Program on Information and Resources Columbia University 1 Resilience and the Knowledge Revolution Pegram Lectures Brookhaven National Laboratories Graciela.

Program on Information and Resources Columbia University 1 Resilience and the Knowledge Revolution Pegram Lectures Brookhaven National Laboratories Graciela Chichilnisky UNESCO Chair in Mathematics and Economics Columbia University

Program on Information and Resources Columbia University 2 Human impact on the environment is uncertain CLIMATE CHANGE AND BIODIVERSITY DESTRUCTION These are global problems. They are new. Science is uncertain.

Program on Information and Resources Columbia University 3 INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE SCIENTIFIC ASSESSMENT OF CLIMATE CHANGE Policy-Makers Summary July 1990 Under a Business-as-Usual Scenario of Greenhouse Gas Emissions: ●Global Mean Temperature will increase at a rate of 0.3°C per decade (with uncertainty range of 0.2°C to 0.5°C per decade) 1°C above present by 2025 3°C above present by end of next century ●Rate of increase will be uneven and will vary regionally (e.g., higher over land). ●Global Mean Sea Level is expected to rise 6 cm per decade (with an uncertainty range of 3-10 cm per decade 20 cm above present by 2030 65 cm above present by end of next century

Program on Information and Resources Columbia University 4 ● Most of the destruction of the earth’s ecosystems is driven by economic incentives ●Forests, where most known biodiversity resides, are cleared for the extraction of natural resources (oil, wood products) or to give way for cash crops and grazing

Program on Information and Resources Columbia University 5 The globalization of the world economy since World War II has intensified a pattern of resource use by which developing nations extract most natural resources, exporting them to industrial nations at prices that are often below replacement costs

Program on Information and Resources Columbia University 6 To solve the environmental dilemma we must cut the link between resource use and economic progress. The key is to achieve a new type of industrialization, which is not based on resource exports: a knowledge intensive form of economic progress.

Program on Information and Resources Columbia University 7 ● We must incorporate the dynamics of markets in the management of ecosystems ● The market has become a key institution in the destruction of the earth’s ecosystems. No policy that ignores this fact can succeed.

Program on Information and Resources Columbia University 8 MARKETS are the dominant institution in the global economy. As the century turns, the market itself is evolving.

Program on Information and Resources Columbia University 9 TWO MAJOR TRENDS The Knowledge Revolution The Knowledge Revolution Global Environmental Issues Global Environmental Issues Lead to new and fundamental different types of markets Lead to new and fundamental different types of markets

Program on Information and Resources Columbia University 10 Markets are widely used institutions They are decentralized, and can be efficient. They are decentralized, and can be efficient. But global environmental markets trade unusual goods: privately produced public goods But global environmental markets trade unusual goods: privately produced public goods Biodiversity is one Biodiversity is one The planet’s atmosphere is another The planet’s atmosphere is another

Program on Information and Resources Columbia University 11 EXAMPLES The trading of SO 2 in the Chicago Board of Trade since 1993, following the Clean Air Act The trading of SO 2 in the Chicago Board of Trade since 1993, following the Clean Air Act Water markets in Australia – water is the most scarce resource in the world today Water markets in Australia – water is the most scarce resource in the world today

Program on Information and Resources Columbia University 12 Market for Emission Permits Annex I Countries are given allocations of property rights on emissions summing up to the 1990 level, and they can trade these freely among themselves Annex I Countries are given allocations of property rights on emissions summing up to the 1990 level, and they can trade these freely among themselves

Program on Information and Resources Columbia University 13 ● Environmental Markets ● Markets for Knowledge Both trade new and different types of goods: Privately Produced Public Goods (PPP)

Program on Information and Resources Columbia University 14 The Knowledge Revolution In many countries, is leading to a new economy, with different environmental problems and new opportunities for action. In many countries, is leading to a new economy, with different environmental problems and new opportunities for action. Examples: Asian Tigers and Little tigers, parts of India and Barbados. Examples: Asian Tigers and Little tigers, parts of India and Barbados.

