Transcript Lecture 3

European Business
Environment MEB
Green Economy /Clean economy for
reshaping society
Lecture 3: The economic and
business point of view
Prof.ssa Carmen Pasca and John Hey
Website: http://wwwusers.york.ac.uk/~jdh1/ESCP/
The objective and plan for today
Objective: to ask whether the transition to a green economy is hindered or
helped by economic growth and increasing globalisation.
Plan
We remind you about Group Projects and their role in your assessment.
We mention green business and green jobs.
We ask you questions about bikes, cars, buses and pollution in Torino.
We show you two films on globalisation and the green economy.
We ask: is growth bad? What is cause and effect?
We talk about growth and inequality.
We discuss economic incentives to go green.
We go to the computer lab and do two relevant experiments
We mention the Stern review.
We discuss discounting.
We discuss possible economic/business solutions to the brown economy.
We conclude.
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Suggestions for Group Projects
Do remember that 50% of the assessment is through class participation and
Group Projects. A group project should be three or four pages. If it is a business
case study you should construct the business case.
One possible source of group projects is the following three:
1. Nike
2. Walmart
3. Shell
You will see that there are different business reasons in each case for going
green: Marketing, Image, Profits, Legislation.
Alternatively see the next slide...
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Suggestions for Group Projects
Do remember that 50% of the assessment is through class participation and
Group Projects. Let us repeat our advice about this.
In the definitive text Environmental and Natural Resource Economics by Tom
Tietenberg (right) and Lynn Lewis (Pearson 2012) there are lots of case studies,
called by them ‘Examples’.
Each of them has a brief description of the example (from which you can decide
whether they are interesting or not) and there are usually references which you
can follow up.
You can go directly to Tietenberg’s Sustainable Developments Case Studies page
which provides a whole host of examples.
We would suggest that you glance through these examples and the three on the
previous slide, select one (or one of your own) and get our approval.
Then prepare a 30-minute presentation and be prepared for a question and
answer session afterwards. These presentations are scheduled for the 11th of June
2013. You should also prepare a 3-4 page overview and hand that in.
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Green business and green jobs
Are there business opportunities in going green?
Let us look at the video “What are Green Jobs? – closed captioned”.
(4.11)
And how about Green Jobs 101? (6.51)
This is what CNN
(3.24)
thinks.
For the ILO “the notion of green jobs summarizes the transformation of
economies, enterprises, workplaces and labour markets into a sustainable, lowcarbon economy providing decent work. But much needed innovative strategies
to promote green jobs can only succeed with the full involvement and
participation of workers and enterprises. Green jobs are decent jobs that:
•
•
•
•
Reduce consumption of energy and raw materials
Limit greenhouse gas emissions
Minimize waste and pollution
Protect and restore ecosystems”
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Lecture 2
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Some cynicism
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A synthesis
Some would argue that the transition to a Green Economy requires growth.
We need extra resources to feed a growing population and to invest in green
production methods.
Others would argue that growth (and certainly that of the type we are currently
witnessing) is hindering the transition to a Green Economy.
The world is getting increasingly divided into the rich and the poor – because of
the type of growth that we have – with the resources of the poor countries being
plundered by the rich and their countries polluted with waste from the rich.
The rich are getting obese and unnecessarily squandering resources.
The poor are forced to destroy their natural habitat with land becoming
increasingly unproductive.
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Some questions for you
In big cities like Torino, you have to pay for parking in the city centre.
Buses are subsidised by the city council.
There is a bike hiring system [TO]BIKE, which you have to pay for.
Why?
Are these green measures?
Or economic? Or social – from the rich to the poor?
If they are green measures, why are the buses old and polluting? Why does
the council not replace them with electric buses or buses that pollute less?
Why not ban cars?
Why do they charge for the hire of bicycles? Who pays?
Is there pollution in Torino?
Are there business opportunities here?
Let us have a brief discussion now and pursue it later.
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Two films
The first film (10.02), produced by the Foundation GoodPlanet, and cofunded by the UNEP (United Nations Environment Programme),
UNIDO (United Nations Industrial Development Organisation) and
AFC (Agence Francais de Developpmente) highlights some of the
economic issues.
