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Part III. Exhaustible Resources

A. Ozone &

Global Climate Change

B. Energy

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A. Ozone

Chapter 7

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“The greenhouse effect itself is simple enough to understand and is not in any

real dispute. What is in dispute is its magnitude over the coming century, its

translation into changes in climates around the globe, and the impact of

those climate changes on human welfare and the natural environment.”

Thomas C. Schelling, Some Economics of Global Warming

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Ozone depletion & global warming

• Chapter 7 focuses on two global environmental problems: ozone depletion and global warming.

BOTH ARE:

– The result of pollutants modifying basic atmospheric chemistry and altering atmospheric processes and function.

– Caused by stock pollutants that persist in the atmosphere for long periods (up to 100 years) after their emission into the atmosphere.

– Global in the sense that the environmental problem is independent of location of emissions.

– And in each case, there is potential for significant global environmental change and significant impacts on social, economic, and ecological systems.

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Ozone depletion & global warming

• Much more difficult to estimate damage function for these types of pollutants – The only way to increase the number of observations for

use in statistical analysis is to observe changes over time.– Because these pollutants persist through time, it is very

important to calculate the damages that current emissions will generate in the future.

• While there is no need to account for geographic variability in the effects of emissions, also means that this problem can not be dealt with by 1 country.

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Depletion of the Ozone Layer

• The basic problem: the emission of a set of chemicals that trigger a reaction in the atmosphere, causing ozone to be converted to oxygen.

• Ozone blocks ultraviolet radiation, oxygen does not.• As Figure 7.1 illustrates, the stratosphere (outer layer of

atmosphere) is separated from the troposphere (lower atmosphere) by the tropopause.

• The lowest level of the stratosphere is warmer than the highest level of the troposphere and there is little mixing of air across this temperature inversion.

• Pollutions that make their way to the stratosphere tend to stay there.

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Causes of Ozone Depletion

• The pollutants that most adversely affect the ozone layer are fluorocarbons.

• Most of the depletion of the ozone layer has been attributed to pollutants containing chloride (chlorofluorocarbons or CFCs). CFCs were used in refrigeration and air conditioning systems and as propellants in spray cans.

• These chemicals serve as a catalyst in a chemical reaction that converts ozone to oxygen.

• CFCs are not consumed in the reaction but remain in the stratosphere to continue the destruction of the ozone.

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Consequences of the Depletion of the Ozone Layer

• Ozone in the upper atmosphere performs the critical function of blocking the penetration of ultraviolet (UV) light.

• UV radiation causes living cells to mutate.• In Oct. 1991, a panel of international scientists found

there had been a 3 % reduction in stratospheric ozone, which lead to a 6% increase in the amount of UV radiation striking the earth’s surface.

• This increase in radiation had the potential to lead to an additional 12 million cases of skin cancer in the US over the next 50 years.

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Consequences of the Depletion of the Ozone Layer

• Agricultural yields could be significantly reduced.• Phytoplankton, which form the foundation of the

oceanic food web, undergo several metamorphoses before achieving adult form and are very vulnerable to increased UV radiation.

• UV radiation also accelerates the deterioration of materials such as plastics and nylon.

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US Policy toward Ozone Depletion

• The first policy the US adopted was not tied to an international agreement.

• This 1977 policy banned the use of CFCs as a propellant in spray cans of deodorants, hair sprays, and other consumer products.

• While command and control regulations are not usually efficient, this involved a substance with a readily available substitute and as a result, the cost of eliminating these emissions was low compared to the damages created.

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Int’l Policy toward Ozone Depletion

• In the 1980’s the discovery of the hole in the ozone layer above the Antarctic and evidence of continued ozone depletion spurred the development of an international agreement on chemicals.

• In 1987, the Montreal Protocol on Substances that Deplete the Ozone Layer was signed by most developed and developing countries.

• An important remaining issue is how to treat replacements for CFCs which also have ozone-depleting effects (tax, MPP’s?)

