The first task in formulating a reasonable partitioned model is to determine how much energy in more developed countries (MDCs) and less developed countries (LDCs) is consumed at the level of the household. A portion of this amount is then attributed to “household overhead,” that is, that portion of household energy consumption which is independent of the number of members.

MDCs. In MDCs, the residential/commercial sector, the transportation sector, and the industrial sector each account for about one-third of all final energy demand. Direct energy use in homes (i.e., heating, electric appliances, hot water) accounts for 20% of final energy demand or about one-quarter of primary energy (the greater share of primary energy results from the important role of electricity in the household energy supply). If energy for personal transportation (about 15% of primary energy) and energy expended in residential construction and the production of household goods (together about 10% of primary energy) are also assigned to households, it can be estimated that about one-half of all MDC energy use consists of consumption at the level of the household.[1]

Data on US households indicate the presence of strong economies of scale in the residential and transportation sectors. Table A.3 gives the average household expenditure for direct residential and household vehicle energy consumption (EIA, 1990). These two sectors comprise 20% and 13% of total US final energy demand, respectively. Household energy use is related to household size using both linear and log-linear (constant elasticity) relationships.[2] Both specifications indicate that household overhead (the y-intercept) is 40–50% of average household vehicle energy use and 60–65% of direct residential energy use.

Demographic trends and climate change will be two important themes of the 21st century. Both areas have been researched intensively, yet relatively little attention has been paid to the relationship between them. This book aims to describe that relationship.

The book is divided into two parts. In Part I, we discuss the climate outlook, demographic prospects, and economic perspectives on population, development, and the environment. These chapters take as starting points existing reviews of each field: the latest assessment of the Intergovernmental Panel on Climate Change (IPCC; Bruce et al., 1996; Houghton et al., 1996.; Watson et al., 1996); the documentation for the global population projections of the International Institute for Applied Systems Analysis (IIASA; Lutz, 1996); and a chapter on economics, demography, and the environment from an assessment of the social scientific aspects of climate change (Rayner and Malone, 1998). In Part II we analyze three major links between population and climate change: the role of population growth and structure in greenhouse gas (GHG) emissions, the effect of population growth and structure on the resilience of societies to the expected impacts of global warming, and the implications of global warming for population-related policies.

Chapter 1 reviews the natural science aspects of climate change and describes how the Earth's natural greenhouse effect is being enhanced by emissions of carbon dioxide and other GHGs originating from human activities – principally the burning of fossil fuels such as coal, oil, and natural gas. In the absence of restrictive policies, continued population growth and increases in economic output are expected to drive emission rates higher in the future. How much and how fast climate will change as a result are uncertain.

The threat of human-induced climate change, popularly known as global warming, presents a difficult challenge to society over the coming decades. The production of so-called “greenhouse gases” (GHGs) as a result of human activity, mainly due to the burning of fossil fuels such as coal, oil, and natural gas, is expected to lead to a generalized warming of the Earth's surface, rising sea levels, and changes in precipitation patterns. The potential impacts of these changes are many and varied – more frequent and intense heat waves, changes in the frequency of droughts and floods, increased coastal flooding, and more damaging storm surges – all with attendant consequences for human health, agriculture, economic activity, biodiversity, and ecosystem functioning.

Because the impacts of climate change are expected to be global and potentially severe, and because energy production from fossil fuels is a fundamental component of the world economy, the stakes in the issue are high. At the same time, a number of aspects of climate change complicate the problem. First, while much is known about the factors governing climate, considerable uncertainty remains in projections of how much climate will change, how severe the impacts will be, and how costly it would be to reduce GHG emissions. Second, because the impacts of today's GHG emissions will be felt for decades into the future, it is not possible to wait and see how severe impacts will turn out to be before taking preventive action. Therefore, if emissions are reduced now, the costs will be borne in the near term while the benefits, which will depend on uncertain projections of future impacts, will be realized largely in the long term.

The two primary links between population and climate change that we examine in Part II – population's role in generating greenhouse gas (GHG) emissions and its role in affecting the ability of societies to adapt to the expected impacts of climate change – run through economic systems. Additionally, many of the justifications for population policy that we review in considering the policy implications of those links are based on economic effects. This chapter is intended to outline mainstream thinking in the field of population–economy–environment interactions in order to provide a framework for that analysis.

The population and economic development literature is extensive, and this chapter can at best only summarize a few basic themes. We first develop a basic neoclassical economic growth model, discussing in particular relationships between population growth and economic growth. We then add the environment link to form a neoclassical population–economy–environment model; we focus in particular on low-income settings, as it is these populations that are most vulnerable to the anticipated impacts of climate change. We examine the influence of population on the environment within the neoclassical model and contrast this with the view of ecological economics.

The population–environment model that predominates in the current economic literature and that has become influential in policy formulation is a basic neoclassical model extended to encompass poverty and low status of women and children. This model emphasizes how vulnerable populations react to environmental stress and how those reactions can set in motion a destructive downward spiral, or vicious circle.

The closing section looks at recent research on the macroeconomic impacts of population aging. Impacts of aging on productivity are not well understood.

As discussed in Chapter 1, if greenhouse gas (GHG) emissions are not constrained, the global average temperature is likely to rise 1–3.5 degrees Celsius (°C) by 2100. About half that range is due to uncertainty in the future unconstrained emissions path (i.e., assuming no policies aimed at reducing emissions are put in place), and the other half is due to uncertainty in the response of the climate system. Future emissions are likely to be an even more important determinant of future climate change, however, since the range of potential emission paths is considerably widened by taking into account policies that could reduce emission rates.

