Global Air Quality: Policies for Ozone Depletion and Global Warming

1. Global Air Quality: Policies for Ozone Depletion and Global Warming Chapter 13 © 2004 Thomson Learning/South-Western

2. The Problem of Ozone Depletion • Ozone layer – Ozone present in the stratosphere that protects the earth from ultraviolet radiation • Ozone depletion – thinning of the ozone layer, originally observed as an ozone hole over Antarctica

3. The Problem of Ozone Depletion • Searching for the Causes of Ozone Depletion • Chlorofluorocarbons (CFCs) – a family of chemicals that scientists believe contributes to ozone depletion • Halons – a major group of ozone depleters that have long atmospheric lifetimes

4. Controlling Ozone Depletion • International Agreements to Control Ozone Depletion • Montreal protocol • Signed in 1987 by 24 major countries, the Montreal Protocol on Substances That Deplete the Ozone Layer called for 50 percent reduction in CFC consumption and production • Amendments to the Protocol • Outlined full phase-out plan for CFCs, halons, and other ozone-depleting substances • International allowance trading • Market approach included production and consumption allowances • Multilateral fund • Established in 1990 to assist developing countries

5. Controlling Ozone Depletion Figure 13.1 Cumulative Global Production of CFCs: 1960 – 1998

6. Controlling Ozone Depletion • U.S. Policy to Control Ozone Depletion • Ozone depletion potential (ODP) – a numerical score that signifies a substance’s potential for destroying stratospheric ozone relative to CFC-11 • Excise Tax on Ozone Depleters – an escalating tax on the production of ozone-depleting substances

7. Controlling Ozone Depletion • Allowance Market for Ozone-Depleting Chemicals – a system that allows firms to produce or import ozone depleters only if they hold an appropriate number of tradeable allowances • Two types of transfers: • Trades with other parties • Interpollutant transfers

8. Controlling Ozone Depletion • Regulatory Impact Analysis (RIA) of the Phase-Out • A benefit-cost study of the formal phaseout plan conducted by the EPA

9. Economic Analysis of U.S. Policy on Ozone Depletion • Assessing Cost-Effectiveness • EPA-commissioned study conducted by Rand Corporation investigated three alternative control approaches • Costs for each approach were as follows • Technology-based command-and-control approach: $185.3 million • Fixed emission charges: $107.8 million • Tradeable emissions permit system: $94.7 million

10. Controlling Ozone Depletion Figure 13.2 Price Adjustments of CFCs and CFC Substitutes

11. Controlling Ozone Depletion • Price Changes • U.S. progress could be observed through the price mechanism due to implementation through market-oriented instruments

12. Controlling Ozone Depletion • Incentives and Disincentives To Develop CFC Substitutes • Usual incentives encouraged a market adjustment to the observed industry declines and price changes • Use of tradeable allowance plan along with the excise tax, the recycling program, and the safe alternatives policy achieved the phase-out objectives in a more cost-effective manner

13. The Problem of Greenhouse Gases and Global Warming • Greenhouse gases (GHGs) – gases collectively responsible for the absorption process that naturally warms the earth

14. The Problem of Greenhouse Gases and Global Warming • Understanding the Potential Problem • Global warming – caused by sunlight hitting the earth’s surface and radiating back into the atmosphere where its absorption by GHGs heats the atmosphere and warms the earth’s surface • Global warming potential (GWP) – measures the global warming effect of a unit of any GHG relative to a unit of CO2 over some time period

15. The Problem of Greenhouse Gases and Global Warming Figure 13.3 Greenhouse Gases and Their Contribution to Global Warming

16. The Problem of Greenhouse Gases and Global Warming • Scientific Uncertainty • No one knows with certainty the timing or the extent of the outcome of the climate changes associated with rising amounts of CO2 • Carbon sinks – natural absorbers of CO2 such as forests and oceans

17. The Problem of Greenhouse Gases and Global Warming • Predicting the Potential Effects of Global Warming • There is a lack of substantive information on what the eventual outcome of accumulated GHGs might be • Scientific predictions about the effects of global warming are not at all conclusive

18. Policy Response to Global Warming • International Response • U.N. Framework Convention on Climate Change (UNFCCC) – agreement dealing with global warming and other air quality issues • National Action Plan (NAP) – a nations policy to control GHGs and a statement of its target emissions level for the future • Kyoto Protocol • U.S. Response • Clinton administration • Bush administration • Greenhouse gas (GHG) intensity – the ratio of GHG emissions to economic output

19. Policy Response to Global Warming Figure 13.4 Top 10 National Emitters of Carbon Dioxide, 1999

20. Policy Response to Global Warming • Investigating Market-Based Policy Options • Pollution Charge – a fee that varies with the amount of pollutants released • Gasoline tax – a per unit tax levied on each gallon of gasoline consumed • Btu tax – a per unit charge based on the energy content of fuel, measured in British thermal units (Btu) • Carbon tax – a per unit charge based on the carbon content of fuel • Corrective taxes – a tax aimed at rectifying a market failure and improving resource allocation

21. Policy Response to Global Warming • Tradeable Permit System • Tradeable permit system for GHG emissions – based on the issuance of marketable permits, where each allows the release of some amount of GHGs

22. Economic Analysis of Global Warming Control Policies • Estimating the Benefits of Controlling Global Warming: Two Opposing Views • Short - and Long-Term Expected Benefits: A Report from the OECD • Assessment of Relative Benefits: A Study by Beckerman

23. Economic Analysis of Global Warming Control Policies Figure 13.5 Modeling the Negative Externality of GHG Emissions Associated with Electricity Generation

24. Economic Analysis of Global Warming Control Policies • Economic Model of the Market Failure • Evaluating Market-Based Policies • Analysis of Pollution Charges • Evaluating a Tradeable Permit System