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sustainable development

cultureThere is a new article of mine that I would like to announce, entitled “The endogenous formation of an environmental culture“, and I am happy to tell you that it is forthcoming in the journal the European Economic Review.

The article is summarized as follows:

This article presents a mechanism explaining the surge in environmental culture across the globe. Based upon empirical evidence, we develop an overlapping generations model with environmental quality and endogenous environmental culture. Environmental culture may be costlessly transmitted intergenerationally, or via costly education.

The model predicts that for low wealth levels, society is unable to free resources for environmental culture. In this case, society will only invest in environmental maintenance if environmental quality is sufficiently low. Once society has reached a certain level of economic development, then it may optimally invest a part of its wealth in developing an environmental culture. Environmental culture has not only a positive impact on environmental quality through lower levels of consumption, but it improves the environment through maintenance expenditure for wealth-environment combinations at which, in a restricted model without environmental culture, no maintenance would be undertaken. Environmental culture leads to a society with a higher indirect utility at steady state in comparison to the restricted model.

Our model leads us to the conclusion that, for societies trapped in a situation with low environmental quality, investments in culture may induce positive feedback loops, where more culture raises environmental quality which in turn raises environmental culture. We also discuss how environmental culture may lead to an Environmental Kuznets Curve.

So what is this all about?

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After a long time of negotations, a new climate accord has been reached by the 20th Conference of the Parties (COP20), in Lima, on the 14th December 2014. It is called the `Lima Accord‘, a draft text that is now viewed as a step towards the international climate conference to be held in Paris in 2015. I provide an overview of the main results, the difference to what had been decided before, and an overview of the different positions in the news.

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I have been visiting Matthew Kahn’s blog again, and he always provides interesting thoughts and opinions for environmental economists. This time he suggests that it is useless for the individual to act green since the overall impact is negligible, or, in his words, a “drop in a bucket”. To be fair, he uses this argument for economists that decide not to go to international conference for environmental reasons (carbon footprint), but his argument is certainly applicable to most green activities of individuals.

Here is why I do not like this sort of argument: So yes, he is correct from the perspective of a single person. If I decide to not fly then my impact on the world’s GHG emissions is so close to zero that any cost accruing to me should outweigh the benefits. Hence, if I were to rely on a standard Cost-Benefit Analysis using only self-centred preferences, then I should always fly and never act green (unless the green activity is an in-my-backyard activity).

Of course, much of the public good literature suggests this is precisely the reason for which public goods tend to be underprovided. But, obviously, in reality individuals are well-aware that their actions do have an impact well-above the immediate one, and this may be the reason for which they actually act green. One of these indirect impacts is, for example, a potential spillover effect, or network effect, which then induces others to think more carefully about their own choices, too. This spillover effect may be sizable, and there is a growing literature that studies this transmission of green behavior across generations or networks. The basic result of that literature is that, if there are enough individuals who actually do act green, then their actions may induce further green behavior by others and subsequently we may become a society that is strongly green oriented.

But, more importantly, an argument as the one raised by Matthew Kahn is dangerous insofar as it implies that green action by individuals is not worthwhile at all. If people start to believe this, then they will tune down their pro-environmental attitude, and instead expect the government to take over the role of the green actor. Of course, everyone is becoming more and more aware that, without a sufficiently strong grassroots movement, e.g. in the form of Agenda 21, it is undoubtedly clear that we would ruin this planet even faster than we currently are.

 

So folks, this is it. Anyone who ever thought it was impossible, there isn’t enough space, it is too expensive, or whatever other unreasonable argument was ever forwarded: The #energiewende is there, it is not only happening in Germany but worldwide. Take a look at Figure 1 below. Nuclear energy production is stagnating, and that for more or less the past 30 years, while alternative sources of energy, wind and solar, are now nearly producing the same amount of electricity as nuclear is. energiewende

This should be a slap in the face for all doubters, for all naysayers and pessimists alike. We do not need nuclear energy, we have safe alternative sources of energy, they are able to produce the same amount of electricity as nuclear is, and if they keep growing just for a little while longer as they have been growing during the past couple of years, then we won’t need nuclear energy in our future energy mix at all. And we might even be able to significantly reduce non-renewable sources of electricity production.

Has anyone seen a significant drag on economic growth from this #energiewende? Has anyone noticed a significant increase in unemployment? Where are the promised recessions, where are the masses of job losses, productivity reductions and losses in international competitiveness that we were promised if we were ever moving to greener sources of electricity production? Anyone? Honestly, the only recessions, the only losses in employment, the only high costs that we know about come from the financial world, from rich people juggling around billions of dollars a day to take advantage of minimal spreads in the name of economic growth; from the banks that try to push up their return on assets and sell us mortgage-backed securities based on worthless mortgages and that do more shadow banking than actual banking; from companies that try to make us believe that we need to buy more and more in order to become happier, better people. Is that really how it should be? Are we really barking up the right tree if we are anti-green? Do we not lose sight of where the real costs are? After all, we should remember that our economic system is part of the natural environment, and not the other way around.

#energiewende here we come!

 

 

A new report, by order of the European Commission, studying the Subsidies and costs of EU energy just came out (published by Ecofys. KPMG and the Centre for Social and Economic Research). This study is particular noteworthy since it is one of the first that attempts to provide useful data on energy costs and subsidies for all EU Member States and for all technologies. Here is a quick summary of the most interesting findings as well as some thoughts and discussions.

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This is a Weakends (pun intended…) post, so bear with me please. I am asking the following: Is the European Institution (Union, Commission, etc.) a weak institution? What lessons should we take away from this?

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Circular Economy is one of the phrases that you’ll nowadays most often hear at any sustainable development debate. It is basically a new catch phrase for anything that was previously associated with sustainable development. Since still nobody really knows how to make an economy sustainable, circular, square or rectangular, now, for yours truly, the EEA managed to come up with a very simple solution to the problem.

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