Friday, October 29, 2010

Green accounting II

No sooner does one "green accounting" story come along then it is followed by another.
This time the world bank is putting in its twopeneth.

I have been covering green accounting in Econ101 for years but I expect this is a "deeper" integration.

"Embeding nature in the national accounts" sounds good to me although it certainly is not a "silver bullet". These are all small steps in the right direction.

World Bank Launches Scheme To Green Government Accounts
The World Bank on Thursday launched a program to help nations put a value on nature just like GDP in a bid to stop the destruction of forests, wetlands and reefs that underpin businesses and economies.

The five-year pilot project backed by India, Mexico and other nations aims to embed nature into national accounts to draw in the full benefits of services such as coastal protection from mangroves or watersheds for rivers that feed cities and crops.

"We're here today to create something that no one has tried before: a global partnership that can fundamentally change the way governments value their ecosystems," World Bank President Robert Zoellick told reporters in the Japanese city of Nagoya.

More than 100 ministers are in Nagoya for a U.N. meeting that aims to seal a historic deal to set new 2020 targets to combat the rapid loss of plant and animal species from deforestation, pollution, over-hunting and climate change.

One of the targets before the ministers is to agree to include the values of biological diversity into national development plans, or possibly national accounts.

"For economic ministries in particular, it's important to have an accounting measure that they can use to evaluate not only the economic value but the natural wealth of nations," Zoellick told Reuters in an interview.

"It's not a silver bullet. It's a way of trying to help people understand better in economic terms the value of natural wealth."

While economists try to get a handle on the value of nature, scientists are struggling to get a full picture of the variety of wildlife species around the globe as climate change, exploitation and pollution threaten "mass extinctions," a series of studies published on Wednesday showed.


Envoys at the Japan meeting, the product of years of negotiations, are trying to win agreement on a 20-point plan that aims to protect fish stocks, fight the loss and degradation of natural habitats and conserve larger land and marine areas.

Greater financing from rich nations, possibly through redirecting subsidies from the fossil fuel, fishing and other industries is key.

Envoys are also aiming to clinch by Friday a new pact that sets laws for the sharing of genetic resources between governments and companies, such as drug and agri-resources firms.

Poorer nations want greater controls to protect their environment and to potentially earn billions of dollars in extra revenue from the benefits of trees to fungi, insects to frogs.

Delegates and greens say the talks are making progress ahead of Friday's deadline but were still deadlocked on some issues and negotiations were expected to continue deep into the night.

"There is definitely a positive atmosphere," Norwegian Environment Minister Erik Solheim told Reuters. "Everyone wants to reach a consensus here."

The World Bank program will give developing countries tools to help them measure the value and benefits of their ecosystems. India's Environment Secretary Vijai Sharma said at the launch the tools would make impact assessments more objective when looking at bids by miners or steelmakers to set up operations in India.

India recently scrapped London-listed Vedanta Resources' plans to mine bauxite and expand its alumina refinery in Orissa over environmental concerns, worrying investors.

The government has also expressed concerns over a $12 billion steel mill planned by South Korean firm Posco.

The Bank and other groups also launched a "save our species" initiative in Nagoya aimed at getting businesses to contribute to new conservation fund.

"It's nice that you may have a tiger as a logo but what does it do for your logo if the tiger goes extinct?" Zoellick told Reuters.


Wednesday, October 27, 2010

Green accounting to tackle "greenwashing"

Although many undergraduate economics students go on to become accountants it is not an area of interest to many academic economists. However, when it comes to "greenwashing" the following post is of interest.

Software to Hold “Greenwashers” Accountable [Software advice]

Greenwash (verb, \ˈgrēn-wȯsh\) – to market a product or service by promoting a deceptive or misleading perception of environmental responsibility.

It’s no secret that “going green” has become the next big thing in the corporate world. Riding the wave of consumers’ growing interest in environmental sustainability, companies are launching major ad campaigns to tout their green credentials. But many of their claims are misleading or downright false. The ads are compelling, but how are we to know who’s telling the truth? “Greenwashing” is eroding the credibility of well-intentioned green businesses and turning would-be green consumers into skeptics.

