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Lecture 10: Topics on environment and economy
Theories of Ecological EconomicsM.Sc. EnviNatResEcon.
Sem 1/200728 August 2007
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topics
• Pollution and economic development– The environmental Kuznets Curve (EKC)
• Trade and environment– Pollution Haven Thesis– Environment as non-tariff trade barrier
• Accounting for Nature in the economy– green accounting etc.
• Environment and the Firm– Triple Bottom Line
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Pollution and development
• Development=more output, more consumption
• And more waste
• Or not, because of regulation, production structure, abatement technology etc.
• So, what are the facts and what are the explanations?
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facts
• Stylised facts: as shown in World Bank Annual report 1992
• See chart:
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Explanations?
• Theoretical model
• Stern: simple curve fitting, but not explanation
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Models?
• Simple analytics:
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And it looks like this..
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Revisionist- empirical critique
• Stern: review
• Econometric critique
• Lack of theory-
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A go at theorising-
• Decomposition of EKC into components
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Trade and Environment
• An issue at the WTO trade talks• Extensive literature has developed• Main issues:
– Pollution Haven Thesis– Environment as non-tariff barrier– Trade in environmental products
• Environmental services• Trade in endangered species (CITES)• The carbon trade• Biotech products
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Pollution Haven Thesis
• Connects to location of production• Do companies look for location with low
environmental standards?• So far, not proven• With outsourcing, may not be so important any
more --• Convergence of national standards may not
happen, but international voluntary standards may apply – ISO 14000, green supply chain, etc.
• China Toy recall case as example!
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Environment as NTB
• Importer country sets standard, compliance with WTO – Most Favoured Nation(MFN), national Treatment (NT) rules
• Can increase cost for exporter, checking, quality certification,
• But usually not negotiable, because rule is applied with non-discrimination between national and foreign suppliers-
• Example: WEEE, REACH of the EU
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Trade in environmental products
• Endangered species-CITES– Orchids, animals, ivories etc.– Control and reporting
• Environmental services-– Under GATS, as part of trade in service– Related to mode 3: commercial presence, FDI
by foreign companies with advanced technologies
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The carbon trade
• Under the Kyoto Protocol
• Emission commitment (CAP) and Flexibility Mechanisms (TRADE) system
• See next slide
• EU directives – Emission trading and Linking Directives
• Voluntary Market in non-Kyoto countries , US and Australia?
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emission
year
KP target
Actual emission
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17Emission Reduction
P
Demand
DomesticAction
Joint Implentation
CDM
C-ET
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RGGI: a RegionalCO2 Program for Power Sector
Sonia HamelOffice for Commonwealth Development
Presentation to the
Electricity Restructuring Roundtable
June 17, 2005
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Overview• Overview of the RGGI Process
• Quick Cap-and-Trade Primer
• Status of the Work to Date
• Observations on the Process
• Next Steps
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GoalDesign a Regional
Cap-and-Trade Program Initially Covering CO2
Emissions from Power Plants
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Statistics3rd Largest
World Economy
14% US GHG Emissions
3.2% of World GHG Emissions
( Germany)
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Context: Early Movers on Climate Change
• History of Regional Cooperation on Air Quality -- Ozone Transport Commission
• NJ First to Take Official Target
• New England Governors/ E. Canadian Premiers Plan (2001) (sets a target)
• NY Greenhouse Gas Task Force (2001)
• Now state plans in CT/RI/MA and ME (also set targets)
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Cap-and-Trade Program
Goal: Achieve a Reduction in Emissions through a Flexible, Market-based Approach
Identify Sources to be Covered
Determine Total Emissions from Covered Sources
Set Cap
Issue Allowances (1 per ton) & Allocate Allowances to Sources
Trade
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Why Cap-and-Trade?
• Have Proven to Provide Benefits at Lowest Cost
• Simple compared to Alternatives• Flexible, Market-Based• Incentive to Reduce at Source of
Emissions Leads to New Innovation
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Regional Cap-and-Trade Program
• Each State:– receives a budget (as agreed in MOU)– distributes allowances to its sources– agrees to accept allowances originating in other states
• State to State Reciprocity Allows Trading• Key: Ensure Uniform “Currency” and
Free Flow of Allowances across State Lines
Regional Cap
Individual State
Budgets
Each State Allocates
AllowancesTrade
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Why a Regional Program?
