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

Abstract
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

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EU emissions trading - the wrangling continues

My environmental economics students will soon be getting to grips with the European Trading Scheme (ETS) as part of their course.

It is useful therefore to point out the continued political wrangling behind the ETS and how it never appears to get any easier.

Te environment invariably loses with every "wrangle".

Europe wrangles over carbon emissions quotas [Reuters]

BRUSSELS (Reuters) - France, Italy and several other European Union countries weighed their chances of haggling up their EU carbon emissions quotas on Thursday, one day after Poland and Estonia successfully challenged theirs in court.

The two east European countries won their appeal on Wednesday for more generous caps on industrial emissions in the Emissions Trading Scheme (ETS), the EU's main tool for ratcheting down gases blamed for climate change.

The ruling by the European Court of First Instance, the bloc's second highest court, threw European carbon markets into uncertainty and the International Emissions Trading Association (IETA) asked countries to refrain from challenging their own quotas.

European carbon markets closed 4 percent lower, leading to a two-day fall of nearly 9 percent.

"We call on all member states to hold back from attempting to make use of a loophole that simply has to be closed for the carbon market, and European climate policy, to continue on a sound footing," IETA said in a statement.

Poland was cautious about its victory on Thursday, weighing the possibility that any re-negotiated quota might be based on emissions data from 2008, a year when industry's emissions fell as it slowed down because of the economic crisis.

European Environment Commissioner Stavros Dimas confirmed that would result in little change to the cap. "It would appear unlikely that there would be any material difference concerning the total number of allowances," he said in a statement.

Elsewhere there was little sign of restraint, with Italy complaining about its quotas and Lithuania and the Czech Republic optimistic about their own pending court appeals.

European Commission spokeswoman Barbara Helfferich played down the chances of renegotiation.

"There is no way of increasing the allowances," she told Reuters. "The ceilings have been established already."

CARBON COSTS

Lithuania and the Czech Republic, which are pursuing a similar appeal to Poland, were encouraged by Wednesday's court decision.

"We will need more carbon emissions due to shutting down Ignalina nuclear power plant at the end of this year, and switching electricity generation to fossil power plants," Stasile Znutiene, at Lithuania's environment ministry, told Reuters.

Italian Prime Minister Silvio Berlusconi had already written last week to the European Commission pointing out the country's difficulties with meeting carbon quotas, an Italian government spokesman said.

Italy did not ask to renegotiate the quota, but asked for "intervention to reach a shared solution," said Paolo Bonaiuti.

A shortage of carbon permits could cost Italy about 500 million euros ($736 million) in the short term, mounting to a total of 800 million by 2012, said another Italian government official.

Several European Union countries, including France, are also discussing the possibility of increasing carbon emissions permits in a reserve fund for new businesses entering the ETS, an EU diplomat said.

"The question of the reserve for new entrants is being asked in several EU countries, among them France, but at this point there is no formal demand of reviewing the allocation plan," the EU diplomat said.

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US should pay for carbon content

The blindingly obvious come back to the recent US regulation is summarised by the headline of this blog post. This is no surprise and shows why troubled negotiations are ahead.

It comes down to the simple question of whether the consumer or producer pays for the pollution caused by the production. If American consumers did not demand the product the pollution would not exist. Then we have the fact that a lot of the production in China is produced by US owned firms.

The US regulatory framework is flawed.

U.S. Should Pay for Carbon Content of Imported Goods: Locke [PlanetArk]

SHANGHAI - To address the serious threat of global warming, Americans should be required to "pay" for the carbon content of goods they consume from countries around the world, a top U.S. official said on Friday.

"It's important that those who consume the products being made all around the world to the benefit of America -- and it's our own consumption activity that's causing the emission of greenhouse gases, then quite frankly Americans need to pay for that," Commerce Secretary Gary Locke told the American Chamber of Commerce in Shanghai.

Locke spoke to the business group after meetings this week with Chinese Premier Wen Jiabao and other officials on how the two countries could work together to reduce carbon dioxide and other greenhouse gas emissions blamed for global warming.

Unless China, the United States and other countries begin to reduce output of the heat-trapping gases, the world faces a "catastrophe" in the form of more frequent floods, droughts and rising sea levels, Locke said.

The U.S. House of Representatives has passed legislation that creates a market for companies to trade permits to emit greenhouse gases, which would be capped at a certain level and then reduced over time.

The bill also contains "carbon tariffs" that would allow the United States to slap duties on imports of carbon-intensive goods such as steel, cement, paper and glass from countries that have not taken steps to reduce their own emissions.

Locke said Chinese officials raised concern about those provisions this week.

"They feel in essence it's a tax on their carbon activity," he said.

China has recently surpassed the United States as the world's largest emitter of greenhouse gases. Its emissions come largely from production of steel, cement, aluminum, paper and chemicals, most of which are consumed in China rather than exported.

In contrast, U.S. greenhouse gas emissions come mainly from domestic consumption, such as fuels to heat and cool buildings and to power vehicles. Only about 25 percent of U.S. emissions are caused by factories.

Though U.S. President Barack Obama has expressed concern about the House "carbon tariffs," Locke said it was an open question whether he opposed them or not.

"The president has not taken a position on any particular element of the legislation," Locke said.

"It's simply premature to talk about individual pieces of the legislation without seeing it in it's totality," Locke said, noting the Senate still has to pass its version of the bill.

Once that happens and negotiations begin between the House and the Senate, the administration will weigh in more heavily on various elements of the bill, Locke said.

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Waxman-Markey - Stavins summarises

I appear to have missed some serious climate change action over the pond.

Stavins provides a good overview of what actually happened. It is a good start.

