Type: Research Essays
Sample donated: Lois Osborne
Last updated: July 21, 2019
Name: Maisam Ali ShamsClimate Change Economics ERP ID: 00345 Mid Term Exam 1. Neoclassicalapproach to modelling climate change asserts that environment can be treated asa commodity and hence markets can take into account the costs of environment.
For instance, markets can ascertain the optimal level of “environmentalprotection” through demand and supply. Here, demand is what people want toconsume whereas supply incorporates not only the costs associated with making acommodity, for example a textile product, but it also incorporates the damageattributed to the environment due to the production of textile. Hence, in thisway, market forces will determine the optimal level of environmentalprotection. For example, the government of Pakistan may levy tax onthe textile company for polluting the environment, which will be an added costin the manufacturing of yarn- assuming company is in spinning sector of textilevalue chain. Now, if the textile company increases its production of yarn, ithas to pay more costs of polluting environment and hence market forces willdetermine a price which encompasses the damaged caused to the environment.
Similarly, a manufacturer of yarn, which uses a technology that is greener andenvironmental friendly, can be subsidized by the government thereby reducingthe costs of manufacturing. It is pertinent to mention that this neoclassicalapproach to modelling climate change has led to the idea of “carbon pricing” asa way to reduce carbon emissions (Heesterman, n.d) ((“1. Carbon Pricing(Cap and Trade/Carbon Tax) is Just One Piece of the Puzzle: Two EconomicWorldviews”, n.d)Laissez-faire approach presented by neoclassicaleconomists; however, provide a very superficial approach to modeling climatechange. Moreover, recent changing climates across the world, floods, hurricanesand other natural calamities prove that conventional approach to reducingcarbon emissions is not working. Nicolas Stern, chair of Grantham institute ofresearch at London school of economics, asserts that traditional climate modelare misleading and there is a need for a deeper understanding of problems inorder to devise an effective approach to addressing the issue of ClimateChange.
Firstly, Nicolas points out that climate models used inthe past overlook the scale of climate calamities that will result from globalwarming. Basically, these models cannot predict or incorporate the risksassociated to increase in sea levels due to rise in temperatures from 1.5 C to2 C.
For example, small Island states and coastal belt communities faceincreased danger due to increase in sea levels however estimates of economiclosses do not account for them. Secondly, Stern believes that sole focus on economicgrowth due to increase or decrease in emissions is itself flawed. For example,Intergovernmental Panel on Climate Change (IPCC), pointed out that global GDPgrowth will get negatively get affected by 0.2% – 2% due to increase in mean global temperatures by 2 C. This,Stern believes does not address the full scope of danger faced by the world dueto global climate change.
For example, loss of life, welfare, peace of mind,healthier environment, and etc are all factors that should be considered whilemeasuring the losses due to climate change. Lastly, Stern explains that due to incorporating higherdiscount rates, traditional models prove that environmental costs of the futureare low in present terms and therefore policy makers do not understand thegravity of global warming and climate change. For instance, if we estimatefuture costs of climate change to be PKR 1,000 (F.V) and use discount rates (i)of 10% and 20% respectively, P.
V or present value of PKR 623 and PKR 402 isachieved. In other words, using 20% discount rate led to a value of PKR 402which is less than PKR 623 which is the PV of future climate change costs(Stern, 2016).2. Although current CO2 emissions are being made bydeveloping countries mostly, CO2 emissions made by the developed world in thepast are actually resulting in global climate change. For example, China is thetop CO2 emitter in the world with 10,151 MTCOs whereas US is second biggestemitter with 5312 MTCO (“CO2 Emissions.”, n.
d.). As a result, there is a serious debate going on a globalclimate change conferences every year regarding who should cut more of theirCO2 emissions; developed countries or developing countries. In this regard,developing countries argue that global warming that we see today is the resultof past emissions made by developed countries and hence developed countriesshould cut more of their emissions to make room for developing countries. Thiswould allow developing countries to continue to grow while overall CO2emissions do not increase at a higher rate.
