Why is it so hard to act on man-made global warming?

Paul Krugman

There are three things we know about man-made global warming. First, the consequences will be terrible if we don't take quick action to limit carbon emissions. Second, in pure economic terms the required action shouldn't be hard to take: emission controls, done right, would probably slow economic growth, but not by much. Third, the politics of action are nonetheless very difficult.
But why is it so hard to act? Is it the power of vested interests?

I've been looking into that issue, and have come to the somewhat surprising conclusion that it's not mainly about the vested interests. They do, of course, exist and play an important role; funding from fossil-fuel interests has played a crucial role in sustaining the illusion that climate science is less settled than it is. But the monetary stakes aren't nearly as big as you might think. What makes rational action on climate so hard is something else - a toxic mix of ideology and anti-intellectualism.
Before I get to that, however, an aside on the economics.
I've noted in earlier columns that every even halfway serious study of the economic impact of carbon reductions - including the recent study paid for by the anti-environmental U.S. Chamber of Commerce - finds at most modest costs. Practical experience points in the same direction. Back in the 1980s conservatives claimed that any attempt to limit acid rain would have devastating economic effects; in reality, the cap-and-trade system for sulfur dioxide was highly successful at minimal cost. The Northeastern states have had a cap-and-trade arrangement for carbon since 2009, and have seen emissions drop sharply while their economies grew faster than the rest of the country. Environmentalism is not the enemy of economic growth.
But wouldn't protecting the environment nonetheless impose costs on some sectors and regions? Yes, it would - but not as much as you think.
Consider, in particular, the much-hyped "war on coal." It's true that getting serious about global warming means, above all, cutting back on (and eventually eliminating) coal-fired power, which would hurt regions of the country that depend on coal-mining jobs. What's rarely pointed out is how few such jobs still exist.

Once upon a time King Coal was indeed a major employer: At the end of the 1970s there were more than 250,000 coal miners in America. Since then, however, coal employment has fallen by two-thirds, not because output is down - it's up, substantially - but because most coal now comes from strip mines that require very few workers. At this point, coal mining accounts for only one-sixteenth of 1 percent of overall U.S. employment; shutting down the whole industry would eliminate fewer jobs than America lost in an average week during the Great Recession of 2007-09.
Or put it this way: The real war on coal, or at least on coal workers, took place a generation ago, waged not by liberal environmentalists but by the coal industry itself. And coal workers lost.
The owners of coal mines and coal-fired power plants do have a financial interest in blocking environmental policy, but even there the special interests don't look all that big. So why is the opposition to climate policy so intense?
Well, think about global warming from the point of view of someone who grew up taking Ayn Rand seriously, believing that the untrammeled pursuit of self-interest is always good and that government is always the problem, never the solution. Along come some scientists declaring that unrestricted pursuit of self-interest will destroy the world, and that government intervention is the only answer. It doesn't matter how market-friendly you make the proposed intervention; this is a direct challenge to the libertarian worldview.
And the natural reaction is denial - angry denial. Read or watch any extended debate over climate policy and you'll be struck by the venom, the sheer rage, of the denialists.
The fact that climate concerns rest on scientific consensus makes things even worse, because it plays into the anti-intellectualism that has always been a powerful force in American life, mainly on the right. It's not really surprising that so many right-wing politicians and pundits quickly turned to conspiracy theories, to accusations that thousands of researchers around the world were colluding in a gigantic hoax whose real purpose was to justify a big-government power grab. After all, right-wingers never liked or trusted scientists in the first place.
So the real obstacle, as we try to confront global warming, is economic ideology reinforced by hostility to science. In some ways this makes the task easier: We do not, in fact, have to force people to accept large monetary losses. But we do have to overcome pride and willful ignorance, which is hard indeed.

Why do environmental markets fail?

NILANJAN GHOSH

Lack of knowledge about the real value of the ecosystem comes in the way of markets finding right prices

Environmental markets are being developed worldwide, on the faith that they will help solve environmental degradation.

Two major factors have driven this enthusiasm in the developed world: conscious national environmental policy movements toward market-based instruments, and rising demand for environmental goods and services. Developing nations have also geared up towards this direction.

