Economics of Environmental Policy
Economics of Environmental Policy PPA 777
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Date Created: 10/21/15
PPA 777 Professor David Popp The Economics of Environmental Policy Spring 2009 The Climate Change Policy Simulation The Climate Change Policy Simulation will be held on Monday April 13 The simulation is intended to give you a chance to make use of many of the things we have discussed in class in an actual policy setting For this exercise students will be assigned to groups representing various players in the climate change debate The policy simulation will include representatives from the United States France China Brazil Russia and Japan This handout includes background information on each country as well as a summary of each country s main interests Further information is available in the articles contained in the reading packet You may also consult outside resources such as the Internet for other information that you may need The policy simulation takes the form of an international negotiation on the next round of climate policy The Kyoto Protocol expires in 2012 Although the Protocol has now been ratified by a sufficient number of countries to take effect its ultimate success reducing emissions is hampered by the United States decision to pull out of the agreement Given the large amount of carbon emissions coming from the United States an agreement without their participation is likely to be ineffective Thus the primary goal of this meeting is to reach an agreement for the next round of climate policy that ensures at lest partial participation of the United States The moderator is convening this session with the hope that a dialogue among the affected parties will help to reach a compromise that all groups can be happy with Each group will be responsible for preparing a 23 page policy brief that outlines your goals This policy brief is due Via email on Thursday April 9 so that each group will have a chance to review the briefs Please email the reports using the email discussion list so that they are distributed to all participants of the negotiations prior to the simulation At the beginning of the simulation each group will have ve minutes in which to present their goals to the group You may use this five minutes to raise particular concerns and to propose potential areas for negotiation The remainder of the class will be left for negotiations among the groups We will cover some basic issues in the economics of climate change in class on Wednesday April 8 Attendance at the simulation is important as the simulation makes up 10 of your grade for the course If you will be unable to attend please let me know in advance Unexcused absences will receive a zero for that portion of your grade Background Information on Participants of the 2009 Climate Change Policy Simulation Note much of this information comes from the Energy Information Administration s country reports You c n access these at httptontoeiadoegovcountryindexcfm United States Energy use The United States is both the world s largest energy consumer and producer Total energy consumption in 2006 was 100 quadrillion Btu or 21 of the world s total Per capita energy consumption was 335 million Btu The strong economic performance of the United States during the 19905 helped to increase energy usage Of total energy consumption 40 came from oil 23 from natural gas and 22 from coal Although most electricity currently is generated in coal plants 52 compared to 21 nuclear and 16 of natural gas most new electric power plants use natural gas However production of electricity from natural gas fell slightly in recent years due to higher natural gas prices Carbon dioxide emissions Total carbon dioxide emissions in 2005 were 59 billion metric tons This is 20 of the global total Even on a per capita basis the US figure of 198 metric tons per person is much higher than other developed countries In the Kyoto Protocol the United States pledged to reduce carbon emissions 7 from 1990 levels by 20082012 Since then total emissions have increased and President George W Bush stated that the US will not ratify the Kyoto Protocol The election of President Obama increases the likelihood that the US will pass emission restrictions but any policy will still need the support of Congress to pass During the previous rounds of negotiations concerns of the US included having an international trading scheme to reduce emissions allowing credit for creating carbon sinks and including developing countries in any final agreement Recent domestic efforts have focused on reducing carbon intensity emissions per dollar of GDP rather than overall carbon emissions France Energy use In 2006 France consumed 114 quadrillion Btu of energy 24 of the world s total consumption Nonetheless per capita consumption was just 1807 million Btu Of this 39 comes from nuclear power 36 from petroleum 16 from natural gas 5 from hydroelectric power and 4 from coal Thanks to a strong commitment to nuclear power France has reduced its dependence on energy exports France is the largest per capita producer of nuclear energy About 79 of France s electricity is currently generated from nuclear power Unlike other European countries France plans to continue developing its nuclear power capacity France developed its nuclear power capabilities in response to the energy crises of the 19705 At that time France s electricity production was heavily dependent on fossil fuels As recently as 1980 nuclear accounted for only 15 of electricity generation In 1973 over 80 of France s electricity came from fossil fuels Because France has limited fossil fuel resources most of these fossil fuels were imported For example about 96 of oil currently consumed in France is imported Despite the reliance on nuclear power air pollution problems are still a concern Over 3 million cars enter Paris each