Global Public Goods: The Case of Global Warming

1
Global Public Goods The Case of Global Warming
2
Examples of Global Public Goods

• Global warming and climate change
• Transnational terrorism
• Public health (AIDS)
• Intellectual property rights
• International financial crises
• Proliferation of nuclear weapons

3
Global Public Goods

• A global public good is an activity that involves
  large numbers of economic agents in a large
  number of countries.
• Sometimes there exists an obvious focal policy
  such as no nuclear war, no financial collapses or
  no trade barriers that appear obvious to most
  people.
• It is the absence of such a focal policy that
  makes it difficult to deal with most global
  public goods.

4
Mechanisms and Treaties

• Non-coorperative or laissez-faire approach
• Non-binding voluntary agreements (e.g. clean-up
  of North Sea in 1980s)
• Specific and Binding Treaties (Kyoto Protocol)
• Agreements embedded in broader arrangement
  (intellectual property rights)
• Limited Delegation of regulatory or fiscal
  authority to supranational body (WTO, IMF, ECB)

5
International Law and Consent

• Global Public Goods need global decision making
  or at least global policy coordination.
• Under international law obligations may be
  imposed on a sovereign state only with its
  consent.
• Treaties thus require for all practical purposes
  unanimity.

6
Difficulties to Reach Agreements

• With Global Public Goods it is usually difficult
  to reach an agreement on efficient policies since
  policies involve estimating and balancing costs
  and benefits where neither are easy to measure.
• Reaching agreement also often requires
  complicated distributional concerns.

7
What is global warming?What are its leading
causes?What did the Kyoto Treaty propose?Why
did it fail?
8
Global Warming

• Global warming is the observed increase in the
  average temperature of the Earth's atmosphere and
  oceans in recent decades.
• The Earth's average near-surface atmospheric
  temperature rose 1.3 0.3 Fahrenheit in the
  20th century. The prevailing scientific opinion
  on climate change is that at least some of the
  warming observed over the last 50 years is
  attributable to human activities.
• The increased amounts of carbon dioxide (CO2) and
  other greenhouse gases (GHGs) are the primary
  causes of the human-induced component of warming.
  They are released by the burning of fossil fuels,
  land clearing and agriculture, etc. and lead to
  an increase in the greenhouse effect.
• The greenhouse effect is the process in which the
  absorption of infrared radiation by an atmosphere
  warms a planet.

9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
Projections for Global Warming

• The measure of the response to increased GHGs is
  climate sensitivity. It is found by observational
  and model studies.
• This sensitivity is usually expressed in terms of
  the temperature response expected from a doubling
  of CO2 in the atmosphere. The current literature
  estimates sensitivity in the range 2.78.1 F.
• Models referenced by the Intergovernmental Panel
  on Climate Change (IPCC) project that global
  temperatures may increase between 2.5 to 10.5 F
  between 1990 and 2100.
• The uncertainty in this range results from both
  the difficulty of estimating the volume of future
  greenhouse gas emissions and uncertainty about
  climate sensitivity.

14
(No Transcript)
15
What mechanisms do you know that could be used to
reduce the emissions of GHGs?
16
Tax versus Quantity Mechanisms

• Quantity limits are troubling in a growing
  economy with uncertain technological change.
• Quantity regulations are likely to cause large
  price fluctuations for tradable permits
• Quantity-type systems are more likely to be
  subject to corruption and cheating since tradable
  permits are valuable assets.
• Taxbased systems do not create any assets but
  raise revenues which can be used to lower other
  taxes.
• A tax-based system may be harder to administer
  since a country may have incentive to off-set the
  tax with less stringent regulation.

17
Major Issues in Designing a Climate-Change Regime

• The level and trajectory of emission reduction.
  Climate change only depends on total cumulative
  emissions.
• The distribution of emission reductions across
  countries.
• The need for transfers to induce low-income
  countries to participate.

18
The Kyoto Protocol

• The KP is an agreement on the UNs Framework
  Convention on Climate Change and was negotiated
  in 1997 and came into force in 2005.
• The KP is underwritten 163 countries and covers
  65 percent of global greenhouse gas emissions.
• Developed countries have adopted strict GHG
  emission reduction obligations. Developing
  countries have adopted no obligations.
• Developed countries have to reduce GHG emissions
  to on average 5.2 percent below 1990 level.
• Kyoto includes a linking mechanism that allows
  countries to meet targets by purchasing
  reductions elsewhere.
• The KP encourages the creation of emission
  reducing projects in developing countries. If
  these projects are approved, they receive
  Certified Emission Reduction Credits that can be
  traded and purchased by developing countries.

19
Problems with the Kyoto Protocol

• The US seems unlikely to ratify the Kyoto
  Protocol.
• To the extend that an economic rational lies
  behind the U.S. rejection of the Kyoto Protocol,
  several studies have suggested that the US will
  bear a disproportionate share of the burden of
  adjustment.
• These simulations suggest that the costs to the
  US of the Kyoto Protocol far outweigh the
  benefits.
• The Kyoto Protocol omits some of the largest
  emitters (China, India).
• The targets in the KP are arbitrary and not
  directly connected to any ultimate policy
  objective.

20
Transfers in the Kyoto Protocol

• The Kyoto Protocol uses 1990 as a base year when
  setting targets. Consequently those countries
  that had high emissions in 1990 (Russia, Ukraine,
  Britain) will be advantaged and those that have
  grown rapidly since then (such as the US, Korea)
  or were relatively efficient in 1990 (Sweden,
  Netherlands) will be disadvantaged.
• Since developing countries are omitted, they are
  overlooked in the transfers.
• The Kyoto Protocol thus amounts to a large
  transfer from the US to countries like Russia and
  other eastern European countries.