• Moving together provides economy of scale• Greater reductions possible• More options for lower cost reductions• Larger the market, the larger the incentives
for innovation• More states = greater influence on future
policies
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RGGI Design Principles
• Build on Past Success of NOx Budget Program• Maintain Electricity Affordability, Fuel Diversity
& Reliability• Make RGGI Expandable to Other States • Achieve Least Cost Reductions• Stimulate Innovation w/ Clear Market Signals
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Stakeholder Process
Technical Groundwork
Data Assembly and Analysis
Energy and Economic Modeling
Resource Panel
Website contains materials at: www.rggi.org
RGGI Progress to Date
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• Stakeholders: 24 organizations and companies at the table and over 30 more observing
• Electric generators (from across the geographic area, includes all fuel types)
• Electric distribution companies• Energy efficiency & renewable energy interests• Energy users (industrial, commercial)• Consumer interest organizations • Environmental organizations
Stakeholder Group
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Connecticut Delaw are Maine Massachusetts NewHampshire
New Jersey New York Rhode Island Vermont
Sh
are
of
9-S
tate
Cap
2000 CO2 Tons - All Plants > 25MW (E-GRID) **
2000 Generation - All Plants > 25MW (E-GRID) **
2000 Generation - Fossil Plants > 25MW (E-GRID) **
2001 Electricity Consumption **
2000 Population **
Emissions Data by State
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• Carbon emissions• Other emissions• Electricity prices• Total electricity system costs• Fuel use and diversity• Reliability• Imports and exports of electricity
Quantitative Impacts of a Regional Carbon Cap
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Policy Consultation and Decision Making
Stringency of the Cap
How to set state budgets
Flexibility mechanisms for companies
Offset Credits (External to Cap)
Regional Greenhouse Gas Registry
RGGI Progress to Date
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• Agreed on Model Reference Case (base case)• Considered factors in setting cap levels to
model and, ultimately, to recommend• Seek to minimize implementation costs• Decide which reductions from external sources
(not covered by the cap) could qualify for credit? – How to guarantee that these offsets are real
reductions?
Key Issues
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• Stringency: looking at 10% below current levels and stabilization at current levels by 2024.
• Offsets: Would reduce costs and expand benefits. Decisions to be made about what geographic area to include.
• Simplicity of design: Inspire others to follow, strict accountability and flexibility
Essential Components
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Complete Modeling and Evaluate Reasonable Cap Level from what we have learned.
Complete a draft Model Rule
Determine Cap Size and Mechanics
Determine State Emissions Caps
Begin State-by-State Decision making and Implementation
Plan ongoing Cooperation between states
RGGI Next Steps
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Add Additional States to Emissions Market
Add Offset Categories to Program Over Time
Possible Expansion to Major Stationary Sources in Other Sectors
DEMONSTRATE SUCCESS
RGGI Future Goals
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Accounting for environment
• Green accounting for the macro-economy
• What to count?
• Changes in stock of Natural capital
• UN methodology for national income accounting, environment as satellite account, physical account, but not yet valuation
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The environment and the firm
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The issues
• More stringent environmental requirements for company operation
• Regulations, taxation, environmental markets
• Green consumerism
• Impact on company strategy and competitiveness
• Triple bottom line
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Impact on company operation
• Higher cost due to :-
• Product requirement
• Labelling requirement
• Higher Standards to meet
• Increased competition-loss of competitiveness
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Examples?
• Green products
• Green companies
• Green wash ?
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Examples again………….
Measures: compliance
ISO certification
WEEE
REACH
Advantage:?
Share price
Image
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Triple bottom line
• Financial
• Social
• Environmental
• Corporate Social responsibility
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Conservation Finance
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The Issues
• Benefit of conservation is external to the firm
• So no action on conservation
• How to capture the benefit is the key
• How to pay for conservation? PES example-are incentives perverse?
• Green Investment – do they make money?
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