Transcript Chapter 6

The Economic Approach to
Environmental and Natural
Resources, 3e
By James R. Kahn
© 2005 South-Western, part of the Thomson Corporation
Part II
Exhaustible Resources,
Pollution and the
Environment
Chapter 7
Global Environmental
Change: Ozone Depletion and
Global Climate Change
© 2004 Thomson Learning/South-Western
“The greenhouse effect itself is simple enough to
understand and is not in any real dispute. What
is in dispute is its magnitude over the coming
century, its translation into changes in climates
around the globe, and the impact of those
climate changes on human welfare and the
natural environment.”
Thomas C. Schelling, Some Economics of Global Warming
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Introduction
 This chapter focuses on two global environmental
problems: ozone depletion and global warming.
 Each is the result of pollutants modifying basic
atmospheric chemistry and altering atmospheric
processes and function.
 Each is caused by stock pollutants that persist in the
atmosphere for long periods (up to 100 years) after
their emission into the atmosphere.
 Each is global in the sense that the environmental
problem is independent of location of emissions.
 And in each case, there is potential for significant
global environmental change and significant impacts
on social, economic, and ecological systems.
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Introduction
 It is much more difficult to estimate a damage
function for these types of pollutants than for
conventional pollutants.
 The only way to increase the number of observations for
use in statistical analysis is to observe changes over
time.
 Because these pollutants persist through time, it is very
important to calculate the damages that current
emissions will generate in the future.
 While there is no need to account for geographic
variability in the effects of emissions, it also means
that this problem can not be dealt with by one
country.
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The Depletion of the Ozone Layer
 The basic problem leading to depletion of the ozone
layer is the emission of a set of chemicals that
trigger a reaction in the atmosphere, causing ozone
to be converted to oxygen.
 Ozone blocks ultraviolet radiation, oxygen does not.
 As Figure 7.1 illustrates, the stratosphere (outer
layer of atmosphere) is separated from the
troposphere (lower atmosphere) by the tropopause.
 The lowest level of the stratosphere is warmer than
the highest level of the troposphere and there is little
mixing of air across this temperature inversion.
 Pollutions that make their way to the stratosphere
tend to stay there.
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8
Causes of Ozone Depletion
 The pollutants that most adversely affect the ozone
layer are fluorocarbons, particularly those that
contain chloride and bromide.
 Most of the depletion of the ozone layer has been
attributed to pollutants containing chloride
(chlorofluorocarbons or CFCs). CFCs were used in
refrigeration and air conditioning systems and as
propellants in spray cans.
 These chemicals serve as a catalyst in a chemical
reaction that converts ozone to oxygen. The
presence of ice crystals accelerates the process.
 CFCs are not consumed in the reaction but remain in
the stratosphere to continue the destruction of the
ozone.
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Consequences of the Depletion of the
Ozone Layer
 Ozone in the upper atmosphere performs the critical
function of blocking the penetration of ultraviolet
light.
 Ultraviolet radiation causes living cells to mutate.
 In Oct. 1991, a panel of international scientists found
there had been a 3 % reduction in stratospheric
ozone, which lead to a 6% increase in the amount of
ultraviolet radiation striking the earth’s surface.
 This increase in radiation had the potential to lead to
an additional 12 million cases of skin cancer in the
US over the next 50 years.
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Consequences of the Depletion of the
Ozone Layer
 Agricultural yields could be significantly
reduced.
 Phytoplankton, which form the foundation of
the oceanic food web, undergo several
metamorphoses before achieving adult form
and are very vulnerable to increased
ultraviolet radiation.
 Ultraviolet radiation also accelerates the
deterioration of materials such as plastics
and nylon.
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Policy toward Ozone Depletion
 The first policy the US adopted was not tied
to an international agreement.
 This 1977 policy banned the use of CFCs as
a propellant in spray cans of deodorants,
hair sprays, and other consumer products.
 While command and control regulations are
not usually efficient, this involved a
substance with a readily available substitute
and as a result, the cost of eliminating these
emissions was low compared to the
damages created.
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Policy toward Ozone Depletion
 In the 1980’s the discovery of the hole in the
ozone layer above the Antarctic and
evidence of continued ozone depletion
spurred the development of an international
agreement on chemicals.
 In 1987, the Montreal Protocol on Substances
that Deplete the Ozone Layer was signed by
most developed and developing countries.
 An important remaining issue is how to treat
replacements for CFCs which also have
ozone-depleting effects.
