Economics – Page 130 – a sibilant intake of breath

Trade and greenhouse gas emissions

Countries that are short on land and water import wheat from countries that have lots of both. In a way, you can see this as the small dry country ‘importing’ land and water in the conveniently transportable form of edible grains. The conveyance is an indirect one (you do not pay a ‘water surcharge’ on a bag of flour), but differences in relative factor prices can lead to opportunities for universal gains from trade.

Something similar happens with greenhouse gas emissions, though it takes the form of an externality rather than a priced component of a transaction. When manufacturing or primary commodities takes place in one state and the products of those industries are consumed in another, the total emissions in the exporting countries include some component for which the importing country arguably bears moral responsibility. When a Canadian buys an iPod made from Chinese energy and Sudanese oil, it seems fairest to say that the Canadian is responsible for the associated emissions.

A 2003 OECD study attempted to quantify such transfers using data from 1993 to 1998. For that span of time, the United States effectively imported an average of 263 megatonnes of carbon emissions per year: about 5% of their domestic total. China, by contrast, exported about 360 megatonnes: a figure equivalent to 12% of their GHG production. Canada, with all its forest and hydrocarbon industries, apparently exported about 54 megatonnes: about 11% of our emissions during that period.

Trying to calculate these on an ongoing basis and transfer responsibility from makers to buyers is simply impractical. Thankfully, the establishment of a global price for carbon would achieve the same effect without all the paperwork. It doesn’t matter if the tax is imposed at the point of production or the point of consumption. In the former case, producers would pass the cost to consumers anyhow.

Source: Ahmad, Nadim. “A Framework for Estimating Carbon Dioxide Emissions Embodied in International Trade of Goods.”

The Bottom Billion

Paul Collier‘s slim and informative volume is true to my recollection of the man from Oxford. The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It is engaging, concise, and powerfully argued. It is also unsparing in its criticism. Collier explains that the ‘developing world’ consists of two groups of states: those experiencing sustained growth and thus seeing their standard of living converging with those in the rich world and those that are ‘stuck’ in poverty, with stagnant growth or absolute decline.

Poverty traps

The ‘stuck’ states – where the world’s poorest billion inhabitants are concentrated – are trapped in one of four ways: by conflict, natural resources, being landlocked with bad neighbours, and by bad governance. States can be trapped in more than one simultaneously and, even when they escape, there are systemic reasons for which they are unusually likely to fall back into one. The discussion of the traps is particularly informative because of how quantitative methods have been used in support of anecdotal arguments.

Not only are ‘bottom billion’ states unusually likely to suffer from conflict, corruption, and similar problems, but some of the most important paths to growth used by states that have already escaped poverty are closed to them. To grow through the export of manufactured goods, you need both low wages and economies of scale. Even if wages in Ghana are lower than those in China, China has the infrastructure and the attention of investors. The presence of export-driven Asian economies makes it harder for ‘bottom billion’ states to get on a path to development.

Solutions

Collier’s proposed solutions include aid, military intervention, changes to domestic and international laws and norms, and changes to trade policy. Much of it is familiar to those who have followed development debates: the problems with agricultural tariffs, the way aid is often used to serve domestic interests rather than poverty reduction, corruption within extractive industries, and the like. His most interesting ideas are the five international ‘charters’ he proposes. These would establish norms of best practice in relation to natural resource revenues, democracy, budget transparency, postconflict situations, and investment. Examining them in detail exceeds what can be written here, but it is fair to say that his suggestions are novel and well argued. He also proposes that ‘bottom billion’ states should see import tariffs in rich states immediately removed for their benefit. This is meant to give them a chance of getting onto the path of manufacture-led growth, despite the current advantages of fast-growing Asian states. His idea that states that meet standards of transparency and democracy should be given international guarantees against being overthrown in coups is also a novel and interesting one.

Position in the development debate

Collier’s book is partly a response to Jeffrey Sachs’ much discussed The End of Poverty: Economic Possibilities for Our Time. Sachs pays much more attention to disease and has more faith in the power of foreign aid, but the two analyses are not really contradictory. Together, they help to define a debate that should be raging within the international development community.

Collier’s treatment is surprisingly comprehensive for such a modest volume, covering everything from coups to domestic capital flight in 200 pages. The approach taken is very quantitatively oriented, backing up assertions through the use of statistical methods that are described but not comprehensively laid out. Those wanting to really evaluate his methodology should read the papers cited in an appendix. Several are linked on his website.

