Climate

as a Public GoodGala Korniyenko

UBPL 705

Economic Analysis for Planners

March 2015

• Excludability

• Rivalry

• Externalities

• Common/global pool resources

• Tragedy of commons and Eleanor Ostrom

• Free rider problem

• Degrowth

• International environmental agreements: Kyoto Protocol

• Carbon emissions trading

• Cap and trade

OUTLINE

THE PROBLEM

We are sinking …

Source: http://www.wcpo.com/news/local-news/kenton-county/covington/jeff-ruby-waterfront-

restaurant-barge-taking-on-water-sinking-into-ohio-river

What are positive and

negative externalities of public

goods?

The Economic Risks of Climate Change

Source:

http://riskybusiness.org/reports/national-

report/regions/great-plains

The Economic Risks of Climate Change

Source:

http://riskybusiness.org/reports/national-

report/regions/great-plains

The Economic Risks of Climate Change

Source:

http://riskybusiness.org/reports/national-

report/regions/great-plains

How much should company pay

for damaging the climate?

AN ECONOMIC EXAMINATION

ANALYZING THE GOODS AND EFFECTS

Contributing markets Affected markets

Coal/oil industry Electrical power sector

Lumber industry Construction/Coastal property

Metallurgy Agriculture

Chemical industry Healthcare

Petroleum coke industry Tourism

Landfills Car production

Urban sprawl Customers

Developed countries Developing countries

Which goods in the table are public and which are private?

What is special about cost/benefit of public goods?

GOALS AND OBJECTIVESEnvironmental Economics

Paul Samuelson global public good

non-rivalrous and non-excludable throughout the whole world

Common-pool resources free-rider problem

congestion, overuse, or degradation

http://www.nbcbayarea.com/news/national-international/Incredible-Photo-Weasel-Hitches-Ride-on-Woodpecker-

294899771.html

How to solve the problem of a

free rider dealing with

climate?

MITIGATION STRATEGIES

THE KEY CHALLENGE IS MANAGEMENT

Source: http://www.andysinger.com,

https://www.pinterest.com/pin/411586853419930966/

Eleanor Ostrom: “when a common-pool

resource is closely connected to a larger social-

ecological system, governance activities are

organized in multiple nested layers”

Source:http://www.shareable.net/sites/default/files/blog/top-image/elinor_ostrom.jpg

Source: http://www.covenantofmayors.eu/index_en.html

Source: http://tutor2u.net/economics/revision-notes/as-marketfailure-negative-externalities.html

Cap

Source:

https://www.youtube.com/watch?v=fJ

rFSLfaeeE

Can private companies which are

polluting the environment voluntarily

reduce the emission?

Trade

Source:

https://www.youtube.com/watch?v=fJrFSLf

aeeE

Carbon trading

Source: http://www.macleans.ca/economy/business/why-the-difference-between-carbon-taxes-and-

cap-and-trade-isnt-as-important-as-you-think/

Emission Emission

greenhouse gas-emitting

products

Ukraine – Japan Agreement

Source: www.carbonunitsregistry.gov.ua, http://www.asiaecon.org/special_articles/read_sp/12632

New trains for Kyiv metro

Source:

http://photo.unian.net/eng/themes/517

17/

Data of the Agreement/Effectiveness

• Ukraine was the first country in the world which transferred Assigned Amount Units

to Emission Reduction Units (ERU). Rate: 1 ton of reduced CO2 costs 10 Euros

• 53 million of Ukrainian ERUs among the 111 million of the world’s ERUs. That is

56% of the world market

• ≈ 92 million of Ukrainian carbon units were issued by SEIA (the State Environmental

