Pegram Lecture 1, August 10, 2012

1Columbia Consortium for Risk Management (CCRM) www.columbiariskmanagement.net

The Kyoto Protocol and The Carbon Cycle

Pegram Lecture 1Brookhaven National Laboratories, Long Island NY

Graciela Chichilniskywww.chichilnisky.comColumbia University

What is Globalization?

• A nations’ economic output is increasingly traded through the international market

• 3% in 1950’s USA - about 18% today

• Globalization connects nations and their people

It changes the world economy

2


Source: World Trade Organization (WTO): World Trade Report. http://www.wto.org/english/res_e/reser_e/wtr_arc_e.htm

Ratio of merchandise exports to GDP, 1950-2005(Percentage, real trade and GDP at 1990 prices and exchange rates)

0.0

5.0

10.0

15.0

20.0

25.0

1950 1998 2005

Years

Per

cen

t

World Average



Total

Manufactures

GDP

100

1000

10000

1950 1960 1970 1980 1990 2000

500

2500

5000

250

Average grow th rates, 1950-2005

Total exports 6.2 Manufactures 7.5 GDP 3.8

Semi-log scale

World Exports and GDP, 1950-2005. (Volume indices, 1950=100)

Globalization and Its Risks

• Globalization is not a new phenomenon

• But has achieved historical proportions

• It is a fact – it is here today

• It has benefits – e.g. gains from trade

• But produces risks – political, economic and for the world’s critical resources

• It has deeply increased the Global Divide

5

A position on globalization

• Globalization is a global force

• It is here today

• Are you in favor or against the sun rising?

• The issue is what to do with globalization

• How to transform it into a positive force

6

A historical first

• Todays’ globalization breaks with the past

• Where does it come from?

• What are the risks it creates?

• How to benefit from Globalization and how to avert its main risks?

• How to overcome resource depletion, the global wealth divide and even extinction of our species?

7

Why a Historical First?

The facts

8


Human beings, or their close genetic relatives, have lived on Earth for several million years

Yet only recently has human activity reached levels at which it can affect fundamental natural processes

• the concentration of gases in the atmosphere (CO2, Ozone)

• the planet’s water mass• The complex web of species which

constitute life on earth

Global risks

• Changes to the planet’s atmosphere

• Changes to the world’s water mass

• Changes to the world’s biodiversity

10


Source: Des Marais (2000) “When did Photosysnthesis emerge on Earth?” Science 289 5485, 1703 – 05.


Source: Rice, Patricia R. and Norah Moloney (2005) Biological anthropology and prehistory: exploring our human ancestry, Pearson Education: Boston

Climate Change a Major Risk

• A risk of survival

• Why focus on that?

• How?

• What to do?

14


In 1996, the IPCC reported that human induced emissions of carbon have a discernible effect on climate

• Scientific uncertainty persists

• But the risk of climate change is real and potentially catastrophic

16

Black lines are decadally averaged observations. Blue bands are computer modelswith natural forgings only. Pink bands are computer models with human + natural forgings.

Columbia Consortium for Risk Management (CCRM) www.columbiariskmanagement.net

Computer models match observed ΔT on all continents

Source: IPCC Working Group 1: The Physical Science

Basis of Climate Change. IPCC 2007: WG1-AR4


Source: : Arctic Climate Impact Assessment (ACIA) 2004


Source: “In Dead Water” UNEP 2008

http://www.unep.org/pdf/InDeadWater_LR.pdf


Sea ice is receding

Source: NASA


Coastal glaciers are retreating

Muir Glacier, Alaska, 1892-2005

September 1892

August 2005

Source: NSIDC/WDC for Glaciology, Boulder, compiler. 2002, updated 2006. Online glacier photograph database. Boulder, CO: National Snow and Ice Data Center


Greenland Ice Sheet, 2001-2005

Source: Satellite Imaging Corporation, http://www.satimagingcorp.com/gallery/aster-greenland-ice-sheet.html


Harm is already occurringTotal power released by tropical cyclones (green) has increased

along with sea surface temperatures (blue)

Source: Kerry Emanuel. Anthropogenic Effects on Tropical Cyclone Activity, 2006.

http://wind.mit.edu/~emanuel/anthro2.htm


Number of flood events by continent and decade since 1950

Source: Millennium Ecosystem Assessment, http://www.millenniumassessment.org/en/index.aspx


Number of major wild fires by continent and decade since 1950

Source: Millennium Ecosystem Assessment, http://www.millenniumassessment.org/en/index.aspx


Where we’re headed: temperate-zone agriculture

Corn and wheat yields versus temperature increase in the temperate zone averaged across 30 crop modeling studies. All studies assumed a positive change in precipitation. CO2 direct effects were included in all studies.

