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otter became virtually extinct, the sea urchin population exploded, decimating the population of sea grass and kelp that were critical habitat for coastal fish that bald eagles and harbor seals ate. Thus, the virtual extinction of the sea otter, through a complex chain, endangered the bald eagle.

Second, as genetic and species diversity in plants and animals is reduced, potential advances in medicine, agriculture, and biotechnology are also reduced. Genetic diversity provides the farm economy with options other than heavy pesticide use or substantial crop loss in the face of infestation. Species diversity provides humankind with more choices for medicines, cosmetics, industrial products, fuel, building materials, food, and other products, and more protection against plant enemies. More than half of the world’s species are in the 6 percent of the earth’s land surface in tropical forests, primarily in Colombia, Brazil, Madagascar, the Himalayas, the Philippines, Malaysia, Borneo, and Australia. Scientists have found as many ant species from a single leguminous tree in Peru as ant diversity in all of the British Isles. In a onehectare (2.5-acre) plot in Kalimantan, Indonesia, another scientist found 700 tree species, about equal to the number native to all of North America. Forty percent of the species in tropical rain forests disappeared from 1985 to 2000, mostly from burning and clearing. Thus, tropical deforestation (through population growth, fuelwood consumption, and slash-and-burn agriculture) is a major force behind the biological crisis (Wilson 1989:108–110; U.N. 1990:95; World Resources Institute, U.N. Environment Program, and U.N. Development Program 1994:147–148).

The geneticist Edward O. Wilson (1989:108–115) estimates that deforestation in the late 20th century has reduced species 10,000 times faster than the natural extinction rate that existed before humans appeared; the diversity of species destroyed by human activity in the last 10,000 years will take 100 million years to recover. World Resources Institute researchers Kenton R. Miller, Walter V. Reid, and Charles V. Barber (1993:502) argue that rapid deforestation and species loss mean we are “eating our seed corn, squandering in a heedless evolutionary moment the forest’s genetic capital, evolved over billions of years.” The U.S. Department of Agriculture estimates that 96 percent of the commercial vegetable varieties it listed in 1903 are now extinct; the Green Revolution in Mexico and South Asia, which promoted a limited number of high-yielding varieties of grain, dropped thousands of traditional crop varieties. Crop breeders need a diversity of crop varieties to breed new varieties that resist evolving pests and diseases. Nearly all the coffee trees in South America are descended from a single tree in an Amsterdam botanical garden 200 years ago, a potentially serious problem when a new disease begins attacking coffee trees (U.N. 1990:94–95; World Resources Institute, U.N. Environment Program, and U.N. Development Program 1994:147–164).

Developing countries have focused on the critical role of biological resources in economic development. These countries’ governments have questioned DC multinational corporations’ policies of obtaining diverse agricultural genetic material free of charge from a gene-rich third-world country, and then selling the patented seed varieties from the material back to the country of origin at substantial prices. Although most of the cost of conserving biodiversity would fall to LDCs, because

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which the earth’s atmosphere traps infrared radiation or heat. As a metaphor, the smudgepot effect is preferable to the greenhouse, according to Thomas C. Schelling (1993:465). On a clear day in January in Orange County, California, the earth and adjacent atmosphere warm nicely, but warmth radiates rapidly away during the clear nights and frost may threaten the orange trees. Smudgepots, burning cheap oil on windless nights, produce carbon dioxide and other substances that absorb the radiation and protect the trees with a blanket of warm air. Greenhouses trap the air warmed by the earth’s surface and keep it from rising to be replaced by cooler air.

Greenhouse gases include carbon dioxide (CO2), methane, nitrous oxide, and water vapor, which keep the earth habitable, and chlorofluorocarbons (CFCs); the problem is the excessive concentration of these gases. In 1990, carbon dioxide (from coal, oil, natural gas, and deforestation) added 57 percent of the “greenhouse effect.” CFCs, from foams, aerosols, refrigerants, and solvents, which progressively deplete the stratospheric ozone layer, contributed 25 percent. Methane, from wetlands, rice, fossil fuels, livestock, and landfills, added 12 percent, and nitrous oxide, from fossil fuels, fertilizers, and deforestation, 6 percent.

