Pegram Lecture 2, August 10, 2012

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Pegram Lecture 2, August 10, 2012

  1. 1. Economic Returns from the Biosphere Pegram Lecture No 2 Brookhaven National Laboratories, LI New York Graciela Chichilnisky www.chichilnisky.com Columbia University Columbia Consortium for Risk 1 Management (CCRM) www.columbiariskmanagement.net
  2. 2. Human beings, or their close genetic relatives, have lived on Earth for several million years Yet only recently has human activity reached levels at which it can affect fundamental natural processes the concentration of gases in the atmosphere (CO2, Ozone) the planet’s water mass The complex web of species which constitute life on earth Columbia Consortium for Risk 2 Management (CCRM) www.columbiariskmanagement.net
  3. 3. Changes in global atmospheric composition Atmospheric Concentration of CO2 , 1959-2000 Sources: Carbon Dioxide Mixing Ratio (ppm) 380 370 360 Fossil Fuel Consumption 350 340 330 320 310 300 Forest Burning 290 280 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 Atmospheric Concentration of CFC-12, 1978-2001 The Facts - Trace 600 Refrigerants GasCFC-12 Mixing Ratio (ppm) 500 400 Foam Blowing Concentrations 300 are increasing Solvents 200 100 0 1978 1982 1986 1990 1994 1998 Atmospheric Concentration of Methane, 1986-2001 Rice Paddies 1,740Methane Mixing Ratio (ppm) 1,720 1,700 1,680 1,660 1,640 Marshlands 1,620 1,600 1,580 Cattle 1,560 1986 1990 1994 1998 Source: World Resources Columbia Consortium for Risk 3 Institute, 2002 Management (CCRM) www.columbiariskmanagement.net
  4. 4. Columbia Consortium for Risk 4 Management (CCRM)www.columbiariskmanagement.net
  5. 5. Source: National Oceanic and Atmospheric Administration (NOAA). US Department ofCommerce. http://www.noaa.gov/ Columbia Consortium for Risk 5 Management (CCRM) www.columbiariskmanagement.net
  6. 6. Policy responses to Atmospheric Changes 1988: Intergovernmental Panel on Climate Change is created Ultimate global authority on climate change issues – US is part of it 1992: Rio UN Earth Summit targets - roll back industrial countries emission to 1990 levels by 2000 A long road since Rio Columbia Consortium for Risk 6 Management (CCRM) www.columbiariskmanagement.net
  7. 7. Sources: “A timeline of climate change” Matthew Knight, CNN science, 14, May 2008.http://www.cnn.com/2008/TECH/science/03/31/Intro.timeline/index.html (the rest came from G. Chichilnisky directly). Columbia Consortium for Risk 7 Management (CCRM) www.columbiariskmanagement.net
  8. 8. How to achieve the Rio targets? Proposals: Global carbon taxes (OECD Study, 1993 – 4 Global markets for carbon emission permits (Chichilnisky’s proposals: 1 1. proposal to OECD, 1993, 2. 1996 & 1997 proposal to UN Framework Convention on Climate Change, Chair R. Estrada-Oyuela, and 3. proposal to World Bank 1995) Columbia Consortium for Risk 8 Management (CCRM) www.columbiariskmanagement.net
  9. 9. 1995 Berlin Mandate Negotiate Protocol to quantify limitations by industrial countries, e.g. in 2000, 2010, 2020 Joint implementations pilot Prelude to emissions trading Columbia Consortium for Risk 9 Management (CCRM) www.columbiariskmanagement.net
  10. 10. Geneva: June 1996 U.S. Undersecretary of State Tim Wirth proposes my initiative on global emission markets Columbia Consortium for Risk 10 Management (CCRM) www.columbiariskmanagement.net
  11. 11. 1996● In 1996, the IPCC reported thathuman induced emissions of carbonhave a discernible effect on climate● Scientific uncertainty persists● But it is recognized that the risk ofclimate change is real and potentiallycatastrophic Columbia Consortium for Risk 11 Management (CCRM) www.columbiariskmanagement.net
  12. 12. Kyoto: 1997 166 nations accepted our emissions market proposal to UNFCCC The Kyoto Protocol Columbia Consortium for Risk 12 Management (CCRM) www.columbiariskmanagement.net
  13. 13. The Kyoto Protocol 1997: Kyoto Protocol was signed Including the Carbon Market – which I wrote into the Kyoto Protocol draft But emissions continue to increase outside the KP nations Columbia Consortium for Risk 13 Management (CCRM) www.columbiariskmanagement.net
  14. 14. 1998 BUENOS AIRES COP4Set 2 year deadline for completing the KYOTO AGENDA Columbia Consortium for Risk 14 Management (CCRM) www.columbiariskmanagement.net