Source: Easterling W. E., Apps M. Assessing the consequences of climate change for food and forest resources: A view from the IPCC, Climatic Change 70 (1-2) 2005 : 165-189.


Source: Millennium Ecosystem Assessment 2005. Ecosystems and Human Well-Being Synthesis. http://www.millenniumassessment.org/en/index.aspx


Top panel shows best estimates of human & natural forcings 1880-2005.

Bottom panel shows that state-of-the-art climate model, given these forcings, reproduces almost perfectly the last 125 years of observed temperatures.

The smoking gun for human influence

Source: Hansen et al., Science 308, 1431, 2005.


Source: J. Hansen et al., PNAS 103: 14288-293 (26 Sept 2006), updated by NASA Goddard Institute for Space Studies, GISS Surface Temperature Analysis

2004


Rapidly increasing ozone holes

Source: NASA. http://science.hq.nasa.gov/missions/satellite_22.thm


How the greenhouse effect works

Source: Sources: Okanagan University collage in Canada, Department of Geography, University of Oxford, school of geography; United States Environmental Protection Agency (EPA), Washington; Climate change 1995, The science of climate change, working group 1 to the second assessment report of the IPCC, UNEP and WMO, Cambridge Univ. Press, 1996.


Source: US Environmental Protection Agency (EPA)

34

Composition of greenhouse gases

Columbia Consortium for Risk Management (CCRM) www.columbiariskmanagement.net

Source: Sources: Emission Database for Global Atmospheric Research (EDGAR) 3.2 Fast Track 2000. Netherlands Environmental Assessment Agency.

www.mnp.nl/edgan/. Accessed 3/21/07

http://www.mnp.nl/edgan/


Many environmental problems are global in scope. Solving them requires international cooperation

• The planet’s ozone’s layer and CFC’s emissions

• Loss of biodiversity• Greenhouse gases and climate change-CO2

emissions• Acid rain and international transport of SO2

International dimensions of environmental policy


• Most of the destruction of the earth’s ecosystems is driven by economic incentives

• Forests, where most known biodiversity resides, are cleared for the extraction of natural resources (oil, wood products) or to grow cash crops and graze livestock


Source: Food and Agriculture Organization of the United Nations Global Forest Resources Assessment 2005: Progress towards sustainable forest management


Population and the global environment

The regions with the lowest population growth are the main cause of global environmental damage:

●biodiversity loss

●carbon emissions

●CFC emissions (ozone layer)


Emissions per capita vs. Population

Source: UN Millennium Report


Emissions per capita vs. Population

Sources:

UN World Population Prospects: The 2006 Revision;

International Energy Agency 2003

Population vs. Carbon Emissions per Capita

Mexico

Egypt

United Kingdom

India

Germany

Finland

China

Canada

y = -1.2547Ln(x) + 11.724

R2 = 0.2566

0

2

4

6

8

10

12

14

16

18

20

22

0 200 400 600 800 1000 1200 1400Population (Billions)

CO2

Emis

sion

s pe

r Ca

pita

(Met

ric

Tons

of

Carb

on)


Sources: Earthtrends Database of the World Resource Institute (WRI) http://earthtrends.wri.org/


Source: UNEP-Building and Climate Change Report-2007

GNI per capita vs. Carbon Emissions per capita

Horizontal axis: GNI/capita

Vertical axis: CO2/capita


Tota

l C

O2 E

mis

sion

s (M

illio

n M

etr

ic

Ton

s)

GDP (2004 Billion $US)

Source: Earthtrends Database of the World Resource Institute (WRI) http://earthtrends.wri.org/


Source: US Energy and Information Administration, International Energy Annual 2009

Source: US Energy and Information Administration, International Energy Annual 2004


Source: Pimentel, D. et al. (2002). Renewable energy: Current and potential issues. BioScience, 52 (12), 1111-1120.