Program on Information and Resources Columbia University 15 The Knowledge Revolution US leads the pack because of its property-rights systems and financial markets. US leads the pack because of its property-rights systems and financial markets. Japan lost in the software race because of property-rights systems. Japan lost in the software race because of property-rights systems.

Program on Information and Resources Columbia University 16 ● This is not a :”service economy” as previously thought. ● It is a new economy using knowledge rather than capital as the most important input of production. ● Fossil fuels are now replaced by information technology

Program on Information and Resources Columbia University 17 Sunrise sectors are knowledge intensive: biotechnology, telecommunications, financial markets, health services and entertainment and culture. MORE AMERICANS WORK IN BIOTECHNOLOGY THAN IN THE ENTIRE MACHINE TOOL INDUSTRY MORE AMERICANS MAKE SEMICONDUCTORS THAN CONSTRUCTION MACHINERY THE TELECOMMUNICATIONS INDUSTRY IN NORTH AMERICA EMPLOYS MORE PEOPLE THAN THE AUTO AND AUTO PART INDUSTRY COMBINED FOSSIL FUEL IS REPLACED BY INFORMATION TECHNOLOGY

Program on Information and Resources Columbia University 18 “New Economy” Examples The US health and medical industry alone has become larger than defense, and also larger than oil refining, aircraft, autos, auto parts, logging, steel and shipping put together The US health and medical industry alone has become larger than defense, and also larger than oil refining, aircraft, autos, auto parts, logging, steel and shipping put together More Americans work in biotechnology than in the entire machine tools industry More Americans work in biotechnology than in the entire machine tools industry

Program on Information and Resources Columbia University 19 Consumers now spend more on home electronics than on new cars $95 billion a year on home computers, TVs and stereos. $95 billion a year on home computers, TVs and stereos. $85 billion a year on new cars. $85 billion a year on new cars.

Program on Information and Resources Columbia University 20 Productivity is driven by the knowledge sectors According to the Federal Reserve Board, US industrial production in 1997-98 increased at a strong 4.1% annual rate, 4.4% during 1996. According to the Federal Reserve Board, US industrial production in 1997-98 increased at a strong 4.1% annual rate, 4.4% during 1996. Take away computers and semiconductors and the rate drops to 2.2% Take away computers and semiconductors and the rate drops to 2.2%

Program on Information and Resources Columbia University 21 Productivity is driven by the knowledge sectors According to the Bureau of Economic Analysis, total US industrial production in 2002-2003 increased at a 2.17% annual rate, 4.19% during 2000. According to the Bureau of Economic Analysis, total US industrial production in 2002-2003 increased at a 2.17% annual rate, 4.19% during 2000. Take away the production of computers and electronic products, and this drops to 1.72% (2003) or 3.41% (2000). Take away the production of computers and electronic products, and this drops to 1.72% (2003) or 3.41% (2000). www.bea.gov: Gross Output by Industry in Current Dollars

Program on Information and Resources Columbia University 22 The New Economy Starts to Hit Home Increases in personal spending: Key old economy items Motor vehicles: 0.3% Food: 0.6% Major Appliances: 1.1% Clothing: 2/3% Average: 0.9% Key new economy items Home telephone services: 8.8% Entertainment & recreation services: 12.4% Cable TV: 13.4% Brokerage and other financial services: 15.6% Average: 12.5% Source: Business Week, March 23, 1998

Program on Information and Resources Columbia University 23 ● Today more Americans make semiconductors than construction machinery ● The telecommunications industry in North America employs more people than the auto and the auto parts industries combined

Program on Information and Resources Columbia University 24 Source: “Comparing economic and scientific wealth” of the article “The Scientific Impact of Nations” by David A. King, Nature, July 15, 2004, p. 311-316.

