Global Issues

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Global Issues During the past few decades, our environment has undergone changes unforeseen by our predecessors. Global population has nearly doubled and the gap between rich and poor nations has widened. International conflicts have escalated, many of them because of competition for control of limited natural resources. We discovered that the sky over Antarctica (and to a smaller degree all over the world) has been losing ozone rapidly. Acid rain has damaged millions of acres of land and has adversely affected marine life and other species. More than half of the tropical forests have been destroyed or greatly degraded. The damage incurred by properties alone is estimated at billions of dollars. Many valuable species of plants and animals are now extinct or endangered. Our ever-increasing dependence on petroleum has not only affected our health, but has also resulted in global warming, the full consequences of which are yet to be determined. The environmental issues associated with fossil combustion were discussed in some detail in Chapter 8. Until relatively recent times, most of our activities that affected the environment were local in scope. Cleanup required taking small steps over small geographical areas and short times. Today, the rapid Crime and Punishment Digging Deeper ... In every society, there are always those who become involved in illegal or criminal activities for various reasons: to reduce costs (avoiding buying and installing pollution-control devices), to increase revenue (illegal commercial fishing, and logging), or to increase utilities (illegal hunting or swimming). An economic analysis of the situation shows however, that there is a point where the risk of detection and punishment does not justify the benefit reaped from such activities. The main task of regulatory and law-enforcement agencies is to impose a high level of monitoring and enforcement, or create enough deterrence (for example, large fines or long jail times) to convince the criminals (the environmental polluters in our discussion) that crime does not pay. Example: Suppose you are given the option of receiving a guaranteed $1,000 or have a 50% chance to receive double or nothing. Which one do you take? Solution: Mathematically, both options have the same expected value of $1,000. The conservative takes the $1,000 payoff; the risk taker will gamble hoping for the $2,000. Both options are exactly the same for a risk-neutral person. The majority of firms are risk neutral by definition. Example: Suppose a firm determines that there is only a 20% chance of being caught dumping its hazardous waste into a nearby river and if caught there is a 50% chance of being punished. Furthermore, the firm estimates a savings of $100,000 from noncompliance. How large a fine would create sufficient deterrence against noncompliance by the firm? Solution: The penalty, X, should be large enough to washout the potential (expected) gain from noncompliance. i.e., 0.2*0.5*X = $100,000, or X = $1 million dollars. 430 rise in consumption of both materials and energy has made many environmental issues global in nature. Nuclear testing by one nation can have environmental repercussions thousands of miles away. The burning of fossil fuels, use of non-biodegradable products, and dumping of toxic wastes in rivers can impact the environment globally. One feature that separates global and local issues is their scale, both in magnitude and duration. Global issues are persistent; they cannot be solved overnight by one nation or one country alone. Resolving these issues may require long-term planning. Global issues are interconnected; solving one may in fact solve many other problems, or we may need to solve a multitude of other problems simultaneously. For example, reducing greenhouse gases will reduce both global warming and ozone depletion, while narrowing the gap between rich and poor nations can also solve many health, hunger, employment, and security issues. Global warming, ozone depletion, and acid rain are among the most severe problems we are facing worldwide. Global warming has rightly received the most attention, as we may have to face consequences that last hundreds of years as a result. The Kyoto Treaty was a positive step that required cooperation between industrial and poor countries. Under this plan, rich countries would reduce their emissions of greenhouse gases and at the same time provide incentives for poor countries to follow suit. Unfortunately, the United States and Australia, two of the most industrialized countries and the largest contributors of greenhouse gases, cited economic hardship and pulled out of the treaty, weakening the agreement and reducing its likelihood of success. Despite this disappointment, the treaty was finally ratified in 2005. The impact of the treaty on curbing overall carbon emission is yet to be determined. Ozone depletion was recognized as a major environmental issue at the 1987 Montréal Protocol and later in the Rio Summit on biodiversity in 1992. Enforcement of the treaty required signatories to ban the import and export of products containing CFCs to and from nonmember countries. This provision not only provided incentives for member countries to find ozone-friendly substitutes, but the reduced trades with nonmembers also provided impetus for others to join the agreement. The two common substitutes for CFCs are hydrofluorocarbon (HFC), hydrochlorofluorocarbon (HCFC). The former is not an ozone depleting substance but neither is as efficient a coolant; the latter is a mildly ozone depleting substance slated to be phased out by 2030. Acid rain is formed when the sulfur and nitric oxides emitted from the stacks of coal and oil power plants react with the humid atmospheric air. The “UN Convention on Transboundary Air Pollution” drafted the “Protocol to Abate Acidification, Eutrophication, and Ground-level 10 UN Environmental Commission for Europe (http://www.unece.org/env/lrtap/multi_h1.htm). 431 Chapter 16 - Economics of the Environment Ozone.”10 This protocol sets ceilings for emissions of four pollutants, sulfur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOCs), and ammonia (NH3), to be reached by 2010. The protocol also sets limits for specific emission sources (power plants, refineries, farms, etc.) requiring the best available techniques to keep emissions down.

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