International Environmental Transfers

International Environmental Transfers

The Case for International Environmental Transfers • Income effect • Environmental protection as a normal good • Rich countries have more income to devote to environmental protection • Lobbying • Rich countries bear the externalities, but don’t share profits • Protection is underprovided because environmental interests are diffuse and producer interests are concentrated • Interest group organization • NGOs are denser, older, wealthier in the North

If concern is so much greater in developed countries, why are there so few transfers?

Coase theorem revisited • Without transaction costs, bribery is efficient; property rights don’t matter • With transaction costs: • search • bargaining • enforcement suboptimal level of bribes

Aid agency • Don’t commit Commit LDC • LDC •

Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply

C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 1: Noncredible recipient commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 2: Noncredible donor commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 3: Noncredible conditionality Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

Conclusions • Transaction costs can prevent donors from offering aid in the first place • The credibility problem need not be on the recipient’s side • The three types of credibility problems are observationally equivalent

Case Study: bargaining problems and the GEF • Politics of GEF (Global Environment Facility - 1990 -) • 1990-1993, $1 bil; 1993, $2 bil • North-South conflict • North • Global problems, additionality, incremental cost • “Green” conditionality (“integration”) • World Bank control • South • Obtain new funds but avoid new conditionality • Sustainable development • UN control

Turf battle + Poor implementation, project selection Deadlock over organizational mission Bargaining problems and GEF Compromise: unclear objectives, implementation shared by WB, UNDP, UNEP • UNCED (UN Conference on Environment and Development) • June/92; summit → high stakes

Keohane & Levy framework • Concern → conditionality (concern generally asymmetric) • Contractual environment: limited lending agency discretion in bargaining; commitment to punishing; monitoring • Capacity → involuntary defection • WB: most failures due to lack of institutional capacity • On-going funding for recipient governments • Competition from sectoral lobbies in donor countries → misdirection of funds • NGOs as solution • Coordination: bilateral, IFIs, NGOs, regional development banks can reinforce or undermine (Indonesia)

Criticisms • A laundry list, not a theory • Testing? • Generating intermediate-range hypotheses • Research design • More hypotheses than cases • Selection bias • Still, a useful starting point

Environmental Politics in Europe: Coordination, bargaining and transfers

Expectations • Expectations: good results in Europe • High concern • Contractual environment: transparent, institution dense, multiple linkages • High capacity • But volume finds poor results. Why? • Case selection: looking for cases involving financial transfers (most cases in Europe don’t) • Success in “coordination” cases in Europe: • LRTAP, Baltic and North Seas pollution, Mediterranean • Leaders shame laggards

Chloride pollution in the Rhine • Perfect case for Coasian bargaining • Small “n”; transparency; narrow issue; very accurate measurement ; winners and losers clear • Puzzle of the formal outcome: • Netherlands, Germany, Switzerland pay France; • only Netherlands benefits; • Germany, Switzerland are the polluters • Coase: MdPA lowest marginal cost of reduction

Chloride pollution in the Rhine • But transaction costs (bargaining) interfered • Incentives to misrepresent • Distributional bargaining Delay • Private adaptation → reduced concern • Decline of mining → reduced problem

Nuclear safety in Eastern Europe • Remember Chernobyl? • RBMK, VVER-440, VVER-1000 • Asymmetric concern → conflict over solution • Income effect • Austerity programs and the IMF • foreign currency crunch • Puzzle: West’s weak bargaining position: • Short-term fix →reduced incentives for closure • Lack of coordination • Capture by Western industry

Other environmental assistance to Eastern Europe • Expectation: substantial aid because • Trans-boundary effects, lower marginal cost of abatement in EE • Potential expansion of EU • Institution-rich environment: EU, EBRD, WB, G-24 • Outcome: little aid, less conditionality. Why?

Other environmental assistance to Eastern Europe • Principal-agent problems, organizational mission, inertia, other agendas: • World Bank: • Energy projects • Macroeconomics • EBRD: • private sector projects • partnership in investment → constrained by supply of interested investors • need for speed

Demand for aid Environmental exports Interest groups Other environmental assistance to Eastern Europe • Lack of coordination in bilateral programs • Why? Endogenous aid: • Examples: nuclear industry, contractors, consultants • Dilemma: if aid programs don’t serve a domestic constituency, aid amounts will be lower

International Environmental Transfers