Economy and Global Warming Essay

The global warming is viewed as dangerous process not only according to the environmental issues. Now it is often viewed in regards with its impact on the economy. Recently it was claimed that the increase of the rate of global warming led to the higher damage costs. Among the main tasks of the economics of global warming is estimation of the economic costs of global warming, their evaluation and distribution as well as evaluation of the cost of the actions, which are devised for fighting the global warming process. In this process economists rely on the data obtained from the number of sources. The newest findings and current data are discussed at a number of annual conferences and meetings. In April 2007 there was an Intergovernmental Panel on Climate Change (IPCC) conference. Representatives of over 120 nations were present there is order to discuss the ways of mitigation of the global warming process as well as economic and societal costs of these actions. As the result of the conference there was an approval of the IPCC Fourth Assessment Report. The main idea of this report is that benefits of mitigation of global warming are worth all the mitigation costs incorporated in this process (Coleman, 2007). Economic impacts of global warming First of all I’d like to set the discussion and explain why the question of the global warming is so topical for the economists. During the last few decades there were a number of researches focusing on the economic damage of the global warming. As the result of these researches there appeared a number of reports on the aggregate net economic costs of damages caused by the global warming and the climate change. These costs are usually defined in terms of the social cost of carbon (SCC), which can be defined as the estimation of the future expenses of the world economies caused by the global warming from carbon dioxide emissions, which are done in the present. Thus, according to numerous reports SCC in 2005 was estimated as US$ 43 per tonne of carbon (tC) (IPCC Summary for policymakers, 2007) Very valuable idea of the influence of global warming on the economy was provided by Professor Robert O. Mendelsohn of Yale School of Forestry and Environmental Studies in Copenhagen Consensus: A series of studies on the impacts of climate change have systematically shown that the older literature overestimated climate damages by failing to allow for adaptation and for climate benefits. These new studies imply that impacts depend heavily upon initial temperatures (latitude). Countries in the polar region are likely to receive large benefits from warming, countries in the mid-latitudes will at first bene fit and only begin to be harmed if temperatures rise above 2. 5C. Only countries in the tropical and subtropical regions are likely to be harmed immediately by warming and be subject to the magnitudes of impacts first thought likely. Summing these regional impacts across the globe implies that warming benefits and damages will likely offset each other until warming passes 2. 5C and even then it will be far smaller on net than originally thought† (Mendelson, 2007). Valuable findings were presented in the report of Chief Economist and Senior Vice-President of the World Bank Nicholas Stern known as ‘The Stern Review† published in 2006. In this repost Nicolas Stern claims that if no actions are undertaken climate change will produce a very negative influence on economic growth (Peston, 2006). According to Stern’s findings there is a possibility of recession up 20 % of global GDP in case no mitigation of global warming is undertaken. In order to be able to prevent this nations should join their forces for the sake of investing 1 % of global GDP for fighting the negative impact of global warming process (Stern, 2007). Cost estimates According to IPCC TAR (Synthesis Report) annual mitigation costs range from $78 billion to $1141 billion, which constitute from 0. 2 % up to 3. 5 % of present-day world GDP. However, the researchers also realize that some nations of the world are unable to contribute to the mitigation of global warming due to the low level of their economic development. If the burden of mitigation is placed only on more economically-powerful nations, they should donate approximately 0. 3 % – 4. 5 % of their GDP. This percent is high, however, as the researchers state due to the constant economic growth of the world economies, this percentage will decrease with time. One more estimation was done in terms of cost per tonne of carbon emission avoided, which is said to be from $ 18 to $ 80 (House of Lords, 2005). The mitigation costs are every country’s concern. Moreover, according to Lord Peter Levene, chairman of Lloyd’s of London, it is essential that every company should include in its risk analysis the threat of climate change (Business Insurance, 2007). Benefits Numerous researchers tried to estimate the cost of the benefits from the mitigation of global warming. Thus, according to the report of Nordhaus and Boyer based on the Kyoto Protocol the benefits from mitigation for world economies would constitute approximately $ 120 billion. However, this benefit is not accepted by all researchers. McKibbin and Wilcoxen for example state that there cost benefits are too low. They state that in spite of the fact that â€Å"other studies reach similar conclusions, the emissions targets agreed in the Kyoto Protocol are irreconcilable with economic rationality†. In this idea they support the other researcher – Tol, who has the same viewpoint ( McKibbin & Wilcoxen, 2002). On the contrary to the findings of the Kyoto Protocol, the estimates of benefits as stated in Stern Review are much higher and constitute approximately 5 up to 20 % of GDP. The difference is of course very considerable. However, it was stated that benefits depend on the number of factors. Among the most essential of these factors are the discount rate, the use of welfare weighting for positive influence on poor nations of the world, a greater emphasis on the negative impact on the natural environment and the application of the newest scientific estimates of this negative influence (Stern, 2007). However, it should be mentioned that the benefits of the mitigation actions are not limited solely to environmental improvement. They have a number of other concealed benefits, which depend on the application of definite technologies. For example, in case the technologies aiming at the reduction of oil use are applied, this will produce great benefits for the country economy due to the lower influence of oil price rises on the economy. This is a very valuable benefit for a number of countries, which are currently importing oil and experience great economic losses from oil price rises (IPCC Summary for Policy Makers, 2007). One more concealed benefit of mitigation actions is connected with the problem of deforestation. Once it is stopped, this will produce considerable benefits due to the increase of biodiversity, tourism promotion, benefits for indigenous people, greater possibilities for research and even in some cases this could save money otherwise