introduction to environmental economic...

Eiji Hosoda, Faculty of Econ.,

Keio Univ.

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Introduction to Environmental

Economic Theory

27 September 2016

Professional Career Program

Basic problems


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Basic Questions

• Does the present economic system contribute to

preserving natural environment?

• Is economic development or economic growth

compatible with environmental conservation?

• If not, should we give up economic development or

growth to keep environmental quality?

• Is the so called sustainable development really

possible?

• If possible, how will it be realized?

• How can we contribute to sustainable development?


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What we should know

• First, we have to know much more about what is

happening to natural environment (Fact-

findings).

• Next, we have to explore how it has been

damaged by human economic activities.

(Analysis of causal relationships)

• Thirdly, we have to know how we can change

the present economic and social systems so that

sustainable development be realized.

Various ways of approaches

• There are various ways of approaches for

attacking environmental problems.

• It must be remembered that quite a few

environmental problems are caused by human

economic activities.

• Thus, it is worth studying environmental

economics to solve environmental problems.

• However, it is obvious that other scientific

discipline contribute to solving the problems as

well.Eiji Hosoda, Faculty of Econ.,

Keio Univ.

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Trade-off between economy and

environment

• Yet, it is sometimes very costly to protect

natural environment in a certain situation.

• Any action made by any person should affect

natural environment in an adversary manner.

• How much are we prepared to give up to

protect natural environment?

• How much should we sacrifice natural

environment to obtain economic benefits?


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Costs and Benefits

• The, how can we overcome the difficulties

caused by trade-off between economy and

environment?

• Economists consider that comparing costs and

benefits concerning environmental protection

often help solving the problem.

• We study this rigorously in this lecture.


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Interaction among actors


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Part I Conceptual MatterActors in an Environmental Regime• A lead actor: A strong commitment to

effective (international) action

• A supporting actor: Support of a lead actor in the negotiations

• A swing actor: Demander for significant concessions to its interests

• A veto or blocking actor: Opposition to a proposed environmental regime


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Costs and Benefits of Environmental

Regime

• Costs and benefits are different among actors.

• Costs and benefits are different within an actor.

• Interaction among actors changes the current situation of costs and benefits.⇒Game-theoretic situation of an environmental regime


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Domestic Politics and International

Politics

• Domestic politics affect formation of an international environmental regime.

• Power politics: Political leaders, business leaders, and NGOs, their interests are different.

• There are often strong tensions among different actors.

• Interaction among those domestic actors affects an attitude of a state for construction of an environmental regime.


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Image of interaction of actors in

environmental regime

Lead state: strong

commitment

Supporting stateSwinging state

Veto state

Business

NGOsPolitical party

Agreement


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Growth, Development and Environment

• Is there any trade-off between environment

and development?

• How is “Sustainable Development” (SD)

possible?

• An important fact on SD: Environmental

Kuznetz Curve


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An Example: Environmental

Kuznetz Curve

Turning point

Environmental burden

(SOx，Waste）

Per capita income


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Evidence:Anti-pollution investment

Trend of anti-pollution investment (amount and ratio)

0

2,500

5,000

7,500

10,000

12,500

73 75 77 79 81 83 85 87 89 91 93

Fiscal Year

（100million yen）

0

5

10

15

20

（％）

公害防止投資額

公害防止投資比率

Amount of anti-pollution

investment

Rate of anti-pollution

investment


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Evidence:SO2 Concentration

Trend of SO2 concentration

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

65 67 69 71 73 75 77 79 81 83 85

Fiscal year

Annual average（ppm）

一般環境大気測定局１５局平均

There was economic growth in

the periods in which SO2

concentration decreased.


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How is such a win-win solution

possible?Market goods

Environmental quality

Production Possibility Curves

O


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Regulation of exhaust gas in US and

Japan• Abandonment of the Musky act in U.S.A: car

manufacturers were veto actors, who won. The

act was not adopted in USA.

• The act equivalent to the Musky act was

introduced to Japan in 1978.

