EC103-Topic #3: GDP and the Environment

College students are often the first to jump on the bandwagon of saving the environment, which is in general a good thing. However, often lost in the “saving the environment” discussion is the need to frame the argument in economic terms. Saving the environment at any cost is not economically or politically feasible at this time (or any other time for that matter). Some economists have pointed out that there have been major successes at reducing CO2 emissions even in the United States. A major issue regarding environmental change is the inability to properly price (another pricing story) the environment or carbon. There are many supporters of taking great action immediately, and others who insist on not getting ahead of ourselves.

There are various reports regarding the economic impacts of climate change which are both widely reported and widely disputed. Bjorn Lumberg is a leading proponent of those putting the economy and the environment in the same discussion. However, he appears to be standing up against environmental protection by not supporting many environmental proposals simply due to their costs. The Stern report on the economic impact of climate change is only one of many estimates.

Questions you might try to answer:

  • What is the proposed impact of global warming on US GDP? Global GDP?
  • What is the proposed impact of a treaty like Kyoto on US GDP? Global GDP?
  • Think of a specific proposal regarding CO2 emissions, the benefits to the environment, and the costs to the economy. You must use a source in your defense/rebuttal of an argument.
  • Report and critique an estimate of the cost of global warming.
  • Report and critique an estimate of the measures to prevent global warming.

Remember… I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.

20 thoughts on “EC103-Topic #3: GDP and the Environment”

  1. In the Stern Report, it seems that the reduction of world GDP by 1% in order to curb our emissions, would be negligible. This is given the fact that the repercussions of no action (in the worst case scenario), could be a global reduction in the economy of 20%. However, is this an even reduction? Would it stunt just developing countries (possibly halting growth) or just developed countries? I am left wondering if this report deals with these aspects, which are intrinsic to garnering support for change. In terms of the United States, I think the proposal by Charles Wheelan is a sound approach, from which we can expect to see immediate results. I admire the fact that it is well thought out, as it takes into account the repercussions on lower income families. However again, I am left wondering if the same tax breaks will be available to industry. If not, will this not halt growth? Despite these questions, the California example makes me optimistic that this plan is a feasible possibility which can be adopted at a necessary speed. It seems that we as a nation (and hopefully as a world community), have finally recognized that global warming is a threat to the environment. Why we didn’t come to accept this sooner is beyond me. Is it not logical that if you alter the environmental balance, changes will occur that are possibly bad? Now, some say that we hadn’t worry yet. That there is still time before we begin change our way of life and risk damaging economic growth. Call me a sissy. I was never a great poker player. But, better change now, and get the ball rolling (possibly imperfectly) than be sorry for my children.(Initials: AS)

  2. Reducing the CO2 emissions is an intriguing puzzle for the world especially when it costs a lot of money. Many people assert that we have to act however much it will cost to preserve the environment and reduce the global-warming, one of the impacts that CO2 emissions cause. Moreover, CO2 emissions cause increasingly negative impact on GDP (a net damage of 1% of GDP). However, many others, claim that if men invest money in substituting more conventional discount rates used in other global-warming analyses, it would be, we may, at worst, be just a little bit poorer 50 years from now. Both of those opinions are very reasonable. However, I will scrutinize this problem by giving the solution and its benefits for the society to lower CO2 emission and analyze the complements it may carry at last.Effective solutions for CO2 reduction will require more than just designing cleaner energy sources. The Kyoto Protocol is a good solution for this problem when many countries come into agreement with applying emissions trading in the context of global action. Applying the Kyoto Protocol, the government creates a number of pollution permits that are equal to the cap. For example, if a country’s emissions target is 200 million tons of carbon dioxide, the government would issue 200 million permits, each of which allows the holder to emit 1 ton of carbon dioxide. While firms may buy or sell permits based on how much carbon dioxide they need to emit, total pollution cannot exceed the cap. Under this “cap-and-trade” approach to pollution reduction, companies face incentives to adopt cleaner technology in order to avoid paying for extra pollution rights (www.aplia.com). Moreover, under the Kyoto Protocol, many countries can make a lot of benefit. Based on http://www.aplia.com, the British government figures electric bills will go up about 5 percent nationwide as the country meets its obligations under the Kyoto climate treaty, but the measures could also have economic benefits. However, the Kyoto Protocol has been criticized on several grounds. Kyoto has, to its credit, established an aspiration to create a single global carbon price and implement equitable approaches to sharing the burden of action on climate change. However, The Kyoto Protocol alone can’t stop global warming; we need more money to save the environment. The loss in “saving the environment” stirs the need to frame the argument from economic point of views. Many claim that people are investing almost 1% of GDP (which is a huge amount of money) into preserving the environment. In one paper, Bjorn Lumberg states that “the bizarre result arises because the value of the future consumption stream is so high with near-zero discounting that we would trade off a large fraction of today’s income to increase a far-future income stream by a very tiny fraction.” He is standing up against environmental protection simply due to their costs.Many people who work with government to reduce emissions over time and across the economy assert that “global warming could shrink the global economy by 20%. But taking action now would cost just 1% of global gross domestic product.” From the perspective of economic, in order for the project to be attractive, the present value of future benefits MUST exceed current costs. Chi.