CO2 absorbs infrared or heat radiation, so that increasing concentrations of CO2 change the temperature of the earth’s surface, reducing temperature differentials between the equator and the poles and decreasing atmospheric cycling, providing the potential for dramatic climatic and ecological effects. The facts of the greenhouse effect, temperature changes, and that human activity is a major contributor are not in dispute, but the magnitude of climate change on the natural environment and human welfare is in dispute (Flavin 1989; Kneese 1993:37–56; Ogawa 1993:484– 96; Schelling 1993:464–83; World Resources Institute, U.N. Environment Program, and the U.N. Development Program 1994:199–205).9

Major contributors to greenhouse gases. The United States, with 5 percent of the world’s population, consumes about one-third of the earth’s nonrenewable resources and emits almost one-fourth (about 5.5 billion of 24 billion tons yearly) of its CO2. Developed and European transitional countries, with one-fifth of the world’s population, consume more than four-fifths of the world’s natural resources. The demand for goods by these countries is responsible for much of the destruction of tropical rain forests for energy, minerals, logs, plantation agriculture, and fast-food hamburgers

9Another greenhouse gas, ozone, is found in the troposphere, the lower part of the atmosphere up to 15 kilometers above the ground. But the ozone problem is even more confusing than the problem of carbon emission, since high ozone levels in the troposphere are bad, but high concentrations in the stratosphere, 15–50 kilometers above ground, are good. Ozone is a naturally occurring gas, and in the stratosphere is concentrated into the ozone layer, which is like a thick belt around the earth. This ozone protects the earth from ultraviolet radiation from the sun, but in the lower atmosphere ozone concentrations are harmful to health and vegetation (increasing skin cancers), and contribute to the formation of “acid rain.” Increased ultraviolet (UV) radiation also has a potentially disturbing effect on ecosystems. UV radiation damages DNA, growth, and reproduction, and interferes with the singlecelled algae’s (phytoplankton’s) process of photosynthesis, thus reducing the fish stock which feed on the algae. Ultraviolet radiation also contributes to lower photosynthetic activity and reduces vegetation growth in land-based ecosystems (Turner, Pearce, and Bateman 1993:281, 285–286).

aOther includes those not assigned by country, including those from bunder fuels and oxidation of nonfuel hydrocarbon products.

Source: U.N. Development Program 2003:300–303.

from cattle ranching. The loss of tropical rain forests not only reduces species and genetic materials and sometimes threatens the livelihood of indigenous peoples but also diminishes carbon absorption, that is, the ability of the earth to remove excess CO2 (Train 1993:262).10

DCs, with 48 percent, and the transitional countries of Eastern Europe and the former Soviet Union, with 25 percent, produce the lion’s share of the globe’s carbon dioxide (CO2) emissions, whose major sources are fossil fuels. In 1999, the Group of 7 rich industrialized countries plus China, Russia, India, and South Korea were the 11 largest emitters of CO2, comprising about two-thirds of the world’s total (Table 13-2). Leading per-capita CO2 emitters – Kuwait, Finland, the United States,

10The metaphor of Al Gore, Earth in the Balance (1993:95), is between the human lung, which inhales oxygen and exhales carbon dioxide, and the engines of civilization, which have automated breathing.

The wood, coal, oil, natural gas, and gasoline that fuel our civilization convert oxygen into CO2. Trees and other plants pull CO2 out of the atmosphere and replace it with oxygen, transforming the carbon into wood. But, as we destroy forests, we are damaging the earth’s ability to remove excess CO2. In a sense, earth has two lungs, the forests and ocean, that are being seriously injured, impairing the earth’s ability to “breathe.”

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Germany, Ukraine, Canada, the Netherlands, Saudi Arabia, Estonia, Australia, Singapore, Russia, Belgium, Denmark, Israel, and the United Kingdom – comprise a mixture of rich countries, countries near the Arctic Circle, and coal burners (see the last column of the inside front cover table). The United States, Germany, Canada, Russia, and Ukraine are among the world’s top 10 in per-capita coal consumption. In general, carbon dioxide emissions per capita increase with income per capita.

CO2 emissions depend on fuel mix (natural gas emits less carbon than oil, which emits less than coal), energy intensity, afforestation, economic growth, and population growth. After the high energy prices of the 1970s, Japan reduced carbon emissions (and energy imports) through technological change oriented toward reduced energy intensity. By contrast, population growth was important in increasing emissions in many developing countries, such as India. In the early 1990s, greenhouse gas emissions fell in Eastern Europe and the former Soviet Union as a result of the near collapse of their economies; but emissions grew again as growth resumed (turnaround shown in Figure 19–2).

Costs of global climate change from increased carbon emissions. Estimating the cost of reducing global carbon emissions is difficult. Models that estimate these costs include assumptions about how variables such as population and energy demand changes, and how the world will evolve over a long period with and without a control program. In this discussion, we can barely provide a sense for how these variables and climate interact.

Globally averaged surface temperatures increased 0.6 degrees Celsius during the 20th century, but most of these changes were in the last quarter of the century. The speed by which climate system has changed over the last generation is as substantial as climate changes that occur naturally over a period of 1,000 years.

