economic returns from the biosphere

Program on Information and Resources CProgram on Information and Resources Columbia Universityolumbia University

11

Economic Returns from Economic Returns from the Biospherethe Biosphere

Pegram LecturesPegram LecturesBrookhaven National LaboratoriesBrookhaven National Laboratories

Graciela ChichilniskyGraciela Chichilnisky

UNESCO Chair in Mathematics and EconomicsUNESCO Chair in Mathematics and EconomicsColumbia UniversityColumbia University


22

Program on Information and Program on Information and ResourcesResources

Columbia UniversityColumbia University


33

Human beings, or their close genetic relatives, Human beings, or their close genetic relatives, have lived on Earth for several million yearshave lived on Earth for several million years

Yet only recently has human activity reached Yet only recently has human activity reached levels at which it can affect fundamental natural levels at which it can affect fundamental natural processesprocesses

the concentration of gases in the the concentration of gases in the atmosphere (CO2, Ozone)atmosphere (CO2, Ozone)

the planet’s water massthe planet’s water mass The complex web of species which The complex web of species which

constitute life on earthconstitute life on earth


44

Changes in global atmospheric composition Changes in global atmospheric composition

Atmospheric Concentration of CO2 , 1959-2000

280

290

300

310

320

330

340

350

360

370

380

1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999Carb

on

Dio

xid

e M

ixin

g R

ati

o (

pp

m)

Atmospheric Concentration of CFC-12, 1978-2001

0

100

200

300

400

500

600

1978 1982 1986 1990 1994 1998

CFC

-12

Mix

ing

Rati

o (

pp

m)

Atmospheric Concentration of Methane, 1986-2001

1,560

1,580

1,600

1,620

1,640

1,660

1,680

1,700

1,720

1,740

1986 1990 1994 1998

Meth

an

e M

ixin

g R

ati

o (

pp

m)

Fossil Fuel Consumption

Forest Burning

Refrigerants

Foam Blowing

Solvents

Rice Paddies

Marshlands

Cattle

Sources:

The Facts - Trace Gas Concentrations are increasing

Source: World Resources Institute, 2002


55


66

Source: National Oceanic and Atmospheric Administration (NOAA). US Department of Commerce. http://www.noaa.gov/


77

Policy responsesPolicy responses

1992 Rio targets: roll back industrial 1992 Rio targets: roll back industrial countries emission to 1990 levels by countries emission to 1990 levels by 20002000

Since then emissions have increasedSince then emissions have increased Little progress has been achievedLittle progress has been achieved


88

Source: National Oceanic and Atmospheric Administration (NOAA). US Department of Commerce. http://www.noaa.gov/


99

Sources: “A timeline of climate change” Matthew Knight, CNN science, 14, May 2008. http://www.cnn.com/2008/TECH/science/03/31/Intro.timeline/index.html (the rest came from G. Chichilnisky directly).


1010

How to achieve the Rio targets?How to achieve the Rio targets?Proposals:Proposals:

Global carbon taxes (OECD Study, Global carbon taxes (OECD Study, 1993 – 41993 – 4

Global markets for carbon emission Global markets for carbon emission permits (Chichilnisky, 1993: permits (Chichilnisky, 1993: proposal to OECD, to UN Framework proposal to OECD, to UN Framework Convention on Climate Change, Chair Convention on Climate Change, Chair R. Estrada-Oyuela, and to World R. Estrada-Oyuela, and to World Bank 1995Bank 1995


1111

1995 Berlin Mandate1995 Berlin Mandate

Negotiate Protocol to quantify Negotiate Protocol to quantify limitations by industrial countries, limitations by industrial countries, e.g. in 2000, 2010, 2020e.g. in 2000, 2010, 2020

Joint implementations pilotJoint implementations pilot Prelude to emissions tradingPrelude to emissions trading


1212

Geneva: June 1996Geneva: June 1996

U.S. Tim Wirth proposes global U.S. Tim Wirth proposes global emission marketsemission markets


1313

● ● In 1996, the IPCC reported that In 1996, the IPCC reported that human induced emissions of carbon human induced emissions of carbon have a discernible effect on climatehave a discernible effect on climate

● Scientific uncertainty persists● Scientific uncertainty persists

● But the risk of climate change is real ● But the risk of climate change is real and potentially catastrophicand potentially catastrophic


1414

Kyoto: 1997Kyoto: 1997

166 nations accepted our 166 nations accepted our emissions market proposal to emissions market proposal to UNFCCCUNFCCC