The reasons for setting up markets are many. First, markets help discover the right price for the environmental resource and aid their allocation and distribution, and offer means of achieving social optimality in consumption and production. Second, markets help raise funds for sustainable development financing.

Third, market institutions are supposed to make the common man understand the value of services that the ecosystem provides to the economy as a whole, the incidence of economic activity on the ecosystem and its repercussions on life. Fourth, as scarcity of ecosystem services comes to the fore, the roles of creating markets and market values become important, as government instruments fail.

Fifth, markets work well at providing rewards and encouraging resource managers to properly manage natural resources.

When one looks at the value chain of marketed commodities, one realises goods extracted from ecosystems have long been traded in markets. The services provided by ecosystems have been used for just as long, but have remained beyond markets and largely un-priced.

Resources with poorly defined or undefined property rights (including forests, water, or grasslands), if not regulated in their use, can be accessed by all and used until exhaustion. But just as in any market, an emerging scarcity can make them tradable.

Reality checks

So the question arises: why do environmental markets fail so often? The most recent instance includes the emergence and failure of carbon markets. Despite the initial successes of environmental markets, some quarters have criticised them for lacking even basic safeguards against fraud, and not really resulting in emissions reductions. The overarching objective of environmental protection depends on whether the markets are really helping the realisation of efficient prices. Ideally, the price of a commodity in a market should reflect its scarcity value.

In theory, the market interaction between the demand and supply forces leads to equilibrium prices. There is an important assumption here. This is about the consumer being aware of the “utility” of the commodity.

The situation is, however, a bit difficult for environment or ecosystem as a commodity. An efficient market price should ideally reflect the scarcity value of a resource. Under perfect market conditions, prices become equal to the scarcity value. For the environmental market, information is the missing element.

So far, even ecological scientists have failed to decipher the range of ecosystem services provided by nature. There is clear lack of knowledge among the public about what will be the entire range of effects from trans-boundary air or water pollution. Here, it is difficult for market prices to reflect the true scarcity value.

A matter of choice

It has been argued in some quarters that during the recent financial meltdown, carbon credit prices or more precisely Certified Emission Reduction (CER) prices diminished, and that is precisely because the demand for CER, as a commodity in the consumer’s utility bundle, fell.

This is because consumers preferred other commodities to CERs. Does that mean that the value of environmental damage has diminished? Of course not.

Pollution keeps on doing the same damage during a recession, as it does during prosperous times. Mangroves provide the same ecosystem benefits that get translated into our economic welfare function during recession, as during a boom.

This means there is a clear divorce between prices and value when it comes to environment. Buyers of environmental services are only aware of a minuscule portion of the entire range of services that the ecosystem can offer. It is only this minuscule portion that enters their utility bundle and gets realised in market prices.

Let us now look at the supply side. Ecosystem services of nature are independent of the environmental market. Nature will continue with its provision of ecosystem goods and services of gas regulation, waste treatment, climate control, biological control, water regulation, pollination, food production, soil formation, nutrient cycling and other functions, unless disturbed by extreme anthropogenic forces or external stimuli.

This makes prices essentially demand-determined. Unfortunately, the entire problem is with the demand function of environmental services. No doubt, the crucial problem here lies with knowledge. In sum, unless there is adequate information about the environment and ecosystem, it is not possible for markets to discover right prices.

The writer is Acting President, Indian Society for Ecological Economics

Let’s make business greener

Prakash Nelliyat & Balakrishna Pisupati 

Natural-resource based businesses should share benefits with all stakeholders. Water and biodiversity play a significant role in sustaining human life and ensuring welfare. They are essential for securing food, medicines, energy and building materials.Water and biodiversity are mutually dependent; one cannot be sustained without the other. Any impact on the water sector will affect biodiversity and vice versa. Biodiversity provides important services such as natural pest control, water recycling and climate regulation.

Water and biodiversity play a vital role in sustaining and promoting business. In the manufacture of many products (such as food, medicines, fertilisers, pesticides, fibres, textiles, cosmetics) bio-resources play a significant role. Sometimes, water itself is an input in industries such as textiles, leather, paper and pulp, and sugar.

Impact on business

Every business depends on water and biodiversity, and also impacts on them. On an average, agriculture accounts for 70 per cent of the water withdrawals.