Environmental issues

Environmental issues receive scant attention in this analysis. When mentioned, they are mostly derided as distractions from the real task of poverty reduction. It is fair enough to say that environmental sustainability is less of a priority than alleviating extreme poverty within these states. That said, the environment is one area where his assertion that the poverty in some parts of the world is not the product of the affluence in others is most dubious. It is likely to become even more so in the near future, not least because of water scarcity and climate change.

Climate change receives only a single, peripheral mention. This is probably appropriate. Surely, the effects of climate change will make it harder to escape the traps that Collier describes. That doesn’t really change his analysis of them or the validity of his prescriptions. The best bet for very poor states is to grow to the point where they have a greater capacity to adapt and will be less vulnerable to whatever the future will bring.

Shipping and invasive species

Globalization has been profoundly associated with massive sea freight shipments. Primary commodities flow from states with rich resource endowments to others with processing facilities. Labour intensive goods are shipped from where labour is cheap to where the goods are demanded. In the process of all this activity, a lot of oceanic species have been able to move into waters they would never otherwise have reached. This unintentional human-induced migration has occurred for two major reasons: the construction of canals and the transport of ballast water. This brief discussion will focus on the latter.

Each year, ships carry 3 – 5 billion tonnes of ballast water internationally. The water is taken on in port, once a ship has been loaded. This is necessary to make the ship balanced and stable at sea. The water taken on can easily include hundreds of marine species of which many of which are capable of surviving the journey. If they get expelled in a suitable environment, these creatures can alter ecosystems and crowd out local species. Sea urchins that have arrived in this way have been extinguishing kelp beds off the west coast of North America, destroying sea otter habitat in the process. Zebra mussels are another infamous example of a problematic invasive species.

Efforts to prevent the transmission of species through ballast water take a number of forms:

Ejecting the water taken on in port in the open ocean: most of the species expelled should die, and the new waters taken on should be relatively free of living things
Poisoning the creatures in the ballast water: this can be done with degradable biocides like peracetic acid and hydrogen peroxide
Transferring ballast water to a treatment facility at the arrival port
De-oxygenating the water in ballast tanks: this kills most species, if the deoxygenated conditions are maintained for long enough

None of these approaches is completely effective. Each retains some possibility of unintentionally introducing invasive species. Several also have other environmentally relevant effects.

That said, simply making an active effort to prevent species transmission between ecosystems marks a big change in human thinking. Not long ago, species were often introduced willy-nilly into entirely new environments: for aesthetic, practical, or whimsical reasons. Infamous cases include those of Eugene Schieffelin – the man who introduced starlings to North America because he wanted to continent to contain all the birds mentioned in the works of Shakespeare – and Thomas Austin – the British landowner who introduced rabbits to Australia because he missed hunting them. Wikipedia has a comprehensive list of such introduced species.

Solving climate change by stealth

There is a lot of talk about engaging people in the fight against climate change. In the spirit of prompting thought and discussion, I propose the opposite.

Rather than trying to raise awareness and encourage voluntary changes in behaviour we should simply build a society with stable greenhouse gas emissions and do so in a way that requires little input and effort from almost everyone.

Critically, that society should emerge and exist without the need for most people in it to think about climate change at all. For the most part, it should occur by means of changes that aren’t particularly noticed by those not paying attention. In places where change is noticed, it is because the legal and economic structure of society now requires people to behave differently, without ever asking them to consider more than their own short term interests.

To do this, you need to make two big changes: decarbonize our infrastructure and price carbon.

Decarbonizing infrastructure

When a person plugs their computer or television into the wall, they don’t care whether the power it is drawing came from a dam, from a wind turbine, or from a pulverized coal power plant. Changing the infrastructure changes the emissions without the need to change behaviour. Given how dismal people are at actually carrying out behavioural change (a scant few individuals aside), this is a good thing.

The change in infrastructure needs to go way beyond electrical generation. It must take into account the transportation sector and agriculture; it must alter our land and forest management practices. People can then broadly continue to do what they have been: eat meat, drive SUVs, etc, while producing far fewer emissions in the process. We shouldn’t underestimate the scale of the changes required. Moving from a high-carbon society to a low-carbon one is a Herculean task – especially if you are trying to do it in a way that does not produce major social disruption or highly intrusive changes in lifestyles.