Program on Information and Resources Columbia University 25 Sources: Pisa. www.pisa.oecd.org. World Bank. www.worldbank.org.www.pisa.oecd.orgwww.worldbank.org

Program on Information and Resources Columbia University 26 Sources: Pisa. www.pisa.oecd.org. World Bank. www.worldbank.org.www.pisa.oecd.orgwww.worldbank.org

Program on Information and Resources Columbia University 27 Knowledge Sector (% of GDP) U.S. BEA 2007, Knowledge Sector: Computer and electronic products; information; finance and insurance; professional, scientific, and technical services; management of companies and entreprises Sources: US Bureau of Economic Analysis (BEA) 2007 data www.bea/gov. World Bank. www.worldbank.orgwww.bea/gov

Program on Information and Resources Columbia University 28 Sources: US Bureau of Economic Analysis (BEA) 2007 data www.bea/gov. World Bank. www.worldbank.orgwww.bea/gov

Program on Information and Resources Columbia University 32 Sources: World Bank. www.worldbank.org. World Resource Institute (WRI). www.wri.orgwww.worldbank.org

Program on Information and Resources Columbia University 33 Sources: US Bureau of Economic Analysis (BEA) 2007 data. www.bea/gov Energy Information Administration (EIA). www.eia.doe.gov/

Program on Information and Resources Columbia University 34 LEADING THE WAY TO ECO-FRIENDLY PROFITS Some major manufacturers have decided to do more than reduce waste and clean up pollution. They are developing products and processes that make it profitable to be environmentally friendly. Some major manufacturers have decided to do more than reduce waste and clean up pollution. They are developing products and processes that make it profitable to be environmentally friendly. DUPONT has co-developed 3GT, a bioengineered polyester fabric made from cornstarch that is lower in cost than oil-based polyester and can be recycled indefinitely. DUPONT has co-developed 3GT, a bioengineered polyester fabric made from cornstarch that is lower in cost than oil-based polyester and can be recycled indefinitely. SONOCO has created an rectangular “paper can” for Lipton Iced Tea that is 70% recyclable. SONOCO has created an rectangular “paper can” for Lipton Iced Tea that is 70% recyclable. 3M has developed a plastic coating for the Navy to replace paint on trucks, ships and trains. It’s lighter than paint, which leads to greater fuel efficiency. 3M has developed a plastic coating for the Navy to replace paint on trucks, ships and trains. It’s lighter than paint, which leads to greater fuel efficiency. S.C. JOHNSON reformulated Raid roach killer, converting from a solvent-based to a water-based formula. S.C. JOHNSON reformulated Raid roach killer, converting from a solvent-based to a water-based formula.

Program on Information and Resources Columbia University 35 ELECTROLUX’ environmental products, including solar-powered lawn mowers, chain saws lubricated with vegetable oil, and water saving washing machines, generated 3.8% higher profits last year than the company’s conventional products. TOYOTA is introducing a hybrid car that gets 66 mph on a combination of gasoline and electricity. A. FINKL & SONS, a Chicago steel forger, recycles more than 955 of its solid waste and has cut energy use by 36.4% over 10 years, making it one of the most efficient forgers in the world. BRITISH PETROLEUM has invested $160 million in developing solar energy and is building a completely solar-powered Olympic village for the 1998 Summer Games in Australia.

Program on Information and Resources Columbia University 36 The Developing World can leapfrog and avoid resource intensive industrialization The successful Asian tigers relied on technology exports, such as consumer electronics The successful Asian tigers relied on technology exports, such as consumer electronics In the last ten years India developed a Software industry worth $4 Billion USD in exports to 36 countries, one of the most dynamic in the world In the last ten years India developed a Software industry worth $4 Billion USD in exports to 36 countries, one of the most dynamic in the world

Program on Information and Resources Columbia University 37 In recent years, nearly one-third of new tech companies in the Silicon Valley have been headed by Indian or Chinese executives USA Today, February 24, 1999

Program on Information and Resources Columbia University 38 Knowledge intensive growth is here today. It is the future. How to achieve the transition with minimum cost?