After agriculture, the major users of water are industries and energy (20 per cent of total withdrawal), and the domestic and urban (10 per cent of total withdrawal) sectors. Industrial water uses include processing of raw materials, cooling, cleaning, and as central ingredients in the goods produced. Sometimes water is required to use industrial products, such as cement. In the domestic sector too, water plays an important role in businesses such as desalination plants and packaged water supply.

Biodiversity refers to the variety of plants, animals and micro-organisms, and the ecosystems in which they occur, and is inherently valuable to humanity. Crops, livestock, forest products and fish are part of biodiversity and are also sources of food. A wide variety of plants, animals and fungi are used for manufacturing medicines and over 60 per cent of the world’s population depends on plant medicines for their primary health care.

At present, many chemical formulae and about 45 per cent of drugs are based on biodiversity. According to a study, over 70 per cent of the promising anti-cancer drugs come from plants in the tropical rainforests. It is estimated that of the 2,50,000 known plant species, only 5,000 have been researched for possible medical applications. Therefore, there is huge scope for identifying more drugs from nature.

Industrial products such as oils, lubricants, perfumes, dyes, paper, wax, rubber, latex, resins, poisons and cork are derived from various plant species. Animals origin products include wool, silk, fur, leather, lubricants and wax. In farming, bio-pest control and application of bio-fertilisers are environment friendly methods, and are growing industries.

Nowadays various animals are nurtured privately for display and as pets. Ornamental fish culture is a booming business. Biodiversity hotspots (nature reserves, parks and forests with wildlife and plants) are tourist centres, attracting millions of people. Eco-tourism is a growing outdoor recreational activity and business.

Emerging Challenges

Population growth and changing life-styles demand more food, energy and other consumer products that encourage mega irrigation, hydropower projects and industrial establishments.

Urban growth and industrial development have pushed cities to look increasingly farther for water and other resources they need. The modifications to water-related development (dams, irrigation schemes, urban extension, aquaculture) are at the cost of biodiversity.

According to a recent study, the biodiversity (number of species) in freshwater has declined by half since 1970. For developmental activities, biodiversity hotspots such as forests, wetlands, mangroves and coral reefs have been considerably encroached upon.

Further, the pollution load discharged into the ecosystem has also multiplied, and in certain locations is beyond nature’s carrying capacity. Ecosystem change has accelerated in many areas vulnerable to water-related activities. Further, climate change factors are significantly influenced by water availability and the health of the biodiversity.

The huge business potential of water and biodiversity naturally leads to their market possibilities. About 13 per cent (884 million) of the world’s population still relies on impoverished sources for drinking water, and 2.4 billion people are still without access to basic sanitation. Therefore, trade-offs among various water users are important.

Management Strategies

The future of business depends on the sustainability of water and bio-resources. Globally, the per capita availability of freshwater is steadily decreasing and the trend will continue as the world’s population grows, emerging economies increase their consumption levels, and climate change prevails.

For the global economy, if it needs to carry on expanding at the same pace, the worldwide annual water consumption will rise from 4,500 km{+3} today to 6,900 km{+3} in 2030, that is 40 per cent more than the current supply. The same pressure can be anticipated in biological resources too.

Some steps are proposed for the conservation and sustainable utilisation of water and biodiversity, from the business perspective.

The “access and benefit sharing” objective of the Convention on Biological Diversity should be operationalised. This would enable local communities (who use their traditional knowledge and efforts in managing water and biodiversity) to obtain a fair and equitable share from the overall benefits of resources-based businesses.

The benefit-sharing principle will act as an incentive to local communities for conservation and sustainable use of resources. In this regard, the industries’ cooperation is essential.

For the conservation and management of water and biodiversity, corporate responsibility is crucial, along with the role played by government departments. They can come up with innovative strategies that can be implemented with stakeholders’ participation to minimise water use, maximise recycling and sustain natural processes, including the management of biodiversity and the ecosystem.

Public-private partnership programmes in water supply, sanitation, and waste-water treatment have ample scope for entrepreneurs to take the lead with a focus on biodiversity.

Gifts of nature

Decisions on issues such as the conversion of ecologically sensitive areas for developmental purposes including wetlands and marshes are often taken considering the benefits of the project rather than the overall impact on the ecosystem. In this regard, the economic value of non-marketed goods and services of ecosystem/biodiversity is critical for effective policy decision-making.

