Waste of effort? International environmental agreements

Derek Kellenberg, Arik Levinson, 1 March 2014

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To address environmental problems that span national borders, countries have negotiated more than 1,000 international environmental agreements (IEAs). But do they work? According to most theoretical economic models, because of free-rider problems IEAs cannot reduce pollution much below business-as-usual levels (Barrett 1994, 1997; Carraro and Siniscalco 1993; Finus and Maus 2008). Of course, game-theoretic models rarely predict real-world behaviour, which leaves room for hope that IEAs might be effective in practice.

Unfortunately, empirical work supports the theories in this case. Researchers have found no decrease in sulfur emissions by countries ratifying the Helsinki or Oslo Protocols (Murdoch and Sandler 1997a, Ringquist and Kostadinova 2005, Finus and Tjøtta 2003), nor decreases in ozone-depleting substances in response to the Montreal Protocol (Murdoch and Sandler 1997b). The lone paper finding a small but statistically significant consequence of an IEA is Bratberg et al. (2005), who show that countries ratifying the Sofia Protocol reduced nitrogen oxide emissions relative to non-ratifying countries. But even that result supports Finus and Maus’s (2008) theoretical finding that IEA pollution reductions will be inefficiently small.

There remains one more shred of hope for the efficacy of IEAs, in that all of the empirical work to date has faced two obstacles. First, IEAs typically require countries to begin reporting data on their pollution, making it impossible to know what countries were doing before they joined, or to compare participants with nonparticipants. Second, researchers have a hard time differentiating countries’ actions after joining IEAs from what they would have done had they not joined the IEAs. If pollution increases after member countries enact an IEA, but increases less than if the countries had not acted, the IEA might be falsely deemed a failure despite its success in slowing pollution growth. Or if countries expecting emissions reductions are more likely to join an IEA, the IEA might be falsely deemed successful.

In a paper in the forthcoming inaugural issue of the Journal of the Association of Environmental and Resource Economists (Kellenberg and Levinson 2014), we examine one particular IEA that enables us to address both problems – the Basel Convention on the Control of Transboundary Movements of Hazardous Waste and their Disposal. The Convention was adopted to address concerns about so-called ‘toxic trade’ – waste shipments from industrialised countries to parts of the world where disposal is presumably less safe. Although hazardous waste disposal is a local issue and might not appear to require international cooperation, if some countries cannot appropriately regulate disposal or prevent importation on their own, trade restrictions may be a second-best policy. As a consequence, the Convention’s Ban Amendment prohibits all exports of hazardous waste from countries listed in Annex 7 (all OECD and European Union countries plus Liechtenstein) to all other countries not listed in Annex 7.

The key advantage the Convention and Ban offer for studying the empirical effect of IEAs is that the UN Comtrade database tracks international shipments of all goods, including waste, regardless of whether countries ratified the Basel Convention or Ban. Unlike prior empirical work on IEAs, we can compare the regulated activity for countries that have and have not ratified the agreement. Of the more than 5,000 Harmonized System tariff codes describing international shipments, we focus on 60 that describe various types of waste.

Figure 1 plots these data. The top line shows the annual total of international waste shipments. The middle line plots the imports by non-Annex-7 countries. The bottom line shows waste shipments from Annex-7 to non-Annex-7 countries – the ones prohibited by the Ban. Waste trade has grown by many multiples, and the prohibited Annex-7 to non-Annex-7 shipments account for more than a quarter of that growth.

Figure 1. International waste shipments

Source: Authors’ calculations based on 60 six-digit HS tariff codes defined in Keller and Levinson (2013).

Just because waste grew despite the Basel Convention and Ban doesn’t necessarily mean the treaties didn’t work. Waste might have grown even more in the absence of those IEAs. Figure 2 evaluates that possibility by examining trends in waste exports before and after countries ratified the Ban. Instead of calendar years, the bottom axis designates years relative to the year the Ban was ratified – by the importer for the top line, and by the exporter for the bottom line. The top line shows that waste imports from Annex 7 to non-Annex-7 countries grew steadily both before and after the non-Annex-7 importer ratified the Ban. Similarly, the bottom line shows that waste exports from Annex 7 to non-Annex-7 countries grew steadily both before and after the Annex-7 exporter ratified the Ban. Judging from Figure 2, it does not seem that ratifying the Ban on waste shipments altered existing trends.