  3. Globally, 1% of GDP has to be immediately invested, if we don’t, natural disasters can start such as melting glaciers (BBC News)The proposed impact of the Kyoto agreement was to cut industrial emissions (on CO2), but this didn’t work out well because developing countries were not concerned about putting a cap on their emission output. They felt the responsibility for CO2 emission was only for industrialized countries (Scientific American Article). Another reason this didn’t work was that stronger nations such as the US would ignore this contract in times of high economic growth (i.e. the 1980s). Countries are using different measures to lower their CO2 emission rates. For example, Norway placed a tax on the carbon, oil and natural gas industries (Scientific America). Even though the idea of printing permits was mentioned in an above comment as a good idea, the E.U. produced too many, and because of this, instead of companies paying $40 per ton of CO2 in 2005, they are now paying almost $1 a ton. So there can still be a way around this for companies.However, after reading these articles and learning that R&D on global warming has been declining, from $8 billion in 1988 (in 2002 dollars) to $3-4 billion (out of $100 billion given out by the American Government) I still say that more research has to be done, but it should be as effective as possible not only for the environment, but also for the amount of money we spend on it.-Michael G

  4. I agree with the others who have stated their opinions that the 1% restriction in world GDP to decrease greenhouse gases is a more than acceptable cost when the effects will benefit generations in the future. However the point made by David G. Victor and Danny Cullenward that the advancement of developing nations could be hindered by the reduction of greenhouse gases is a valid one. I believe that a system for determining the amount of emissions allowed for each country could be effective. This system could take into account the GDP and total greenhouse emissions of each country and limit them based on that information. It could work much like the progressive tax method that we use here in the USA. The higher the GDP of the country the more it can afford to cut back on emissions. However, the problem cannot be solved that easily. Very few countries would agree to such an idea because it would not benefit them sufficiently at the moment. The most beneficial idea would be to research a new, cleaner form of energy. The R&D costs would be great but the benefit would be enormous. Additionally the inventor of such an energy source would achieve huge profits from the distribution of such an invention. In any case, the cost at this point is nothing compared to the continued prosperity of humanity for generations to come.

  5. “The higher the GDP of the country the more it can afford to cut back on emissions.” – I do not agree with Ben in this point. It is somehow sound when you say, you can earn more money so you can spend more money saving environment. However, don’t forget that when GDP is higher, which substitutes with the higher amount of C02 emissions produced from factories . You therefore have to spend more money for a worse problem. It is just another side of one idea. Chi.

