Climate Policy as Wealth Creation, Part 4

James K. Boyce

This is the fourth installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment focuses on how the revenues from a carbon price will be distributed: Who gets the money? The first three installments of the series are available herehere, and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

Who Gets the Money?

How much money are we talking about, when we put a cap on carbon emissions? What I want to share here are some “back of the envelope” calculations. Don’t take these to the bank, but they’ll give you some idea of the ballpark we’re talking about, what kinds of prices are likely to be associated with what levels of emission reduction. These are figures that trace the trajectory if we’re going to achieve an 80% cut in emissions by the year 2050.

In the first five years of the policy, if we were to have such a policy in 2015, we’d be emitting on average about 6 billion tons of carbon dioxide per year, a little bit less than in the absence of a policy. The price associated with that would probably be in the neighborhood of $15 a ton, so we’d be talking about $90 billion a year, or about $540 billion over those first six years. In the next decade, we’d be ratcheting those emissions down further to about 4.5 billion tons. To do so, the price would have to be about $30 a ton, generating a total cost to consumers and therefore a pot of money of about $135 billion a year, or $1.35 trillion over the decade. In the next decade, getting down to about 3 billion tons of carbon, we’d be raising the price to about $60 a ton, generating about $1.8 trillion over the decade. And the last decade, ratcheting down further to 1.5 billion, perhaps somewhat optimistically assuming here that the price needed would be only $120 a ton—that would assume that a lot of R&D has happened, a lot of new technologies come online, investments in public mass transit are online, etc., so you don’t have to push the price through the roof—that would generate another $1.8 trillion.

You add it up and over that 35-year period, we’re talking about something to the order of $5.5 trillion. Economists have a technical term for it—“a hell of a lot of money.” So the question is: Who owns that atmospheric parking lot and, therefore, who will get the money?

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Locking Out Financial Regulation

Jayati Ghosh

The world of international trade negotiators is an increasingly secret one,    with even other agencies of national governments not fully aware of what is being offered by their negotiators in such deals. One current example is a pending “trade” deal called the Trade in Services Agreement (TISA), which is being negotiated among 50 countries, including the United States, the EU, Australia, Canada, Chile, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Panama, Peru, South Korea, and Switzerland. This agreement is apparently supposed to be “classified” information – in other words, secret and unknown to the public that will be affected by it – for a full five years after it is enters into force or the negotiations are terminated!

That an international treaty that has binding and enforceable obligations can be treated as secret for five years after it comes into force is not only bizarre but almost unthinkable. The need for such secrecy would be inexplicable even if such agreements were actually in the interests of people whose governments are involved in such negotiations. That secrecy is sought would on its own be reason for concern, but the little that has been leaked out of the state of the negotiations suggests even more reasons for alarm, especially because such a deal would have far-reaching implications for financial stability and adversely affect everyone in the world.

One critical element of this relates to liberalisation of rules around financial services, discussed in an Annexe. An April 2014 draft of this Annexe is now available on Wikileaks in yet another important public service provided by this organisation. This draft may have been already superseded by the ongoing negotiations, which are apparently to continue in Geneva in the last week of June, but if it is an indication of what is under way then it deserves to arouse much more public outcry.

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Marking 50 Years of G77

Martin Khor

Political leaders of developing countries gathered in the Bolivian city of Santa Cruz last week to commemorate the 50th anniversary of the Group of 77, the main umbrella organisation of the South.

Presidents, Prime Ministers, Foreign Ministers and Ambassadors from a hundred countries celebrated the event with speeches and a declaration that pledged their continued fight for a fairer world order, but also to improve the condition of life of their people.

President Evo Morales of Bolivia, who hosted this G77 summit gave a stirring speech enumerating nine key tasks that lie ahead for the developing world, and chaired the meeting of interesting reflections from leaders on what the South has achieved so far, the present crises and big challenges ahead.

On June 15, 1964, when most developing countries had just emerged from colonial rule, the officials of 77 developing countries met and issued a joint statement announcing the birth of the G77, at the first ever meeting of the UN Conference on Trade and Development in Geneva.