Source: US Energy and Information Administration (EIA) 2010

Source: US Energy and Information Administration (EIA) 2004


Cumulative Emissions (1900-2002):Source: World Resource Institute

Source Where WRI Got Data: WRI calculates carbon dioxide emissions from 3 sources

EIA. 2004. International Energy Annual 2002. Available online at: http://www.eia.doe.gov/iea/carbon.html.

IEA. 2004. CO2 Emissions from Fuel Combustion (2004 edition). Available online at: http://data.iea.org/ieastore/co2_main.asp.

Marland, G., T.A. Boden, and R. J. Andres. 2005. Global, Regional, and National Fossil Fuel CO2 Emissions. in Trends: A Compendium of Data on Global Change. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A.

CO2 Emissions (2002) Source: World Resource Institute

Sources Used by World Resource Institute:




Population (2002) Source: World Resource Institute.

Sources where WRI Got Data From:

Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. 2007. World Population Prospects: The 2006 Revision.

GDP (2002)Source: World Resource Institute.

Source WRI Got Data From: Development Data Group, The World Bank. 2007. 2007 World Development Indicators Online. Washington, DC: The World Bank

http://www.eia.doe.gov/iea/carbon.html

http://data.iea.org/ieastore/co2_main.asp


In the future:Most emissions could originate in developing countries as they industrialize

• Industrialization is resource intensive

• North-South issues


Climate change:

• The causes of climate changes are economic

• The effects are physical and biological


Since the effects are physical, economists underestimate them

Since the causes are economic, physical scientists cannot find solutions


Climate change requires thinking and acting across social and physical disciplines

A major challenge


Climate change is global

It therefore requires us to focus on:

• Global socioeconomic issues• Global equity


To address these issues we introduced in 1974 the concept of development based on the satisfaction of “basic needs”

The Bariloche Model: “Catastrophe or New Society: A Latin American World Model” A. Herrera, G. Chichilnisky et al,1974

It was a response to the Club of Rome “Limits to Growth” model – D. Meadows, MIT


Economic development based on the satisfaction of basic needs

Basic Needs were introduced to rethink development patterns, so they would be consistent with the environmental constraints (Chichilnisky 1974, 1977)

Bariloche Model (1974-76) and sustainability

Bruntland Report, needs and sustainability


Sustainable development

•Sustainable Development is anchored on the concept of Basic Needs voted by 150 nations in 1992 UN Earth Summit of Rio de Janeiro as the cornestone of efforts to define Sustainable Development, cf. G. Heal Valuing the Future 2000.

“Development that meets the needs of the present without compromising the ability of future generations to

meet their own needs”

Our Common Future, Bruntland Report 1987


Global Environmental Policy

Requires Equity and Efficiency

“North South Trade and the Global Environment”, G. Chichilnisky American Economic Review, 1994Environmental Markets: Equity and Efficiency, G. Chichilnisky, G. Heal Kluwer publishers 1998.

How did it all happen?

A brief history

of the

Anthropocene

58


Scientists find that most of the damage to biodiversity and the

atmosphere has occurred in the last 60 years

WHY?

What happened 60 years ago?


•Emissions of greenhouse gases and destruction of biodiversity are connected to the rapid industrialization since World War II


History

• After World War II, the U.S. became 40% of the world economy following the destruction of Germany and Japan

• Today the U.S. is back to 25%, as it was before World War II


The U.S. pattern of economic development became a benchmark

• based on rapid industrialization led by deep and extensive use of natural resources

• A frontier approach to economics


Global institutions were created that reinforced this vision of resource-intensive

economic development

• The World Bank• The International Monetary Fund-Bretton Woods• The United Nations• The current system of National Accounts

• The American Dream went Global




0.0

5.0

10.0

15.0

20.0

25.0

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Years

Per

cen

t

World Average



Total

Manufactures

GDP

100

1000

10000

1950 1960 1970 1980 1990 2000

500

2500

5000

250



Semi-log scale




Growth in the volume of world merchandise trade and GDP, 1996-2006(Annual percentage change)

-2

0

2

4

6

8

10

12

1996 97 98 99 00 01 02 03 04 05 2006

GDP

Merchandise exports

Average export growth 1996-06

Average GDP growth

1996-06


GD

P p

er

Capit

a (

19

90

Inte

rnati

onal G

eary

-Kham

is D

olla

rs)

Year

Source: Angus Maddison, Historical Statistics for the World Economy: 1 – 2006 AD.