The message of this is that we need more international agreements
and co-operation.
But this second film (4.22), produced by MyGreenGlobe, suggests that
it is all to do with the take-up of existing opportunities by
entrepreneurs.
These highlight the differences between the Market Liberals, the
Institutionalists, the Bioenvironmentalists and the Social Greens.
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Is growth bad?
Some argue that growth is necessary and beneficial; it is needed
because of rising population and people expect it; it is beneficial because
it makes people happier.
Maybe, but let us first look at two main problems of growth, one
concerned with inputs and the other with outputs (from production):
Certain natural resources are declining and may run out soon
Pollution is increasing and is causing problems.
What do market liberals say?
As far as declining natural resources are concerned, they argue that as
resources decline, they will increase in price and firms will naturally look
for cheaper/more efficient input sources.
As far as pollution is concerned, they admit that this is probably a sign of
market failure – which can be fixed by appropriate action.
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Declining natural resources
Market liberals say that the prices of these natural resources will increase as
they become scarcer and producers will have the incentive to find
alternatives.
This may be true if producers pay the ‘correct’ price for these natural
resources.
But what about water?
Fresh air?
What is the correct price for knocking down a tree? Should it include
replanting a tree for every tree knocked down?
What is the correct price for fishing? Who should it be paid to? And should
fish stocks be replaced by the fishermen?
Institutionalists say that government action is required.
Bioenvironmentalists say that we should worry about the knock-on effects.
Social Greens say that the destruction of natural resources is displacing
people, and changing their social and environmental life.
Can we achieve a balance amongst these views?
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Increasing pollution
Here market liberals may grudgingly admit that it is an example of market failure
and some intervention is necessary:
Charging for pollution (costly – and to whom is it to be paid?)
Licences; regulation; user fees etc. May not eliminate the pollution (can it?) but
reduces it and the polluter pays (to someone).
Institutionalists agree that some institution of some kind should intervene.
Bioenvironmentalists would say that this type of intervention is too narrow and
ignores the knock-on effects of pollution.
Social greens would argue that the market liberals solution might solve at best
the economic impact and not the social impact.
However some market liberals might go as far as arguing that it will solve itself.
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The environmental Kuznets curve
“The problem solves itself in time.”
This classic graph to the right
shows what happened to sulphur
emissions.
But be careful in interpreting this
graph. It is not through time, and
even though it suggests that
emissions fall with GDP, the
interesting question is “why?”
Was it endogenous or was it
caused by institutional intervention
of some kind?
And it does not always hold….
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L
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Let us pursue the market liberal approach
Market liberals would argue that business has a natural incentive to pursue
greenness and sustainability, and that we can leave the problems to the market.
Part of this concerns production and part concerns sales.
They would argue that green production is or will become cheaper and hence firms
have an incentive to go green
However they admit that free pollution (firms to not have to pay for their effluents) is
a problem. We shall explore this in an online game shortly.
They would also argue that demand for green and sustainable products is growing –
as a result of public awareness (and advertising).
What do you think about this?
And what do you think about this video (5.11) – describing a Green home (that
apparently costs no more than a non-green home – do you believe that?)
If you are interested you could buy and play the Green Economy Board Game (3.52)
(in which players have to make money, create jobs and solve some environmental
problems. Or this more complicated game – which takes too long to play. Or this.
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Globalisation, growth and equality
Jagdish Bhagwati, termed by Clapp and Dauvergne a market liberal
talks, for and against globalisation (4.49).
One thing that is missing is the effect of growth on global inequality.
Bad in the US, worse elsewhere.
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Growth and inequality across the globe
While GDP is growing, so is inequality…
The Gini coefficient is a measure of income inequality – the bigger the more unequal.
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Inequality
The rich are very rich and the poor (relatively) relatively poor
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Global trends
The world’s richest countries are increasingly locating their production in
underdeveloped or developing countries…
…are exploiting the local workers with low wages and bad working conditions.
They are increasingly taking their energy resources from poor countries.
And are increasingly dumping their waste products in poor countries.
