Thursday, September 25, 2008

Rich to pay the poor to preserve forests?

As the new term begins and preparation for Environmental Economics lectures starts again it is time to dust off the debate on whether rich nations should pay poor nations to preserve their forests. Logically it makes sense but the coordination and free riders problems will undoubtedly prove too great.

Some of the numbers in this article should give pause for thought. The Greenpeace plan has some merit but numerous, potentially insurmountable, hurdles remain.

The new "Green Inc" blog of the New York Times reports:

How Pollution Might Help Preserve Forests [Green Inc]

There is a growing group of campaigners and business leaders who say the rich world should pay people in poorer countries to preserve their forests and jungles.

Those in favor of such a wealth transfer say there’s a global imperative behind paying our neighbors in tropical regions a fair price to be good custodians of their trees. Tropical forests pay a crucial role in absorbing carbon dioxide — the main greenhouse gas. Chopping down trees releases large amounts of such gases.

If current rates of deforestation continue in Brazil and Indonesia, that would cancel out 80 percent of the cuts in emissions made by countries that meet their targets under the Kyoto climate treaty, according to Robert Glasser, the secretary general of CARE International, an aid organization.

Mr. Glasser, speaking with me on Wednesday in Brussels, said CARE is involved in efforts to put a price on forests because there is growing evidence of a link between climate change and poverty, particularly in cases of higher incidences of drought and disruptions to agriculture.

The question now is how to pay the bill.

The environmental group Greenpeace says it has the solution: An initiative called Forests for Climate that would aim to raise as much as $15 billion per year to cut emissions from deforestation in half. (A PDF overview of the proposal is here.)

Greenpeace wants governments agree to direct some of the money they raise from selling and giving away pollution rights — such as the allowances issued by European governments that permit companies to emit an annual quota of CO2 — and put that money into a new fund to pay other countries to save forests.

Greenpeace says its fund would be open to all countries with tropical forests, preventing the timber industry from shifting from one country to the next.

Other people say those kinds of initiatives, which require governments to forgo some potential revenues, are important but insufficient.

“Important aspects of preserving forests and planting new trees will be much more effective through markets,” said Virgilio Mauricio Viana, the director general Amazonas Sustainability Foundation, a non-profit group founded by the Brazilian state government of Amazonas and Bradesco Bank.

Mr. Viana is working with Glasser of CARE, a group called the World Agroforestry Centre, and a company, Sustainable Forestry Management, to ensure that European Union lawmakers adopt rules that encourage the growth of new markets for “carbon credits” derived from forests.

That, of course, would expand the opportunities for rich countries and rich-world companies to offset their emissions from dirty coal and inefficient cars by buying credits on international carbon markets.

One potential hitch, as I see it, is that those markets still are in their infancy and have been strongly criticized for failing to push up the price of polluting to levels where companies and citizens responsible for most of the planet’s harmful emissions actually change their behavior.


Thursday, September 18, 2008

EU fisheries update

Ahead of the start of the academic term there is a timely reminder of the state of EU fisheries with quote busting and illegal catches still prevalent.

EU Fisheries Policy Not Working, Needs Review [PlanetArk]

BRUSSELS - EU regulators on Wednesday called for a full-scale review of EU fisheries policy, saying current rules were doing little to curb overfishing, quota busting and other illegal fishing practices.

EU fisheries policy was last reformed in 2002 and is due for review by 2012 at the latest. While much had improved since 2002 -- much stricter controls on illegal fishing, for example -- there were many shortcomings, the European Commission said.

Short-term decision-making coupled with irresponsible behaviour by certain parts of the fishing industry in the European Union had penalised those fishermen acting for the common good, it said.

The result was a vicious circle that undermined both the ecological balance of the oceans and the economic profitability of the fisheries sector, it said in a statement.

Many species -- cod and hake, for example -- are depleted in certain EU waters due to years of chronic overfishing, exacerbated by poor controls and fines that, until recently, were not set high enough to deter lawbreakers.

"In its current form, the CFP (Common Fisheries Policy) does not encourage responsible behaviour by either fishermen or politicians," EU Fisheries Commissioner Joe Borg said.

"The management tools we use reward narrow-minded, short-term decision-making, which has now undermined the sustainability of our fisheries," he said in the statement.

In May, the Commission signalled all was not well in the fisheries sector when it issued a policy statement changing the basis for calculating its proposed fish catch volumes for 2009 and said 88 percent of EU fish stocks were overexploited.