National Climate Change Policy: A Quick Look Back at Waxman-Markey and the Road Ahead[Belfer Centre]

Like any legislation, the Waxman‑Markey bill has its share of flaws, but its cap-and-trade system has medium and long‑term targets for reducing greenhouse gas emissions that are sensible, and the cap‑and‑trade system is — for the most part — well designed. With some exceptions, the bill’s cap‑and‑trade system will achieve meaningful reductions of carbon dioxide and other greenhouse gas emissions at minimal cost to the economy.

There has been much lamenting about the corporate give-away in the bill, but this is unfounded, as I explained in detail in my May 27th post on The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey. Concerns have also been expressed — such as by a number of Republican members of Congress during last Friday’s floor debate in the House of Representatives — about negative impacts on the international competitiveness of U.S. firms. The only real solution to the international competitiveness issue in the long term is to bring non‑participating countries within an international climate regime in meaningful ways. (On this, please see the work of the Harvard Project on International Climate Agreements.) But that solution is fundamentally outside of the scope of the domestic policy action of any individual nation, including the United States.

In the meantime, the Waxman‑Markey approach of combining output‑based updating allocations in the short term for select sectors with the option in the long term of a Presidential determination (under stringent conditions) for import allowance requirements for specific countries and sectors was sensible and pragmatic (see my June 18th post on Worried About International Competitiveness? Another Look at the Waxman-Markey Cap-and-Trade Proposal).

That’s the good news. But the bad news is that last-minute changes in the bill changed what was a Presidential option regarding long-term back-up border adjustments (tariffs) to a requirement that the President put such tariffs in place under specified conditions. This moved the legislation considerably closer to risky protectionism, as President Obama rightly noted in comments to the press on Sunday.

Also, the compromise amendments with the House agriculture committee that provide for generous numbers of potential offsets from the agricultural sector (regulated not by EPA, but by USDA!) are troubling — not in terms of driving up compliance costs, but in terms of reducing the real environmental performance of the system. This is because of the general problem of limited additionality of claimed reductions under offset (or emission-reduction-credit) systems, as opposed to cap-and-trade systems, plus the well-known difficulties of measuring non-point emissions, let alone emissions reductions, from agriculture.

These and other design issues will be important topics when the Senate takes up its own climate legislation, although the debate in that body on some of these issues will likely be quite different. For example, there is likely to be more interest in the Senate in the use of a “price collar,” a mechanism to constrain both the maximum and the minimum market price of allowances over time. This would be a move beyond the safety-valve mechanism that is provided in the House legislation.

When the action moves to the Senate, the greatest attention and the greatest skepticism should be directed not to the cap‑and‑trade mechanism, which is — for the most part — well designed in Waxman‑Markey, but rather to other elements of the legislation, some of which are highly problematic. While the titles of Waxman‑Markey that create the cap‑and‑trade system are ‑‑ on balance ‑‑ sensible, and will result in meaningful emissions reductions cost effectively, the other titles of the bill include a host of conventional standards and subsidies, many of which (under the cap‑and‑trade umbrella) will have minimal or no environmental benefits, but will limit flexibility and thereby have the unintended consequence of driving up compliance costs. That’s the soft under‑belly of this legislation that needs to be selectively, surgically repaired.

It is the fault of economists — myself included — that we have given so much attention to the cap-and-trade system that we have ignored these other important elements of the legislation, elements that unfortunately can degrade significantly the cost-effectiveness of the package while providing little if any incremental benefits to the environment. Even the Congressional Budget Office, in its excellent economic analysis of HR 2454, focused exclusively on the bill’s cap-and-trade program. Going forward, CBO, EPA, and independent analysts need to examine the bill’s other elements, and assess what those elements provide at what incremental cost.

A broader question — also raised by House Republicans in the floor debate — is whether the United States should be moving towards the enactment of a domestic climate policy before a sensible, post‑Kyoto international agreement has been negotiated and ratified. Such an international agreement should include not only the countries of the industrialized world, but also the key, rapidly‑growing economies of the developing world ‑‑ China, India, Brazil, Korea, Mexico, South Africa, and Indonesia ‑‑ which are and will increasingly be major contributors to emissions.

It’s natural for such a question to be raised about the very notion of the U.S. adopting a policy to help address what is fundamentally a global problem. The environmental benefits of any single nation’s reductions in greenhouse gas emissions are spread worldwide, unlike the costs. This means that for any single country, the costs of action will inevitably exceed its direct benefits, despite the fact that the global costs of action will be less than global benefits. This is the nature of a global commons problem, and this is the very reason why international cooperation is required.

The U.S. is now engaged in international negotiations, and the credibility of the U.S. as a participant, let alone as a leader, in shaping the international regime is dependent upon our demonstrated willingness to take actions at home.

Europe has put its climate policy in place, and Australia, New Zealand, and Japan are moving to have their policies in place within a year. If the United States is to play a leadership role in international negotiations for a sensible post‑Kyoto international climate regime, the country must begin to move towards an effective domestic policy ‑ with legislation that is timed and structured to coordinate with the emerging post‑Kyoto climate regime.

Without evidence of serious action by the U.S., there will be no meaningful international agreement, and certainly not one that includes the key, rapidly‑growing developing countries. U.S. policy developments can and should move in parallel with international negotiations.

So, the Waxman‑Markey bill has its share of flaws, but it represents a reasonable starting point for Senate deliberation on what can become a national climate policy that will place the United States where it ought to be -‑ in a position of international leadership to help develop a global climate agreement that is scientifically sound, economically rational, and politically acceptable to the key nations of the world.

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Does greenwashing show the dirt?

I have written an increasing number of firm level "environmental economics" papers and this is an interesting twist on the story.

Why Greenwashing Hurts Even the Most Eco-Friendly Businesses[GreenBiz.com]

Your business has been designing more environmentally friendly products for the past 15 years. Your marketing team is trained to make accurate and truthful environmental claims about your products. Your company wholeheartedly believes in its sustainability efforts. Think you're immune to the effects of greenwashing? Guess again.