Yet economic change is less dependent on changes in average temperature than on variables that accompany or result from these changes, such as precipitation, water levels, the amplitude of weather volatility, and extremes of droughts or freezes. Scientists focus on average temperature change, which is a useful index of climate change that is highly correlated with or causally related to more important variables (Flavin 1989; Nordhaus 1993:11–25; Schelling 1993:464–471).

How much will global temperatures change during the 21st century? Although forecasts vary, the scientific consensus is that, in the absence of drastic cuts in the annual global emissions of greenhouse gases, some global warming will occur in the 21st century. Given that atmospheric carbon dioxide has a long half-life, even reductions in emissions still increase the accumulation of greenhouse gases (Poterba 1993:47–63; Weyant 1993:27–46; World Resources Institute, U.N. Environment Program, and U.N. Development Program 1994:200). The consensus forecast among scientists is that, even with modest control measures, temperatures will rise 2.5–5.5 degrees Celsius (4.5–9.9 degrees Fahrenheit) from the late 20th century to the late 21st century.

Scientists expect that if the annual CO2 emission rates from the 1990s continue, then CO2 in the atmosphere will double from the 1990s to sometime in the

21st century. Most global climate models ask: What effect will this doubling have on temperature and other variables? The most widely accepted change is a temperature increase of 3 degrees Celsius, with a range of 1.5 degrees either side. This 3-degree Celsius change is much more than the variation (no more than 1 degree) in any century in the last 10,000 years. Although most North Americans are used to substantial temperature shifts from winter to summer, they may not realize how substantial a 3-degree-Celsius average change is. What is now New York City was covered by one kilometer of ice during an ice age, although global temperatures were only 6 degrees Celsius colder than today (Flavin 1989; Gore 1993:91; Schelling 1993:465–469; Schmalensee 1993:3–10).

In 1985, a Villach, Austria, conference of scientists foresaw the following effect of global warming in the 21st century:

Many important economic and social decisions are being made today on long-term projects – major water resource management activities such as irrigation and hydropower, drought relief, agricultural land use, structural designs and coastal engineering projects, and energy planning – based on the assumption that past climatic data, without modification, are a reliable guide to the future. This is no longer a good assumption.

The economist Schelling argues, however, that the vulnerability to climate change in the 21st century will be less than if this same change had occurred in the 20th century, when global shares of gross product and the labor force in agriculture were higher. He estimates that the effect of global warming on health and nutrition in the United States and other DCs in the mid-21st century would be negligible. Indeed, for Schelling, carbon dioxide enrichment, by enhancing photosynthesis, will increase agricultural yields for many cultivated plants in the northern hemisphere, the location of most DCs. He assumes that if climatic changes are continuous over a century, then Kansas’s climate may become like Oklahoma’s, Nebraska’s like Kansas’s, and South Dakota’s like Nebraska’s, but Oklahoma, Kansas, Nebraska, and South Dakota will not become like Oregon, Louisiana, or Massachusetts; climate change, thus, will be gradual rather than abrupt. Some economists contend that northern nations, such as Canada and Russia, will benefit from the increased warmer-season crops and correspondingly greater agricultural yields from global warming. Schelling even concludes that DCs have no self-interest in expensively slowing CO2 emission rates (Nordhaus 1991:33–67; Poterba 1993:47–63; Schelling 1993:466–473).11 The London Economist (1991b:28–30) and Wall Street Journal (Adams 1992:A14; Kamm 1992:A1; Melloan 1992:A13; Murray 1992:A1; Stipp and Allen 1992:B1) agree with Schelling, although uncertainties associated with disruptions of ecosystems in both DCs and LDCs, mentioned later, raise questions about Schelling’s sanguineness.

What about the LDCs of the south? Lester Brown and his colleagues argue from trends in the late 1980s and early 1990s that the earth’s rapid population growth,

11Mendelsohn, Nordhaus, and Shaw (1994:753–771) provide evidence that global warming may have economic benefits for U.S. agriculture, even without CO2 fertilization.

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increasing average costs from and diminishing returns to growing biochemical energy and fertilizer use, less sustainable farming practices, and limits in expanded agricultural hectares mean that the earth is reaching the limits of its carrying capacity. These changes, exacerbated by adverse climatic changes, indicate concern about average food levels in LDCs (Brown 1994a:177–97, 248–51; Brown 1994b:26–27b; Brown, Platt, Kane, and Postel 1994:26–41).

