Sentences of note

"In the US nearly half of all water withdrawals is used for cooling thermo-electric power plants."

From a Guardian Science debate series on the 'Water, food and energy nexus'. (Watch or listen as a podcast.)

Natural gas and climate change

Natural gas is cleaner than many alternatives, notably coal. It could help to reduce US carbon dioxide emissions from around 18 tonnes per person today to around 14 by 2040.

Unfortunately, that is nowhere near enough. I went to an interesting presentation last week on the 'Economic Implications of Moving Toward Global Convergence in Carbon Emissions'. I learned that taking into consideration population growth, the sustainable level per person per year is around 2 tonnes. That is around the India's level today.

A carbon tax imposed only in the developed world can help. But even a tax of around $250 per tonne would not be sufficient to achieve convergence at sustainable levels. A tax around this level would increase the price of petrol by around $4 per gallon. That sounds like a lot but it really isn't. Americans are still drastically under-paying for petrol compared with Europe and even compared with plenty of developing countries, which can least afford it. Unfortunately, carbon is currently trading at around $10 per tonne in the EU. Still some way to go.

Development and military expenditure

A quote from this week's Economist: "Military analysts at IHS Jane’s say that South-East Asian countries together increased defence spending by 13.5% last year, to $24.5 billion. The figure is projected to rise to $40 billion by 2016. According to SIPRI, arms deliveries to Malaysia jumped eightfold in 2005-09, compared with the previous five years. Indonesia’s spending grew by 84% in that period."


The full article is HERE.


What. if anything, should this imply for development expenditure? I must confess, I am actually not at all sure. Does it matter in any way at all? Thoughts?

Weather insurance

Climate change is causing more weather extremes and more micro climates. Those who rely on agriculture in developing countries are hit extremely harshly. Mongolia, a country which relies on livestock, saw 25% of its stock die in 2010 resulting, largely from arctic oscillations. The World Bank (amongst plenty of others) is working on a number of weather insurance schemes and I attended an interesting seminar about some of these a few weeks ago.

The aim is to insure households against effects of climate change and some of my own research suggests that this is a good idea. Households are often able to cope when they suffer from idiosyncratic shocks and people bind together in villages to help. But few households are able to defend against the kind of weather shocks that can decimate entire villages or areas. 

There are great challenges however when implementing such schemes. The first challenge is to decide when to pay out. The schemes presented in the seminar require publicly available indexes. For example, a publicly available index of rainfall. When it falls below a certain level, if your farm is within a certain radius of the weather station you receive a payout. This was the case in an example in Hondurus presented. In Mongolia, an index of livestock death was used. In both cases, the aim is that an individual farmer cannot influence the likelihood of payout. They also ensure that a farmer who suffers less because he has made investment to protect himself from climate change is not penalised because he has been hit less hard. This encourages such investments. Finally, the index is public, clear and verifiable helping to win trust and gain buy-in.

There are problems though. The first is often weather stations. They often don't exist in sufficient numbers and relevant places in developing countries, so a network may have to be set up. A second issue comes in managing the scheme. Some experiences show that the scheme stops becoming viable when just a key employee or two, with the relevant expertise, leave an insurance company. In nomadic places like Mongolia, sales agents have to chase herds around the country to sell insurance! This makes the costs very high. An Indian example extended to groundwater levels which is a function of the previous monsoon. Therefore insurance has to be purchased prior to the monsoon.

Overall, the practical implementation of these schemes seems challenging but the benefits in the face of climate change, extremely high, when the schemes work.

One of my favourite things about the World Bank is the openness. You can read all about these different projects online. Here are links to the different documents:  Mongolia ; India ; Central America.

Buy your own environment bonds

Ecuador has lots of oil sitting beneath its rainforest. It could chop down the forest and become richer almost overnight. But you and your children would have less nice clean air to breath, and the world would lose one of its most diverse ecosystems - and who knows what medications might be found there in the future if it is left unharmed. This poor country would lose about USD 7bn if it does not tap this oil. But if the world contributes just half of these losses then it will be prepared to forego the lost resources. Effectively, a relatively poor country is prepared to subsidise your clean air. Pretty generous, I'd say. 

I bought a 'green bond' some time ago. You can contribute just $5 if you like and, if ever the decision is taken to pump the oil, the government has to give you the money back. The scheme is administered by the United Nations Development Programme (UNDP). The returns are in-kind. You and those around you get cleaner air; you keep the opportunity to visit this part of the world any time in your life; you get to feel good that you are doing something for the world and that you are helping to compensate a poor country for part of its losses (you like to give a little something back :)  ) and occasionally you receive emails giving you updates and reminding you what a fantastic human being you are. And it's one of those emails that prompted me to write this entry.

You can read about the scheme and buy your green bonds HERE. The Yasuni National Park website about the scheme is HERE (in Spanish) and an analysis of the scheme by the World Resources Institute is HERE.

The Oil Curse: How Petroleum Wealth Shapes the Development of Nations

I just attended a presentation by Micheal L Ross on his book: The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. I learnt a some very interesting things in a short time that thought I would share whilst wolfing down my lunch*.

-- Oil countries have higher birth rates and lower female participation rates in the labour force. Possibly due to the fact that Dutch Disease kills sectors in which women tend to participate, such as the export manufacturing and agriculture sectors.

-- Oil-producers have considerably less open budgeting processes than non-oil producers.

-- Since the end of the cold war there has been a significant reduction in the number of civil wars in countries. But this reduction comes entirely from non-oil producing countries.

--The number of democracies has increased significantly since the end of the cold war but this is entirely in non-oil producing countries.