The fact of the matter is greenwashing affects all companies, including those that are making a concerted environmental effort, by degrading consumer confidence. The effort your company makes is hampered by competitors when they mislead the public.

According to the 2008 Eco Pulse survey conducted by the Shelton Group, when asked why most companies that adopt environmentally friendly practices do so, the most common response was "to make their company look better to the public." Only 13 percent of respondents answered "because their owners/shareholders care about the environment."

So what can you do to address this problem and increase the credibility of your company's environmental claims?

First, it's important to recognize that this is a broad problem, affecting every environmentally conscious company in every industry imaginable. The problem won't be solved overnight and it certainly won't be solved with a single company's efforts.

The somewhat newly revised Federal Trade Commission's "Guides for the Use of Environmental Marketing Claims" are a great starting point for at least creating a frame of reference, but unfortunately it is near impossible for the guides to be properly and broadly enforced. The ISO 14021 standard for self-declared environmental claims, along with newer efforts in development from associations such as ASTM are also great points of reference, but unfortunately these are voluntary standards. As a result, environmentally responsible companies follow these guides, while greenwashers continue to proliferate.

Transparency is the key to addressing the problem and restoring consumer confidence of environmental claims. Third-party certification of sustainable products and environmental claims adds an extra layer of credibility to a company's marketing.

For companies that are self-declaring environmental claims, even those that follow standard guidelines, consumer mistrust still looms. A 2008 PriceWaterhouse Coopers survey validated that only 16 percent of consumers trust the environmental claims from manufacturers.

There are dozens of efforts ongoing from standard developers, NGOs, third-party certifiers, industry associations and others that seek to create transparent standards to bring back consumer trust in environmental claims.

There are two critical pieces that must be in place in order for these to succeed:

• First, the standards need to be developed in an open consensus manner with a large and diverse group of stakeholders.
• Second, the standards need to be reliable, repeatable, rigorous, and balance stringent criteria with current technology and commercial feasibility.

As these standards proliferate and truly environmentally conscious businesses jump on-board, then consumers will regain trust in environmental claims and really put their purchasing power into green products.

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Institutionalized pollution havens

Hot off the press - a plug for two previous co-authors new paper just out in Ecological Economics.

Institutionalized pollution havens

Matthew A. Cole
Per G. Fredriksson

Abstract

A multiple-principal, multiple-agent lobby group model suggests that the effect of foreign direct investment (FDI) on environmental policies is conditional on the structure of host countries' political institutions such as the number of legislative units (veto players). The model also yields the novel concept of “aggregate honesty” which combines veto players and corruption. FDI raises environmental policy stringency where the number of legislative units are many (aggregate honesty is high), but reduces it where the legislative units are few (aggregate honesty is low). Our panel data evidence is fully consistent with these predictions. An additional contribution is to show the empirical importance of endogenizing environmental policy in Pollution Haven Hypothesis studies. Only when treated as endogenous does environmental policy have a significant negative effect on FDI.

Keywords: Political economy; Political institutions; Veto players; Pollution Haven Hypothesis; FDI

JEL classification codes: Q28; D72; D73; F18; F21

Modern Management: Good for the Environment or Just Hot Air?

This paper is closely related to a body of work currently ongoing at the University of Birmingham. This is clearly an excellent paper on this subject.

Modern Management: Good for the Environment or Just Hot Air?

Nicholas Bloom, Christos Genakos, Ralf Martin and Raffaella Sadun

Abstract

We use an innovative methodology to measure management practices in over 300 manufacturing firms in the UK. We then match this management data to production and energy usage information for establishments owned by these firms. We find that establishments in better managed firms are significantly less energy intensive. They use less energy per unit of output, and also in relation to other factor inputs. This is quantitatively substantial: going from the 25th to the 75th percentile of
management practices is associated with a 17.4% reduction in energy intensity. This negative relationship is robust to a variety of controls for industry, location, technology and other factor inputs. Better managed firms are also significantly more productive. One interpretation of these results is that well managed firms are adopting modern lean manufacturing practices, which allows them to increase
productivity by using energy more efficiently. This suggests that improving the management practices of manufacturing firms may help to reduce greenhouse gas emissions. Keywords: management, energy efficiency, energy intensity and productivity

JEL Classifications: L2, M2, O32, O33, Q40, Q50

EPA to relax pollution rules?

According to the theory, the more developed a country becomes, the tighter its environmental regulations. That is at least the premise behind the shape of the environmental Kuznets curve.

So why would the US, one of the world's most highly developed countries (or is it....), introduce legislation to weaken environmental regulations?

This also represents the Colarado Independent's first appearance on this blog. To compare the EPA with "humpty-dumpty" and "Alice in Wonderland" marks an impressive debut. The article needs to be read in full for these insults to be even vaguely understood.

EPA moves to ease pollution rules [Colarado Independent]

The Environmental Protection Agency seems on the brink of issuing a new regulation that would make it easier for power plants to operate longer hours — and emit more pollution.

Under the proposed rule, power plants would be able to measure their rate of emissions on an hourly basis instead of their annual total output. As long as the hourly emissions stay at or below the plant’s established maximum, the plant would be treated as if it were operating cleanly — even if its total annual emissions increased as plant managers stepped up output.

Under the current policy, power plants that seek to operate longer must install pollution-control equipment. The proposed rule, expected to be finalized in the next two weeks, would increase the life span of older power plants without owners having to install costly new pollution-control equipment.

The rule, though, may be in conflict with a 2007 Supreme Court case, Environmental Defense v. Duke Energy Corp. In a 9-0 ruling, the justices decided that the Clean Air Act required Duke Energy to install pollution-control equipment if its annual pollution output increased. The court made clear that power plants must measure their pollution based on annual output, not an hourly rate.