It’s reminiscent of the challenge to hold corporations accountable for their financial reporting. While the recent financial crisis highlighted the shortcomings of our markets and reporting structures, the United States business community is still a leader in financial accounting, reporting and ethics. Our system is sophisticated, consisting of a combination of generally accepted accounting principles (GAAP), fairly rigorous government oversight, a massive industry of accounting professionals and mature accounting software technologies that keep track of every last dollar.

We must develop the same infrastructure for environmental accounting. The development of Enterprise Carbon Accounting (ECA) software is well underway, with roughly 60 vendors bringing solutions to market. ECA software enables companies to track their carbon footprint and the footprint of their suppliers as well as the impact of customer use of their products. It’s a promising innovation that can help us manage corporate America’s environmental footprint, but it’s still at the early stages of adoption. We need a number of things to happen for the ECA market to mature and develop environmental accounting to the same level as financial accounting.

So what will it take to develop the ECA software market and have the infrastructure necessary to hold greenwashers accountable? We think there are five key requirements to get us there:

* Clear government action on regulations;
* Adoption of carbon accounting principles;
* Expansion of “Scope 3” emissions accounting;
* Better business incentives to go green; and
* Demanding, informed consumers.


Monday, October 18, 2010

WTO-Related Matters in Trade and Environment:

This 2004 paper covers an issue of increasing importance in my mind. The failure of Copenhagen and the failure (so far) of the Doha round may in fact be partially explained by the need to bring negotiations on the environment and trade to the same table.

There are a complex set of interactions here and this paper sets the scene.

WTO-Related Matters in Trade and Environment: Relationship Between WTO Rules and MEAs [PDF]

Date: 2010
By: Aparna Sawhney

Environmental issues began to be systematically addressed in the WTO following the Decision on Trade and Environment taken towards the end of the Uruguay Round at Marrakesh in 1994. The Committee on Trade and Environment was established in the same year, with the explicit mandate to resolve environmental issues in the trading system. [WTO Research Series No. 5]

Keywords: Environmental, systematically. Trade, Environment,


Thursday, October 14, 2010

"Weather throws the punches but climate trains the boxer"

In a recent grant application those of us contributing had a long debate over the appropriate use of "weather" and "climate".

In the end it was clear we were talking about "weather" although it sounds far less "current" and interesting than using "climate".

We were talking about the economic impact of severe weather events (not climate events).

The quote "weather throws the punches but climate trains the boxer" now makes it all clear to me and would have saved a number of long email debates on the distinction between the two.

This quote came up when reading a review of a new book.

In a review in the TES the reviewer continues the boxer theme and suggests that some of climate change's heavyweight contenders have not even entered the ring yet. Rising sea levels are one such heavy weight.

This book is suitably doom-laden so should appeal to economists everywhere.

"At the end of the last Ice Age, for instance, oceans rose over 420ft over a few millennia, including one period when the process topped 15ft per century".

If the same speed of change occurred today it would be far harder for humans to adapt. Back them you would quite literally just "up sticks" and move inland.

Those economists who argue that even if man made climate change is real it does not matter because we can adapt would do well to read this book. There are practical limits to adaption under extreme scenarios.


Wednesday, October 13, 2010

"Economists, time to team up with the ecologists!"

A very fine title for a paper and this one is newly published in Ecological Economics.

The abstract seems to be blaming economists for a lack of interdisciplinary work. Economists get accused of this from virtually every discipline from what I can make out.

I am all for such joint work. Apparently ... "the easiest candidates for interdisciplinary teamwork in bioeconomics are therefore researchers who acknowledge ethical relativism."

I am not sure if I qualify or not but it sounds like I should acknowledge it.