  6. I agree with others that spending 1% of our current GDP is worthwhile for future societal and economical stability and growth. Global warming affects all countries and all populations. (Stern Report) The ultimate goal should be to reduce CO2 emission, so everyone benefits. Developing countries fear that their growth might be affect, thus they put responsibility on developed countries. This should not be the case. Developing countries should contribute a little, while developed countries can put in more effort into research and development. There is not one country that is willing to take all the responsibility, but if all countries agree to act together, then more will be accomplished. The cost of reducing CO2 is not as much as a burden for developed country as exemplified by the California economy. Small conservation of energy of the whole world will significantly slow down global warming. Even though we have “the time and knowledge to act” as Sir Nicholas Stern put, not much has been done so far. I think it might be the idea that “earth” is a public good, thus no individual has the incentive to properly handle the property. In this case, strong government incentives are needed to advocate the movement of reducing global warming. JunZhu

  7. One of the effects that Global Warming causes climate change and climate change could reduce 0.5%-1% of world GDP by the middle of the century, and will keep rising as the world warm. Climate change threatens the basic elements of life for people around the world and causes a negative effect to the world economy and future development. Not all of the countries are taking this issue immediately and seriously because it’s a global issue. All the countries should take responsibilities to reduce the effect due to future benefits. Some of the countries should be the head of all to prevent global warming. Everyone should take responsibility. Individuals can reduce the car driving or taking a public transportation instead. Recycling, use Less Heat and Air Conditioning, plant trees, encourage others to conserve and so forth. Green challenge can rises opportunities “for new markets, for new jobs, new technologies, new exports where companies, universities and social enterprises in Britain can lead the world.” “For every £1 invested now we can save £5, or possibly more, by acting now.” So why not, taking actions now to reduce the risks and promote the qualities of our lives and world’s economy as a whole.

  8. Some residents and politicians do not want to spend much money on global warming because the expensive cost of controlling global warming will decrease the national investments in GDP and influence some of personal benefits. However, they can not see the huge external cost behind the global warming. In the future, human beings must pay much more back to environment by global warming. In my opinion, government should take the global warming seriously right now. Factories, automobiles and air conditioners are three ways to increase the global warming rapidly. Tax cartoon will increase the cost of factories. It will reduce the amount of carbolic releasing and activate factories to update technologies in this area. Increasing the tax of oil and set the extra pay (Like drivers have to pay extra money to get into Manhattan in rush hours) to decrease the demand of driving. Fewer automobiles will slow down the global warming. Air conditioner is a huge problem. In the offices or shopping malls, air conditioners will be open all the time. Government should set the minimum temperatures in these places because setting one degree higher will save many resources (electricity). For the household, government could increase the price of electricity or give extra taxable benefit to people who do not use air conditioners.

  9. I agree with others that spending 1% of our current GDP is worthwhile for future societal and economical stability and growth. Global warming affects all countries and all populations. (Stern Report) The ultimate goal should be to reduce CO2 emission, so everyone benefits. Developing countries fear that their growth might be affect, thus they put responsibility on developed countries. This should not be the case. Developing countries should contribute a little, while developed countries can put in more effort into research and development. There is not one country that is willing to take all the responsibility, but if all countries agree to act together, then more will be accomplished. The cost of reducing CO2 is not as much as a burden for developed country as exemplified by the California economy. Small conservation of energy of the whole world will significantly slow down global warming. Even though we have “the time and knowledge to act” as Sir Nicholas Stern put, not much has been done so far. I think it might be the idea that “earth” is a public good, thus no individual has the incentive to properly handle the property. In this case, strong government incentives are needed to advocate the movement of reducing global warming.