Investment Agency of Ukraine) as on 1 November 2013

• 817 projects, 7 of a big scale projects: metro and hybrid cars some of them: the

projects with Japan saved ≈ 60 million Euros

• 1220 hybrid cars "Toyota Prius” were supplied by "Sumitomo" (Japan) to the Ministry

of Internal Affairs

• The "Comprehensive train modernization (E-type) for Kyiv Metro"- 7945 tones of CO2

eq. per year reduced

• "Technical re-equipment (replacement of existing police patrol cars with hybrid

engine" - 31 692.89 tones CO2 eq. / Year

Source: 2014 year report of State Environmental Investment Agency of Ukraine

Source:

http://www.thehindu.com/news/inter

national/world/climate-change-us-

china-unveil-ambitious-goals-to-cut-

pollution-levels/article6589412.ece

Climate-Smart CitiesSource:

https://www.youtube.com/watch?v=X5ZZxx2v1

No

EXAMINING THE STRATEGIES IN ECONOMIC TERMS

CONCLUSION• The free market does not deal effectively with public goods. Regulation,

privatization and auction are the alternatives considered, and they fit in different situations.

– Regulation fits well with environmental pollution

– Privatization fits well with toll road, for example

– Auction fits well to sell rights to pollute the environment (Coase Theory)

• Climate change affects public and private goods, which require different mitigation strategies.

– Cap and trade is effective at the acid rain program and can be extended to carbon.

– Cap and trade falls short where is no an Assigned Amount Unit (AAU) (a tradable 'Kyoto unit' or 'carbon credit) cadaster or register, as it is the basis for trade.

– Where we need to go: develop a national adaptation plans for agriculture, water, energy, transport, health, urban space, forests and landscapes, coastal areas, biodiversity etc. Senate has to sign The American Clean Energy and Security Act of 2009, an energy bill that would have established a variant of an emissions trading plan similar to the European Union Emission Trading Scheme.

• Culture and political structure affect the effectiveness of the mitigation strategies; therefore, different countries need different approaches: tax deductions, subsidies, incentives to install energy efficient equipment etc. Degrowth

Background / literature reviewImages:Picture of a sinking hotel from Scripps Media, Inc.

http://www.wcpo.com/news/local-news/kenton-county/covington/jeff-ruby-waterfront-restaurant-barge-taking-on-water-

sinking-into-ohio-river

http://en.wikipedia.org/wiki/Global_public_good

https://www.e-education.psu.edu/geog432/node/277

image captured by British amateur photographer Martin Le-May, a weasel leaps onto the back of a flying woodpecker

http://www.nbcbayarea.com/news/national-international/Incredible-Photo-Weasel-Hitches-Ride-on-Woodpecker-

294899771.html#ixzz3TO4ZhykZ

http://www.shareable.net/sites/default/files/blog/top-image/elinor_ostrom.jpg

http://www.covenantofmayors.eu/index_en.html

Articles and books:Hudson, Blake and Rosenbloom, Jonathan, "Uncommon Approaches to Commons Problems: Nested Governance

Commons and Climate Change" (2013). Journal Articles. Paper 153.

http://digitalcommons.law.lsu.edu/faculty_scholarship/153

http://www.economicshelp.org/2008/02/can-economics-solve-problem-of-global.html

http://www.macleans.ca/economy/business/why-the-difference-between-carbon-taxes-and-cap-and-trade-isnt-as-important-

as-you-think/

Econ 101: What you need to know about carbon taxes and cap-and-trade, Stephen Gordon, September 17, 2012

http://www.macleans.ca/economy/business/why-the-difference-between-carbon-taxes-and-cap-and-trade-isnt-as-important-

as-you-think/

Mapping The Commons November 13, 2012

The Creation of the Urban Commons, by David Harvey

https://mappingthecommons.wordpress.com/2012/11/13/the-creation-of-the-urban-commons-by-david-harvey/

2014 year report of State Environmental Investment Agency of Ukraine

Elinor Ostrom. Governing of Commons, Cambridge University Press, November 1990

The problem of social cost, R. H. Coase, Law and Economics, October,1960, Volume III

http://www.epa.gov/captrade/

THANK YOU FOR YOUR ATTENTION,

SMART COMMENTS AND QUESTIONS!