The proposed power-plant rule marks a final attempt by the Bush administration to radically revise the way environmental laws are applied, especially the Clean Air Act. Throughout his presidency, George W. Bush has sought to weaken the traditional regulatory authority of many federal agencies — like the Food and Drug Admin. and Consumer Product Safety Commission — to make them more friendly to business. This anti-regulatory stand has had perhaps its most sweeping effect on the EPA.

But the administration’s drive to weaken environment safeguards has gotten it into legal trouble. Since Bush took office in 2001, the EPA has issued 27 air-pollution regulations. Seventeen were either partly or entirely thrown out by the D.C. circuit court, which oversees cases involving federal regulation. One, the Duke Energy case, was reversed by the Supreme Court.

In many of the rulings, judges used caustic language in striking down the administration’s position. They lectured EPA officials on elementary legal principles, like the importance of carefully reading the language of a law. The agency has been compared to Humpty Dumpty and the Queen of Hearts in “Alice in Wonderland.”

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Lomborg: "The green pseudo-revolution"

Bjorn Lomborg the Danish statistican with a habit of upsetting environmentalists has written a Guardian opinion piece.

This article links to a number of previous posts I have made on the topic of "green jobs". Academic articles are also beginning to emerge. I think it is safe to say that green jobs are unlikely to compensate for jobs lost if "heavy industry" becomes uncompetitive although their may be a "first mover advantage" for certain countries in certain sectors.

Whilst I have some sympathy for Lomborg's argument I believe he is over simplifying the issue and missing a number of important elements of the story.

The green pseudo-revolution
"Whatever the enviro-lobbyists say, subsidising inefficient green industries is not the way to tackle climate change"

Many green pundits have, however, started saying that the financial crisis only makes the need for action on climate change greater. They urge America's president-elect Barack Obama to pursue a "green revolution" with big investments in renewable energy, arguing that this could create millions of new "green collar" jobs and open huge new markets. Such sentiments, no surprise, are strongly voiced by business leaders who live off such subsidies. But are such pleas smart investments for society?

The problem with the green revolution argument is that it doesn't trouble itself about efficiency. It is most often lauded for supplying new jobs. But billions of dollars in tax subsidies would create plenty of new jobs in almost any sector: the point is that many less capital-intensive sectors would create many more jobs for a given investment of taxpayers' money.

Similarly, green initiatives will open new markets only if other nations subsidise inefficient technologies bought abroad. Thus, the real game becomes which nations get to suck up other nations' tax-financed subsidies. Apart from the resulting global inefficiency, this also creates a whole new raft of industry players that will keep pushing inefficient legislation, simply because it fills their coffers.

Stern on "green growth"

Following on from the last post we bring you more "Stern". This time he writes for the Guardian.

The sentiment expressed in this article is spot on and it is good to see that Stern is still prepared to bang the green drum even when politicians and the public have more immediate concerns such as paying the mortgage, putting food on the table and keeping warm with winter. The recently laid off bankers will also be worried about how to pay school fees and the mortgage on the third house.

It is good that Stern uses his political leverage and big name in this way and assuming that green technological advances are not starved of investment because of the credit crunch there is a chance that future growth will be cleaner and greener.

Green routes to growth [Guardian]

There are two crucial lessons we must learn from the financial turbulence the world has been facing. First, this crisis has been 20 years in the making and shows very clearly that the longer risk is ignored the bigger will be the consequences; second, we shall face an extended period of recession in the rich countries and low growth for the world as a whole. Let us learn the lessons and take the opportunity of the coincidence of the crisis and the deepening awareness of the great danger of unmanaged climate change: now is the time to lay the foundations for a world of low-carbon growth.

High-carbon growth - business as usual - will by mid-century have taken greenhouse gas concentrations to a point where a major climate disaster is very likely. We risk a transformation of the planet so radical that it would involve huge population movements and widespread conflict. Put simply, high-carbon growth will choke off growth. To manage the climate, we must cut world emissions by at least 50% by 2050, as recognised by the G8 earlier this year. Given that rich countries' emissions are far above the world average, their cuts should be at least 80%, acknowledged in Europe and the UK, with the adoption of that target last week.

In recent days, Bank of England governor Mervyn King and Gordon Brown have indicated that Britain is heading into recession. We do not know how long it will last, but it is unlikely to be short. The relevant policies are being put in place to avoid plunging the UK further into crisis and to start constructing a more robust financial system. But as banks rebuild balance sheets and look for higher capital ratios they will have to restrict lending. Monetary policy alone, important though it is, is unlikely to pull us out of the recession quickly: fiscal policy to expand demand must play a role. But increased government spending should be focused not just on boosting short-term demand. We must promote growth that can be sustained.

The coming period of growth can be firmly based in the low-carbon infrastructure and investments that will not only be profitable, with the right policies, but also allow for a safer, cleaner and quieter economy and society. And if, as we must, we halt deforestation - the source of 20% of greenhouse gas emissions - at the same time we can also protect and enhance our biodiversity and water systems.

The International Energy Agency estimates that world energy infrastructure investments are likely to average about $1 trillion a year over the next 20 years. If the majority of this is low-carbon, and some of it is brought forward, it will be an outstanding source of investment demand. So too will be the investments for energy efficiency, many of which can be labour-intensive and are available immediately.

It is surely clear that a programme can be put together which both boosts demand in the short term and prepares for efficient, strong and sustainable growth in the medium term. It must be structured carefully with the public and private sectors working together. It will be the private sector that makes most of the investments, but the public sector must shape the incentives and the investment climate that allows the investment to take place. That will mean working with the EU and the UN Framework Convention on Climate Change in Copenhagen to sustain a price for carbon, by use of carbon trading and taxation. It means regulation, for instance, on car emissions to give clear signals that allow economies of scale and reduce uncertainty.

