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«ENVIRONMENT AND DEVELOPMENT The Changing Wealth of Nations ENVIRONMENT AND DEVELOPMENT A fundamental element of sustainable development is ...»

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Summing Up Our purpose in this chapter has not been to join the rancorous debate about historical responsibility for climate change. The CAIT figures are, on their own, sufficient to fuel that debate.

Our contribution has been to devise an approach to economic valuation of the stocks of CO2 that can be attributed to each country and to present the resulting figures both in per capita terms and as a share of total wealth. In per capita terms the stock values are particularly large in high-income countries, while they are large in proportion to total wealth in the large middle-income countries, particularly in the transition economies of Eastern Europe and Central Asia. We also value current emissions, using the social cost of carbon. These figures are also large in per capita terms in high-income countries and large as a share of GNI in the large middle-income countries.

It is clear that assigning property rights would be a necessary step in bringing these CO2 values into the national income, savings, and wealth accounts that are the focus of this book. If we assume that countries have the right not to be polluted by their neighbors—a fundamental principle of international environmental law—then each country’s value of CO2 emissions could be accounted as a notional deduction from savings, while the value of the stock of CO2 attributed to the country could be a notional liability in the asset accounts. But any attempt to move from notional values to damages owed would raise the issues discussed earlier about the applicability of the model of corrective justice and the associated ethical questions.

The social cost of carbon employed in this chapter falls within the range of peer-reviewed estimates, $6.69 per ton of CO2. By way of comparison, the U.K.

Department of Energy and Climate Change has published guidelines suggesting a central estimate of the value of carbon lying between £21 and £50 per ton of CO2 in 2008 (DECC 2009). The lower of these figures amounts to about $40 per

86 THE CHANGING WEALTH OF NATIONS

ton of CO2 in 2005 dollars, and at this social cost of carbon the average value of the U.S. stock of CO2 per citizen would amount to over $23,000, representing nearly 55 percent of GNI per capita or 3 percent of total wealth per capita. In addition, if the world were to agree on an emissions cap that would lead to stabilization of the global stock of CO2, the social cost of carbon would rise at the rate of interest, say 5 percent per year.10 But the rate of decay of CO2 stocks is much lower, averaging about 1.2 percent a year over 100 years. It is therefore likely that the value of these CO2 stocks will increase over time.

The rate of depreciation of these stocks of CO2 is driven by physical processes.

Unlike financial obligations, therefore, these stocks cannot be reduced by saving more today. But the rate of accumulation of new stocks of atmospheric CO2 is very much driven by the combination of economic and climate policy.

This brings us back to one of the main messages of WDR 2010: the development process itself must be transformed because high-carbon growth is no longer sustainable. Achieving this transformation across a broad range of countries is part of what the United Nations Framework Convention on Climate Change terms the “common but differentiated responsibilities” of all countries.

WEALTH ACCOUNTING IN THE GREENHOUSE 87

Annex: Sources and Technical Details This annex provides the sources of the data used in this chapter, as well some key technical details concerning the empirical estimates used.

Stock of CO2 in 2005 A standard source for historical CO2 concentration data is the Carbon Dioxide Information Analysis Center (CDIAC) of the U.S. Department of Energy, which has published data on recent greenhouse gas concentrations (Blasing 2010).

For this chapter we assume a preindustrial atmospheric CO2 concentration of 284 parts per million by volume (ppmv), based on work by Etheridge et al.

(1998). We use a current concentration figure of 379.76 ppmv in 2005 based upon the Mauna Loa time series from Pieter Tans (2010) of the Earth System Research Laboratory, National Oceanic and Atmospheric Administration, U.S.

Department of Commerce.

The difference between these two figures gives a concentration of anthropogenic atmospheric CO2 equal to 95.76 ppmv. Concentrations are then converted

to mass, based upon information from CDIAC (2010):

1 ppmv CO2 2.13 Gt C 7.81 Gt CO2.

Our estimated mass of anthropogenic atmospheric CO2 for 2005 is therefore

747.9 Gt CO2.

As noted in the text, CAIT assumes a rate of dissipation of CO2 from the atmosphere based upon UNFCCC (2002). The formula assumes different rates of decay for distinct fractions of the gas in the atmosphere. If we denote the fraction of emitted CO2 still in the atmosphere t years after emission as f(t), and emissions in year s as e(s), then the year 2005 stock S is calculated as S(2005) e(t) f (2005 t) t 1,850 As reported in the CAIT indicator framework paper (WRI 2009), CAIT calculates an anthropogenic CO2 concentration in year 2000 of 83 ppmv compared with the observed figure of 90 ppmv. The difference is ascribed to the simple model of the carbon cycle used in the calculation and the omission of land-use change and forestry emissions prior to 1990.