For those less familiar with what ethical relativism actually is and write as follows:

Ethical Relativism is operating in a system of situational ethics. Thou shalt not steal, unless you get a chance to steal from a big corporation, the government or someone you don't like. You are faithful to your wife, except on business trips, when everybody cheats, right? Basically, it means being comfortable with shifting your ethics to meet the situation. I try to maintain my ethics in all situations, however though I believe in thou shalt not kill, ants, flies and roaches die if I find them in my house and if you break into my home and come up the stairs, you are a direct threat to my family's safety and I will blow you away with little to no warning. But since I know these are my ethics, family before thief, I do not consider that a case of situational ethics.
Also see "moral relativism".


In ethics, the belief that nothing is objectively right or wrong and that the definition of right or wrong depends on the prevailing view of a particular individual, culture, or historical period.

Do economists as a general rule reject ethical relativism? My guess is that we would be all for it. Sounds good to me.

Economists, time to team up with the ecologists!

Hilde Karine Wam

Department of Ecology and Natural Resource Management, Norwegian University of Life Sciences, Box 5003, 1432 Ås, Norway


Bioeconomic modeling is an increasingly relevant meeting arena for economists and ecologists. A majority of the growing literature, however, is written by economists alone and not with ecologists in true interdisciplinary teamwork. Physical distance between research institutions is no longer a reasonable justification, and I argue that, in practice, neither do the more fundamental philosophical oppositions present any real hindrance to teamwork. I summarize these oppositions in order of increasing magnitude as: 1) the axiom, held by many ecologists, of ‘irreducible complexity of ecosystem functioning’, which is avoided simply because the ecological ‘whole’ (as opposed to its ‘parts’) is not an element of most realistic modeling scenarios; 2) the axiom, also held by many ecologists, of ‘the precautionary principle’, which mainly surfaces at the applied end of natural resource management, and thereby should not prevent economists and ecologists from jointly building the models necessary for the final decision making; and 3) the economists' axiom of ‘the tradability principle’, which is harder to overcome as it demands value-based practical compromises from both parties. Even this may be solved, however, provided the economists accept non-marketable components in the model (e.g. by using restriction terms based on ecology), and the ecologists accept a final model output measured in terms of monetary value. The easiest candidates for interdisciplinary teamwork in bioeconomics are therefore researchers who acknowledge ethical relativism. As bioeconomics presently functions mainly as an arena for economists, I say the responsibility for initiating interdisciplinary teamwork rests most heavily on their shoulders.

Keywords: Ecological economics; Intrinsic; Nature; Management; Philosophy; Wildlife


Monday, October 11, 2010

"Aquifer economics" - deep waters drying up

An economist article allows me to use the term "aquifer economics". I am always on the look out for new varieties of "economics" and this could be a big one.

From a teaching perspective this is yet another good "tragedy of the commons" story especially when aquifers cross national boundaries.

Deep waters, slowly drying up [Economist]

CLEMENT weather and plentiful water mean that Punjab produces an eighth of India’s total food grains. But the water table has dropped by ten metres since 1973 and the rate of decline is accelerating on both the Indian and the Pakistani sides of the region. It is a similar story for the north-western Sahara aquifer system (NWSAS), shared by Algeria, Tunisia and Libya. Withdrawals increased ninefold between 1950 and 2008. Springs are drying up and soil salinity has increased.

Such depletion of aquifers is a classic tragedy of the commons. Farmers pump, oblivious of others’ actions or the impact of their own. Scarcity stokes this rather than braking it. Worse, much abstracted water is used in inefficient irrigation; compounding that, underpricing means it is often used for watering low-value crops. Powerful farming lobbies have little interest in changing the status quo.

Aquifers, like fish stocks, are most at risk when they cross national borders, making property rights weaker. Groundwater provides about a fifth of the planet’s water needs and half its drinking water. In arid countries such as Libya or Saudi Arabia, that figure is close to 100%. Almost 96% of the planet’s freshwater resources are stored as groundwater, half of which straddles borders. UNESCO, a United Nations body, estimates that 273 aquifers are shared by two or more countries.

