Low carbon economy as an opportunity for developing countries.

As climate change negotiations have generated questions on whether they can reach the political agreements needed on time to avoid a global climate catastrophe, some people rely on technology to make the change. Jeffrey D. Sachs in his column (which can be read here) argues that "directed technological change" can do what international negotiations hadn´t been able to.

This is a biased opinion from the developed countries, some of them (notably USA and China) have an economy based in oil and coal respectively. Changing such a big economy definitely requires big costs and involves an important risk of losing economic hegemony. Whether this risk is bigger by switching or by staying in an old economic paradigm remains to be seen.

However, developing countries are still building up their economies and their challenges are completely different as they usually have to compete with stronger economies. Finding new niches and competitive advantages is critical for developing economies to grow.

Low carbon alternatives could be the opportunity for developing countries to grow in a sector when some of the current economic powers are not so strong. Despite its coal dependence, China seems to have seen this as an opportunity by supporting companies like Suntech and Yingli which have made a huge business out of solar panels

Growth of Yingli Solar Capacity (http://www.yinglisolar.com/en/about/)

The same could be done by other countries since technology for solar panels (as for other low-carbon technologies) is well developed. In many cases all that it´s needed is natural resources, but in a different way, because this time they don´t have to be depleted. Natural resources such as sunshine days or wind are safest bets to base your economy on than oil or forests which can quickly get depleted and put the economy in trouble if not managed properly. Furthermore, at least for solar energy, countries near the equator have an advantage against countries from the north.

A nice conservative estimate of the amount of land required to fulfill world's energy needs using only solar panels done by the Land Art Generator Initiative (which can be read here). It is a bit old estimate, yet technology improvements can probably balance out any underestimations in the "worst case scenario" used for the estimation. An interesting number they give is that if solar farms would be constructed at the same rate that the amount of forest destroyed (170,000 square kilometers per year), it would take only 3 years to have enough solar farms to meet global needs.

If the technology and the natural resources needed are already available, all that is missing is funding, but more importantly, political will. "Creating" a low carbon economy in developing countries would be a good investment for them as they don´t have to bear the cost of "switching" an economy that developed countries have to pay. And although some developed countries are already ahead in this (for example Germany producing over 50% of its energy need from solar panels thanks to nice weather as can be read here), this is still a much fairer competition for developing countries than competing in other second or third sector economy. Actually, this 2012 list of countries with over 60% of renewable electricity shows how developing countries are doing a good job already.

As climate change is gaining relevance due to its evident costs worldwide, the questions regarding a low carbon economy are now "when?". As in any transformation, the ones who adapt to this change faster will have an advantage, so it is very comforting to see developing countries, who have the populations with big needs, surpassing developed countries and setting a strong foundation to a relevant role in the coming decades.

Can the U.S. Government cost-benefit analysis of climate change policies not look outside of the U.S.?

The post by Timothy Taylor, managing editor of the Journal of Economic Perspectives, "Should U.S. Government Cost-Benefit Analysis Look Outside the U.S.?" made me go back to a common question in environmental economy, how to manage externalities. 

Investopedia defines externality as "a consequence of an economic activity that is experienced by unrelated third parties". Basically externalities are any effect of an action done outside of the considered system. While using the word "unrelated" is misleading as if there´s an effect there will be always related, the meaning here is that is  consider unrelated, that is, it is excluded from the analysis. The reason why this is a central problem in environmental economy is that perhaps the most used example of negative externalities is pollution, an effect done by an activity that is usually not considered as part of the analysis of the activity. Externalities however can be also positive.

The relevance of this is because in Taylor's post he comments on whether including global benefits while evaluating a climate change policy of the US makes sense. His conclusion being that a cost-benefit analysis of US policies should make sure it has "benefits that exceed costs for the U.S. population, and then to look at the global dimensions [as something independent]". This agrees with the basic notion that a government has to be held accountable with its population. 

While I agree in general that a government has to put as its first priority its own people, I believe Taylor argument can be criticized at least in 3 ways.

