Alberto Ansuategi

Economic growth and greenhouse gas emissions

Abstract Recent empirical research has examined the relationship between certain indicators of environmental degradation and income, concluding that in some cases an inverted U-shaped relationship, which has been called an environmental Kuznets curve (EKC), exists between these variables. Unfortunately, this inverted U-shaped relationship does not hold for greenhouse gas emissions. One explanation of the absence of EKC-like behavior in greenhouse gas emissions is that greenhouse gases are special pollutants that create global, not local, disutility. But the international nature of global warming is not the only reason that prevents de-linking greenhouse gas emissions from economic growth. The intergenerational nature of the negative impact of greenhouse gas emissions may have also been an important factor preventing the implementation of greenhouse gas abatement measures in the past. In this paper we explore the effect that the presence of intergenerational spillovers has on the emissions–income relationship. We use a numerically calibrated overlapping generations model of climate–economy interactions. We conclude that: (1) the intertemporal responsibility of the regulatory agency, (2) the institutional capacity to make intergenerational transfers and (3) the presence of intergenerationally lagged impact of emissions constitute important determinants of the relationship between economic growth and greenhouse gas emissions.

The environmental Kuznets curve

The current interest in the relationship between per capita income and environmental quality is a logical extension of a debate about the environmental implications of economic growth that has punctuated the literature in environmental economics over the last three decades. The environmental significance of the post-war focus on economic growth was first explored in the 1960s in a series of contributions based on the mass balance principle. Boulding (1966), Cumberland (1966), Ayres and Kneese (1969), Victor (1972) and Maler (1974) all considered the implications of the fact that material growth in the economic system necessarily increases both the extraction of environmental resources and the volume of waste deposited in the environment. A number of the results generated by this literature have subsequently been absorbed by the literature in environmental (though not resource) economics. In 1971, the Report to the Club of Rome (Meadows et al., 1972) drew the rather startling conclusion that the continued growth of the world economic system was not sustainable because of the exhaustability of critical environmental resources. Economists responded that the rising price of scarce environmental resources would induce substitution into less scarce resources, so avoiding the limits imposed by a finite resource base (Review of Economic Studies, 1974). This argument was able to appeal to past evidence of substitution out of scarce environmental resources, and the view that market-driven feedback mechanisms would keep the global economy away from any ‘resource precipice’ became the received wisdom. The effect of the debate was to switch the focus of attention in environmental economics away from the problem of resource depletion, and towards the problem of pollution.

Transboundary Externalities in the Environmental Transition Hypothesis

The Environmental Kuznets Curve (EKC) is a hypothesis which implies that it is possible to “grow out of environmental degradation”. Most theoretical models of the EKC relation have not accounted for transboundary and intergenerational externalities nor have empirical studies provided evidence that validates an inverted U shaped relation between environmental degradation and economic growth for pollution problems where the effects are far-displaced or are long-delayed.This paper integrates the theory of transboundary externalities into the most common theoretical framework applied to the EKC hypothesis. It shows that where a significant proportion of the environmental impacts of economic activity occurs outside the territories in which those activities take place, the de-linking of growth and environmental degradation is less likely to happen. This proposition is demonstrated by assuming that decisionmakers have a Nash-type non cooperative strategic behavior.

Sustainability, growth and development

The Brundtland Report (WCED, 1987) encouraged the view that the main threats to the environmental sustainability of development are poverty‐driven depletion of environmental resources in the developing world, and consumption‐driven pollution of the biosphere by the developed world. Recent work on the empirical relationship between per capita GDP growth and certain indicators of environmental quality seems to contradict this view. Some indicators of local air and water quality first worsen and then improve as per capita incomes rise. This paper reconsiders both these findings, and the empirical relation between environmental quality and measures of poverty, consumption and human development. It finds that deepening poverty at one end of the scale and increasing affluence at the other both have implications for the environment. But these implications are different. Deepening poverty is associated with environmental effects that tend to have immediate and local implications for the health and welfare of the communities concerned. Increasing affluence is associated with environmental effects which are much more widespread and much longer‐lasting. The environmental consequences of growth increasingly tend to be displaced on to others – either geographically distant members of the present generation or members of future generations. The paper argues that the relevant question is not whether economic growth has environmental consequences: it is whether those consequences threaten the resilience of the ecological systems on which economic activities depend. Since loss of ecological resilience implies that the economic activities concerned are environmentally unsustainable, it should be a major focus of strategies for sustainable development.

