Introduction

The trade-environment policy debate has taken place in a number of settings. This chapter analyzes the institutional responses to the four categories of policy issues set out in the previous chapter. The starting point is the earliest participant in the debate, the OECD, and in particular its Polluter Pays Principle. The PPP dates back to 1972 and is the most durable and arguably the most important bridge between trade and environment policy. This is followed by an examination of trade-environment within the GATT/WTO system. The chapter concludes with a discussion of trade-environment policy within two formal regional economic integration institutions, the European Union and the North American Free Trade Agreement.

The OECD and the Polluter Pays Principle

For over 25 years the OECD's “Guiding Principles” were the only explicit, internationally agreed-upon rules spanning trade and environmental policies. Of these, the PPP has been the centerpiece. One might think that durability and prominence would have led to clarity. It has not. Interpretations of the PPP are more varied today than in the 1970s, and ambiguities remain.

The PPP as originally adopted by the OECD was a simple cost-allocation principle, designed to improve efficiency. In its original formulation, the PPP can be interpreted as a “no subsidization” principle. Environmental protection costs incurred in the private sector should not be offset by government subsidies. This formulation serves two efficiency objectives.

Introduction

In 1896, a Swedish scientist, Svante Arrhenius, calculated that as a result of emissions from fossil fuel consumption, a doubling of atmospheric carbon dioxide might raise global mean temperatures by 4°C to 6°C. One hundred years after the initial calculations by Arrhenius, global warming has become the most important and controversial issue in international environmental relations. The theoretical prediction of increasing atmospheric concentrations of CO2 was first confirmed in the 1970s by measurements at Mauna Loa (Hawaii), which showed an increase from 315 ppm (parts per million) in 1958 to 331 ppm in 1975 (Pearson and Pryor 1978, p. 267). Concentrations in the preindustrial era were about 280 ppm and reached 358 ppm by 1994. Global average temperature has increased between 0.3°C and 0.6°C (0.5 to 1.1°F) over the past century. How much of this is due to natural variability and how much to human activity is not known with certainty, but the 1996 report of the Intergovernmental Panel on Climate Change (IPCC) concludes that “the balance of evidence suggests that there is a discernable human influence on global climate” (J. T. Houghton et al. 1996, p. 5), and estimates temperature increases of 2°F to 6°F over the next 100 years.

This chapter emphasizes the international aspects of curtailing global warming. Section 2 identifies some of the analytical complexities and provides factual background material.

Introduction

Until recently international trade theory left environmental impacts outside its purview. Now, when they are linked, free trade is often depicted as either a scourge or savior of the world's natural resources. Supporters of free trade rightfully point out that trade brings higher income, modern technology, and better access to environmentally friendly products and techniques. Unfortunately, opponents of unrestrained trade can claim with equal justification that it also has often led to increased pollution and natural resource depletion. In Thailand, rapid economic growth, led mainly by increased international trade, has had dramatic impacts upon the country's physical environment and its natural resource endowment. In addition to current damage to humans and the well-being of the natural ecosystems, these impacts will adversely affect the nation's long-term economic capabilities. Thailand's potential for sustainable development is being challenged. This chapter analyzes the ways in which trade affects Thailand's environment, and in turn, the effects on trade of measures taken to ensure environmental quality. It identifies the key policy measures that are needed for Thailand to reap local benefits while addressing global concerns.

Thailand's Trade-Environment Profile

Based on a shift from agriculture to manufacturing and the accompanying movement of people from rural to urban areas, Thailand emerged as one of the world's fastest growing economies. Real GDP growth rates averaged over 10 percent annually in the late 1980s and 7.5 percent for 1991–1996.

Introduction

Trade-environment policy issues are complex and often controversial. This chapter describes the evolution of the debate and presents an analytical framework for sorting out the relevant questions. Most trade-environment policy issues can be fitted into one of four categories: competitiveness questions and appropriate policy response; questions of market access and market opportunity, which include environmentally related product standards, ecolabelling, and “green” trade; the use of trade measures to secure international environmental objectives; and the effects of trade and trade liberalization on environmental and natural resources. The first three categories are concerned with the effects of environmental regulations on the international trade system. The fourth turns the question around and examines how trade and trade policy affect environmental objectives.

