Thursday, August 30, 2007

Growth and the Environment in China

As an area of environmental economics where we have published papers (see academic website) it is good to see the NYT giving the environmental problems in China plenty of column inches.

I only include the first few paragraphs that are, of course, over dramtic but do paint a rather grim picture of life in China in the face of environmental degradation.

As China Roars, Pollution Reaches Deadly Extremes

But just as the speed and scale of China’s rise as an economic power have no clear parallel in history, so its pollution problem has shattered all precedents. Environmental degradation is now so severe, with such stark domestic and international repercussions, that pollution poses not only a major long-term burden on the Chinese public but also an acute political challenge to the ruling Communist Party. And it is not clear that China can rein in its own economic juggernaut.

Public health is reeling. Pollution has made cancer China’s leading cause of death, the Ministry of Health says. Ambient air pollution alone is blamed for hundreds of thousands of deaths each year. Nearly 500 million people lack access to safe drinking water.

Chinese cities often seem wrapped in a toxic gray shroud. Only 1 percent of the country’s 560 million city dwellers breathe air considered safe by the European Union. Beijing is frantically searching for a magic formula, a meteorological deus ex machina, to clear its skies for the 2008 Olympics.

Environmental woes that might be considered catastrophic in some countries can seem commonplace in China: industrial cities where people rarely see the sun; children killed or sickened by lead poisoning or other types of local pollution; a coastline so swamped by algal red tides that large sections of the ocean no longer sustain marine life.

China is choking on its own success. The economy is on a historic run, posting a succession of double-digit growth rates. But the growth derives, now more than at any time in the recent past, from a staggering expansion of heavy industry and urbanization that requires colossal inputs of energy, almost all from coal, the most readily available, and dirtiest, source.

Wednesday, August 29, 2007

Research Paper round up

Here are a few papers that I need to read in the next few weeks, time permitting. Blogging them here may help me remember.


Climate Change: National and Local Policy Opportunities in China
Date: 2007-07
By: Fei Teng (Tsinghua University)
Alun Gu (Tsinghua University)

URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2007.74&r=env[PDF]

Climate Change poses a wide range of potentially very severe threats in China. This aggravates the existing vulnerability of China and is one of the big challenges faced by the Chinese government. Adaptation programmes and projects are being developed and implemented at national and local level. As China is engaged in heavy investment in infrastructure development as a consequence of the rapid process of development and urbanization, mainstreaming adaptation into such development process is a priority for China. China has also made positive contributions to reducing greenhouse gas emissions through participations in the CDM under the Kyoto Protocol framework. Although mitigation is not a priority at national or local level, it has been integrated into national and local development plans explicitly. This paper addresses the following questions: What is the policy space for climate change mitigation and adaptation policy at national and local level and what is already being done? The three case studies at local level - Beijing, Guangdong and Shanghai – presented here, highlight the local benefits in terms of local pollution of integrating mitigation policies into local development. However, financial constraints usually prevent such a positive policy integration. National policies and international cooperation aiming at bridging the financial gap and promoting technology transfer would help in integrating local pollution control and mitigation efforts in China today.
Keywords: Climate Change, Local Policy, National Policy, Mitigation, Local Pollution
JEL: H7 Q54 Q56 O53

Voluntary Environmental Regulation in Developing Countries: Mexico's Clean Industry Program
Date: 2007-07-11
By: Blackman, Allen (Resources for the Future)
Lahiri, Bidisha
Pizer, William A. (Resources for the Future)
Planter, Marisol Rivera
Piña, Carlos Muñoz

URL: http://d.repec.org/n?u=RePEc:rff:dpaper:dp-07-36&r=env[PDF]

Because conventional command-and-control environmental regulation often performs poorly in developing countries, policymakers are increasingly experimenting with alternatives, including state-sponsored voluntary regulatory programs that provide incentives, but not mandates, for pollution control. Although the literature on this trend is quite thin, research in industrialized countries suggests that voluntary programs are sometimes ineffective because they mainly attract relatively clean participants seeking to free-ride on unrelated pollution control investments. We use plant-level data on more than 60,000 facilities to identify the drivers of participation in the Clean Industry Program, Mexico’s flagship voluntary regulatory initiative. Our results suggest that the threat of regulatory sanctions drives participation in the program. Therefore, the program does appear to attract relatively dirty firms. We also find that plants that sold their goods in overseas markets and to government suppliers, used imported inputs, were relatively large, and were in certain sectors and states were more likely to participate in the program, all other things equal.
Keywords: voluntary environmental regulation, duration analysis, Mexico
JEL: Q56 Q58 O13 O54 C41


Environmental Policy, Innovation and Performance : New Insights on the Porter Hypothesis
Date: 2007-06
By: Paul Lanoie (IEA, HEC Montréal)
Jérémy Laurent-Lucchetti
Nick Johnstone
Stefan Ambec

URL: http://d.repec.org/n?u=RePEc:iea:carech:0706&r=env[PDF]

Jaffe and Palmer (1997) present three distinct variants of the so- called Porter Hypothesis. The “weak” version of the hypothesis posits that environmental regulation will stimulate certain kinds of environmental innovations. The “narrow” version of the hypothesis asserts that flexible environmental policy regimes give firms greater incentive to innovate than prescriptive regulations, such as technology-based standards. Finally, the “strong” version posits that properly designed regulation may induce cost-saving innovation that more than compensates for the cost of compliance. In this paper, we test the significance of these different variants of the Porter Hypothesis using data on the four main elements of the hypothesised causality chain (environmental policy, research and development, environmental performance and commercial performance). The analysis is based upon a unique database which includes observations from approximately 4200 facilities in seven OECD countries. In general, we find strong support for the “weak” version, qualified support for the “narrow” version, and qualified support for the “strong” version as well.
Keywords: Porter hypothesis, environmental policy, innovation, environmental performance, business performance.
JEL: L21 M14 Q52 Q55 Q58