If we follow these ‘Green Business’ principles, our water and biodiversity will be protected and we can achieve ‘Green Economy’ based growth in the country.

(The authors are members of the National Biodiversity Authority -NBA)

For an eco-friendly industry

Chandrajit Banerjee

The state of the planet is grim. Carbon emissions are at their highest levels in human history – the last time the concentration of this greenhouse gas was so high, the Arctic was ice-free. This is the direct outcome of unregulated human action. In that context, World Environment Day is a great opportunity for all stakeholders to take stock of where we stand and where we must go from here.

The three key stakeholders to saving the environment are civil society, government and industry – each with its own unique role to play. But the ultimate responsibility of devising these solutions rests with industry.

TECHNOLOGICAL POSSIBILITIES

Studies show that Asia has nearly 100 million two and three wheelers vehicles which still use 2-cycle gasoline engines. Clearly, this is a challenge. Conversely, it is also a great opportunity for industry to introduce conversion kits to LPG or CNG, perhaps even low-cost quadricycles. Similarly, leading companies with innovative water management programmes are showcasing how by introducing new irrigation techniques they not only helped reduce the strain on the environment but also incrementally increased their profits.

The three stakeholders need to consider the growth requirements of our country vis-à-vis the challenge of sustainability. 

LEGAL ISSUES

The Indian economy has benefited from substantial deregulation in the last 22 years – considerably reducing poverty and improving lifestyles. However, environmental challenges, too, have increased manifold. Many antiquated laws have only been incrementally improved to suit the new governance order.

We must find innovative approaches to environmental governance in India. This would require moving beyond the conventional ‘do no harm’ approach to a more proactive ‘do good’ approach. Unfortunately, the country’s current environmental regulations come under criminal laws that imply a ‘prohibit and punish’ regime instead. Under criminal law, companies are either subject to compliance or non-compliance but extent of compliance is not considered; consequently, there is lack of any incentive for businesses to go beyond compliance.

Industry, civil society and government should work together to evolve solutions to environmental challenges in a concerted and coordinated manner. A joint task force should examine current laws and identify outdated regulations with a view to bringing them in line with current industry models. Industry can extend this initiative to State governments as well. For example, India does not have a single location for waste segregation and urban waste is fast becoming a problem as the number of million-plus cities grows rapidly.

Performance assessment or evaluation for determining environmental impact and identifying solutions is a must for enterprises. Not only does this help align the firm to environmental regulations, it also offers a chance for reducing costs by minimising waste and introducing more efficiency into processes.

RENEWABLE ENERGY

A CII-Boston Consulting Group study on Indian manufacturing identified green products as the next big area of potential opportunity for the sector. It estimated that a quarter of cars sold in 2020 could be electric vehicles. The solar energy market is expected to grow 9 per cent annually till 2017, while other renewable energy markets are also growing. There are huge opportunities in green buildings, water related products and biofuels, composites and advanced materials, nanotechnology, artificial intelligence, or fuel cells.

Indian companies can establish the current ‘green baseline’, identify and assess risks to business. The government is already working on developing Green Public Procurement Guidelines which can offer new opportunities, once in place.

Globel warming and Economic Crisis

Joseph E Stiglitz
In the shadow of the euro crisis and US' fiscal cliff, it is easy to ignore the global economy's long-term problems . But, while we focus on immediate concerns, they continue to fester, and we overlook them at our peril.

The most serious is global warming. While the global economy's weak performance has led to a corresponding slowdown in the increase in carbon emissions, it amounts to only a short respite. And we are far behind the curve: because we have been so slow to respond to climate change, achieving the targeted limit of a 2° C rise in global temperature will require sharp reductions in emissions in the future.

Some suggest that, given the economic slowdown, we should put global warming on the back burner. On the contrary, retrofitting the global economy for climate change would help to restore aggregate demand and growth.

At the same time, the pace of technological progress and globalisation necessitates rapid structural changes in both developed and developing countries alike. Such changes can be traumatic, and markets often do not handle them well. Just as the Great Depression arose in part from the difficulties in moving from a rural, agrarian economy to an urban, manufacturing one, so today's problems arise partly from the need to move from manufacturing to services. New firms must be created, and modern financial markets are better at speculation and exploitation than they are at providing funds for new enterprises, especially small and mediumsize companies.

