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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,
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economic, and ecological systems.
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 9
the US over the next 50 years.
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 ozonedepleting 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
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significance to human welfare.
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 15
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
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date.
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. 40
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 ozonedepleting chemicals, the movement toward
resolution of global climate change has been much
less successful.
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