The signing this summer of a treaty between Brazil, Argentina, Uruguay and Paraguay to protect the Guarani aquifer, after a six-year study of the region’s underwater resources, has thus come as a nice surprise. It may even be a trend. Mali, Niger and Nigeria are due to sign a provisional deal early next year to set up a body to run the Iullemeden aquifer, where withdrawals have exceeded recharge ever since 1995, endangering the Niger river in the dry season.

The two deals follow a UN resolution in 2008 on creating a legal regime for aquifers (it may become a full convention next year). Lifting sanctions on Libya has had an effect, too. The Libyans say they may stop growing wheat using water from the NWSAS and the Nubian sandstone aquifer system, the world’s largest fossil aquifer, which they share with Egypt, Chad and Sudan. An agreement in 1992 set up a body to run this but it has stayed largely dormant. Now sampling and monitoring have resumed, under the aegis of the International Atomic Energy Agency (which has a sideline in environmental monitoring).

Such scientific work is crucial because aquifers are still poorly understood. Until a UNESCO inventory in 2008, nobody knew even how many transboundary aquifers existed. Experts are still refining the count: the American-Mexico border may include 8, 10, 18 or 20 aquifers, depending on how you measure them. Defining sustainability vexes hydrologists too, particularly with ancient fossil aquifers that will inevitably run dry eventually. Estimates for the life of the Nubian sandstone aquifer range from a century to a millennium.


Is the US really a "mythic pig preening itself"?

As the insults fly over climate change the Chinese hit well below the belt with the insult to the US likening the US criticisms of China to "a mythic pig preening itself."

It is hard to believe that the Chinese would have to resort to such aggressive language.

Just in case there are any readers are still a little perplexed or indeed would like to know more about the mythical pig please read on.

Zhu Bajie

Su likened the U.S. criticism to Zhubajie, a pig in a classic Chinese novel, which in a traditional saying preens itself in a mirror.

"It has no measures or actions to show for itself, and instead it criticizes China, which is actively taking measures and actions," Su said of the United States.

UK readers of a certain age may well remember the always excellent TV programme "Monkey" where the mythical pig appears regularly.


Friday, October 08, 2010

"Reality used to be a friend of mine"

I have often thought that the relationship between academic economics and reality can appear tenuous not least when I am in sitting through another hard core theoretical economics seminar and the 23rd slide of complicated looking equations appears on the screen.

On a more trivial level I have always wanted to use "reality used to be a friend of mine" as a blog post title although I forget where this quote comes from now.

Harald Uhlig (Chicago) takes a look at this relationship in a non-technical way (phew). He looks at important issues not least whether economics is a "science" or an "art".

Economics and Reality

Harald Uhlig
University of Chicago - Department of Economics

September 2010

NBER Working Paper No. w16416

This paper is a non-technical and somewhat philosophical essay, that seeks to investigate the relationship between economics and reality. More precisely, it asks how reality in the form empirical evidence does or does not influence economic thinking and theory. In particular, which role do calibration, statistical inference, and structural change play? What is the current state of affairs, what are the successes and failures, what are the challenges? I shall tackle these questions moving from general to specific. For the general perspective, I examine the following four points of view. First, economics is a science. Second, economics is an art. Third, economics is a competition. Forth, economics politics. I then examine four specific cases for illustration and debate. First, is there a Phillips curve? Second, are prices sticky? Third, does contractionary monetary policy lead to a contraction in output? Forth, what causes business cycles? The general points as well as the specific cases each have their own implication for the central question at hand. Armed with this list of implications, I shall then attempt to draw a summary conclusion and provide an overall answer.


New Book: "Foreign Firms, Investment, and Environmental Regulation in the People's Republic of China"

From the inbox:

An interesting new book has just been released by Phillip Stalley (Assistant Professor of Political Science at DePaul University in Chicago) looking at environmental regulations and industry location in China.

Without knowing the content I am unable to provide a full review but it should link in with a number of my recent papers looking at China and the environment. In my opinion China is where all the action is. I look forward to reading this book.