In that historic statement, the developing countries pledged to promote equality in the international economic and social order and promote the interests of the developing world, declared their unity under a common interest and defined the Group as “an instrument for enlarging the area of cooperative endeavour in the international field and for securing mutually beneficent relationships with the rest of the world”.

Fifty years later at Santa Cruz, on June 14 and 15, the leaders affirmed that the developing countries need to unite under the G77 even more than before, as the global economy is in turmoil and the world order remains still imbalanced against their interests.

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Roads are Meant for Walking

Sunita Narain

In India, traffic accidents are not on the health agenda. It is time the agenda is changed. Last week when the Union Minister for Rural Development met with an unfortunate and tragic accident on the road in Delhi, the issue was highlighted. But as yet, there is little understanding of the seriousness of the problem, and why India, which has just begun to motorise, needs to take action, and fast.

For me, the news of the minister’s death was particularly distressing. It hit me that seven months ago I was on the same road—South Delhi’s Aurobindo Marg—when my cycle was hit by a reversing car. I was lucky that Good Samaritans picked me up, took me to the same Jai Prakash Narain Apex Trauma Centre at AIIMS where minister Gopinath Munde was taken. The same wonderful group of doctors, who tried their best to resuscitate Munde, worked to repair my hands and nose, and stop internal bleeding. I was fortunate. I survived. But Munde, who had much to do in his life, did not. This waste of human lives because of sheer apathy and negligence should make us angry. It should make us change the way we design our roads, enforce traffic rules and, most importantly, take responsibility for our driving.

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Climate Policy as Wealth Creation, Part 3

James K. Boyce

This is the third installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment focuses on the costs associated with the institution of a carbon price, both the private costs of measures to reduce emissions and the larger private costs that would be paid for emissions that are not eliminated. The first two installments of the series is available here and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

Just How Much Would It Cost?

Back in 2009, the Speaker of the House of Representatives, John Boehner (R-Ohio), commented in the debate running up to the vote on the American Clean Energy and Security Act—known as the Waxman-Markey bill, after its main sponsors, Henry Waxman (D-Calif.) and Ed Markey (D-Mass.)—that if this bill were passed, it would be the biggest tax increase on working families in American history.

Now, that was probably political hyperbole, but Boehner wasn’t entirely wrong. It would be like a tax increase, and it would be substantial. It has to be substantial if it’s going to engender the kinds of changes in consumption of fossil fuels that are needed to push forward the clean energy transition. We’re talking about big changes: an 80% reduction in our emissions by the year 2050 below some baseline level. We’re talking about really a revolution in energy, and the kinds of price increases that would be ultimately needed to drive that forward are not inconsequential, and so Boehner had a really serious argument there.

What was the Democratic response? “No, no, it’s not a tax, really it’s not like a tax, and really it’s not a big price increase, it’s not going to hurt people all that much, it’s equivalent to a postage stamp a day.” Now, that postage-stamp-a-day estimate came from an estimate of something quite different from the price increases that households would face.

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More Finance, More Growth? More Finance, More Crises?

By Simon Sturn and Gerald Epstein

A large body of cross-country time-series literature shows that financial development—predominantly measured by private credit as a percent of GDP—fuels growth. But, in light of the many recent episodes of finance driven crisis, these results seem curious. Haven’t we seen that periods of rapid credit expansion are also often periods of economic crisis?

The answer to this puzzle might have to do with the time horizon under consideration. A broad theoretical literature argues that credit demand and supply are correlated with growth in the short-run. Credit demand is “pro-cyclical”—firms are reluctant to borrow and invest during business-cycle slumps, periods of low demand and high uncertainty, while the opposite is true for business-cycle booms. Credit supply is also pro-cyclical, as banks are less willing to lend during recessions, when banks have less capital and borrowers have lower net worth, than during upturns.

Finance and growth, then, are correlated in the short run, but this does not imply that finance also causes long-run growth. Therefore, it is crucial to address the short-run pro-cyclical fluctuations of credit in empirical studies on the impact of finance on growth. Otherwise, the true long-run growth effect of financial development will be overstated.