An Even Sterner Review: Introducing Relative Prices into the Discounting Debate
Date: 2007-07-09
By: Sterner, Thomas
Persson, U. Martin

URL: http://d.repec.org/n?u=RePEc:rff:dpaper:dp-07-37&r=env[PDF]

The Stern Review has had a major influence on the policy discussion on climate change. One reason is that the report has raised the estimated cost of unmitigated climate damages by an order of magnitude compared to most earlier estimates, leading to a call for strong and urgent action on climate change. Not surprisingly, severe criticism has been levied against the report by authors who think that these results hinge mainly on the use of a discount rate that is too low. Here we discuss the Ramsey rule for the discount rates and its implications for the economics of climate change. While we find no strong objections to the discounting assumptions adopted in the Stern Review, our main point is that the conclusions reached in the review can be justified on other grounds than by using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities that will be induced by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services, raising the estimated damage of climate change and counteracting the effect of discounting. We build our analysis on earlier research (Hoel and Sterner 2007) that has shown that the Ramsey discounting formula is somewhat modified in a two-sector economy with differential growth rates. Most importantly, such a model is characterized by changing relative prices, something that has major implications for a correct valuation of future climate damages. We introduce these results into a slightly modified version of the DICE model (Nordhaus 1994) and find that taking relative prices into account can have as large an effect on economically warranted abatement levels as can a low discount rate.
Keywords: discounting, relative prices, Ramsey, climate damage
JEL: H43 Q32 Q54


Technology, International Trade, and Pollution from U.S. Manufacturing
Date: 2007-07-05
By: Arik Levinson (Department of Economics, Georgetown University)

URL: http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~07-07-05&r=env[PDF]

Total pollution emitted by U.S. manufacturers declined over the past 30 years, while manufacturing output increased. This improvement must result from one of two trends: (1) change in production or abatement processes ("technology"); or (2) change in the mix of goods manufactured in the U.S, which itself may result from increased net imports of pollution-intensive goods ("international trade"). This paper first shows that most of the decline in pollution from U.S.manufacturing has been due to changing technology, rather than changes in the mix of goods produced, although the pace of that technological change has slowed over time. Second, the paper provides evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the U.S. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of the U.S. manufacturing sector. Classification-JEL Codes: F14, F18, and F22
Keywords: International Trade, Pollution Haven, Industrial Flight


Does Pollution Increase School Absences?
Date: 2007-07
By: Janet Currie
Eric Hanushek
E. Megan Kahn
Matthew Neidell
Steven Rivkin

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:13252&r=env[PDF]

We examine the effect of air pollution on school absences using unique administrative data for elementary and middle school children in the 39 largest school districts in Texas. These data are merged with information from monitors maintained by the Environmental Protection Agency. To control for potentially confounding factors, we adopt a difference-in-difference-in differences strategy, and control for persistent characteristics of schools, years, and attendance periods in order to focus on variations in pollution within school-year-attendance period cells. We find that high levels of carbon monoxide (CO) significantly increase absences, even when they are below federal air quality standards.
JEL: I18 Q51

Tuesday, August 28, 2007

"Globalisation and the Environment Blog": 1 year old today

The "Globalisation and the Environment" blog is 1 year old today.

Some statistics:

1. There have been 388 posts which averages out at 1.063 posts per day. Although not excessive, sustaining such a rate will be tough given that real work has a habit of intervening.

2. We have over 52,000 visitors in that year (over 4000 a month) according to Statcounter (although this was not introduced until a little later). Feeds are close to 150.

3. We have a Technorati ranking of 134,152 and a Economics Blog Ranking of 70/141 (as of today). Sadly still some way behind Freakonomics and Greg Mankiw's blogs but respectable for a non-US blog in a niche area of Economics (and on blogger).

4. Assuming an average time per post of 30 minutes, the time spent writing this blog (excluding what one might laughably call design time) equals 194 hours or 8 whole days. The opportunity cost is therefore likely to be at least a couple of academic papers (assuming constant paper writing for 194 hours). The rewards are, of course, rather difficult to quantify so I consider them priceless.

5. Speaking of which, our advertising revenues are, as you would expect, laughable. See HERE for our advertising policy. The grand total is around $70 or £35 which works out at a grand total of close to 10p or 20c per day. This equates to approximately 35 cups of a quality coffee or 70 cups of a poor quality substitute or around 2/3s of a cup per week. The hourly pay equates to around 18p an hour - some way below the minimum wage in this country. I should also add that I have not actually received a single penny as I can't quite work out how it all works so the coffee is all on the never never at the moment. We would consider going advert free but I think some adverts are actually pretty informative in this area (carbon offsetting etc.)

Click to keep the coffee flowing :-)

Now, how does one rig the technorati statistics?

The next update will be on the 28th August 2008. Will we have grown, shrunk, closed down or been bought out my a media mogul for tens of pounds?

.

Monday, August 27, 2007

Daylight robbery: Energy firms and excessive profits

My Econ211 Environmental Economics students will soon be examining the different types of policies available to governments to reduce pollution. Grandfathering and the initial allocation of permits is crucial to the running of any permit scheme.

The fact that the biggest historical polluters are simply give free permits has always struck me as rather odd leaving the system open to game playing, strategic polluting and manipulation.

There is something distasteful about the dirtiest companies in Europe making such large profits as a result of their previously high polluting capacity. Does any of this really matter as long as pollution is reduced and is lower than it would have been without such a system? The question then is whether we could have achieved the same level of pollution reduction by spending the money elsewhere perhaps by subsidising technological innovation and implementation.

The "bribe" to companies to accept the scheme is the first place is compelling. See below.