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Policy toward Ozone Depletion

• The Montreal Protocol has been successful for a number of reasons, but primarily because the cost of compliance was very low compared to the damages that would occur.

• Costs were low because of the existence of good substitutes.

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Greenhouse Gases & Global Climate• Global warming is linked to the accumulation of a variety

of gases in the atmosphere.• GHG include carbon dioxide, methane, nitrous oxide, and

water vapor, trap infrared radiation that would normally escape from the earth’s atmosphere into space.

• This increased gas serves to increase the capacity of the atmosphere to absorb heat.

• There is virtually no debate about this relationship.• The debate is centers on the magnitude and timing of the

change in heat absorption and the significance to human welfare.

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Carbon Cycle

• Refers to the movement of carbon from the atmosphere to the earth’s surface.

• Carbon is stored in the biomass of every organism.• Carbon dioxide (CO2) is also dissolved in surface water,

with the oceans playing the largest role.• CO2 is removed from the earth’s atmosphere when a

tree grows.• When an animal eats a plant, the carbon is transferred

from the plant to the animal.• When an animal or plant dies, it decays and the carbon

combines with oxygen to become CO2

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Carbon Cycle

• Anthropogenic activities which upset the carbon cycle include burning of fossil fuels or deforestation.

• Fossil fuels, such as oil, coal and natural gas, are the fossilized remains of prehistoric plants and animals and represent stored carbon.

• Deforestation has 2 impacts: the breakdown of carbon in the bi-products of the wood and the loss of trees to draw CO2 out of the atmosphere.

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Carbon Cycle

• A process called carbon sequestering involves planting new forests to reduce atmospheric CO2 concentrations.

• The greatest opportunity for this is in tropical areas where growth rates are the fastest.

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Other GHGs

• Methane comes from a variety of anthropogenic and natural sources.

• Natural sources include wetlands and other areas where anaerobic decay of organic matter takes place.

• Anthropocentric sources include emissions from cattle and sheep, wet rice cultivation, emissions from coal mines and oil and natural gas wells.

• Nitrous oxide originates from the burning of fossil fuels and biomass and also agricultural fertilizers.

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Is Global Warming Increasing?

• Virtually all evidence suggests very strongly that the mean global temperature has increased as a result of anthropogenic GHG emissions and that it will continue to increase.

• All the scientific evidence suggests that there will be significant increases in sea level.

• Many uncertainties exist about the nature of regional distribution of global climate change.

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Historical Temperature Record

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Is Global Warming Increasing?

• Evidence comes from many sources:– Ice core samples of glaciers.– Pollen records from sediments in lakes.– Human records, some historical and some

recent and systematic.

• The question of whether global climate is changing is a controversial one because it is so highly politicized

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Controversy• Analysis of ice core samples suggests a clear

correlation between CO2 levels and temperature. Once temperature changes due to small changes in the earth's orbit are factored out, this relationship is not significant.

• Historic data from meteorological stations is suspect because these have tended to be located near urban centers, thus biasing the observations.

• Skeptics argue that the bulk of global warming that has been measured occurred prior to 1940, while the bulk of emissions occurred after that date.

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More controversy

• The presence of carbon sinks, which remove carbon dioxide from the atmosphere, may be countering rise in emissions. We cannot assume that the capacity of these sinks to absorb carbon has not been fully exhausted or will be so in the near future.

• Plant growth may have increased in response to rising emission levels and created a counter balance to this rise (this is called fertilizer effect).

• Particulate emissions, particularly sulfate aerosols, block sunlight which has a cooling effect.

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Consequences of Global Climate Change

• In the 1990s much of the economic literature focused on the ability to mitigate damages associated with climate change through adaptation (for example protecting Manhattan with a sea wall or switching agriculture to heat-tolerant varieties).

• May be harder for developing countries to adapt• In addition, the ability to adapt to change will

depend on the magnitude of the change.