Pricing carbon

There are some who would argue that putting a price on carbon is all your need to do, whether you use a carbon tax or a cap-and-trade system to achieve that aim. Set a high enough price for carbon and the market will change all the infrastructure for us. This is naive both in terms of economics and political science. No democratic government will introduce a carbon price draconian enough to quickly spur the required changes in infrastructure. Governments copy one another and follow the thinking of voters: if other countries are investing in ethanol and voters think it is green, governments will often pile onto the bandwagon, almost regardless of ecological merit. In economic terms, carbon pricing is inadequate because it lacks certainty across time. If one government puts in a $150 per tonne tax, industry may reason that it will be overturned by popular outrage in a short span of time; infrastructure investments will not change.

What pricing does, in combination with infrastructure change, is eliminates the kind of activities that just cannot continue, even when everything that can be decarbonized has been. The biggest example is probably air travel as we know it. There is no way we can change infrastructure and keep people jetting off to sunny Tahiti. As such, pricing will need to make air travel very rare – at least until somebody comes up with a way to do it in a carbon neutral way.

Advantages and issues

The general advantages of this approach are that it relies on people making individual selfish decisions at the margin, rather than trying to make them into altruists through moral suasion. The former is a successful strategy – consider macroeconomic management by central banks or the criminal justice system – the latter is not. People will use emissions-free electricity because it will be what’s available. They will run their cars on emission-free fuels for the same reason. Where emissions cannot be prevented, they will be buried.

The disadvantages of this approach are on two tracks. In the first place, it might be impossible to achieve. There may never be an appropriate combination of power, technical expertise, and will. Without those elements, the infrastructure will not change and carbon will remain an externality. It is also possible that decarbonizing a society like ours is simply technologically impossible. Carbon sequestration may not work, and other zero-emission and low-emission technologies may turn out to be duds. In that case, major lifestyle changes would be required to stabilize greenhouse gas concentrations.

In the second place, this approach is profoundly elitist and technocratic. It treats most citizens as machines that respond to concrete personal incentives rather than their moral reasoning. Unfortunately, ever-increasing emissions in the face of ever-increasing scientific certainty suggests that the former is a better description than the latter, where climate change is concerned.

On Ethiopia and birth rates

This week’s issue of The Economist includes a briefing on Ethiopia. In many ways, it reflects the ideas I am reading in Paul Collier’s The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It.. A bad neighbourhood, terrible governance, ethnic conflict, persistent poverty and poor quality of life indicators persist despite western aid and loans from China. It seems probable that Ethiopia is caught in one or more of the poverty ‘traps’ that Jeffrey Sachs, Collier, and others have written about.

What struck me most about the article, however, was the demographics. In order to keep unemployment constant, Ethiopia needs to generate hundreds of thousands of new jobs a year. This is because the average woman in Ethiopia will have seven children in the course of her life. On the basis of such growth, the population could rise from about 75 million now to over 140 million by 2050. While it is possible that such a spectacular rate of population growth is the product of free and voluntary choices, it seems more plausible that it reflects a lack of personal control over reproduction: especially on the part of women. It is both ethical and prudent to redress this balance in favour of women having more control of their reproductive lives.

Statistics suggest that such control is less common in poorer places. This scatter plot shows the relationship between GDP per capita and total fertility rate in 108 countries. The replacement rate of about 2.1 births per woman corresponds to a mean GDP per capita of about $10,000 (though countries with a wide range of incomes can be found with similar TFRs). This data doesn’t necessarily show anything causal. It neither confirms or denies that poverty causes high birth rates or, conversely, that high birth rates cause poverty. Nonetheless, it is suggestive of the fact that women have less control over reproduction in poorer places.

A sustainable world is probably one with a birth rate below the natural rate of replenishment. This is not true indefinitely, but only until the combination of total human population and total human impact upon natural systems can be indefinitely sustained. While people obviously should not be forced to reduce their fecundity by governments, their right to choose whether or not to have children should be upheld and made meaningful through policies such as the legality and availability of contraception. In 1994, the International Conference on Population and Development defined sexual and reproductive health as:

A state of complete physical, mental and social well-being and…not merely the absence of disease or infirmity, in all matters relating to the reproductive system and to its functions and processes. Reproductive health therefore implies that people are able to have a satisfying and safe sex life and that they have the capability to reproduce and the freedom to decide if, when and how often to do so. Implicit in this last condition are the right of men and women to be informed and to have access to safe, effective, affordable and acceptable methods of family planning of their choice, as well as other methods of their choice for regulation of fertility which are not against the law, and the right of access to appropriate health-care services that will enable women to go safely through pregnancy and childbirth and provide couples with the best chance of having a healthy infant.