Climate Fight Brings Mega Profits to EU Power Firms

LONDON - European power companies are making billions of euros in excess profits in the European Union's battle to beat global warming by cutting emissions of carbon gases, and consumers are paying for it, economists say.

The electricity generators are given, free of charge, permits to emit millions of tonnes of carbon dioxide which are currently worth around 20 euros a tonne, but are then charging consumers as if they had been made to pay for the permits.
Michael Grubb, Chief Economist at the Carbon Trust and Director of Climate Strategies, calculates that this practice which he says is economically justifiable gives the industry windfall profits of some 20 billion euros (US$27.14 billion) a year.

"It is free money," he told Reuters. "It's how you'd expect companies to behave, but politically and morally it is going to be hard to justify making so much money out of a scheme designed to reduce emissions -- with consumers footing the bill."

But Chris Rogers, head of European utilities at J. P. Morgan, says this understates the scale of excess profits because it is based on coal-powered generation and ignores the low carbon generators such as nuclear and wind who nevertheless get the carbon-inflated price for their electricity.

"Let's just say that in Phase II of the EU trading scheme the power utilities will still be making very healthy profits. The compact they have to strike with governments is that they will invest this in clean energy," he said.

Under Phase I of the EU's emissions trading scheme running through 2007 smokestack industries including power generators were allocated free permits to emit carbon and allowed to sell any surplus to those who exceeded their ceilings.

Under Phase II which runs from 2008 to 2012 ceilings have been reduced and a small percentage will be auctioned, although the vast majority will still be handed out free.

News of the vast windfall profits has generated controversy in the Netherlands and Germany but raised barely a ripple in Britain where consumers have been repeatedly told their rising energy bills are due to supply problems -- notably from Russia.

"The power companies have got away with it because the price rises are disguised by rising gas prices and because people don't respond in the short term to higher power prices," said Matt Lockwood of the Institute for Public Policy Research.

Figures from the EU's statistics agency Eurostat suggest that carbon represents about 12 percent of domestic electricity prices in Germany and six percent in Britain.

"Carbon allowances have a value even if they are handed out for free," said Cambridge University economist Karsten Neuhoff. "The question should be why give them away for free in the first place," he added.

One of the answers given is that it was a bribe to the power companies to accept the scheme in the first place. Another is as a transition payment for firms which had bought coal-fired power stations which will lose value in a decarbonising world.

Germany's E.ON -- the world's biggest utility company -- has after a boardroom battle come out in favour of 100 percent auction of emission allowances after 2012.

"It is going to be extremely hard for utilities to explain and justify their pricing actions publicly," said Grubb, who judged the scheme a success despite the problems.

"But there will be tensions between using these profits in a way the public and politicians find acceptable and how shareholders would like to see them being used," he added.

The Toothless Dragon: New Chinese Environmental Regulations

Two more articles that are suggestive of an increase in the stringency of environmental regulations in China.

There is some telling text in this short piece. The most pertinent is that current water pollution fines are below that cost of installing and operating remedial equipment. Not a great incentive. In addition, the cost of a "bribe" to a local official is also likely to be substantially below the equipment cost.

The structure of the Chinese government and the powers given to local officials means that there is a fundamental disconnect between the apparent stringency of environmental regulations and what is actually enforced.

The most telling quote is this:

"Starting in 2000, there was a big push to install emissions control equipment in enterprises nationwide. But over time, we have found many don't bother to turn them on," Zhao told the conference.

The question we need to ask is WHY don't they turn them on? Are they profit maximising taking into account the risk and cost of getting caught or it merely a result of poor management and a lack of information or education?

China Mulls Law to End Caps on Water Pollution Fines
BEIJING - China could soon adopt reforms that remove caps on fines for firms that dump waste into water, a change that would put more pressure on polluters to stop polluting.

China currently caps the amount that polluters can be fined, in some case at a level lower than the cost of installing and operating remedial equipment. Once polluters max out the fines, there is also little incentive for them to stop.
Legal revisions to remove the cap and otherwise strengthen the hand of the State Environmental Protection Administration will be submitted to top lawmakers on Sunday, SEPA's vice director of emissions control, Zhao Hualin, said on Saturday.

"When we had the massive spill in the Songhua River, we could only fine them 1 million yuan (US$132,200), so we fined them 1 million yuan. But after the revisions to the law, there will be basically no cap," he told a conference on emissions reduction on Saturday.

China's leaders are increasingly paying attention to environmental problems, as pollution darkens the air in cities and endangers water supplies. They were spurred to action by an 80-km (50-mile) benzene slick in the Songhua River in late 2005, which endangered drinking water supplies to millions in China and Russia.

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The environmental watchdog's bite has been softened by China's governmental structure, which gives it little authority over well-connected companies or local governments eager to boost their region's economy.

SEPA has recently had some success in shutting non-compliant plants, but is struggling to keep alive an initiative to assess local government officials' performance based on "Green GDP" -- a matrix of factors that takes in environmental damage as well as economic growth.

The national agency has recently set up five regional bureaus, each with dozens of staffers, that allows it to extend authority into the provinces.

But its provincial offices are still subordinate to their local provincial government, which severely limits their power to enforce rulings that counteract local interests.

Any change in that relationship would have to await a broader government restructuring, and would have to be approved by the annual full meeting of the nation People's Congress in March.

Meanwhile, SEPA faces an uphill battle.

"Starting in 2000, there was a big push to install emissions control equipment in enterprises nationwide. But over time, we have found many don't bother to turn them on," Zhao told the conference.

As many as 80 percent of enterprises in China's industrial northeast may have non-compliant emissions equipment, Zhao said, based on informal assessments by SEPA teams. Nationwide, that figure is probably at least one-half.


China Drafts Laws to Curb Pollution
BEIJING - China began deliberating a draft law aimed at boosting energy saving and emissions reductions on Sunday, its latest effort to curb widespread resource waste and degradation.

