2 Outline Part I: Introduction Part II Sources of greenhouse gases and the economyInternational action timelineControversy: Is climate change natural?Controversy: Economic analysis of climate changePart IIIThe Economic ProblemThe Political ProblemGrowth and Carbon EmissionsPart IVWhat is cap and trade?How does it work?What about a carbon tax?Which system works better?Political feasibilityConclusion
3 Climate Change VS Global Warming What is global climate change? What is global warming? How are these terms connected?Climate change means….“[M]ajor changes in temperature, rainfall, snow, wind patterns, or any other distinct climate phenomenon lasting for decades or longer,” (Environmental Protection Agency).Global warming is…An average increase in temperatures near the Earth’s surface and in the lowest layer of the atmosphere.“Global warming” and “climate change” are often used interchangeably. In reality, global warming as a temperature change is a mechanism that drives the larger phenomenon of climate change.
4 Sources of Climate Change Natural factors such as changes in the Sun’s energy or slow changes in the Earth’s orbit around the sunNatural processes such as changes in ocean circulationHuman activities that change the atmosphere’s makeup (anthropogenic changes): Include burning fossil fuels or changing the land surface (such as cutting down forests or building developments in cities and suburbs)
5 How do we know we are responsible? The scientists for the Intergovernmental Panel on Climate Change, IPCC, say that it is very likely, (greater than 90 percent chance) that most of the warming we have experienced since the 1950s is due to the increase in greenhouse gas emissions from human activities.For over the past 200 years, the burning of fossil fuels and deforestation have caused the concentrations of heat-trapping "greenhouse gases" to increase significantly in our atmosphere. These gases prevent heat from escaping to space, somewhat like the glass panels of a greenhouse.
6 What’s the big deal? It’s just a few degrees… If humans continue to emit greenhouse gases at or above the current pace, we will probably see an average global temperature increase of 3 to 7°F by 2100, and greater warming after that. Those few degrees are likely to have huge consequences for the earth, and life, as we know it.The impacts of global climate change are expected to be vast and far-reaching. They will affect the environment, the economy and the equality of opportunity of people all over the world. Both the direct and indirect consequences of climate change will effect every sphere of sustainability.
7 Climate Change Indicators Usually we only hear about the environmental impacts that are expected to, and in some cases, already happening with climate change around the world.Decreasing global ice packs, is accelerating warming, and initiating the onset of other climate changes.Additionally, this melting is slowly raising sea levels, changing coastlines across the globe, threatening existing marine and coastal ecosystems and economies, and even threatening entire nations…According to the IPCC, all regions of the world show an overall net negative impact of climate change on water resources and freshwater ecosystems.Changes in yearly climate will impact agricultural productivity and food distribution in a number of ways. Warmer temperatures would increase growing seasons further north and possibly prevent certain crops from growing in the increasingly hot south.Top: /1355_600x450.jpgCenter:Bottom:
8 Ecosystem Strain as Indicator Based on the rapid rate of projected climate change, strained ecosystems’ adaptive capacity is likely to be exceeded, greatly threatening species diversity. Furthermore, the ability of ecosystems to adapt to climate change is further severely limited by the effects of urbanization, barriers to migration paths, and fragmentation of ecosystems.
9 AdaptationChanges in these resources are just the tip of the melting ice burg when it comes to climate change impacts that we will have to deal with. The question is whether we can adjust to these changes by creating extensive adaptation plans. According to a report cited by the EPA, “the literature indicates that U.S. society can on the whole adapt with either net gains or some costs if warming occurs at the lower end of the projected range of magnitude, assuming no change in climate variability and generally making optimistic assumptions about adaptation. However, with a much larger magnitude of warming, even making relatively optimistic assumptions about adaptation, many sectors would experience net losses and higher costs.”