The Kyoto ProtocolThe Kyoto Protocol


1515

Kyoto set 5% emission reductions Kyoto set 5% emission reductions for Annex 1 countries by 2008-2012 for Annex 1 countries by 2008-2012 and created three facilitating and created three facilitating mechanisms to achieve thismechanisms to achieve this


1616

The Kyoto Protocol sets caps on The Kyoto Protocol sets caps on COCO22 emissions, and allows emissions, and allows

industrial nations to trade the rights industrial nations to trade the rights to emitto emit


1717

Facilitating mechanisms for Facilitating mechanisms for Annex 1 countries:Annex 1 countries:

Joint implementation (article 6)Joint implementation (article 6)

Emission trading (article 17)Emission trading (article 17)

See also art 3.10 and 3.11See also art 3.10 and 3.11


1818

Only one mechanism involves both Only one mechanism involves both industrial and developing countries:industrial and developing countries:

CLEAN DEVELOPMENT CLEAN DEVELOPMENT MECHANISMMECHANISM(ARTICLE 12)(ARTICLE 12)


1919

1993 BUENOS AIRES COP41993 BUENOS AIRES COP4

Set 2 year deadline for completing Set 2 year deadline for completing the KYOTO AGENDAthe KYOTO AGENDA


2020

The Kyoto Protocol sets caps on The Kyoto Protocol sets caps on COCO22 emissions, and allows emissions, and allows

industrial nations to trade the rights industrial nations to trade the rights to emitto emit


2121

TODAYTODAY

The profits obtained are the same for The profits obtained are the same for a Ford factory that produces cars in a Ford factory that produces cars in China using China using dirtydirty technology or technology or clean clean technologytechnology


2222

BALI - COP 13: BALI - COP 13:

The Bali RoadmapThe Bali Roadmap

COPENHAGEN COP15COPENHAGEN COP15

Reducing the U.S. – China impasseReducing the U.S. – China impasse

A NEW COLD WAR?A NEW COLD WAR?


2323

Three outstanding issues for Three outstanding issues for implementation of the Kyoto implementation of the Kyoto

Protocol:Protocol:

Opposition from the private sectorOpposition from the private sector

Developing countries do not participate in Developing countries do not participate in emissions limitsemissions limits

U.S.-China impasse: A new Cold War?U.S.-China impasse: A new Cold War?


2424

Both issues arise from fears Both issues arise from fears that emissions limits will that emissions limits will interfere with economic interfere with economic growth and the rise in growth and the rise in standards of livingstandards of living


2525

How to cut the link between How to cut the link between emissions and economic emissions and economic growth?growth?

Only new clean technologies Only new clean technologies can achieve thiscan achieve this


2626

New technology requires New technology requires appropriate economic appropriate economic

conditions to be conditions to be implemented. implemented.

Resource prices are keyResource prices are key


2727

Prices have an impactPrices have an impact A much-quoted statistic on this subject is A much-quoted statistic on this subject is

that the amount of energy used in that the amount of energy used in producing $1000-worth of constant-dollar producing $1000-worth of constant-dollar GNP in the USA fell by 38.9% from 1973 to GNP in the USA fell by 38.9% from 1973 to 1983. 1983.

This was a result of switching to more This was a result of switching to more energy-efficient technologies, and mostly of energy-efficient technologies, and mostly of demand patterns changing away from demand patterns changing away from energy intensive products and services. energy intensive products and services. Most of this striking drop in energy use Most of this striking drop in energy use occurred in the period 1979-1983.occurred in the period 1979-1983.


2828

New TechnologiesNew Technologies(fuel cells, solar)(fuel cells, solar)

seem uncompetitive because of seem uncompetitive because of excessively low resource pricesexcessively low resource prices

In real terms, oil prices are the In real terms, oil prices are the lowest ever todaylowest ever today


2929

Through clean technologies, Through clean technologies, developing countries can developing countries can

“leapfrog”, without repeating the “leapfrog”, without repeating the resource-intensive growth that resource-intensive growth that

characterizes industrial characterizes industrial countriescountries


3030

Technology transfers and Technology transfers and emissions tradingemissions trading

Today there is no incentive for a USA Today there is no incentive for a USA corporation to set plants in corporation to set plants in

developing countries using modern, developing countries using modern, clean technologyclean technology


3131

EMISSIONS MARKETSEMISSIONS MARKETS

Change all thisChange all thisThey reward the transfers of clean They reward the transfers of clean

technologytechnology

How?How?


