Sunday, November 20, 2011

Who will foot the bill for green development in poor countries?

"Amid the wreckage of the 2009 Copenhagen climate summit, an agreement that rich countries would, by 2020, furnish developing ones with $100 billion a year to help them mitigate and adapt to global warming looked like a rare achievement. This commitment will also be a big talking point at the next annual UN summit, due to start in Durban on November 28th. With almost no hope of a big new pact, many expect progress on the formation of a global Green Climate Fund to be one of its few successes. Yet there is huge uncertainty about how developed countries will deliver on their promise, including what role the fund will play."

Read the whole article HERE (The Economist)

This is a real and topical issue. The Ecuadorian Government is prepared not to extract oil from the rain forest if developed countries compensate it for a part of the losses. Some countries have pledged funds and others see it as blackmail. I think that it the rainforest is a global good - the positive externalities are felt by the whole world. It is only therefore right and proper that everyone should contribute towards it. 

Even more importantly, it is good economics to do so. The country would benefit greatly from exploiting the oil - significantly more than the USD 3.6bn they are asking for, in fact. Whereas it would lose little from destroying the rainforest. After all, there is plenty more of it in the world - they would still have plenty of oxygen from rainforest in other countries. Not only this, but with a purchasing power GDP of around USD 7,000 per capita, that money can go a long way. The opportunity cost of not exploiting the oil is high. 

The rest of the combined world though has something to lose and some countries can afford to pay for it. There is again a problem of collective action - individually, each country gains only a little from the Ecuadorian rainforest. Setting up of a fund to pay for green development can help to mitigate this.

You can also make your own individual contribution. How much is the oxygen that you breath from the Ecuadorian rainforest worth to you?

Watch a video about the area too:

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