  10. If global warming caused by CO2 emissions continues to increase, the environmental and economic implications could be disastrous. Continued negligence will result in the increased melting of glaciers, rising ocean levels, and increasingly severe weather patterns. According the chief economist at the World Bank, Sir Nicholas Stern, twenty million people would be displaced, and up to 40% of species could be extinct as a result of not choosing to take action against global warming. These facts alone should be startling enough to spark the implementation of drastic measures to combat the growing threat of CO2 emissions in the climate, but this is not yet the case.Skeptics of global warming have become few and far between after evidence of CO2’s effect on the climate continues to accumulate. Those opposed to government-enforced regulations, have, in turn, relied on the economic infeasibility of such policies as basis for their argument. It is a common misconception that reducing the amount of greenhouse gases we produce will negatively change our lifestyle and buying habits. In fact, changes in the marketplace would be minimal compared to the cost of letting the situation run its course. Stern predicts that the costs of not taking action against emissions would potentially result in a loss of 5% of global GDP every year. Damages from the intense changes in climate that would inevitably occur, could result in the loss of over 20% global GDP. The prospect of having to face such economic hardships is imitable. The solution to this unavoidable problem is far less costly. The Stern Review asserts that an investment near 1% of global GDP over the place of the next 10-20 years would dramatically reduce greenhouse emissions and protect the state of the global economy. The longer we deliberate the necessity of regulations, the higher the cost to the American and global economies will be. As Paul Krugman points out in “Colorless Green Ideas”, the implementation of multiple conservative measures to reduce emissions will be most environmentally and economically successful solution. This would have the potential for a great amount of impact as evident by the recent environmental strategies of California. But will this be enough? Local environments and local economies are both functions of their macro surroundings. If every industrialized state and country enforced regulations similar to California’s, the condition of the environment and the future of the economy would be substantially more stable. T.M.

  11. I feel that we, as a whole, are wasting our time by not taking as much action upon this Global Warming issue. I do believe that the 1% limitation in GDP throughout the world is so far the greatest strategy to decrease greenhouse gases. As of June 2007, a total of 172 countries and other governmental entities have ratified the agreement of the Kyoto Protocol, which will hopefully, in the end, save our future generations.From the UNFCCC website, I found that people feel that the Kyoto Protocol might not be as much of a successful as people thought it to be. Some environmental economists see the costs of the Kyoto Protocol as outweighing the benefits, some believing the standards that Kyoto sets to be too optimistic, and others seeing a highly inequitable and inefficient agreement, which would do little to help greenhouse gas emissions.For now, it is very hard to say that our world will be free of global warming in the future, but it definitely does not hurt to try all things possible in reducing this, soon to be tragic, issue. Using energy more efficiently and moving to renewable energy would significantly reduce our emissions of heat-trapping gases. The United States currently produces 70% of its electricity from fossil fuels such as coal, natural gas, and oil, but only two percent from renewable sources. Since the burning of fossil fuels releases large amounts of carbon dioxide, but renewable energy does not, increasing the share of our electricity generated from renewable resources is one of the most effective ways to reduce global warming emissions so far. – Trevor Brucato

  12. Climate change is clearly a big problem right now, especially in terms of financing actions to prevent global warming. The foreseen rise in temperature will have a profound affect on everyday life, but to what measures are we willing to go in order to prevent such issues? Environmentalism is expensive, and although there are many proposed ideas about how we should counter the potential damages, but each comes with a significant cost. In 2002, President Bush initiated a 10-year plan to cut greenhouse gas intensity by 18 percent. “By significantly slowing the growth of greenhouse gases, this policy will put America on a path toward stabilizing GHG concentration in the atmosphere in the long run, while sustaining the economic growth needed to finance our investments in a new, cleaner energy structure” (U.S. Department of State). This plan would require individuals to take more responsibilities—businesses would have to volunteer to reduce emissions and purchase clean, eco-friendly technology. This is a major problem because most companies are not willing to pay extra in order to protect the environment. Many people do not see the benefit of spending money on something that has no immediate affect on them. Investing in the prevention of global climate change has not seen much action in terms of stabilizing our future. However, the Stern Report notes that if we do not take action, the results will cost far more than buying new equipment; “risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever” (Stern Review). This means that if we continue to live in this extremely wasteful way, the costs of food, healthcare, land and even water, will be insurmountable. The Stern Review suggests that a 1% expense could suffice to counter many of the harshest affects of global climate change and would prove to be well worth the money spent in the long run. It always surprises me how unwilling people are when it comes to spending money on protecting our environment. In proportion to how much we are investing in our national defense, the slight amount of GDP that we could devote to the future of our world seems ridiculous. The use of alternative energy sources, new technology, modification of transportation and flexible business hours are just a few ways that we could limit the ominous continuation of climate change and, in my opinion, are well worth the money spent. http://www.state.gov/g/oes/rls/fs/2002/12956.htmhttp://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_report.cfm

