Michael Hoel

Global environmental problems: The effects of unilateral actions taken by one country☆

Abstract In global environmental problems, each countrys own contribution to worldwide emissions is small, so there is little a country can do by itself. To solve global environmental problems one needs coordinated actions between countries. Environmental groups often advocate that in spite of the global character of the problem, a country ought to take unilateral actions to reduce its environmentally harmful emissions. The argument for such unilateral actions is that they at least give a contribution in the right direction (however small), and also that by “setting a good example” of this type one might affect the behavior of other countries, and/or improve the chances of reaching international agreements of coordinated reductions of harmful emissions. The paper gives an analysis of the consequences of unilateral reductions of harmful emissions. It is shown that such a policy will generally affect the outcome of international negotiations about reduced emissions. The outcome of such negotiations may very well imply higher total emissions when one country reduces its emissions unilaterally than if both countries act selfishly.

International environment conventions: The case of uniform reductions of emissions

Several serious environmental problems have a global character. International cooperation to reduce emissions for this type of problems often takes the form of an agreement among the cooperating countries to cut back emissions by a uniform percent rate compared with some base year. This type of agreements has two disadvantages. In the first place, it is well known from environmental economics that equal percentage reductions of emissions from different sources usually gives an inefficient outcome, in the sense that the same environmental goals could be achieved at lower costs through a different distribution of emission reductions. A second problem with agreements of equal percentage reductions is that not all countries will find it in their interest to participate in such agreements. In the paper, it is assumed that the set of countries which participate in an agreement is endogenously determined, with a country participating in an agreement provided that this makes the country better off than it would have been in a situation without any agreement. The agreement among the participating countries is assumed to be a uniform percentage reduction of their emissions. The countries have different opinions about what this uniform percentage should be. In the paper, it is assumed that the outcome is determined by the median country of the participating countries. The assumptions above lead to a particular equilibrium, in which some but not all countries cooperate. The equilibrium reduction of emissions for the cooperating countries is also derived. This equilibrium compared with the first best optimum within the context of simple numerical example.

Depletion of fossil fuels and the impacts of global warming

This paper combines the theory of optimal extraction of exhaustible resources with the theory of greenhouse externalities, to analyse problems of global warming when the supply side is considered. The optimal carbon tax will initially rise but eventually fall when the externality is positively related to the stock of carbon in the atmosphere. It is shown that the tax will start falling before the stock of carbon in the atmosphere reaches its maximum. If, on the other hand, the greenhouse externality depends on the rate of change in the atmospheric stock of carbon, the evolution of the optimal carbon tax is more complex. It can even be optimal to subsidise carbon emissions to avoid future rapid changes in the stock of carbon, and therefore future damages. If the externality is related to the stock of carbon in the atmosphere and there exists a non-polluting backstop technology, it will be optimal to extract and consume fossil fuels even when the price of fossil fuels is equal to the price of the backstop. The total extraction is the same as when the externality is ignored, but in the presence of the greenhouse effect, it will be optimal to slow the extraction and spread it over a longer period.

Should a Carbon Tax be Differentiated Across Sectors

Abstract If some, but not all, countries are cooperating to reduce CO2 emissions, one could make the following argument: a high carbon tax for carbon intensive tradeable sectors in the cooperating countries will reduce the production of goods from these sectors, and therefore CO2 emissions, in the cooperating countries. However, this will to a large extent be counteracted by increased production of such goods in the countries that have no climate policy. And since it is only total CO2 emissions from all countries that are relevant for the climate, there is no point in a policy that simply relocates CO2 emissions from the cooperating countries to the countries that have no climate policy. According to this line of reasoning, carbon intensive tradeable sectors should thus face a lower carbon tax than other sectors of the economy. This paper shows that a carbon tax should not be differentiated across sectors in the economy, provided one can use import and export tariffs on all traded goods. It is also shown that such a differentiation of carbon taxes is optimal for the cooperating countries if they are prevented from using tariffs on the traded goods. However, informational or political factors constraining the use of tariffs are likely also to constrain the possibility of differentiating carbon taxes between sectors.

Incentives to participate in an international environmental agreement

For international environmental problems involving many countries, such as, e.g., the climate problem, it is unlikely that all countries will participate in an international environmental agreement. If some countries commit themselves to cooperate, while the remaining countries act independently and in pure self-interest, it appears to be possible to achieve a Pareto improvement if the non-signatory countries reduce their emissions, in exchange for transfers from the countries which sign an agreement. However, the paper shows that the prospect of receiving a transfer for reducing ones emissions provided the country does not commit itself to cooperation, tends to reduce the incentive a country might have to commit itself to cooperation. Moreover, if the disincentive effect of such side payments is strong, total emissions will be higher in a situation with side payments than in a situation in which the signatory countries commit themselves to not give transfers to free riding countries.

Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty

We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and damage estimates of greenhouse gases. As with additive uncertainty, taxes dominate quotas. The advantage of taxes is much greater with mulitiplicative, compared to additive uncertainty.

Coping With Uncertainty: A Call for a New Science-Policy Forum

Abstract The scientific and policy worlds have different goals, which can lead to different standards for what constitutes “proof” of a change or phenomena, and different approaches for characterizing and conveying uncertainty and risk. These differences can compromise effective communication among scientists, policymakers, and the public, and constrain the types of socially compelling questions scientists are willing to address. In this paper, we review a set of approaches for dealing with uncertainty, and illustrate some of the errors that arise when science and policy fail to coordinate correctly. We offer a set of recommendations, including restructuring of science curricula and establishment of science-policy forums populated by leaders in both arenas, and specifically constituted to address problems of uncertainty.

Environmental Policy with Endogenous Plant Locations

In a game between the governments of two countries, each chooses its own environmental policy. The Nash equilibria of the game are generally not Pareto optimal. On the one hand, each country may want to attract industry, giving it an incentive to choose low environmental taxes or standards. On the other hand, if disutility from pollution is sufficiently high, each country might prefer that a firm locates only in other countries. This effect tends to make the environmental policy under noncooperation stricter than it would be with cooperation. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

Unilateral Emission Reductions and Cross-Country Technology Spillovers

Abstract With limited participation in an international climate agreement, standard economic analysis suggests that a unilateral action taken by a group of countries in order to reduce its emissions is likely to be undermined by increases in emissions from other countries (carbon leakage). While analyses of carbon leakage typically have regarded the technology in each country as given, abatement technologies are in reality endogenous, and thus technology development may be affected by environmental policies. We demonstrate that with endogenous technologies and technology diffusion between countries, it is no longer obvious that reduced emissions in some countries will increase emissions in other countries. We identify cases in which reduced emissions in some countries might reduce emissions also in other countries.

Public health care with waiting time: the role of supplementary private health care

We consider an economy where most of the health care is publicly provided, and where there is waiting time for several types of treatments. Private health care without waiting time is an option for the patients in the public health queue. We show that although patients with low waiting costs will choose public treatment, they may be better off with waiting time than without. The reason is that waiting time induces patients with high waiting costs to choose private treatment, thus reducing the cost of public health care that everyone pays for. Even if higher quality (i.e. zero waiting time) can be achieved at no cost, the self-selection induced redistribution may imply that it is socially optimal to provide health care publicly and at an inferior quality level. We give a detailed discussion of the circumstances in which it is optimal to have waiting time for public health treatment. Moreover, we study the interaction between this quality decision and the optimal tax/subsidy on private health care.