Sexual politics have always been a terribly contentious area, but that doesn’t mean reasonable people should not be agitating for better recognition and implementation of sexual rights. The United Nations Population Fund has a good website linking to more information on reproductive rights.

Farewell to horns

This blog has previously mentioned the process of ‘fishing down’ marine food webs: you start with big delicious predator species (tuna, salmon, etc) and fish them to local extinction. Then, you catch smaller and less tasty things until the area of sea contains only plankton and jellyfish. This is a rational thing to do in the right circumstances: where access to a certain area of sea is free and unrestricted, and where everyone else is driving the resource towards destruction anyway. The best you can do individually is cash in while you can, since the resource is getting destroyed anyhow.

It seems that something similar is happening in relation to horns used for traditional Chinese medicine. Back in 1991, conservationists concerned about the decimation of rhino populations for medicinal purposes tried to encourage the use of Saiga Antelope (Saiga tatarica) horn instead. The World Wildlife Fund tried to encourage pharmacists to substitute the horns of the less endangered antelopes for those of the more endangered rhinos. Now, antelope populations in Russia and Kazakhstan have fallen from over 1,000,000 to just 30,000 (a 97% decline).

Switching from the unrestrained usage of one resource to the unrestrained usage of another just shifts the focus of the damage being caused. In order to create sustainable outcomes, restraint must be enforced either through economic means or regulation.

As an aside, there does seem to be some scope for reducing the horn trade by reducing demand through education. While horn is apparently an effective remedy for fever (though less good than available drugs not made from endangered species), the idea that it is an effective aphrodisiac can be countered. The rigid appearance of horn hardly makes it likely that it actually has chemical aphrodisiac properties, though it may strengthen the placebo effect already bolstered by general reverence for tradition. Apparently, the advent of Viagra has reduced prices and demand for rhino horn as well as seal and tiger penises that have traditionally been employed (though less effectively) to the same end.

Treating malaria

Legend has it that the gin and tonic cocktail evolved to provide the administrators of the British Empire with both ethanol and quinine. The former would keep them happy, and the latter would help keep malaria-carrying mosquitos at bay. In the present day, chloroquinine is still a common treatment for malaria. At 20-40 cents a dose, it is dramatically cheaper than the more effective alternative: a drug called artemisinin which is derived from the Artemisia annua shrub. A course of artemisinin treatment costs between $5 and $7 – too much for many people in the developing world.

Also problematic is how using artemisinin-only treatments will rapidly lead to drug resistance in mosquito populations. Mutations that confer advantages against a particular compound are relatively common, and are strongly selected for by evolution once they occur. It is much less likely that a malarial parasite will evolve both resistance to artemisinin and to a drug used in combination before one compound or the other kills it. As such, artemisinin combination therapies (ACTs) are the preferred treatment. These are somewhat more expensive, at $6 to$10 for a course of treatment.

Several organizations are trying to tackle the cost issue. In particular, the World Bank and the Bill and Melinda Gates Foundation are cooperating on a scheme called the Affordable Medicines Facility-malaria (AMFm). Given that malaria continues to kill 1-3 million people per year – and sicken between 400 and 900 million – such efforts are to be applauded and encouraged.

Climate ethics principles

Last November, the United Nations Framework Convention on Climate Change convened a meeting in Nairobi. One document that resulted from that meeting was the White Paper on the Ethical Dimensions of Climate Change (PDF). On the basis of arguments similar to those I have heard from Henry Shue and Stephen Gardiner, the document lists seven things that states intending to behave ethically on the climate change problem should do:

Immediately acknowledge that they have a duty to reduce their emissions as quickly as possible to their fair share of safe global emissions;
Immediately agree that an international greenhouse gas atmospheric stabilization target should be set as low as possible unless those who are most vulnerable to climate change impacts have consented to be put at risk from higher levels;
No longer use scientific uncertainty or cost to their economies alone as justification for refusing to reduce GHG emissions;
No longer refuse to reduce GHG emissions now on the basis that new less-costly technologies will be available in the future or that not all other nations have agreed to reduce their GHG emissions;
Accept national targets for assuring that atmospheric concentrations of GHG are protective of human health and the environment that are based upon ethically supportable allocation criteria;
Acknowledge that nations commit human rights violations that refuse to reduce their GHG emissions to their fair share of global emissions needed to protect those most vulnerable from climate change to loss of life, health, and well-being;
Accept that those who are responsible for climate change have a duty to pay for costs of adaptation to and unavoidable damages from climate change.