day leading to significant air pollution concerns Carbon dioxide emissions Thanks to its heavy use of nuclear power carbon dioxide emissions in France are relatively low Total carbon dioxide emissions are 418 million metric tons This is just 14 of global carbon emissions Per capita carbon emissions are just 66 metric tons which is lower than most developed countries For comparison France does better than countries such as Germany 104 the United Kingdom 97 Japan 98 and Italy 81 but worse than Sweden 64 and Switzerland 61 Due to increased nuclear power France s carbon emissions have improved over time Ironically although France supports a strong climate change agreement meeting the emissions targets will be difficult As a result of their reliance on nuclear power France s carbon emissions are already lower than most nations Further reductions will be challenging Also like most European countries France objects to allowing emissions credits for protecting carbon sinks such as forests Nonetheless France ratified the Kyoto Protocol in May of 2002 Under the Protocol European Union countries have pledged to reduce greenhouse gas emissions by 8 below its 1990 level The responsibility for individual EU countries varies and determines the number of carbon permits allocated to each country for the EU carbon trading system Because of these earlier reductions France simply needs to keep emissions at 1990 levels The French government has already approved some plans such as a carbon tax to meet this obligation Brazil Energy Consumption After several years of slow growth at the turn of the century the Brazilian economy has recovered in recent years The electricity sector depends heavily on hydroelectric power which provides 84 of Brazil s installed electric capacity This has led to problems in years of below average rainfall Most recently several years of below average rainfall in the early 2000s left reservoirs only 30 full Combined with underinvestment in new power sources this led to major shortages leading to severe rationing programs that were enacted in 2001 These programs were repealed in March of 2002 In July 2003 the government introduced new plans to increase reliability of the electric grid including pooling hydroelectric and natural gas generating sources and building new transmission lines Brazil contains South America s second largest oil reserves 122 billion barrels However these reserves represent only about one percent of global oil reserves While Brazil is a net importer of oil oil production has increased closing the gap between oil production and oil consumption As a result Brazil hopes to become a net exporter of oil in 2009 Furthermore in 2007 Brazil announced the discovery of the world s largest oil field since 2000 This offshore oil field is expected to produce between 5 and 8 billion barrels of oil once drilling begins In 2006 Brazilians consumed 96 quadrillion Btu of energy This was 2 of the world total Per capita consumption was 512 million Btu 48 of energy consumption is from oil hydroelectric provides 36 natural gas 7 coal 5 other renewables 2 and nuclear power provides 1 of energy consumed in Brazil 1n transportation Brazil makes extensive use of ethanol Brazil is the world s largest producer of ethanol most of which it produces from sugar cane Currently all gasoline sold in Brazil should contain 25 ethanol Prior to June 1 2003 a 20 ethanol mix was required As a result of these requirements emissions from transportation are lower than they otherwise would be In addition in June of 2003 Brazil signed two energy cooperation agreements with the United States to begin discussions on collaborating to develop hydrogen and fuel cells Carbon dioxide emissions In 2006 Brazil emitted 377 million metric tons of carbon dioxide This comprised 13 of world carbon dioxide emissions Per capita carbon dioxide emissions were just 2 metric tons per person Nearly 80 of Brazilian carbon dioxide emissions come from oil with another 13 from coal Brazil is not committed to any carbon reductions in the Kyoto Protocol Brazil ratified the Kyoto Protocol in August of 2002 A potentially important issue for Brazil is rainforest protection 30 of the world s remaining tropical rain forests are in the Amazon rainforest in Brazil An intact acre of Amazon rainforest can sequester about 1000 pounds of carbon dioxide per year Another important issue is differentiating the responsibility of developing and developed countries Brazil advocates differentiating responsibility between developed and developing countries following the international principle of polluter pays In 1997 Brazil submitted such a proposal during the negotiations of the original Kyoto Protocol 1 For those interested information on the proposal can be found at httplmfm r 39 iand 39 39 7issuesitems1038php Russia Energy Consumption Russia is a major world supplier of energy It is the world s largest exporter of natural gas and the second largest exporter of oil These sales provide important sources of revenue for the country 7 energy accounts for over 20 of Russia s GDP Russia has the world s largest natural gas reserves and the second largest coal reserves After a slowdown following the breakup of the Soviet Union the country has grown more quickly in recent years including a 81 growth rate in 2007 Russia is also the world s third largest energy consumer In 2005 Russians consumed 304 quadrillion Btu of energy 64 of the world total Per capita energy consumption was 2139 million Btu Due to its large reserves most energy consumed in Russia 55 comes from natural gas followed by oil 19 and coal 16 Energy consumption in Russia has been dramatically affected by changing economic conditions Energy use has fallen since the breakup of the Soviet Union Nonetheless energy intensity energy consumption per GDP has risen This is of course partially due to drops in GDP but it is also