Some of my recent papers in this area include:

Cole, M.A., Elliott, R.J.R. and Zhang, J. (forthcoming). Growth, FDI and the Environment: Evidence from Chinese Cities. Journal of Regional Science.

Cole, M., Elliott, R.J.R. and Zhang, J. (2009), Corruption, Governance and FDI Location in China: A Province-level Analysis, Journal of Development Studies, Vol. 45, 9, 1494-1513.

Cole, M.A., Elliott, R.J.R. and Wu, S. (2008), Industrial Activity and the Environment in China: An Industry Level Analysis, China Economic Review, Vol. 19, 3, pp.393-408


Thursday, October 07, 2010

Trade, Environmental Regulations and Industrial Mobility

Here is a recent working paper from the nep-env working paper series. This just happens to one of my recent papers. Regulations matter for location.

The paper is forthcoming is the esteemed "Ecological Economics" (August 2010).

Trade, Environmental Regulations and Industrial Mobility:
An Industry-Level Study of Japan

Matthew A. Cole, Robert J.R. Elliott and Toshihiro Okubo

1 Department of Economics, University of Birmingham, UK
2 Research Institute for Economics and Business Administration, University of Kobe, Japan

This paper contributes to the small but growing body of literature which tries to explain why, despite the predictions of some theoretical studies, empirical support for the pollution haven hypothesis remains limited. We break from the previous literature, which tends to concentrate on US trade patterns, and focus on Japan. In common with Ederington et al.’s (2005) US study, we show that pollution haven effects are stronger and more discernible when trade occurs with developing countries, in industries with the greatest environmental costs and when the geographical immobility of an industry is accounted for. We also go one step further and show that our findings relate not only to environmental regulations but also to industrial regulations more generally.

JEL: F18, L51, L60, Q56, R3
Keywords: Environmental regulations, trade, agglomeration, immobility, industry


US -China Tianjin face off over climate change

Tianjin is a city I know well after a recent visit to Nankai University. It is a good venue for climate change talks especially given the air quality in Tianjin which was something to behold.

Let us hope that delegates can find the venue for the talks.

I gave a talk to future Chinese leaders on trade, development and climate change recently and it is very clear that whilst China is fully aware of its obligations to tackle climate change it still sees the onus being on developed countries to take the lead.

The 80:20 rule would satisfy the Chinese in my view. It will be difficult to move them off this percentage. The West may need to face up to that fact and just get on with making the 80%. To expect anything different would be foolish and waste everyone time (yet again). The problem with be the US (yet again).

When China say they will not budge it is worth listening.

Climate Talks Struggle As China, U.S. Face Off [PlanetArk]

The United States and EU said on Wednesday that U.N. climate talks were making less progress than hoped due to rifts over rising economies' emission goals, while China pushed back and put the onus on rich nations.

Negotiators from 177 governments are meeting this week in the northern Chinese city of Tianjin, trying to agree on the shape of the successor to the current phase of the Kyoto Protocol, the key U.N. treaty on fighting global warming, which expires in 2012.

Midway through the talks, however, initial hopes that they can deliver progress on trust-building goals have become snared in procedural skirmishing that boils down to feuding over how far rich and emerging nations should curb their greenhouse gas emissions and how they should check on each other's efforts.

Negotiators said the contention could damage prospects for negotiations late this year in Cancun, Mexico, which are intended to lay the foundations for a new, legally-binding climate pact.

"There is less agreement than one might have hoped to find at this stage," said Jonathan Pershing, the United States' lead U.S. negotiator in Tianjin.

"It's going to require a lot of work to get to some significant outcome by the end of this week, which then leads us into a significant outcome in Cancun," he told reporters.

Fraught climate negotiations last year failed to agree on a binding treaty and climaxed in a bitter meeting in Copenhagen, which produced a vague and non-binding accord that later recorded the emissions pledges of participant countries.

Fearing deadlock in efforts to reach a binding pact by late next year, governments have been pushing in Tianjin for broad agreement on less contentious objectives: a fund for climate action, a scheme to protect carbon-absorbing rainforests, and policies to share clean energy technology with poorer nations.