3232

If Ford is allocated permits for If Ford is allocated permits for clean car technology clean car technology

corresponding to the emissions corresponding to the emissions saved, it can cash these permits saved, it can cash these permits

in the emissions marketin the emissions market


3333

Markets for Emission PermitsMarkets for Emission Permits

Annex 1 Countries are given Annex 1 Countries are given allocations of property rights on allocations of property rights on emissions summing up to a 5% emissions summing up to a 5% reduction, and they can trade reduction, and they can trade

these freely among themselvesthese freely among themselves


3434

EXAMPLESEXAMPLES

The trading of SOThe trading of SO22 in the Chicago in the Chicago Board of Trade since 1993, following Board of Trade since 1993, following the Clean Air Actthe Clean Air Act

Proposed Water Markets in CaliforniaProposed Water Markets in California


3535

Biodiversity and Markets for Biodiversity and Markets for emissions permitsemissions permits

Deforestation is the source of Deforestation is the source of approximately 20% of global approximately 20% of global greenhouse gas emissions. Science greenhouse gas emissions. Science has shown that forests act as “sinks” has shown that forests act as “sinks” retaining large amounts of carbon retaining large amounts of carbon and absorbing large quantities of and absorbing large quantities of carbon dioxidecarbon dioxide


3636

Biodiversity and Markets for Biodiversity and Markets for emissions permitsemissions permits

The Bolivian government has added 2.1 million The Bolivian government has added 2.1 million acres of tropical forest land to the Noel Kempff acres of tropical forest land to the Noel Kempff Mercado National Park, essentially doubling its Mercado National Park, essentially doubling its size. By investing in the protection of this area, size. By investing in the protection of this area, three U.S. corporations, American Electric Power, three U.S. corporations, American Electric Power, BP America and Pacific Corp., and the Bolivian BP America and Pacific Corp., and the Bolivian government will receive carbon offset credits. government will receive carbon offset credits. These credits could have significant market These credits could have significant market value, should a trading system develop as a value, should a trading system develop as a result of international negotiations stemming result of international negotiations stemming from the December 1997 Kyoto conference on from the December 1997 Kyoto conference on climate changeclimate change


3737

Market InnovationMarket Innovation

New Markets are created, which trade New Markets are created, which trade property rights on the use of the property rights on the use of the Global Commons Global Commons


3838

The Emergence of Global The Emergence of Global Environmental MarketsEnvironmental Markets

The Kyoto ProtocolThe Kyoto Protocol


3939

Financial Innovation Offers A Financial Innovation Offers A SolutionSolution

New York purchased conservation New York purchased conservation land in the Catskillsland in the Catskills

The $660 million purchase was paid The $660 million purchase was paid by selling an environmental bondby selling an environmental bond

New York saved $3.34 billion by New York saved $3.34 billion by conserving the watershedconserving the watershed


4040

Financial instruments to preserve Financial instruments to preserve and realize the value of watershedsand realize the value of watersheds

For decades the water of New York is For decades the water of New York is purified by micro-organisms in the Catskill purified by micro-organisms in the Catskill soilsoil

Their survival is threatened today by Their survival is threatened today by pesticides and fertilizerspesticides and fertilizers

A $6 billion purification plant would be A $6 billion purification plant would be needed if they disappearedneeded if they disappeared

Trading an innovative environmental Trading an innovative environmental bond, New York purchased conservation bond, New York purchased conservation land for $680 million in the Catskills, thus land for $680 million in the Catskills, thus avoiding the cost of the plantavoiding the cost of the plant


4141

The watershed problem is globalThe watershed problem is global

The value of watershed services to The value of watershed services to major cities across the world is major cities across the world is estimated at $900 billionestimated at $900 billion

One can securitize watershed One can securitize watershed services through innovative financial services through innovative financial instrumentsinstruments


4242

SECURITIZATIONSECURITIZATION

Form corporation to manage Form corporation to manage conservationconservation

Corporation owns the cost savings Corporation owns the cost savings from conserving watershedfrom conserving watershed

Finance conservation by selling Finance conservation by selling sharesshares

Local community and state should Local community and state should own sharesown shares


4343

Increased knowledge can helpIncreased knowledge can helpHow?How?