10 Climate Induced Migration If that were the case, many believe that climate change will cause a mass migration of people to escape effects. The most commonly cited prediction is that 200 million people will be forced to move as a result of climate change by 2050, although other projections range from 50 million to 1 billion people moving during this century.How will climate migrants be viewed? As climate refugees or climate migrants? The term ‘climate refugee’ implies that some will literally need to seek refuge from the impacts of climate change, will find themselves in as desperate a situation as those of other refugees, and will deserve international assistance and protection. However, the current definition of a refugee in international law does not extend to people fleeing environmental pressures, and few states are willing to amend the law. Equally, the description ‘climate migrant’ underestimates the involuntariness of the movement, and opens up the possibility for such people to be labeled and dealt with as irregular migrants (Koser 2009).
11 Sources of greenhouse gases and the economy Part II: OutlineSources of greenhouse gases and the economyTimeline of international action on climate changeControversy: Is climate change natural?Controversy: Economic Analysis of Climate ChangeOutline
12 Sources of Greenhouse Gases and the Economy Sources of greenhouse gas emissions worldwide (2000)As the pie chart shows, the majority of emissions worldwide come from the combustion of fossil fuels, including natural gas, petroleum, methane, and coal. Many people who argue against aggressive action on claim that this level of fossil fuel consumption is necessary for global economic health and, according to neoclassical economics, therefore necessary for human well-being. This politically-convenient argument promotes the status quo of energy use and ignores several facts.First, not all emissions are economically productive. Fugitiveemissions (from leaks and faulty equipment) accounted for 9%of global emissions in That is almost as much greenhouse gasas were produced in all manufacturing and construction.Furthermore, improvements in efficiency would allow companies togenerate more kilowatt hours of electricity from less fossil fuel. In addition, clean renewable energy could, in many nations, replace much of the carbon-based economy.Graph source: Dow, Kristen and Thomas Downing. The Atlas of Climate Change. p 41
13 Sources of Greenhouse Gases: Survival versus Luxury The intertwining of fossil fuel combustion and emissions raises an important issue: should we distinguish between survival and luxury emissions of greenhouse gases? Indian economists Anil Agarwal and Sunita Narain pioneered this idea in in their 1992 pamphlet, “Global Warming in an Unequal World.” A family might be happier driving two cars, but these carbon emissions are not as essential for their welfare as the carbon they burn heating their home in the winter. Adopting emissions standards that distinguish between survival and luxury could make international climate treaties acceptable to developing nations like India. However, it will be difficult to establish a universal method for distinguishing between types of emissions. We will discuss issues of equity and responsibility for climate change in future sections .vsHeating oil delivered to house in MassachusettsA two-car garage in the USLeft: Right:
14 International Climate Action Timeline 2001: US rejects Kyoto Protocol1994: Creation of UN Framework Convention on Climate Change2005: Kyoto Protocol goes into effect1988: Creation of Intergovernmental Panel on Climate Change (IPCC)2009: UN summit in Copenhagen negotiation ends in disarray. No treaty1997: Kyoto Protocol: each country to reduce greenhouse gas emissions ~5% below 1990 levels
15 International Climate Action Timeline 1988: Marked the explosion of climate change onto the political scene. In 1988, the 1st international meeting on climate change and the IPCC was created. 1994: The founding of United Nations Framework Convention on Climate Change, which established a process for international emissions cuts. 1997: The Kyoto Protocol: Each country supposed to gets its emissions 5% below 1990 levels. Not legally binding. 2001: The Protocol was dealt a serious blow in 2001 when US rejected it. Too few countries had ratified it; it didn’t go into effect : The Protocol finally entered into effect when Russia ratified it, meeting the required number of signatories. Signing the Protocol did not mean much to those who did ratify. Canada, one of the first signatories, continues to be one of the worst emitters. 2009:Last December, the most recent negotiations at Copenhagen ended in disarray, dashing hopes of the Maldives and millions of people around the world for an aggressive treaty The week of negotiation ended in a close-door session between the US, China, and India. The other participating nations refused to “note” (recognize) the resulting agreement.