Generally speaking, these are fine principles. If every major emitting state adopted them, it is entirely plausible that emissions could be brought down to sustainable levels within the next couple of decades and that the inevitable consequences of climate change from past emission could be equitably addressed. What the list fails to consider is the inherent Nash Equilibrium problem. States do not act as all states would act in an ideal world; rather, they generally act in a way that is rational given their inability to control the actions of other states. Given the Stern conclusion that mitigation is far less expensive than inducing and enduring climate change, it would be in the interest of all states to mitigate. Given how many states are proving reluctant to take that seriously, states that are serious about tackling the problem find themselves pushed towards a rationality of building up adaptive capacity instead of reducing emissions.

All that said, ethicists are not meant to be pragmatists. Having a well-argued idea of what ethical behaviour in the face of climate change would be provides a cognitive platform from which to evaluate current actions. It may also help to raise the overall profile of the issue in democratic states where moral and ethical argumentation can be an important element of the political process.

Carbon pricing and GHG stabilization

Virtually everyone acknowledges that the best way to reduce greenhouse gas emissions is to create a price for their production that someone has to pay. It doesn’t matter, in theory, whether that is the final consumer (the person who buys the iPod manufactured and shipped across the world), the manufacturer, or the companies that produced the raw materials. Wherever in the chain the cost is imposed, it will be addressed through the economic system just like any other cost. When one factor of consumption rises in price, people generally switch to substitutes or cut back usage.

This all makes good sense for the transition from a world where carbon has no price at all and the atmosphere is treated as a greenhouse gas trash heap. What might become problematic is the economics of the situation when greenhouse gas emissions start to approach the point of stabilization. If we get 5 gigatonnes collectively, that means a global population of 11 billion will get about half a tonne of carbon each.

Consider two things: Right now, Canadian emissions per person are about 24.3 tonnes of CO2 equivalent. Cutting to about 0.5 is a major change. While it may be possible to cut a large amount for a low price (carbon taxes or permits at up to $150 a tonne have been discussed), it makes sense that people will be willing to pay ever-more to avoid each marginal decrease in their carbon budget. Moving from 24.3 tonnes to 20 might mean carrying out some efficiency improvements. Moving from 20 to 10 might require a re-jigging of the national energy and transportation infrastructures, carbon sequestration, and other techniques. Moving from 10 to 0.5 may inevitably require considerable personal sacrifice. It certainly rules out air travel.

The next factor to consider if the effect of economic inequality on all this. We can imagine many kinds of tax and trading systems. Some might be confined to individual states, and others to regions. It is possible that such a scheme would eventually be global. With a global scheme, however, you need to consider the willingness of the relatively affluent to pay thousands or tens of thousands of dollars to maintain elements of their carbon-intensive lifestyles. This could mean that people of lesser means get squeezed even more aggressively. It could also create an intractable problem of fraud. A global system that transfers thousands of dollars on the basis of largely unmeasured changes in lifestyle could be a very challenging thing to authenticate.

These kinds of problems lie in the relatively distant future. Moving to a national economy characterized by a meaningful carbon price is likely to take a decade. Moving to a world of integrated carbon trading may take even longer. All that admitted, the problems of increasing marginal value of carbon and the importance of economic inequality are elements that those pondering such pricing schemes should begin to contemplate.

Geoengineering: wise to have a fallback option

Over at RealClimate they are talking about geoengineering: that’s the intentional manipulation of the global climatic system with the intent to counteract the effects of greenhouse gasses. Generally, it consists of efforts to either reflect more solar energy back into space or enhance the activity of biological carbon sinks. It has been mentioned here before.

The fundamental problem with all geoengineering schemes (from sulfite injections to plankton tubes to giant mirrors) is that they risk creating unexpected and negative side-effects. That said, it does seem intelligent to investigate them as a last resort. Nobody knows at what point critical physical and biological systems might tip into a cycle of self-reinforcing warming. Plausible examples include permafrost melting in the Arctic, releasing methane that heats the atmosphere still more, or the large-scale burning of tropical rainforests, both producing emissions and reducing the capacity of carbon sinks. If physical or biological systems became net emitters of greenhouse gasses, cutting human emissions to zero would not be sufficient to stop warming; it would simply continue until the planet reached a new equilibrium.

Given linear projections of climate change damages, we would probably be wisest to heed the Stern Review and spend adequately on mitigation. Given the danger of strong positive feedbacks, it makes sense to develop some fallback options for use in desperate times. It seems to me that various forms of geoengineering should be among them. Let us hope they never need to be used.