Economic Growth and Transboundary Pollution in Europe: An Empirical Analysis

The existing empirical evidence suggests that environmental Kuznets curvesonly exist for pollutants with semi-local and medium term impacts.Ansuategi and Perrings (2000) have considered the behavioral basis for thecorrelation observed between different spatial incidence of environmentaldegradation and the relation between economic growth and environmentalquality. They show that self-interested planners following a Nash-typestrategy tend to address environmental effects sequentially: addressingthose with the most immediate costs first, and those whose costs aredisplaced in space later. This paper tests such behavioral basis in thecontext of sulphur dioxide emissions in Europe.

Industrial and terrestrial carbon leakage under climate policy fragmentation

One of the main concerns in international climate negotiations is policy fragmentation, which could increase the carbon emissions of non-participating countries. Until very recently the carbon leakage literature has focused mainly on ‘industrial’ carbon leakage. However, there is another potential channel that has received little attention so far: the carbon leakage triggered by land-use change (‘terrestrial’ carbon leakage). In this article we use an integrated assessment model to explore these two forms of leakage in a situation where CO2 emissions in all sectors, including those from land-use change, are taxed equally. Our results show that under different fragmentation scenarios terrestrial carbon leakage may be the dominant type of leakage up to 2050. When participating regions tax land-use emissions, forest area expands partly by shifting food and bioenergy production to non-participating regions. This reduces forest area in non-participating regions and increases their land-use emissions. Policy relevance Preventing industrial carbon leakage has been an important aspect of climate policy design. One clear policy implication of our study is that anti-leakage policy measures should also be considered for land-use change sources.

Carbon Pricing as an Effective Instrument of Climate Policy: Searching for an Optimal Policy Instrument

The paper highlights the use of carbon pricing as an effective market tool to control GHG emissions It describes the discussion on the benefits and limitations of both carbon tax and carbon trading. The paper summarises this debate and it argues that, as well as economic effectiveness, many other factors are highly relevant when choosing the right policy instrument. These include political feasibility, impact on competitiveness, institutional requirements, incentives for R&D and many others. Finally, interesting lessons are drawn for policy makers and academics willing to develop such instruments. [JEL: Q54, Q58, H00]

The future of old industrial regions in a carbon-constrained world

Even if a global agreement is achieved on climate change issues, it is likely that national policies will continue to differ. Consequently, the competitiveness of some industries could be affected and the so-called ‘carbon leakage’ effect might occur. This effect is more likely for those industries with a risk of relocation. Most of the studies that examine the carbon leakage phenomenon look at implications at the national or supra-national level, and neglect the important fact that some of the key industries affected are highly concentrated in the old industrial regions (OIRs). From a regional perspective, it is clear that these areas are affected more severely by climate policies. Using a computable general equilibrium (CGE) model, the impacts for one of the most vulnerable sectors – the iron and steel (IS) sector in the European OIR of the Basque Country (BC) – are first examined. The analysis is then replicated for the OIR of the North RhineWestphalia (NRW) region in Germany. The results show that although total effects may be diluted from a national perspective, the economic impact at the regional level may be quite large and may significantly reduce regional gross domestic product (GDP). This has broader implications for the OIRs and suggests a need to further explore policy insights for economic development and adaptation in them.

Is Environmental Protection Beneficial for the Environment

We analyze a simple endogenous growth model with environmental interactions. Economic production generates emissions of pollutants whose environmental impact is mitigated by abatement activities financed by government expenditure; environmental quality affects preferences but does not play any productive role. We show that government intervention, by reallocating resources from capital accumulation to environmental preservation activities, allows the economy to achieve a sustainable balanced growth path. Along such a path, softer environmental policy regimes lead to win–win outcomes, fostering economic growth and improving environmental quality. Such a result needs to be interpreted as a long run outcome, but it clearly shows that the compatibility between economic growth and environmental improvement is far from automatic. Indeed, in the long run it could paradoxically be the case that both the economy and the environment benefit from low levels of environmental protection.

Why do some economies benefit more from climate finance than others? A case study on North-to-South financial flows

ABSTRACT The Copenhagen and Paris Agreements, in which developed countries committed to mobilise USD 100 billion a year by 2020, indicate that climate finance will continue to grow. Even though economic development is not the aim of climate finance, climate-related disbursements will generate an economic impact on recipient countries’ economies. This impact will also reach other countries (including climate finance donors) through induced international trade. In this paper, we apply a structural decomposition analysis to study why the economic impact of climate finance varies between countries. We focus on specific climate actions and quantify the contribution of four drivers: value-added intensity, domestic multiplier, foreign multiplier and trade structure. The paper helps identifying the factors with the greatest potential to enhance the economic gains of climate finance in each country. This information can be useful for policy-makers trying to design national strategies that exploit the synergies between climate action and economic development.