Econ Section IV

  • june 2023 New York Times, forest fires in canada threatened new yorkers ability to breathe

  • 2022 stanford study number of people exposed to toxic pollution in a year from wildfires increased 27 times between 2006 and 2020

  • new york city health conference, june 7 2023, “climate change is real… and impact our health”

  • economy and ecology come from greek work oikos meaning the household and its management

  • climate commons - the shared atmospheric environment of the globe

  • key economic issues and ecological consequences:

    • damages to the US economy as a function of temperature change

    • uneven burdens facing poorer regions nationally and internationally

    • rapid reductions in the cost of renewable energy sources, suggesting viable substitution possibilities

  • four policy responses:

    • doing nothing and hoping for the best

    • unilateral intervention: geoengineering

    • negotiating over climate targets

    • multilateralism: a global environmental organization (GEO)

  • externalities result from the interdependence of individuals in which markets do a poor job of signaling behavior

    • direct, uncompensated, and often unintentional actions of others

  • positive externality

  • negative externality

  • one-way (unidirectional) externality

  • reciprocal externality

  • scrubbers on coal-fired plants from legislation passed in 1970s

  • when positive or negative externalities are experienced by groups larger than just a few individuals or firms, they are described as public goods or public bads

  • free rider - a person, firm, or country that consumes a public good but pays less or none of the cost of its provision

  • principal/agent problem - the information and monitoring problems faced by a principal seeking to oversee many agents; when area of which public good is supplied gets bigger, it becomes more difficult for those in charge to monitor the “agents”

  • economic house - a common household shared by multiple individuals who are obligated to make an effort to keep it clean

  • nested public good - one public good or commons dilemma inside another (like Russian dolls); a clean house is nested on the larger problem of trash collection along the street and larger areas

  • three ideas

    • expectations by members of house concerning behavior of others and obligations to household become norms or rules that guide behavior and penalties for noncompliance

    • norms find expression in institutions that enforce them

    • though institutions can guide and enforce behavior, success largely depends on voluntary compliance

    • collective action (organization and coordination)

  • “who will guard the guardians,” circle of authority

  • discount rate reflects the trade off someone makes by spending a dollar today versus saving the dollar to spend on something a year from now

    • present value = 1/(1 + r)^t • future value

    • present value = the value in present dollars of a future aspect

    • r = the discount rate

    • t = time until get back value

    • higher r is, smaller total value of future income

    • higher t is, smaller total value of future income

    • if we value future consumption more than present consumption, r is negative

  • focus on three issues of rising temperatures

    • magnitude of damages associated with rising temps

    • the calculated social costs of those damages, specifically the social cost of carbon

    • the uncertainty surrounding these estimates

  • damages to US economy and the rest of the world

    • agricultural productivity

    • increased mortality

    • added energy use

    • storm activity

    • drought and flooding

  • social cost of carbon (SCC) - the cost, in dollars, of the damage done by each additional ton of carbon emissions and the corresponding benefit of actions taken to reduce them

    • biden administration using estimate of $51/ton

    • in late 2022 the EPA proposed raising estimate to $190/ton

      • uses 2% discount rate, if using 2.5% falls to $120/ton, if using 1.5% is 340$/ton

    • major underlying cause of different estimates is discount rate (people value present and future consumption differently)

    • sweden highest estimate with $126/ton

    • poland and ukraine estimates close to 0

  • damages of climate change concentrated in latin america, africa, and south asia

  • people most affected by rising temps:

    • those at latitudes closest to the equator (where temps are already highest)

    • within 100km of oceans (or surrounded by them); where about 40% of global population and US population live

    •  low income

    • marginal food producers? (because of agricultural production)

  • the World Food Programme has identified 8 countries/areas that are most likely to suffer from climate damages

    • south sudan (floods and drought)

    • madagascar (cyclones, floods, drought)

    • pakistan (floods)

    • somalia (drought)

    • sudan (floods and drought)

    • chad (floods and drought)

    • sahel (drought, fires, floods)

    • dry corridor of central america (drought, hurricanes, floods), including honduras and guatemala

  • in Time magazine identified 6 places with special vulnerability

    • haiti, yemen, united arab emirates; cities of lagos, nigeria and manila, philippines; island of kiribati in the pacific

  • discoveries of oil and natural gas in canada's alberta tar sands and new “fracking” technologies for underground gas keep oil prices low; renewable energy comparatively expensive

  • prices of large scale solar photovoltaic fell by 90% between 2009 and 2019, according to the U.N. Human Development Report

  • lithium ion batteries powering electric vehicles and other motors now 97% cheaper than in 1991

  • projected annual cost decline between 2010 and 2020 for solar was 2.6% but was actually 15%

  • in 2022 the International Energy Agency (IEA) noted that growth in renewables was much greater than expected, due in large part to government support in china, the EU, and latin america

  • the World Economic Forum, citing the International Renewable Energy Agency (IRENA), found in 2020 that renewables were about 62% cheaper cheaper than the least expensive new fossil fuels