Program on Information and Resources Columbia University 39 Knowledge and Global Environment Assets Are not standard public goods such as law and order Are not standard public goods such as law and order They are mostly produced privately, rather than by the government They are mostly produced privately, rather than by the government They are costly to produce They are costly to produce

Program on Information and Resources Columbia University 40 Privately Produced Public Goods are goods which are not “rival” in consumption, but are privately produced. are goods which are not “rival” in consumption, but are privately produced. We all produce emissions but the atmosphere is the same for us all. We all produce emissions but the atmosphere is the same for us all. We produce knowledge privately but can share all of it with others without losing it. We produce knowledge privately but can share all of it with others without losing it.

Program on Information and Resources Columbia University 41 Knowledge and Global Environment are Privately Produced Public Goods Why are they public goods? ● Knowledge is not “rival” in consumption – it can be shared without losing it

Program on Information and Resources Columbia University 42 Similarly Global environmental assets such as the carbon content of the atmosphere are one and the same for everybody on the planet. These are physical properties, independent of the economic institutions. Global environmental assets such as the carbon content of the atmosphere are one and the same for everybody on the planet. These are physical properties, independent of the economic institutions.

Program on Information and Resources Columbia University 43 The Paradox of Knowledge It is costly to produce It is costly to produce It can be duplicated without losing it. It can be shared at no cost It can be duplicated without losing it. It can be shared at no cost Because it is costly, without property rights, such as patents, there is no incentive to produce knowledge. Because it is costly, without property rights, such as patents, there is no incentive to produce knowledge. Example: Japan has no property rights on software, and produces almost none. Example: Japan has no property rights on software, and produces almost none.

Program on Information and Resources Columbia University 44 Yet because it can be shared at no cost, any restriction on the use of knowledge is inefficient. For example: Patents are inefficient because they are monopolies (Stiglitz). We need new systems of property rights for knowledge. What is the solution?

Program on Information and Resources Columbia University 45 Markets for PPP goods are different from the classical markets. They require new systems of property rights.

Program on Information and Resources Columbia University 46 Traditional Markets First Theorem of Welfare Economics The allocation resulting from a competitive market equilibrium with private goods is Pareto efficient. This theorem is independent of the distribution of property rights. For example, all but two traders may have zero endowments of property rights and the resulting equilibrium is still Pareto efficient. This requires all goods to be private goods, with rival consumption, and privately owned.

Program on Information and Resources Columbia University 47 Public goods change matters A public good is a good which is not “rival” in consumption: this is not an economic or legal definition but rather a physical constraint. Examples: Knowledge, the concentration for CO 2 or CFC’s in the atmosphere or the planet, available biodiversity is the planet. This leads to

Program on Information and Resources Columbia University 48 A New First Welfare Theorem in Markets with Privately Produced Public Goods in which equity and efficiency are closely linked

Program on Information and Resources Columbia University 49 Privately Produced Public Goods are goods which are not “rival” in consumption, but are privately produced. We all produce emissions but the atmosphere is the same for us all. We produce knowledge privately but can share all of it with others without losing it.

Program on Information and Resources Columbia University 50 A competitive market with property rights on knowledge An economy has H countries or traders who consume N private goods and one public good, Knowledge. They trade private goods x  R N and licenses giving the rights to use knowledge, a  R. Trader h has finite resources which are allocated to produce either private goods or knowledge.

Program on Information and Resources Columbia University 51 For each trader, there is a tradeoff between producing more private goods and producing more knowledge. However, more knowledge leads to higher productivity. Formally  h, x h =  h (a h, a), with  h   a =  a h and  h,  x h  or a = sup a h h  H ahah aa

Program on Information and Resources Columbia University 52 Countries or traders have property rights  h  R N on private goods and own licenses that allow them to use knowledge, a h  R. Traders derive utility from use of private goods x. Through negotiable licenses knowledge is available to all.

