Who is afraid of the big bad wolf?

Thursday 2 December 2010

Isn't all economics about "animal instincts"?

Surely it must be "rational" to be a little scared of large man-eating animals? 2455 Swedes cannot be wrong.

It appears that we are rational which is not so good for wolves in Sweden.

The perhaps, not so shocking news, is that those who are scared of large carnivores are less likely to pay to have them on the doorstep.

Beware of the wolf: Is animal fear affecting willingness to pay for conservation of large carnivores?

Date: 2010-05-03

By: Brännlund, Runar (CERE)
Johansson, Maria (Department of Architecture and Built Environment)
Karlsson, Jens (Grimsö Wildlife Research Station)
Sjöström, Magnus (Department of Economics)

URL: http://d.repec.org/n?u=RePEc:hhs:slucer:2010_009&r=env

From an interdisciplinary approach, this study aims at analysing self-reported animal fear, specifically large carnivore fear, in relation to public willingness to financially contribute to fulfil a governmental policy on large carnivore-induced costs. In a survey of 2455 Swedes, it was found that people whose animal fear was directed particularly towards large carnivores, were less likely to be willing to pay (WTP), or were likely to be willing to pay a lower amount of money. In the prediction of WTP, the contribution of the fear variables was equally important as the socio-economic factors. From a management point of view it seems urgent to understand what kinds of measures that may reduce human fear of large carnivores. It is also suggested that further studies should include standardised measures of anxiety and fear in order to be able to closer link the results of large carnivore fear to the psychological literature on human fears.

Keywords: Carnivores; willingness-to-pay
JEL: Q51

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Local Exposure to Toxic Releases: Does Ethnic Diversity Matter?

Wednesday 1 December 2010

After many years of work Matt Cole, myself and Kate Khemmarat have finally got our "environmental justice" paper out in working paper form.

This literature has seen a recent return to the academic agenda with Wayne Grey, Ronald Shadbegian and Ann Wolverton also putting out a recent papers on this topic.

Wayne B. Gray & Ronald J. Shadbegian & Ann Wolverton, 2010. "Environmental Justice: Do Poor and Minority Populations Face More Hazards?," NCEE Working Paper Series 201010, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Sep 2010.

# Ronald J. Shadbegian & Wayne B. Gray, 2009. "Spatial Patterns in Regulatory Enforcement: Local Tests of Environmental Justice," NCEE Working Paper Series 200902, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2009.


Local Exposure to Toxic Releases: Does Ethnic Diversity Matter? [PDF]

Date: 2010-11

By: Matthew A Cole
Robert J R Elliott
Khemrutai Khemmarat

URL: http://d.repec.org/n?u=RePEc:bir:birmec:10-29&r=env

This paper examines the role played by community characteristics in influencing local environmental quality, focusing specifically on ethnic diversity. In contrast to the previous literature, this study argues that it is the fractionalization and/or polarization of ethnic groups that is the relevant consideration, rather than the population share of ethnic minorities, since such diversity may significantly increase the difficulty of co-ordinating community action. Using toxic release data for the period 1990-1995 and, for the first time, 2000-2005, we find that measures of ethnic diversity do indeed influence local toxic release emissions. This finding persists across a range of robustness exercises.

Keywords: pollution, ethnic diversity, fractionalization, polarization, community characteristics, environmental justice
JEL: Q53

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The Impact of Climate on Life Satisfaction

Straight from the economics department at the University of Birmingham comes a new paper that comes hot on the trail of David Cameron's speech on measuring "happiness" to be used alongside traditional GDP figures.

What if happiness is driven by the climate? What does that mean for the Cancun negotiations and David Cameron's grand plans?

It appears that people are happy when the climate is very average.

David Maddison and Katrin Rehanz investigate.

The Impact of Climate on Life Satisfaction [PDF]
Date: 2010-11

David Maddison
Katrin Rehdanz

URL: http://d.repec.org/n?u=RePEc:kie:kieliw:1658&r=env

We analyse the influence of climate on average life satisfaction in 87 countries using data from the World Values Survey. Climate is described in terms of ‘degree-months’ calculated using an optimally-selected base temperature of 65°F (18.3°C). Our results suggest that countries with climates characterised by a large number of degree-months enjoy significantly lower levels of life satisfaction. This finding is robust to a wide variety of model specifications. Using our results to analyse a particular climate change scenario associated with the IPCC A2 emissions scenario points to major losses for African countries, but modest gains for Northern Europe

Keywords: climate; climate change; happiness; life satisfaction; survey data
JEL: D60

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The Role of Carbon Offsets in Climate Policy: Theory and Practice

Wednesday 3 November 2010

A call for papers for a conference at Cornell on the role of carbon offsets in climate policy.

Verification, leakage and permanence are important obstacles to the effective use of carbon offsets and this is an important policy issue.

I have my doubts on how effective carbon offsets will be given these difficulties. the post below on fraud in the EU carbon trading market gives pause for thought.

This is a timely conference. The forestry and agricultural sectors in the US in particular have powerful friends and the distributional impact will be important - unless this is fully understood there may be unintended consequences.

CALL FOR PAPERS

The Role of Carbon Offsets in Climate Policy: Theory and Practice [PDF]

A Conference at Cornell University, May 13-15, 2011

It is now recognized that Carbon Offsets should play a major role in Climate Policy, by providing cost-effective reductions in greenhouse gas (GHG) emissions and sequestering carbon. However, there are many challenges associated with the production of offsets, including its verification, as well as issues related to additionality, leakage and permanence. At the same time, there is also a need to guide the design of public policies that will regulate the market for carbon offsets.