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Consequences of Global Climate Change

• Nordhaus (1991) estimated the annual impact on the US economy of doubling of atmospheric CO2 is approximately $12.63 billion, or 0.26% of national income. Damages included farms, forestry, fisheries, etc. (See table 7.3)

• Cline’s estimate (1992) was higher (2% of national income) since included nonmarket impacts.

• Summary of studies in Table 7.4

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The Importance of Surprises

• One reason to be extremely cautious about the potential consequences of global climate change is the potential for unpredicted consequences which can come about as a result of the possible existence of threshold effects.

• 1st type – when increases in emissions generate no damages until a threshold is crossed

• 2nd type – when marginal changes in emissions lead to marginal increases in damages until a threshold is crossed and then marginal changes lead to large damages.

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Threshold effects – examples • 1st type – a rise in summer temp. may lead to a small

increase in average temp. which may lead to a large increase in the length or frequency of severe hot spells, which could lead to the demise of heat-sensitive plants.

• 2nd type – global warming progresses to the point where the tundral permafrost begins to melt. This will lead to anaerobic decay of organic matter on such a scale that there will be a massive release of methane. This will intensify global warming. Also, melting of polar caps increase sea level and reduce light reflected by earth. This would intensify GW.

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The Importance of Surprises

• Both the melting of the permafrost and the shrinking of the polar ice cap can be classified as positive feedback effects (indirect effects of a change intensify direct effects of the change).

• Another type of threshold effect would occur if climate changes lead to alterations in ocean currents (if Gulf Stream stopped flowing – stop movement of warm southern water to cold northern regions), West Europe may experience colder temps.

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Global Warming Policy

• Many characteristics of the global warming problem make it substantially different from other environmental problems. These include:– Have to deal with all GHG simultaneously – Temporal separation btw. emissions and damages– High degree of uncertainty (scientific understanding of

physical impacts & economic understanding of costs and benefits)

– Equity issues– Need for international cooperation

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The United Nations Framework Convention on Climate Change and the

Kyoto Protocol• Created at the Rio Summit in 1992, this was not an

agreement on emissions limitations, but specified a process for arriving at an agreement.

• The UNFCCC stated 2 principles that are extremely important in terms of moving toward a treaty.

1. Accepted the proposition that anthropogenic activities lead to the accumulation of greenhouse gases, which in turn leads to global climate change.

2. Agreed that all nations had a common but differentiated responsibility to solve the problem of global climate change.

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The Kyoto Protocol• Protocol goes into effect when two conditions are met:

1. 55% of the nations of the world must sign and ratify the treaty.2. The total 1990 emissions levels of the nations that have ratified

the proposal must account for 55% of the 1990 emissions totals.

• The 1st condition has been met.• The 2nd condition just met this past October as Russia

ratified the treaty (had been waiting for US or Russia)• Last Wednesday 2/16 the protocol went into effect

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The Kyoto Protocol

• The major provision of the Kyoto Protocol is to limit emissions of “Annex I” countries, which includes high-income countries and the Warsaw Pact countries, to (more or less – varies by country) 6% below 1990 levels by 2012.

• Countries which fail to meet the targets will face penalties and the prospect of having to make deeper cuts in future.

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The Kyoto Protocol

• “Annex II” countries, which include all countries not in Annex I, are not required to limit their emissions at all.

• Many experts believe that Kyoto will be largely ineffective as the world's two biggest emitters, the US and China, will not cut their outputs.

• Although China did sign the protocol, as a developing country it is not yet required to begin reducing emissions.

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Flexibility provisions

• An important aspect of the agreement is the specification of “flexibility provisions” which allowed countries with higher MAC to find cheaper opportunities to reduce emissions (e.g., by trading emission rights – although mechanism not specified in treaty).

• 3 flexibility provisions were contained in the Kyoto Protocol.

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3 flexibility provisions

1. A “bubble provision” treats a group of countries that are in a formal union as if they were one country. This is important for the EU.