Program on Information and Resources Columbia University 53 Traders may use their licenses to access knowledge or may sell their licenses in the market. If they wish to use more knowledge than their licenses allow, they buy more licenses in the market. Markets for licenses are competitive.

Program on Information and Resources Columbia University 54 Market equilibrium with knowledge Each trader maximizes welfare Max u h (x h ) s.t. x h =  h (a h,a) + q (a h – a h ) the value of consumption equals the value of production plus the value of licenses bought or sold, and all markets clear:  a h =  a h = a

Program on Information and Resources Columbia University 55 First Welfare Theorem for Markets with Privately Produced Public Goods Theorem In and economy with k ≥2 traders, j ≥1 private goods and a privately produced public good, there exists at most a one- dimensional manifold of property rights allocations on the use of the public good (allocation of “permits”) from which the competitive equilibrium is Pareto efficient. This is the Manifold of Efficient Allocations of Property Rights

Program on Information and Resources Columbia University 56 Theorem 1 ( Chichilnisky, Heal and Starrett, 1993) There is only a finite number of ways of distributing licenses of property rights on the use of PPP goods between the traders so that the market equilibrium in Pareto efficient. There is only a finite number of ways of distributing licenses of property rights on the use of PPP goods between the traders so that the market equilibrium in Pareto efficient.

Program on Information and Resources Columbia University 57 Policy Those who have fewer endowments of private goods must be endowed with more property rights on the use of the PPP good. Otherwise, the market does not operate efficiently. Those who have fewer endowments of private goods must be endowed with more property rights on the use of the PPP good. Otherwise, the market does not operate efficiently.

Program on Information and Resources Columbia University 58 ● Efficiency and distribution are connected in markets with PPP goods. ● A measure of equity is necessary for efficiency. ● Markets with knowledge and environmental assets require equity for efficiency

Program on Information and Resources Columbia University 59 Policy Conclusions Markets with knowledge require some equity to function efficiently Markets with knowledge require some equity to function efficiently It is standard to favor lower income groups in knowledge-use. Examples are school subsidies for low income groups and school vouchers. It is standard to favor lower income groups in knowledge-use. Examples are school subsidies for low income groups and school vouchers. The system of property rights proposed here is different from patents, because there is no exclusivity. Patents are exclusive The system of property rights proposed here is different from patents, because there is no exclusivity. Patents are exclusive

Program on Information and Resources Columbia University 60 Policy Conclusions The system proposed here consists of negotiable licenses which are accessible to all, together with a covenant and a system of property rights allocation (such as auctions) that favors those with low income. The system proposed here consists of negotiable licenses which are accessible to all, together with a covenant and a system of property rights allocation (such as auctions) that favors those with low income. There exists microchips (Wave Technology, Inc.) that can measure the use of knowledge as required for the implementation of these results. There exists microchips (Wave Technology, Inc.) that can measure the use of knowledge as required for the implementation of these results.

Program on Information and Resources Columbia University 61 Traders may use their licenses to access knowledge or may sell their licenses in the market. If they wish to use more knowledge than their licenses allow, they buy more license in the market. Markets for licenses are competitive

Program on Information and Resources Columbia University 62

Program on Information and Resources Columbia University 63

Program on Information and Resources Columbia University 64 A VISION OF A NEW ECONOMY Very innovative in the use of knowledge Very conservative in the use of resources Centered on diversity and human capital New types of markets based on property rights of enviromental use and knowledge Offering the prospect of substantial economic progress without damaging the ecosystems that support life on Earth

Program on Information and Resources Columbia University 65 US Policy in the World Economy: Help create International Markets for Trading Property Rights on the Use of Global Commons Help create International Markets for Trading Property Rights on the Use of Global Commons Possibly in conjunction with GATT or WTO Possibly in conjunction with GATT or WTO Ensure Efficient Market Functioning for which Ensure Efficient Market Functioning for which Those regions with fewer endowments of private goods must be endowed with more property rights on the common environmental assets. Otherwise the market cannot operate efficiently. Those regions with fewer endowments of private goods must be endowed with more property rights on the common environmental assets. Otherwise the market cannot operate efficiently.