  15. 15. The Carbon MarketKyoto set 5% emission reductionsfor Annex 1 countries by 2008-2012and created three facilitatingmechanisms to achieve this Columbia Consortium for Risk 15 Management (CCRM) www.columbiariskmanagement.net
  16. 16. KP: Facilitating mechanisms for Annex 1 countries Joint implementation (article 6) Emission trading (article 17) See also art 3.10 and 3.11 Clean Development Mechanism (CDM) Columbia Consortium for Risk 16 Management (CCRM) www.columbiariskmanagement.net
  17. 17. • The Carbon Market Kyoto is the first international agreement based on a market mechanism The Kyoto Protocol sets caps on CO2 emissions, and allows industrial nations to trade the rights to emit* * My proposal for a carbon market, written into the KP Columbia Consortium for Risk 17 Management (CCRM) www.columbiariskmanagement.net
  18. 18. Only one mechanism involves bothindustrial and developing countries: CLEAN DEVELOPMENT MECHANISM (ARTICLE 12) Columbia Consortium for Risk 18 Management (CCRM) www.columbiariskmanagement.net
  19. 19. 2005: Kyoto Protocol becomes international law The Kyoto Protocol sets caps onCO2 emissions, and allows industrial nations to trade the rights to emit The Carbon Market becomes international law in 2005 Columbia Consortium for Risk 19 Management (CCRM) www.columbiariskmanagement.net
  20. 20. Kyoto becomes international law 2005 Kyoto Protocol and its carbon market become International Law 2009 Copenhagen COP 15, I introduce the Green Power Fund and Negative Carbon into the CDM 2011 KP Carbon Market trades $200 Bn/year* *The World Bank: “Facts and Trends of the Carbon Market” WB Annual Publication, 2011 Columbia Consortium for Risk 20 Management (CCRM) www.columbiariskmanagement.net
  21. 21. Global emissions Since 2005 Kyoto Protocol led to about 30% reduction in EU emissions. Cf. The World Bank: Facts and Trends of the Carbon Market, 2011 But emissions continue to increase outside the Kyoto Protocol nations Columbia Consortium for Risk 21 Management (CCRM) www.columbiariskmanagement.net
  22. 22. Source: National Oceanic and Atmospheric Administration (NOAA). US Department ofCommerce. http://www.noaa.gov/ Columbia Consortium for Risk 22 Management (CCRM) www.columbiariskmanagement.net
  23. 23. 2007 BALI - COP 13: The Bali Roadmap 2009 COPENHAGEN COP15Reducing the U.S. – China impasse A NEW COLD WAR? Columbia Consortium for Risk 23 Management (CCRM) www.columbiariskmanagement.net
  24. 24. Copenhagen 2009 COP 15 - I introduced1. The Green Power Fund - accepted and announced by Sec of State H. Clinton two days later in Copenhagen2. Carbon Negative Technologies into the CDMTwo seeds with Irresistible Growth**Chichilnisky, G. 2012 The National Journal “Two Seeds of Irresistible Growth” Columbia Consortium for Risk 24 Management (CCRM) www.columbiariskmanagement.net
  25. 25. 2011: Durban COP 17 The Green Power Fund is partly accepted as the Green Climate Fund Carbon Negative Technologies become part of the CDM What is missing? Columbia Consortium for Risk 25 Management (CCRM) www.columbiariskmanagement.net
  26. 26. The Carbon Market Is now mandatory in 4 continents: EU, Asia, Australia and the Americas - in Quebec Canada and in California USA Trading $200 Bn/year in EU ETS CDM has transferred over $50Bn for clean tech projects in developing nationsThe World Bank: “Facts and Trends of the Carbon Market” annual report 2005 - 2011 26 Columbia Consortium for Risk Management (CCRM) www.columbiariskmanagement.net
  27. 27. Policy responses The Carbon Market WorksThe EU ETS Carbon market reducedabout 30% of EU and Japan’semissions since 2005The World Bank ‘Facts and Trends of the Carbon Market’ 2011 Columbia Consortium for Risk 27 Management (CCRM) www.columbiariskmanagement.net
  28. 28. 2011: “Increased Ambition” December 2011: Durban South Africa COP 17 extends Kyoto Protocol mandatory carbon limits until 2015 COP17 votes to provide a mandate to establish global limits by 2020 Durban Platform for Enhanced Action Columbia Consortium for Risk 28 Management (CCRM) www.columbiariskmanagement.net
  29. 29. Three outstanding issues for implementation of the Kyoto Protocol Opposition from the private sector Developing countries do not participate in emissions limits U.S.-China impasse: A new Cold War? Columbia Consortium for Risk 29 Management (CCRM) www.columbiariskmanagement.net