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The draft law on a "circular economy" -- China's watchword for sustainability -- stipulates that governments at all levels should control energy use and emissions, strengthen management of resource-intensive companies and divert capital into environmentally-friendly industries.

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China's average energy consumption per unit product for industries such as steel, electric power and cement was 20 percent higher than that of "the advanced international level", he said.

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The government under President Hu Jintao and Premier Wen Jiabao has strengthened environmental legislation but laws and regulations often go unenforced at the local level, where officials typically prioritise economic growth over environmental protection.

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China has promised to cut emissions of major pollutants by 10 percent between 2006 and 2010, but last year failed to meet the annual goal.

Japan blames China for increased pollution: Transboundary effects

The news that there is pollution in Japan is nothing new but today's article from PlanetArk is interesting from two angles.

First, there is the standard "transboundary pollution" effect that rams home the fact that pollution is a global phenomenon and not just a problem of the developing countries of China and India.

Also of interest is the line that "Japan has not faced pollution levels like this for 30 years". This clearly shows the "Kuznets curve" effect where countries grow out of pollution and as incomes increase so does the demand for a cleaner environment.

Of course this the same effect will surely happen in China and India. The question is whether the massive environmental damage caused by China's current growth will push the environment past some manageable limit (a tipping point) from which there is no return.

The other issue is that whilst Japan may be "up in arms" about all this pollution that originates in China a careful examination would probably show that a lot of the firms in China that are causing the pollution are owned by Japanese multinationals. Likewise a large percentage of manufacturing from developed countries has been moved to China to take advantage of low wages (and low environmental regulations).

So should China really take all the blame?

Smog Smothers Japan, Experts Point to China
TOKYO - Smog is menacing Japanese cities for the first time in 30 years and cropping up in rural areas for the first time ever, alarming the government and prompting experts to point the finger at neighbouring China. Warnings for high levels of hazardous smog have been issued in a record 28 prefectures so far this year, from sparsely populated isles in southern Japan to Niigata, western Japan, where 350 people have suffered stinging eyes and throats.

While the government is cautious about placing blame, experts say much of the rise in pollution is coming from China, where air quality is a focus ahead of the Beijing Olympics next year.

The type of smog -- called "photochemical smog" because it is created when sunlight reacts with exhaust from cars and factories -- is made up of photochemical oxidant particles such as ozone. These particles can cause breathing difficulties and headaches.

"In terms of average levels of photochemical oxidants measured annually across Japan, there has been quite a rise since the 1990s," said Toshimasa Ohara, head of the National Institute of Environmental Studies' regional atmospheric modeling section. "We believe a substantial part of that rise has come from increasing emissions in China. We're looking into what percentage this factor has accounted for."

Smog adds to a string of environmental concerns that experts say originate in China, including acid rain and sandstorms that gain toxicity as they pass over its industrial regions.

But academics say Japan may find it hard to put pressure on China to cut emissions, with studies yet to show a precise figure on how much of Japan's smog is caused by cross-border pollution.

"If we are going to take action against other countries, we can't be vague," said Atsuko Mori, senior researcher at the Institute for Environmental Research and Public Health in Nagasaki, southern Japan. "There needs to be a thorough, scientific study into the causes."

RESEARCH COMPLICATED

Mori and other experts say research is complicated because domestic factors are also to blame for the recent rise in smog across Japan, which has taken pride in its efforts to cut emissions since its days of rapid economic growth in the 1970s.

For example, while emissions from cars have been restricted, those from paint and gasoline vapours, which also contribute to smog, have been harder to control. Smog can also be exacerbated by strong sunlight.

The Environment Ministry asked a group of academics and local health officials last month to carry out a study on pollution trends, but detailed research into the causes could take years.

"Research to base environmental policies on requires a lot of time and money," said Hajime Akimoto, programme director at the Japan Agency for Marine-Earth Science and Technology, noting that the United States spent a decade on research before it took steps against cross-border pollution.

"Research like that in Japan could take another five years."

As a first step, government officials say Japan is working together with China to measure its pollution, although the country still lacks high-tech equipment to analyse some pollutants such as ozone.

Ohara at the National Institute of Environmental Studies said the region could in future look to the example of the Convention on Long-Range Transboundary Air Pollution, an agreement to cut pollution under the UN Economic Commission for Europe signed by countries such as the United States and Canada.

"If it becomes clear that the effects of cross-border pollution are big, then it will be imperative to create international regulatory rules within East Asia, similar to Europe," he said.

Thursday, August 16, 2007

J.K. Galbraith talks about the economics of climate change

Interesting article from Galbraith slipping in some fine economics into the climate change debate.

This phrase is pretty much the crucial element to the discussion:

"We must be careful not to enact policies that will unnecessarily impose a financial burden on American families."

While climate change skeptics but no longer be "science skeptics" they are now merely "economic skeptics". I am not sure which is worse but hopefully climate change economics will catch up with the science.

The crucial issues for economics are touched on my Galbraith:

"Why, they ask, should we sacrifice in order to help future generations, who will have all the benefits of technical progress and economic growth yet to come?"

It is the numbers behind the statement above that are crucial but what sort of value can you put on "global catastrophe?" A fairly large one I imagine.

Finally, Galbraith brings up the line:

As Al Gore said before Congress on March 21: "The best way—and the only way—to get China and India on board is for the U.S. to demonstrate real leadership."

This is the rub. India and China are a problem but the current situation is not their fault and they still have enormous levels of poverty to grow out of. Galbraith's "planning" discussion is an interesting one.

Market Meltdown: Understanding Climate Economics

Eight years ago in Austin, Texas, pio­neering climate economist Eban Goodstein drew a thin crowd speckled with hecklers, whose buttons demanded, "Show Me the Science!" When he returned this year, the deniers were gone, the room packed, the mood serious. Thanks to Al Gore, people get the science. Now, they want to know what to do.

