Climate policy targets revisited
Richard S J Tol 25 April 2014
The IPCC’s Fifth Assessment Report estimates lower costs of climate change and higher costs of abatement than the Stern Review. However, current UN negotiations focus on stabilising atmospheric concentrations of greenhouse gases at even lower levels than recommended by Stern. This column argues that, given realistic estimates of the rate at which people discount the future, the UN’s target is probably too stringent. Moreover, since real-world climate policy is far from the ideal of a uniform carbon price, the costs of emission reduction are likely to be much higher than the IPCC’s estimates.
The Stern Review of the Economics of Climate Change is the most famous economic assessment of climate policy (Stern et al. 2006). The Stern Review puts the costs of unmitigated climate change at 5–20% of GDP (now and forever), it estimates that the cost of stabilising atmospheric concentrations around 525 ppm CO2e are 1% of GDP (in 2050), and recommends that concentrations be stabilised around 500 ppm CO2e.1
climate change, emissions, externalities, greenhouse gases, pollution, carbon, cost-benefit analysis
Making city lights shine brighter
Shahid Yusuf, Danny Leipziger,
Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. CEPR Policy Insight 71 argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
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Making city lights burn brighter
Danny Leipziger, Shahid Yusuf 03 March 2014
Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. This column argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
Urbanisation and per capita GDP are well correlated.1 According to a recent estimate by Gilles Duranton using cross-country data for 2012 (see Figure 1), each percentage point of urbanisation is associated with a five-percentage-point increase in GDP per capita, with urbanisation apparently explaining 60% of the variation in incomes.
Figure 1. Urbanisation and GDP per capita
growth, Inequality, externalities, cities, urbanisation, agglomeration, slums
The housing-market impacts of shale-gas development
Lucija Muehlenbachs, Beia Spiller, Christopher Timmins 09 February 2014
Compared to coal and oil, shale gas offers the prospect of greater energy independence and lower emissions of carbon dioxide and other pollutants. However, fracking is controversial due to the local externalities it creates – particularly because of the potential for groundwater contamination. This column presents evidence on the size of these externalities from a recent study of house prices. The effect attributable to groundwater contamination risk varies from 10% to 22% of the value of the house, depending on its distance from the shale gas well.
Technological improvements in the extraction of natural gas from shale rock have transformed the industry.
house prices, housing, externalities, pollution, property prices, shale gas, fracking
Can passenger railways curb road-traffic externalities? Empirical evidence
Rafael Lalive, Simon Luechinger, Armin Schmutzler 15 March 2013
Against a backdrop of road accidents, pollution and congestion, many governments subsidise railways with the aim of reducing such externalities. But do improvements in public transport work? This column argues that recent empirical evidence confirms our expectations and, moreover, that public-transport improvements offer good value for money.
Road accidents kill 1.2m people every year (WHO). Road transportation is the main source of local air pollutants such as nitrogen oxide and carbon monoxide. It contributes to noise and global air pollution, and it leads to congestion. Against this backdrop, many governments subsidise railways with the explicit aim of reducing road-traffic externalities. However, do improvements in public transport really curb road-traffic externalities? In this column, we discuss recent empirical evidence identifying positive effects of public-transport improvements.
Environment Frontiers of economic research Productivity and Innovation
externalities, pollution, infrastructure, railways, trains
Are property values affected by concerns over groundwater contamination from shale?
Lucija Muehlenbachs, Beia Spiller, Christopher Timmins 29 September 2012
Natural gas is seen as an attractive source of energy – it is cleaner than coal and often more reliable. But there are potential risks from the drilling and hydraulic fracturing process. This column shows how shale gas extraction could reduce property prices, and argues that policymakers need to bear this in mind when thinking about the costs and benefits.
A recent increase in the extraction of natural gas and oil using unconventional methods has transformed communities and landscapes. Shale gas extraction has grown rapidly in recent years thanks to developments in hydraulic fracturing and horizontal drilling. The extraction of natural gas from shale, which had hitherto been economically unrecoverable, has resulted in greatly expanded supply and in many landowners receiving high resource rents for the hydrocarbons beneath their land.
externalities, pollution, natural gas, property prices
On international equity weights and national decision making on climate change
David Anthoff, Richard S J Tol 29 November 2010
An international agreement on tackling climate change is still a long way off. One barrier often cited is that sovereign states will fail to cooperate and among the challenges is how countries would measure the impact of climate change on others. This column presents new insights in this area.
Climate change is a moral problem. The main reason to reduce greenhouse gas emissions is a concern for faraway lands (Schelling 2000), distant futures (Nordhaus 1982), and remote probabilities (Weitzman 2009). The people who emit most are least affected by climate change, and the benefits of their abatement would be dissipated. Carbon dioxide lingers in the atmosphere for decades and the effects on temperature and sea level play out over even longer periods. Central projections have that climate change and its impacts are a nuisance for rich countries and a problem for poor countries.
climate change, externalities, environment, co-operation
Tolls instead of traffic jams
Hans-Werner Sinn 17 September 2010
No one likes sitting in a traffic jam, but what can be done about them? This column says the time has come for general road tolls on all roads across all of Europe.
It’s the same story every year. European motorists fight their way through heavy traffic on their way to their holiday destinations. Instead of comfortably stretching out their legs in their hotel rooms, they spend long hours cramped behind the steering wheels of their cars. Stress instead of rest and relaxation. Hours in taxing stop-and-go traffic until their long-anticipated goal is reached. This has got to stop. EU countries should be able to put an end to the chaos on their highways.
Environment EU institutions
externalities, environment, Traffic jams, road tolls
Multinational firms, agglomeration, and global networks
Laura Alfaro, Maggie Chen 08 January 2010
Agglomeration effects are important but difficult to measure. This column uses a new database with precise geographical information to investigate the locational interdependence of multinational firms. Knowledge spillovers and capital- and labour-market externalities exert a significant effect on the co-agglomeration of multinational headquarters, while input-output linkages also play a significant role in the case of subsidiary co-agglomeration.
Recent decades have witnessed an explosion in the activities of multinational corporations. Sharp declines in trade and telecommunication costs have led to increasing separation of management and production facilities within individual firms. The rise of multinational firms represents a particularly extreme example of expanding geographic distance between firm leadership and production. Firms that agglomerated in Silicon Valley and Detroit now have subsidiaries clustering in Bangalore (termed the Silicon Valley of India) and Slovakia (nicknamed Detroit of the East).
Industrial organisation International trade
multinationals, externalities, agglomeration
The rise of obesity in Europe: An economic perspective
Giorgio Brunello, Pierre-Carl Michaud, Anna Sanz-de-Galdeano 06 October 2009
Should the government intervene to reduce obesity on the basis of equity or efficiency? This column gives reasons to be sceptical common arguments for such interventions. Unless health insurance provision creates significant moral hazard problems that encourage obesity, there is little reason to attack obesity on the basis of health insurance externalities.
When comparing obesity rates in Europe and the US, two basic facts emerge:
- continental Europe has much lower rates of obesity than the UK and US (Figure 1)
- while Europe is heading in the same direction as the US – higher obesity rates – it is doing so at a significantly slower pace, according to OECD data.
Figure 1. Prevalence of obesity in 2004 among adults (aged 18+) by gender
Source: OECD Health Data (2005)
obesity, insurance, externalities