16 Controversy: Is Climate Change a Natural Cycle? One reason that nothing has been done on climate change is the lingering confusion over the science. Some people dismiss anthropogenic climate change as part of a natural cycle. The recent changes in temperature cannot be accounted for by natural causes.The blue shading in the lower graph represents the change in atmospheric temperature (radiative forcing) produced by natural causes. If natural radiative forcing was only the driver of global warming, the global temperature change line (heavy black line) would fall mostly in the blue shaded area. It does not.The yellow shading in the upper graph represents natural and anthropogenic forcing. The global temperature line fits entirely in this region.Much of the recent controversy about climate science is manufactured. Research by James Hoggan and Greenpeace has revealed a network of scientists and think tanks dedicated to discrediting climate science, largely funded and staffed by oil and gas companies.Natural & anthropogenic forcingNatural forcing onlyFor updates on the latest publications in climate science, visit the blogs Real Climate(www.realclimate.org) or Climate Progress (www.climateprogress.org)For a map of the exchange of staff and resources between ExxonMobil, denier think-tanks, and denier politicians, visitFor a book about the denial machine, see Richard Littlemore’s The Climate Cover-Up (2007).Figure source: Pratt, Marney. "Climate Change." Physiological Ecology. Mount Holyoke College, South Hadley, MA. Lecture.
17 Controversy: Economic Analysis of Climate Change The 2007 Stern Review is one of the most influential cost-benefit analyses of climate change. It concluded that costs of inaction on climate change (5-20% of global GDP) far outweighed the costs of acting to limit greenhouse gas emissions (under 1% of global GDP). Although widely-cited and based on conventional neoclassical economic modeling, the Stern Review faced intense criticism from many economics. The economic study of climate change is controversial in and of itself. It is far from “objective.” Economic analyses of climate change require an economist to make ethically-loaded decisions about what she values. In calculating the damage of unabated climate change, economists must decide value of future generations (discount rate), lives lost, and cultural practices disrupted. Economists contested the Stern Review specifically because of the values its authors assigned to these intangibles. In order to demonstrate a high valuation of future generations, the Stern Review applied a discount rate of almost 0%. Other economists argued that this discount rate was far too low because those economists operate on the assumption that future generations will be wealthier (and therefore more able to deal with climate change) than our generation. In our next sections, we will explore the role of the market system in driving climate change and, potentially, mitigating it.
18 Part III: OutlineThe Economic Problem -External Costs -External Costs of Carbon-Market for Oil -External Costs & Oil Market Failure-Market Failure & Government InterventionThe Political Problem -USA-China-Capability and ResponsibilityGrowth and Carbon EmissionsOutline
19 The Economic Problem- External Costs Carbon dioxide is the greenhouse gas with the highest concentration (391 parts per million) and hence has the greatest global warming potential. In dealing with the economic and political issues, we will focus on specifically CO2. Since the industrial revolution there has been a 50% increase in the amount of atmospheric carbon dioxide. We have already seen that there is sufficient evidence to suggest that these emissions have an incredible impact on global temperature.The free market is a self-regulating mechanism which, in theory, seeks to maximize the welfare of the society. Thus in this capitalist free market system, why does the market for carbon-producing activities continue to give positive market signals for their continuation or even expansion, while the damaging effects of those activities are well-known?Let’s just say that there are some costs that Adam Smith’s invisible hand cannot get a hold, given its narrow scope which extends only to the participants of the market.External costs are costs that are borne by third parties who are not directly involved in the production or consumption of goods or services that generate CO2.
