Climate tipping requires precautionary accumulation of capital and an additional price for carbon emissions
Rick van der Ploeg, Aart de Zeeuw 31 July 2014
Many ecological systems feature ‘tipping points’ at which small changes can have sudden, dramatic, and irreversible effects, and scientists worry that greenhouse gas emissions could trigger climate catastrophes. This column argues that this renders the marginal cost-benefit analysis usually employed in integrated assessment models inadequate. When potential tipping points are taken into account, the social cost of carbon more than triples – largely because carbon emissions increase the risk of catastrophe.
Climate policy aims to internalise the social cost of carbon by means of a carbon tax or a system of tradable permits such as the Emissions Trading System set up in the EU. But how do we determine the social cost of carbon? Do we take everything into account that should be taken into account? Most integrated assessment models (Nordhaus 2008, Stern 2007) calculate the net present value of estimated marginal damages to economic production from emitting one extra ton of carbon caused by burning fossil fuel.
climate change, environment, global warming, social cost of carbon, regime shifts, tipping points
Sustainable growth requires a long-term focus
Pascal Lamy, Ian Goldin 28 March 2014
Excessive short-termism is always a problem for policy, but the Global Crisis has brought it sharply into focus. This column introduces a report that discusses how a shift to longer-term solutions is necessary and possible. A key message is that businesses as well as governments need to take a longer-term view. The report identifies ways to overcome the current impasse in key economic, climate, trade, security, and other negotiations.
Just when we thought high-frequency trading couldn’t get any faster, a US communications company is developing a high-speed laser network between the New Jersey data centres of the New York Stock Exchange and the NASDAQ stock exchange, to shave an additional few nanoseconds off high-frequency trading times.
Environment Financial markets Global crisis International trade
growth, climate change, trade, environment, corporate governance, global crisis, high-frequency trading, short-termism, mark-to-market accounting
Economic analysis of the US unconventional oil and gas revolution
Mathilde Mathieu, Thomas Spencer, Oliver Sartor 22 March 2014
The US unconventional energy boom has reversed the decline of domestic production, lowered oil and gas imports, reduced gas prices, and created political space for tougher regulations on coal-fired power plants. This column argues that it is not a panacea, however. Even if current estimates prove accurate, the long-run benefits to the US economy will be relatively small. Improving energy efficiency and promoting low-carbon technologies will be just as important as before – especially for the EU, given its more limited known reserves of unconventional oil and gas.
The recent rapid growth in the production of unconventional oil and gas (shale gas and tight oil) in the US has led to a significant decrease of natural gas prices as well as reduced oil imports. This has raised questions about the impacts of the unconventional oil and gas revolution on the US macroeconomy, industrial competitiveness, and energy sector. It has also raised questions about its implications for the EU (e.g. Beffa and Cromme 2013).
energy, US, environment, oil, gas, shale gas, fracking, tight oil, energy independence
Waste of effort? International environmental agreements
Derek Kellenberg, Arik Levinson 01 March 2014
Economic theory predicts that international environmental agreements will fail due to free-rider problems, and previous empirical work suggests that such agreements do not in fact reduce emissions. This column presents evidence that the Basel Convention and Ban on trade in hazardous waste has also been ineffective. The authors find no evidence that Annex-7 countries that ratified the Ban slowed their exports to non-Annex-7 countries as the agreement requires.
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.
Environment International trade
trade, environment, waste
Market mechanisms for regulation: Cap-and-trade and Obamacare
Jeffrey Frankel 27 February 2014
Market-based mechanisms such as cap-and-trade can tackle externality problems more efficiently than command-and-control regulations. However, politicians in the US and Europe have retreated from cap-and-trade in recent years. This column draws a parallel between Republicans’ abandonment of market-based environmental regulation and their recent disavowal of mandatory health insurance. The author argues that in practice, the alternative to market-based regulation is not an absence of regulation, but rather the return of inefficient mandates and subsidies.
Markets can fail. But market mechanisms are often the best way for governments to address such failures. This has been demonstrated in areas from air pollution, to traffic congestion, to spectrum allocation, to cigarette consumption.
Environment Politics and economics
environment, global warming, pollution, regulation, healthcare, Cap-and-trade, market-based mechanisms, Obamacare, EU ETS
Nuclear expansion or phase-out? Costs and opportunities
Enrica De Cian, Samuel Carrara, Massimo Tavoni 22 December 2013
After the Fukushima incident in 2011, many countries decided to shrink their nuclear power programmes. This article presents recent research on the optimal role of nuclear power in reducing carbon emissions. Phasing out nuclear power would be costly, since it is currently the cheapest low-carbon alternative to fossil fuels. However, these costs would be largely offset by the implicit subsidy to R&D in renewables, which suffers from innovation externalities. Still, carbon pricing and explicit R&D subsidies would be a more efficient way of determining the future of nuclear power.
"We learned from Fukushima that we have to deal differently with risks… We believe we as a country can be a trailblazer for a new age of renewable energy sources… We can be the first major industrialized country that achieves the transition to renewable energy with all the opportunities – for exports, development, technology, jobs – it carries with it.” Angela Merkel (distinct quotes).
R&D, energy, climate change, environment, climate policy, carbon pricing, energy mix, nuclear power
Identifying the worldwide pollution haven effect
Jean-Marie Grether, Nicole A. Mathys, Jaime de Melo 23 December 2010
Environmentalists have long feared that globalisation will harm the environment by allowing heavily polluting industries to migrate to countries with lax environmental standards. This column presents new evidence from several industries across many countries for all the major pollutants. It suggests that lax policy has only had a small effect on the pollution content of trade.
For the environmentally minded, globalisation reflected in rising trade shares in world GDP is worrisome. Globalisation is a direct concern because the activity of trading itself generates pollution through the transport of goods (Hummels 2009 and Grether et al. 2010a), and an indirect concern because lower environmental standards generate a comparative advantage in "dirty" industries for developing countries (Antweiler et al 2001).
Environment International trade
globalisation, environment, pollution
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
Climatopolis: How will climate change impact urbanites and their cities?
Matthew E. Kahn 11 September 2010
Most scientists agree that climate change is underway or at least on the horizon. This column introduces the author's book 'Climatopolis: How Our Cities will Thrive in Our Hotter Future.' It outlines an optimism and an irony: Urban economic growth may have caused climate change, but through the free market, it will also help us to adapt to it.
Without being overly dramatic, climate change is coming. The concentration of carbon dioxide in the Earth's atmosphere is approximately 390 parts per million by volume as of 2010, and rising by about 1.9 parts per million per year (Wikipedia 2010). Recent efforts at the December 2009 Copenhagen Climate Conference and in the US Senate during the summer of 2010 have failed to overcome the fundamental free rider problem – no one individual or nation has an incentive to unilaterally reduce emissions.
climate change, environment, climate policy, urbanisation