It can lead to:It can lead to:

Better understanding of natural risks and Better understanding of natural risks and how to manage them (El how to manage them (El Nino and catastrophic bundles)Nino and catastrophic bundles)

Better understanding of human impacts on Better understanding of human impacts on nature and of new courses of action nature and of new courses of action (watersheds and environmental (watersheds and environmental bondsbonds


4444

Markets are widely used Markets are widely used institutionsinstitutions

They are decentralized, and can be efficient.They are decentralized, and can be efficient.But global environmental markets trade But global environmental markets trade unusual goods: unusual goods: privately produced public privately produced public goodsgoods

● Biodiversity is one● Biodiversity is one● The planet’s atmosphere is another● The planet’s atmosphere is another


4545

Environmental assets are often Environmental assets are often public goodspublic goods

COCO22 concentration in the atmosphere concentration in the atmosphere is a quintessential public good is a quintessential public good because it mixes very thoroughly because it mixes very thoroughly throughout the planet and is very throughout the planet and is very stable (remains about 100 years)stable (remains about 100 years)

It is not a typical public good It is not a typical public good because it is not produced by the because it is not produced by the government such as defensegovernment such as defense

COCO22 is privately produced is privately produced


4646

Public goods change Public goods change mattersmatters

New Economic FindingsNew Economic Findings Only certain allocations of property Only certain allocations of property

rights on the atmosphere between rights on the atmosphere between countries will yield efficient market countries will yield efficient market solutionssolutions

This ties together the goals of This ties together the goals of efficiency and fairness:efficiency and fairness:

The aspirations of North and SouthThe aspirations of North and South


4747

Privately produced public goodsPrivately produced public goods

are goods which are not “rival” in are goods which are not “rival” in consumption, but are privately consumption, but are privately producedproduced

we all produce emissions but the we all produce emissions but the atmosphere is the same for us allatmosphere is the same for us all


4848

First Theorem of Welfare EconomicsFirst Theorem of Welfare Economics

The allocation resulting from a competitive The allocation resulting from a competitive market equilibrium with private goods is market equilibrium with private goods is Pareto efficient (Arrow, 1950)Pareto efficient (Arrow, 1950)

This theorem is independent of the This theorem is independent of the distribution of property rights. For distribution of property rights. For example: all but two traders may have example: all but two traders may have zero endowments of property rights and zero endowments of property rights and the resulting equilibrium is still Pareto the resulting equilibrium is still Pareto efficient.efficient.


4949

• But it requires all traded But it requires all traded goods to be goods to be private goods, private goods, with rival consumption, and with rival consumption, and

privately owned.privately owned.


5050

Markets with PPP goods are Markets with PPP goods are different from standard marketsdifferent from standard markets

In private goods markets, In private goods markets, efficiency and fairness are efficiency and fairness are separate conceptsseparate concepts

In markets with privately produced In markets with privately produced public (PPP) goods these two public (PPP) goods these two concepts are linkedconcepts are linked


5151

With private goods efficiency requires With private goods efficiency requires that MRS=MRT, but with public goods that MRS=MRT, but with public goods

the formula changes:the formula changes:

Linden-Bowen and Samuelson proved Linden-Bowen and Samuelson proved that:that:

Sum of MRS across people = MRTSum of MRS across people = MRT


5252

● ● For efficient markets, traders For efficient markets, traders should choose freely between should choose freely between private goods and private goods and environmental qualityenvironmental quality

● ● However the atmosphere However the atmosphere concentration of COconcentration of CO22 is one and is one and the same for all. This is an the same for all. This is an unavoidable physical factunavoidable physical fact


5353

● ● Therefore free choice must Therefore free choice must lead every trader to select the lead every trader to select the same overall trade-off between same overall trade-off between private goods and atmospheric private goods and atmospheric qualityquality

● ● For this to happen, trader’s For this to happen, trader’s wealth should not be too far wealth should not be too far apartapart


5454

● ● Efficiency and distribution are Efficiency and distribution are connected in markets with PPP connected in markets with PPP goodsgoods

● ● A measure of equity is A measure of equity is necessary for efficiencynecessary for efficiency

● ● Markets with knowledge and Markets with knowledge and environmental assets require environmental assets require equity for efficiencyequity for efficiency


5555

First Welfare Theorem in First Welfare Theorem in Markets with Privately Markets with Privately