It is not, however, just a matter of the right motivation for the private sector and the appropriate scale and structure of public spending. The investment climate must be right, too. There could be a clear limit on time for planning decisions and a national energy strategy that shapes decisions. We should have a very open-minded attitude to technology and let the markets decide which to choose, without putting obstacles in the way that might arise from an antipathy to a particular technology. Demonstration of carbon capture and storage for coal and gas on a commercial scale in electricity generation should be a special priority, given the likely prevalence of coal in the future growth of many countries. Reform of the grid structure will be necessary to allow decentralised and local decisions for generation such as wind, solar and combined heat and power. And the energy strategy must factor in energy security and peak-load supply. With sound policies all this is possible, consistent with low-carbon technologies.

The next few years present a great opportunity to lay the foundations of a new form of growth that can transform our economies and societies. Let us grow out of this recession in a way that both reduces risks for our planet and sparks off a wave of new investment which will create a more secure, cleaner and more attractive economy for all of us. And in so doing, we shall demonstrate for all, particularly the developing world, that low-carbon growth is not only possible, but that it can also be a productive and efficient route to overcome world poverty.

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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).

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Rules for the Global Environment

A recent paper by Horst Siebert considers the rules by which the global environment should be managed. Useful as a refresher on the various policy initiatives out there at the moment.

Rules for the Global Environment

Date: 2008-05
By: Horst Siebert

URL: http://d.repec.org/n?u=RePEc:kie:kieliw:1422&r=env [PDF]

The paper looks at the global environment as a public good and as a sink for CO2-emissions. It discusses problems to be solved in institutional arrangements to protect global environmental media and looks at criteria for allocating the costs of emission reduction and emission rights. It analyzes institutional mechanisms that stabilize CO2-agreements and reviews the Kyoto Protocol, the perspectives for its successor and EU emission trading. The paper also reviews arrangements for iodiversity and existing multilateral arrangements.

Keywords: Public good, Global warming, Emission reduction, Emission rights, Institutional Mechanisms, Kyoto Protocol, Post-Bali negotiations, EU emission trading, fauna and flora, existing multilateral arrangements

JEL: D62 F02 H41 Q20 Q54

The environmental performance of firms

In the latest edition of Ecological Economics (out this week) we analyses the relationship between multinationals and the environmental performance of firms.

The unique selling point of this paper is that we are able to take into account knowledge spillovers from human capital to see whether owners of firms that were trained or worked in a multinational take with them better knowledge of environmental management practices and energy efficiency.

This is globalisation and the environment in action.

The environmental performance of firms: The role of foreign ownership, training, and experience

Matthew A. Cole University of Birmingham, United Kingdom
Robert J.R. Elliott University of Birmingham, United Kingdom
Eric Strobl Ecole Polytechnique Paris and SALISES, France

Abstract

In this paper we extend the debate on the environmental implications of foreign direct investment in developing countries by examining a new mechanism through which foreign influence can affect the environmental performance of firms. We focus on the extent to which key workers who have had previous training or experience in a foreign owned firm transfer and utilise their knowledge gained to the benefit of the local previous termenvironment.next term To this end we use detailed firm-level data on manufacturing firms in Ghana. Our econometric results suggest that the foreign training of a firm's decision maker does reduce fuel use, particularly so in foreign owned firms. Foreign ownership per se does not influence fuel use or total energy use but is found to increase electricity use, perhaps the cleanest form of energy used by Ghanaian firms.

Jel classification: Q56; Q52; F21; F23
Keywords: previous termEnvironmentnext term; Spillovers; Foreign Direct Investment

I have a feeling I might have posted on this when the working paper came out - apologies.

Big Macs, salads and subsidies

Nice little dig by Celsias at the US meat and dairy subsidies. Click to see the all telling figure.

Why Eatng a Big Mac is Cheapers than eating a salad [Celsias]

Almost 75% of U.S. government subsidies go into meat and dairy production, but less than half a per cent goes into fruit and vegetable production.

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Porter Hypothesis tested for Sweden

A new working paper from Runar Brännlund (Umeå University) examines evidence for the Porter hypothesis using long run data for Sweden. Any paper on the "to read pile".

I am a little concerned about the long time period - 1913 through to 1999 which involved some rather large world events like 2 world wars. Interestingly but perhaps not surprisingly little evidence is found. A closer read required. I suspect his final line of the abstract is the right one:

A rather robust conclusion is that there is no evident relationship between environmental regulations and productivity growth. One explanation is that regulations and productivity actually is unrelated. Another potential explanation is that the regulatory measure used does not capture perceived regulations in a correct way.

Productivity and environmental regulations - A long run analysis of the Swedish industry

Date: 2008-02-01

By: Brännlund, Runar (Department of Economics, Umeå University)

URL: http://d.repec.org/n?u=RePEc:hhs:umnees:0728&r=env [PDF]

The aim with this study is to evaluate the potential effects on productivity development in the Swedish manufacturing industry due to changes in environmental regulations over a long time period. The issue is closely related to the so called Porter hypothesis, i.e. whether environmental regulations (the right kind) that usually is associated with costs triggers mechanisms that enhances efficiency and productivity that finally outweighs the initial cost increase. To test our hypothesis we use historical data spanning over the period 1913-1999 for the Swedish manufacturing sector. The model used is a two stage model were the total factor productivity is calculated in the first stage, and is then used in a second stage as the dependent variable in a regression analysis where one of the independent variables is a measure of regulatory intensity. The results show that the productivity growth has varied considerably over time. The least productive period was the second world war period, whereas the period with the highest productivity growth was the period after the second world war until 1970. Development of emissions follows essentially the same path as productivity growth until 1970. After 1970, however, there is a decoupling in the sense that emissions are decreasing, both in absolute level and as emissions per unit of value added. A rather robust conclusion is that there is no evident relationship between environmental regulations and productivity growth. One explanation is that regulations and productivity actually is unrelated. Another potential explanation is that the regulatory measure used does not capture perceived regulations in a correct way.

