Euston Quah & Qiyan Ong, Straits Times 5 Jun 09;
IT COMES as no surprise that the theme of this year's World Environment Day is climate change. Global warming is likely to cause extreme weather patterns, rising sea levels and a fall in biodiversity.
These dangers may seem distant. But a recent report by University College London researchers warned that water shortages, malnutrition and inadequate living conditions, coupled with more outbreaks of diseases, will make climate change the biggest global health threat of the 21st century. With such dangers at hand, are we moving towards a more sustainable development path?
We had other environmental problems before global warming took centre stage. There was a time when we feared severe resource scarcity - including of oil and food - but the invisible hand of the market and various policy interventions led us through those crises. We have been threatened with ozone depletion but countries agreed to phase out chlorofluorocarbons. As a result, there are now some early signs of stratospheric ozone recovery.
So it is not all gloom and doom. Humankind has indeed managed to resolve or at least alleviate some serious environmental problems over the last decade and there is no reason to believe we cannot do the same with regards to climate change.
The Kyoto Protocol was the first attempt to directly restrict carbon emissions from industrialised countries. Although it has failed to produce results, its failure exposes the complexity of the issue. If acknowledged, these lessons can facilitate other international agreements.
One of the key factors that Kyoto neglected is the asymmetric benefits and costs that developing countries and developed countries face in reducing carbon emissions. Developed nations tend to value the welfare of future generations more than developing nations since their current populations are fairly well-off. In contrast, developing countries face immediate problems such as poverty, poor hygiene and illiteracy. Developing countries are thus less willing to trade current economic growth for better environmental conditions for future generations.
That might imply that developed nations should therefore bear a larger emission reduction. But we would be missing out the other side of the story: the cost of reducing emissions.
To reduce carbon emissions, cleaner energy must be adopted and more energy-efficient infrastructures have to be built. Developing nations face lower opportunity cost in emission reduction than developed nations as much of the energy infrastructure they need has yet to be built. Developed countries, on the other hand, have to replace or retrofit their current infrastructure, thereby incurring higher costs. This is one of the main reasons why the United States, with 50 per cent of its electricity generated by coal- fired power plants, has been so reluctant to commit to carbon emission reduction.
If we evaluate both the costs and benefits of carbon emission reduction, developed and developing nations seem to have converging incentives to reduce their emissions. This implies that there are no real winners or losers in this.
Indeed, we are now seeing signs that developed and developing countries are recognising this. US President Barack Obama has promised to make his country 'the leader on climate change'. And while many, including Nobel laureate Paul Krugman, have faulted China for its rapidly growing carbon emissions, the fact is China has already taken the lead among developing countries in moving to a slower emission growth path.
For instance, in the past two years, China has emerged as the world's leading builder of more efficient, less polluting coal-fired power plants. The US, on the other hand, has yet to adopt this technology. In addition, China has been pursuing rural hydropower projects and building nuclear power plants.
Despite all these positive changes, there is of course much that needs to be done. Although many have pinned their hopes on the United Nations climate change conference in Copenhagen in December, countries are unlikely to reach a consensus on the ideal levels of carbon emission reductions. But whatever international agreement emerges, it has to be supplemented by pragmatic environmental policies in individual countries.
Just as traffic congestion is alleviated through toll charges, imposing carbon tariffs on goods and services will provide the essential incentive for consumers and businesses to be more energy-efficient. Such carbon tariffs will also encourage competition among companies as well as countries in adopting environmentally friendly production technologies.
For these efforts to materialise, however, it is crucial for all of us to realise that carbon reduction is not a zero-sum game. Concerted efforts in this cause will lead all of us onto a sustainable development path, while pointing fingers at one another will drive us further from that path. When we sacrifice our present economic growth for the benefit of our future generations, we must not forget that others are also sacrificing their economic growth for their future generations.
Euston Quah is Professor of Environmental Economics and Head of Economics at Nanyang Technological University (NTU). Qiyan Ong is currently pursuing her PhD at NTU.