Produced Public GoodsProduced Public Goods

Only a finite number of ways of Only a finite number of ways of distributing property rights on a distributing property rights on a given total of emissions rights given total of emissions rights between the traders gives rise to between the traders gives rise to efficient market allocationsefficient market allocations


5656

● ● Efficiency and distribution are Efficiency and distribution are closely connected in economies closely connected in economies with environmental assetswith environmental assets

● A measure of equity is ● A measure of equity is necessary for efficiencynecessary for efficiency


5757


5858

POLICYPOLICY

Those who have fewer endowments Those who have fewer endowments of private goods must be endowed of private goods must be endowed with more property rights on the use with more property rights on the use of the PPP good. Otherwise the of the PPP good. Otherwise the market does not operate efficientlymarket does not operate efficiently


5959

● ● One way to ensure this is to follow a One way to ensure this is to follow a simple rule: the countries that emit less simple rule: the countries that emit less receive somewhat more permits:receive somewhat more permits:

● A “reverse grand-fathering” allocation● A “reverse grand-fathering” allocation

● Repeated across time, such a policy ● Repeated across time, such a policy would compensate those who use the would compensate those who use the atmosphere judiciously and provide atmosphere judiciously and provide incentives to abateincentives to abate


6060

This scheme:This scheme:

Rewards the transfers of clean Rewards the transfers of clean technology to developing countriestechnology to developing countries

Multiplies the returns on R&D in the Multiplies the returns on R&D in the private sectorprivate sector

Securitizing these returns attracts Securitizing these returns attracts global capital from private sources global capital from private sources for clean technology transfersfor clean technology transfers


6161

A market hasA market has NN traded goods andtraded goods and HH traderstraders

Each trader has a preferenceEach trader has a preference uuhh : R : RNN R R

andand and allocation of property rightsand allocation of property rights

ΩΩhh Є Є RRNN..

NEW MARKETS


6262

What is economic efficiency:What is economic efficiency:

A feasible allocation is A feasible allocation is Pareto Pareto efficient efficient if there is no other feasible if there is no other feasible allocation which makes everybody as allocation which makes everybody as well off, and some strictly better offwell off, and some strictly better off


6363

A A competitive equilibrium competitive equilibrium is a priceis a price p* p* RRN N and an allocationand an allocation xx11,…,x,…,xHH RRN x HN x H such that such that each trader maximizes utility subject to a each trader maximizes utility subject to a budget constraint:budget constraint:

Max (uh(y)) for y {z Є RN : <p*, z> = <p*,Ωh>}

And markets clear:And markets clear:

Σ xh = Σ Ωh.

H H

h=1 h=1


6464

A competitive market equilibriumA competitive market equilibrium

Is a set of pricesIs a set of prices p*p* and an allocation of and an allocation of goods goods xx11,…, x,…, xHH RRN x H N x H at which each trader at which each trader maximizes utility subject to a budget maximizes utility subject to a budget constraint, and all markets clear.constraint, and all markets clear.


6565

A General ModelA General Model

•Consider a world economy with I countries, I ≥ 2 , indexed by i = 1,…,I. Each has a utility function ui , arguments a vector of private goods ci = (ci,1,ci,2,…,ci,m) where m is the number of private goods, and also the quality of the world’s atmosphere, a, which is a public good.

• The quality of the atmosphere, a, is measured by the reciprocal or the negative of CO2 concentration. The concentration of CO2 is “produced” by emissions of carbon, which are positively associated with the production of private goods.


6666

•Let y be a vector giving the production levels of the m private goods in the country i.

a = Σ ai , ai = Φ (yi) and < 0 i.

a is a measure of atmospheric quality overall, and ai is an index of the abatement carried out by country i.

•Feasibility is defined by the above and by the condition that the total consumption of each private good worldwide equal total production,

ci = yi

This allows unrestricted lump sum redistributions.

I

i=1

yi,l

i=1,…,I i=1,…,I


6767

A Pareto efficient allocation is the solution to the problem of A Pareto efficient allocation is the solution to the problem of maximizing the utility of a designed country, subject to the maximizing the utility of a designed country, subject to the other countries all reaching prescribed utility levels. This other countries all reaching prescribed utility levels. This gives the following conditions: gives the following conditions:

= λ= λkk l = l = 1,…,1,…,mm and and k k i.i.