To this, Republicans in Congress answer: nothing. House Minority Leader John Boehner (R-Ohio) has appointed six members to the new climate change committee. Most of them had been global-warming skeptics; now they're policy skeptics. As Rep. John Shadegg (R-Ariz.) stated: "We must be careful not to enact policies that will unnecessarily impose a financial burden on American families." Their new button reads: "Show Me the Economics!"

The British government's Stern Review Report on the Economics of Climate Change is the place to turn for a deep seminar on such matters. Up front, we find these simple words: "Climate change presents a unique challenge for economics: It is the greatest and widest-ranging market failure ever seen." The Stern Review outlines the economic costs of climate change (declining food and water supplies, coastal flooding, storm damage, the extinction of up to half of all land species), the distribution of those costs (to be borne most acutely by poor subsistence farmers), and the economic ethics of why the rich must act to help the poor and why the present must act to protect the future.

Climate-policy skeptics love to dwell on questions like these. To them, the cost of any policy weighs heavily because we pay that cost now, while the benefits will come later and accrue to others. Why, they ask, should we sacrifice in order to help future generations, who will have all the benefits of technical progress and economic growth yet to come? Because, as the Stern Review makes clear, if CO2 isn't stabilized soon, then catastrophe is certain. And extinctions and sea-level changes cannot be reversed by the wealth that might be created in the next 50 years. Facing the judgment of history, no ethical standard entitles us to condemn the future to a hot, dry, famished, and flooded world. For this reason, we must treat the costs and burdens of climate change as if they are already falling on us.

And that's the rub: They aren't. The market's real failure is that it allows for no signal from the future to the present, either from the conditions that will exist 30 years hence or from the people who will be alive and working then. The question becomes: Can we really create a market in which those far-off voices are effectively heard?

Mainstream climate change economics assumes so. "Establishing a carbon price, through tax, trading or regulation, is an essential foundation for climate-change policy," the Stern Review posits. This makes some sense. After all, markets and taxes encourage cheap solutions, and there is plenty of low-hanging fruit. For a start, why not replace state sales and federal payroll taxes with carbon taxes? A cap-and-trade system would lead industry to use low-emissions technologies more and high-emissions technologies less. Business leaders are rallying behind a "carbon price." Fine. Give it to them.

But is tinkering with the market enough? According to the Stern Review, stabilizing atmospheric carbon at 550 parts per million requires cutting total emissions by a quarter by 2050, in the face of population and economic growth. Many experts, including nasa's top earth scientist, James Hansen, favor even more drastic reductions. Goodstein simplifies bluntly: We have 30 years to get the gasoline out of cars and the coal out of power plants, a goal beyond the power of markets.

Market policies rely on competition, and are responsive only to prices. But corporations such as ExxonMobil and txu like to run the world as they see fit. Should we guarantee to them the kind of profits they earn in a carbon-based energy world, as carbon pricing might do? Can they be trusted to invest those profits correctly? No. A real climate solution must shrink some industries and grow others, and that means changing the distribution of profits. Exactly how is something we need to plan.

"Planning" is a word that too many in this debate are trying to avoid, fearful, perhaps, of its Soviet overtones. But the reality of climate change is that central planning is essential, and on a grand scale. It would start with tens of billions of dollars in research to determine what is feasible, what is socially tolerable, and at what cost. A National Institute for Climate Engineering would be a good start. Departments of climate engineering at major universities would follow. Presidential candidates should take the lead by proposing a cabinet department of climate planning.

What then? Which new technologies would get taken up and how quickly? Part of the answer is public investment, big-time—in cities and the ways they use power, in transportation and the energy used for it. Mandatory changeovers in technology would follow. Fuel efficiency, building efficiency, urban density, transportation modes, and requirements for renewable energy must all be part of the mix. Cities from Austin to New York, and states—notably California—are already leading the way. But the laggards—Texas emits more carbon dioxide than California and New York state combined—will determine whether carbon emissions are sufficiently reduced.

So the real test will be whether national decisions are made and enforced. Mandates force the pace of technical change, lower unit costs, and help businesses with their own plans for technical transitions. Plans provide clarity and reduce risk, an essential step in making things happen. Of course, planning can be authoritarian, and planners make mistakes. Much of what goes into a national plan, especially at first, may be wasted. But so what? Waste and inefficiency are part of human endeavor, and markets do not protect against them.

What counts is not whether every single decision is wise. What counts is the possibility that we might prevent catastrophe and at the same time keep people employed and life tolerable, decades and centuries hence. What counts is not the economy we have, but a new economy that we, and future generations, can live with.

It's our job, too, to blaze trails for the rest of the world. As Al Gore said before Congress on March 21: "The best way—and the only way—to get China and India on board is for the U.S. to demonstrate real leadership." This is a worthy mission. Hostile to central planning though we are, we are ironically the only country with the capacity to plan and to change on such a scale. We are also the only country empowered by the world—through its willingness to hold our debts at low interest rates—to pay for it. And we are the only country that can concentrate the scientific, technical, and economic talent necessary to pull it off.

Tuesday, August 14, 2007

Climate Change Protests Mushrooming

In the UK there is blanket coverage of the Heath row climate change camp. The camp is entirely peaceful and may well end up remaining so yet the press are swarming all over the site hoping that something kicks off. It is a shame that it is only direct action that grabs headlines that gets in the news.

The most frustrating aspect of this whole "camp" is the fact that the local residents or NIMBYs are joining in undermining the entire ethos of the camp. The local residents are merely selfish inviduals with no real regard for climate change. Would any of them be at a camp in Birmingham or Manchester if a new runway was being built at one of these airports? They are simply interesting in their own house prices and personal wealth. They do nothing to help the cause.