Program on Information and Resources Columbia University 66 ● What are the institutions needed to implement emission trading? ● How to ensure efficiency and fair trading?

Program on Information and Resources Columbia University 67 To answer these questions, a global financial mechanism must be designed that reflects full equitable and active participation of developing and industrial nations

Program on Information and Resources Columbia University 68 An International Bank for Environmental Settlements can help achieve this goal the IBES will help to obtain economic value from environmental assets without destroying them the IBES will help to obtain economic value from environmental assets without destroying them will help bridge the gap between developing and industrial countries will help bridge the gap between developing and industrial countries Will provide a forum for adjusting to new scientific findings Will provide a forum for adjusting to new scientific findings

Program on Information and Resources Columbia University 69 The IBES could help organize and broker: The trading of rights on the use of global airwaves The trading of rights on the use of global airwaves The trading of rights on greenhouse gases emissions and biodiversity use The trading of rights on greenhouse gases emissions and biodiversity use The trading of environmental bonds and earth stocks The trading of environmental bonds and earth stocks The trading of options and other derivatives based on the above The trading of options and other derivatives based on the above

Program on Information and Resources Columbia University 70 The IBES could also Securitize profit sharing agreements on genetic blueprints Securitize profit sharing agreements on genetic blueprints Securitize profitable investments in aquifers, watersheds, biological soil enhancement and fisheries Securitize profitable investments in aquifers, watersheds, biological soil enhancement and fisheries Provide bridge financing and credit enhancement facilities for all the above Provide bridge financing and credit enhancement facilities for all the above

Program on Information and Resources Columbia University 71 The case for an International Bank for Environmental Settlements (IBES) Based on new economic findings on the existing proposal for trading carbon permits, an IBES can be created which Based on new economic findings on the existing proposal for trading carbon permits, an IBES can be created which ●will be self-financing ●will offer a combination of markets solution and continuing multilateral negotiations

Program on Information and Resources Columbia University 72 An International Bank for Environmental Settlements (IBES) GIVES ACCESS TO INTERNATIONAL CAPITAL MARKETS FOR FUNDING CONSERVATION GIVES ACCESS TO INTERNATIONAL CAPITAL MARKETS FOR FUNDING CONSERVATION TO ALLEVIATE DEFAULT RISKS: TO ALLEVIATE DEFAULT RISKS: CREDIT ENHANCEMENT BY WORLD BANK OR GEF

Program on Information and Resources Columbia University 73 The population explosion since World War II put stress on water resources globally Clean water is the most scarce resource around the world

Program on Information and Resources Columbia University 74 ● IBES provides an institutional framework that combines the best aspects of free markets and multinational policy ● IBES can offer a continuing way to draw capital from global financial markets to support global environmental policy ● IBES will regulate and monitor compliance of trading of carbon permits globally (borrowing, lending and derivatives)

Program on Information and Resources Columbia University 75 Policies To Avert Climate Change Policies to prevent climate change focus mainly on curtailing emissions of carbon dioxide (CO 2 ), the most important greenhouse gas. Policies to prevent climate change focus mainly on curtailing emissions of carbon dioxide (CO 2 ), the most important greenhouse gas. ● Regulatory Approaches ● Market Approaches --- Carbon Taxes --- Joint Implementation --- Tradable Permits

