The Architecture of Green Economic Policies P.K. Rao The Architecture of Green Economic Policies 123 Prof.P.K.Rao InternationalDevelopmentConsultant 120CarterRoad,Princeton NewJersey,USA [email protected] ISBN978-3-642-05107-4 e-ISBN978-3-642-05108-1 DOI10.1007/978-3-642-05108-1 SpringerHeidelbergDordrechtLondonNewYork LibraryofCongressControlNumber:2010922997 ©Springer-VerlagBerlinHeidelberg2010 Thisworkissubjecttocopyright.Allrightsarereserved,whetherthewholeorpartofthematerialis concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broadcasting, reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationofthispublication orpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyrightLawofSeptember9, 1965,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer.Violations areliabletoprosecutionundertheGermanCopyrightLaw. 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Coverdesign:WMXDesignGmbH,Heidelberg Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) TotheLovingMemoryofMyMother Preface Afternumerousscientificpapersandbooksonmostaspectsofclimatechangeand the design of pro-environmental policies (including some that suit some industrial lobbyoranother),isthererelevanceforanotherbookandwhatisthepurportedrole ofthisone?Isthisyetanotheracademicexerciseor“muchadoaboutnothing”?Do wehavetobotherdesigninggreeneconomicpoliciesandincurtransactioncostsof thiseffort?Arethereshortcomingsofexistingpoliciesifwecaretolive“happily” onthisplanet?Isitnotenoughtocareforthecurrentgenerationssothatthefuture generations can take care of themselves (or even be given the incentives for inno- vations–forlackoffullyprovidedresources)?Whatcan“we”doaboutthegreen economic policies (and what are these anyway)? What trade-offs, if any, are rele- vant in foregoing some benefits and in incurring some costs (not all of which can beexpressedinmonetaryunits)?Whataretheoverarchingobjectivesandpriorities inthecurrentcontext?Whateconomicandotherapproachesarerelevantforattain- ingtheobjectives? Thesearesomeofthequestionstheauthorreflected inwriting thisbook. AfterafewbookpublicationsthatIlaunchedaboutadecadeago,andaftersus- taining most of these foundations that have been found rather resilient, I believe thisbookstrengthensthecauseofgreeneconomicpolicyformulationsandimple- mentations in the interests of the humanity, not to exclude the rest of living creatures. Undoubtedlyanumberofsignificantthoughtfulcontributionshavebeenmadeby avarietyofscientificdisciplinesandexpertise,anditishopedthatthisbookoffers afewadditionalinsightsforpolicyformulationsandtheirimplementationinacost- effective manner. Much of what is suggested in the design and implementation of greeneconomicpolicieshereholdsrelevantevenwhenthereisanelementofuncer- taintyaboutthedegreeofclimatechange,sincetheprimarymotivationisnotmerely to address change issues but a meaningful balancing of economic, environmental andsocialsustainabilityrequirementswithimprovedmechanismsofgovernance. Readers’familiaritywitheconomicsisuseful,especiallyindealingwithChap.4. Ratherthandetailingallrelevantconceptsinthetextchapters,anextensiveglossary isprovidedattheendofthebook. Princeton,NewJersey P.K.Rao January2010 vii Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 WhyGreenEconomicPoliciesandWhatAreThese? . . . . . 1 1.1.1 ObjectivesofGEP . . . . . . . . . . . . . . . . . . . 1 1.2 GlobalClimateChangeandEnvironmentalFeatures . . . . . . 3 1.2.1 GlobalWarming-HistoricalBackground . . . . . . . 3 1.2.2 EffectsofClimateChange . . . . . . . . . . . . . . . 4 1.3 TheIPCCReports . . . . . . . . . . . . . . . . . . . . . . . . 5 1.4 MoreRecentAssessments . . . . . . . . . . . . . . . . . . . 5 1.5 RecentTrendsinEmissionsandContributingFactors . . . . . 7 1.5.1 ProgressinRemedialActions . . . . . . . . . . . . . 9 1.6 GreeningofEconomics–WhyandHow . . . . . . . . . . . . 11 1.6.1 Green Economics and the Economics of GreeningEconomics . . . . . . . . . . . . . . . . . . 12 1.6.2 DemandforandSupplyofGreenEconomicPolicies . 13 1.6.3 AbouttheRestoftheBook . . . . . . . . . . . . . . 14 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2 BasicElementsofGreenEconomics . . . . . . . . . . . . . . . . . 17 2.1 RoleofNewInstitutionalEconomics . . . . . . . . . . . . . . 17 2.1 Box2.1ResourceRegimes . . . . . . . . . . . . . . . . . . . 19 2.2 EconomicandEnvironmentalExternalities. . . . . . . . . . . 19 2.2 Box2.2ClassificationofExternalities . . . . . . . . . . . . . 20 2.3 ClassificationofEnvironmentalDimensions . . . . . . . . . . 21 2.4 SustainabilityConcepts . . . . . . . . . . . . . . . . . . . . . 21 2.4.1 SustainableDevelopment . . . . . . . . . . . . . . . 22 2.5 PovertyandSD . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.6 InclusiveSustainableDevelopment . . . . . . . . . . . . . . . 25 2.6.1 SustainableEconomicGrowthandSD . . . . . . . . 26 2.6.2 ResilienceandVulnerability . . . . . . . . . . . . . . 27 2.6.3 HealthandEnvironment . . . . . . . . . . . . . . . . 28 2.7 SynergiesandConflictsinEconomyandEnvironment. . . . . 29 2.8 EcologicalEconomics:AdoptionofEcosystemsApproach . . 30 2.8.1 LandUse,DeforestationandCC . . . . . . . . . . . 32 ix