Pershing said he still hoped that the makings of a deal can come together at Cancun, and warned that failure in Mexico could damage the whole U.N. climate negotiations.

Big developing nations -- such as China, India and Brazil -- should take on firmer emissions reduction obligations as part of a new treaty that would abandon a simple division between rich and developing countries, said Pershing.

The current Kyoto Protocol only commits nearly 40 industrialized nations to meet binding targets.

A European Union official at the Tianjin talks said they had made headway on some issues, but also voiced worry for Cancun.

"We are very concerned with the procedural blockages and we find it simply inexplicable that they keep on popping up on the issues that are of vital importance for the final deal," Jurgen Lefevere of the European Commission climate action office told reporters. "There is still hope," he added later.


China is the world's top greenhouse gas emitter from human activity, with the United States second. China and India have pledged emissions reduction steps under the Copenhagen accord, but want Kyoto to be extended to lock in commitments by rich countries and to ensure their own emissions are not subject to binding international caps.

China's greenhouse gas emissions will keep rising for years yet, but its top climate change negotiator Xie Zhenhua said it was unfair to press the country on when its emissions would peak while rich nations failed to slash theirs.

He also told reporters at the talks that his government would not budge from demanding the Kyoto Protocol be the basis of any new climate deal. The United States is not a party to the Protocol and would have to come under a separate deal.

"When the world's emissions peak depends on developed countries leading with dramatic cuts in their emissions, making space for developing countries," said Xie.

China and other emerging nations will accept international "consultation and analysis" of their emissions, but not anything equal to the standards expected of rich economies, said Xie.


Monday, October 04, 2010

"Exploding Children"

A video that graphically depicts a teaching blowing up her climate change denying pupils has been withdrawn from youtube.

This is a strange one to comment on given the obvious sensitivities. I will leave it to the BBC to explain.

As with all "humour" some will find this funny and others will not.

Environmental campaigners axe gory film [BBC]

Environmental campaigners 10:10 have withdrawn a film showing a teacher graphically exploding two of her students who refuse to reduce their carbon emissions, after complaints.

In a statement, the group apologised to anyone offended.

The film aimed to "bring this critical issue back into the headlines whilst making people laugh", the group said.

Starring Gillian Anderson it was scripted by Richard Curtis, whose films include Four Weddings and a Funeral.

It was directed by a leading commercials director.

In the film, which was subsequently posted to Youtube and which contains disturbing images, a teacher invites her class to take part in the environmental campaign. Two children, who do not want to, are asked why.

The teacher tells them: "Fine, it's absolutely fine. It's your own choice."

But moments later she presses a button and the children explode into a mess.

Similar scenes are played out in an office where four workers are blown up and a football training session where footballer David Ginola, who also says he does not want to do his bit to combat climate change, disappears in an explosion.

In the final scene, Gillian Anderson, who provides the voice- over is similarly dispatched after saying she thought doing the voice over was enough of a contribution to the campaign.

'This is dreadful'

Comments left on the Guardian website where the film was posted before being taken down on the 10:10 site, were split between those congratulating the team and others who thought it was in bad taste.

"I think this is dreadful," said one comment.

"To suggest that people who disagree with you deserve to die is incredibly stupid. Imagine if some Christian group in the US did that to gays, Muslims, or anyone else they disagree with. The outrage would be palpable. And deserved.

"It's like a parody of something that people mocking enviros would do."

Lizze Gillett, Global Campaign Director for 10:10, told the BBC: "As you can see from various comments and social media sites some people thought it was funny and a good tool to get people talking about climate change but others strongly disliked the mini-movie. We decided to take it off our website to avoid upsetting people. "

In the official campaign statement, the group said: "At 10:10 we're all about trying new and creative ways of getting people to take action on climate change. Unfortunately in this instance we missed the mark. Oh well, we live and learn."

However, 10:10 said they would not make any attempt "to censor or remove other versions currently in circulation on the internet."