Given the weather forecast is for 2 days or rain in the UK in the middle of summer it is little surprise that families are paying £5 to fly to Spain. The camp could get very muddy very quickly.

Eco-village with a stark warning[BBC article on the above]

From the inbox it is also clear that the US has its own protesters. My favorite protest sign is "No Coal, No Nukes, No Kidding". What does it mean?

Activists Mobilize and Protest Amidst Overwhelming Police Presence
Police spend thousands to protect dirty energy

Today, a massive police operation was deployed in Buncombe, Henderson, and Transylvania Counties to prevent activists from protesting a dirty power plant responsible for climate change. Dozens of uniformed and undercover cops surrounded the site of the Southeast Convergence for Climate Action as a police helicopter hovered over the site.

In addition, dozens more police were deployed at Progress Energy's Skyland coal power plant to prevent legitimate protest against dirty energy and climate change. "This shows which side of the climate debate the government is on. They have spent tens of thousands of dollars to protect the coal industry today. Clearly if the government wanted to address climate change, they would be sending the police in to arrest the heads of Progress Energy for perpetuating the greatest threat humanity has ever faced - climate change," an anonymous polar bear said.

In spite of the overwhelming police presence, Climate Convergence activists took a bold direct action against Bank of America over concerns regarding their investment throughout the coal cycle and their promotion of climate injustice. Although there was much speculation regarding a protest action at the Progress Energy Skyland coal-fired power plant, protestors surprised the downtown office of Bank of America.

Two activists locked down inside the main lobby and other activists blockaded the entrance to the downtown branch of Bank of America. The protest included a large, lively group of concerned citizens dressed as canaries and polar bears. Activists carried signs and banners that read: "Bank of America Stop Funding Climate Change," "Bank of America Stop Mountaintop Removal," "No Coal, No Nukes, No Kidding" "Bank of America Climate Criminal."


High Resolution photos can be found here: http://www.flickr.com/photos/92595718@N00/sets/72157601420391179/

Thursday, August 09, 2007

Research Paper: "Pollution and Crime in the US"

In a follow-up to the Levitt "crime" papers, it now seems that it is falling lead levels that are responsible for the dramatic drop in US crime rates.

This result suggests that your average political economy theorist is in a bit of a bind.

See below the abstract for an interesting Washington Post article on this topic.

------------------

"Environmental Policy as Social Policy? The Impact of Childhood Lead Exposure on Crime"

NBER Working Paper No. W13097


Contact: JESSICA WOLPAW REYES
Amherst College - Department of Economics, National
Bureau of Economic Research (NBER)
Email: jwreyes@amherst.edu
Auth-Page: http://ssrn.com/author=679479

Full Text: http://ssrn.com/abstract=986947

ABSTRACT: Childhood lead exposure can lead to psychological deficits that are strongly associated with aggressive and criminal behavior. In the late 1970s in the United States, lead was removed from gasoline under the Clean Air Act. Using the sharp state-specific reductions in lead exposure resulting from this removal, this article finds that the reduction in childhood lead exposure in the late 1970s and early 1980s is responsible for significant declines in violent crime in the 1990s, and may cause further declines into the future. The elasticity of violent crime with respect to lead is estimated to be approximately 0.8.


Washington Post.

http://www.washingtonpost.com/wp-dyn/content/article/2007/07/07/AR2007070701073.html

The theory offered by the economist, Rick Nevin, is that lead poisoning accounts for much of the variation in violent crime in the United States. It offers a unifying new neurochemical theory for fluctuations in the crime rate, and it is based on studies linking children's exposure to lead with violent behavior later in their lives. What makes Nevin's work persuasive is that he has shown an identical, decades-long association between lead poisoning and crime rates in nine countries.

"It is stunning how strong the association is," Nevin said in an interview. "Sixty-five to ninety percent or more of the substantial variation in violent crime in all these countries was explained by lead."

Through much of the 20th century, lead in U.S. paint and gasoline fumes poisoned toddlers as they put contaminated hands in their mouths. The consequences on crime, Nevin found, occurred when poisoning victims became adolescents. Nevin does not say that lead is the only factor behind crime, but he says it is the biggest factor.
Giuliani's presidential campaign declined to address Nevin's contention that the mayor merely was at the right place at the right time. But William Bratton, who served as Giuliani's police commissioner and who initiated many of the policing techniques credited with reducing the crime rate, dismissed Nevin's theory as absurd. Bratton and Giuliani instituted harsh measures against quality-of-life offenses, based on the "broken windows" theory of addressing minor offenses to head off more serious crimes.

Many other theories have emerged to try to explain the crime decline. In the 2005 book "Freakonomics," Steven D. Levitt and Stephen J. Dubner said the legalization of abortion in 1973 had eliminated "unwanted babies" who would have become violent criminals. Other experts credited lengthy prison terms for violent offenders, or demographic changes, socioeconomic factors, and the fall of drug epidemics. New theories have emerged as crime rates have inched up in recent years.

Most of the theories have been long on intuition and short on evidence. Nevin says his data not only explain the decline in crime in the 1990s, but the rise in crime in the 1980s and other fluctuations going back a century. His data from multiple countries, which have different abortion rates, police strategies, demographics and economic conditions, indicate that lead is the only explanation that can account for international trends.

Because the countries phased out lead at different points, they provide a rigorous test: In each instance, the violent crime rate tracks lead poisoning levels two decades earlier.

"It is startling how much mileage has been given to the theory that abortion in the early 1970s was responsible for the decline in crime" in the 1990s, Nevin said. "But they legalized abortion in Britain, and the violent crime in Britain soared in the 1990s. The difference is our gasoline lead levels peaked in the early '70s and started falling in the late '70s, and fell very sharply through the early 1980s and was virtually eliminated by 1986 or '87.