Broadly speaking, demographic change, changes in economic output, and changes in the GHG intensity of the global economy are the forces driving GHG emissions. Each of these is, in turn, influenced by a number of important indirect variables. Regarding the role of demographic change, Chapter 2 demonstrates that a wide range of population paths is possible and that the primary determinant of future population size and structure will be trends in fertility rates.

Taken together, these observations suggest that by slowing population growth, policies that tend to reduce fertility could contribute to reducing emissions and averting climate change. In this chapter we address the questions of how much such policies might reduce GHG emissions and how these reductions would compare with reductions achievable through other means. We discuss the human activities that give rise to GHG emissions and review studies that have used demographic impact identities based on the Impact–Population–Affluence–Technology (I=PAT) equation to apportion responsibility for emission trends among driving forces.

Introduction

Chapter 2 presented a simplified explanation of principal linkages between economic activity and the natural environment. However, it skirted certain important intertemporal issues that need to be addressed. For example, waste flows today may accumulate and affect production and welfare in the future. Depletion of exhaustible resources today increases their future scarcity and price. Preferences for conventional economic goods and services versus environmental services may change as income grows. The introduction of time raises the question of dynamic efficiency, the optimal allocation of resources over time. But it also raises complex questions of equity, involving a fair or just allocation of these resources among different generations. Agreeing on a just distribution of income at a point in time is itself difficult. The inability of future generations to make their preferences known in current environmental and resource decisions that will affect them, the absence of secure methods for making intergenerational transfers, and the increasing uncertainty surrounding long-lived environmental effects all make intergenerational equity questions extraordinarily difficult. They cannot be avoided, however, as economic activity today casts a shadow in time on environmental conditions and welfare in the future.

Introduction and Classification

Controlling transnational pollution and managing international environmental resources requires negotiating agreements among two or more countries. The obstacles are formidable. There is no supranational authority to compel participation. International law and international property rights are weak, unsettled, or absent. An equitable distribution of the costs and benefits appears necessary, so that equity and efficiency must be simultaneously considered. At the same time, the instruments for international compensation are rudimentary, and the conditions for developing Coase-like markets are limited. Free-riding behavior is likely. Many of the more pressing issues involve scientific uncertainty and time lags, and many resist monetary valuation.

Section 2 starts with three simplified theoretical examples of reaching agreement on transnational externalities. The analytical foundations include the provision of public goods and, because of strategic interactions, game theory. Although the theoretical conclusions from simple models appear discouraging, some policy responses are feasible and welfare-improving, and these are discussed in Section 3. Section 4 tempers the abstract and theoretical discussion by examining eight specific cases or approaches to managing international externalities. The appendix to the chapter presents stylized examples of negotiations to underscore the sensitivity of the outcomes to the context and behavioral assumptions. Before getting started, however, it is useful to introduce a classification system.

International environmental externalities may be classified along three dimensions to aid analytical work. The first is to distinguish between unidirectional and reciprocal externalities.

Introduction

This chapter analyzes two issues in the measurement of sustainable development. The first is revising national income accounting to better reflect interactions between economic and environmental systems. The second is the empirical evidence supporting the inverted U hypothesis, which purportedly links environmental indices to per capita income.

Before starting, it is useful to reemphasize that with its multiple and often ambiguous definitions, sustainable development defies measure by a single index. As noted in the previous chapter, even a limited requirement for sustainable development, such as maintaining the stock of natural capital, confronts formidable measurement difficulties: Is the stock to be measured in physical or value units? Over what geographic or political unit is the stock to be maintained? How can depletion or degradation of one form of natural capital, say, biological diversity, be made commensurate with improvements in, say, air quality? Even more fundamentally, if natural capital is valued by the flow of income it generates, how is that flow to be discounted?

Less ambitious attempts to measure aspects of sustainable development can, however, contribute to improved public policy. A preliminary step involves collecting better primary data on the quantity and quality of environmental resource stocks and flows, monetizing these data when feasible, and constructing physical and monetary indices. The results can be used directly for resource management and policy and for testing theoretical propositions linking economic and environmental systems.

Introduction

Chapter 3 provides the rationale for government response to market failure: externalities, public goods, and open-access resources. Chapter 5 demonstrates that the optimal level of pollution abatement or environmental protection in general is where the marginal cost of abatement equals the marginal benefit of environmental damages avoided. The marginal analysis provides an efficiency criterion for guiding government intervention and regulation. This chapter investigates the policy tools at the government's disposal.

Selecting the appropriate policy tool is sometimes cast as a simple choice between directly setting effluent and emission standards for individual pollution sources and the use of effluent/emission charges or taxes. The first is known as the command-and-control approach and the second as the incentive or market-based approach. While this is an analytically useful distinction, it does not fully reveal the diversity of tools available nor the ambiguities in classifying various policy instruments. The full array of government tools includes, in addition to command-and-control and marketbased instruments, the provision of information, for example, regarding “clean” technologies when private information markets are imperfect; the use of publicity and moral suasion; the clarification or limitation of private property rights through zoning and through the establishment and enforcement of liability rules; and regulating the use of state-owned property such as national forests and military installations.