2. The “joint implementation provision” allows an Annex I country to pay for some emission reductions in another Annex I country. The paying country gets credit for the reduced emissions.

3. The “clean development mechanism” allows for limited trading opportunities between Annex I and II countries.

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What is Wrong with the Kyoto Protocol?

• The Kyoto Protocol may be ineffective in slowing the onset of global climate change and reducing its magnitude for 2 reasons.

1. Freezing of emissions at 1990 levels will not stabilize atmospheric concentrations of CO2, because emissions remain in the atmosphere for centuries. To stabilize concentrations at a less than damaging level, the current level of emissions must be frozen at a level substantially less than 1990 levels.

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What is Wrong with the Kyoto Protocol?

2. The Kyoto Protocol does not require reduced emissions from Annex II countries.

– Annex II countries include populous nations with rapidly industrializing economies, such as India, China, and Brazil.

– Annex II countries need to stabilize their emissions at some level below the levels currently seen in industrialized countries.

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What is the Cost of Reducing Emissions?

• The cost of emissions reductions in the US economy was the reason cited by President George W. Bush for pulling out of the Kyoto Protocol process.

• Studies of abatement costs generally fall into two categories: top-down studies or bottoms-up studies.

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Top-down studies

• Based on aggregate macroeconomic models, which look at how various sectors of the economy are linked and how a potential disturbance ripples through the economy.

• According to the 1996 and 2003 IPCC reports, the impact of stabilizing greenhouse gas emissions at 1990 levels that is forecast by the top-down models will reduce GDP by between 0.5% and 2% of the levels the countries would otherwise attain.

• If full emissions trading were allowed the impact would be much lower.

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Bottoms-up models

• Look at engineering cost estimates of implementing the type of technologies necessary to achieve the target emissions levels.

• The initial capital costs of purchasing and installing more energy-efficient capital is more than offset by the energy savings which result.

• In addition are the benefits of reduced emissions of other types of pollution.

• Because these policies would result in an increase in social welfare, independent of the benefits of global climate change, Nordhaus (1994,1998) refers to these policies as “no regrets” policies.

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What is the Cost of Reducing Emissions?

• Why the excitement about costs?• First, there is uncertainty about the true costs.• Second, there is a high up front cost as energy

inefficient capital is replaced, while cost savings are spread over time.

• Third, some sectors of the economy will be hurt more drastically than others (for example the fossil fuel industry).

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Rethinking an International Treaty on Global Climate Change

• 4 problems associated with the Kyoto Protocol have been delineated:

1. Ineffectiveness of initial levels of emissions reductions in preventing global climate change.

2. Lack of provisions to generate future reductions below initial levels.

3. Lack of emissions reductions by developing countries.

4. Potential high costs of emissions reductions.

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Kyoto Revisited

• For a treaty to be successful it must deal with all 4 of these issues.

• If a treaty can generate effective reductions without objectively high costs, then there is a good probability that the nations of the world would participate in an accord.

• It will be difficult to achieve higher levels of emission reductions, if developing countries will not accept emission reductions.

• Cooper (1998) proposes an alternative treaty based on a tax level rather than limits on emissions.

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Advantages of taxes over emission limits

• Tax creates incentive for technological innovation and creates incentive to reduce level of emissions

• A further advantage of a tax system is that it reduces uncertainty about the costs of attaining emissions reductions. The cost can be no higher than the tax multiplied by the emissions level.

• Developed countries with higher per tax emissions could face a higher tax, increasing the competitiveness of developing countries.

• Taxes collected in developing countries would stay in country.

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Summary

• Global warming and depletion of the ozone layer are important environmental problems.

• The long lags between emissions and damages, the long lifetimes of the pollutants, and the complexity of the scientific relationships make the development of policy difficult.

• While there have been international agreements developed regarding the restrictions on ozone-depleting chemicals, the movement toward resolution of global climate change has been much less successful.