Source: US EIA 2010


Sources: UN FAO 2010 World Roundwood and Sawnwood Total Production


Source: US Energy and Information Administration (EIA)


GD

P p

er

Capit

a (

19

90

Inte

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onal G

eary

-Kham

is D

olla

rs)

Year



Source: World Bank (2002 data)


Economics drives global change:

• In the North, emission of CO2 is linked to intensive energy use for production of goods and services

• In the South, intensive destruction of ecosystems for agricultural production and mineral extraction for export markets


Sources: Earthtrends Database of the World Resource Institute (WRI) http://earthtrends.wri.org/


Source: IPPC


Cumulative Emissions (1900-2002):Source: World Resource Institute

Source Where WRI Got Data: WRI calculates carbon dioxide emissions from 3 sources




CO2 Emissions (2002) Source: World Resource Institute

Sources Used by World Resource Institute:




Population (2002) Source: World Resource Institute.

Sources where WRI Got Data From:

Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. 2007. World Population Prospects: The 2006 Revision.

GDP (2002)Source: World Resource Institute.

Source WRI Got Data From: Development Data Group, The World Bank. 2007. 2007 World Development Indicators Online. Washington, DC: The World Bank

http://www.eia.doe.gov/iea/carbon.html

http://data.iea.org/ieastore/co2_main.asp


DISTRIBUTION OF TROPICAL FORESTS

Source: www.marietta.edu

Source: Food and Agricultural Organization of the United Nations


HOLDRIDGE LIFE ZONE CLASSIFICATION


The North Produces Most Risks

• Most CO2 emissions

• Most CFC emissions

• Most biodiversity destruction


The South suffers most of the effects. It is most vulnerable to the effects of climate change on:

• food production

• living conditions


The North produces most risks

The South bears them most


The origins of today’s environmental dilemmas involve the historical coupling

of two different worlds through the international market: the industrialized and the developing regions, the North

and the South


•The globalization of the world economy since World War II has intensified a pattern of resource use by which developing nations extract most natural resources, exporting them to industrialized nations at prices that are often below replacement cost


Source: World Bank 2004 data


Source: World Trade Organization (WTO) 2005 data


Source: Dani Rodrik. “Sea Changes in the World Economy.” Paper prepared for the Techint conference, Buenos Aires, August 30, 2005




0.0

5.0

10.0

15.0

20.0

25.0

1950 1998 2005

Years

Per

cen

t

World Average



Total

Manufactures

GDP

100

1000

10000

1950 1960 1970 1980 1990 2000

500

2500

5000

250



Semi-log scale





-2

0

2

4

6

8

10

12

1996 97 98 99 00 01 02 03 04 05 2006

GDP

Merchandise exports


Average GDP growth

1996-06


Through the international market, industrial nations, housing 20% of the world population:

• Consume most forest products (pulp, wood)

• Consume most products produced through the clearing of forests (cash crops, livestock)


The North’s economy represents the main driving force:

• Has used, and continues to use, most of the global resources and environment,

• Produces 60% of all CO2 emissions,• Consumes most forest and mineral

products,• Emits most CFCs

Source: WRI


■The South, with 80% of the world’s population, extracts and exports most resources, which are mostly consumed in the North.

