The Economics of Climate Change

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The Economics of Climate Change

• Shoghi Emerson
• EBBF Evening
• April 19, 2005

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A. The Problem

• 1. Exacerbation of Greenhouse Effect
• Increase Global Temp.
• 2. Decreasing Arctic Ice Cap
• Increase Global Temp.
• Decrease Salinity
• Increase Sea Level
• 3. Melting Glaciers
• Decrease water supply

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• 1. Exacerbation of Greenhouse Effect
• Increase Global Temp.
• rise sea levels
• Increase in quantity of greenhouse gasses (GG)
  Carbon dioxide (CO2), Methane (CH4), Nitrous
  oxide (N2O), Hydrofluorocarbons (HFC),
  Perfluorocarbons (PFC), Sulphur hexafluoride
  (SF6)
• Causes Deforestation Agriculture Fossil Fuels
  (industry transport) cattle production, etc
• Stats 35 CO2 emissions since Industrial
  Revolution
• US 25 (largest) EU 21 of world GG
  emissions
• 0.6 C rise since 1900
• IPCC 3rd Report 1.4 - 5.8 C rise by 2100
• 7 of the 10 warmest years of 20th century
  occurred in the 1990s, (1998 the hottest year
  since reliable temperature measurements began).

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• 2. Decreasing Arctic Ice Cap
• Increase Global Temp.
• Decrease Salinity
• Increase sea levels
• Arctic Climate Impact Assessment (ACIA) Nov 2004
  Report
• Complete disappearance of Arctic ice cap (during
  summer) by 2100
• Global sea level has risen by 10 to 25 cm since
  1900
• a) Temp. increase ice cap important
  thermoregulator
• b) Decrease salinity interference with Gulf
  Stream temp. decrease
• c) Increase sea levels disappearance of small
  island nations, floods, coastal erosion.

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• 3. Melting Glaciers
• Decrease water supply
• European Glaciers -10 already (heat wave summer
  2003) -75 by 2050
• Himalayan glaciers gravely at risk
• Floods and droughts Decrease water supply

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B. The Consequences

• EEA Report (August 2004)
• water availability (50 decrease by 2080),
• ? flood hazards (North),
• ? drought (South),
• ? agricultural productivity,
• ? destruction of ecosystems
• Poverty
• Diseases
• Wars (Oct 2003 Pentagon report)
• Extinction of various species

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The Tragedy of the Commons

• Pillars of theoretical market economics (Hidden
  Hand)
• Self-organisation Efficient organisation
• allocation of factors of production, prices,
  wages, production, etc
• Market Failure failure of market to achieve an
  efficient allocation of resources.
• Caused by disregard for externalities
  costs/benefits incurred by 3rd party.
• The atmosphere is a non-excludable but rivalrous
  resource, and prone to externalities therefore
  must be protected by the government.
• Govt intervention necessary to protect global
  commons from sub-optimal use. Internalising
  externalities.

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C. The Solutions

• 1. Decrease production of GG
• 2. Decrease polluting consumption
• 3. Increase efficiency through Technological
  advancements

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1. Decrease production of GG

• UN Conference on Environment and Development
  (1992 Rio Earth Summit)
• UN Framework Convention on Climate Change
  (UNFCCC) binding declaration on the need to
  reduce global warming.
• Kyoto Protocol (to the UNFCCC) (10 December
  1997) 148 ratifications
• 5.2 reduction from 1990 level between 2008-2012
• EU 8 reduction
• Once ratified, countries are legally bound to
  meet their targets
• Not ratified by AUS, USA, etc
• How to attain objectives
• 1. national policies to reduce emissions
• 2. Cooperation with the other Contracting Parties
  
• a) Exchanges of experience/information
• b) Flexible Kyoto Mechanisms
• Internalise the externalities pertaining to GG
  emissions

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Kyoto Mechanisms Joint implementation (JI)
Annex I Parties can implement projects that
reduce emissions, or remove carbon from the
atmosphere, in other Annex I PartiesClean
development mechanism (CDM) Annex I Parties to
implement projects that reduce emissions or
absorb carbon through afforestation or
reforestation activities in non-Annex I
PartiesEmissions Trading (Article 17),
provides for Annex I Parties to trade emission
allowance units with other Annex I Parties. 
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Emissions Trading Scheme (ETS)

• January 1, 2005, first international ETS and
  largest in the world.
• -- 12,000 installations in the EU-25 producing
  50 of CO2
• -- Keep track of their emissions and produce
  annual emissions report, verified by a third
  party
• -- ETS reduces the cost of implementing Kyoto
  targets.
• 2.9 to 3.7 billion/year (less than 0.1 of EU
  GDP). Without ETS, costs could reach 6.8
  billion.
• Energy Modelling Forum (EMF) on average 53
  reduction relative to no-trading situation and
  if global trading 80-90 reduction of costs.
• (See US Senate testimony)

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• ETS is proof that economics and business are
  dangerously part of the global warming problem
  but also, that they are a very important part of
  the solution.
• The ETS is not a case of ethical business
  practice because reductions are imposed by
  governments, but it is a potent example of how
  businesses can be brought on board with efforts
  to reduce greenhouse gas emissions.

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• 2. Decrease polluting consumption
• Public transportation, car-pulling, no SUVs
• Overly packaged goods
• Meat eating
• Generally wasteful habits
• 3. Technological advancements
• Renewable energies Hydrogen wind hydrothermal
  solar biomass
• Fusion technology
• FutureGen

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Just protect it
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