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The Quest for Responsible Mining Policies: Countries to Watch

Robin Broad

Industrial mining continues to generate horror stories that fill front pages. Among the most recent, in May 2014, more than 300 miners were confirmed dead after an explosion in a coal mine in Soma, Turkey.

To the extent the mainstream is touting solutions, the spotlight is on “transparency”—such as under the Extractive Industries Transparency Initiative. But these efforts focus mostly on ensuring that the gains from mining are more equitably distributed between company and host country. That does not directly address whether mining is being done in an environmentally and socially responsible way.

As I have written elsewhere, we need to make mining policy environmentally, socially, and economically responsible—not just transparent, or even transparent with accountability, regarding who gets what share of the revenues.

So this blog post is sharing the good news about six countries trying to move towards responsible mining policies. Some are more successful, significant, and meaningful than others, but all are worth following.

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Natural Capital in the Twenty-First Century

Edward B. Barbier

One of the objectives of Thomas Piketty’s economics bestseller, Capital in the Twenty-First Century, is to estimate the evolution of the capital-income ratio of an economy.  According to Piketty, “a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income), which can in turn have a significant effect on the social structure and distribution of wealth” (p. 166).

Piketty defines capital—which he calls “national capital” or “national wealth”—as “the sum total of nonhuman assets that can be owned and exchanged on some market” (p. 46). Capital therefore includes all forms of real property (including residential real estate) as well as financial and industrial capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies. But capital also includes farmland and natural resources, such as fossil fuels, minerals, forests and any other similar natural capital that can also be bought and sold on markets. In sum,

national capital = farmland + marketed natural resources + housing + other domestic capital + net foreign capital

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Climate Policy as Wealth Creation, Part 2

James K. Boyce

This is the second installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture, part of the Climate Change Series at the Honors College of the University of Pittsburgh. The lecture explores how to turn the atmosphere (heretofore treated as an “open access” resource, into which greenhouse gases can be dumped at no cost to the emitter) into a common-property resource. The first installment of the series is available here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

The Tragedy of Open Access

The kind of problem that carbon emissions epitomize is what’s called in economics the “tragedy of open access.” It’s also sometimes called the “tragedy of the commons,” although since that phrase was coined back in 1968 by Garret Hardin, it’s become clearer to folks that there’s a difference between commons and open access. Very often, commons are, in effect, regulated through systems of common-property resource management. Open access is really the heart of the problem. The problem is that, currently, we’re able to put carbon dioxide in the atmosphere as if there’s no scarcity of the biosphere’s capacity to absorb emissions. There’s no price associated with doing so—it’s free. There are no property rights associated with this—no one owns the carbon absorptive capacity of the atmosphere. And the problem is that when you have resources that are treated as open access resources but in fact are in limited supply, you can get overuse of the resource—you can get abuse of the resource to the point where you’re damaging the resource and the economy.

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Practicing What They Preach: The IMF and Capital Controls

Kevin P. Gallagher and Yuan Tian

Regular Triple Crisis contributor Kevin P. Gallagher is an associate professor of international relations at Boston University and co-director of the Global Economic Governance Initiative (GEGI) and Global Development Policy Program. Yuan Tian is the CFLP Pre-Doctoral Fellow for GEGI’s Task Force on Regulating Global Capital Flows. She is currently a third-year PhD student in economics at Boston University.

In the wake of the 2008 financial crisis, the International Monetary Fund (IMF) began to publicly express support for ‘capital controls’ in emerging markets.  In addition to public statements, and the endorsement of controls in Iceland, Ukraine, and beyond, the IMF underwent a systematic re-evaluation of Fund policy on the matter, and published an official view on the economics of capital flows in 2012.  To the surprise of many who witnessed the IMF’s scorn for regulating capital flows in the 1990s, in this new ‘view’ the IMF concludes that capital account liberalization is not always the optimal policy and that there are situations where capital controls—rebranded as ‘capital flow management measures (CFMs)’—are appropriate.

It is well known that the IMF claims that it has changed its tune, but has it really changed its ways?

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