It is useful to start with three observations. First, although currently fashionable and much debated, trade-environment policy issues are not new, but were first addressed in the early 1970s. The interesting question is why discussions became increasingly strident in the early 1990s. Second, at a high level of generality there is no fundamental conflict between good trade policy and good environmental policy. Both require the internalization of the full social costs of production, including environmental protection costs, by either passing these costs forward to consumers in prices or backward to the factors of production. Often what appears to be a conflict between trade and environment is the result of either poor trade policy or inadequate environmental protection.

Introduction

Chapter 10 suggested that most trade-environment policy issues can be placed into one of four categories. This classification also serves to group empirical studies, although the number of studies in each category and their quality is rather uneven. In Section 2 we start with those studies that primarily focus on competitiveness – the effects of environmental regulation of production on the level and pattern of international trade and investment. Section 3 considers empirical analyses of environmentally related product standards and ecolabelling, as well as the few studies analyzing the use of trade measures to achieve international environmental objectives. Section 4 reviews studies that measure the effects of trade and trade liberalization on environmental resources.

On the whole, the empirical or measurement work is not especially satisfying. One reason is that much of the analytical and public policy interest in trade-environment issues is of recent origin and the collection of relevant data is just starting. But even when the debate stretches back over two decades, as in the case of competitiveness, problems of definition, methodology, and data have made empirical work difficult. Nevertheless, it is important to get a sense of the quantitative importance of trade environment questions, to inform current policy-making, and to guide future research.

Competitiveness Questions

A central hypothesis is that countries, or sectors within countries, confronting strict environmental regulations and high pollution-abatement costs may be placed at an international competitive disadvantage.

This book has roots in a research seminar on international environmental issues that I have taught for several years at the Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University. The seminar members have been graduate students of international relations with varied training in economics. My contribution has been to provide enough theory, drawn from international and environmental economics, to provide a coherent analytical framework for understanding environmental issues, especially in an international context. Their contributions have mainly been policyoriented research, sometimes using economic concepts and tools and sometimes using legal, institutional, or political approaches. This combination of theory and policy has been successful in the classroom, and I hope it will carry over in the book. My experience is that although the merging of environmental and international economics is rather new, and at many points is breaking new ground, a clear exposition of basic principles and concepts helps bring some analytical rigor to what are frequently confused public policy debates.

Interest in international environmental issues among students and the general public has increased greatly in recent years for several reasons. Some global environmental threats such as climate change and the thinning of the atmospheric ozone shield, although not absent or unknown in the 1970s, have taken on greater urgency and have moved up the international policy agenda.

Abstract

Among the options proposed for mitigating the buildup of atmospheric CO2 is planting new forest areas to sequester carbon from the atmosphere. One of the questions of interest in modeling the global carbon cycle is the extent to which reforestation is likely to succeed in providing physical removal of CO2 from the atmosphere. There are many strategies for using forest land to mitigate the atmospheric buildup of CO2: decreasing the rate at which forests are cleared for other land uses, increasing the density of carbon storage in existing forests, improving the rate and efficiency at which forest products are used in the place of other energy-intensive products, substituting renewable wood fuels for fossil fuels, improving management of forests and agroforestry, and increasing the amount of land in standing forest. Because increasing the area of forests has social, political, and economic limitations, in addition to physical limitations, it is hard to envision a large increase in forest area except where there are associated economic benefits. Our speculation is that, over the next several decades, (1) the forest strategies most likely to be pursued for the express purpose of CO2 mitigation are those that provide more, or more efficient, substitution of forest products for energy or energy-intensive resources and that (2) the physical accumulation of additional carbon in forests will be of lesser importance.

Abstract

Various applications of carbon isotope (13C and 14C) records are described. The main data sources are dendrochronologically dated tree rings, ice cores, and ocean sediments (including corals). The representativeness and characteristics of these records are discussed. The history of atmospheric 14C changes is determined by changes in oceanic upwelling rate and by solar and geomagnetic influences on upper atmosphere production rate. Separating these causal factors from the record is difficult, but analyses suggest interesting cyclic changes in North Atlantic deep water formation rates (periodicity around 500 years) and solar output (periodicity around 200 years). Isotopic data have provided valuable oceanic information regarding the current atmosphere-to-ocean flux of CO2, deep water residence times, current upwelling rates, and glacial/interglacial changes in upwelling rate. This work is discussed and evaluated. Finally, the problems involved in interpreting radiocarbon dates in terms of calibrated (i.e., estimated calendar) dates are illustrated using the dating of the Mazama (U.S. Pacific Northwest) eruption as an example.