  30. 30. All three issues arise fromfears that emissions limits willinterfere with economic growthand the rise in standards oflivingCritical for all nationsespecially for developingcountries Columbia Consortium for Risk 30 Management (CCRM) www.columbiariskmanagement.net
  31. 31. How to cut the link betweenemissions and economicgrowth?Only new clean technologies canachieve thisThe carbon market is the solutionIt introduces a price for carbon andmakes clean technology profitable, andfossil fuels expensive and undesirable Columbia Consortium for Risk 31 Management (CCRM) www.columbiariskmanagement.net
  32. 32. How the Carbon Market and its Green Power Fund Overcomes these Issues Green Power Fund – a $200 Bn/year private public fund Funded by Carbon Market – which already trades $200 Bn/year Funding to provide off takes to build carbon negative power plants in LA, Africa and AOSISThis is the ONLY WAY the CDM can bring funding to these three regions – why? Columbia Consortium for Risk 32 Management (CCRM) www.columbiariskmanagement.net
  33. 33. The Carbon Market Changes the Global EconomyNew technology requires appropriate economic conditions to be implemented.Resource prices are key Columbia Consortium for Risk 33 Management (CCRM) www.columbiariskmanagement.net
  34. 34. Prices have an impactA much-quoted statistic on this subject isthat the amount of energy used inproducing $1000-worth of constant-dollarGNP in the USA fell by 38.9% from 1973to 1983.This was a result of switching to moreenergy-efficient technologies, and mostlyof demand patterns changing away fromenergy intensive products and services.Most of this striking drop in energy useoccurred in the period 1979-1983. Columbia Consortium for Risk 34 Management (CCRM) www.columbiariskmanagement.net
  35. 35. New Technologies (fuel cells, solar)seem uncompetitive because ofexcessively low resource pricesand a $400 Bn/year subsidies to the coal industryIn real terms, oil prices are still relatively low Columbia Consortium for Risk 35 Management (CCRM) www.columbiariskmanagement.net
  36. 36. Through clean technologies, developing countries can“leapfrog”, without repeating the resource-intensive growth that characterizes industrial countries Columbia Consortium for Risk 36 Management (CCRM) www.columbiariskmanagement.net
  37. 37. Technology transfers and emissions tradingToday there is no incentive for a USA corporation to set plants in developing countries using modern, clean technology Columbia Consortium for Risk 37 Management (CCRM) www.columbiariskmanagement.net
  38. 38. Carbon MARKETS Change all thisThey reward the transfers of clean technology How? Columbia Consortium for Risk 38 Management (CCRM) www.columbiariskmanagement.net
  39. 39. Before the Carbon MarketThe profits obtained by a firm are thesame for a Ford factory thatproduces car parts in China usingdirty technology or cleantechnology Columbia Consortium for Risk 39 Management (CCRM) www.columbiariskmanagement.net
  40. 40. After the Carbon Market If Ford is allocated carboncredits for clean car technologycorresponding to the emissionssaved, it can cash these permits in the emissions market Columbia Consortium for Risk 40 Management (CCRM) www.columbiariskmanagement.net
  41. 41. Carbon Market for Emission CreditsIn the KP Annex 1 Countries were given allocations of property rights on emissions summing up to a 5% reduction from 1995 global emissions, and they can trade these freely among themselves Columbia Consortium for Risk 41 Management (CCRM) www.columbiariskmanagement.net
  42. 42. REDD A proposal to provide carbon credits for “Reducing Emissions from Deforestation and forest Degradation” Not accepted by UNFCC because of low effectiveness. Recent IPCC Canadian study showed that forests are too slow as sinks of CO2: If every square ft of arable land in the planet was planted, it would not absorb more than 10% of CO2 that humans emit by the end of the 21st century. Columbia Consortium for Risk 42 Management (CCRM) www.columbiariskmanagement.net