• Results: Quality of Japanese cars were improved.

The sales-share of Japanese cars in US

increased.⇒Environmental regulation and

economic development went together.

• The Cafe regulation promoted such trend further.


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Part II The Problem of Global

Warming (Climate Change)• There is disagreement among actors on how to

curb global warming gases.

• Why?

• Who benefits from disagreement?

• Who benefits from agreement?

• What methods are adopted to curb global

warming gases?

The Paris Agreement Last Year

• There was an agreement in the COP 21 in

Paris to suppress the temperature within 2°

• If the temperature increases more than that, the

it is anticipated that the sea level will rise more

than 70m, devastating many areas over the

world.


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c.


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Review: Why did developed countries

agree the Montreal Protocol?

• Phase out of CFCs were agreed among

developed countries.

• Lead state: U.S.A.⇒Domestic politics: Big

business did not block the basic idea of the

protocol.

• Supporting states: EU

• Swinging state: Japan⇒U.S.’s follower


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Different circumstances in GWG

reduction

• Veto state: U.S.A.

• Lead states: EU countries

• Swinging state: Canada etc.

• Potential veto states: Developing countries

• Japan used to be a swinging state (actor). It became a lead state, although its attitude is not so clear now. It depends upon the present government.


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Kyoto Protocol

• EU: 8% reduction of 1990 level of emission

between 2008 and 2012

• USA: 7% reduction in the same period

• Japan: 6% reduction in the same period

• Developing countries: Basically no

requirement


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Political Power of U.S.A as a Veto State

• The share of CO2 emission of U.S.A is nearly 25%: The great role in GWG reduction. (China is the largest discharger of CO2.)

• The emission is still increasing.

• We are experiencing a disaster such as the huge hurricane Catharine, which might be caused by the climate change.

• U.S.A dislikes the EU leadership in the regime formation.

• Republicans are reluctant to make a positive action for prevention of the global warming.

• It dislikes the nonparticipation of developing countries in the regime, either.


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Domestic Circumstances in U.S.A.

• Suspicion on the idea of global warming is still shared among people.

• Business people are worried about loss of GDP which might be caused when huge reduction of CO2 emission is required.

• Is change of the American life-style possible?

• Yet, Al Gore appeared to have influenced people a little by little, by Inconvenient Truth.

• But not so much.


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Japan’s Attitude toward Kyoto

Protocol: Domestic Politics

• Leading actors: The Ministry of Environment, NGOs

• Former veto actors: Part of business sectors, The Ministry of Economy, Trade and Industry.

• Now, they are swinging.

• No powerful leadership seems to have appeared so far in the field of environmental problems.


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Japan’s Attitude toward the Global

Warming Problem: International

Politics• Japan is a potential mediator among U.S.A, EU and

developing countries.

• Japan was basically looking at U.S.A, and never tried to challenge U.S.A in any single environmental issue.

• Japan was the host country in Toya-ko summit in 2008. It had to do something, anyhow, to challenge the global warming.

• The gain, however, seems very small.

• At present, due to the world-wide economic depression, people seem to have lost interest in the global warming problem despite the Paris agreement.


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Utilization of Market Mechanism

• Trade of emission permits is being promoted gradually.

• Clean Development Mechanism: CDM is a new device

which was invented in the Kyoto Protocol.

• Joint implementation was also invented.

• Carbon tax has been introduced in some countries.

• Yet, how can these instruments be accommodated to the

traditional economic system?

• Some Japanese business people are still against carbon

tax as well as cap and trade of carbon emission.


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Conclusion

• First, we have to define what sort of environmental problems we are facing and talking about.

• Next, we have to collect basic data, and analyze them.

• After that, we have to exert ourselves to create a new regime which makes economic development compatible with environmental protection. (Policy)

• To facilitate the procedure, we have to obtain an analytical tool, and environmental economics is very powerful tool for attaint the purpose.

• It is crucial to know that an economic system is so flexible that it can accommodate our life style to sustainable development.

introduction to environmental economic...

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