Wednesday, August 08, 2007

Top 10 Environmental Economics Blogs

Top 10 Environmental Economics Sites

In response to a request here is “Globalisation and the Environment’s” top 10 sites for Environmental Economics (there are actually 11). Whenever you read these “I can help you blog” sites they always (repetitively) tell you that “lists of other blogs” are a great way of driving traffic to a site (and we're not proud).

This ranking is based on a number of criteria outlined below:

· “Click order”. My reader currently has 76 feeds covering my various interests including environmental economics. The greatest weighting in this ranking is the “click order”. If I have a spare 30 minutes (rare in academia of course) which sites do I read first? Often blogs with a too higher post frequency will not be clicked as the sheer amount of reading puts me off.

· “Borrow-ability”. The “re-posting” of previously posted stories via links and Hat-Tips is cheap and an obvious short cut to hard-core content blogging but it saves considerable time and can keep a blog ticking over when real life intervenes. As an economist my aim is to maximise good content finding related to globalisation and the environment in the quickest time. This ranking therefore reflects the “gold dust to dross ratio” or put simply, how many posts do I have to read before I find something worth “borrowing”.

· “Personality”. There are certain blogs where, after a while, you get a feel for the bloggers personality. This can work both ways of course but I give a higher ranking to blogs where I can relate to the sense of humour (or otherwise) of the blogger. Thus, blogs that occasionally throw in tit-bits of the bloggers real life make reading the blog more like a soap opera allowing the reader to vaguely care about how the story will unfold.

· “News”. The forth ingredient is whether a site keeps up with current news stories. Often such articles are posted without comment.

· “Academic”. As an academic one is always on the look out for inspiration for new research so I want to read some good heavy material once in a while (but not too often).


Top 10 Environmental Economics Blogs

1. Environmental Economics – Undoubtedly the “daddy” of environmental economics blogs. Scores highly in most categories and currently in “click” position 1. This site has an excellent balance of, post frequency, information content, personality, irreverence, humour and pointless stuff. There is a good banter between Tim Haab and John Whitehead and any blog that has so many alcohol related posts has to be a winner. By telling it as it is they give some excellent insights into academic life with their conference and crash and burn journal experiences (even though they are respected and well published academics). The blog’s content is US-centric though.

2. Environmental and Urban Economics – Matt Kahn’s blog is in click position 2 and scores highly for academic content and personality. A relatively low post frequency concentrating on quality is a strong plus point. The posts are a mix of environmental and urban economics. Matt also gives some excellent insights into academic life and a top quality publication record to match. His book “Green Cities” is an excellent read. Blog layout could do with a little tweaking.

3. Gristmill Blog – this is the first “mega” site included in this ranking. “The Grist” is an online magazine covering environmental news and commentary. The blog has a large number of posters so scores lowly on personality and academic quality. It also has far too many posts so I can only face reading it once in a while to “catch up”. However, there are often a number of high quality posts hidden in the 200 posts I often have to read. David Roberts is one of the best posters.

4. Planet Ark – purely for providing news stories delivered conveniently to my email address daily. The posts are concise and high on relevant information thus scoring highly on “borrow-ability” where further insightful (in theory) comment can then be added.

5. Greg Mankiw’s Blog – perhaps controversially in at 5, Mankiw’s blog always has genuinely interesting posts covering all aspects of economics. He keeps the links short but maintains a high quality of comment and debate. There is also a surprising amount of environmental economics related material especially as he continues his worthy Pigovian tax crusade. Scores highly in all categories.

6. IPE Zone – primarily a political economy blog with the by line “Tales of Power, Money and Occasional Violence”. Emmanuel does a great job of posting news and commenting. Good post frequency and plenty of high quality environmental and Chinese related content.

7. Treehugger – the second “mega site” in this ranking. Not as good as Gristmill and too many posts on clothes and general green things but does have the occasional gem hidden amongst the adverts and pictures of cars. Very high post frequency puts me off reading too often. Recently sold for $10 million.

8. Conservation Finance – some interesting posts and a manageable post frequency. Often picks up some good news stories.

9. Ecological Economics – a highly academic blog with good quality posts or considerable length. Dave Iverson knows his stuff and it is interesting to get the “ecological” perspective on the current environmental debate.

10. Celsias – Not sure how I feel about this blog that is attached to a business and has 30 different posters. Very high post frequency but does cover all the latest news with some comment thrown in occasionally. A slick blog with a growing readership I believe. Craig Mackintosh does a good job as blog editor and has posted some good stuff in the past. For such a large operation it is not clear how it makes a profit. A bit too capitalist in nature for me.

11. Environmental Economics and Sustainable Development – Brad Ewing’s blog covering his thoughts on various environmental economics issues. Some interesting material not found elsewhere.

Other blogs that deserve a mention include The Temas Blog (South America), Natural Capital (inactive), Development Crossing (development news), In the Green, China Economics Blog, ResponsibleChina (CSR and environmental posts for China), Living in a Toxic World, It’s the Environment Stupid (few posts), Economist’s View (good general economics) and Sustainablog.

edit: China Dialogue is also good for China/Environment issues.

Comments and suggestions welcome and apologies if I have missed anyone out.

Tuesday, August 07, 2007

Treehugger sells for $10 million

Treehugger, the excellent "green" website with the goal of "helping to push sustainability into the mainstream" has just been sold for $10 million to Discovery Communications.

Treehugger is one of my top 10 environmental economics websites (but not in the top 3).

Given that Treehugger has 1.4 MILLION unique users per month and is sold for $10 million must mean, using simple statistics, that this website "GLOBALISATION AND THE ENVIRONMENT" must be worth upwards of the magical "$100" figure. Offers welcome.