On the contrary, developedcountries assert that just because the developed world has unknowingly pollutedthe environment in the past which is leading to global warming today does notmean that developing countries should be allowed to pollute the environment inorder to achieve economic GDP growth. Hence, this leads to deadlock in theinternational community as to who should limit their emissions more (Saran,2015). Moreover, if we force developing countries to utilizegreen technology made by developed countries, they will not be able to grow ata faster rate as the new technology is expensive and this would preventeconomic growth. For example, wind power is expensive as compared to coalenergy and that is why developing countries use coal as a fossil fuel for theirenergy requirements. To address this deadlock, we need to devise a fairresponse to global climate changes. In this regard, I believe that equityprincipal should be used whereby countries should be given policy goals withrespect to their capabilities. UN Framework Convention on Climate Change(UNFCCC) describes equity as “common but differentiated responsibilities and respectivecapabilities”. I believe that in order to achieve a world that has zeroCO2 emissions, countries should be divided into two groups i.
e responsibilityand capability. Hence, developed countries which have caused today’s globalclimate changes should cut their emissions greatly as compared to developingcountries however developing countries should work on their capabilities toreduce carbon emissions by using greener technologies. Moreover, all thecountries should be given goals with respect to their stage of economicdevelopment, historical responsibility, vulnerabilities and needs. In this way,an equitable solution will be developed which would lead to a better world (Cameron, 2012).
3. One of the two core strategies pertaining to globalclimate change are adaptation and mitigation. While adaptation can lead tocountries benefiting from their increase capacity to deal with climate changein the short term, mitigation will benefit future generations. Since the current CO2 emissions in the environment willstill lead to global warming for a considerable time period even if mitigationis done, countries face a challenge as to which of the two policies should begiven more importance; adaption or mitigation. In my opinion, the world needstwo pronged strategy to address global climate change and therefore countriesshould not only think about adapting to the environmental challenges posedtoday, but they should also think about future costs associated with climatechange if mitigation is not considered.
For instance, if countries only followadaptation to cope up with environmental challenges, the costs of adaptationfor future generations would be so high that they will not be able to cope upwith environmental challenges. Hence mitigation is required today so thatfuture generations are able to adapt. Hence, all countries should put sameweight to adaptation and mitigation (Lee, 2017). 4. Discountingprimarily involves finding the present value of future environmental costsbased upon a certain discount rate.
The issue pointed out by Stern is thatwhile calculating the value of future environmental costs, using a highdiscount rate leads to putting a low value of future costs. Hence, this valueis used by policy makers to develop present strategy and therefore it leads toineffective policies; the one that does not force a strong action foraddressing climate issues. The issue is can also be explained by simplefinancial equation given below: Present Value = Future Value / (1 + p)^n Where; P=Discount rate N= noof years. For instance if FV of environmental costs after 25 years(n) is fixed at $ 1,000,000/- and a discount rates of 10% and 20% is used, weend up with present values of $ 402,000/- and $ 621,000/- respectively. Thisshows that using a high discount rate undermines the value of life of futuregenerations by undervaluing the costs of future environmental damages. Stern, therefore, argued that a low discountrate should be used for discounting future environmental costs.
5. Through 18th amendment in the constitution,provinces were given autonomy by the federal government. In this regard,ministry of environment was also transferred to all the 4 provinces of Pakistanand now environment is a provincial subject. One of the key advantages of provincial autonomy withrespect to environment is that now provinces can voluntarily allocate budget,plan policy, and take necessary action without the approval of federalgovernment. For example, Pakistan Tehreek Insaf Govt launched “billion tree Tsunami”campaign by allocating a budget from provincial revenue and hence huge numbersof trees were planted. On the contrary, pre 18th amendment, it wouldhave had taken much more time for any provincial government to plant billiontrees. On the contrary, if a provincial government fails to takenecessary actions required to deal with climate change due to capabilityissues, the same 18th amendment will prevent federal government inintervening in provincial matters. Hence, for instance, if PPP government failsto help citizens of coastal belt from flooding due to rising sea levels,federal government cannot intervene.
Therefore, in my opinion, provincial autonomy is a doubleedged sword and federation should be allowed to intervene in a provincialmatter without approval of provincial government. 6. Pakistan relies heavily on fossil fuels for its energyrequirements whereas renewable sources also contribute in the overall energymix. As per Planning Commission of Pakistan’s annual report of 2017-18, 64% ofthe total megawatts (MW) produced in the country is through oil and gas whereas31% of the energy is made from hydel power plants. The remaining is generatedthrough wind, nuclear and solar power plants (Aadil Nakhoda, 2017).