Yet the challenges of implementing carbon offsets and the role that carbon offsets can play in climate policy is under-researched:

(i) There is insufficient theoretical work that integrates the various challenges associated with the production of offsets – leakage, additionality, permanence - in a unified framework; the potential interactions between these challenges need to be analyzed in depth;

(ii) There is limited empirical evidence of the magnitudes of leakage and additionality associated with various carbon offset projects for different countries;

(iii)There is virtually no work on the effectiveness of various public policies that regulate the market for carbon offsets, through standards (e.g. quality or quantity limits), or other ‘mechanism-design’ type policies;

(iv)The interactions between cap-and-trade systems, voluntary consumption of offsets, and the production of carbon offsets needs to be better understood. Specifically, potential unintended emissions or welfare consequences need to be identified and measured. And the voluntary consumption of offsets remains under researched;

(v) The distributional impacts associated with the production of carbon offsets needs to be better understood, especially for the agriculture and forestry sectors.

With this background, Cornell University will host a major international conference
– “The Role of Carbon Offsets in Climate Policy: Theory and Practice” – May 13-15, 2011. The conference organizers are Antonio Bento and Ravi Kanbur of the Dyson School of Applied Economics and Management, Cornell University.

The conference will discuss theoretical, empirical and policy-oriented papers. The suggested topics include, but are not limited to, the issues (i)-(v) highlighted above.

The organizers invite the submission of completed papers or substantive abstracts (3-5 pages) by December 15, 2010. Submissions should be sent electronically to amb396@cornell.edu. Decisions will be communicated by January 15, 2011.
Participants who can use their own funds to cover part or all of the cost of their participation are requested to do so. The conference will provide accommodation and economy class travel for one presenter per paper accepted for those who do not have funding. Please indicate with your submission what funding you need.

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Fraud, missing traders and the emissions market

Tuesday 2 November 2010

Some readers maybe more surprised that others that there was fraud on the European carbon allowances market.

I am pleased that someone has looked at this issue using "forensic econometric methods" which sound fun to use (although seemingly difficult to understand).

It sounds good but I am still unclear how this works - I will have to read the paper.

MISSING TRADER FRAUD ON THE EMISSIONS MARKET[PDF]

Marius-Cristian Frunza, Dominique Guegan and Fabrice Thiebaut

Abstract
Purpose – The aim of this paper is to show evidence and to quantify with forensic econometric methods the impact of the missing trader fraud on European carbon allowances markets. This fraud occurred mainly between the end of 2008 and the beginning of 2009. In this paper we explore the financial mechanisms of the fraud and the impact on the market behaviour as well as the consequences on its econometric features.

Design/methodology/approach – In a previous work (Frunza and Guégan, 2010), we showed that the European carbon market is strongly influenced by fundamentals factors as oil, energy, gas, coal and equities. Therefore, we calibrated Arbitrage Pricing Theory-like models. These models enabled us to quantify the impact of each factor on the market. In this study, we focused more precisely on spot prices quoted on Paris based Bluenext market over 2008 and 2009. We observed during this period a significant drop in performances and robustness of our model and a reduced sensitivity of carbon prices to fundamentals.

Findings – Therefore, we identify the period where the market was driven by missing trader fraud movements and we were able to measure the value of this fraud. Soon after governments passed a law that cut the possibility of fraud occurrence the performance of the model improved rapidly. We estimate the impact of the VAT extortion on the carbon market at 1.3 billion euros.

Originality/value – This paper is the first study that attempts to prove and quantify scientifically the missing trader fraud on emission markets.

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Health effects of climate change

When writing an environmental economics paper one always needs to provide motivation and there is nothing better than some scary numbers on the health and mortality impacts of climate change.

These numbers are real and it is important that as economists we try to relate economics to the real world. I have used the WTO quote before and will probably do so again.

This new working paper by Grasso, Maera, Chiabai and Markandya provides a good survey of the literature.

The Health Effects of Climate Change: A Survey of Recent Quantitative Research [PDF]

In recent years there has been a large scientific and public debate on climate change and its direct as well as indirect effects on human health. According to World Health Organization (WHO, 2006), some 2.5 million people die every year from non-infectious diseases directly attributable to environmental factors such as air pollution, stressful conditions in the workplace, exposure to chemicals such as lead, and exposure to environmental tobacco smoke. Changes in climatic conditions and climate variability can also affect human health both directly and indirectly, via changes in biological and ecological processes that influence the transmission of several infectious diseases (WHO, 2003). In the past fifteen years a large amount of research on the effects of climate changes on human health has addressed two fundamental questions (WHO, 2003). First, can historical data be of some help in revealing how short-run or long-run climate variations affect the occurrence of infectious diseases? Second, is it possible to build more accurate statistical models which are capable of predicting the future effects of different climate conditions on the transmissibility of particularly dangerous infectious diseases? The primary goal of this paper is to review the most relevant contributions which have directly tackled those questions, both with respect to the effects of climate changes on the diffusion of non-infectious and infectious diseases. Specific attention will be drawn on the methodological aspects of each study, which will be classified according to the type of statistical model considered. Additional aspects such as characteristics of the dependent and independent variables, number and type of countries investigated, data frequency, temporal period spanned by the analysis, and robustness of the empirical findings are examined.