due to inefficient use of energy resources Much of the old inefficient Soviet infrastructure is still in place Carbon dioxide emissions In 2005 Russia emitted 17 billion metric tons of carbon dioxide or 58 of the world total Per capita emissions were 120 metric tons Natural gas is responsible for just over onehalf of Russia s carbon dioxide emissions In the Kyoto Protocol Russia committed to reducing greenhouse gas emissions to 52 below 1990 levels As a result of the economic downturn that followed the breakup of the Soviet Union emissions are already nearly 30 lower than 1990 levels Not surprisingly it is important to Russia to receive credit for these reductions Russia has also been pushing for larger credits for its forests which serve as a carbon sink Russia signed the Kyoto Protocol and ratified it in November 2004 To take effect Kyoto must be ratified by 50 of the signatory countries and those countries must have emitted at least 50 of carbon emissions in 1990 With the United States decision to not ratify Kyoto Russia s decision to ratify was necessary for Kyoto to take effect China Energy Use China is the world s most populous country and the world s second largest energy consumer China consumed 738 quadrillion Btu in 2006 accounting for 16 percent of the world s total However per capita energy usage is much lower than the world average In 2006 China s per capita energy usage was just 562 million Btu Energy intensity energy per dollar of GDP has been falling but is higher than that of most developed countries China has experienced rapid economic growth in recent years which has also translated into additional energy use and helped lower its energy intensity China s gross domestic product grew by 99 in 2005 and 101 in 2004 69 of China s primary energy consumption comes from coal Of the rest 22 comes from oil 6 from hydroelectricity and just 3 from natural gas In 1999 60 of China s energy was consumed in the industrial sector and 28 in the residential sector Just 7 was consumed in the transportation sector However the transportation sector s energy usage is projected to rise by as much as 7 per year in the near future due to government plans for major infrastructure improvements In 2004 China s coal consumption 21 billion short tons made up over onethird of total global coal consumption Moreover coal consumption has grown 46 since 2002 China is both the world s largest coal producer and coal consumer Estimates of the total coal reserves available in China are approximately 126 billion short tons Only the US and Russia have larger reserves Air pollution from coal is a growing problem A 1998 World Health Organization report WHO found that 7 of the 10 most polluted cities in the world are in China In addition China is also the world s third largest oil importer Carbon dioxide emissions China is the largest emitter of energyrelated carbon dioxide emissions with total emissions of 60 billion metric tons in 2006 This is 20 of global emissions 2006 was the first year in which total Chinese carbon dioxide emissions surpassed those of the US However on a per capita basis China performs much better Per capita carbon dioxide emissions are just 46 metric tons Per capita emissions are growing rapidly and were just 27 metric tons in 2003 As such China s share of global emissions is expected to rise to 28 by 2030 China has not agreed to any reductions in the Kyoto Protocol Like most developing countries China does not want to undertake restrictions that will hamper its economic growth Japan Energy use Japan is the world s fourth largest energy consumer and the second largest energy importer The country consumed 228 quadrillion Btu of energy in 2006 48 of the world total Its economy has begun to recover after years of slow economic growth GDP grew 25 in 2005 and 23 in 2004 Because Japan has few energy sources of its own it is heavily dependent on energy imports It is the second largest net importer of crude oil in the world 7 only the United States has higher net imports In 2002 80 of Japan s primary energy came from abroad Japan s energy consumption breaks down as follows oil 49 coal 20 natural gas 14 nuclear power 13 hydroelectric power 3 and renewable resources 1 About onehalf of Japan s energy is used by industry and another onefourth is used by the transportation sector J apan s energy intensity energy use per unit of GDP is among the lowest in the developed world Per capita energy consumption in 2006 was 1787 million Btu Carbon dioxide emissions In 2006 Japan emitted 12 billion metric tons of carbon dioxide 43 of the world s total Per capita emissions were 98 metric tons of carbon dioxide per person This is less than half of the US total Oil accounts for 53 of these emissions coal accounts for 34 and natural gas for 13 Recently enacted policies to improve the fuel efficiency of automobiles are expected to reduce the share of carbon dioxide emissions from the transportation sector Under the Kyoto Protocol Japan has pledged to reduce emissions by 6 below 1990 levels by 20082012 Unfortunately emissions rose 24 between 1990 and 2004 Japan s economy has recently become more carbon intensive Emissions from 35 main industries rose by 18 in the fiscal year 2002 One reason is that several nuclear reactors all owned by Tokyo Electric Power were shut down in response to a coverup of safety problems by the company Japan ratified the Kyoto Protocol in June of 2002 During the last round of negotiations Japan was hoping to get weak penalties for violating countries Instead the European position requiring violators in the first commitment period 20082012 to pledge further reductions in the next period was enacted Each violator must reduce an additional 13 tons for every ton over the agreed upon limits In addition international trading of emissions credits is important to Japan
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