Introduction

Natural carbon contains the three carbon isotopes 12C, 13C, and 14C. Of these isotopes, 12C is by far the most abundant at 98.9% of total carbon. Thus, the carbon cycle in nature is essentially a 12C cycle, with 13C (1.1%) and 14C (10–10%) contributing only minor amounts. Nevertheless, 13C and 14C play a major role as tracers through which information on the physical and chemical properties of the carbon cycle can be obtained.

Abstract

The potential effects of climate change on grassland carbon budgets have received much less attention than those on forests. Changes in productivity and soil carbon need to be addressed, as well as the role of grassland burning in the global carbon cycle. Under a recent Scientific Committee on Problems of the Environment (SCOPE) collaborative project, we analyzed the sensitivity of global grassland ecosystems to modified climate and atmospheric CO2 levels, concentrating on ecosystem dynamics rather than redistribution of grasslands. Worldwide, 31 grassland sites, temperate and tropical, were modeled under doubled-CO2 climates projected by two different general circulation models. Results for climate change alone (without CO2 effect) indicate that simulated soil C losses occur in most grassland regions, ranging from 0 to 14% of current soil C levels for the surface 20 cm. Direct CO2 enhancement effects on decomposition and plant production tended to reduce the net impact of climate alterations alone. Detecting all these impacts will require a minimum of 16% change in net primary production and a 1% change in soil carbon. It is unclear whether grassland carbon stocks will increase overall under the new regimes, since changes in land use and biome area probably will result in a net source of carbon.

Introduction

Grassland ecosystems are far from uniform. They support myriad different species, both above and below ground, and are crucial in maintaining the ecological balance of a large part of the world, supporting diverse human and animal populations.

Abstract

This work briefly discusses four of the current research emphases at Oak Ridge National Laboratory regarding the emission of CO2 from fossil fuel consumption, natural gas flaring, and cement manufacture. These emphases include: (1) updating the 1950 to present time series of CO2 emissions from fossil fuel consumption and cement manufacture, (2) extending this time series back to 1751, (3) gridding the data at 1° × 1° resolution, and (4) estimating the isotopic signature of these emissions.

A latitudinal distribution of carbon emissions is being completed. A southward shift in the major mass of CO2 emissions is occurring from European–North American latitudes toward Central–Southeast Asian latitudes, reflecting the growth of population and industrialization at these lower latitudes.

The carbon isotopic signature of these CO2 emissions has been reexamined. The emissions of the past two decades were approximately 1% lighter than previously estimated.

Introduction

Emissions of CO2 from the consumption of fossil fuels have resulted in an increasing concentration of CO2 in the atmosphere of the Earth. Combined with CO2 releases from changes in land use, these emissions have perturbed the natural cycling of carbon, resulting in the accumulation of CO2 in the atmosphere and concern that this may significantly change the climate of the Earth (Houghton et al., 1990, 1996).

Understanding the changes currently being observed and changes likely to occur in the future requires the best possible information on the flows of carbon in the Earth system.

Abstract

Soil radiocarbon measurements can be used to estimate soil carbon turnover rates and inventories. A labile component of soil carbon has the potential to respond to perturbations such as CO2 fertilization, changing climate, and changing land use. Soil carbon has influenced past and present atmospheric CO2 levels and will influence future levels. A model is used to calculate the amount of additional carbon stored in soil because of CO2 fertilization.

Introduction

The Intergovernmental Panel on Climate Change estimates that doubling atmospheric CO2 over preindustrial levels will lead to a global-mean temperature increase of 1.5–4.5°C (e.g., Mitchell et al., 1990). Predicting when or if this doubling will occur requires an improved understanding of the global carbon cycle. One key question is the role of soil humus, which contains approximately 3 times the amount of carbon present in the preindustrial atmosphere. Scientists need to know if the soil carbon is labile or inert. If labile, soil carbon can respond to perturbations, either adding or removing atmospheric CO2. If inert, soil humus does not significantly influence atmospheric CO2 levels.