Keywords: Environmental regulations; productivity; Porter hypothesis
JEL: Q52 Q55 Q56

Unmasking the pollution haven effect

It is good to see a pollution haven hypothesis paper using industry and trade data from 20 years ago can still get into a journal of the qualiy of International Economic Review. Of course Levinson and Taylor are two of the best known researchers in this area who do consistently excellent work. Scott Taylor (and Brian Copeland) can be considered the fathers of the "trade and the envvironment" literature.

I had come across this paper years ago and as an aside this is a clear example of the publishing lags involved in economics. This paper was probably started in 2003, finished in 2004 and published in 2008. Economists need to be patient.

International Economic Review

Volume 49 Issue 1 Page 223-254, February 2008

UNMASKING THE POLLUTION HAVEN EFFECT*

* Arik Levinson††Georgetown University, U.S.A.; University of Calgary, Canada and
* M. Scott Taylor†1†Georgetown University, U.S.A.; University of Calgary, Canada

*Manuscript received July 2004; revised September 2006.

Abstract

We use theory and empirics to examine the effect of environmental regulations on trade flows. A simple model demonstrates how unobserved heterogeneity, endogeneity, and aggregation issues bias standard measurements of this relationship. A reduced-form estimate of the model, using data on U.S. regulations and trade with Canada and Mexico for 130 manufacturing industries from 1977 to 1986, indicates that industries whose abatement costs increased most experienced the largest increases in net imports. For the average industry, the change in net imports we ascribe to regulatory costs amounting to 10% of the total increase in trade volume over the period.

ASIDE:

Interesting to note that Scott Taylor has a Bepress homepage. I have one of these and I believe ALL academics should have one. It is an excellent free service and fantastic for getting your papers read (this is of course relative).

My HOMEPAGE on Bepress.

Copeland and Taylor's "Trade and the Environment: Theory and Evidence" book can be found here.



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Open-Access Losses and Delay in the Assignment of Property Rights

A new NBER working paper by Gary Libecap examines open-access and the depletion of natural resources. The paper is theoretcal but does include some empirical examples that includes fisheries and non-renewable resources.

Open-Access Losses and Delay in the Assignment of Property Rights

Author

Gary D. Libecap (University of California, Santa Barbara)

Abstract

Even though formal property rights are the theoretical response to open access involving natural and environmental resources, they typically are adopted late after considerable waste has been endured. Instead, the usual response in local, national, and international settings is to rely upon uniform rules and standards as a means of constraining behavior. While providing some relief, these do not close the externality and excessive exploitation along unregulated margins continues. As external costs and resource values rise, there finally is a resort to property rights of some type. Transfers and other concessions to address distributional concerns affect the ability of the rights arrangement to mitigate open-access losses. This paper outlines the reasons why this pattern exists and presents three empirical examples of overfishing, over extraction from oil and gas reservoirs, and excessive air pollution to illustrate the main points.

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US Manufacturing and Pollution: Abatement or Displacement

Arik Levinson has written a good summary piece on the clean-up of US manufacturinga nd the relationship between trade and technology on the reduction in pollution experienced in the US.

Matt Cole and I have done some work in this area and Matt even manages to sneaks in with a citation in the Levinson article.

This paper of ours covers a similar topic:

Why the Grass is Not Always Greener: The Competing Effects of Environmental Regulations and Factor Intensities on US Specialization

Abstract
The global decline in trade barriers means that environmental regulations now potentially play an increasingly important role in shaping a country’s comparative advantage. This raises the possibility that pollution intensive industries will relocate from high regulation countries to developing regions where environmental regulations may be less stringent. We assess the evidence for this possibility by examining the USA’s revealed comparative advantage (RCA) and other measures of specialization. We demonstrate that US specialization in pollution intensive sectors is neither lower, nor falling more rapidly (or rising more slowly) than in any other manufacturing sector. We offer an explanation for this finding. Our analysis suggests that pollution intensive industries have certain characteristics - specifically they are intensive in the use of physical and human capital - that makes developing countries less attractive as a target for relocation. We demonstrate econometrically the economic and statistical significance of these factors and illustrate how they appear to oppose the effects of environmental regulations as determinants of US specialization.

Suggested Citation

Matthew A. Cole, Robert J.R. Elliott, and Kenichi Shimamoto. "Why the Grass is Not Always Greener: The Competing Effects of Environmental Regulations and Factor Intensities on US Specialization" Ecological Economics 54.1 (2005): 95-109.

Here is the link to the Levinson article. It is worth reading in full. His findings fit well within the literature and his results are intuitive and most importantly plausible (which always helps).

What accounts for the clean-up of US manufacturing: technology or international trade? [Vox]

Since the 1970s, US manufacturing output has risen by 70% but air pollution has fallen by 58%. Was this due to improved abatement technology or shifting dirty production abroad?

Antiglobalisation protesters display signs denouncing international trade's role in polluting the environment.1 Pundits write Op-Ed pieces cautioning that increased trade has environmental costs.2 And a majority of Americans agree that "freer trade puts the United States at a disadvantage because of our high ... environmental standards".3

Are they correct? Over the past thirty years, while the real value of US manufacturing output has increased by more than 70 percent, the total annual air pollution emitted by US manufacturers declined substantially, by 58 percent for the sum of four common air pollutants.4

One explanation for the clean-up of US manufacturing is that the protesters are correct, and that thanks to freer trade, the US now imports polluting goods it once produced domestically, and concentrates domestic manufacturing on goods less likely to incur environmental regulatory costs. Of course, there is an alternative explanation: thanks to improved technology (cleaner fuels, end-of-pipe abatement, process changes, etc.) US manufacturers may now be able to produce more output using less pollution. Which of these explanations, trade or technology, accounts for the dramatic clean-up of US manufacturing pollution?