  43. 43. Yasuni Initiative* President Correa of Ecuador requests compensation from the international community for not cutting down their part of the Amazon forest to explore and extract petroleum 60% of Ecuador’s population is indigenous and has opposed for many years the use of Ecuador’s forests by international oil companies 60% of Ecuador’s export revenues are from petroleum *The Economics of the Yasuni Initiative, Joseph Henry Vogel, Initiative foreword by G. Chichilnisky, Anthem Press, 2009 Columbia Consortium for Risk 43 Management (CCRM) www.columbiariskmanagement.net
  44. 44. OTHER EXAMPLES of Environmental Markets* The trading of SO2 in the Chicago Board of Trade since 1993, following the Clean Air Act – successfully and effficiently eradicated acid rain in the US in 20 years Water Markets in Australia and California*Environmental Markets: Equity and Efficiency, Chichilnisky and Heal 2000 Columbia Consortium for Risk 44 Management (CCRM) www.columbiariskmanagement.net
  45. 45. Biodiversity and Markets for emissions permitsDeforestation is the source ofapproximately 20% of globalgreenhouse gas emissions. Sciencehas shown that forests act as “sinks”retaining large amounts of carbonand absorbing large quantities ofcarbon dioxide Columbia Consortium for Risk 45 Management (CCRM) www.columbiariskmanagement.net
  46. 46. The watershed problem is global The value of watershed services to major cities across the world is estimated at $900 billion* One can securitize watershed services through innovative financial instruments * cf. G. Chichilnisky and G. Heal Nature 1995 Columbia Consortium for Risk 46 Management (CCRM) www.columbiariskmanagement.net
  47. 47. SECURITIZATION Form corporation to manage conservation Corporation owns the cost savings from conserving watershed Finance conservation by selling shares Local community and state should own shares Columbia Consortium for Risk 47 Management (CCRM) www.columbiariskmanagement.net
  48. 48. Increased knowledge can help How? It can lead to: Better understanding of natural risks and how to manage them (El Nino and Catastrophe Bundles) Better understanding of human impacts on nature and of new courses of action (watersheds and environmental bonds) Columbia Consortium for Risk 48 Management (CCRM) www.columbiariskmanagement.net
  49. 49. Markets are widely usedinstitutionsThey are decentralized, and can be efficient.But global environmental markets tradeunusual goods: privately produced publicgoods● Biodiversity is one● The planet’s atmosphere is another Columbia Consortium for Risk 49 Management (CCRM) www.columbiariskmanagement.net
  50. 50. Environmental assets are often public goods CO2 concentration in the atmosphere is a quintessential public good because it mixes very thoroughly throughout the planet and is very stable (remains about 100 years) It is not a typical public good because it is not produced by the government such as defense CO2 is privately produced Columbia Consortium for Risk 50 Management (CCRM) www.columbiariskmanagement.net
  51. 51. Public goods change matters New Economic Findings Only certain allocations of property rights on the atmosphere between countries will yield efficient market solutions This ties together the goals of efficiency and fairness: The aspirations of North and South Columbia Consortium for Risk 51 Management (CCRM) www.columbiariskmanagement.net
  52. 52. Privately produced public goods are goods which are not “rival” in consumption, but are privately produced we all produce emissions but the atmosphere is the same for us all Columbia Consortium for Risk 52 Management (CCRM) www.columbiariskmanagement.net
  53. 53. First Theorem of Welfare EconomicsThe allocation resulting from a competitivemarket equilibrium with private goods isPareto efficient (Arrow, 1950) This theorem is independent of the distribution of property rights. For example: all but two traders may have zero endowments of property rights and the resulting equilibrium is still Pareto efficient. Columbia Consortium for Risk 53 Management (CCRM) www.columbiariskmanagement.net
  54. 54. • But it requires all tradedgoods to be private goods,with rival consumption, and privately owned. Columbia Consortium for Risk 54 Management (CCRM) www.columbiariskmanagement.net
  55. 55. Markets with PPP goods aredifferent from standard marketsIn private goods markets,efficiency and fairness areseparate concepts (often calledCoase’s theorem)In markets with privatelyproduced public (PPP) goods thesetwo concepts are linked Columbia Consortium for Risk 55 Management (CCRM) www.columbiariskmanagement.net
