Services and the Environment

Aaditya Mattoo, an economist from the World Bank was in Geneva recently giving a talk at ITC. He was presenting their Services Trade Restrictions Database that allows users to compare information on services trade policy measures for 103 countries across five sectors. Two interesting points of discussion: Is it in the interest of smaller countries to open up their markets? Mattoo gave examples where he thought it was, for example after the deregulation of the telecommunications industry in the Caribbean, consumer prices immediately fell; in Africa liberalization has lead to huge growth in mobile telephony to the obvious benefit of consumers. But he asked was the competition really that stiff and could prices be lower with more competition in the market. On Environmental Services and Aid for Trade: he thought that the growth in environmental services was constrained less by trade measures and more by the nature of environmental regulation and thus domestic incentives for developing the sector. What does this mean for ITC and AfT? Rather than focusing on selecting technologies, create favourable regulations to create demand for selected outcomes, e.g. lowering GHG emissions.

Decoupling growth from environmental impacts

Oxfam has produced a new report to see if the G20 has lived up to its promises of green growth ie economic growth decoupled from carbon emissions. the answer is mainly no, but France and Germany come close. A series of caveats include the issue of imported embedded carbon

Climate negotiations - a future?

Excellent post from Chris Spence of IISD who asks if the UNFCCC process is a case of insanity i.e. repeating the same pointless task over and over again.http://www.blogger.com/img/blank.gif

He concludes that the multilateral process is dead not because of the UNFCCC process but lack of political will. However on a bright note many state and private actors outside this high level are taking actions to reduce emissions.

Those on the periphery of the process (business, local, national and regional entities, civil society) are pursuing their own course of action. Whether it is Australia, China or California introducing carbon markets or cap-and-trade systems, or local communities and business leaders implementing new sustainability strategies, action is happening at many levels. These groups are hoping the global process will catch up with them eventually. But they are not waiting for this to happen before taking action themselves.

His verdict:

It is clear that the UNFCCC is not the sole answer to climate change. That said, it can still be a part of the solution, combined with bottom-up initiatives involving all stakeholders and strong efforts at the local, national and regional levels.

Yes, the UNFCCC is not the panacea. It can be disappointing, frustrating, repetitive and sometimes even maddening. But that does not make it either mad or dead. The UNFCCC still offers the most logical, practical multilateral venue for addressing what is, after all, a global problem. For all its flaws, it still has the potential to contribute to solving the climate challenge.

The struggle for Republicans who believe in climate change

The Climatedesk has produced an interesting video on the frustrations being felt by New Hamshire Republicans who believe in climate change.

Pricing carbon again

Here is a blog from Tim Harford that illustrates the point made by Stavins about why it is lower cost to address climate change through pricing than traditional regulation like standards.

Professor Stavins in Geneva

Last night I attended a lecture by Professor Stavins of Harvard. He started with some basics on climate change and economics.

The fundamental obstacle to introducing measures to reduce carbon usage in our economies is that climate change is a global commons problems. It does not matter is carbon is emitted by a car in Geneva or lawnmower in Wisconsin. The damage is the same. However, actions to reduce emissions incur costs for a national economy even those the benefits of that action are shared globally – the free rider problem.

Economists like Stavins favour market-based instruments because there are millions of emissions sources (from cars to lawnmowers to power station) with hundreds of millions of decision-makers. Each source has a different short term marginal cost to reduce emissions.

Conventional command and control policies (e.g. emission standards) are not cost effective because they impose a regulation that requires compliance in different marginal costs.

Market-based instruments like a carbon tax or cap and trade controls emissions at the same marginal cost. In the longer term, pricing sends signals for low carbon technology development.

Why is carbon pricing a hot political issue?
Because it makes the costs transparent. Politicians want to make constituents think they have something for nothing. Win-win policies don’t exist. For example a gas tax is transparent. A fuel efficiency standard not, so more acceptable politically.

He said a carbon tax not likely in next few years, but that there is some climate policy in the US, e.g.
• 80 billion commited for renewable and energy efficiency
• Energy efficiency standards for auto and appliance
• US Supreme court decision. EPA endangerment findings and CAA triggered to put in place for CO2
• Air pollution leg

He said that carbon pricing is a necessary but not sufficient incentive for low carbon tech development. Why? Because R and D is eventually a public good, even with strong IP systems. For example, Apple spent millions on developing the smart phone. New entrants to the market (Android) have enjoyed the benefits of that development. Apple did not capture all the benefits of their investments. So positive externality mean that low carbon technology development will be undersupplied without government funding.

He then described the prospects for Durban. These are covered in his blog but essentially because of the pressure to extend Kyoto Protocol, the conference risks failure like Copenhagen. He noted that keeping KP going is v important to DCs. Why? They get benefits (reduced damage) but at no cost.

Interesting point about how carbon regulation can develop outside the UNFCCC process. We are now seeing decentralized approaches like the EU ETS and the Australian carbon tax. These can be linked through equivalence schemes (like with private standards). There is pressure to do that to reduce overall costs, market power and price volatility. Systems are already linked when they are both linked through use of the CDM offsets.

Trade and Naomi Klein

This week Naomi Klein issued her "climate agenda" as a response to the Tea Party deniers to climate change. The six "arenas" for change include one on international trade, in which production is "relocalized". A few thoughts on this:

Production and trade has always involved large distances, or least since man worked out animals could carry things and that ships with sails can go long distances. Economists show that trade brings about an efficient use of resources because of the theory of comparative advantage, whereby two countries trade with oneanother the things that they are respectively better at producing more of.

"Re-localizing" food production as Klein advocates would make food more expensive, which would be a bad thing for people on low incomes (who spend proportionally more of their budget on food than the rich). It would also be bad for the climate in some cases - certain foods are imported from warmer regions not just because it is cheaper to produce there but the emissions (even when you include transport) can be considerably lower, for example for fruits imported in the winter.

Freakonomics sums it up nicely today with this post.