International Dimensions of RegulationMotivationIncome effectLuxury, Normal and Inferior GoodsLarry Summers MemoGATT and the EnvironmentDynamics of Environmental ProtectionEnvironmental Kuznet’s CurveReasons for failure of EKCBack to Group ProjectTransboundary Environmental ProblemsThe Card Game AnalogyChoose Your StrategyResultsCan an Agreement Solve Problem?Back to the Real WorldHow to think of an IEADesirable Attributes of a Successful IEAMontreal Protocol Designed for CFC’s leading to Ozone DepletionUN Framework Convention on Climate Change – Kyoto ProtocolMontreal vs. Kyoto A partial comparisonEnvironmental regulations in the developing worldEnvironmental charges & fundsPlanned economy emissions feesRegulations in ChinaFees in Rio Negro, ColombiaVoluntary emissions control in MexicoInfo & institutions: IndonesiaGreen national accounting“Natural capital” depreciationIndonesia example: “Adjusted Net Domestic Product”Pollution control & cleanupHow are national accounts used?Paying for public goodsDouble dividendA 3rd effect of pollution taxesInternational Dimensions of RegulationDeveloping countries need special attentionGlobal pollutants particularly tough to controlGreen AccountingDouble DividendMotivation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.]Luxury, Normal and Inferior GoodsIncomeAmount of Env. Qual.Demanded(at fixedPrice)Inferior GoodLuxury Good(Elast > 1)Normal Good(Elast <1)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 ProtectionEnvironmental QualityPriceShifts with increases in income.DemandSupplyEnvironmental Kuznet’s CurveIncomeSulfurEmissionsEarly phases of economicgrowth tend to increase pollutionAs income rises, cleanenvironment is valued more, emissions declineBut very difficult to estimatedue to lack of time seriesReasons 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 EKCBack 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 AgreementsThe 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: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REWARD: Anyone scoring over 35 gets a Kiss®!YOUR TASK: figure out what to hand in to the CenterChoose 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 lowerResultsThis experiment has been run many timestypically -- of people hand in their red card⅓ ⅔Refer to Scott Barrett (2003)When repeated with the same group, cooperation (handing in the red card) tends to declineAnalogous to transboundary environmental problems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 problemsCan 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 gainBack to the Real WorldCard game has lessons for the real worldGoal: identify desirable characteristics of international environmental agreementsHow 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 enforcerDesirable Attributes of a