CAIT reports only the country shares of the anthropogenic stock of CO2, which are shown in tables 4.2 and 4.3. We multiply these shares by the total stock estimate of 747.9 Gt CO2 to arrive at country stocks, but the omission of emissions from land-use change in the nineteenth century probably biases developed-country stocks downward.

88 THE CHANGING WEALTH OF NATIONS

Average Versus Marginal Social Cost of Carbon Figure 4.1 presents the logic for how nonmarginal changes in the stock of atmospheric CO2 should be valued. We use a quadratic form of the relationship between the marginal social cost of carbon and the atmospheric concentration of CO2, based upon an approximation of the damage function in the DICE (Dynamic Integrated Model of Climate and the Economy) 2007 model documented by Nordhaus (2008).

The DICE 2007 integrated assessment model employs a piece-wise polynomial damage function to relate global damages (measured in percentage of gross domestic product lost) to the mean global temperature rise, with damage assumed to be zero for a zero rise in temperature. Since the temperature rise is an increasing function of the atmospheric concentration of CO2, and the social cost of carbon (SCC) is an increasing function of damages, we approximate

these relationships as:

SCC 0.00018407 x(x 284)

Here x is the atmospheric concentration of CO2, and the leading numerical constant ensures that the social cost of carbon is equal to $6.69 when concentrations are at the 2005 level, 379.76 ppmv. The (x 284) term ensures that the social cost of carbon is zero when CO2 concentrations are at the preindustrial level of 284 ppmv.

A superior solution to dealing with nonmarginal values of the social cost of carbon would be to run the DICE 2007 model (or another integrated assessment model) with alternative initial conditions for the current atmospheric concentration of CO2, and then measure the associated social cost of carbon. Repeating this step would permit the tracing out of a more precise curve for figure 4.1, and numerical integration of the curve would yield the nonmarginal values of the social cost of carbon desired. This is a subject for future research.

WEALTH ACCOUNTING IN THE GREENHOUSE 89

Notes 1 As the analysis will show, however, per capita emissions of CO2 in low- and middle-income countries are still much lower than in developed countries.

2 This list of characteristics is obviously not exhaustive. A key point, though not directly germane to the analysis in this chapter, is that climate mitigation is a global public good, creating strong incentives for countries to free ride on the efforts of their neighbors.

Free riders increase their own profits by not applying costly CO2 abatement technologies while at the same time benefiting from abatement efforts by others. In the absence of an effective global regulatory regime, reducing climate change is a classic coordination problem. Barrett (2003) explores this problem at length.

3 CAIT Version 7.0 was developed by the World Resources Institute in Washington, DC (http://cait.wri.org/).

4 For an example of an integrated assessment model, see the DICE (Dynamic Integrated Model of Climate and the Economy) model of Nordhaus (2008). Integrated assessment models are linked economy-climate system models.

5 This seems a reasonable starting point, but it is not uncontroversial, as our discussion of finding fault will make clear.

6 The data underlying figure 4.1 and its functional form are referenced in the annex to this chapter.

7 Obviously, if country X’s stock of CO2 is small, then points a and b nearly coincide, and marginal valuation of the stock is a reasonable approximation.

8 For sources and caveats on the data presented, see the annex to this chapter. Note that shares of anthropogenic CO2 in 2006 would not be significantly different from those for 2005, and so we apply the 2006 shares to the 2005 total stock in order to arrive at 2005 stocks of CO2 by country.

9 Note that the figures for the value of emissions are equal to the level of an efficient tax on carbon emissions in these countries. Some countries have suggested that taxing carbon at the point of emission is unfair, because much of the carbon is emitted in the production of export goods consumed in other countries; these producer countries therefore suggest taxing on the basis of carbon consumed. However, the logic of taxing consumption requires that there be border taxes on imports (see, for instance, Whalley 1979), so the suggested tax on carbon consumption would not necessarily reduce the tax burden on emitting nations. Atkinson et al. (2010) show that U.S. border taxes on the carbon content of imports from China, India, Russia, and South Africa could be very large, up to 10 percent of the total value of imports for a tax rate of $50 per ton of CO2.