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Policy toward Ozone Depletion
 The Montreal Protocol has been successful
for a number of reasons, but primarily
because the cost of compliance was very low
compared to the damages that would occur.
 Costs were low because of the existence of
good substitutes.
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Greenhouse Gases and Global Climate
 Global warming is linked to the accumulation of a
variety of gases in the atmosphere.
 These gases, which include carbon dioxide,
methane, nitrous oxide, and water vapor, trap
infrared radiation that would normally escape from
the earth’s atmosphere into space.
 This increased gas serves to increase the capacity
of the atmosphere to absorb heat.
 There is virtually no debate about this relationship.
 The debate is centers on the magnitude and timing
of the change in heat absorption and the
significance to human welfare.
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Carbon Cycle
 The carbon cycle refers to the movement of carbon
from the atmosphere to the earth’s surface.
 Carbon is stored in the biomass of every organism.
 Carbon dioxide is also dissolved in surface water,
with the oceans playing the largest role.
 Carbon dioxide is removed from the earth’s
atmosphere when a tree grows.
 When an animal eats a plant, the carbon is
transferred from the plant to the animal.
 When an animal or plant dies, it decays and the
carbon combines with oxygen to become carbon
dioxide.
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Carbon Cycle
 Anthropogenic activities which upset the
carbon cycle include burning of fossil fuels
or deforestation.
 Fossil fuels, such as oil, coal and natural
gas, are the fossilized remains of prehistoric
plants and animals and represent stored
carbon.
 Deforestation has two impacts: the
breakdown of carbon in the bi-products of
the wood and the loss of trees to draw
carbon dioxide out of the atmosphere.
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Carbon Cycle
 A process called carbon sequestering
involves planting new forests to reduce
atmospheric carbon dioxide concentrations.
 The greatest opportunity for this is in tropical
areas where growth rates are the fastest.
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Greenhouse Gases
 Methane comes from a variety of anthropogenic and
natural sources.
 Natural sources include wetlands and other areas
where anaerobic decay of organic matter takes
place.
 Anthropocentric sources include emissions from
cattle and sheep, wet rice cultivation, emissions
from coal mines and oil and natural gas wells.
 Nitrous oxide originates from the burning of fossil
fuels and biomass and also agricultural fertilizers.
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Is Global Warming Increasing?
 Virtually all evidence suggests very strongly that the
mean global temperature has increased as a result
of anthropogenic greenhouse gas emissions and
that it will continue to increase.
 All the scientific evidence suggests that there will be
significant increases in sea level.
 Many uncertainties exist about the nature of regional
distribution of global climate change.
 Table 7.1 contains information on climate change
that has already occurred.
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Twentieth-Century Changes in the Earth’s
Atmosphere, Climate, and Biophysical System
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Historical Temperature Record
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Twentieth-Century Changes in the Earth’s
Atmosphere, Climate, and Biophysical System
 Evidence comes from many sources:
Ice core samples of glaciers.
Pollen records from sediments in lakes.
Human records, some historical and some recent
and systematic.
 Intergovernmental Panel on Climate (IPCC) is
an international scientific agency designed
to share information and encourage
cooperation of scientists.
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What is the bottom line of predictions of
global climate change?
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What is the bottom line of predictions of
global climate change?
 Based on these scenarios, the IPCC reports that the
concentration of CO2 in the atmosphere will increase
to between 549 ppm to 970 ppm by 2100 (as
compared to 368 in 2000).
 Mean global surface temperature will increase
between 1.4o C and 5.8o C by 2100.
 Temperature will increase over this whole interval,
with the projected increase between 0.4o to 1.1o C by
2025.
 Estimates of sea-level rise for 1990 to 2100 is 0.09 to
0.88 meter.
 Table 7.2 reports other likely physical changes.
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Examples of Climate Variability and Extreme
Climate Events and Their Impact.
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What are the Consequences of Global
Climate Change?
 In the 1990s much of the economic literature focused
on the ability to mitigate damages associated with
climate change through adaptation (for example
protecting Manhattan with a sea wall or switching
agriculture to heat-tolerant varieties).
 While the US has a complex network of land-grant
universities, government agencies and private
industries which will work to investigate and
implement strategies to address climate change, this
is not true for small farmers in developing countries.
 In addition, the ability to adapt to change will depend
on the magnitude of the change.
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What are the Consequences of Global
Climate Change?