The first critic is the responsibility of US in terms of climate change which has been broadly discussed in the international climate change negotiations. If you break your neighbors fence by mistake, saying you won´t fix it because it doesn´t benefit your family is irresponsible and unethical even if there is no power to enforce justice and make you pay for your damage. The same goes for climate change where the relevance of the U.S. as an emitter of greenhouse gases (GHG) is clear. According to this page of the US Environmental Protection Agency (EPA) "In 2008, the top carbon dioxide (CO2) emitters were China, the United States, the European Union, India, the Russian Federation, Japan, and Canada". A more recent article from the PBL Netherlands Environmental Assessment Agency shows an interesting graph that shows the USA as the greatest cumulative emitter of GHG emissions until 2010, and is still projected to be the greatest historical contributed at least until 2030. As a matter of coherence between domestic and international principles, the US should compensate for the damage that it has caused abroad with their actions.

The second critic to Taylor's argument comes from the global implications of a climate change policy. While in his article Taylor brings Gayer and Viscusi points (from Ted Gayer and W. Kip Viscusi "Determining the Proper Scope of Climate Change Benefits" (June 3, 2014) that considering global benefits vs local costs would lead to policies against the interests of the US population in areas such as migration or social transfers. However the global dimension of the effects of policies as such is totally different from the ones of a climate change policy. While closing the borders to migrants or having subsidies for poor US citizens might have global implications, the main effect is domestic. On the contrary, climate change is a recognized global issue, where the policies taken by the US, as one of the main global emitters, will have clear global implications both at the political and at the environmental level as have been noted at least here, and here.Other than the US reduction in emissions (which is actually not that significant), the mentioned effects include China's commitment to reduce its own emissions and an increased hope for global climate change negotiations which aim for a global climate deal to be agreed by 2015.

Lastly, US has been acting in the world arena as the "world's police" for over half a century now by actively affecting countries all over the world by diplomatic, violent, economic, cultural, and any other available means. The relative weight of US economy in the international arena gives him a big muscle that it has not hesitated to use to influence the world. In this context including global costs and benefits into its analysis makes sense not only from the moral side, but also because the role of the US internationally is so extended that creating global benefits can easily come back to the US as increased support in other policies. While these benefits are really hard (probably impossible) to evaluate, it is evident that they exist as protests to US policies in foreign countries have been common in the past (for example against Afghanistan war and also against the lack of support for global climate change efforts such as the Kyoto Protocol).

From this arguments I would like to raise the same question Timothy Taylor brought from a different perspective. Given the global influence of the US, can the U.S. Government cost-benefit analysis of climate change policies not look outside of the U.S.?

Sustainable Development quotes

I can´t be the only one who enjoys to read quotes, here some that I liked about sustainable development:

• Because we don't think about future generations, they will never forget us - Henrik Tikkanen
• The greatest threat to our planet is the belief that someone else will save it - Robert Swan (first person to walk to both Poles)
• The future will be green, or not at all - Jonathon Porritt
• If something is sustainable, it means we can go on doing it indefinitely. If it isn't, we can't - Jonathon Porritt
• History teaches us that men and nations behave wisely once they have exhausted all other alternatives - Abba Eban
• The future isn't what it used to be - Arthur C Clarke
• You never reach the promised land. You can march towards it - James Callaghan
• Treat the Earth as though we intend to stay here - Sir Crispin Tickell, 1998
• Unless we change direction, we are likely to end up where we are going - Chinese proverb
• You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete - Buckminster Fuller, philospher, futurist and global thinker (1895 - 1983)

These and more quotes about sustainable development can be found here

Can we talk about cost and benefit of avoiding climate change?

After a long week of deadlines I finally had the time to reading Alex Morale's post on Bloomberg "The Two Numbers Climate Economists Can´t Stand to See Together" with the calm and attention I wanted to give it, after all, I'm an economist working in climate so the title itself got me. 