■Resources – such as petroleum and wood – are traded at prices which are below real costs, leading to increased dependence on resource use and to a deepening North-South divide


Source: Baker, E, Bournay, E, Harayama, A, & Rekacewicz, P (2004). Vital Waste Graphics. UNEP/DEWA/GRID-Europe, RetrievedJan. 24, 2009, from http://www.grida.no/_res/site/file/publications/vital-waste/wastereport-full.pdf


GREENHOUSE INDEX: COUNTRIES WITH HIGHEST

GREENHOUSE GAS EMISSIONS, 2004

Source: CAIT


Total Exports

Exports of Raw Materials

Source: World Trade Organization (WTO). World Trade Overview 2005. http://www.wto.org/english/res_e/statis_e/its2006_e/its06_overview_e.pdf


The UN Food and Agriculture Organization (FAO) has estimated that direct emissions from meat production account for about 20% of the world's total greenhouse gas emissions

Exceeding emissions from the world’s entire transportation system•


GD

P p

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Capit

a (

19

90

Inte

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onal G

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-Kham

is D

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rs)

Year



The U.S. uses 24.3% of the world’s oil output yearly, even though it has about 4% of the

world’s population

SOURCE: CIA World Factbook, December 2008


It is not how much you export but what you export

Note: “income content of exports” (EXPY) represents the income level of the typical country with your export basket. Source: World Trade Organization (WTO). World Trade Overview 2005. http://www.wto.org/english/res_e/statis_e/its2006_e/its06_overview_e.pdf


The remarkable rise of China

Source: Dani Rodrik. “Sea Changes in the World Economy.” Paper prepared for the Techint conference, Buenos Aires, August 30, 2005


The remarkable rise of China

Source: Dani Rodrik, op.cit. 2005


Source: United Nations Comtrade Database for Oil Export Data. http://comtrade.un.org/pb/CountryPages.aspx?y=2007.

World Bank for GDP data

Pattern of World Trade

• Since WWI, world trade became the exports of manufactured and capital intensive products from the North against raw materials mostly exported by the South

• Previously imposed through colonialism, this pattern became entrenched through ‘market colonialism’ after the liberation movements of the mid 20th century

• ‘Export led growth’

• An illusory theory of comparative advantages 111

Why did this happen?

• The economics of North-South Trade

• Its impact on the Global Environment

• G. Chichilnisky “North South Trade and the Global Environment” AER 1994

112


This pattern of trade after WWII can be explained in substantial measure by a historical difference in property

rights in the developing and industrial worlds


Developing countries hold most resources as common property while in industrial economies

these are usually private property


Natural resources, such as forests and mineral resources are often held as common property in developing countries. They are often used on a “first come first served” basis in an open access process


In a world where agricultural societies trade with industrial societies,

international markets magnify the extraction of resources. The result is that exports and world use of natural

resources exceed what is optimal


The resulting agricultural output is mostly sold in international markets (pulp and wood, cash crops, livestock, Barbier)


Differences in property rights explain:

• The South’s over-extraction of natural resources for the international market

• Why the South sells natural resources below real cost

Chichilnisky, American Economic Review, 1994


Source: World Trade of IT products by region 2005, Source Comtrade database and WTO. Exports and Imports,This Chart appears on Page 17, World Trade Report 2007 WTOhttp://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report07_e.pdf


Note: The graph corresponds to the regression system in Table 3, column 2 (next slide). The curve shows the partial relation between the Gini coefficient and the log of per capita GDP, holding fixed the estimated effects of the explanatory variables other than the log of per capita GDP and its square. Source: Robert Barro. Inequality and Growth Revisted. ADB January 2008. http://aric.adb.org/pdf/workingpaper/WP11_%20Inequality_and_Growth_Revisited.pdf


Source: Robert Barro. Op.cit. 2008.


Source: World Trade Organization (WTO). World Trade Overview.http://www.wto.org/english/res_e/statis_e/its2006_e/its06_overview_e.pdf


Note: GNNP (Green Net National Product) is GNP minus the damage from carbon dioxide emissions, depreciation of produced assets and depletion of forests and subsoil assets. Source: “When Self Interest is Key to a Better Environment.” Nature. Volume 395. October 1998. http://www.nature.com/nature/journal/v395/n6701/pdf/395428a0.pdf


Without computing the “replacement costs” of extraction, there is a false impression of resource abundance and comparative advantage leading to a global version of the “tragedy of the commons”