    • makes possible reducing co2 emissions by about 3 giga tons a year, accounts for about 20% of reduced emissions needed by 2030 to have impact on climate trends

  • World Economic Forum, International Energy Agency, and World Bank estimate that investments in renewables need to increase from $150 billion in 2020 to over $1 trillion in 2030 to achieve a goal of net-zero emissions by 2050

  • 2022 Inflation Reduction Act create incentives

    • tax credits that allow taxpayers investing in renewable systems like solar arrays to deduct a percentage of their cost from federal taxes

    • additional tax credits for wind and solar available to disadvantaged communities

    • measures valued at over $350 billion

    • since it’s signing, companies have announced plans to build or expand 83 clean energy manufacturing facilities, according to the American Clean Power Association

  • four responses to climate change

  • doing nothing and hoping for the best

    • 1 in 10 americans do not believe climate change is happening, 3 out of 4 believe it is

    • risks of delay, no regrets

      • economists advocate policy of no regrets (prepare for worst, if worst case scenario doesn’t happen, taking action to reduce GHGs can still improve environmental outcomes by reducing negative externalities)

      • beta-delta discounting or “quasi-hyperbolic discounting - a split rate in which one rate is applied to nearby decisions while another to decisions farther away; pays attention to current actions but also long term adaptation of climate change

    • unilateral intervention: geoengineering

      • introduce particulate matter (SO2) into atmosphere to stimulate volcanic eruption, cool atmosphere

      • cheap and attractive to developing countries

      • “year without summer,” 1816, following eruption of Mount Tambora volcano in indonesia, began in 1815; and Mount Pinatubo in 1991 in Luzon, Philippines suggest atmospheric conditions can change from volcanoes

  • research in 2006 from scientists studying atmospheric ozone holes concluded that increasing SP2 could have cooling effects but also consequences

    • albedo effect - the reflection of sunlight from light or white surfaces or particles

    • Mount Pinatubo's volcanic ash of 1991 eruption  reduce global temps by an average of .5 degrees centigrade over following two years

  • policy challenges of geoengineering involve trading one set of risks with another and the the free driver problem

  • free driver - a person, firm, or country that assumes control and acts to influence a larger group without authorization by “grabbing the wheel”

  • in 1972 the first environmental summit met in Stockholm, Sweden, leading to the UNEP

  • by 1979 the first World Climate Conference held in Geneva, Switzerland

  • 1988, Toronto Conference on the Changing Climate

  • 1988, WMO and UNEP jointly establish the IPCC (6 reviews, most recent in 2021)

    • after first report in 1990, IPCC called for global treaty, led to UN Framework Convention on Climate Change (UNFCCC) by the UN General Assembly in may 1992

  • June 1992 saw First Earth Summit in Rio de Janeiro leading to the “rio conventions” with 197 party signatures

    • objective to stabilize GHGs, prevent dangerous human interference with climate system

  • Conference of Parties (COP) meets annually as decision making body of the UNFCCC

  • 1997 kyoto protocol, entered into force 2005

  • 2001 US refused to ratify kyoto protocol

  • in 2012 the Doha Amendment extended kyoto commitments until 2020, laying foundation for the COP 21 Paris Agreement (entered into by Obama in 2016, goal to reach 1.5 degree c temperature increase)

  • most recent COP 26 meetings held in glasgow, scotland in december 2021 and COP 27 took place in Sharm el-Sheikh, egypt in nov 2022

  • in 2017 US withdrew from Paris Agreement under trump

    • biden administration formally rejoined Paris Agreement in feb 2021

  • agriculture 10% of US emissions

  • experimental governance - piecing together of efforts at different levels and scales already in existence, ending with broad interaction and oversight of the agreement

    • 1987 Montreal Protocol eliminate gasses destroying atmospheric ozone

    • California Air Resources Board (CARB) created in 1960s to respond to smog in LA by tightening emissions standards and accelerate EV adoption

    • European Union's Water Framework Directive (WFD) river-basin management, after 2 decades connect decisions on agricultural chemicals and waste runoff

  • EU Emissions Trading System (ETS)

  • SO2 program for electric utilities under the US Clean Air Act Amendments of 1990, lower cost emissions reductions by half

  • a Global Environmental Organization (GEO) could provide guiding principles, coordinate efforts

    • in 1944 at Breton Woods, US, GB, and france created the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF)

    • in conference in havana, 1948 proposal for the International Trade Organization (ITO)

      • blocked by republican congress

      • president truman implemented basic rules through exec order

      • result was the General Agreement on Tariffs and Trade (GATT), multilateral trade negotiations proceeded from 1948 through eight rounds of negotiations, last successful round 1986 to 1993 (Uruguay Round), GATT articles incorporated into the World Trade Organization (WTO)

  • in 1995 the WTO created a standing committee on trade and environment because perceptions that trade expansion damage environment