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Green accounting II

Friday 29 October 2010

No sooner does one "green accounting" story come along then it is followed by another.
This time the world bank is putting in its twopeneth.

I have been covering green accounting in Econ101 for years but I expect this is a "deeper" integration.

"Embeding nature in the national accounts" sounds good to me although it certainly is not a "silver bullet". These are all small steps in the right direction.

World Bank Launches Scheme To Green Government Accounts
The World Bank on Thursday launched a program to help nations put a value on nature just like GDP in a bid to stop the destruction of forests, wetlands and reefs that underpin businesses and economies.

The five-year pilot project backed by India, Mexico and other nations aims to embed nature into national accounts to draw in the full benefits of services such as coastal protection from mangroves or watersheds for rivers that feed cities and crops.

"We're here today to create something that no one has tried before: a global partnership that can fundamentally change the way governments value their ecosystems," World Bank President Robert Zoellick told reporters in the Japanese city of Nagoya.

More than 100 ministers are in Nagoya for a U.N. meeting that aims to seal a historic deal to set new 2020 targets to combat the rapid loss of plant and animal species from deforestation, pollution, over-hunting and climate change.

One of the targets before the ministers is to agree to include the values of biological diversity into national development plans, or possibly national accounts.

"For economic ministries in particular, it's important to have an accounting measure that they can use to evaluate not only the economic value but the natural wealth of nations," Zoellick told Reuters in an interview.

"It's not a silver bullet. It's a way of trying to help people understand better in economic terms the value of natural wealth."

While economists try to get a handle on the value of nature, scientists are struggling to get a full picture of the variety of wildlife species around the globe as climate change, exploitation and pollution threaten "mass extinctions," a series of studies published on Wednesday showed.

BENEFITS

Envoys at the Japan meeting, the product of years of negotiations, are trying to win agreement on a 20-point plan that aims to protect fish stocks, fight the loss and degradation of natural habitats and conserve larger land and marine areas.

Greater financing from rich nations, possibly through redirecting subsidies from the fossil fuel, fishing and other industries is key.

Envoys are also aiming to clinch by Friday a new pact that sets laws for the sharing of genetic resources between governments and companies, such as drug and agri-resources firms.

Poorer nations want greater controls to protect their environment and to potentially earn billions of dollars in extra revenue from the benefits of trees to fungi, insects to frogs.

Delegates and greens say the talks are making progress ahead of Friday's deadline but were still deadlocked on some issues and negotiations were expected to continue deep into the night.

"There is definitely a positive atmosphere," Norwegian Environment Minister Erik Solheim told Reuters. "Everyone wants to reach a consensus here."

The World Bank program will give developing countries tools to help them measure the value and benefits of their ecosystems. India's Environment Secretary Vijai Sharma said at the launch the tools would make impact assessments more objective when looking at bids by miners or steelmakers to set up operations in India.

India recently scrapped London-listed Vedanta Resources' plans to mine bauxite and expand its alumina refinery in Orissa over environmental concerns, worrying investors.

The government has also expressed concerns over a $12 billion steel mill planned by South Korean firm Posco.

The Bank and other groups also launched a "save our species" initiative in Nagoya aimed at getting businesses to contribute to new conservation fund.

"It's nice that you may have a tiger as a logo but what does it do for your logo if the tiger goes extinct?" Zoellick told Reuters.

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Green accounting to tackle "greenwashing"

Wednesday 27 October 2010

Although many undergraduate economics students go on to become accountants it is not an area of interest to many academic economists. However, when it comes to "greenwashing" the following post is of interest.

Software to Hold “Greenwashers” Accountable [Software advice]

Greenwash (verb, \ˈgrēn-wȯsh\) – to market a product or service by promoting a deceptive or misleading perception of environmental responsibility.

It’s no secret that “going green” has become the next big thing in the corporate world. Riding the wave of consumers’ growing interest in environmental sustainability, companies are launching major ad campaigns to tout their green credentials. But many of their claims are misleading or downright false. The ads are compelling, but how are we to know who’s telling the truth? “Greenwashing” is eroding the credibility of well-intentioned green businesses and turning would-be green consumers into skeptics.

It’s reminiscent of the challenge to hold corporations accountable for their financial reporting. While the recent financial crisis highlighted the shortcomings of our markets and reporting structures, the United States business community is still a leader in financial accounting, reporting and ethics. Our system is sophisticated, consisting of a combination of generally accepted accounting principles (GAAP), fairly rigorous government oversight, a massive industry of accounting professionals and mature accounting software technologies that keep track of every last dollar.

We must develop the same infrastructure for environmental accounting. The development of Enterprise Carbon Accounting (ECA) software is well underway, with roughly 60 vendors bringing solutions to market. ECA software enables companies to track their carbon footprint and the footprint of their suppliers as well as the impact of customer use of their products. It’s a promising innovation that can help us manage corporate America’s environmental footprint, but it’s still at the early stages of adoption. We need a number of things to happen for the ECA market to mature and develop environmental accounting to the same level as financial accounting.

So what will it take to develop the ECA software market and have the infrastructure necessary to hold greenwashers accountable? We think there are five key requirements to get us there:

* Clear government action on regulations;
* Adoption of carbon accounting principles;
* Expansion of “Scope 3” emissions accounting;
* Better business incentives to go green; and
* Demanding, informed consumers.

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WTO-Related Matters in Trade and Environment:

Monday 18 October 2010

This 2004 paper covers an issue of increasing importance in my mind. The failure of Copenhagen and the failure (so far) of the Doha round may in fact be partially explained by the need to bring negotiations on the environment and trade to the same table.