20 The Economic Problem- External Costs of Carbon The third parties or the involuntary victims of impacts of carbon emissions can be grouped as follows:Plant and animal life forms: The polar ice caps are becoming smaller than ever before in human history, at a rate faster than ever. The overall increase in average temperatures is causing thermal stress for various plant and animal life forms and rapidly changing their habitats and evening threatening their existence.Low-lying and island states: Sea levels have risen by 2 inches over the past century as a result of anthropogenic climate change. Small island states face the risk of being submerged within a few decades and are bearing significant adaption costs.Future generations: Much of the costs of global warming are yet to come: extreme climate patterns, reduced supply of fresh water, increased desertification and lost biodiversity.The poor and vulnerable: The poor rely more heavily directly on nature for their subsistence through farming, fishing, forestry etc. and so, are disproportionately affected by climate change. They have relatively very little demand for manufactured goods or large quantities of fossil fuels.
21 The Economic Problem- Market for Oil Price/barrel of OilBarrels Bought and Sold$77.62yMPCMPBThe market system that is actually responsible for generating the CO2 only takes into consideration private costs: borne by producers (wages of labors, rent or cost of land, cost of raw materials etc) and weighs this against private benefits to consumers from consuming the commodity. The welfare of parties involved are maximized where marginal private cost (MPC; cost from additional unit of production) is equal to marginal private benefit (MPB; benefit from the additional unit consumed) and accordingly the price and quantities are set.If the market for oil is considered then the graph demonstrates a price of $77.62 that would be set for y number of barrels bought and sold in the market.
22 The Economic Problem- External Costs & Oil Market Failure In this market the external costs have not been accounted for; the true cost of using oil is not reflected in the price. Social cost is the cost to producers plus the external cost to the rest of the society due to oil consumption/production. By reconstructing the market system with the representation of the marginal social cost (MSC) we arrive at a very different picture. (For this example, we can safely assume that the benefits of consuming oil are borne only by the consumers; there are no external benefits)Barrel of oil = $77.62Carbon emitted per barrel (on average)= 317 kgSocial cost = $87.22 (estimate)Price/barrel of OilBarrels Bought and SoldMPB=MSBMPC$77.62yMarginal Social Cost = MPC + External Cost$85.22xSocially optimum level occurs at quantity x barrels.At this lower level the social cost of burning oil $85.22The price reflects the full cost to society and thus reduces oil production from y to x
23 The Economic Problem- Market Failure & Government Intervention Market failure occurs in case of various goods that have large external costs or benefits, such as alcohol, cigarettes, and public goods. In all these instances, the market either engages in overproduction (in cases of external costs) or underproduction (in cases of external benefits).In these situations, governments employ various solutions that may be market based (carbon tax), non-market based (carbon quotas) or combinations of both (cap and trade). All these methods are aimed at bringing carbon emissions to a level that is sustainable and socially efficient.However, the following are usually the difficulties in faced by all intervention plans:Overall lack of political will due to the perceived implications of carbon reductions on the economyIdentifying and quantifying external costs are complicatedThe market failure in carbon is a global issue and consensus at the international political level becomes very difficult
24 The Political Problem- Capability and Responsibility The Kyoto Protocol bring together countries who commit to participating in the methods proposed like carbon trading, clean development mechanism and joint implementation to reduce their emissions about 5% below the 1990 levels.In 2001, the US refused to ratify the Kyoto Protocol. This is because China, despite being one of the biggest polluters in the world (Fig 1) was classified by the conditions of the Protocol as a ‘developing nation’ which would not have to reduce their emissions at that time.This view fails to take into account China’s population. When we consider per capita emissions of carbon dioxide the picture changes we see that China not really one of heaviest polluters on the planet (Fig 2).Figure 1: Total CO2 emissions 2000 (thousand tons)Figure 2: Per capita CO2 emissions 2000 (tons)
25 The Political Problem- Capability and Responsibility How are we to define to what extent individual countries should take up the burden of the fight against climate change? The UNFCCC states that all countries should take up the fight in climate change…“….on the basis of equality and in accordance with their common but differentiated responsibilities and respective capabilities.”The Kyoto Protocol classifications of which countries are required to cut emissions are quite arbitrary and invite dispute. However, a fairly recent document, The Right to Development in a Climate Constrained World, attempts to actually identify and quantify the factors that determine the ‘responsibility and capability’ of individual nations to fight climate change. These factors are used to calculate each nation’s equitable share of emissions reductions.