That huge number compared with 80 percent at the same stage last year and a global average of just 25 percent, it said. The stocks situation was "alarming" and bold action was needed.

Europe's share of fish products from domestic resources had also fallen from 75 percent in the early 1970s to 40 percent now as it depended more and more on imports, it said.

Scientists say that unless fishing is curbed, or in some cases stopped altogether, many species in EU waters risk extinction. Cod is a prime example, especially in the North Sea and off the west coast of Scotland.

But the Commission usually shies from proposing outright fishing bans or a "zero catch", fearful of the economic impact it would have on small coastal communities that depend on fishing for their livelihood.

In any case, if the Commission does suggest quota cuts, they usually get diluted down by EU ministers who have to agree the final numbers before the next year's quotas enter into force. (Editing by Sami Aboudi)


Wednesday, September 17, 2008

"residents panic"

The "economics of natural disasters" is catching my eye at the moment (although the economics of financial disasters would probably be a more lucrative area to go into these days).

As such I was taken by a recent headline to a very short piece in PlanetArk reporting on a recent earthquake in East Timor.

Quake Hits East Timor, Residents Panic [PlanetArk]

"People panicked and rushed out from their houses," said Caitano Guterres, a resident in Baucau, about 75 km northeast of Dili.

First, did the residents really "panic"? What do people tend to do in earthquakes and what does a panicking resident actually look like. I assume it means that they were running around very fast waving their hands in the air and screaming or does it mean something else.

Given the imminent collapse of the capitalist system as we know it I expect we need to look for the signs of panic everywhere. I suspect wall street would be a good place to spot "panicking residents" assuming that their Manhattan lofts have not been repossessed depriving them even of the word "resident".



Monday, September 15, 2008

Lehman Brothers lets carbon sink (without trace)

The day the big banks fell cannot pass without a Lehman Brothers related post.

Whilst thousands are losing their jobs we must consider the environmental implications. One of the most obvious is the closure of the carbon trading desk. This is basically a none story cooked up by journalists looking for an environmental angle.

Lehman Brothers Shuts Carbon Trading Desk [PlanetArk]

LONDON - Lehman Brothers shut down its carbon emissions trading desk after the bank filed for bankruptcy protection, a source close to the company told Reuters on Monday.

"Everything's stopped, blocked ... it's a bit anarchic," he said.

Lehman declined to comment on the matter.

The US investment bank filed for Chapter 11 protection on Monday while Merrill Lynch, also plagued by toxic, mortgage-related debt, agreed to be bought by Bank of America Merrill's carbon desk was open as usual on Monday, a source familiar with the bank said.

Lehman's membership on the IntercontinentalExchange, which includes access to the European Climate Exchange, the world's largest emissions trading exchange, was suspended, an ICE spokesman said.

This effectively disallows Lehman from closing any open positions on its trading books.

LCH.Clearnet, which handles clearing for ICE, also restricted Lehman's trading, citing the company as a "defaulter", the clearing house said in a statement.

"Lehman's were relatively small, they were late coming into the (emissions) market," one London-based broker said, adding that Lehman is thought to have been more involved in the Clean Development Mechanism (CDM) market than in day-to-day trading.

In the US$13 billion CDM market, a trading scheme under the Kyoto Protocol, companies from rich nations can invest in clean energy projects in developing countries and in exchange receive offset credits, called CERs, which they can use toward emissions targets or sell for profit.

Lehman has stakes in up to 10 CDM projects, the first source said. "There are some very good projects in the pipeline," he said, adding that they would probably be sold by liquidators.


The projects, mostly in China, are expected to generate 10 million to 12 million CERs by 2012, worth up to 275 million euros (US$385.4 million) at current market rates.

The source said the projects are of high quality and not involved in the destruction of hydrofluorocarbons (HFCs), a lucrative trade considered controversial by many in the emissions market.

One potential implication of Lehman's demise is the effect felt by those on the other side of these CER deals, often small companies in developing countries.

"If Lehmans have entered into direct contracts with counterparties in the developing world, chances are these contracts are probably not that complex," the broker said.

"Provisions in the case of bankruptcy probably won't have been included unless Lehmans introduced them unilaterally ... to protect themselves in case of the small (project owner) declaring bankruptcy," he said, adding that these provisions may now have backfired against Lehman.

European emissions markets were lower on weakness across the global energy markets on Monday.

European Union Allowances for December delivery lost one euro or 4.2 percent at 22.90 euros a tonne on volume of 2,300 lots traded. Benchmark CERs lost close to three percent at 19.20 euros a tonne.