There are a complex set of interactions here and this paper sets the scene.

WTO-Related Matters in Trade and Environment: Relationship Between WTO Rules and MEAs [PDF]

Date: 2010
By: Aparna Sawhney
URL: http://d.repec.org/n?u=RePEc:ess:wpaper:id:2984&r=env

Environmental issues began to be systematically addressed in the WTO following the Decision on Trade and Environment taken towards the end of the Uruguay Round at Marrakesh in 1994. The Committee on Trade and Environment was established in the same year, with the explicit mandate to resolve environmental issues in the trading system. [WTO Research Series No. 5]

Keywords: Environmental, systematically. Trade, Environment,

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"Weather throws the punches but climate trains the boxer"

Thursday 14 October 2010

In a recent grant application those of us contributing had a long debate over the appropriate use of "weather" and "climate".

In the end it was clear we were talking about "weather" although it sounds far less "current" and interesting than using "climate".

We were talking about the economic impact of severe weather events (not climate events).

The quote "weather throws the punches but climate trains the boxer" now makes it all clear to me and would have saved a number of long email debates on the distinction between the two.

This quote came up when reading a review of a new book.



In a review in the TES the reviewer continues the boxer theme and suggests that some of climate change's heavyweight contenders have not even entered the ring yet. Rising sea levels are one such heavy weight.

This book is suitably doom-laden so should appeal to economists everywhere.

"At the end of the last Ice Age, for instance, oceans rose over 420ft over a few millennia, including one period when the process topped 15ft per century".

If the same speed of change occurred today it would be far harder for humans to adapt. Back them you would quite literally just "up sticks" and move inland.

Those economists who argue that even if man made climate change is real it does not matter because we can adapt would do well to read this book. There are practical limits to adaption under extreme scenarios.

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"Economists, time to team up with the ecologists!"

Wednesday 13 October 2010

A very fine title for a paper and this one is newly published in Ecological Economics.

The abstract seems to be blaming economists for a lack of interdisciplinary work. Economists get accused of this from virtually every discipline from what I can make out.

I am all for such joint work. Apparently ... "the easiest candidates for interdisciplinary teamwork in bioeconomics are therefore researchers who acknowledge ethical relativism."

I am not sure if I qualify or not but it sounds like I should acknowledge it.

For those less familiar with what ethical relativism actually is Answers.com and dictionary.com write as follows:

Ethical Relativism is operating in a system of situational ethics. Thou shalt not steal, unless you get a chance to steal from a big corporation, the government or someone you don't like. You are faithful to your wife, except on business trips, when everybody cheats, right? Basically, it means being comfortable with shifting your ethics to meet the situation. I try to maintain my ethics in all situations, however though I believe in thou shalt not kill, ants, flies and roaches die if I find them in my house and if you break into my home and come up the stairs, you are a direct threat to my family's safety and I will blow you away with little to no warning. But since I know these are my ethics, family before thief, I do not consider that a case of situational ethics.
Also see "moral relativism".

or

In ethics, the belief that nothing is objectively right or wrong and that the definition of right or wrong depends on the prevailing view of a particular individual, culture, or historical period.

Do economists as a general rule reject ethical relativism? My guess is that we would be all for it. Sounds good to me.


Economists, time to team up with the ecologists!

Hilde Karine Wam

Department of Ecology and Natural Resource Management, Norwegian University of Life Sciences, Box 5003, 1432 Ås, Norway

Abstract

Bioeconomic modeling is an increasingly relevant meeting arena for economists and ecologists. A majority of the growing literature, however, is written by economists alone and not with ecologists in true interdisciplinary teamwork. Physical distance between research institutions is no longer a reasonable justification, and I argue that, in practice, neither do the more fundamental philosophical oppositions present any real hindrance to teamwork. I summarize these oppositions in order of increasing magnitude as: 1) the axiom, held by many ecologists, of ‘irreducible complexity of ecosystem functioning’, which is avoided simply because the ecological ‘whole’ (as opposed to its ‘parts’) is not an element of most realistic modeling scenarios; 2) the axiom, also held by many ecologists, of ‘the precautionary principle’, which mainly surfaces at the applied end of natural resource management, and thereby should not prevent economists and ecologists from jointly building the models necessary for the final decision making; and 3) the economists' axiom of ‘the tradability principle’, which is harder to overcome as it demands value-based practical compromises from both parties. Even this may be solved, however, provided the economists accept non-marketable components in the model (e.g. by using restriction terms based on ecology), and the ecologists accept a final model output measured in terms of monetary value. The easiest candidates for interdisciplinary teamwork in bioeconomics are therefore researchers who acknowledge ethical relativism. As bioeconomics presently functions mainly as an arena for economists, I say the responsibility for initiating interdisciplinary teamwork rests most heavily on their shoulders.

Keywords: Ecological economics; Intrinsic; Nature; Management; Philosophy; Wildlife

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"Aquifer economics" - deep waters drying up

Monday 11 October 2010

An economist article allows me to use the term "aquifer economics". I am always on the look out for new varieties of "economics" and this could be a big one.

From a teaching perspective this is yet another good "tragedy of the commons" story especially when aquifers cross national boundaries.

