Ch13_Trade & the Environment

Ch13_Trade & the Environment - TRADE AND THE...

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Unformatted text preview: TRADE AND THE ENVIRONMENT 1 Agenda • Is free-trade anti-environment? Rush to the lowest common denominator? WTO & environment protection? • Economic size and pollution Total income, per capita income • • • • Domestic pollution Transborder pollution Global pollution Labor Standards 5 Trade and Pollution • Freer trade alters the composition of production and consumption As a result, the total amount of pollution will change 8 •1 Trade and Pollution • Trade may lead to: Larger size economies: The increase in production and consumption probably leads to more pollution China, India (?) Higher incomes: It can lead to more pressure on governments to enact tougher environmental policies Better environment is a “luxury good” EU, US, others 9 Size and Income Effects • The environmental harm may decline with decline rising incomes per person • The environmental harm may rise with rise rising incomes per person • The relation may be an inverted U inverted 10 Environmental Problems by Income Level Environmental Harm Environmental Harm National Income Examples: Environmental Harm National Income Examples: Concentration of heavy particles in urban air Carbon dioxide emissions per person Concentration of lead in water Urban waste per person Lack of dissolvent oxygen in rivers Run-off pollution of oceans Percentage of population without safe water Percentage of urban population without sanitation National Income Examples: Air pollution Sulfur dioxide Suspended particulate matter Nitrogen oxides Carbon monoxide Lead from gasoline Water pollution Fecal coliform Arsenic Biological oxygen demand Chemical oxygen demand 11 •2 WTO Policies • There are conflicts between free-trade rules and environmental protection attempts Consumption at home No limit to domestic rules except that they have to apply uniformly France and asbestos products U.S. and the gas-guzzler tax There has to be a scientific basis for rules GM foods and the E.U. 12 WTO Policies (concl) concl) Production in foreign countries Can impose rules but there are strict standards Demonstrable pursuit of a legitimate environmental goal, minimize damage to trade Equal application Simultaneous negotiations to establish a multilateral agreement to address the environmental issue Global environmental problems There can be multilateral environmental agreements that may involve trade sanctions Convention on international trade in endangered species (CITES) Montreal protocol (CFCs & ozone) 13 Pollution As an Externality • An externality exists when an activity brings direct costs or benefits to others who are not costs benefits part of the entity that undertakes the activity • Externalities result in too much or too little too too activity Entities Incur only the private cost or Receive only the private benefit of their activity 14 •3 Pollution as Externality • When there are externalities, government intervention could enhance the efficiency of the market (and increase welfare) Recall that assignment of rights may “solve” the problem 15 How to Attack Externalities? • Coase Theorem If costless negotiation is possible, property rights are well-specified, and redistribution does not affect marginal values, then the allocation of resources will be identical, whatever the allocation of legal rights the allocation will be efficient, so there is no problem of externality if a tax is imposed in such a situation, efficiency will be lost 16 Government Intervention • Tax or subsidize The goal is to “tax” private parties to make them take into account the external costs their actions impose on others In the case of positive externalities, this means paying private parties subsidies In the case of negative externalities, this means taxing private parties 17 •4 Government Intervention • Change property rights Make all relevant resources somebody’s private property This may include the right to pollute 18 19 Trade and Domestic Pollution • If there are no policies that force market decision-makers to internalize these external costs, then: Free trade can reduce the well-being of a country The country can end-up exporting the wrong products Is the concentration of heavy polluting industries in China an example? 20 •5 Trade and Domestic Pollution • The story: paper-making industry in Canada Private MC and private MB (marginal benefit) MEC of the pollution is $0.30/ream of paper Competitive market solution? Paper is overproduced Free trade means Canada exports paper to RoW More overproduction, Canada worse off Optimal policy: tax paper production $0.30/ream 21 Domestic Production Pollutes Compared w/No Trade: Gain = a (Private) Loss = b (Social) RoW price is $1.10 Canada exports instead of importing If the industry is taxed $0.30, then the gain from trade is = e 22 Trade and Domestic Pollution (concl.) concl.) • With no pollution controls in place, Canada is worse off and more polluted with free trade • Imposing a pollution tax fixes this domestic manufacturers are very unhappy! • Does the pollution shift somewhere else? RoW more efficient? More pollution tolerance? 23 •6 Trade and Trans-Border Pollution • Difficult to cooperation: solve without international Assignment of property rights could solve the problem. However, it is difficult to enforce these rights in an international context If the polluted country is an importer of the good, it could impose import tariffs Assuming its pollution problem is less severe 24 Trade and Trans-Border Pollution If the polluted country is an exporter of the good, it could offer export subsidies Assuming its own pollution problem is less severe or somehow more efficient in pollution control in other ways • These rules are not according to the rule of specificity • These policies tend to violate WTO rules 25 Trade and Trans-Border Pollution • The story: German paper mill on the Danube • Pollution is downstream To Austria, Slovakia, Hungary, etc. • Graph is about the pollution part only With no limits on pollution, Germany does MB = 0 A negotiated solution will yield MB = MC Zero pollution is too costly and not optimal 26 •7 International Pollution w/Ideal Policy Solution 27 Trade & Global Environmental Challenges • Without international coordination, imposed restrictions are not enough: the Each country may have an incentive to impose restrictions. However, the choice of the optimal amount of restrictions ignores the harm done to other countries 28 Trade & Global Environmental Challenges • There are problems in coordinating policies: There may be disagreement on the costs of the environmental damage and/or the tightening of environmental standards There is incentive to free-ride, especially when the number of countries involved is large 29 29 •8 Other Species Extinction • CITES • Convention on International Trade in Endangered Species of Wild Fauna and Flora 169 countries have signed on by 2005 • International cooperation to prevent international trade from endangering the survival of species Provisions to : declare a species trade controlled ban trade 30 Human Species Extinction • The Montreal Protocol In 1987 over 50 countries signed By 2005 188 countries • The Kyoto Protocol 1997 In effect since February 2005 Success ?? 31 Welfare Effects of Carbon Taxes on Various Regions of the World 50% reduction by 2030 32 •9 International Differences Income (1999) Numbers Low 58 2.4 $410 49 2.1 $1,200 27 0.6 $4,900 27 0.9 $25,730 Lower Middle Upper Middle High Population Avg Income (Billions) per Person 34 International Differences CO2 Emissions Metric Tons per Annual deforest. kilom2 per person 100,000 person Income (1999) Infant Deaths 100,000 births Children 10-14Y Work Low 68 19% 100-754 1.8 Lower Middle 35 7% 755 – 2,995 1.2 Upper Middle 26 6% 2,996 – 9,265 7.2 High 6 < 1% 9,266 + -1.3 35 Child Labor 200 Child Labor (millions) % of its children 20% 100 40% 18% 0 Africa Asia Latin America US Child Labor 300,000 – 800,000 36 •10 International Labor Organization • Exists but no enforcement authority • Agreement on 4 “core” labor standards Freedom of association & right to collective bargaining No forced labor No child labor Is that always a good policy? No discrimination in employment or occupation 37 Summary • Is free-trade anti-environment? • Pollution can increase with income, decrease with income or have an inverted-U relation to income • Domestic pollution; remedies • Transborder pollution; remedies Harder • Global pollution Hardest 38 Cases • Some current issues Elephants and ivory Dolphins, tuna, shrimp and turtles CFC’s and ozone Brazilian rain forests Greenhouse gases and global warming 39 •11 THE END 47 Environmental Effects of the Uruguay Round (% Changes in Emissions for Each Type of Pollutant, in Each Place) Place) 48 •12 ...
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