  13. The topic of preventing, or at least slowing down, global warming is and most likely will remain a very sensitive and heavily biased one. However, based off of the information the Stern Report suggests, the costs of NOT attempting to reduce the effects of global warming vastly outweigh the damage we could be exposing ourselves to by sitting back idly and allowing ourselves to continue on the path we now tread.As the Stern Report (as well as the example set by the state of California) shows, with very little loss in our quality of life or GDP, we could make a respectable reduction in the output of harmful pollutants and waste. Though according to Krugman’s article, simply following California’s example would not be enough. It would be necessary to supplement their ideology with some other, possibly more (for lack of a better term finding its way into my brain) extreme measures. There are two main choices that could be made by the governments in question. The first, and more likely, is to “punish” the public for abusing these resources, and implementing taxes and extra charges for using these goods (cars, air conditioning, etc.) in an attempt to dissuade users from continuing their abuse of these goods. However, this would not entice everyone to cut back on their usage of these goods. A better (though more expensive) decision would be to reward consumers by making less detrimental choices, such as rewarding consumers with tax reductions for driving hybrid vehicles, or taking public transportation. A third but even less appealing option would be to mandate limits on the usage/ ownership of certain polluting goods. This would entail something along the lines of permitting only one air conditioning unit per floor of a house or only allowing a maximum of 2 vehicles to be owned by any one person/ family. However, as the Krugman stated, it would take more that just any one nation taking part of this to make the changes necessary. There would need to be a solid and unified effort by much more than one state, or one country, or even one continent to make the impact necessary to make a drastic change. However, with a matter this important to us as inhabitants of this planet, and not merely on an economic scale, any positive change would be worthwhile, especially considering how minute the costs can be.

  14. Economic repercussions to full-force environmental conservation can take a regressive course concerning a country’s well-being. This can cause political upheaval and eliminate any consideration to the environment in the future, as the only concern of the government will become economic productivity. The Kyoto Protocol calls for a substantial decrease in greenhouse gas emissions from selective countries that are leading the way in global pollution. The United States has always been skeptical in being a signatory of the Kyoto Protocol, as the government has forecasted many negative economic ramifications in participating in this accord. With the implementation of this treaty, the United States will have to drastically adjust its electricity and coal industries to decrease the output of fossil fuels. According to the Energy Information Administration, coal prices will increase by 153-800 percent within 3 years of this proposal and electricity prices will increase by 20-86 percent. Electricity is an inelastic good, so an increase in price will only cause dissatisfaction among U.S. consumers. An extensive rise in coal prices will inversely affect GDP. This leads to the conclusion that there would be disparity among environmental protection and economic prosperity. There needs to be a balance between the two so that there is not a decline in economic performance, but there is a steady depletion in the emission of greenhouse gases.

  15. Globally warming had become a serious and hotly debated issue in recently years. Even though reducing global warming is expensive, government and people should take action now before the problem gets more severe and cost more to fix it. According to the Stern Review the damage can cost 20% of our GDP if we don’t take action now. Whereas if we take action now it will only cost 1% of GDP to reduce the destruction global warming may cost in the future (Stern Review). For now people are enjoying all the products that are emitting carbon dioxide in to the atmosphere but in the future they will suffer for the consequences. Global warming is something that affects everyone on earth and everyone contribute to the cause of global warming therefore everyone on this earth is responsible to fix the problem and reduce the emission of carbon dioxide. I think that the Kyoto Protocol is a failure because it fails to gather both developing countries and industrialize countries to join and agreed to reduce carbon dioxide emission. It requires cooperation from all countries to help reduce global warming effectively. It is useless when one country is attempting to reduce carbon dioxide and the other countries are emitting more carbon dioxide.