Deep waters, slowly drying up [Economist]

CLEMENT weather and plentiful water mean that Punjab produces an eighth of India’s total food grains. But the water table has dropped by ten metres since 1973 and the rate of decline is accelerating on both the Indian and the Pakistani sides of the region. It is a similar story for the north-western Sahara aquifer system (NWSAS), shared by Algeria, Tunisia and Libya. Withdrawals increased ninefold between 1950 and 2008. Springs are drying up and soil salinity has increased.

Such depletion of aquifers is a classic tragedy of the commons. Farmers pump, oblivious of others’ actions or the impact of their own. Scarcity stokes this rather than braking it. Worse, much abstracted water is used in inefficient irrigation; compounding that, underpricing means it is often used for watering low-value crops. Powerful farming lobbies have little interest in changing the status quo.

Aquifers, like fish stocks, are most at risk when they cross national borders, making property rights weaker. Groundwater provides about a fifth of the planet’s water needs and half its drinking water. In arid countries such as Libya or Saudi Arabia, that figure is close to 100%. Almost 96% of the planet’s freshwater resources are stored as groundwater, half of which straddles borders. UNESCO, a United Nations body, estimates that 273 aquifers are shared by two or more countries.

The signing this summer of a treaty between Brazil, Argentina, Uruguay and Paraguay to protect the Guarani aquifer, after a six-year study of the region’s underwater resources, has thus come as a nice surprise. It may even be a trend. Mali, Niger and Nigeria are due to sign a provisional deal early next year to set up a body to run the Iullemeden aquifer, where withdrawals have exceeded recharge ever since 1995, endangering the Niger river in the dry season.

The two deals follow a UN resolution in 2008 on creating a legal regime for aquifers (it may become a full convention next year). Lifting sanctions on Libya has had an effect, too. The Libyans say they may stop growing wheat using water from the NWSAS and the Nubian sandstone aquifer system, the world’s largest fossil aquifer, which they share with Egypt, Chad and Sudan. An agreement in 1992 set up a body to run this but it has stayed largely dormant. Now sampling and monitoring have resumed, under the aegis of the International Atomic Energy Agency (which has a sideline in environmental monitoring).

Such scientific work is crucial because aquifers are still poorly understood. Until a UNESCO inventory in 2008, nobody knew even how many transboundary aquifers existed. Experts are still refining the count: the American-Mexico border may include 8, 10, 18 or 20 aquifers, depending on how you measure them. Defining sustainability vexes hydrologists too, particularly with ancient fossil aquifers that will inevitably run dry eventually. Estimates for the life of the Nubian sandstone aquifer range from a century to a millennium.

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Is the US really a "mythic pig preening itself"?

As the insults fly over climate change the Chinese hit well below the belt with the insult to the US likening the US criticisms of China to "a mythic pig preening itself."

It is hard to believe that the Chinese would have to resort to such aggressive language.

Just in case there are any readers are still a little perplexed or indeed would like to know more about the mythical pig please read on.

Zhu Bajie

Su likened the U.S. criticism to Zhubajie, a pig in a classic Chinese novel, which in a traditional saying preens itself in a mirror.

"It has no measures or actions to show for itself, and instead it criticizes China, which is actively taking measures and actions," Su said of the United States.

UK readers of a certain age may well remember the always excellent TV programme "Monkey" where the mythical pig appears regularly.

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"Reality used to be a friend of mine"

Friday 8 October 2010

I have often thought that the relationship between academic economics and reality can appear tenuous not least when I am in sitting through another hard core theoretical economics seminar and the 23rd slide of complicated looking equations appears on the screen.

On a more trivial level I have always wanted to use "reality used to be a friend of mine" as a blog post title although I forget where this quote comes from now.

Harald Uhlig (Chicago) takes a look at this relationship in a non-technical way (phew). He looks at important issues not least whether economics is a "science" or an "art".

Economics and Reality

Harald Uhlig
University of Chicago - Department of Economics

September 2010

NBER Working Paper No. w16416

Abstract:
This paper is a non-technical and somewhat philosophical essay, that seeks to investigate the relationship between economics and reality. More precisely, it asks how reality in the form empirical evidence does or does not influence economic thinking and theory. In particular, which role do calibration, statistical inference, and structural change play? What is the current state of affairs, what are the successes and failures, what are the challenges? I shall tackle these questions moving from general to specific. For the general perspective, I examine the following four points of view. First, economics is a science. Second, economics is an art. Third, economics is a competition. Forth, economics politics. I then examine four specific cases for illustration and debate. First, is there a Phillips curve? Second, are prices sticky? Third, does contractionary monetary policy lead to a contraction in output? Forth, what causes business cycles? The general points as well as the specific cases each have their own implication for the central question at hand. Armed with this list of implications, I shall then attempt to draw a summary conclusion and provide an overall answer.

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New Book: "Foreign Firms, Investment, and Environmental Regulation in the People's Republic of China"

From the inbox:

An interesting new book has just been released by Phillip Stalley (Assistant Professor of Political Science at DePaul University in Chicago) looking at environmental regulations and industry location in China.

Without knowing the content I am unable to provide a full review but it should link in with a number of my recent papers looking at China and the environment. In my opinion China is where all the action is. I look forward to reading this book.















Some of my recent papers in this area include:

Cole, M.A., Elliott, R.J.R. and Zhang, J. (forthcoming). Growth, FDI and the Environment: Evidence from Chinese Cities. Journal of Regional Science.

Cole, M., Elliott, R.J.R. and Zhang, J. (2009), Corruption, Governance and FDI Location in China: A Province-level Analysis, Journal of Development Studies, Vol. 45, 9, 1494-1513.