The International Rice Research Institute’s John Sheehy finds heat damage during flowering for rice, wheat, and corn from temperatures more than 30 degrees Celsius (86 degrees Fahrenheit). Grain yields may fall by 10 percent for every one-degree Celsius increase, Sheehy estimates, contributing to a potential yield reduction in most LDCs, primarily in the tropics, of 30 percent over the next 50 years. Grains in India (and perhaps the Philippines) are already suffering from the increased temperatures. In addition, rice in India’s coastal areas is hurt from saltwater intrusion resulting from climate change (U.N. Environment Program 2001).

Moreover, parasitic and other vector-borne diseases, including possibly malarial mosquitoes, are sensitive to climatic changes. Those damaged the most by global climate changes are human settlements most vulnerable to energy reductions and most exposed to natural hazards, such as coastal or river flooding (Bangladesh, China, Egypt, island nations, and historic Venice, Italy, the jewel of the Adriatic Sea), severe drought, landslides, severe wind storms (China), and tropical cyclones, whose frequency is likely to increase 50 percent from the present to the mid-21st century from a doubling in human-generated carbon dioxide emissions (Bangladesh). If we add to all this the melting of polar ice caps, the effects of flooding on Bangladesh and other LDCs are even more substantial (Topping 1992:129–44). Brown, Flavin, and Postel (1991) argue that the LDCs of the south are the major nations suffering from global warming, even though they produce only a small fraction of the world’s annual carbon emissions. They ask: Why should global warming flood the homelands of Bangladeshis who have never used electricity?

But global climate change will increase drought, heat waves, and tropical storms, raise sea level, and shift vegetation zones so as to disrupt grain and other crop production (Flavin 1989). Consider the rise in sea level.

Titus et al. (1992:8–11) assert that

A rise in sea level would inundate wetlands and lowlands, accelerate coastal erosion, exacerbate coastal flooding, threaten coastal structures, raise water tables, and increase the salinity of rivers, bays, and aquifers. [A] rise in sea level would enable saltwater to penetrate further inland and upstream in rivers, bays, wetlands, and aquifers, which would be harmful to some aquatic plants and animals, and would threaten human uses of water.

Part of this is the fact that overflowing oceans will increase the saltwater content of previously freshwater inland rivers, deltas, and of aquifers. The effect of climate changes on these water systems is unpredictable.

Still, several economic models have estimated that doubling CO2 would reduce GNP in the United States by 1.0–1.3 percent in the last decade of the 21st century.

Yet, these studies may underestimate the impact of specialization and international trade in reducing losses. Studies of the effect of global climate change on developing countries are more fragmentary. Probably, however, LDCs, with a larger share of GNP in agriculture and other sectors exposed to climate change than in the United States, are more vulnerable (Nordhaus 1993:14–18).

Predictions about when doubling CO2 will occur vary from model to model. Indeed, generally the authors of these models would be the first to admit that their estimates are fraught with a large margin of error. Models cannot predict changes in prices, an important determinant of welfare. Ultimately, population increase, the relationship between population and food productivity, changes in energy demand, and other premises about how events will unfold are as important as carbon abatement cost functions in determining GNP. Scientists do not even agree on the carbon emissions attributable to various sources. Nor do scientists know the extent to which greenhouse gases adversely affect human productivity and welfare. Furthermore, many costs, such as sea-level rise, electricity operational cost, capital cost, and costs of preserving coastal wetlands, old growth forests, and biological diversity, are difficult to quantify (Morgenstern 1991:140–145; Nordhaus 1993:11–25; Schelling 1993:473).

Uncertainties abound. Except for some opportunistic weeds, plants may not migrate as fast as climate.12 Animals may not be able to adapt to changing plant systems. Humans may not easily adapt to changes in plants, animals, and entire ecosystem, and some countries may ban migration from nations adversely affected.

Will change be as continuous as the climate models suppose? If substantial changes are exacerbated by positive feedbacks, the models might explode. Indeed, the Yale economist William D. Nordhaus (1993:14) worries about the reliability of climate models, “because climate appears to be heading out of the historical range of temperatures witnessed during the span of human civilizations.”

Policy approaches. The consensus of the scientific community is that greenhouse gases are harmful, even though the exact magnitude of the harm is uncertain. Again, the best strategy is to reduce greenhouse gas emissions by buying “insurance policies” against the worst possible damage. Additionally, scientists need to continue research so as to estimate optimal greenhouse-gas abatement more precisely.