At the end I got a bit disappointed, not because the article is bad, but mostly because it doesn´t tell you anything new. Cost/benefits estimate for climate change mitigation (and I've calculated some for a few policies/projects myself) are always tricky. The longer the scope, the trickier they get which is unavoidable when trying to estimate the future in such complex systems. Broadly speaking Morale goes into the discussion of whether we should compare the costs of the estimated damage caused by global warming, with the estimated costs of avoiding such warming; then he goes into how this can be misleading as it doesn´t acknowledge the risks of catastrophic natural disasters, regional differences in costs and benefits, changes in technology over time, so called co-benefits (effects in health for example), differences in assumptions, etc. etc. etc. After all these confusing arguments, Morale concludes that whatever the estimates the costs are inevitable and getting higher the longer we wait. The good news is that, those estimates are still useful... as long as you know how to used them.

Global estimations are also misleading because they lack the geographical component: some regions will suffer the damages, other might even enjoy some benefits, and it is not clear who exactly should paid for the solution. However when these estimates are done with a practical intention they can be very useful and beneficial. A good example is Uruguay energy revolution (use the captions -> Translate captions to see subtitles in your language)

The economic analysis for energy source in Uruguay proved that a balance of 90% of renewable energy (75% in dry season) was the answer that gives lest cost and lowers vulnerability. Even without considering the environmental impacts, this option was decided to be the best and will be implemented in the next 15-20 years. This is a great example of how economic analysis can be useful and how environmental policies can also be economical and national security policies.

Well made, protecting the environment is not just a matter of principles, but it provides economic and social benefits that can make it a strategic investment for development.


If you want to get deep into the numbers, check the IPCC report Climate Change 2013: The Physical Science Basis (don´t worry there is a summary)

Sustainable Development: an aspirational goal?

Can Sustainable Development really be achieved or is it just an aspirational goal?

The most quoted definition of Sustainable Development comes from 1987's United Nations World Commission on Environment and Development report "Our Common Future" (commonly named the "Brundtland Report"), popularized at the 1992's UN Conference on Environment and Development, is "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Furthermore, it is recognized that sustainable development is a development that includes social, environmental and economic considerations.

However, after over 2 decades of globally recognizing the need for sustainable development, it is still hard to recognize what exactly we mean by those definitions. Several sustainable development indicators have been proposed to be able to recognize countries that are more sustainable developed than others, yet the results among different scales are sometimes contradictory (see Wilson et al, 2007 for a detailed comparison). This makes it hard to even recognize what sustainable development looks like.

The lack of an objective idea of what sustainable development is I believe comes from a very utopic vision of what sustainable development should be. The definition itself is almost impossible to achieve as meeting current needs without compromising future needs means that overtime (any kind of) resources should stay constant or grow, thus sustainable development is not a state but a process. That could explain why we haven´t find (and will never find) some situation that we can recognize as sustainable developed.

This is not necessarily a bad thing, the opposite actually. The fact that sustainable development is a moving target forces us to keep improving and becoming more and more sustainable. In this sense other more restricted programs can give solid steps towards this goal and have some sense of peace by objectively going in the right direction. Ideas like Green Growth, or Low Emissions Development Strategies bring more specific and achievable targets that promote sustainable development and can be an important step stone towards a sustainable future.

What is missing, ironically, is to update sustainable development by including an element implicit "sustainable" that is usually overseen: "steady state". This economic concept means that even if things are dynamic and changing, the indicators' levels stay at a constant level. If we can see this as the basic element of sustainable development, some indicators that measure not sustainable development per se, but "development" in general can be tracked and if they reach an steady state then we could have a measure of sustainable development.

So perhaps the reason why we haven´t found sustainable development is because we are looking for a state while it is actually a process, and as a process it will never be reached so perhaps instead of having the goal to attain sustainable development, we should have to goal to keep developing in a sustainable way.

• Wilson, Jeffrey, Peter Tyedmers, and Ronald Pelot. Contrasting and comparing sustainable development indicators metrics. Ecological Indicators 7 (2007) 299-314.
• World Commission on Environment and Development."Our Common Future, Chapter 2: Towards Sustainable Development"