Conclusion:

What is the bottom line? Increased net imports of polluting goods account for about 70 percent of the composition-related decline in US manufacturing pollution. The composition effect in turn explains about 40 percent of the overall decline in pollution from US manufacturing. Putting these two findings together, international trade can explain at most 28 percent of the clean-up of US manufacturing.

Why should we care?

If the 75% reduction in pollution from US manufacturing resulted from increased international trade, the pundits and protestors might have a case. Environmental improvements might be said to have imposed large, unmeasured environmental costs on the countries from which those goods are imported. And more importantly, the improvements in the US would not be replicable by all countries indefinitely, because the poorest countries in the world will never have even poorer countries from which to import their pollution-intensive goods. The US clean-up would simply have been the result of the US coming out ahead in an environmental zero-sum game, merely shifting pollution to different locations. However, if the US pollution reductions come from technology, nothing suggests those improvements cannot continue indefinitely and be repeated around the world. The analyses here suggest that most the pollution reductions have come from improved technology, that the environmental concerns of antiglobalization protesters have been overblown, and that the pollution reduction achieved by US manufacturing will replicable by other countries in the future.

Our own composition/scale/technique effect paper came out a few years ago in JEEM:

Determining the Trade-Environment Composition Effect: The Role of Capital, Labour and Environmental Regulations

Matthew A. Cole, University of Birmingham
Robert J.R. Elliott, University of Birmingham

Abstract

This paper argues that pollution intensive sectors may be subject to opposing forces of comparative advantage since these sectors are also typically capital intensive, yet regions with low environmental regulations tend to be those that are the least capital abundant. We examine therefore, whether compositional changes in pollution arising from trade liberalization originate due to differences in capital-labor endowments and/or differences in environmental regulations. The contribution of the paper is threefold; first, we provide a comprehensive empirical analysis of the determinants of four common pollutants, paying particular attention to the nature of the trade-induced composition effect; second, we investigate whether the result of Antweiler et al. (2001), who find evidence that both environmental regulations and capital-labor endowments determine sulfur dioxide concentrations, also holds for sulfur dioxide emissions; third, we examine whether this result holds for altogether different pollutants. Our results, while providing partial support for Antweiler et al., also raise a number of points for discussion.
Suggested Citation

Matthew A. Cole and Robert J.R. Elliott. "Determining the Trade-Environment Composition Effect: The Role of Capital, Labour and Environmental Regulations" Journal of Environmental Economics and Management 46.3 (2003): 363-383.

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Agriculture and Climate Change

Excellent sources of data and code for PhD and MSc dissertation students.

This makes the agriculture and climate change debate accessible and contains a wealth of information.

This is an important debate with a long way to run.

Potential Impacts of Climate Change on Crop Yields and Land Values in U.S. Agriculture:
Negative, Significant, and Robust



(H/T: Matthew Kahn)

The "400": Economists for the climate high jump

What better way to end 2007 that a good old fashioned rant against "Economists" by "real" scientists.

This relates to a previous post on this blog:

Inhofe fights back: Sceptics Christmas message

In this article I suggested that what needed to be done was to have a good look at exactly who these 400 scientists were and attempt to debunk them. This has been done but the results were somewhat surprising.

It is "ironic" and more than a little amusing to find that the biggest criticism that the debunkers can come with is that there are too many "economists" on the list and given that economists are rank somewhere around the primeval swamp level this means Infofe's famous 400 can be instantly dismissed.

We are now in the strange position of having to debunk the debunkers. As far as I can see at a quick glance there are 8 economists (out of 400). Consider this when reading the following post:

This article is from the gloriously named "Crooks and Liars".

Don’t believe Inhofe’s hype [Crooks and Liars]

Late last week, Sen. James Inhofe (R-Okla.) released a so-called “report,” pointing to hundreds of alleged independent scientists who agree with him about climate change — which is to say, they deny the reality of global warming.

More than 400 scientists challenge claims by former Vice President Al Gore and the United Nations about the threat of man-made global warming, a new Senate minority report says.

Far-right blogs pounced, heralding Inhofe’s “expose.”

There is, however, one small problem: Inhofe’s report plays fast and loose with the facts.

“Padded” would be an extremely generous description of this list of “prominent scientists.” Some would use the word “laughable” (though not the N.Y. Times‘ Andy Revkin, see below). For instance, since when have economists, who are pervasive on this list, become scientists, and why should we care what they think about climate science?

There’s been a lot of great coverage of this, highlighting Inhofe’s many errors of fact and judgment, including items here, here, and here.

It is the Climate Progress article that the economists get singled out for attention.

Inhofe recycles unscientific attacks on global warming, NYT’s Revkin gives him a pass

BUT STILL NO NAMES.

Who are these mythical economists?

Here are the economists that signed up (I may have missed some). Can 8 be considered pervasive?

Hans H.J. Labohm, PhD, economist, former advisor to the executive board, Clingendael Institute (The Netherlands Institute of International Relations), The Netherlands

An economic historian. NO peer reviewed papers according to desmogblog (link above).

The Rt. Hon. Lord Lawson of Blaby, economist; Chairman of the Central Europe Trust; former Chancellor of the Exchequer, U.K.

Right-winger who writes populist articles in the press. Peer reviewed papers limited (or none).

Alister McFarquhar, PhD, international economist, Downing College, Cambridge, U.K.

PhD 1962. Not prolific. Peer reviews articles limited.

Ross McKitrick, PhD, Associate Professor, Dept. of Economics, University of Guelph, Canada

Some decent papers in some good journals.