Cole, M.A., Elliott, R.J.R. and Wu, S. (2008), Industrial Activity and the Environment in China: An Industry Level Analysis, China Economic Review, Vol. 19, 3, pp.393-408

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Trade, Environmental Regulations and Industrial Mobility

Thursday 7 October 2010

Here is a recent working paper from the nep-env working paper series. This just happens to one of my recent papers. Regulations matter for location.

The paper is forthcoming is the esteemed "Ecological Economics" (August 2010).

Trade, Environmental Regulations and Industrial Mobility:
An Industry-Level Study of Japan


Matthew A. Cole, Robert J.R. Elliott and Toshihiro Okubo

1 Department of Economics, University of Birmingham, UK
2 Research Institute for Economics and Business Administration, University of Kobe, Japan

Abstract
This paper contributes to the small but growing body of literature which tries to explain why, despite the predictions of some theoretical studies, empirical support for the pollution haven hypothesis remains limited. We break from the previous literature, which tends to concentrate on US trade patterns, and focus on Japan. In common with Ederington et al.’s (2005) US study, we show that pollution haven effects are stronger and more discernible when trade occurs with developing countries, in industries with the greatest environmental costs and when the geographical immobility of an industry is accounted for. We also go one step further and show that our findings relate not only to environmental regulations but also to industrial regulations more generally.

JEL: F18, L51, L60, Q56, R3
Keywords: Environmental regulations, trade, agglomeration, immobility, industry

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US -China Tianjin face off over climate change

Tianjin is a city I know well after a recent visit to Nankai University. It is a good venue for climate change talks especially given the air quality in Tianjin which was something to behold.

Let us hope that delegates can find the venue for the talks.

I gave a talk to future Chinese leaders on trade, development and climate change recently and it is very clear that whilst China is fully aware of its obligations to tackle climate change it still sees the onus being on developed countries to take the lead.

The 80:20 rule would satisfy the Chinese in my view. It will be difficult to move them off this percentage. The West may need to face up to that fact and just get on with making the 80%. To expect anything different would be foolish and waste everyone time (yet again). The problem with be the US (yet again).

When China say they will not budge it is worth listening.

Climate Talks Struggle As China, U.S. Face Off [PlanetArk]

The United States and EU said on Wednesday that U.N. climate talks were making less progress than hoped due to rifts over rising economies' emission goals, while China pushed back and put the onus on rich nations.

Negotiators from 177 governments are meeting this week in the northern Chinese city of Tianjin, trying to agree on the shape of the successor to the current phase of the Kyoto Protocol, the key U.N. treaty on fighting global warming, which expires in 2012.

Midway through the talks, however, initial hopes that they can deliver progress on trust-building goals have become snared in procedural skirmishing that boils down to feuding over how far rich and emerging nations should curb their greenhouse gas emissions and how they should check on each other's efforts.

Negotiators said the contention could damage prospects for negotiations late this year in Cancun, Mexico, which are intended to lay the foundations for a new, legally-binding climate pact.

"There is less agreement than one might have hoped to find at this stage," said Jonathan Pershing, the United States' lead U.S. negotiator in Tianjin.

"It's going to require a lot of work to get to some significant outcome by the end of this week, which then leads us into a significant outcome in Cancun," he told reporters.

Fraught climate negotiations last year failed to agree on a binding treaty and climaxed in a bitter meeting in Copenhagen, which produced a vague and non-binding accord that later recorded the emissions pledges of participant countries.

Fearing deadlock in efforts to reach a binding pact by late next year, governments have been pushing in Tianjin for broad agreement on less contentious objectives: a fund for climate action, a scheme to protect carbon-absorbing rainforests, and policies to share clean energy technology with poorer nations.

Pershing said he still hoped that the makings of a deal can come together at Cancun, and warned that failure in Mexico could damage the whole U.N. climate negotiations.

Big developing nations -- such as China, India and Brazil -- should take on firmer emissions reduction obligations as part of a new treaty that would abandon a simple division between rich and developing countries, said Pershing.

The current Kyoto Protocol only commits nearly 40 industrialized nations to meet binding targets.

A European Union official at the Tianjin talks said they had made headway on some issues, but also voiced worry for Cancun.

"We are very concerned with the procedural blockages and we find it simply inexplicable that they keep on popping up on the issues that are of vital importance for the final deal," Jurgen Lefevere of the European Commission climate action office told reporters. "There is still hope," he added later.

CHINA PUSHES BACK

China is the world's top greenhouse gas emitter from human activity, with the United States second. China and India have pledged emissions reduction steps under the Copenhagen accord, but want Kyoto to be extended to lock in commitments by rich countries and to ensure their own emissions are not subject to binding international caps.

China's greenhouse gas emissions will keep rising for years yet, but its top climate change negotiator Xie Zhenhua said it was unfair to press the country on when its emissions would peak while rich nations failed to slash theirs.

He also told reporters at the talks that his government would not budge from demanding the Kyoto Protocol be the basis of any new climate deal. The United States is not a party to the Protocol and would have to come under a separate deal.

"When the world's emissions peak depends on developed countries leading with dramatic cuts in their emissions, making space for developing countries," said Xie.

China and other emerging nations will accept international "consultation and analysis" of their emissions, but not anything equal to the standards expected of rich economies, said Xie.

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"Exploding Children"

Monday 4 October 2010

A video that graphically depicts a teaching blowing up her climate change denying pupils has been withdrawn from youtube.