Note: GNNP (Green Net National Product) is GNP minus the damage from carbon dioxide emissions, depreciation of produced assets and depletion of forests and subsoil assets. Source: “When Self Interest is Key to a Better Environment.” Nature. Volume 395. October 1998. http://www.nature.com/nature/journal/v395/n6701/pdf/395428a0.pdf


Source: Development Data Group, The World Bank. 2008. 2008 World Development Indicators Online. Washington, DC: The World Bank. Available at: http://go.worldbank.org/U0FSM7AQ40.And World Trade Organization (WTO). World Trade Overview.http://www.wto.org/english/res_e/statis_e/its2006_e/its06_overview_e.pdf


Barr

els

of

Oil (

Billion

s)

Source: Energy Information Administration. August 27, 2008. http://www.eia.doe.gov/emeu/international/oilreserves.html




-2

0

2

4

6

8

10

12

1996 97 98 99 00 01 02 03 04 05 2006

GDP

Merchandise exports


Average GDP growth

1996-06


Source: World Trade Organization (WTO) 2005 data


Source: International Monetary Fund (IMF). World Economic Outlook 2008.http://www.imf.org/external/pubs/ft/weo/2008/01/index.htm#ch1fig


Source: Alan Thein Durning. “How Much is Enough?” The Worldwatch Environmental Alert Series. 1992http://www.ncseonline.org/PopPlanet/ePopulationReports/rest/abstracts/148954.pdf


Source: Baker, E. et al. (2004). Vital Waste Graphics. UNEP/DEWA/GRID-Europe, Retrieved Jan. 24, 2009, from http://www.grida.no/_res/site/file/publications/vital-waste/wastereport-full.pdf.


Source: US Energy and Information Administration (EIA) 2004 Data


Source: International Monetary Fund (IMF). World Economic Outlook 2008.http://www.imf.org/external/pubs/ft/weo/2008/01/index.htm#ch1fig


As a result of this trade pattern the North over-consumes

resources, and the South over-extracts them

Chichilnisky, American Economic Review, 1994


As a consequence of these historical facts, the Earth

Resources are undervalued in international markets


Because most resource-intensive exports come from developing nations, their own

economies and people are undervalued in economic terms


Resource intensive trade leads to an increasingly divided North-

South world


YearG

DP p

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Cap

ita (

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Privatizing resources in developing countries may be impractical in any reasonable

time scale.

An alternative is to privatize the global commons.


Rather than privatizing forest and mineral deposits “on the ground”, we can privatize and

trade the rights to use the atmosphere as a carbon sink,

and the use of biodiversity

The Kyoto Protocol• Signed by 160 nations in 1997 – including USA

• International Law since 2005

• First international agreement based on a new global market: for trading the rights to use the world’s atmosphere

• The United Nations voted to extend its limits in COP 17 Durban December 2011 until 2015



New Economic Findingsfrom the UN Carbon Market

• Efficiency in trading permits requires more emission rights to developing countries

• Why?


Typically efficiency requires that those with fewer endowments of private goods should have a higher allocation of property rights on the public goods

■Chichilnisky, 1992-3■Chichilnisky and Heal, 1993■Chichilnisky, Heal and Starrett, 1993-4


Kyoto Protocol:The way ahead

• How to develop incentives for international cooperation?

• How to obtain support from the private sector?

• Will the three flexibility mechanisms be unified

• How to regulate private sector emission traders?

• How to achieve equitable markets?

The World needs more Energy

• The developing nations need energy

• Most of all energy increase (doubling today’s use by 2030) expected to come from developing nations (IEA)

• But today power plants are 45% of the global emissions of CO2

• How to resolve this cruel dilemma?

151


The clean development mechanism of the Kyoto Protocol has already transferred $50Bn to poor nations for private projects decreasing carbon emissions – The World Bank “Trends and Facts of the Carbon Market” 2011

The CDM must be extended to Carbon Negative projects to allow funds for Latin America, Africa and AOSIS –

Why?

And How?


The next lectures will address these issues and the rays of

hope for a solution

Pegram Lecture 1, August 10, 2012

Business

Transcript of Pegram Lecture 1, August 10, 2012