kg.

6. Plant a tree: Trees are attractive, cheap, help with energy costs and reduce the CO2 in our air. They provide cooling shade and absorb CO2 from the atmosphere while creating oxygen. Planting a tree native to your region in your garden can save 2,268 kg CO2 per year. If you're really a go-getter try planting 10 trees per year and save 22,680 kg CO2. If you don't have room for 10 trees at home, offer to plant them for your friends, family and neighbours. CO2 savings: 22,680 kg.

7. Cast a critical eye on your air conditioning and central heating: If you adjust your thermostat by just one-half degree Celsius during winter and summer months, the average household can save 907 kg CO2 and €72 (£49). Stay comfortable by wearing fewer clothes and being less active in the home during summer months, while layering up in the winter. During the summer months, remember to run house-warming appliances like your washer, dryer, dishwasher and oven after the sun goes down to avoid heating up your house. Alternately, in the winter months use these appliances whenever your house is the coldest. When it's practical, use a ceiling fan instead of your air conditioning and save 181 kg CO2 and €16 (£11). Help your air conditioner work smarter, not harder; remember to replace your filter according to recommendations and you can save 79 kg CO2 and €110 (£75). CO2 savings: 1167 kg.

8. Use energy-efficient light bulbs: Incandescent light bulbs are becoming a thing of the past. This year, when your light bulbs burn out, replace them with a compact fluorescent light bulb. These fluorescent lamps fit into a standard socket, but have a longer life and better energy efficiency. If you change just 3 light bulbs to compact fluorescent this year, you will save 136 kg of CO2 and €44 (£30). CO2 savings: 136 kg.

9. Reduce: Cut down on purchasing products with lots of packaging. Simply trimming garbage by 10% can save up to 454 kg CO2 within a year. Reducing your consumption of takeout boxes alone can save 11 kg CO2 per year. CO2 savings: 454 kg.

10. Reuse: Instead of replacing items, fix them. Reuse plastic shopping bags for rubbish, garage sales or to carry your lunch. Simply switching to reusable cleaning products like sponges instead of paper towels saves 5 kg CO2 and €18 (£12) a year. Don't rush out to get a new bestseller; visit a used bookstore or start a book exchange with your friends to save 14 kg CO2 a year. Make use of sites like Freecycle and Craigslist to get used items for free or low cost. CO2 savings: 567 kg.

11. Recycle: Use the recycling bins in your neighbourhood. Buying recycled content and increasing home recycling by 10% saves the average household 91 kg CO2 over the course of a year. CO2 savings: 91 kg.

12. Eat locally grown, unprocessed food: Food typically travels 2,500 km before it gets to you. Each of those miles involves the emission of CO2. To avoid this contribution, support your area's agriculture: visit a farmer's market, look for regional produce at the grocery shop or create a garden of your own. If you eat local food just once a week, you can save 2,268 kg CO2 over the course of a year.CO2 savings: 2,268 kg.

13. Install a low flow shower head: Showers account for 2/3 of water heating costs. If you change two showerheads in your home to low-flow heads, you'll save 136 kg of CO2 each year as well as €110 (£75) on your water bill. Oxygenics, Delta and Tempest offer low-flow shower heads. Take it one step further by taking shorter showers. Each minute under an average showerhead uses more than 9 litres of water. Cutting down on shower time results in CO2 savings of 159 kg each year and €73 (£50) off your water bill. CO2 savings: 159 kg.

14. Take a shower instead of a bath: Did you know that a bath can take up to 190 litres of water? If you forego a bath in favour of a shower just once a week, you can save 45 kg of CO2. If you do this daily, it adds up to 317 kg of CO2 and €26 (£18). CO2 savings: 317 kg.

15. Eat fewer animal products: A diet of 30% meat, dairy and poultry produces 1,485 kg CO2 each year, but a vegetarian diet generates only half of that. Animal flatulence, processing, packaging and transportation of products are to blame. If you replace red meat with fish, eggs and poultry, you can save more than 430 kg CO2 a year. Alternately, eat meat-free meals every other day for a 215 kg. CO2 savings: 430 kg.