Figure 2. Average annual Annex-7 to non-Annex-7 shipments

To control for other contemporaneous trends, and to assess whether the Basel Convention or the Ban have altered waste shipments beyond what would have occurred anyway, in Kellenberg and Levinson (2014) we use a variant of the gravity model of international trade. This is where our unique identification strategy has power, because of the Ban’s restriction on one category of waste trade – shipments from Annex-7 to non-Annex-7 countries. While controlling for other country characteristics, we interact indicators for Ban ratification with indicators for Annex-7-to-non-Annex-7 shipments. We find that although Annex-7 countries ratifying the Ban do appear to export less waste to non-Annex-7 countries, that effect disappears once we include country-year fixed effects or country-pair fixed effects, supporting the suggestion in Figure 2 that the Ban left unaltered existing trends in waste exports by Annex-7 ratifying countries.

Although we had expected that the empirical advantages of our approach might help us to overcome the obstacles faced by earlier research, and yield results consistent with an IEA improving environmental outcomes, we find no evidence that Annex-7 countries that ratified the Ban slowed their exports to non-Annex-7 countries as the agreement requires.

Might these results have implications for other international environmental problems, such as climate change? At one level the issues seem quite different. Climate change involves a global pollutant emitted at the place where goods are used or produced, whereas hazardous wastes are local pollutants separated from their place of generation and shipped globally. That difference means that the world’s hazardous waste problems are potentially solvable without international agreements, because the pollution does not typically span international borders. In that respect, the fact that the Basel Convention and Ban appear ineffective is disheartening, and suggests that alternative policy mechanisms and strategies that go beyond voluntary IEAs may be needed to solve large global problems like climate change.

References

Barrett, Scott (1994), “Self-Enforcing International Environmental Agreements”, Oxford Economic Papers, 46: 878–894.

Barrett, Scott (1997), “Heterogeneous international environmental agreements”, in C Carraro, (ed,), International Environmental Negotiations: Strategic Policy Issues, Cheltenham: Edward Elgar.

Bratberg, Espen, Sigve Tjøtta, and Torgeir Øines (2005), “Do voluntary international environmental agreements work?”, Journal of Environmental Economics and Management, 50: 583–597.

Carraro, Carlo and Domenico Siniscalco (1993), “Strategies for the international protection of the environment”, Journal of Public Economics, 52: 309–328.

Finus, Michael and Stefan Maus (2008), “Modesty May Pay!”, Journal of Public Economic Theory, 10(5): 801–826.

Finus, Michael and Sifve Tjøtta (2003), “The Oslo Protocol on sulfur reduction: the great leap forward?”, Journal of Public Economics, 87: 2031–2048.

Kellenberg, Derek and Arik Levinson (2014), “Waste of Effort? International Environmental Agreements”, Journal of the Association of Environmental and Resource Economists, forthcoming. 

Murdoch, James C and Todd Sandler (1997a), “Voluntary Cutbacks and Pretreaty Behavior: The Helsinki Protocol and Sulfur Emissions”, Public Finance Review, 25: 139–162.

Murdoch, James C and Todd Sandler (1997b), “The voluntary provision of a pure public good: The case of reduced CFC emissions and the Montreal Protocol”, Journal of Public Economics, 63: 331–349.

Ringquist, Evan J and Tatiana Kostadinova (2005), “Assessing the Effectiveness of International Environmental Agreements: The Case of the 1985 Helsinki Protocol”, American Journal of Political Science, 49(1): 86–102.

Topics: Environment, International trade
Tags: environment, trade, waste

Department Chair & Associate Professor at the Department of Economics, University of Montana
Professor, Economics Department, Georgetown University