The purpose of this chapter is to show how soil radiocarbon measurements can be used to estimate soil carbon turnover times. The results presented here can be thought of as providing an example of what could be done on a biome-to-biome basis were more soil radiocarbon data available. Background material discusses the greenhouse effect, the global carbon cycle, and CO2 fertilization, which are linked with soil carbon turnover times.

Abstract

The effects of ocean circulation on steady-state atmospheric CO2 concentration in ocean models pertaining to glacial climates are reviewed in this chapter. In this context, it appears that ocean circulation changes could provoke four basic effects: (1) Circulation-activated change in calcium carbonate (CaCO3) production can change the deep ocean CO3 = concentration and (2) the rain ratio of organic C to CaCO3 production; (3) change in thermohaline circulation or upper ocean mixing may alter the shape of the vertical gradient of dissolved CO3=; and (4) changing thermohaline circulation may interact with both biological production and air–sea exchange in high-latitude deep water formation areas to effect change in atmospheric CO2 through the solubility and biological pumps.

Introduction

The records of calcium carbonate (CaCO3), carbon isotopes, Cd/Ca ratio, and benthic forminiferal speciation indicate that the ocean circulation varies with climate change during the Pleistocene (Crowley, 1985; Mix and Fairbanks, 1985; Boyle and Keigwin, 1985; Duplessy et al., 1988).spheric C02 appears to decrease by approximately 90 ppm during ice ages as compared to relatively warm climates such as that of the Holocene (Barnola et al., 1987; Neftel et al., 1988). Various models of the ocean and atmosphere have been developed to simulate proposed mechanisms that might have produced the glacial-interglacial CO. change, and some of these models include changes in various circulation parameters (Knox and McElroy, 1984; Sarmiento and Toggweiler, 1984; Siegenthaler and Wenk, 1984; Broecker and Peng, 1981; Keir, 1988; Boyle, 1988; Heinze et al., 1991).

Abstract

We place box models within the hierarchy of terrestrial biosphere models used to assess atmosphere–biosphere carbon fluxes, develop the mathematical formulation of biosphere box models, and examine how gross and net fluxes resulting from land-use changes and CO2 and temperature feedbacks can be separately and simultaneously incorporated into box models. We then summarize insights gained from sensitivity studies using a globally aggregated biosphere model, and close with a proposal for combining the box model approach with some of the simpler regionally disaggregated process models.

Introduction

Balancing the carbon cycle at the global scale requires that one account for the observed cumulative and year-to-year buildup in the amount of atmospheric CO2 as the difference between emissions of CO2 and its uptake by various sinks. It is widely assumed that the natural carbon cycle was sufficiently close to steady state prior to human influence that emissions were exactly balanced by removal processes. Hence, the task of balancing the carbon budget for the time interval since the beginning of human influence requires deriving estimates of the human-induced perturbation in both emission and sink terms such that the difference between total emission perturbations and total sink perturbations equals the observed buildup.

Summary

The following summary contains some material more fully discussed in Chapter 1 (which was extracted from the 1994 IPCC Report): Bullets containing significant new information are marked “***”; those containing updated information are marked “**”; and those which contain information which is essentially unchanged are marked “*”.

Climate change can be driven by changes in the atmospheric concentrations of a number of radiatively active gases and aerosols. We have clear evidence that human activities have affected concentrations, distributions, and life cycles of these gases. These matters, discussed in this chapter, were assessed at greater length in IPCC WGI report “Radiative Forcing of Climate Change” (IPCC 1994).

* Carbon dioxide concentrations have increased by almost 30% from about 280 ppmv in the late 18th century to 358 ppmv in 1994. This increase is primarily due to combustion of fossil fuel and cement production, and to land-use change. During the last millennium, a period of relatively stable climate, concentrations varied by about ±10 ppmv around the pre-industrial value of 280 ppmv. On the century time-scale these fluctuations were far less rapid than the change observed over the 20th century.

*** The growth rate of atmospheric CO2 concentrations over the last few years is comparable to, or slightly above, the average of the 1980s (∼1.5 ppmv/yr). On shorter (interannual) time-scales, after a period of slow growth (0.6 ppmv/yr) spanning 1991 to 1992, the growth rate in 1994 was higher (∼2 ppmv/yr).