 Nordhaus (1991) estimated the annual impact on the
US economy of doubling of atmospheric CO2 is
approximately $12.63 billion, or 0.26% of national
income.
 Cline’s estimate (1992) was higher (2% of national
income) and included nonmarket impacts.
 More recent studies tend to report damages on a per
ton of carbon basis, allowing for better comparison
with cost of reducing emissions.
 Damages from global warming may be even greater,
because some types of impacts, in particular, the
impacts on ecosystems and the reduction in
ecological services, are not factored into global
warming.
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What are the Consequences of Global
Climate Change?
 One particular aspect of global warming that
is likely to be quite costly is the effect of sealevel rise on low-lying Third World countries.
 In the future, these areas may be lying
entirely under water or at such a low
elevation above sea level that they become
even more vulnerable to storms.
 This may result in a rise in movement of
refugees, growing political destabilization
and rising costs associated with relocating
refugees.
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What are the Consequences of Global
Climate Change?
 Ausabel (1991) argues that the most significant
damages from global warming may lie in damages to
natural systems, particularly those already under
stress.
 The climate change taking place with global warming
is at a relatively rapid pace. This pace is far too rapid
for a forest to adjust by natural selection.
 Finally, there is the very important impact of global
climate change on the distribution of tropical
disease.
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The Importance of Surprises
 One reason to be extremely cautious about the
potential consequences of global climate change is
the potential for unpredicted consequences which
can come about as a result of the possible existence
of threshold effects.
 The first type of threshold effect is when increases in
emissions generate no damages until a threshold is
crossed.
 An example would be if global warming progresses
to the point that the tundral permafrost begins to
melt and this leads to a massive release of methane
and intensification of global warming.
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The Importance of Surprises
 The second type of threshold effect is when marginal
changes in emissions lead to marginal increases in
damages until a threshold is crossed and then
marginal changes lead to large damages.
 An example is if temperature change became severe
enough to lead to even greater melting of the polar
ice caps. Not only would this lead to increased sealevel, but the shrinking of the ice cap would reduce
the amount of light reflected by the earth (which
would lead to increased heat absorption and
intensified global warming).
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The Importance of Surprises
 Both the melting of the permafrost and the
shrinking of the polar ice cap can be
classified as positive feedback effects.
 Another type of threshold effect would occur
if climate changes lead to alterations in
ocean currents.
 This would lead to Western Europe
experiencing colder temperatures, similar to
northern latitudes.
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Global Warming Policy
 Many characteristics of the global warming problem
make it substantially different from other
environmental problems. These include:
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The Necessity to Deal with Many Different
Pollutants
 One cannot merely look at the cost of reducing a
kilogram of carbon dioxide emissions and compare
it to the cost of reducing a kilogram of N2O. Each
greenhouse gas has a different level of radiative
forcing (heat absorbing potential), and each has a
different atmospheric life.
 The IPCC developed a global warming index (GWPI)
to measure the equivalency of greenhouse gases.
 While a GWPI can measure the warming potential
associated with two gases, it does not consider the
different time paths and possible different potential
long term damages.
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The United Nations Framework
Convention on Climate Change and the
Kyoto Protocol
 Created at the Rio Summit in 1992, this was not an
agreement on emissions limitations, but specified a
process for arriving at an agreement.
 The UNFCCC stated 2 principles that are extremely
important in terms of moving toward a treaty.
 First – the signatories to the Convention accepted the
proposition that anthropogenic activities lead to the
accumulation of greenhouse gases, which in turn leads
to global climate change.
 Second – the signatories agreed that all nations had a
common but differentiated responsibility to solve the
problem of global climate change.
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The Kyoto Protocol
 Protocol goes into effect when two
conditions are met:
First – 55 percent of the nations of the world must
sign and ratify the treaty.
Second – the total 1990 emissions levels of the
nations that have ratified the proposal must account
for 55 percent of the 1990 emissions totals.
 The first condition has been met.
 The second condition will not be met unless
the US or Russia ratifies the treaty.
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The Kyoto Protocol
 The major provision of the Kyoto Protocol is to limit
emissions of “Annex I” countries, which includes
high-income countries and the Warsaw Pact
countries, to (more or less) 6 percent below 1990
levels by 2010.
 “Annex II” countries, which include all countries not
in Annex I, are not required to limit their emissions at
all.
 An important aspect of the agreement is the
specification of “flexibility provisions” which
allowed countries with higher marginal abatement
costs to find cheaper opportunities to reduce
emissions.