Environmental protection, the economy, and jobs

Having done some work on this topic for the UK this study by Roger Bezdek is of interest.

Bezdek, Roger (Lead Author); Tom Tietenberg (Topic Editor). 2008. "Environmental protection, the economy, and jobs." In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment).

Environmental protection, the economy, and jobs

The relationship between environmental protection, the economy, and jobs has been an issue of harsh contention for decades. Analysts and policymakers of all points of view seem to agree that a strong relationship exists between environmental protection and jobs; the debate is over the sign of the correlation coefficient. Does environmental protection tend to harm the economy and destroy jobs or to facilitate economic growth and create jobs? If the latter is the case, can the positive affects be quantified and estimated at a meaningful level of detail?

Here we address this issue by summarizing the initial results of the Jobs and the Environment Initiative, a research effort funded by nonprofit foundations designed to quantify the relationship between environmental protection, the economy, and jobs. We estimate the size of the U.S. environmental industry in 2003 and the numbers of environment-related jobs created at the national level and in the states of Florida, Michigan, Minnesota, North Carolina, Ohio, and Wisconsin.

The problem is identifying what is a green job. Here I agree with the authors:

More specifically, what constitutes an “environmental job?” While a definitive analysis of this important topic is outside the scope of this report, our review of the literature indicates that there is no rigorous, well-accepted definition of an environmental job. Rather, the definitions used are often loose and contradictory.

This paper tries but I remain unconvinved. It is still a useful reference that I will need to return to (hence this post).



Infant health and pollution

Back from the European Trade Study Group conference in Warsaw, Poland. There was a couple of environmental sessions with some interesting papers.

We kick off again with a paper on infant health and pollution. They clearly have an excellent data set enabling the authors to get a good handle on the issue. Carbon monoxide is the main air pollutant that causes the damage. I need to read the paper to get a better understanding of the magnitude of the effects which are clearly crucial.

Air Pollution and Infant Health: Lessons from New Jersey

Date: 2008-07
By: Janet Currie
Matthew J. Neidell
Johannes Schmieder


We examine the impact of three "criteria" air pollutants on infant health in New Jersey in the 1990s by combining information about mother's residential location from birth certificates with information from air quality monitors. In addition to large sample size, our work offers three important innovations: First, because we know the exact addresses of mothers, we select those mothers closest to air monitors to ensure a more accurate measure of air quality. Second, since we follow mothers over time, we control for unobserved characteristics of mothers using maternal fixed effects. Third, we examine interactions of air pollution with smoking and other predictors of poor infant health outcomes. We find consistently negative effects of exposure to pollution, especially carbon monoxide, both during and after birth. The effects are considerably larger for smokers than for nonsmokers as well as for older mothers. Since automobiles are the main source of carbon monoxide emissions, our results have important implications for regulation of automobile emissions.
JEL: I12 Q53


Monday, September 08, 2008

Toxic Linfen: Inside the most polluted city on earth

VBS.TV go on a trip to Linfen to check out the pollution. Part 1 of 6. Only 5 minutes.

Breathing is equivalent to smoking 3 packets of cigarettes. Nice.

Other 5 parts can be seen here as well.

Screaming Americans cry for the dead trees (and rocks)

This is a funny video.

The conspiracy theorists could even claim that this was paid for by big oil to discredit treehuggers everywhere.

Hippies Wail for Dead Trees - Watch more free videos

Friday, September 05, 2008

Global Temperature Trends

For all the talk of "global warming" let us look at some facts and figures like good economists.

Trevor Breusch and Farshid Vahid from ANU do just that in a working paper published at the end of July.

I think it tells us that global warming is real. Or does it?



Are global temperatures on a warming trend? It is difficult to be certain about trends when there is so much variation in the data and very high correlation from year to year. We investigate the question using statistical time series methods. Our analysis shows that the upward movement over the last 130-160 years is persistent and not explained by the high correlation, so it is best described as a trend. The warming trend becomes steeper after the mid-1970s, but there is no signi…cant evidence for a break in trend in the late 1990s. Viewed from the perspective of 30 or 50 years ago, the temperatures recorded in most of the last decade lie above the confi…dence band of forecasts produced by a model that does not allow for a warming

So let us cut past the equations and pictures and get to the meat. What is the conclusion?