  56. 56. With private goods efficiency requiresthat MRS=MRT, but with public goods the formula changes:Lindahl-Bowen and Samuelson proved that: Sum of MRS across people = MRT Columbia Consortium for Risk 56 Management (CCRM) www.columbiariskmanagement.net
  57. 57. ● For efficient markets, tradersshould choose freely betweenprivate goods andenvironmental quality● However the atmosphereconcentration of CO2 is one andthe same for all. This is anunavoidable physical fact Columbia Consortium for Risk 57 Management (CCRM) www.columbiariskmanagement.net
  58. 58. ● Therefore free choice mustlead every trader to select thesame overall trade-off betweenprivate goods and atmosphericquality● For this to happen, trader’swealth should not be too farapart Columbia Consortium for Risk 58 Management (CCRM) www.columbiariskmanagement.net
  59. 59. ● Efficiency and distribution areconnected in markets with PPPgoods● A measure of equity is necessary for efficiency● Markets with knowledge andenvironmental assets requireequity for efficiency Columbia Consortium for Risk 59 Management (CCRM) www.columbiariskmanagement.net
  60. 60. First Welfare Theorem in Markets with Privately Produced Public Goods Only a finite number of ways of distributing property rights on a given total of emissions rights between the traders gives rise to efficient market allocations* *Chichilnisky, Heal and Starrett 2000 Columbia Consortium for Risk 60 Management (CCRM) www.columbiariskmanagement.net
  61. 61. ● Efficiency and distribution areclosely connected in economieswith environmental assets● A measure of equity isnecessary for efficiency Columbia Consortium for Risk 61 Management (CCRM) www.columbiariskmanagement.net
  62. 62. POLICYThose who have fewer endowmentsof private goods must be endowedwith more property rights on the useof the PPP good. Otherwise themarket does not operate efficiently Columbia Consortium for Risk 62 Management (CCRM) www.columbiariskmanagement.net
  63. 63. ● One way to ensure this is to follow asimple rule: the countries that emit lessreceive somewhat more permits:● A “reverse grand-fathering” allocation● Repeated across time, such a policywould compensate those who use theatmosphere judiciously and provideincentives to abate Columbia Consortium for Risk 63 Management (CCRM) www.columbiariskmanagement.net
  64. 64. This scheme: Rewards the transfers of clean technology to developing countries Multiplies the returns on R&D in the private sector Securitizing these returns attracts global capital from private sources for clean technology transfers Columbia Consortium for Risk 64 Management (CCRM) www.columbiariskmanagement.net
  65. 65. NEW MARKETSA market has N traded goods and H tradersEach trader has a preference uh : RN Rand an allocation of property rights Ωh Є RN. Columbia Consortium for Risk 65 Management (CCRM) www.columbiariskmanagement.net
  66. 66. What is economic efficiency:A feasible allocation is Paretoefficient if there is no other feasibleallocation which makes everybody aswell off, and some strictly better off Columbia Consortium for Risk 66 Management (CCRM) www.columbiariskmanagement.net
  67. 67. A competitive equilibrium is a price p* ∈RN and an allocation x1,…,xH ∈ RN x H such thateach trader maximizes utility subject to abudget constraint:Max uh(y) where y ∈ {z Є RN : <p*, z> = <p*,Ωh>}And markets clear: H H Σ h=1 xh Σ = h=1Ωh. Columbia Consortium for Risk 67 Management (CCRM) www.columbiariskmanagement.net
  68. 68. A competitive market equilibriumIs a set of prices p* and an allocation ofgoods x1,…, xH ∈ RN x H at which each tradermaximizes utility subject to a budgetconstraint, and all markets clear. Columbia Consortium for Risk 68 Management (CCRM) www.columbiariskmanagement.net
  69. 69. A General Model•Consider a world economy with I countries, I ≥ 2 ,indexed by i = 1,…,I. Each has a utility function ui ,arguments a vector of private goods ci = (ci,1,ci,2,…,ci,m)where m is the number of private goods, and also thequality of the world’s atmosphere, a, which is a publicgood.• The quality of the atmosphere, a, is measured bythe reciprocal or the negative of CO2 concentration.The concentration of CO2 is “produced” by emissionsof carbon, which are positively associated with theproduction of private goods. Columbia Consortium for Risk 69 Management (CCRM) www.columbiariskmanagement.net
