Class 8 a) Atmosphere & b) Environment and GDP http://www.agecon.purdue.edu/staff/shively/courses/ AGEC406/index.htm
Mar 19, 2016
Class 8
a) Atmosphere &b) Environment and GDP
http://www.agecon.purdue.edu/staff/shively/courses/AGEC406/index.htm
AGEC/FNR 406 LECTURE 18
What the ozone hole looks like to a statistician!
Atmospheric Change
1. Ozone depletion in stratosphere
2. Global warming and climate change
Two major issues
Stock vs. Fund Pollutants
1. Fund pollutants: environment has some assimilative capacity
2. Stock pollutants: environment has little or no assimilative capacity
Economic importance is that stock pollutants continue to accumulate or are persistent: the problem is dynamic not static
Issues in atmospheric change:
1. Activities affect basic chemistry
2. Pollutants accumulate
3. Effects are global
4. Economic impacts may be severe
5. Consequences are uncertain
Ozone depletion
Main issue:Ozone in stratosphere blocks UVDepletion of ozone was predicted in 1974Depletion was first observed in 1985
More UV means…- skin cancer- lower agricultural yields- mutation in phytoplankton
Ozone hole
1. Annual variation normal
2. Less ozone now
Source: British Antarctic Survey, data online at http://www.antarctica.ac.uk/met/jds/ozone/data/ZOZ5699.DAT
Ozone depletion: main cause Main cause of ozone depletion is worldwide
use of fluorocarbons, especially cholorofluorocarbons (CFCs).
CFCs are: catalysts to convert O3 (“ozone”) to O2
inert, and therefore persistent
CFCs: main usesRefrigeration
Air conditioningSpray propellantsFoam production
Solvents
Ubiquitous in industry and consumer products in 1960s, 70s, and 80s.
Main benefit: inert
Ozone depletion: consequences1. More UV transmission
2. CFCs are greenhouse gases and therefore increase global warming
3. Less ozone has a cooling effect andtherefore mitigates global warming
Net effect on global warming ambiguous,but other negative effects are clear.
Ozone depletion: policy context
MAC
MDF
CFC emissions
$
The optimal level is near zero, so a ban is likely to be an
efficient approach.
Montreal Protocol1987 agreement signed by most nations
amended in 1990 and 1992
Called for complete elimination of CFCs: - in industrialized countries by 1996
(done) - in developing countries by 2006
(still in progress)
CFC replacements(hydrochloroflurocarbons)
Two issues:
1. HCFCs are also ozone depleting
2. Economic incentives to develop recovery systems
but… since CFCs are still available in less developed countries, an incentive for illegal importation exists.
What Progress?
“Perhaps the single most successful international agreement to date has been the Montreal Protocol.”- Kofi Annan, Secretary General of the United Nations
But…according to NASA, from September 21-30, 2006 the average area of the ozone hole was the largest ever observed, at 10.6 million square miles.
For more information, visit:
http://www.theozonehole.com/montreal.htmwww.atm.ch.cam.ac.uk/tour/andwww.ciesin.org/TG/PI/POLICY/montpro.html
Acid Rain
Name derives from a chemical reaction between
SO2 (sulfur dioxide)
NO2 (nitrogen dioxide)
and
H2O (water)
Reaction leads to...
Creation of sulfuric and nitric acid,which fall in the form of acidified rain
(or snow or sleet).
There are actually two forms of acid deposition:
1. wet deposition2. dry deposition
http://www.epa.gov/airtrends/sulfur.html
http://www.epa.gov/air/emissions/so2.htm
Acid Deposition (Acid Rain)• Regional Pollutant
– Effects felt over a broad geographic area.
– Location important: Effects felt downwind of source.
• Transboundary pollutant– Emitted in one country and transported across a national border
to another country.
U.S. sulfur dioxide emissions responsible for 50-75% of acid deposition over most of eastern Canada.
Canada sulfur dioxide emissions responsible for < 5% of acid deposition in the U.S.
Acid rain impacts
1. Aquatic systems (-)
2. Forests (-)
3. Human health (-)
4. Visibility (-)
5. Agriculture (- /+)
6. Building materials (-)
Example
$250
50
TravelCost
P = 250 -5Q
0
Number of visits 0
Damage = Loss in consumer
surplus.
$200
P = 200 -5Q
40
Damage and cost assessment
Main issues:1. Market and non-market effects2. Chemical synergies + metals3. “Common metric” problem
Measurement and quantification of MAC is difficult due to interdependencies.
Who benefits? Who should pay?
Actual policy in U.S.
1970-1990- uncertainty prevailed- Reagan administration stalled- EPA regulations focused on local effects
which may have exacerbated problem
1990-present- Clean Air Act: marketable permits
(1990)- NOXexcluded, 1-1 trading ignores location- SO2 falling but NO2 increasing
Why so long?
Political concern regarding job lossesin coal-producing states (IN, IL, MI, OH)
Local losses in high-sulfur coal stateswould be balanced by gains in low-sulfurcoal states
Costs of electricity would rise
Marketable Permits: Allowances
• Emission standard set and number of permits determined.
• Permits issued to polluters based on some allocation system.
• Polluters allowed to trade permits.
• Market should develop…
Why does trading work?
1. If firm can cleanup at a price lower than the permit price, it will.• Low MAC firms sell permits
2. If cleanup is costly then a firm will choose to buy a permit
• High MAC firms buy permits
3. Anyone who wants to can buy apermit.
GDP
Non-marketed services are excluded
Does not accounts for depreciation of natural capital
What doesn’t GDP measure?
Example: Exxon Valdez oil spill
Three types of capital
1. Human
2. Human made
3. Natural
The key issue from an environmental standpoint is whether these different forms of capital can be substituted
Alternatives to GDP
1. Net National Product (NNP) or Green GDP (gGDP)
Accounts for depreciation of naturalcapital.
2. Index of environmental indicators
Accounts for the fact that many benefits from environmental improvements are not accounted for in market transactions
International aspects of the environment
1. International public goods
2. Transfrontier pollution
3. Impact of environmental policy on trade
4. Impact of trade policy on environment
Global public goods Similar to national or local public goods:
nonexcludable and nonrival in consumption, but production and consumption are separated by political border.
Examples: The atmosphere and outer space
Disease prevention
Ecosystem services
Transfrontier Pollution Pollution that crosses an international
political boundary
Examples: Acid RainSmoke from firesWater pollution in major
river systems
Important because applying economic incentives may be difficult -- but some hope for solutions based on tradable permits.
Environmental Policy and Trade Main concern is that a country’s
environmental policies will reduce the country’s competitiveness and reduce its volume of exports.
Three main linkages: 1. Cost of production 2. Incentives for relocation
3. Export of “green technologies”
Trade Policy and the Environment Trade policy is generally designed to
promote exports and imports without regard to conditions of production. This often has the effect of undermining environmental goals (both domestic and international).
Trade Alliances North American Free Trade Agreement
(NAFTA) US + Mexico + Canada
General Agreement on Trade and Tariffs (GATT)
Includes most countries
Why are Trade Alliances Important? They often specify that “unfair” barriers
cannot be used to protect a country against imports.
WTO has generally held restrictions on environmental grounds to be unfair.
Examples: U.S. attempted tuna ban from Mexico (w/o “dolphin friendly” practices)
Conflict resolution? Free trade and environmental policies are
both beneficial.
A potential compromise would be to establish an international board to review cases and separate reasonable environmental barriers from phony barriers.