However, Pakistan’s energy mix is shifting from oil, gas,and hydro towards wind, coal and solar energy. For example, in 2017, 6% of thetotal power produced shifted from oil, gas and hydro towards solar, wind andcoal. It is important to highlight thatcoal took the largest share from this shift. In my opinion, Pakistan’s energy scenario depends highlyon China Pakistan Economic Corridor (CPEC) and hence we should analyze theenergy projects in CPEC to examine and predict the energy mix of Pakistan after10 years. Table below shows the “energy priority projects” under CPEC: Type Project MW Electricity Coal 2×660MW Coal-fired Power Plants at Port Qasim Karachi 1,320 Hydro Suki Kinari Hydropower Station, Naran,Khyber Pukhtunkhwa 870 Coal Sahiwal 2x660MW Coal-fired Power Plant, Punjab 1,320 Coal Engro Thar Block II 2×330MW Coal fired Power Plant TEL 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh, Pakistan ThalNova 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh 1320 Hydro Hydro China Dawood 50MW Wind Farm(Gharo, Thatta) 50 Coal 300MW Imported Coal Based Power Project at Gwadar, Pakistan 300 Solar Quaid-e-Azam 1000MW Solar Park (Bahawalpur) Quaid-e-Azam 1000 Wind UEP 100MW Wind Farm (Jhimpir, Thatta) 100 Wind Sachal 50MW Wind Farm (Jhimpir, Thatta) 50 Coal SSRL Thar Coal Block-I 6.8 mtpa &SEC Mine Mouth Power Plant(2×660MW) 1,320 Hydro Karot Hydropower Station 720 Wind Three Gorges Second Wind Power Project Three Gorges Third Wind Power Projec 100 Coal CPHGC 1,320MW Coal-fired Power Plant, Hub,Balochistan 1,320 9,490 (Ministry of Planning, 2017)Looking at the energy priority projects under CPEC, wecan ascertain that Pakistan will be producing a total of 9,490MW of electricityout of which 70% of the energy will be produced by coal, 17% hydel, 11% Solar,and 3% wind. This shows that coal will be Pakistan’s future with regards toenergy. In line with this, I believe that Pakistan’s energyscenario in the next 10 years would be relying on coal and we will continue touse fossil fuels to meet our energy needs thereby polluting our cities.
7. One of the major impasse of any climate change dialogue isthat developed countries influence developing countries to incorporate climatechange in their policy making whereas developing countries argue that developedworld, in the past, has exploited the environment due to which the world isfacing climate change issues. As a result, developing countries keep onfollowing their macro-economic growth goals without taking into account theglobal climate change implications of their actions.
Consequently, as theyfocus solely on macro-economic goals, developing countries do not have fundingfor mitigation and adaptation strategies and they face increasing threat fromclimate change. In order to address this issue, I believe that similar tofunds such as InsuReliance, Adaptation Fund, and fund for vulnerable communities,the developed countries should launch a fund that subsidizes the greentechnology for developing countries. Like adaptation fund where countries applyfor receiving financial aid, this fund should also allow developing countriesto apply for green machinery or capital goods. Since not all the developing countries can be financed orsubsidized, there should be key yardsticks upon which the finances can beprovided. For instance, China, which is world second biggest economy, and hugecash stocks should not be given subsidy for buying capital goods that areenvironmental friendly. In fact China should be forced to reduce carbonemissions. However, countries such as India, Indonesia and Brazil that faceseveral economic challenges such as poverty and high population growth and alsohave a big environmental footprint should be allowed to procure greenertechnology at subsidized rates. This strategy of making an internationalmitigation fund will help reducing carbon emissions.
Secondly, with regards to adaptation, developingcountries should be given special trade access if they are taking steps tomanage climate change internally. For instance, if Pakistan builds aninfrastructure to respond to climate catastrophes that occur frequently to avulnerable community, it should get preferential trade access to United States(US) for its textile products. By developing an international fund for green technologyand providing preferential trade access to markets, developed world caninfluence developing countries to increase their adaptation and mitigationefforts while reducing carbon footprint and that too without the cost of sloweconomic growth. 8. The UN Climate Change Conference of Parties (COP23) washeld in the third week of November 2017 where more than 20,000 people,including world leaders, from 193 countries participated in an effort to devisean implementation strategy of Paris Agreement. Although, the United States (US)withdrawal from Paris Agreement was a setback, overall I believe that COP23 wasa success as notable implementation strategies were developed.