1. McKitrick, Ross R. (2006) Why Did US Air Pollution Decline After 1970? Empirical Economics , DOI:10.1007/s00181-006-0111-4.
2. McKitrick, Ross (2006). The Politics of Pollution: Party Regimes and Air Quality in Canada Canadian Journal of Economics 39(2), May 2006, 604-620.
3. McKitrick, Ross (2005). "Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form." Energy Journal 26(4) 1-9.
4. McKitrick, Ross and Timothy Shufelt (2002). "Environmental Impacts of Enhanced Property Rights." Environment and Energy 13(3) pp. 367-382.
5. McKitrick, Ross R. and Robert C. Collinge. (2002) "The Existence and Uniqueness of Optimal Pollution Policy in the Presence of Victim Defense Measures." Journal of Environmental Economics and Management 44, pp 106-122.
6. McKitrick, Ross R. (2001) "The Design of Regulations Expressed as Ratios or Percentage Quotas." Journal of Regulatory Economics 19(3), pp. 295-305.
7. Weersink, Alfons, Ross McKitrick and Michael Nailor (2001). "The Economics of Voluntary Shared Cost Programs" Current Agriculture, Food and Resource Issues 2/2001:23-36. (CAFRI)
8. McKitrick, Ross R. (2001). "Mitigation versus Compensation in Global Warming Policy" Economics Bulletin, Vol 17 no. 2 pp. 1-6.
9. McKitrick, Ross R. and Robert C. Collinge, (2000) "Linear Pigovian Taxes and the Optimal Size of a Polluting Industry" Canadian Journal of Economics 33(4) pp. 1106-1119.
10. McKitrick, Ross R. (1999) "A Derivation of the Marginal Abatement Cost Function." Journal of Environmental Economics and Management May 1999, pp. 306-314.
11. Helliwell, John F. and Ross R. McKitrick, (1999) "Comparing Capital Mobility across National and Provincial Borders," Canadian Journal of Economics 32(5) pp. 1164-1173. additional results
12. McKitrick, Ross R. (1999) "A Cournot Mechanism for Pollution Control under Asymmetric Information." Environmental and Resource Economics October 1999, pp. 353-363.
13. McKitrick, Ross R. (1998) "The Econometric Critique of Applied General Equilibrium Modelling: The Role of Functional Forms." Economic Modelling 15 pp. 543-573.
14. McKitrick, Ross (1997). "Double-Dividend Environmental Taxation and Canadian Carbon Emissions Control" Canadian Public Policy December 1997, pp. 417-434.


Frank Milne, PhD, Professor, Dept. of Economics, Queen's University, Canada

An excellent economist with a string of top papers although nothing in environmental economics journals unfortunately. Not sure where his skepticism comes from.

# Frank Milne and Klaus Ritzberger, "Strategic Pricing of Equity Issues", Economic Theory, 20, 2002, pp. 271-294.

# Dilip Madan, Frank Milne and Robert Elliott, Incomplete Diversification and Asset Pricing in K. Sandmann and Plilipp Schonbucher (eds.) Advances in Finance and Statistics, Springer, Berlin, 2002.

# Frank Milne and Xing Jin "The Existence of Equilibrium in a Financial Market with Transaction Costs," in Quantitative Analysis in Financial Markets: Collected Papers of the New York University Mathematical Finance Seminar ed. Marco Avellaneda, Jeffrey D. Phillips, World Scientific Pub Co., 1999.

# Frank Milne and David Kelsey, "Induced Preferences, Non-Additive Probabilities and Multiple Priors," International Economic Review, 40(2), May 1999, pages 455-478.

# Frank Milne, "Liquidity and Control: A Dynamic Theory of Corporate Ownership Structure: Comment," Journal of Institutional and Theoretical Economics, 154(1), March 1998, pages 212-15.

# Frank Milne and David Kelsey, "Induced Preferences, Dynamic Consistency and Dutch Books," Economica, 64(255), August 1997, pages 471-81.

# Frank Milne and David Kelsey, "The Existence of Equilibrium in Incomplete Markets and the Objective Function of the Firm," Journal of Mathematical Economics, 25(2), 1996, pages 229-45.


Alan Moran, PhD, Energy Economist, Director of the IPA's Deregulation Unit, Australia

An interesting article can be read here:

How on earth did Alan Moran get a PhD in “public transport economics”?

Academic papers limited.

Andrei Illarionov, PhD, Senior Fellow, Center for Global Liberty and Prosperity, U.S.; founder and director of the Institute of Economic Analysis, Russia

Andrei Illarionov, former chief economic adviser to Russian president Vladimir Putin, is a Senior Fellow of the Cato Institute's Center for Global Liberty and Prosperity. Illarionov has been an assistant professor of international economics at St. Petersburg University, where he received a Ph.D. in 1987. In 1992 he became deputy director of the Center for Economic Reform, the Russian government’s think tank. In April 1993 he became chief economic adviser to Prime Minister Viktor Chernomyrdin, a position he resigned in February 1994. Illarionov has written three books and more than 300 articles on Russian economic and social policies.

Alex Robson, PhD, Economics, Australian National University

Three published papers and lots of policy type papers. ET is a good journal.

* "Costly Enforcement of Property Rights and the Coase Theorem," (with Stergios Skaperdas), forthcoming, Economic Theory.
* "The Welfare Cost of Capital Immobility and Capital Controls" (with A.J. Makin), Economic Analysis and Policy, 36 (1/2), March/September 2006, pp 13-24.
* "Comparing Trade and Capital Weighted Measures of Australia's Effective Exchange Rate" (joint with A.J. Makin), Pacific Economic Review, June, 1999.

Now, here are the problems.

First, eight out of a total of 400 is by reckoning a very small percentage and hardly worth a headline.

Second, which ever way you cut this cake it is hard to come to the conclusion that you have got any of the worlds leading economists or environmental economists.

I leave it to the reader to dig deeper.