spent on protective actions against extreme weather events (Stern, 2007). Optimal strategies for mitigation One of the most essential questions is the relation to the topic of mitigation of the negative impact of global warming on the world economy is the question of the possible strategies, which can be applied in this process. It was estimated that definite financial and technological strategies could be the best for the elimination of the harmful impact of greenhouse gas on the environment. Among these financial and technological strategies I’d like to name the following ones: Trading of carbon emissions Application of the carbon tax Better regulation technologies Application of the hybrid systems of user and permits fees Improvement of energy efficiency Development of nuclear power and renewable energy sectors aiming at decrease of carbon emission (Board on Natural Disasters, 1999). It was stated in numerous researches that these actions, especially is taken in combination, will produce the greatest influence on the mitigation of the global warming and climate change and thus will be beneficial for the world economies. Cost distribution One more question under discussion is the distribution of costs associated with fighting global warming. It is obvious that the costs and benefits cannot be distributed evenly. Mitigation costs are distributed unevenly both between the countries and inside each particular country. This differentiation is greatly due to the existence of the following factors: low-lying countries have a greater risk of floods, so they are more concerned with the issues of the global warming and its mitigation is more beneficial for them; – other countries, which are particularly at risk of the negative impact of global warming are African countries, which is greatly due to the increased drought typical for these areas. Definitely, mitigation of climate change and global warming is extremely beneficial for them, however, they are unable to contribute a lot to the mitigation actions due to the low economical development; poor countries contribute less to mitigation actions but due to the low level of technologies and science they are the main ones who emit greenhouse gasses and pollute the environment (Peston, 2006). Inter-relationships It is obvious that fighting global warming and climate change should be a concern of all countries of the world and they should join their forces and distribute expenses associated with this more or less evenly. Bastianoni claims that there exists great difference in methodologies applied for the defining the responsibility of each country for greenhouse gas emissions. In this respect I’d like to name the following: – the geographical approach, which is based on the IPCC guidelines for GHG inventory; – the consumer responsibility approach, which is grounded on the Ecological Footprint methodology; – the Carbon Emission Added (CEA) approach, which has much in common with the Value Added Tax accounting (Bastianoni, 2004). Due to this differentiation in methodologies we can observe great difference in application of the responsibility of each country for emissions of greenhouse gasses, which has a consequent influence on the design of the policy of mitigation. Reports on Economy and Global Warming In regards with the actions of the world community aimed at the mitigation of the global warming I’d like to name two major reports, defining possible losses from the climate change and benefits of mitigation of global warming as well as regulating economic policies aiming at fighting these processes. The first report under discussion is the Kyoto Protocol. This is an agreement, which was made during the United Nations Framework Convention on Climate Change (UNFCCC). The main idea of the Kyoto Protocol is the actions aimed conducted by the countries, which aim at the reduction of emission of carbon dioxide and other five gases contributing to the global warming, and engagement in trading of emissions (Buonanno, Carraro & Galeotti, 2003). The Kyoto Protocol is genially international. Now it joins over 170 countries, which constitute 60 % of all countries, all over the world in common concern of mitigation global warming and climate change. Till November 2007 only the US, Australia and Kazakhstan did not join this process and did not ratify the act. The Kyoto Protocol is a long-time plan, which is in valid till the end of 2012. However, it doesn’t mean that the actions, started by this treaty will end after 2012. Most likely the Kyoto Protocol policies will be continued through some other treaty (Malakunas, 2007). United Nations Environment Program explained the main essence and policies of the Kyoto Protocol in the press release: The Kyoto Protocol is an agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5. 2 % compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the Protocol, this limitation represents a 29 % cut). The goal is to lower overall emissions of six greenhouse gases – carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs, and PFCs – calculated as an average over the five-year period of 2008-12. National limitations range from 8 % reductions for the European Union and some others to 7 % for the US, 6 % for Japan, 0 % for Russia, and permitted increases of 8 % for Australia and 10 % for Iceland (Crichton, 2003). Of course, as any other policy The Kyoto Protocol has its supporters and critics. Support The main idea of the supporters of the Kyoto Protocol is that it is very important for the whole world due to the fact that it is aimed at the establishment of the policies and actions mitigating global warming and fighting climate change. Of course the main supporters of the protocol are the governments of the countries, who signed it with the European Union being the most prominent and active supporter. Among the other actions, which show the compliance to the main ideas of the Kyoto Protocol, is the claim of several Canadian corporations, which also reported their support of the mitigation of global warming and stated that the Kyoto Protocol would be only a first step in this process (Global Warming: What is it? , 2007) Opposition However, the Kyoto Protocol has also raised a wave of opposition. The first group of critics maintains the critical idea towards the existence of the global warming and climate change processes at all. The believe that the Kyoto Protocol was design just for the sake of making the process of money shift to the third world easier and argue that with useless spending of money will slow the economic and technological growth of the powerful countries of the world, who will try to solve the problem which never existed instead of investing money to the development of their economies (Lockwood & Frohlich, 2007). The other critics support the necessity of the actions for mitigation of global warming, however, they either believe that the expenses will outweigh the benefits or consider that goals established by the Kyoto Protocol are unattainable and far too optimistic and won’t change the situation with the global warming and climate change considerably (Houghton, Ding, Griggs, 2001).