26 The Political Problem- ….Capability and Responsibility The Development Threshold is the minimum per capita income needed to have sustained access to food, water, shelter, health and education.Capability Index is calculated on the basis of income in excess of the Development Threshold.Responsibility Index is based on a country’s historical emissions level which has contributed to the existing amount of carbon in the atmosphere.The combined capability-responsibility index (CRI) demonstrates the equitable proportion of the cost of any climate change prevention plan that should be borne by each countries. The concept of CRI on the UNFCCC principle of “common but differentiated responsibilities”How to read the table: If global carbon emissions are to be reduced by any amount, 33.1% of that reduction should come from the US while China is liable for only 5.5%.
27 Economic Growth and Carbon Emissions Much of opposition to and debate about abating climate change arise from the notion that protecting the environment means limiting economic growth and jobs and hence, hurting people’s livelihoods. This notion is deeply flawed. First, while a structural change in the economies of nations will be costly in the short term, the long term benefits will eventually pay off. More importantly, such a change is likely to create employment in new sectors.Empirically it can be shown from the map that economic growth and carbon emissions are not necessarily correlated. The map shows the carbon intensity for nations for every $1000 of GDP. The yellow, orange and red areas mark countries that have increased carbon intensity while the greens mark those that have decreased carbon intensity, meaning they decreased emissions while achieving the same level of economic growth.
28 CAP AND TRADE What is it? How does it work? What about a carbon tax? Which system works better?Political feasibilityOutline
29 What is cap and trade?Government caps the total allowable amount of carbon dioxide emissions over a period of timeIt divides the total allowable emissions into separate allowances (carbon credits)It gives away or auctions these carbon credits to companiesIf a company emits less carbon than it has credits for, it can sell the remaining creditsCompanies can thus buy and sell credits among themselves; the market determines price per creditCap and trade system thus allows market forces to fix an externalityThe system-wide cap eventually goes down over time in order to reach socially optimal level of carbon dioxide
30 Basic notion: Market Incentives In a cap and trade system, the limited number of licenses to emit a specified quantity of pollutant gives everyone an incentive to reduce pollution. Buyers would not have to acquire as many licenses if they can cut back on their emissions, and sellers can unload more licenses and sell them if they cut back on their emissions.
31 Carbon tax it would be simpler because the institutions already exist Carbon tax is a per-unit tax on carbon emissions.The tax is applied where carbon enters the environment.The rate of taxation is based on the marginal external cost of carbon and this aims to ensure that production occurs at the socially optimal level. As a result, the higher prices reflect the true social costs of carbon.Prosit would be simpler because the institutions already existcountries have an incentive to enforce taxesit requires less than perfect harmonization on an international level in comparison to cap and tradeit puts an explicit cost on carbonConsharmonized tax structure across countries may be hard (if not impossible to) achieve- this reverses the simplicity argumentcarbon taxes do not offer an incentive for others to joina carbon tax ignores the macroeconomic reality of a possible recession/stagflation
32 Uncertainty… Carbon tax price per unit carbon is set and known the amount of pollution does not have an upper limitCap and tradeprice per unit carbon is determined by the marketamount of pollution is known in advanceThe two systems therefore produce different types of uncertainty.Another important difference has to do with government revenue. A pollution tax imposes costs on the private sector while generating revenue for the government. Cap and trade is a bit more complicated in the sense that if the government simply auctions off licenses and collects the revenue, then it is just like a tax. Cap and trade, however, often involves handing out licenses to existing players, so the potential revenue goes to industry instead of the government.
33 Possible assessment criteria for pros and cons environmental effectivenessthe relative risks of bad designcostssimplicitypolitical feasibilityimplications for an international regimeIn terms of political feasibility, the assessment may depend on how far one looks beneath the surface. Tax is a politically toxic word, but with a more prolonged debate, do cap and trade programs look much more feasible?