This is a strange one to comment on given the obvious sensitivities. I will leave it to the BBC to explain.

As with all "humour" some will find this funny and others will not.

Environmental campaigners axe gory film [BBC]

Environmental campaigners 10:10 have withdrawn a film showing a teacher graphically exploding two of her students who refuse to reduce their carbon emissions, after complaints.

In a statement, the group apologised to anyone offended.

The film aimed to "bring this critical issue back into the headlines whilst making people laugh", the group said.

Starring Gillian Anderson it was scripted by Richard Curtis, whose films include Four Weddings and a Funeral.

It was directed by a leading commercials director.

In the film, which was subsequently posted to Youtube and which contains disturbing images, a teacher invites her class to take part in the environmental campaign. Two children, who do not want to, are asked why.

The teacher tells them: "Fine, it's absolutely fine. It's your own choice."

But moments later she presses a button and the children explode into a mess.

Similar scenes are played out in an office where four workers are blown up and a football training session where footballer David Ginola, who also says he does not want to do his bit to combat climate change, disappears in an explosion.

In the final scene, Gillian Anderson, who provides the voice- over is similarly dispatched after saying she thought doing the voice over was enough of a contribution to the campaign.

'This is dreadful'

Comments left on the Guardian website where the film was posted before being taken down on the 10:10 site, were split between those congratulating the team and others who thought it was in bad taste.

"I think this is dreadful," said one comment.

"To suggest that people who disagree with you deserve to die is incredibly stupid. Imagine if some Christian group in the US did that to gays, Muslims, or anyone else they disagree with. The outrage would be palpable. And deserved.

"It's like a parody of something that people mocking enviros would do."

Lizze Gillett, Global Campaign Director for 10:10, told the BBC: "As you can see from various comments and social media sites some people thought it was funny and a good tool to get people talking about climate change but others strongly disliked the mini-movie. We decided to take it off our website to avoid upsetting people. "

In the official campaign statement, the group said: "At 10:10 we're all about trying new and creative ways of getting people to take action on climate change. Unfortunately in this instance we missed the mark. Oh well, we live and learn."

However, 10:10 said they would not make any attempt "to censor or remove other versions currently in circulation on the internet."

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"Climatopolis" - we are not all doomed after all (or are we)

Monday 27 September 2010

The new Matt Khan book is out. Climatopolis. I enjoyed his previous books on Green cities and the American Civil War.

It is always impressive when academics can publish well and also write accessible books for a general audience.

I can't provide a full review as I have not bought the book yet although there are a number of obvious questions. I agree that it is pretty much too late to stop significant climate change and that adaption will be crucial. Luckily for him and many Americans, the US will suffer a lot less than many countries. Those on subsistence wages and the poor in developing countries will find it harder to move anywhere - that is where the real suffering will take place.

Arguing that "economic development" will solve the problem misses the endogeneity issue. Environmental degradation will impact on growth making development even harder and the suffering all the greater.



You can read a Grist interview with Matt Khan HERE.

His new book, Climatopolis: How Our Cities Will Thrive in the Hotter Future, argues that while it's too late to avoid the major effects of global warming, that's OK because most people will simply move to places that are effectively adapting to the changes. And here we'd been so worried! Kahn, a University of Chicago graduate, takes the school's free-market tradition to an extreme, arguing that rational agents in a market economy will simply "vote with their feet" and make winners out of the cities that are most able to innovate and attract new residents. It's a provocative argument, to say the least.

This question gets to the heart of the issue:

Q. You seem to see this all as a market problem. To me, 10 million Bangladeshis who can't feed themselves anymore and are crossing the border into India where they're not wanted -- that's a humanitarian and political problem. How does an entrepreneur innovate for that?

A. In India, many households benefit from access to cheap labor. Migrants to India will move to those cities where they will have the greatest opportunities. One could imagine a win-win, where the growing Indian middle class is actually happy to see many of these Bangladeshis if they need help with household chores.

But I agree with your point that adaptation in the developing world is the trickiest. My magic bullet is economic development. The Nobel laureate Tom Schelling contrasts malaria in Singapore and Malaysia. These countries are very close and have the same geographic conditions. Yet one [Malaysia] has much more malaria than the other. Schelling argues that economic development helps to mitigate environmental challenges through things like better diets and better access to medical care.

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Economist - special report on "Forests"

The always excellent economist has a great "special report" on forests. It is a fact filled and well written report.

The implications are serious and it is about time this was highlighted. The dynamic and feedback loops are crucial and deforestation is one reasons why climate change could speed up far beyond that by which we could do anything to further increases.

Think "tipping points". This is an impressively gloomy report and well timed.

What is interesting is the issue of paying forest owners not to deforest. Is this a good use of money? Should the West be paying developing countries not to deforest?

I have picked out just a few of the more choice quotes to provide a taster.

Seeing the wood [Economist]

This is the latest reason—and it is a big one—why destroying forests is a bad idea. Roughly half the dry weight of a tree is made up of stored carbon, most of which is released when the tree rots or is burned. For at least the past 10,000 years man has been contributing to this process by hacking and burning forests to make way for agriculture. About half the Earth’s original forest area has been cleared. Until the 1960s, by one estimate, changes in land use, which mostly means deforestation, accounted for most historic man-made emissions. And its contribution to emissions is still large: say 15-17% of the total, more than the share of all the world’s ships, cars, trains and planes.