We conclude that there is sufficient evidence in temperature data in the past 130-160 years to reject the hypothesis of no warming trend in temperatures at the usual levels of signifi…cance. The evidence of a warming trend is present in all three of the temperature series and it is most pronounced in NASA’s GLB series. Although we have used unit roots and linear trends as a coordinate system to approximate the high persistence and the drift in the data in order to answer the questions, we do not claim that we have uncovered the nature of the trend in the temperature data. There are many mechanisms that can generate trends and linear trends are only a …rst order approximation (see Granger 1988). It is impossible to uncover detailed trend patterns from such temperature records without corroborating data from other sources and close knowledge of the underlying climate system. warming is real but is it caused by mankind's exploitation of the earth's resources and relentless pursuit of growth at all costs or is it just kind of happening as part of the natural ebb and flow of the earths atmosphere over millions of years? Will mankind survive long enough to find out the answer?


Death by Turbine: exploding bat lungs

SO you thought wind power was the future? Not if you are a small furry mammal with fangs it isn't. H/T to Common Tragedies for pointing out a recent Scientific American article on bat deaths due to wind turbines.

There is something about the concept of exploding lungs at high altitude that make this article blogworthy.

On a Wing and Low Air: The Surprising Way Wind Turbines Kill Bats [Scientific American]

Instead, 90 percent of the 75 bats the researchers ultimately dissected had been killed by burst blood vessels in their lungs, according to results presented in Current Biology—suggesting that the air pressure difference created by the spinning windmills had terminated them, not contact with the blades.

So where is the science bit:

As the wind moves through a wind turbine's blades, pressure drops behind them by five to 10 kilopascals (a pascal is a unit of pressure), and any bat unlucky enough to blunder into such an undetectable low pressure zone would find its lungs and blood vessels rapidly expanding and, quickly, bursting under the new conditions.

I think we still need a little more detail:

"If bats have a lungful of air as they fly through the air-pressure change, there's nowhere for the air to go," Baerwald explains. "The small blood vessels around the lungs burst and fill the lungs with fluid and blood."

The implications are potentially important. Building very high wind farms in bat migration zones may be a bad idea and certainly generates bad publicity. Bats have a good PR department and hundreds of dead flying mammals is bad for business and it turns out the Eco-system:

The full impact of these bat-killing pressure zones extends far beyond the wind farm, however. Such migrating bats travel from Canada as far as Mexico, eating thousands of insects en route, including crop pests such as moths and beetles. "They are one of the only things that fly around at night and eat bugs," Baerwald notes. "Bats killed in Canada could have a detrimental impact in America or Mexico. It's not local. It's an ecosystem-wide issue."


Wednesday, September 03, 2008

Methane Hyrates and Climate Risk

The energy needs to the US could be provided by the extraction of "Methane Hydrates" that lie temptingly close to the US coast. The problem? The extraction of methane hydrates could rapidly accelerate climate change and ultimately bring about a decline in civilisation as we know it.

Forbes comment:

Energy's Most Dangerous Game [Forbes]

All the energy America needs for the next 100 years lies under the sea off the coast of South Carolina. One problem: Digging it out could cause a global climate disaster.

Welcome to the final frontier in fossil fuels, the wild card in climate change theories and the dark horse in the scramble to secure access to clean energy. Meet methane hydrates, the world's most promising and perilous energy resource.

As you can see from the paragraph below, any human error on extraction could have very serious implications.

A substantial amount of evidence suggests that weakening the lattice-like structure of gas hydrates has triggered underwater landslides on the continental margin. In other words, the extraction process, if done improperly, could cause sudden disruptions on the ocean floor, reducing ocean pressure rates and releasing methane gas from hydrates.

A mass release of methane into the sea and atmosphere could have catastrophic consequences on the pace of climate change. More than 50 million years ago, undersea landslides resulted in the release of methane gas from methane hydrate, which contributed to global warming that lasted tens of thousands of years.

Even so, research continues across a wide range of countries. One can be sure a mistake is just around the corner. How big will it be?

Major government research initiatives have been launched in China, India, Germany, Norway, Russia, Taiwan and several other countries. The Japanese government has estimated that producing gas from methane hydrates is commercially viable when oil prices rise above $54 a barrel.

The bottom line is that mass extinction risk is very low and this industry will develop and take off and could again alter the geo-political landscape.


The environment is a luxury good shock

News from the FT that the environment takes a back seat when the economic going gets tough. This is the pointless conclusion from a pointless survey used to advertise an estate agent.

The result is entirely expected and is similar to the argument from developing countries that growth and poverty take priority over environmental issues.

Please don't print out this post - save paper.