34 It's all about design.If we are to have a carbon pricing system, the critical issues are about designing it to work well: broad coverage, flexibility, broad international participation should be the central goals.Theoretically, if designed well, both systems will have very similar environmental benefits.Taxes would be able to provide the same emission reductions and the same carbon concentrations as permits. Just as the number of permits would decline over time to reflect a particular target, tax rates would go up over time to achieve it.
35 ConclusionWhile changes on the macroeconomic level are up to a limited number of people, there are other opportunities for everyone to be the change s/he wants to see in the world. For example, becoming more energy efficient or recycling your waste. Individuals can and should make a difference. It is worth keeping in mind that the costs of inaction will be much higher than the costs of action. Don’t be taken in by the notion that this is all about people and jobs versus the environment. Focusing on sustainability rather than purely on economic growth in terms of GDP brings us one step closer to changing the system for the better.
36 References for Introduction "About Phenology | USA National Phenology Network." USA National Phenology Network | USA National Phenology Network. Web. <http://www.usanpn.org/about/phenology>.Easterling, William, Brian Hurd, and Joel Smith. Coping with Global Climate Change: The Role of Adaptation in the United States. Rep. Prepared for the Pew Center on Global Climate Change, June Web."Health | Climate Change - Health and Environmental Effects | U.S. EPA." US Environmental Protection Agency. Apr Web. <http://www.epa.gov/climatechange/effects/health.html>.IPCC, 2007: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning (eds.)]Koser, Khalid. "Why Migration Matters." Current History (2009): Web."Science | Climate Change | U.S. EPA." US Environmental Protection Agency. Apr Web. <http://www.epa.gov/climatechange/science/index.html>.
37 References for Part II“20% Wind Energy by 2030.” National Renewable Energy Laboratory (NREL).Agarwal, Anil and Sunita Narain. “Global Warming in an Unequal World: A Case of Environmental Colonialism.” New Delhi: Centre for Science and the Environment,“Climate Change 101: International Action.” Pew Center on Global Climate Change and Pew Center on the StatesDow, Kristen and Thomas Downing. The Atlas of Climate Change. Berkley: University of California, 2007."Exxon Secrets." Exxon Secrets. Greenpeace USA. Accessed 5 MayHoggan, James with Richard Littlemore. The Climate Cover-Up. Berkley: Graystone Books, 2009.Hulme, Mike. Why We Disagree about Climate Change. Cambridge: Cambridge UP, 2009.Pratt, Marney. "Climate Change." Physiological Ecology. Mount Holyoke College, South Hadley, MA. Lecture.“Summary of Conclusions.” Stern Review: The Economics of Climate Change. HM Treasury of the United Kingdom“Summary for Policymakers: A Report of Working Group I of the Intergovernmental Panel on Climate Change.” Intergovernmental Panel on Climate Change
38 References for Part III Linden, P. V, Verbruggen, A. IPCC AR4 SYR Appendix. IPCC. n.d. Web. April 20th 2010Painter , J. Americas on alert for sea level rise. BBC News. 8 April Web. April 20th 2010Bliss, J. Carbon dioxide emissions per barrel of crude oil. March 20th, Web. April 20th 2010Kyoto Protocol. 2 May 2010 (last modified).Web. 3 May 3, 2010.Baer, P., Athanasiou, T., Kartha, S. and Kemp-Benedict, E. The Right to Development in a Climate Constrained World. September Web. April 20th 2010
39 References for Part IVKeohane, Nathaniel; Milne, Janet; Richards, Kenneth; Wagner, Gernot; Weisbach, David. ”Carbon tax vs. cap-and-trade”. Bulletin of the Atomic Scientists. (November 24th 2008).Krugman, Paul. ”Building a Green Economy”. The New York Times. (April 5th 2010).Pascua, Juan Carlo. ”What is Carbon Cap and Trade? In Europe? In the US? Part 1”. Climate change. (February 27th 2010).