10 The intuition here is that implementing a stabilization target is roughly equivalent to having a finite stock of emission rights that will be depleted over time. The Hotelling rule therefore applies to the price of these emission rights—that is, the social cost of carbon.

References Atkinson, Giles, Kirk Hamilton, Giovanni Ruta, and Dominique van der Mensbrugghe.

2010. “Trade in ‘Virtual Carbon’: Empirical Results and Implications for Policy.” Policy Research Working Paper 5194, World Bank, Washington, DC.

Barrett, Scott. 2003. Environment and Statecraft: The Strategy of Environmental Treaty-Making.

New York: Oxford University Press.

90 THE CHANGING WEALTH OF NATIONS

Blasing, T. J. 2010. “Recent Greenhouse Gas Concentrations.” Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, TN. http://cdiac.ornl.gov/pns/current_ghg.html.

CDIAC (Carbon Dioxide Information Analysis Center). 2010. “Frequently Asked Global Change Questions.” CDIAC, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, TN. http://cdiac.ornl.gov/pns/faq.html.

DECC (Department of Energy and Climate Change). 2009. “Carbon Valuation in UK Policy Appraisal: A Revised Approach.” U.K. Department of Energy and Climate Change, London.

den Elzen, M., M. Berk, M. Schaeffer, J. Olivier, C. Hendriks, and B. Metz. 1999. “The Brazilian Proposal and Other Options for International Burden Sharing: An Evaluation of Methodological and Policy Aspects Using the FAIR Model.” National Institute of Public Health and the Environment, Bilthoven, Netherlands.

Etheridge, D. M., L. P. Steele, R. L. Langenfelds, R. J. Francey, J.-M. Barnola, and V. I.

Morgan. 1998. “Historical CO2 Records from the Law Dome DE08, DE08-2, and DSS Ice Cores.” In Trends: A Compendium of Data on Global Change. Oak Ridge, TN: Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy.

Fankhauser, Samuel. 1995. Valuing Climate Change: The Economics of the Greenhouse.

London: Earthscan.

IPCC (Intergovernmental Panel on Climate Change). 2007a. Climate Change 2007: Synthesis Report—Summary for Policymakers. Contribution of Working Groups I, II, and III to the

Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva:

IPCC.

———. 2007b. IPCC Fourth Assessment Report: Climate Change 2007. Geneva: IPCC.

Nordhaus, William. 2008. A Question of Balance: Weighing the Options on Global Warming Policies. New Haven, CT: Yale University Press.

Rose, A., and S. Kverndokk. 2008. “Equity and Justice in Global Warming Policy.” Nota di Lavoro 80.2008, Fondazione Eni Enrico Mattei, Milan.

Rose, A., B. Stevens, J. Edmonds, and M. Wise. 1998. “International Equity and Differentiation in Global Warming Policy.” Environmental and Resource Economics 12 (1): 25–51.

Stern, Nicholas. 2006. The Economics of Climate Change: The Stern Review. Prepared for the U.K. Government. New York: Cambridge University Press.

Tans, Pieter. 2010. “Trends in Atmospheric Carbon Dioxide.” Earth System Research Laboratory, National Oceanic and Atmospheric Administration, U.S. Department of Commerce, Boulder, CO. http://www.esrl.noaa.gov/gmd/ccgg/trends.

Tol, Richard. 2005. “The Marginal Damage Costs of Carbon Dioxide Emissions: An Assessment of the Uncertainties.” Energy Policy 33: 2064–74.

UNFCCC (United Nations Framework Convention on Climate Change). 2002. Scientific and Methodological Assessment of Contributions to Climate Change: Report of the Expert Meeting. Document FCCC/SBSTA/2002/INF.14. Bonn: UNFCCC.

Weisbach, David. 2009. “Responsibility for Climate Change, by the Numbers.” Law and Economics Working Paper 448, University of Chicago Law School, Chicago.

Whalley, John. 1979. “A Simple Neutrality Result for Movements between Income and Consumption Taxes.” American Economic Review 69 (5): 974–76.

WEALTH ACCOUNTING IN THE GREENHOUSE 91

World Bank. 2007. World Development Indicators 2007. Washington, DC: World Bank.



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