Stopping deforestation would appear easier that weening us off oil and cars.

The outlook for the Amazon is also grave. Recent modelling suggests that the mutually reinforcing effects of increasing temperatures and aridity, forest fires and deforestation could bring the rainforest far closer than previously thought to “tipping points” at which it becomes ecologically unviable. So far 18% of the rainforest has been cleared. The loss of another 2%, according to a World Bank study last year, could start to trigger dieback in the forest’s relatively dry southern and south-eastern parts. A global temperature increase of 3.5%, comfortably within the current range of estimates for the end of this century, would put paid to half the rainforest. This would release much of the 50 gigatonnes of carbon it is estimated to contain—equivalent to ten years of global emissions from burning fossil fuels.

Only 2% to go until we reach the point of no return. We may get there a lot sooner that you think and then it will be too late.
The Earth’s need for forests to soak up carbon emissions is almost limitless. Saving the forest that is left should therefore be considered a modest aim. But even that will require huge improvements in forest management, such as reforming land registries and tightening up law enforcement. Above all, it will require governments to prize forest very much more highly than they do now. Otherwise there will be no chance of the many reforms required outside the forestry sector: in land-use planning and rural development, in agriculture, energy and infrastructure policies, and much else. It will also require politicians to get serious about climate change. All that amounts to a revolution, which is a lot to hope for. But if anything can help bring it about, forests might.

They are crucial in all sorts of ways because of the manifold services they provide. Western taxpayers need the Amazon rainforest to control their climate. Brazil needs it to help feed its rivers and generate hydro-power. Amazonian soya farmers need it to guarantee them decent rainfall. Yet policies at every level conspire to wreak its destruction. Changing them, in Brazil and across the tropical world, is a daunting task. But it is not impossible—and it must be done. The cost of failure would simply be too great.

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China seeks binding deal "with principles"

China was unhappy with the post-Copenhagen reviews some of which squarely blamed China for the failure to come up with a deal that could be considered anywhere close to a "good deal for the climate".

China will not attempt to take the moral high ground and to put the pressure back on the US. My understanding is that China does accept its obligations and is making considerable progress to reduce per-capita emissions even in the face of continued economic growth.

Of course China has a strong incentive with China likely to experience significant discomfort from climate change induced whether events and rising sea levels.

What is interesting is China is blaming US politics for the failure at Copenhagen. It is hard to argue against this claim. Obama is well meaning but will find it hard to fight against the lobbying powers of big industry in the US.

What is more interesting from this small news item is the following quote:

Li Gao, a senior Chinese negotiator on climate change, said his government would remain unyielding on issues of "principle" in the talks aimed at forging a successor to the Kyoto Protocol.

What this means is that China will require a deal along the lines of the 80:20 that has been previously mooted. The West reduces emissions by 80% and the developing world by 20%. After all, the vast majority of CO2 in the atmosphere was put there by us.

What does this posturing really mean? It means that chances of a deal are close to zero and our expectations for Cancun should be low. Mine never got off "low" before Copenhagen and are certainly no higher. Chinese "principles" are hard to change.


China Seeks Binding Climate Treaty Late 2011: Report [Planet Ark]
China wants the world to seal a binding climate change treaty by late 2011, a Chinese negotiator said in a newspaper on Friday, blaming U.S. politics for impeding talks and making a deal on global warming impossible this year.

Li Gao, a senior Chinese negotiator on climate change, said his government would remain unyielding on issues of "principle" in the talks aimed at forging a successor to the Kyoto Protocol. The first period of that key treaty on fighting global warming expires at the end of 2012.

Li also vowed to keep pressing rich countries to promise deeper cuts to carbon dioxide and other greenhouse gases from human activity that are stoking global warming, said the China Economic Times, which reported his comments.

Many governments and experts have already dismissed hopes for a full climate change treaty at the next major negotiation meeting, to be held in Cancun, Mexico at the end of this year.

Li underscored that gloom, but also said his government hoped Cancun could be a stepping stone to negotiations next year that will culminate in a meeting in South Africa in November.

"China hopes that based on the outcomes from Cancun, we'll be able to settle on a legally binding document at the meeting in South Africa," Li said, according to the Chinese-language newspaper.

"After the South Africa meeting, we'll move to concrete implementation."

Li oversees the international climate change negotiations office at China's National Development and Reform Commission, a sprawling agency that steers economy policy.

The deadline for a new binding global pact was originally set for late 2009, but a final round of negotiations in Copenhagen ended in acrimonious failure, with some Western politicians saying China was not willing to compromise.

China will be a crucial player in the follow-up talks.

With its 1.3 billion people, it is the world's biggest emitter of greenhouse gases from human activity, but is also a developing country with average emissions per capita well below those of wealthy economies.

The United States, European Union and other governments want China to take on stronger commitments to control and eventually cut its emissions.

But Li said it was U.S. political uncertainty that had stymied any hope of the Cancun meeting agreeing on a treaty to succeed Kyoto.

"The biggest obstacle comes from the United States," he said. "Without any (climate change) legislation, it can't possibly join in a legally binding international document."

The U.S. Senate has dropped efforts to put emissions curbs in an energy bill now focused on reforming offshore drilling.

Negotiators from nearly 200 nations are haggling over a complex draft accord on climate change, and a further round of talks at the northern Chinese port of Tianjin opens on October 4.

Li said Beijing would keep pressing for certain principles, including that developing countries like China should not shoulder the same absolute caps on emissions that rich countries must take on.

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