The Rio de Janeiro, Brazil, Earth Summit of 1992 and the Kyoto Treaty of 1997 allocated annual carbon emission targets on the basis of 1990 levels, rewarding the high polluters; however, future emissions are to be based on 1990 population, so as not to reward population growth (Manne and Richels 1993:135–139). Nordhaus (1993:20–24), however, shows that other approaches, such as carbon taxes or international markets for tradable emission permits discussed later, are cheaper than the Rio–Kyoto method, which is less expensive than stabilizing climate so that the change in global average temperature is limited to 1.5 degrees Celsius in the 21st century.

12Wilson (1989:112–124) contends that global warming will displace four North American trees – yellow birch, sugar maple, beech, and hemlock, which will fail to migrate rapidly enough.

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FIGURE 13-4. Levying a Carbon Tax on Petroleum.

Green taxes. This proposal, a tax on fossil fuel proportional to the carbon emitted when the fuel is burned, relies on market-based incentives that spur people to reduce emissions at least cost rather than on direct regulations, such as the Rio–Kyoto approach, that engenders inefficiencies. Government decision makers, adjusting for market imperfections, should try to tax or fine emitters so they bear the costs they transmit to others. What rule should government adopt? Remember the rule for minimal social cost discussed previously: The efficient level of emission is where marginal abatement cost equals marginal damage. These marginal values are, however, even more difficult to estimate for greenhouse-gas emitters than for other polluters. Polluters can adjust any way they please, through amelioration (including migration and shifting land use and industry patterns), abatement (such as reflecting more incoming sunlight back into space), prevention (investing in emission control), or paying the carbon tax (Poterba 1993:47–63; Schelling 1993:478).13

As Figure 13-4 shows, the carbon tax shifts the supply curve to the left from S1 to S2, increasing the price from P1 to P2, and reducing consumption from Q1 to Q2 in the short run. In the long run, as firms leave the coal and other fossil fuel industries, supply shifts further to the left, to S3, and the price increases even further, to P3 (Jorgenson, Slesnick, and Wilcoxen 1992:393–431, 451–54; Margin 1993: 32–33).

The taxes would increase the prices of virtually all goods and services but would substitute for other taxes. The total tax burden would be the same but would shift the burden away from income toward environmentally damaging activities, reducing

13Another emphasis is insurance, which compensates those adversely affected by flooding or other climate changes (Chichilnisky and Heal 1993:65–86).

environmental degradation. However, because the carbon tax is regressive, so that the poor pay a higher percentage of their income in taxes than the rich, the government might allocate some revenues from the taxes to compensate the poor.

Brown, Flavin, and Postel (1991:142–143) contend that

Environmental taxes are appealing because they can help meet many goals efficiently. Each individual producer or consumer decides how to adjust to the higher costs. A tax on [carbon] emissions, for instance, would lead some factories to add controls, others to change their production processes, and still others to redesign products so as to generate less [carbon]. In contrast to regulations, environmental taxes preserve the strengths of the market. Indeed, they are what economists call corrective taxes: they actually improve the functioning of the market by adjusting prices to better reflect an activity’s true cost.

The government can reduce the substantial GNP cost of a carbon tax increased gradually to allow time to institute new technologies when capital equipment is normally replaced. Phasing in the carbon taxes over, say, 5 to 10 years would ease the economic impact and allow for gradual adjustment (ibid., pp. 141–49; Weyant 1993:27–46).

International tradable emission permits. Harvard’s Martin Feldstein (1992:A10) opposes the 1992 Rio treaty because it sets physical targets rather than using marginal or “least cost” principles of abatement. The principle of least-cost reduction rests on the scientific fact that a ton of carbon emitted anywhere on the globe contributes equally to global greenhouse gases. Once countries negotiate emission rights, Feldstein favors international tradable emission permits to achieve the least marginal cost per unit of abatement. A change from a regulatory system to transferable discharge permits should provide incentives for emitters to adopt new control techniques to reduce emissions at lower cost, as they can sell excess permits. Emitters facing steep control costs will purchase permits from emitters having less costly options, thereby subsidizing the more efficient control of emissions by low-cost emitters (Tietenberg 1993:241–70).

Stanford’s John P. Weyant (1993:34–36) examined the implications of the Energy Modeling Forum 12, a composite of 14 major models of global climate change, for the cost of global carbon emissions control. He found that the Rio approach of stabilizing emissions at 1990 levels in each country cost 2.5 percent of world GDP by the year 2043. However, the economic optimal approach, which uses tradable emission permits, allowing an equalization of the marginal cost of control across all nations, achieves the same target levels at two-thirds the costs, or a loss of only 1.7 percent of world GDP.

Nordhaus and Boyer’s updated DICE model. William Nordhaus and Joseph Boyer, in the policy discussion of their DICE-99 model (Dynamic Integrated model of Climate and the Economy; 2000), come to a similar conclusion. They discuss an optimal