Week 2 Flashcards
What sector is responsible for the most greenhouse gas emissions
Energy sector (industry, transport, and energy used in bulidings)
Top emitter of greenhouse gases
China, India and USA
Annual CO2 emissions
Shape increase in CO2 emissions after WWII from the burning of fossil fuels
Do international conferences & financial crisis help on climate change?
We could see annual CO2 emissions going down after financial crisis, where business and factories are not running as normal.
We cannot conclude that the internatioanl coferences do not affect emissions, because it might get worse if there was none.
Other reason for the increase in emissions despite having conferences are because countries like India and China also want to benefit from use of fosil fuels.
First conference: 1992 Rio De Janeiro (Earth Summit)
Different procedures designed to allow ecosystems to adapt naturally to cllimate change , to ensure food production is not threatened and to enable economic development to proceed in a sustainable manner
20221 Glasgow
First climate deal to explicity commit reducing the use of coal. It encourages more greenhouse gas emission cuts and promised more climate finance for developing countries
What can economists do to reduce emissions?
Cost benefit analysis of options to reduce emissions
Pro and Cons of the Instruments
- Taxes: increase prices of fossil fuels
- Tradeable rights: increase prices of fossil fuels
- Subsidies: decrease prices of renewable resources and innovation
- Regulation: Restrict emissions, international treaties
- Inform people: improve utility function
What is cost benefit analysis?
With cost benefit analysis, you add the environment effect to the normal private cost and benefits. “You value the unvalued”
Discounting
It adjust future costs and benefits to their present value, reflecting the time preference for receiving benefits earlier than later. It is critical aspect of CBA
Reasons to value environmental effect differently compared with private effects
- Substitution possibilities often zero (environmental goods have no substitutes thus making them have unique intrinsic value)
- Technical progress much less important: environmental assets cannot be made more efficient than the assets in energy sectors etc
- Income elasticity high and increasing (EKC hypothesis): as income rises, due to environmental assets being luxury goods, the demand and income increase disproportionately.
EKC suggests that environmental degradation initially increases with economic growth but later declines as income rise, society prioritize sustainbility
NPV = NB(private)/r + NB(environment)/(r-a)
different levels of a would change the NPV
if a>0, NPV decreases if NB(environment) is negative
NPV→−∞ (for negative Nbenvironment)
if a=r, there will be not environmental effect
Green lobby
refers to organizations, advocacy groups that work to influence governments, businesses, and public policies in favor of environmental protection and sustainability initiatives.
How does discount rate affect NPV
Low discount rate (0%-4%) - at lower discount rate, long term costs are given more weight than the short term benefit
High discount rate - at a high discount rate, long term costs are devalued faster than the private ones. Thus, increase in NPV
Parry paper
The IMF’s “inventorization” of energy prices involves evaluating whether current energy prices reflect their true costs from an economic perspective. This assessment focuses on identifying subsidies, both explicit and implicit, and determining if energy prices account for private costs, environmental damage, and societal costs.