16. Remove yourself from junk mail lists: Your mailbox is stuffed full of CO2 every day. Junk mail is more than just a nuisance: 1 million trees are used to create junk mail each year, and transporting this mail via CO2-emitting vehicles costs €405 million (£275 million). The average adult gets 19 kg of junk mail per year. If you cut down on this waste, you can save up to 104 kg of CO2 every year. CO2 savings: 104 kg.

17. Use a mechanical lawn mower: Are you sick of your mower not starting? Do you hate having to make a run to the petrol station early Saturday mornings just to mow your lawn? Push mowers don't have these problems. Get some exercise, save petrol money and save the environment by switching to a push mower. Modern reel push mowers by Sunlawn, Brill and Scotts are easier to use than you think. You'll save 36 kg CO2 in a year and €26 (£18) in gas money. CO2 savings: 36 kg.

18. Install double glazed windows. Double glazed windows are made up of two glass panels with a space in between. This space is generally filled with air or gasses that can help with insulation. They also often have a UV coating, which can be customised to your climate. Cold regions can use a UV coating that maximises the warmth of the sun, while those in hot areas can employ a UV coating that keeps heat out. If you switch 6 medium to large windows to double pane this year, you could save a whopping 4,536 kg of CO2 and €321 (£218). CO2 savings: 4,536 kg.

19. Update the insulation of your home: Updating your home's insulation can add up to big CO2 and financial savings. In just one year, updated wall and ceiling insulation can save 907 kg CO2 and €180 (£122). Think about the savings over the life of your home. Just 5 years with updated insulation will save up to 4,535 kg CO2 and €902 (£613). If you caulk and weather-strip your doorways and windows, add another 454 kg CO2 and €201 (£137) saved each year. CO2 savings: 1,361 kg.

20. Buy eco-friendly appliances: It's not necessary to run out and buy all new appliances to replace old ones, as the manufacturing of new items and disposal of old ones contributes to carbon waste. However, if your refrigerator has cooled its last Coke, think eco-friendly when shopping for a new one. An energy-friendly refrigerator can save 227 kg CO2 and €44 (£30) year, while a green washer conserves 199 kg CO2 and €33 (£22). CO2 savings: 426 kg.

See the link above for links on where to find further information.

Thursday, May 03, 2007

Gambling on Global Warming

This new product from the US allows stock market investors to gamble on the "climate change solutions industry".

This is a nice little index that fits within the "ethical investment" craze. The returns to date seem impressive.

The question is whether climate change is all hype and whether there are technological solutions to the current problems.

It is hard to see demand for solutions falling given the IPCC figures so this might be a canny investment at least over the short to medium term or until there is something else to worry about or the oil price falls so much that no solution is cost effective.

US-Based Index Allows Bets on Global Warming Fight

NEW YORK - Boston-based group KLD Research & Analytics licensed an index on Wednesday that allows investors to bet on companies taking steps to combat global warming.

KLD says its Global Climate 100 Index holds small to large-cap companies whose activities reduce the social and economic consequences of climate change.

The weighted index holds 100 companies ranging from the energy and utility sectors to industrials and consumer products. Some of the companies invest in efficiency and buy power from renewable sources.

That differentiates the index from pure-play renewable energy investment products, KLD spokesman Chris McKnett said.

"We are trying to provide investors exposure to the global climate solutions value chain. The sources of climate change are dispersed across the economy and our view is that sustainable solutions also have to be dispersed across the economy," he said in telephone interview.

Last quarter the index achieved a return of 5.87 percent and annualized returns since the index's inception in the summer of 2005 were 22.38 percent, KLD said.

Among companies the index holds are Whole Foods Market, Inc., which purchases renewable energy credits to offset 100 percent of its electricity needs in North America, and Itron, Inc., which manages the delivery and use of energy and water to increase efficiency.

It also holds Japanese company Sekisui Chemical Co. , which has built homes that operate on solar energy since 1998.

KLD licensed the index with Fixed Income Securities, L.P.