Global Environmental Problems

1
Global Environmental Problems

• Dr. Richard S.J. Tol
• Michael Otto Professor of Sustainability and
  Global Change
• Depts. GeoSciences Economics

2
Contact

• Room 008, Pavillion (behind Geomatikum)
  Bundesstrasse 55, 20146 Hamburg
• Tel [phone]
• Fax [phone]
• Email tol_at_dkrz.de
• http//www.uni-hamburg.de/Wiss/FB/15/Sustainabilit
  y
• The sheets are there, as well as old exams

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Global Environmental Problems, lecture 1

• Course aims and set-up
• Externalities
• International externalities
• Game theory

4
The Course

• The economics of the global environment
• Prior knowledge micro, macro, calculus,
  environmental and resource economics
• Reader
• Other courses Wahlpflichtfach Umweltökonomie
  Environmental and Resource Economics (WS),
  Valuation (SS, odd years), Agricultural Economics
  (WS), Seminar (every semester)

5
The Lectures

• 11.4 Introduction
• 18.4 Acidification
• 25.4 Ozone layer
• 2.5 Climate change impacts
• 9.5 Climate change emission reduction
• 16.5 Climate change optimal control
• 23.5 Climate change cooperation
• 30.5 Climate change policy instruments
• 6.7 Holiday
• 13.7 Trade and the environment
• 20.6 Biodiversity
• 27.6 Eutrophication
• 4.7 Linkages

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The Exam

• My exams are really not that difficult (see
  website)
• However, a number of students show up unprepared,
  and a number should not be studying (economics)
  at all
• Between 1/4 and 1/3 of candidates fail the exam

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Externalities

• External effect is said to occur when the
  production or consumption of one agent affects
  the utility of another agent in an unintended
  way, and when no compensation is made
• External effect externality external cost
  external diseconomy
• External effect may be beneficial or adverse,
  consumption or production related
• If compensated, the externality is said to be
  internalised

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Externalities -2

• Typically, externalities are internalised by
  government intervention, be it with
• Information, persuasion and voluntary agreements
• Direct regulation
• Property rights
• Taxes and subsidies
• Tradeable permits
• This does not work for international
  externalities!

9
International Externalities

• International externalities are the unintended
  and uncompensated byproduct of one countrys
  consumption or production on another countrys
  welfare
• Natural and environmental resources do not
  respect administrative borders, so exploitation
  of shared (water) and mobile (fish) resources as
  well as persistent emissions (water, air) lead to
  international externalities so do resources such
  as biodiversity

10
International Pollution

• Consider n countries with emissions e. Reducing
  emissions is costly, or emissions bring welfare
  R. For each country j there is an environmental
  variable z which depends on the emissions from
  all countries. The higher z, the worse the
  environment, and the lower welfare D. Let us
  consider flow pollutants only. Assume that
  countries may transfer money I to each other.

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International Pollution -2

• Assume that environmental pollution z is a linear
  function of emissions e.
• In some cases, pollution is uniform
• In other cases, not

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Non-Cooperative Solution

• That is, for all countries, optimal emissions are
  such that the marginal benefits of emitting equal
  the marginal costs to the country itself

13
Cooperative Solution

• That is, for all countries, optimal emissions are
  such that the (weighted) marginal benefits of
  emitting equal sum of the (weighted) marginal
  costs to all countries

14
Non-Cooperative with Tax

• There is a tax that restores the social optimum
  this is the Pigou tax it is different for all
  parties
• There is no international tax authority

15
Cooperation with Transfers
That is, effective welfare weights
reflect economic power
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Insights

• A non-cooperative solution ignores externalities,
  and is therefore not optimal
• A cooperative solution is in the best interest of
  all together, although not necessarily in the
  interest of each individual
• Under some conditions, a cooperative solution
  generates enough surplus to compensate the losers
  of cooperation but it is the losers of
  pollution that pay
• With transfers, it is the rich that have most
  influence on the result

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This course will ...

• Discuss a number of global environmental issues
• Treat the theory in the context of a series of
  concrete problems
• Focus on climate change