This implies common MRS for all countries. Country This implies common MRS for all countries. Country ii is the is the

country whose utility is being maximized, and λcountry whose utility is being maximized, and λkk is a is a Lagrange multiplier associated with the constraint that Lagrange multiplier associated with the constraint that country country kk reach a specified welfare level, and reach a specified welfare level, and

= = l ,l ,

ui

ci,l

uk

ci,l

i

yi,l

uk

ci,l

k kuk

a


6868

First Welfare Theorem for Markets with First Welfare Theorem for Markets with Privately Produced Public GoodsPrivately Produced Public Goods

TheoremTheorem

In an economy with In an economy with kk2 traders, 2 traders, jj1private 1private goods and a public good, there exists at most a goods and a public good, there exists at most a

one-dimensional manifold o property rights one-dimensional manifold o property rights allocations on the use of the public good allocations on the use of the public good (allocation of “permits”) from which the (allocation of “permits”) from which the

competitive equilibrium is Pareto efficient.competitive equilibrium is Pareto efficient.

This is the Manifold of Efficient Allocations of This is the Manifold of Efficient Allocations of

Property RightsProperty Rights


6969

First Welfare TheoremFirst Welfare Theorem

In Markets with Privately Produced Public GoodsIn Markets with Privately Produced Public Goods There is only a finite number of ways of There is only a finite number of ways of

distributing property rights on a given total distributing property rights on a given total environmental use between the traders so that environmental use between the traders so that the the market equilibrium is Pareto efficientmarket equilibrium is Pareto efficient

Typically efficiency requires that those with fewer Typically efficiency requires that those with fewer endowments of private goods should have a endowments of private goods should have a higher allocation of property rights on the public higher allocation of property rights on the public goodsgoods

Chichilnisky, 1992-3Chichilnisky, 1992-3Chichilnisky and Heal, 1993Chichilnisky and Heal, 1993Chichilnisky, Heal and Starrett, 1993-4Chichilnisky, Heal and Starrett, 1993-4


7070

Simple Example of a Market with Simple Example of a Market with Privately Produced Public GoodsPrivately Produced Public Goods

Two Countries, i=1,2Two Countries, i=1,2

Two Goods: Two Goods:

one private: one private: xx and one public: and one public: aa = abatement = -emissions = abatement = -emissions

Initial data: (1) the technology Initial data: (1) the technology aax,x,

And (2) the property rights on the use of the public good,And (2) the property rights on the use of the public good,

aai i , , aa11 = a = a


7171

Each Country solves the following problem:Each Country solves the following problem:

((**)) Max u Max ui i (x(xi i ,a),,a),

Such thatSuch that

xxii= = aaii( a( aii – a – aii), ), ’ ’

where where is the market price of is the market price of xx relative to relative to a.a.

At World Market Equilibrium each country maximizes utility At World Market Equilibrium each country maximizes utility (*), and markets clear(*), and markets clear

aaii = = aaii = a = a

ii


7272


7373

New Economic FindingsNew Economic Findings

Efficiency in trading permits requires Efficiency in trading permits requires more emission rights to developing more emission rights to developing countriescountries

Why?Why?


7474

Experiments withExperiments withGREEN MODELGREEN MODEL

Show that the world cost Show that the world cost of abatement is lower of abatement is lower when the South is given when the South is given proportionately more proportionately more permitspermits


7575

Experiments with Columbia-Green Experiments with Columbia-Green model:model:

General equilibrium model with General equilibrium model with permit marketspermit markets

12 regions12 regions 12 by 12 international trade matrix12 by 12 international trade matrix 8 sectors8 sectors Experiments lead to similar finding, Experiments lead to similar finding,

i.e. equity and efficiency are i.e. equity and efficiency are connectedconnected


7676

Sensitivity analysis of the OECD-Sensitivity analysis of the OECD-PIR global model shows that it is PIR global model shows that it is more efficient to allocate somewhat more efficient to allocate somewhat more permits to developing more permits to developing countriescountries Currently the N-S per capita difference in Currently the N-S per capita difference in

emissions is 6:1emissions is 6:1 IN the case of U.S. the difference is 10:1IN the case of U.S. the difference is 10:1 Developing countries with more than 86% Developing countries with more than 86%

of the world population emit less than 70% of the world population emit less than 70% of the total carbon emissionsof the total carbon emissions


7777


7878


7979


8080


8181


8282


8383

Present Value of Real Income Loss over 2000-2050Present Value of Real Income Loss over 2000-2050(in percentage deviation relative to BaU)(in percentage deviation relative to BaU)