  70. 70. •Let y be a vector giving the production levels ofthe m private goods in the country i I ∂φι a = Σ ai , ai = Φ (yi) and < 0 ∀ i. i=1 ∂yi,l a is a measure of atmospheric quality overall, andai is an index of the abatement carried out bycountry i.•Feasibility is defined by the above and by thecondition that the total consumption of eachprivate good worldwide equal total production: ∑ c = i=1,…,I i i=1,…,I ∑ yiThis allows unrestricted lump sum redistributions. Columbia Consortium for Risk 70 Management (CCRM) www.columbiariskmanagement.net
  71. 71.  A Pareto efficient allocation is the solution to the problem of maximizing the utility of a designed country, subject to the other countries all reaching prescribed utility levels. This gives the following conditions: ∂ui ∂uk = λk ∂ci,l ∀ l = 1,…,m and ∀ k ≠ i. ∂ci,l This implies common MRS for all countries. Country i is the country whose utility is being maximized, and λk is a Lagrange multiplier associated with the constraint that country k reach a specified welfare level, and ∂uk ∂Φi ∂ci,l ∂yi,l = ∀l, Σk λk ∂uk ∂a Columbia Consortium for Risk 71 Management (CCRM) www.columbiariskmanagement.net
  72. 72. First Welfare Theorem for Markets with Privately Produced Public Goods Theorem In an economy with k≥2 traders, j≥1privategoods and a public good, there exists at most a one-dimensional manifold o property rights allocations on the use of the public good (allocation of “permits”) from which the competitive equilibrium is Pareto efficient. This is the Manifold of Efficient Allocations of Property Rights Columbia Consortium for Risk 72 Management (CCRM) www.columbiariskmanagement.net
  73. 73. First Welfare Theorem In Markets with Privately Produced Public Goods There is only a finite number of ways of distributing property rights on a given total environmental use between the traders so that the market equilibrium is Pareto efficient Typically efficiency requires that those with fewer endowments of private goods should have a higher allocation of property rights on the public goodsChichilnisky, 1992-3Chichilnisky and Heal, 1993Chichilnisky, Heal and Starrett, 1993-4 Columbia Consortium for Risk 73 Management (CCRM) www.columbiariskmanagement.net
  74. 74. Simple Example of a Market with Privately Produced Public GoodsTwo Countries, i=1,2Two Goods: one private: x one public: a = abatement = - emissionsInitial data:(1) technology φ (a) = x, and(2) property rights on the use of the public good, ai , i=1,2 Σ ai = a Columbia Consortium for Risk 74 Management (CCRM) www.columbiariskmanagement.net
  75. 75. Each Country solves the following problem: (*) Max ui (xi ,a),Such that xi = φ (ai)+π ( ai – ai), φ’ < 0where π is the market price of x relative to a , namely the “permit” price At a World Market Equilibrium each country maximizes utility (*), and all markets clear i i Σ ai = Σ ai = a Columbia Consortium for Risk 75 Management (CCRM) www.columbiariskmanagement.net
  76. 76. 2 nations market equilibrium trading a private and a public good Columbia Consortium for Risk 76 Management (CCRM) www.columbiariskmanagement.net
  77. 77. New Economic Findings Efficiency in trading permits requires more emission rights to developing countries Why? Columbia Consortium for Risk 77 Management (CCRM) www.columbiariskmanagement.net
  78. 78. Market Equilibrium: two nations trading twogoods – one private and one public Columbia Consortium for Risk 78 Management (CCRM) www.columbiariskmanagement.net
  79. 79. Experiments with GREEN MODELShow that the world costof abatement is lowerwhen the South is givenproportionately morepermits Columbia Consortium for Risk 79 Management (CCRM) www.columbiariskmanagement.net
  80. 80. Experiments with Columbia-Green model: General equilibrium model with permit markets 12 regions 12 by 12 international trade matrix 8 sectors Experiments lead to similar finding, i.e. equity and efficiency are connected Columbia Consortium for Risk 80 Management (CCRM) www.columbiariskmanagement.net