Focus on green offices wanes [FT]

Environmental concerns such as energy efficiency have been pushed to the bottom of the agenda for UK companies as cost becomes increasingly crucial in the more difficult economic climate.

Rental cost is the key factor in the decision to take office space in central London, with energy efficiency and green issues cited as the least important consideration, according to research by Knight Frank, the property consultancy.

During the recent property boom, much was made of the drive by developers for more energy-efficient schemes, which had been hoped to command higher rents because of their green credentials.

However, green issues are more of a concern in a benign economic climate, becoming a luxury as circumstances change, the research suggests.

“While the green agenda and sustainability issues are fundamental to the future of office buildings ... as economic markets suffer such requirements become less of a priority to central London office occupiers,” said Bradley Baker, head of central London for Knight Frank.

The survey gave the retention of key staff as the next most important factor.


Monday, September 01, 2008

Greening US cities

Matthew Kahn and Ed Glaser have a new working paper out that is looking at the Greenness of Cities and CO2 emissions. This has some important policy implications for urban development.

The Greenness of Cities: Carbon Dioxide Emissions and Urban Development

Edward L. Glaeser
Harvard University - John F. Kennedy School of Government, Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

Matthew E. Kahn
University of California, Los Angeles (UCLA)

August 2008

Harvard Institute of Economic Research Discussion Paper No. 2161

Carbon dioxide emissions may create significant social harm because of global warming, yet American urban development tends to be in low density areas with very hot summers. In this paper, we attempt to quantify the carbon dioxide emissions associated with new construction in different locations across the country. We look at emissions from driving, public transit, home heating, and household electricity usage. We find that the lowest emissions areas are generally in California and that the highest emissions areas are in Texas and Oklahoma. There is a strong negative association between emissions and land use regulations. By restricting new development, the cleanest areas of the country would seem to be pushing new development towards places with higher emissions. Cities generally have significantly lower emissions than suburban areas, and the city-suburb gap is particularly large in older areas, like New York.

Working Paper Series


Environmental Taxes

A nice little summary paper looking at the role of environmental taxes in the UK. On the "to read" list. This could also be integrated into my second year ECON211 course.

Environmental Taxes

Don Fullerton
University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Andrew Leicester
Institute for Fiscal Studies (IFS)

Stephen Smith
University College London - Department of Economics

July 2008

NBER Working Paper No. W14197


This chapter provides an overview of key economic issues in the use of taxation as an instrument of environmental policy in the UK. It first reviews economic arguments for using taxes and other market mechanisms in environmental policy, discusses the choice of tax base, and considers the value of the revenue from environmental taxes. It is argued that environmental tax revenues do not significantly alter economic constraints on tax policy, and that environmental taxes need to be justified primarily by the cost-effective achievement of environmental goals. The chapter then assesses key areas where environmental taxes appear to have significant potential - including taxes on energy used by industry and households, road transport, aviation, and waste. In some of these areas, efficient environmental tax design needs to make use of a number of taxes in combination - a multi-part instrument.

JEL Classifications: H23, Q28
Working Paper Series

Environmental Spillovers at the EEA/ESEM

Now back from 5 days in Milan at the EEA/ESEM 2008 conference where there were 5 or 6 environmental economics sessions most global warming related.

The average quality of paper presented was decent and there was a wide range of speakers including many European PhD students and over 1200 economists that I had never heard of (and I am sure had never heard of me).

In Search of Environmental Spillovers

Facundo Albornoz, Matthew A. Cole, Robert J.R. Elliott and Marco G. Ercolani


There is an extensive literature that examines the relationship between foreign direct investment (FDI) and the productivity and competitiveness of domestic firms. Using estimation techniques from the productivity spillover literature, this paper tests for the presence of environmental spillovers from foreign firms. On the basis that foreign owned firms may encourage firms in their extended supply chain to improve their environment related management practices, evidence for the existence of environmental spillovers should be easier to find than productivity spillovers where firms naturally attempt to minimize intra-industry knowledge leakage. In this paper we show that first, foreign owned firms are more likely to implement environmental management systems (EMS) and second, that the presence of foreign owned firms in those sectors that a firm supplies can encourage good environmental practice. This is especially true if a firm is foreign, has high absorptive capacity, and operates in the presence of formal and informal networks.

JEL: D21, Q20, Q56.

Keywords: Multinationals, Environment, Firm Characteristics, Spillovers.

Normal blogging frequency can now resume and a month in Australia and 5 days in Milan.