Notes on International Environment

The most significant cross country research on the environment is the Grossman and Kreuger research reported on page 405 of the Field textbook. The graphs show that pollution (particulates and sulfur dioxide) first increase as per capita income increases and then decrease. The economic explanation is that very poor countries burn little fuel and so are incapable of producing very great pollution. Richer countries (up to approx. $3,000/capita) burn more fuel and make little provision for burning it cleanly. Yet richer countries consume more energy, but make great provision for burning it cleanly and so they have less ambient air problems than middle income countries. The situation for carbon-dioxide is that, so far, the more energy consumed the more CO2. Richer countries are, so far, the culprits in green-house gasses. Whether this will remain so, now that CO2 is recognized as a form of pollution is an open question. The current betting is that cleaning up CO2 will turn out to be quite costly and that the political will to do so may not exist.

In discussing greenhouse gasses, the critical equation is

Pollute = population x GDP/pop x Energy/GDP x gas/Energy

The only bright spot is that in the richest countries energy/GDP is falling.

Field (p. 436 citing Office of Technology Assessment, Changing by Degrees 1991) gives the costs of reducing a ton of CO2 by various means. The cheapest is to use the Conservation Reserve to plant trees. The least likely to be true is a gain (not a cost) by increasing fuel efficiency in cars and trucks.

My own guess is that it is too early to tell how addicted we are to fossil energy and that it will end up being like sulfur dioxide, controllable at tolerable costs. However, there is already too much of it in the atmosphere and the damages are likely to be quite large. The view that it will only make agriculture relocate northward seems na´ve to me. Just considering agriculture, the more northern soils are not necessarily useful for growing the hot weather crops. More generally, the disruption in rainfall and increased ferocity of storms is a bigger problem. The first time a 225 mph hurricane lands in Mexico the truth will come home.


Debt for Nature

(Field p. 417) Look carefully at the facts. "Conservation International …bought $650,000 of Bolivia's commercial debt from Citicorp investment bank for $100,000." Citicorp presumably sold the debt cheaply, at 1/6 of face value, because they stood little chance of getting paid back on their loan. The debt was a non-performing asset. Citicorp was getting the best deal it could get; it was not making a gift to anyone or trying to help the environment. Conservation International then went to Bolivia and traded the debt for protecting 4 million acres of tropical rain forest. Bolivia was happy because it valued it's debt quite highly: more loans are not forthcoming to those who are not current on their loans. It also managed to "sell" rainforest without having to turn it into a soybean field. Now consider the facts of the Pacific Lumber company: it's debt obligations do not trade at a large discount. You would have to pay $100,000 to get $100,000 worth of its debt. It would then sell you $100,000 worth of lumber (or land and trees) for that sum. There would not be a gain of $550,000 as their was with Bolivia.