TreeHugger Acquires Discovery Communications
Close to four years ago, TreeHugger was founded with the goal of helping to push sustainability into the mainstream. Today, as an award-winning Top 20 blog having served over 50 million pages, we like to believe that we've played a part in pushing green towards its tipping point. Today, we are proud to announce another big step toward that goal; Discovery Communications has acquired TreeHugger.

We suspected that at a certain point in TreeHugger's life that we would need to attract significant investment or partner up with a large media organization if we
were to really take our message to the masses and fulfill our mission. Over the last year, we were approached by over 15 large companies interested in playing this role. We had many conversations and concluded that we needed a partner with a sizeable, international audience, a kindred brand and a high level commitment philosophically and financially to green.

From "Cold War" to "Warming War"

This post is derived purely from my discovery of the term "Warming War".

After decades of the "cold war" with its childhood drills that required us to do something (I forget what) while the nuclear siren on top of our school roof was tested (and to discuss in detail what we would do if we had 3 minutes to live), it is interesting to see how we have progressed neatly to what has been called the "Warming War".

It is true that it is now chimneys, SUVs and petrol prices where the new war is being waged. I suspect it will not be long before the "Warming War" hots up.

- Climate change induced migration and the pressures on populations and governments (both sending and receiving countries)

- The scarcity of water resources

are just two possible triggers.

The battle will be between:

(1) Developed and "dirty" countries e.g. US/Australia

(2) Developing and "dirty" countries e.g. India and China

(3) Developed and "Clean" countries e.g. some EU countries

(4) Developing and "Clean" countries e.g. most of Africa

There are going to be some winners and some very large losers in the up and coming "warming war". I suspect the losers will be those with the smallest voices.

From Cold War to the Warming War [The Globalist]

Moving towards the "Warming War"

The world has moved from a global threat once called the Cold War, to what now should be considered the “Warming War.” Our conflict is not with guns and missiles but with weapons from everyday lives — chimney stacks and exhaust pipes. We are confronted with a chemical war of immense proportions.

With regard to energy, it is clear from the ongoing world crisis that the security dimensions of prohibitive access to — and use of — sources of energy must be addressed. The world needs a mix of energy sources that is easily accessible to all countries and communities.


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$533 billion climate change scare story

No wonder support for dramatic action to curb the excesses of US energy consumption to aid the reduction of greenhouse gases is on the weak side among US consumers, politicians and producers when figures like this are thrown about.

I am too lazy to do the maths but $533billion over 21 years as a percentage of total US output is probably not that severe and could be achieved. Moreover, the figure is probably way out. The US has one of the most adaptable and dynamic economies on the world - it would not surprise me to see the US benefiting as it becomes the technological leader in all things "green" leading to a stronger and cleaner economy in the long run. The Porter hypothesis (that increased regulations can lead to increases in output and not reductions) is well known.

These stories are of little help. There is widespread academic support for increased gasoline (petrol) prices in the US - such scaremongering undermines this worthy Pigovian cause.

Senate Climate Bill Shaves $533 Billion Off US Economy

WASHINGTON - A Senate bill to cut US greenhouse gas emissions would raise energy prices and also reduce American economic output by more than half a trillion dollars over two decades, according to a government report released Monday.

Congress is expected to consider climate legislation this fall that would fight global warming. Many businesses worry the US economy would suffer under a measure to impose tough mandatory cuts in emissions.

One proposal, introduced by Sens. Joseph Lieberman and John McCain, would gradually reduce total US emissions by the year 2050 to 60 percent below 1990 levels.

The bill would require companies to report their yearly greenhouse gas emissions and submit a matching number of government-issued allowances to equal the emissions spewed. Companies that emit more would have to buy allowances from cleaner companies that produce fewer emissions.

However, the proposal would cut into the US economy and raise gasoline and other energy prices paid by consumers, according to an analysis of the legislation by the Energy Information Administration.

The legislation "increases the cost of using energy, which reduces real economic output, reduces purchasing power, and lowers aggregate demand for goods and services," the EIA said.

With companies trying to meet the shrinking emissions levels, US economic output would be $533 billion lower over the 2009 to 2030 time period, the agency said.

In the transportation sector, gasoline and other petroleum products would cost more as oil refiners buy allowances to cover the emissions spewed by their facilities.

"The cost of the allowances will be included in the prices of the fuels," the EIA said.

Gasoline prices are forecast to be 23 cents a gallon higher in 2020 and 41 cents more in 2030 because of the required emission cuts, the agency said.

The EIA said the fuel price increases would not be large enough "to create dramatic shifts in consumer behavior," but there would be more demand for fuel efficient vehicles.

Coal would have the highest cost increase, rising 129 percent by 2020 and 245 percent by 2030, because burning coal, especially to fuel power plants, results in large emissions of greenhouse gas emissions that would require expensive allowances to offset.

As a result, average electricity prices would be 10 percent higher in 2020 and 21 percent higher in 2030, the EIA said.

Thursday, August 02, 2007

Does Pollution Increase School Absences?

A "must read" paper.

My continuing gripe is that US data are so much better than we have in Europe otherwise this is the sort of study that we would like to do. Anyone who has equivalent UK or EU data should drop us a line.

Does Pollution Increase School Absences?
Janet Currie, Eric Hanushek, E. Megan Kahn, Matthew Neidell, Steven Rivkin

Abstract

We examine the effect of air pollution on school absences using unique administrative data for elementary and middle school children in the 39 largest school districts in Texas. These data are merged with information from monitors maintained by the Environmental Protection Agency. To control for potentially confounding factors, we adopt a difference-in-difference-in differences strategy, and control for persistent characteristics of schools, years, and attendance periods in order to focus on variations in pollution within school-year-attendance period cells. We find that high levels of carbon monoxide (CO) significantly increase absences, even when they are below federal air quality standards.

H/T: Borjas Blog