Moreover, making the transition requires investments in human capital that individuals often cannot afford. Among the services that people want are health and education, two sectors in which government naturally plays an important role (owing to inherent market imperfections in these sectors and concerns about equity).

Before the 2008 crisis, there was much talk of global imbalances, and the need for the trade-surplus countries, like Germany and China, to increase their consumption. That issue has not gone away; indeed, Germany's failure to address its chronic external surplus is part and parcel of the euro crisis. China's surplus, as a percentage of GDP, has fallen, but the long-term implications have yet to play out.

US' overall trade deficit will not disappear without a rise in domestic savings and a more fundamental change in global monetary arrangements. The former would exacerbate the country's slowdown, and neither change is in the cards. As China increases its consumption, it will not necessarily buy more goods from the US. In fact, it is more likely to increase consumption of non-traded goods — like healthcare and education — resulting in profound disturbances to the global supply chain, especially in countries that had been supplying the inputs to China's manufacturing exporters.

Finally, there is a worldwide crisis in inequality. The problem is not only that the top income groups are getting a larger share of the economic pie, but also that those in the middle are not sharing in economic growth, while in many countries, poverty is increasing . In the US, equality of opportunity has been exposed as a myth.

While the Great Recession has exacerbated these trends, they were apparent long before its onset. Indeed, I (and others ) have argued that growing inequality is one of the reasons for the economic slowdown, and is partly a consequence of the global economy's deep, ongoing structural changes.

An economic and political system that does not deliver for most citizens is one that is not sustainable in the long run. Eventually, faith in democracy and the market economy will erode, and the legitimacy of existing institutions and arrangements will be called into question.


The good news is the gap between the emerging and advanced countries has narrowed greatly in the last three decades. Nonetheless, hundreds of millions of people remain in poverty, and there has been only a little progress in reducing the gap between the least developed countries and the rest.

Here, unfair trade agreements — including the persistence of unjustifiable agricultural subsidies, which depress the prices upon which the income of many of the poorest depend —have played a role. The developed countries have not lived up to their promise in Doha in November 2001 to create a prodevelopment trade regime, or to their pledge at the G8 summit in Gleneagles in 2005 to provide significantly more assistance to the poorest countries.

The market will not, on its own, solve any problem. Global warming is a quintessential 'public goods' problem. To make the structural transitions the world needs, we need governments to take a more active role — at a time when demands for cutbacks are rising in Europe and the US.

As we struggle with today's crises, we should be asking whether we are responding in ways that exacerbate our longterm problems. The path marked out by the deficit hawks and austerity advocates both weakens the economy today and undermines future prospects. The irony: with insufficient aggregate demand the major source of global weakness today, there is an alternative: invest in our future, in ways that help us address simultaneously the problems of global warming, global inequality and poverty, and the necessity of structural change.
Joseph E Stiglitz, University Professor, Columbia University

Climate change and Economy

Sujatha Byravan and Sudhir Chella Rajan

change policies should be central to India’s long-term economic policy

Adverse weather events around the world, such as floods in China, the changing pattern of the monsoons in India, devastating drought in the United States and the resulting damage to local, national and regional economies, are stark reminders that climate change is not a fringe concern of environmentalists, but an issue of profound importance for economic development.

A recent paper in the Proceedings of the National Academy of Sciences by Hansen and colleagues states that recent incidents of extreme weather in different parts of the world are almost certainly the result of global warming. In India it is difficult to link monsoon variability with climate change using existing models, but the recent trends may be serious warning signs. Warming will also lead to melting of glaciers, drought, floods and sea level rise, all of which will likely cause a number of adverse secondary effects taking place alongside existing development challenges and institutional failures.

For instance, the blackouts that recently disrupted power supply for hundreds of millions of people across North India have been blamed on the coalescence of a surge in demand due to warm weather, shortages in hydroelectric power, failure of the monsoon and the absence of grid discipline. Some people were able to use generators to survive the worst effects, a reminder that the poor will suffer the most in any disaster. Many scientists now fear that we will routinely encounter such “perfect storms” in the future, where climate change conjoins with deep social and economic inequalities and failing institutions to deter our ability to cope with problems.