  16. As our textbook recalls, GDP is primarily a measure of output of a country. With more production, there are more products and services to be traded and we can reach a higher Gross Domestic Product. However, often times companies that release toxic emissions into the air are restricted by different regulations that reduce the output of toxic chemicals such as CO2. According to the article By David G. Victor and Danny Cullenward, the Kyoto treaty was meant to reduce (in ways specific to each country) emissions by 5% to the levels of 1990. A treaty such as this would cause the government of these countries to put limits on the emissions of domestic companies. These types of limits sometimes result in reduction of production. This is not the premier way to reach the ideal GDP. Ultimately, from a Global standpoint, because treaties such as that of Kyoto do not set up specific enough parameters for countries to follow, the collective global emissions are barely lowered and therefore the GDP remains mostly unaffected. kc

  17. I agree with much of what has been said regarding the urgency necessary in preventing global warming. As the Stern report suggests and as many have commented it is short-sighted to resist a 1% increase in GDP when we will eventually be faced with a 5% decrease in the future. As Joseph Romm concludes, it is pointless to wait around for breakthrough technology that will miraculously end global warming. Energy caps on companies will give these companies incentives to develop energy saving technologies. I disagree with Robert J. Samuelson that caps on carbon footprints are unnecessary. His idea to cut oil imports by raising taxes on gas will be ineffective because there is an inelastic demand for gas even with slightly more fuel efficient cars. However, I do agree that this is a complex problem and Samuelson is right in saying that developing countries, like China, do pose a threat to capping carbon footprints. If America signs the Kyoto protocol, developing nations will continue to increase their pollution and some American companies may even build more factories in developing countries without caps on emissions. However, refusing to sign the Kyoto protocol is the moral equivalent of committing a crime because even if you are a law abiding citizen, crimes will still be committed throughout the world. It is up to America, as a world leader, to set an example for developing countries and use diplomacy to create agreements with developing countries. Perhaps such countries can have more lax caps on emissions in the next decade until they are more established and then provide more evenly balanced emissions caps in the future. Economic sanctions and other international peace keeping methods could be used to enforce emissions standards in developing nations in the future. -M.A.

  18. In response to the imbalance of global responsibility inherent in the Kyoto Treaty, the signers of the treaty agreed to the “Clean Development Mechanism.” With this proposal developing countries not involved in the original treaty are equally accountable for green house gas emissions and energy consumption within its borders. An intelligent aspect of this is the potential economic payoff to both the developing countries and firms that choose to invest in these countries. “Under this scheme, investors could earn credits for projects that cut emissions in developing nations even though the host country face[s] no binding restriction on its output” (Scientific American). In such a situation, a firm that requires more credits than government policy allows can cost-effectively realize that obligation while contributing “foreign investment and energy infrastructure” to countries that can benefit a great deal from such an exchange.

  19. While major corporations want to continue doing business as usual, emitting high amounts of greenhouse gases and other pollutants, the long-term impact of this policy will be devastating to the US GDP, as well as Global GDP. What corporations fail to realize, however, is that while they are saving money in the short-run by not investing in clean technology, the global impact of climate change will have grave repercussions beyond human control. The cost of global warming is huge, by any definition of the word. If we sit back and do nothing, the damage that will be caused to the economy will likely cause a world-wide depression. While the costs of trying to prevent or thwart Global Warming are high, with an organized, universal effort, it can be done. If we do not act, the costs will be many times larger than the costs of preventing such an outcome. One figure that sheds light on the cost of not trying to prevent warming is in the documentary, “The 11th Hour”, about climate change and the future of the earth. In the movie, it is said that it would cost the world $35 Trillion to do what nature does for us for free, such as clean our air and water. With a world GDP of $65 Trillion, according to the CIA world factbook, this represents a significant part of the world economy. These services which we receive for free are being destroyed by Global warming. Therefore, in the long term, Global warming is devastating for our economy and the intelligent thing for humans to do at this point is invest in preventative measures to reduce greenhouse gas emissions while we still can.Andy Letwin

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