Program on Information and Resources Columbia University 76 Policies To Prevent Climate Change Carbon Taxes Carbon Taxes A mechanism to reduce carbon emissions is a carbon tax – a tax levied on all fossil fuels in proportion to their carbon contents. A mechanism to reduce carbon emissions is a carbon tax – a tax levied on all fossil fuels in proportion to their carbon contents. ●By raising the cost of fuels and energy intensive products, this tax would discourage all fossil fuel use in proportion to their carbon contents and encourage the development of less carbon-intensive alternatives. ● A recent statement by leading economists favors taxes over a regulatory approach. However, taxes increase government’s intervention in the economy and are out of public favor in today’s market-oriented environment

Program on Information and Resources Columbia University 77 Policies To Prevent Climate Change Joint Implementation Joint Implementation This is a mechanism that allows a firm in one country to invest in a project that reduces emissions in another country, and to receive credit for those reductions at home. It was proposed by President Clinton on October 22, 1997. An example might involve Norway and Poland. International joint implementation of CO 2 emissions reductions would allow a utility in Norway to achieve an emissions reduction by contracting to pay a factory in Poland to install more fuel-efficient furnaces This is a mechanism that allows a firm in one country to invest in a project that reduces emissions in another country, and to receive credit for those reductions at home. It was proposed by President Clinton on October 22, 1997. An example might involve Norway and Poland. International joint implementation of CO 2 emissions reductions would allow a utility in Norway to achieve an emissions reduction by contracting to pay a factory in Poland to install more fuel-efficient furnaces

Program on Information and Resources Columbia University 78 Policies To Prevent Climate Change Tradable Permits Tradable Permits ● This is the most market-oriented and efficient approach, which is already used for sulfur dioxide permits in the Chicago Board of Trade ● This is the most market-oriented and efficient approach, which is already used for sulfur dioxide permits in the Chicago Board of Trade ● One argument for tradable permits is the perceived political difficulty of proposing a change in the tax structure ● One argument for tradable permits is the perceived political difficulty of proposing a change in the tax structure ● The most difficult issue in the use of tradable permits is how to allocate them to potential users. For small fuel users tradable permits could cause administrative burdens ● The most difficult issue in the use of tradable permits is how to allocate them to potential users. For small fuel users tradable permits could cause administrative burdens

Program on Information and Resources Columbia University 79 Policies To Prevent Climate Change Carbon taxes or tradable permits increase the cost of energy and could reduce economic growth. Different models show different impacts. Carbon taxes or tradable permits increase the cost of energy and could reduce economic growth. Different models show different impacts. Despite the complexity of the models, only a handful of easily understandable assumptions are important in determining the simulation results. Despite the complexity of the models, only a handful of easily understandable assumptions are important in determining the simulation results.

Program on Information and Resources Columbia University 80 T HE P REDICTED I MPACTS ON GDP IN 2020 OF S TABILIZING CO 2 E MISSIONS AT 1990 L EVELS: T HE E FFECT OF C HANGING U NDERLYING A SSUMPTIONS Source: Shackleton, R. et al (1992) The Efficiency Value of Carbon Tax Revenues. Washington, D.C.: U.S. Environmental Protection Agency.

Program on Information and Resources Columbia University 81 The International Bank for Environmental Settlements Win-Win Solutions Win-Win Solutions ● Uncertain though they are, there are costs associated with doing nothing in the face of rising greenhouse gas concentrations. ● Uncertain though they are, there are costs associated with doing nothing in the face of rising greenhouse gas concentrations. ● The few models that do take expected damages from climate change into account predict that a carbon tax set at an appropriate rate, with revenues recycled efficiently back into the economy, actually improves economic welfare ● The few models that do take expected damages from climate change into account predict that a carbon tax set at an appropriate rate, with revenues recycled efficiently back into the economy, actually improves economic welfare (Nordhaus and Young, 1996; Jorgenson et al., 1995; Nordhaus, 1994, 1993).

Program on Information and Resources Columbia University 82 GDP L OSS (1990-2010) U NDER A LTERNATIVE R ECYCLING O PTIONS Source: Shackelton, R. et al (1992) The Efficiency Value of Carbon Tax Revenues. Washington, D.C.: U.S. Environmental Protection Agency.