In India

Average global temperature has risen by about 0.5° from the accumulation of anthropogenic greenhouse gases in the atmosphere during the past century or so. The effect of recent emissions will be manifested over several decades and given current trends, the temperature rise will likely exceed 2°. The 2011 drought in Texas cost more than $7 billion. In India, climate variability is expected to lead to crop loss of 10 to 40 per cent and hundreds of billions of rupees in loss of revenue from agriculture with a 2° rise in average global temperatures. Much higher losses are likely if one takes into account other effects, including damage to land and livelihoods due to sea level rise and coastal erosion, morbidity and mortality with increased incidence of disease, forced displacement and property loss from flooding and landslides. Given the scale of the expected impacts in South Asia on livelihoods, human well-being and ecosystems, it is essential that climate change policies be central to India’s strategic thinking on long-term economic development.

A guiding national climate policy was provided in the 2008 National Action Plan on Climate Change (NAPCC), of the Prime Minister’s Council on Climate Change, which led to the development of eight climate missions. The approach as described is expected to lead to a directional shift in India’s development pathway.

Suggestions

In a recently completed evaluation of the eight missions by the authors, a concern that arose was that if sustainable development is indeed a central guiding principle in India’s climate policy, it has not been prioritised in the approaches and outcomes of individual missions. One starting point for the nation’s climate policy might have been to paint a big picture from which medium-term goals, plans and the missions could have been derived. The fact that these missions were placed in eight separate bins has led to viewing the problems and solutions with sector-specific lenses. However, the multi-dimensionality of climate impacts makes it vital that India adopts an approach that is interdisciplinary in its character, breaks traditional ministerial boundaries, and learns rapidly from the effects of warming that are ongoing and our successes and failures in dealing with them.

Experts are still learning about sub-regional impacts of climate change, but we know for sure that reducing emissions is urgent as is reducing vulnerability. We suggest the following processes: first, through a collaborative and systematic method, identify development decisions in different sectors that could lock in structures, technological systems and institutions leading to high emissions pathways, which as it turns out are also generally inequitable, and find plausible alternatives. Second, incorporate increasing climate resilience into decision-making. Climate resilience generally refers to the capacity to respond effectively to climate change. This would safeguard the economy from climate shocks and also protect the poorest and most vulnerable. How can we do this? A few examples.

Plan cities so that the largest amount of space is devoted to bus users, pedestrians and bicyclists, who already constitute the majority of travellers and whose emissions and oil use are minuscule. By promoting cars, the government promotes the use of oil and locks in unsustainable, low resilience modes. Thus, private vehicles are likely to clog highways or come to a standstill during periods of disaster or when petroleum products become scarce.

Agriculture

Phase out producer subsidies for fertilizers, which reduce sustainability and increase emissions; provide incentives for low-input farming practices that grow hardy local varieties and for successful models such as the system of rice intensification. Similarly, current systems of tube well agriculture promote institutional as well as technological lock-in across multiple domains by forcing crises in the electricity sector, reducing availability of fossil water for emergencies, increasing emissions and reducing incentives for farm-level innovation.

In the power sector, reduce technical losses through grid rationalisation and improving distribution infrastructure (e.g., upgrade transformers and distribution lines) and expand options for community-scale micro-grids using decentralised generation sources, such as biomass, solar and small hydro. A diversified portfolio will reduce supply risks and build resilience while reducing emissions.

Similarly, building conventional coal-fired plants and providing leases for open pit mining in forest areas raise emissions and worsen social inequality. Coal plants last 30-50 years and forests that could store water, bio resources, diversity and support livelihoods are destroyed.

One could go on, but the point is that while the PM’s Council on Climate Change provides broad oversight, what is needed is an interdisciplinary body devoted full time to overseeing decisions being made and ensuring that they follow the two principles of avoiding high emissions lock in and increasing resilience and equity. These principles, tacitly assumed in the framework document, need to be made explicit and employed as a screening tool for future economic policy.

(Sujatha Byravan and Sudhir Chella Rajan recently evaluated India’s National Action Plan on Climate Change, which can be found at www.indiaclimatemissions.org)