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The Kyoto Protocol
 Three flexibility provisions were contained in the
Kyoto Protocol.
 A “bubble provision” treats a group of countries that
are in a formal union as if they were one country.
This is important for the EU.
 The “joint implementation provision” allows an
Annex I country to pay for some emission reductions
in another Annex I country. The paying country gets
credit for the reduced emissions.
 The “clean development mechanism” allows for
limited trading opportunities between Annex I and II
countries.
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What is Wrong with the Kyoto Protocol?
 The Kyoto Protocol will be ineffective in
slowing the onset of global climate change
and reducing its magnitude for 2 reasons.
 First, the freezing of emissions at 1990 levels
will not stabilize atmospheric concentrations
of CO2, because emissions remain in the
atmosphere for centuries.
 To stabilize concentrations at a less than
damaging level, the current level of
emissions must be frozen at a level
substantially less than 1990 levels.
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What is Wrong with the Kyoto Protocol?
 Second, the Kyoto Protocol does not require
reduced emissions from Annex II countries.
 Annex II countries include populous nations
with rapidly industrializing economies, such
as India, China, and Brazil.
 Annex II countries need to stabilize their
emissions at some level below the levels
currently seen in industrialized countries.
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What is the Cost of Reducing Emissions?
 The cost of emissions reductions in the US economy
was the reason cited by President George W. Bush
for pulling out of the Kyoto Protocol process.
 Studies of abatement costs generally fall into two
categories: top-down studies or bottoms-up studies.
 Top-down studies are based on aggregate
macroeconomic models, which look at how various
sectors of the economy are linked and how a
potential disturbance ripples through the economy.
 The drawbacks to these types of models have been
discussed earlier.
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What is the Cost of Reducing Emissions?
 According to the 1996 and 2003 IPCC
reports, the impact of stabilizing greenhouse
gas emissions at 1990 levels that is forecast
by the top-down models is to reduce GDP of
OECD countries by between 0.5% and 2% of
the levels they would otherwise attain.
 If full emissions trading were allowed the
impact would be much lower.
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What is the Cost of Reducing Emissions?
 Bottoms-up models look at engineering cost
estimates of implementing the type of technologies
necessary to achieve the target emissions levels.
 The initial capital costs of purchasing and installing
more energy-efficient capital is more than offset by
the energy savings which result.
 In addition are the benefits of reduced emissions of
other types of pollution.
 Because these policies would result in an increase in
social welfare, independent of the benefits of global
climate change, Nordhaus (1994,1998) refers to
these policies as “no regrets” policies.
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What is the Cost of Reducing Emissions?
 Why the excitement about costs?
 First, there is uncertainty about the true
costs.
 Second, there is a high up front cost as
energy inefficient capital is replaced, while
cost savings are spread over time.
 Third, some sectors of the economy will be
hurt more drastically than others (for
example the fossil fuel industry).
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Rethinking an International Treaty on
Global Climate Change
 Four problems associated with the Kyoto
Protocol have been delineated:
Ineffectiveness of initial levels of emissions
reductions in preventing global climate change.
Lack of provisions to generate future reductions
below initial levels.
Lack of emissions reductions by developing
countries.
Potential high costs of emissions reductions.
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Rethinking an International Treaty on
Global Climate Change
 For a treaty to be successful it must deal with all four
of these issues.
 If a treaty can generate effective reductions without
objectively high costs, then there is a good
probability that the nations of the world would
participate in an accord.
 It will be difficult to achieve higher levels of emission
reductions, if developing countries will not accept
emission reductions.
 Cooper(1998) proposes an alternative treaty based
on a tax level rather than limits on emissions.
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Rethinking an International Treaty on
Global Climate Change
 The primary component of the proposed tax system
is a set of differential taxes.
 For a tax to be effective it must, at a minimum, be
inflation-proof.
 A further advantage of a tax system is that it reduces
uncertainty about the costs of attaining emissions
reductions. The cost can be no higher than the tax
multiplied by the emissions level.
 Developed countries with higher per tax emissions
could face a higher tax, increasing the
competitiveness of developing countries.
 Taxes collected in developing countries would stay
in country.
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Summary
 Global warming and depletion of the ozone layer are
important environmental problems.
 The long lags between emissions and damages, the
long lifetimes of the pollutants, and the complexity
of the scientific relationships make the development
of policy difficult.
 While there have been international agreements
developed regarding the restrictions on ozonedepleting chemicals, the movement toward
resolution of global climate change has been much
less successful.
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