Program on Information and Resources Columbia University 83 A Win-Win Proposal A market-based approach A market-based approach Global Trading, Clearing and Settlement of Tradable Carbon Permits Global Trading, Clearing and Settlement of Tradable Carbon Permits International Bank for Environmental Settlements (IBES) International Bank for Environmental Settlements (IBES)

Program on Information and Resources Columbia University 84 The International Bank for Environmental Settlements A market-oriented institution A market-oriented institution Acts as an intermediary, organizes and regulates global trading of carbon permits and other environmental assets Acts as an intermediary, organizes and regulates global trading of carbon permits and other environmental assets Governance and operating budget decided by the nations of the world Governance and operating budget decided by the nations of the world

Program on Information and Resources Columbia University 85 The International Bank for Environmental Settlements The IBES Mandate The IBES Mandate ● To enhance wealth generation while protecting the environment. ● To enhance wealth generation while protecting the environment. It will accomplish this by: ● Providing liquidity and economic return from environmental assets (such as forests) while ensuring judicious use. ● Providing liquidity and economic return from environmental assets (such as forests) while ensuring judicious use.

Program on Information and Resources Columbia University 86 The International Bank for Environmental Settlements How IBES Operates How IBES Operates Preserving national sovereign rights, IBES will: Preserving national sovereign rights, IBES will: - Act as an intermediary in multilateral borrowing and lending of permits - Trade options on carbon permits in the future - Clear and settle multinational transactions - Ensure market integrity and efficient price mechanisms (such as SEC, CFTC)

Program on Information and Resources Columbia University 87 The International Bank for Environmental Settlements How IBES Operates How IBES Operates - Once the world’s ceiling of emissions is agreed upon, permits can be allocated following a sliding rule - Starting from today’s usage, the rule moves towards an incentive system allocating more to those who emit less - Auctions can be used to allocate permits efficiently

Program on Information and Resources Columbia University 88 The International Bank for Environmental Settlements The IBES: A Win-Win Solution The IBES: A Win-Win Solution The industrial nations have more capital. The developing nations are richer in the environmental account. They emit less carbon and have most of the world’s forests and 80% of its biodiversity. According to the economic models, there are gains to be made from trade while insuring judicious use of environmental assets. The industrial nations have more capital. The developing nations are richer in the environmental account. They emit less carbon and have most of the world’s forests and 80% of its biodiversity. According to the economic models, there are gains to be made from trade while insuring judicious use of environmental assets.

Program on Information and Resources Columbia University 89 Source: Earthrends World Resource Institute (WRI)

Program on Information and Resources Columbia University 90 Source: Chichilnisky, G. and Eisenberger, P. Energy Security, Economic Development and Global Warming: Addressing short and long term challenges. International Journal of Green Economics, 2009

Program on Information and Resources Columbia University 93 Sources: 1. FloodSmart.gov 2. California Department of Insurance 3. California Department of Insurance and National Association of Insurance Commissioners (the two sources differ by $.1) http://www. aic.org/Releases/2007_docs/NAIC_Releases_Homeowners_Ins_Report.htm, and http://www. naic.org/documents/research_stats_homeowners_sample.pdf

Program on Information and Resources Columbia University 100 Sources: Duncan Foley, “The Economic Fundamentals of Global Warming” 2007 http://www.santafe.edu/research/publications/workingpapers/07-12-044.pdf

Program on Information and Resources Columbia University 101 Sources: Millennium Ecosystem Assessment. Ecosystem and Human Well-Being: Biodiversity Synthesis(2005) http://www.millenniumassessment.org/en/i ndex.aspx

Program on Information and Resources Columbia University 1 Resilience and the Knowledge Revolution Pegram Lectures Brookhaven National Laboratories Graciela.

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Program on Information and Resources Columbia University 1 Resilience and the Knowledge Revolution Pegram Lectures Brookhaven National Laboratories Graciela.

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