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The Economics of Global Agreements. Chapter 22. Introduction. International Agreements in Principle. In principle, each country might contribute its true willingness to pay for a treaty Result: an efficient level of global pollution control. But…. - PowerPoint PPT Presentation
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The Economics of
Global Agreements
Introduction
International Agreements in Principle
In principle, each country might contribute its true willingness to pay for a treaty
Result: an efficient level of global pollution control
But…
An international agreement is a public good: FREE-RIDING!Treaties will be too weak from a benefit-cost
point of viewOnce signed, nations have an incentive to
cheat
Solving the Environmental Free-Rider Problem
At the national level:Government mandates and enforces clean-up
regulations
At the international level: No government exists to force countries into
compliance
This leaves:Social Pressure, Trade Sanctions,
Compensation Funds
Monitoring and Enforcement
Each treaty sets up its own inter-governmental organization (IGO)Set non-binding standards that countries are
expected to meetMonitor compliance with agreements
Enforcement Tools
Compensation fundCarrot for both joining a treaty and complying
with its termsOnly effective with poor countries
Trade sanctionsThe most powerful tool availableUsually restricted to related products
Ozone and The Montreal Protocol
The ozone layer: screens out ultraviolet raysNot to be confused with ground-level ozone =
urban smog
Chlorofluorocarbons (CFCs) break down the ozone layerActive for up to a hundred years
The Ozone Hole
1977: US bans CFCs as aerosol propellants 1980: Treaty negotiations begin, major
opposition from CFC producers 1985: British study documented a huge,
seasonal ozone hole over Antarctica 1987: Countries sign the Montreal Protocol to
Protect Against Atmospheric Ozone Reduction
1988: Conclusive scientific link between ozone depletion and CFCs established
Montreal Protocol
10-year, 50% reduction in CFC production from a 1986 baseline
Developing countries given a 10-year grace period
Compensation fund of $60 million convinced India and China to join
Trade restrictions on CFCs 1992: Treaty nations agreed to eliminate
CFC production by 1996
Why the Montreal success story? How did countries overcome the free-
rider problem?Single pollutantSmall number of sourcesDramatic evidence of threatCompliance was much cheaper than
anticipatedCompensation fund brought poor countries
on board
Biodiversity
Preserving the stock of genetic material in natural ecosystems is important for itsExistence valueGene pool for medicine and agriculture
Historically: an open-access common property resource
Earth Summit
Rio Biodiversity Treaty, 1992Nations required to inventory and monitor their
biological assetsNations pursue sustained yield development and
conservation efforts, with aid $$ from rich countries
Products developed from the genetic resources of a country are the intellectual property of the host nation
Effectiveness of the Rio Biodiversity Treaty
US initially failed to signPoor countries have regulated access to
biodiversity No requirement that rich countries contribute
to the conservation fundNo enforcement mechanism establishedBottom line: Not much progress!
Strengthening the Rio Process?
Difficult to assess compliance with and progress toward such an agreement
Distant threat of biodiversity loss is unlikely to galvanize an aid effort from the developed world
Stopping Global Warming: Theory
Good news for a treatyGrowing concern over catastrophic impactsA clearly defined target: CO2 concentrations in the
atmosphere
Bad news for a treatyWidely decentralized nature of the problemFear of high costs for high emitters (US, China)Preventing deforestation will be difficult
Stabilizing CO2 Concentrations at 450 ppm
Bare Bones for a Successful Treaty Mandate numerical emission reduction
targets for CO2 and methane Provide a mechanism by which rich
countries can transfer technology and resources to poor countries
Provide strong enforcement mechanisms
Model Greenhouse Treaty
Cap & Trade System
Annual cap on targeted global emissions Rich countries trade expertise and
technology to poor countries in exchange for permits
Each country then reduces CO2 emissions to the level of permits held
Authorize comprehensive trade sanctions against failing countries
Stopping Global Warming: Reality
1992 Earth Summit: US pleaded uncertainty and weakened the framework global warming convention
Kyoto Protocol in December 1997
Kyoto Protocol Imposed emission targets and timetables on
industrialized countries Trading:
Clean Development MechanismJoint Implementation
Ratified by European countries, Canada, and Japan. Europe has met the 2010 goal; other countries have not.
US is the major industrialized country that has not ratified
Opposition to Kyoto: 1
Uncertainty as to the potential damage from climate changeMost economists agree: both neoclassical and
ecological economists now advocate mandatory emission caps. Disagreement on stringency: Kyoto or something weaker?
Opposition to Kyoto: 2 Poor countries should be forced into the
same timetables as rich countriesRich countries have the resources to develop
clean technologies, so that poor countries can comply at lower cost in the future.
Because CO2 lasts for 100 years, rich countries will remain primarily responsible for warming for the next few decades.
Opposition to Kyoto: 3 Kyoto would cost too much; would lead to
large-scale job lossAt this point, Kyoto would cost a lot! But if we
had started in 2005, estimates suggest costs of between $0 and $400 per household per year.○ For comparison, war in Iraq has cost well over that.
Previous estimates of job loss from environmental regulation have never been borne out.
The Last Word…
Set your environmental goal:○ Efficiency, Safety, Sustainability
1. Recognize the constraints on effective government action
2. Look for ways to do better○ Incentive-based regulation○ Clean technology promotion
3. Now, get to work!