In many poor countries agriculture is becoming increasingly unsustainable and the
environment is being damaged.
As a consequence the rich are getting richer and the poor poorer.
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A vicious circle
This is what is happening in many poor countries – particularly sub-Saharan Africa
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A break
Let us take a break here and go to the computer lab and experience two
experiments: one on Public Goods (which has something to tell us about whether
we need public intervention) and the other on ‘The Tragedy of the Commons’
(which might tell us something about the form any public intervention should take).
In the computer lab, take a seat at an individual terminal and go to
http://veconlab.econ.virginia.edu/
and then click on ‘Login as participant’. On the next screen you should click on
‘Login’ and wait for further instructions.
While doing these experiments, you should take decisions individually – with the
intention of maximising your own (imaginary*) profits/payment – and not talk to your
fellow students.
*We are not actually going to pay you but we would in a real experiment.
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The Stern Review
Published in 2006, it follows up the idea that markets by themselves cannot
solve the problem of climate change (which we have just seen in the
experiment?)
The Review proposed that 1% of global GDP per annum is required to be
invested in order to avoid the worst effects of climate change, and that the cost
of not doing this is a possible 20% loss of GDP in the future. In 2008 he
revised the 1% figure up to 2%.
The Review noted that “The benefits of strong, early action on climate change
outweigh the costs” and that “There is still time to avoid the worst impacts of
climate change if strong collective action starts now.”
What about discounting?
Let us look at this on the next slide.
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Discounting
A crucial part of any economic or business plan that extends over a period of time
is that connected with discounting.
If costs are incurred and benefits accrued at different points of time, one needs to
know how to compare them. For example, is an investment which costs $1m
today and yields a return of $1m in 25 years time (both figures in real terms)
worthwhile?
Usually economists discount future amounts of money (why? because we care
more about the present).
Is that appropriate for climate change: if our children’s children starve to death in
50 years time because we have destroyed resources, is that what we want?
Stern used a (real) discount rate of 1.4%. Others (for example, Nordhaus) argued
that he ‘should have’’ used a rate of up to 3%.
What do you think?
Are these economic issues, or ones of social justice?
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Roemer and intergenerational justice
Intergenerational justice would require more realistic assumption: one particular
view is what Roemer calls the "sustainabilitarian" approach, which seeks to
maximise present consumption subject to the constraint that future generations
enjoy a quality of life at least as good as that enjoyed by the current generation.
Are these economic issues?
But Stern’s report was calling for international cooperation to halt the decline in the
globe’s capacity. He was sceptical that markets would solve the problems.
Let us revisit the two main problems:
Natural (particularly energy) resources becoming depleted – some irreplaceable,
some substitutable.
Pollution and environmental degradation increasing.
Once again the solution depends upon your world view. I personally think...
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Natural resources becoming exhausted
We have already discussed some of this.
This is something where market forces may work.
As resources get exhausted, their price should go up (unless subsidised by
government or not priced) and therefore there is a natural tendency for business to
seek new resources.
The problem is if there is no price. For example, fish.
But market liberals think that business will help us go green: the world is full of
business opportunities (4.12). Some think that there are lots of green jobs (6.52) out
there.
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Global pollution
Global pollution is increasing at a frightening rate:
Chinese seas (1.10) are increasingly polluted. Also Chinese air (2.46).
But it is not just China. It is a global (3.29) problem.
Note that some of these incidents led to international action. Note too that it is
the poorest and most vulnerable that are most at risk. A sign of market failure.
Can we however solve the problem through markets? With appropriate taxes,
legislation. Does business have a role to play?
Here is an argument put forward by the Nobel Prize Winner Milton Friedman
about solutions to market failure. Do you agree with it?
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Our personal conclusions
We think that markets and business could solve the problem of declining natural
resources and profitably invent new sources of energy.
However we feel that more national involvement and international co-operation is
necessary to eradicate pollutants and other public bads.
Socially we feel that there needs to be more re-distribution between the rich and the
poor, not only in nations but also internationally.
Growth is neither necessarily a bad or necessarily a good – it depends upon the
way it is used.
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Lecture 3
Arrivederci
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