Firstly, as part of adaptation goals, InsuReliance GlobalPartnership was launched. The federal government of Germany provided 110Million euros to launch affordable insurance and other financial support tolocalities and island-states and areas that are vulnerable to climate change.Simultaneously, Fiji Clearance House was launched which provides tools topeople across the world to find best affordable insurance which are tailored totheir specific needs. Secondly, Gender Action Plan (GAP), was finalized wherebyit was agreed to increase participation of in all UNFCCC processes. This wouldallow an effective gender-responsive climate change policy at all governmentallevels.
Thirdly, in COP23, local communities and indigenouspeoples platform was finalized allowing a comprehensive voice to addressclimate change by including the voice of indigenous people in climatenegotiations regarding conventional methods to deal with climate change issues.Fourthly, a historic agreement was reached onagriculture. Countries across the globe agreed to develop and implementmitigation and adaptation strategies in agricultural sector. Countries agreedto reduce carbon emissions while enhancing their capabilities to solve thenegative effects of climate change. Moreover, adaptation fund of $ 93.3 Million wasreplenished which provides finances to developing countries to undertakeprojects to enhance their capabilities to manage climate change issues. It isimportant to highlight that it was agreed in COP23 to channelize the adaptationfund under the umbrella of Paris Agreement. Lastly, World Health Organization (WHO), in collaborationwith the UNFCCC, launched a health initiative for the vulnerable island communities.
It was agreed to triple the international finance support by the end of 2030(“COP23: Key outcomes agreed at the UN climate talks in Bonn | CarbonBrief”, 2017). To conclude, I believe that COP23 was a success but itlacked leadership which was provided by the US in the past. One of thedrawbacks of bipolar world is that there is no single power which can dictateinternational implementation through its own moral and ethical power (“KeyAchievements from COP23 – Cop23”, 2017) (Islam, 2017) (“COP23 climate talks end inBonn”, 2017)9. In my opinion, the proposed public policy should beperused as it is generating an expected present value of $ 3,000,000/- (4000000x 0.85 + 1000000 x 0.
1 – 10000000 x 0.05). I am analyzing this proposed policyfrom a financial analyst lens and therefore I am using underlying concepts ofpresent value to assess this. Since the expected present value of policy is $3,000,000/- it means that the policy will add value to the society and hence itshould be followed. In my opinion, any public policy that generates a positiveexpect net present value should be followed as it will add value to the societywhereas any policy that results in negative net present value should betrashed. 10.
The article by Arif Rahman and Anil Salman “district level climate change vulnerabilityindex of Pakistan” provides an overview of vulnerability of 22 districts ofPakistan across all four provinces. The key conclusions of the research studyare that 1) rural vulnerability is 72% higher than urban vulnerability due tohigh socio economic vulnerability and low adaptive capacity 2) Baluchistanshowed minimal disparity between rural and urban due to low differences interms of social economic vulnerability and adaptive capacity between rural andurban districts and 3) adaptive capacity increases the vulnerability of adistrict much more greatly than any other factor. Although the research article provides a decent analysisof vulnerability, there are some aspects that the article can be criticizedupon.
Firstly, as the pointed out by Carr and Kettle (2009), the article relieson the already available data to conduct research. For example, socio economicdata was retrieved from Pakistan Social and Living Standards Measurement (PSLM)which provided the factors (S1 to S6) of socio economic vulnerability andfactors (A1 to A4) for adaptive capacities. In my opinion, these factors wereemployed in the research study because that was the only data which was available.
For example, “dual income household” is a key factor, especially in the urbandistricts, that can enhance the adaptive capacities of households as well as itcan decrease socio economic vulnerability of a district. Hence by not takinginto account a factor as important as “dual income household”, researcharticle’s findings are not comprehensive. Secondly, one of key determinants of adaptive capacity isthe “presence of armed forces of FC” in the district. If there is a highpresence of FC/Pak Army, for example in swat region, it enhances the adaptivecapacity of that district. Thirdly, one of the most important factors during reliefefforts is “road network and connectivity”.
For example, it is difficult forpeople living in Karachi to reach out to a district in Balochistan which doesnot have road connectivity. Hence it might be easier for people in Karachi tohelp people in Swat as compared to people in Pasni Balochistan due to roadconnectivity. Basically, as suggested by the article itself, the researchstudy uses the data available in Pakistan to develop factors that increase ordecrease vulnerability when infact it should have had been the other way round.