International Dimensions of Regulation Developing countries need special attention Global pollutants particularly tough to control Green Accounting Double Dividend Motivation Group Project Treaty proposed to free up trade between US and Guatemala What restrictions should we put in place to avoid environmental degradation in Guatemala Income effect Why are oil refineries in poor areas Why do poor countries have weak environmental regulations Can we expect environmental regulations to weaken or tighten over time in the US or any country Similar questions as when we considered environmental justice Amount of Env Qual Demanded at fixed Price Luxury Normal and Inferior Goods Luxury Good Elast 1 Normal Good Elast 1 Inferior Good Income Larry Summers Memo What was Summers suggesting What are the arguments in support of his position What are the arguments against his position GATT and the Environment GATT General Agreement on Tariffs and Trade says You can place border restrictions on the quality of a product ie no chunks of Flipper in the can of tuna You cannot place restrictions on how the product was produced you cannot prohibit use of hormones in raising beef if no hormones can be detected in the imported beef Allows environmental restrictions eg protecting dolphins if the restriction allows country to choose methods that provide equal levels of environmental protection ie not technology standards What are the reasons for these rules Do they work in providing environmental protection Why did US lose the Venezuelan Refinery Case Sanger article Dynamics of Environmental Protection Price Shifts with increases in income Supply Demand Environmental Quality Environmental Kuznet s Curve Sulfur Emissions Early phases of economic growth tend to increase pollution As income rises clean environment is valued more emissions decline Income But very difficult to estimate due to lack of time series Reasons for failure of EKC Corruption bribe officials to locate hazardous waste sites Nondemocratic regimes preferences of population not represented in environmental regulations Poorly educated population Not all pollutants have same shape EKC Back to Group Project What are some answers to our original group project problem Do we need to put into place safeguards so that Guatemala doesn t become dumping ground due to corrupt officials Should we worry about differences in regs between US and Guatemala at least in the short run Will increases in income in Guatemala tend to increase env quality Transboundary Environmental Problems Who fixes environmental problems that cross national borders Stratospheric ozone depletion Global Warming climate change Global species destruction sea turtles Need IEA s International Environmental Agreements The Card Game Analogy SETUP Each player is given two cards one red and one black PLAY Each player will anonymously hand in one card to Center i e to Prof PAYOFF to each participant after play of game REWARD 10 Environmental Currency Units ECU for a red card in your hand 1 ECU for each participant for each red card Center holds Maximum payoff N 1 5 where N participants Ex 51 players the maximum payoff is 60 Anyone scoring over 35 gets a Kiss YOUR TASK figure out what to hand in to the Center Choose Your Strategy Hand in your red card It yields less to you than if you keep it It yields far more to the group than if you keep it Society wants you to hand in your red card Keep your red card It is worth far more to you in your hand Your payoff will be higher society s lower Results This experiment has been run many times When repeated with the same group cooperation handing in the red card tends to decline Analogous to transboundary environmental problems typically of people hand in their red card Refer to Scott Barrett 2003 Fundamental conflct between individual and group interests Self interest diverges from group interest Powerful incentives to shirk your responsibility Understanding how to solve card problem gives insight into solving transboundary environmental problems Can an Agreement Solve Problem A typical agreement Signatories agree to hand in red card Public display of what is being handed in red or black Only goes into effect if x of people agree eg 60 Participants post performance bond before each play who keeps Issues Should be self enforcing ie no appeal to higher authority problem Penalties how to enforce the agreement Penalties for cheating ie not handing in red card Penalties for free riding ie not joining but benefiting from agreement Must create an aggregate gain to participants Must be in best interest of individuals to join both cooperators and free riders what if different countries start with different red cards Must have means to distribute gain Back to the Real World Card game has lessons for the real world Goal identify desirable characteristics of international environmental agreements How to think of an IEA Global problem that affects many countries Countries have to voluntarily agree to do something about the problem Any penalties for cheating must be included in treaty There can be no overarching enforcer Desirable Attributes of a Successful IEA Create an aggregate net benefit to participants overall gross benefits overall gross costs Distribute the aggregate gain among participants For each participant benefits costs individual rationality Self interest important in convincing country to agree Deter non participation Must make it undesirable to remain outside agreement Trade sanctions most frequently used Design net benefits in net benefits out participation constraint Deter cheating among participants Penalties must be credible Trade sanctions are easiest to use Deter entry of new non participants avoid leakage Particularly appropriate for common property problems Saving a fishery increases rents and may induce non fishing countries to enter Montreal Protocol Designed for CFC s leading to Ozone Depletion Quantitative emission limits for industrial transition and developing countries Industrial countries pay for added costs to developing countries Trade sanctions for nonparticipants and violators Initial protocol modest gradually tightened over 10year period Ozone Levels Projected Source World Met Org UN Framework Convention on Climate Change Kyoto Protocol Emerged from Rio Conference in 1992 US signed and ratified UNFCCC Modeled after Montreal Protocol Kyoto Protocol 1997 defines emission reductions for Annex I developed countries Developing