Environmental Economics is not Oxymoronic

‘The Paris Agreements provides an important opportunity for a new path forward’-Robert Stavins


Environmental Economics is not Oxymoronic

Robert N. Stavins at Georgia Tech Technology Square Research Building, October 30th, 2017

The first thing you might be wondering is what is that last word?! “Oxymoron” simply means a combination of contradictory words. Oxymoronic is an adjective that refers to this contradiction. For example, the expression “pretty ugly” or “virtual reality” – is it pretty, or is it ugly? Is it virtual, or is it reality? On his talk titled “Climate Change Policy in the Age of Trump – An Economic Perspective”, Dr. Robert N. Stavins made a strong emphasis on the non-contradictory relationship between economics and the environment. Environmental economics is NOT oxymoronic.

Dr. Stavins is the professor of Energy and Economic Development at John F. Kennedy School of Government, Harvard University; the Director the Harvard Environmental Economics Program; and also the Director of the Harvard Project on Climate Agreements.

As Dr. Stavins emphasized, economics is not the environment’s enemy, nor is the environment the economy’s handbrake. Both of them strongly relate. Environmental problems are mainly caused by negative externalities of the economic system, and the consequences of environmental problems have economic dimensions. In other words, a factory can pollute its nearest river [negative externality] because it is cheaper to do this than to treat the factory’s waste water; this pollution, in turn, has negative consequences for the community that drinks water from this river.

KAL’s cartoon published in The Economist on November 19, 2009.

The most important environmental problem we face today is climate change. The main issue with this problem is that it has no boundaries nor perceivable time: climate change is a commons problem and its solution will bring big costs to current generations for the benefit of future generations [not a popular political measure].

One way that economists deal with climate change is carbon pricing, which is literally putting a price to carbon, be it through taxes or through “cap-and-trade” [establishing quotas for carbon and trade permits for carbon emissions].

This pricing has domestic consequences for the US: coal becomes more expensive [due to its high content of carbon], natural gas becomes a viable substitute, and oil usually remains stable, due to the little substitutes there are for oil. Carbon pricing also incentives the development of renewable energies. There are several countries hat have adopted carbon pricing strategies [see map below].

Carbon Pricing Watch 2016, by the World Bank

In the international scenario, a major achievement regarding climate change has been the adoption of the Paris Agreement in 2015, where countries agreed to reduce emissions in such a way that temperatures would not increase more than 2ºC by the end of this century comparing pre-industrial times: “the Paris Agreements provides an important opportunity for a new path forward”. Remarkable, yes! But it all depends on its implementation.

Conference of the United Nations on climate change – COP21 (Paris, Le Bourget)

The United States signed the Paris Agreement under the Obama administration. However, on January 20th, 2017 a new president [with a very different appreciation for climate change] took office: Donald J. Trump. On March 28, 2017, the president signed an executive order that intends to review the Clean Power Plan [a plan to reduce carbon emissions from power plants], to withdraw documents that mention “the social cost of carbon”, to establish fossil fuel friendly policies and to redefine EPA’s role.

Trump’s position towards climate change has been clear for years, and it did not change when he assumed office. On 2017, the President tweeted: “I will cancel the Paris Climate Agreement”. What did he meant by that? According to Dr. Stavins the administration faced three options:

  1. withdrawing from the Paris Agreement [which actually takes 4 years],
  2. withdrawing from the UNFCC [which takes 1 year], or
  3. revising the Paris Agreement and modifying the reductions that the US committed.

Trump decided to go forward with the first of these options, so if everything continues as it is now, in 2020 the US would have withdrew from the Paris Agreement.

Internationally, Trump’s decision was criticized by countries. Nationally, several cities and companies reacted by reaffirming their determination to reduce emissions. The cities’ decision brings a major question for the country [one that will most likely be discussed in the COP23 in Bonn this year]:

“How can sub-national policies/achievements be recognized under the Paris Agreement?”

 

If the Parties of the Paris Agreement manage to answer this question, then, the US’ withdrawal from the Agreement might not have such a negative impact as it was thought.

 

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