Lecture 9 International Environmental Problems

Question 1

International externalities

Answer 1

International externalities are the unintended and uncompensated byproduct of one country’s consumption or production on another country’s welfare.

Natural and environmental resources do not respect administrative borders

Examples: exploitation of shared resources (water), exploitation of mobile resources (fish), persistent emissions (water, air)

Question 2

Problems with international externalities

Answer 2

1. Cooperation is difficult to establish between conflictual regimes (political considerations, ideology, etc.) ’ non-cooperative behavior
2. International institutions generally lack the authority to impose taxes and transfers on sovereign countries ’ difficult implementation

Question 3

Effect of national environmental policies

Answer 3

· Are suitable for within-boundaries environmental externalities, often without any international component

· May generate further international externalities: national environmental policies by certain countries have consequences for the performance of other countries through international trade. This leaves room for a strategic use of environmental policy.

Question 4

Counter-arguments to “race to the bottom”

Answer 4

1. Provided public policies for environmental protection are effective, individual welfare is improved in a tangible manner (e.g. clean air and individual health); this is important in democracies
2. Environmental protection is often only a fraction of the costs of production.
3. Environmental taxes generate revenues for the governmental budget.

Question 5

Effects of climate change

Answer 5

1. Rise of sea level: A rise of 50 cm is predicted for the year 2100.
   Consequence: Erosion of coast lines, loss of living space.
2. Extreme weather phenomena: increasing intensity of storms, droughts, landslides.
3. Health effects: More people will suffer from “tropical diseases” like Malaria or Cholera. Less winter mortality.
4. Agriculture: Reduction of wheat harvest in most tropical, subtropical and temperate regions. Certain regions may profit from higher temperature and more rainfall.
5. Energy consumption: less heating but more air-conditioning
6. Changes in ocean currents: Possible cooling down of Europe (gulf stream).
7. Endangerment of fragile ecosystems

Question 6

Climate modelling

Answer 6

Static: damages reduce income/utility
Dynamic: damages reduce economic growth
Shocks: damages come in the form of adverse climate events

Question 7

Race to the bottom

Answer 7

1. Attempt to gain a comparative advantage by lowering environmental standards.
2. In comparison, countries with lower standards have lower production costs than countries with strict standards.
3. Incentive for these countries to lower their standards as well Environmental standards will sink to the level of the country with the lowest standard (race to the bottom)

Question 8

Kyoto Protocol

Answer 8

Kyoto Protocol: “Annex I countries” reduce their greenhouse gas emissions 2008-2012 by an average of 5.2% below the 1990 levels.

Question 9

Problems with Kyoto Protocol

Answer 9

· Individual incentives for free-riding
· Uncertainty about costs and benefits
· Distribution of benefits and costs (lacking fairness)
· Questionable efficiency of CDM mechanism
The Kyoto Protocol missed to include all major emitters in a meaningful way

Question 10

Analyse international climate agreements: Paris Agreement

Answer 10

195 nations set path to keep temperature rise well below 2 degrees Celsius. Central aims:
1. Mitigation - reducing emissions fast enough to achieve the temperature goal
2. A transparency system and global stock-take - accounting for climate action
3. Adaptation - strengthening ability of countries to deal with climate impacts
4. Loss and damage - strengthening ability to recover from climate impacts
5. Support - including finance, for nations to build clean, resilient futures

Question 11

Crucial aspects of climate policies

Answer 11

1. Efficiency
   Temperature target at lowest economic costs
   Uniform carbon price, or Emission trading system
   Appropriate redistribution of tax revenues
2. Equity
   Fair burden sharing
   Acceptance of agreement
   Raise ambitions to reach efficient target
   Guideline for evaluation of country pledges
   Equity impact of policies

Question 12

Equity principles

Answer 12

· Ability to pay: the larger the economic capacity of a country, the more it should contribute to global policy
· Policy cost sharing: the lower a country’s costs of the policy, the more it should contribute
· Merit principle: the bigger the efforts of a country to solve the underlying problem, the more it should be rewarded (’ advancing carbon-efficient technologies)
· Comparing like with like ’ emissions at times of abundant alternative energy sources are weighted differently from emissions at times of few alternative energy sources

Question 13

Climate policy costs are moderated by

Answer 13

1. Economic dynamics ’ decision makers tend to focus on the short run
2. Uncertainty ’ with risk aversion, a rational response to uncertainty is to reduce it
3. Secondary benefits ’ health, regional environment, induced innovation, employment

Question 14

Equity-Based Climate Policy
Use of four basic equity principles

Answer 14

Equity-based burden sharing: use of four basic equity principles
Alternative proposals
Uniform global carbon tax with domestic use of tax revenues
Egalitarian carbon budget per capita
Comparison to current mitigation pledges

Question 15

Define international externalities

Answer 15

International externalities are unintended and uncompensated byproducts of one country’s consumption or production that affect another country’s welfare. Examples include:

• Exploitation of shared resources (e.g., water).
• Exploitation of mobile resources (e.g., fish).
• Persistent emissions (e.g., water, air pollution)​

Question 16

List the effects of climate change

Answer 16

• Rise of sea levels leading to erosion of coastlines and loss of living space.
• Increasing intensity of storms, droughts, landslides, and heatwaves.
• Reduction in wheat harvests in most tropical, subtropical, and temperate regions, although some regions might benefit from higher temperatures and more rainfall.
• Endangerment of fragile ecosystems

Question 17

Name two crucial aspects of climate policies

Answer 17

Efficiency: Achieving temperature targets at the lowest economic cost through:
- Uniform carbon pricing or emission trading systems.
- Redistribution of tax revenues.

Equity: Fair burden-sharing through:
- Acceptance of agreements.
- Guidelines for evaluating country pledges

Question 18

What is an equity principle and equity-based climate policy? (4 different)

Answer 18

Equity principles guide the fair distribution of responsibilities and contributions to climate action:

• Ability to Pay: Countries with greater economic capacity should contribute more.
• Policy Cost Sharing: Countries with lower policy costs should contribute more.
• Merit Principle: Rewarding efforts to advance carbon-efficient technologies.
• Equity-based policies ensure fairness in implementing climate measures, addressing disproportionate impacts on vulnerable nations​
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Question 19

List major climate policy events and describe the achieved results:

Answer 19

Kyoto Protocol (1997): Set binding emission reduction targets for Annex I countries. Mechanisms included joint implementation and the Clean Development Mechanism. Challenges included limited inclusion of major emitters​

Paris Agreement (2015): Aimed to keep global temperature rise below 2°C, with targets updated every five years. Introduced adaptation and financial support goals​
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COP26 (Glasgow): Focused on phasing down coal-fired power stations.
COP27 (Loss and Damage Fund): Established financial mechanisms to address climate impacts.
COP28: Initiated a global stocktake and climate change fund contributions​