-- The oil curse only started to appear following the price hikes/wave of nationalisations that occurred in the 1970s. Prior to this, oil producing countries were no more likely to have a civil war, no more likely to be a dictatorship and their budgets were as transparent as other countries.

-- Countries with only off-shore oil are significantly less likely to have a civil war than countries with some on-shore oil - in fact they are about as likely as non-oil producers to have a civil war. This suggests that tribal, ethnic, regional tensions are exacerbated if those in oil-producing regions do not feel they get their fair share and the ability of fighters for these causes can use oil to prolong fighting. 

-- There are currently only about five major oil producers in sub-Saharan Africa but this is likely to double or even triple by 2050 as more exploration is done on the continent, as oil demand increases, supply runs out elsewhere and the resulting price increases make it viable to produce in the region. This makes it important to try to address some of these issues.

So, you see, oil isn't all good.

*A part of the 'Insights into the exciting lives of economists' series

Who cares about climate change?

58% of Americans, 68% of Europeans and a full 99% of people who live on small islands. That is what I learnt in a nice little seminar I went to yesterday chaired by Andrew Steer, the World Bank's special envoy for climate change. The Maldives puts some of its tourist dollars into a special trust so that they can eventually buy a new homeland when they go under the sea. Not a bad idea... The US Navy apparently assumes a 1.2 meter rise in sea levels by the end of the century and some of the island nations are working on the possibility of up to 5 meters.

Bikes to be manufactured in Africa

"Across Africa they are used to carry infants, lug sacks of grain and ferry boxes of vegetables and crates of chickens to and from markets. In Rwanda, people careen down hills astride homemade wooden versions bereft of brakes. The bicycle is a part of everyday life for many Africans. Yet, despite demand, there is no mass-market African bicycle manufacturer."

Read the rest of the article HERE (gated - create a free FT account to read)

Exporting pollution and jobs

George Osborne had a few Green Concessions in his Autumn Statement, although maybe not enough - more words than actions but it is a good start as it at least acknowledges the importance of climate change for the economy.

Here is a part I found interesting:

"We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers," Osborne said, announcing the expected rebate. "All we will be doing is exporting valuable jobs out of Britain."

From an economic perspective, I dislike it - it smacks of protectionism and subsidising some sectors when British society and developing societies would all be better off if British steel mills, aluminium smelters and paper manufacturers did indeed shut down and we imported these goods from other places.

But I do agree that from a climate change point of view, he is probably right. Brits will not stop consuming these goods - they will just be imported. The pollution will just be shifted elsewhere. Here is some excellent analysis from The Oil Drum blog which shows that carbon emissions can decline in, say, the UK, but it gets shifted to, say, China (HT: MM). The planet as a whole does not benefit. Indeed, due to transport and the fact that China is less energy-efficient there may be a short term negative impact (but perhaps longer term positive one thanks to learning to be more energy efficient).

This is not a sufficient argument for bad economics though. Instead it means that it is the consumers and not the producers of carbon who need to pay for it. Shifting dirty production abroad and importing the goods is just cheating. It should also imply that taxes in the West help to pay for industrialising countries to become more energy efficient.

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:

How biking can save cities billions of dollars in health expenses

Nearly 70 percent of Americans' car trips are less than two miles long. It's a no-brainer that biking instead of driving to take care of these trips is a great way to get exercise while cutting air pollution. While we've always assumed that the cumulative effect of many individuals making that choice would be longer, healthier lives and cleaner air in our cities, a recent scientific study put some rigor to our hypotheses and proved us right.

Read the full article HERE.

HT: MM

Question Time on Climate Change

"future economic growth requires us to tackle this issue successfully" (William Hague, Foreign Secretary)

"climate change undermines the basis for achieving the MDG" (Ambassador Mxakato-Diseko, South Africa)

"when means of income generation suddenly disappear because of flooding [people's] means to educate their children disappear before they eyes" (Ambassador Mxakato-Diseko)

Climate change offers new business opportunities - for example E-idea, Jakarta (Martin Davidson, Chief Executive of the British Council.

Need to reduce carbon emissions without compromising growth, poverty or job creation (Ambassador Mxakato-Diseko)

"[Climate change] is a reality that we experience every day" (Ambassador Mxakato-Diseko)

Watch it HERE.

HT: JT

More economic costs of climate change

Climate change is causing weather patterns to become more and more extreme and unpredictable. Rising sea levels and heavy rainfall will cause large-scale city flooding. Some countries - like Mauritius might disappear altogether. The economic costs are huge.

The Central Bank of Thailand has revised down it its growth rate from 4.1 to 2.6% because of the flooding in Bangkok which has destroyed businesses, homes and livelihoods. In Europe, heavy rainfall is blamed for car pile-ups in Genoa (photo below) and Britain's worst road accident in years.

Living with limits: growth, resources and climate change

"The affluent economy enjoyed until recently by just a small proportion of the world's human population is now becoming global. Billions of hitherto poor people not only aspire to the standards of living of the advanced countries, but expect to achieve them within their lifetimes. But such a leap will, on anything like current trends, impose vastly greater demands on the planet's resources and threaten profound changes in the global environment. Is this tension between human aspirations and natural limits manageable technologically, economically, socially and politically? A way must be found to combine economic dynamism with respect for natural limits. This, in turn, will demand profound changes not just in the economy, but in governance at all levels. Of all these challenges, climate change is the most intractable. This is the most difficult collective action problem in all of human history - inherently global, extremely long term, technologically demanding and replete with deep distributional questions. The lecture will ask whether humanity has any hope of addressing these challenges successfully."

The Grantham Institute for Climate Change Annual Lecture 2011 by Martin Wolf of the FT on the 3rd November in London.

Full information HERE.

(HT: JT)