INDIVIDUALINDIVIDUAL

STABLILITYSTABLILITYUNIFORMUNIFORM

TAXTAXGRANDGRAND

FATHERINGFATHERINGPOPULATION POPULATION

BASEDBASEDMIXEDMIXED

USAUSA

JPNJPN-O.79-O.79

-2.41-2.41-0.90-0.90

-1.24-1.24-0.76-0.76

-1.83-1.83-2.94-2.94

-2.84-2.84-1.84-1.84

-2.34-2.34

EECEEC

OOEOOE-1.23-1.23

-0.58-0.58-1.16-1.16

-0.55-0.55-1.22-1.22

-0.54-0.54-3.13-3.13

-1.53-1.53-2.19-2.19

-1.04-1.04

EEXEEX

CHNCHN-3.39-3.39

-3.88-3.88-0.83-0.83

-3.47-3.47-0.78-0.78

-4.14-4.14 0.090.09

6.026.02-0.39-0.39

1.041.04

FSUFSU

INDIND-1.42-1.42

-2.61-2.61-2.66-2.66

-2.00-2.00 1.081.08

-2.94-2.94-7.13-7.13

14.6214.62-2.92-2.92

7.007.00

EETEET

DAEDAE-0.33-0.33

-0.29-0.29-1.09-1.09

0.160.16 0.810.81

0.200.20-5.94-5.94

0.190.19-2.51-2.51

-0.05-0.05

BRABRA

ROWROW-1.60-1.60

-0.40-0.40-1.78-1.78

-0.01-0.01-4.40-4.40

0.050.05-0.55-0.55

0.210.21-2.45-2.45

0.120.12

WORLDWORLD -1.65-1.65 -1.16-1.16 -1.17-1.17 -1.06-1.06 -1.07-1.07


8484

This is because each dollar of This is because each dollar of investment yields more output in investment yields more output in

the Souththe South


8585

GDP growth (annual %) of high income vs. middle and low income countries

0

1

2

3

4

5

6

1980 1984 1988 1992 1996 2000

High incomeLow & middle income

World Bank 2002.


8686

Gross domestic savings rate (% of GDP) high income vs. middle and low income countries

0

5

10

15

20

25

30

1980 1984 1988 1992 1996 2000


World Bank 2002.


8787

Ratio of GDP growth (annual %) to Gross domestic savings (% of GDP)

0

0.05

0.1

0.15

0.2

0.25

1980 1984 1988 1992 1996 2000


World Bank 2002.


8888

TODAYTODAY

There is a general agreement that There is a general agreement that making accessible more making accessible more development funding for poor development funding for poor countries in a controlled and countries in a controlled and incremental fashion could benefit the incremental fashion could benefit the world economy as a wholeworld economy as a whole


8989

TODAYTODAY

There is a general agreement that There is a general agreement that something must be done at the something must be done at the international levelinternational level

Kyoto, December 1997 could be a Kyoto, December 1997 could be a turning pointturning point


9090

● ● Yet in the global negotiations, the Yet in the global negotiations, the division between industrial and division between industrial and developing nations is as deep as everdeveloping nations is as deep as ever● There is a general agreement that ● There is a general agreement that without bridging North-South gap there without bridging North-South gap there will be no real progresswill be no real progress

How to move ahead?How to move ahead?


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One way to ensure this is to follow a One way to ensure this is to follow a simple rule: the countries that emit simple rule: the countries that emit less receive somewhat more permits:less receive somewhat more permits:

A “reverse grand-fathering”allocationA “reverse grand-fathering”allocation

Repeated across time, such a policy Repeated across time, such a policy would compensate those who use the would compensate those who use the atmosphere judiciously and provide atmosphere judiciously and provide incentives to abateincentives to abate


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The Key IssuesThe Key Issues•Allocation of rights on the use of the atmosphere

•This is a question of efficiency as well as equity

More on this in the lecture


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How to resolve How to resolve the China-US Impassethe China-US Impasse

• New Financial mechanism

• New Technologies


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Technology TransferTechnology Transfer

•Negative Carbon Market •To increase clean energy

• Reduce carbon in the atmosphere


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New Financial MechanismsNew Financial Mechanisms

• Based on Carbon Market • Replicating Article UNFCCC

• Giving North and South what they want

economic returns from the biosphere

Documents

world resources institute

co2 emissions

industrial countries

global emission marketsprogram

emissions tradingprogram

emissions market proposal

risk of climate change

global markets