  81. 81. Sensitivity analysis of the OECD-PIR global model shows that it ismore efficient to allocate somewhatmore permits to developingcountries Currently the N-S per capita difference in emissions is 6:1 IN the case of U.S. the difference is 10:1 Developing countries with more than 86% of the world population emit less than 70% of the total carbon emissions Columbia Consortium for Risk 81 Management (CCRM) www.columbiariskmanagement.net
  82. 82. Columbia Consortium for Risk 82 Management (CCRM)www.columbiariskmanagement.net
  83. 83. Columbia Consortium for Risk 83 Management (CCRM)www.columbiariskmanagement.net
  84. 84. Columbia Consortium for Risk 84 Management (CCRM)www.columbiariskmanagement.net
  85. 85. Columbia Consortium for Risk 85 Management (CCRM)www.columbiariskmanagement.net
  86. 86. Columbia Consortium for Risk 86 Management (CCRM)www.columbiariskmanagement.net
  87. 87. Columbia Consortium for Risk 87 Management (CCRM)www.columbiariskmanagement.net
  88. 88. Present Value of Real Income Loss over 2000-2050 (in percentage deviation relative to BaU) INDIVIDUAL UNIFORM GRAND POPULATION MIXED STABLILITY TAX FATHERING BASEDUSA -O.79 -0.90 -0.76 -2.94 -1.84JPN -2.41 -1.24 -1.83 -2.84 -2.34EEC -1.23 -1.16 -1.22 -3.13 -2.19OOE -0.58 -0.55 -0.54 -1.53 -1.04EEX -3.39 -0.83 -0.78 0.09 -0.39CHN -3.88 -3.47 -4.14 6.02 1.04FSU -1.42 -2.66 1.08 -7.13 -2.92IND -2.61 -2.00 -2.94 14.62 7.00EET -0.33 -1.09 0.81 -5.94 -2.51DAE -0.29 0.16 0.20 0.19 -0.05BRA -1.60 -1.78 -4.40 -0.55 -2.45ROW -0.40 -0.01 0.05 0.21 0.12WORLD -1.65 -1.16 -1.17 -1.06 -1.07 Columbia Consortium for Risk 88 Management (CCRM) www.columbiariskmanagement.net
  89. 89. This is because each dollar ofinvestment yields more output in the South Columbia Consortium for Risk 89 Management (CCRM) www.columbiariskmanagement.net
  90. 90. Columbia Consortium for Risk 90 Management (CCRM)www.columbiariskmanagement.net
  91. 91. Columbia Consortium for Risk 91 Management (CCRM)www.columbiariskmanagement.net
  92. 92. Columbia Consortium for Risk 92 Management (CCRM)www.columbiariskmanagement.net
  93. 93. TODAY There is a general agreement that making accessible more development funding for poor countries in a controlled and incremental fashion could benefit the world economy as a whole Columbia Consortium for Risk 93 Management (CCRM) www.columbiariskmanagement.net
  94. 94. TODAY There is a general agreement that something must be done at the international level Kyoto, December 1997 COP was a turning point Columbia Consortium for Risk 94 Management (CCRM) www.columbiariskmanagement.net
  95. 95. Yet in the global negotiations, thedivision between industrial anddeveloping nations is as deep as everThere is a general agreement thatwithout bridging North-South gap therewill be no real progressHow to move ahead? Columbia Consortium for Risk 95 Management (CCRM) www.columbiariskmanagement.net
  96. 96.  One way to ensure this is to follow a simple rule: the countries that emit less receive somewhat more permits: A “reverse grand-fathering”allocation Repeated across time, such a policy would compensate those who use the atmosphere judiciously and provide incentives to abate Columbia Consortium for Risk 96 Management (CCRM) www.columbiariskmanagement.net
  97. 97. The Key Issues•Allocation of rights on the use of the atmosphere•This is a question of efficiency as well as equityMore on this in the next lectures Columbia Consortium for Risk 97 Management (CCRM) www.columbiariskmanagement.net
  98. 98. How to resolve the China-US Impasse• New Financial Mechanisms: Bilateral Options (Chichilnisky: Time Magazine 2010)•Carbon Negative Technologies Columbia Consortium for Risk 98 Management (CCRM) www.columbiariskmanagement.net
  99. 99. Technology Transfer•Negative Carbon Market•To increase clean energy• Reduce carbon in the atmosphere Columbia Consortium for Risk 99 Management (CCRM) www.columbiariskmanagement.net
  100. 100. New Financial Mechanisms: Bilateral Options the Green Power Fund••Based on Carbon Market• Replicating Article 4 of UNFCCC• North and South get what eachwants Columbia Consortium for Risk 100 Management (CCRM) www.columbiariskmanagement.net
  101. 101. Resolving the Global Environmental CrisisThe following lectures develop solutions Columbia Consortium for Risk 101 Management (CCRM) www.columbiariskmanagement.net

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