What are the issues?

In economic theory, free international trade in goods and factors is seen as a source of wealth and welfare gains. Restrictions on trade and factor movements prevent the factors of production from moving to the locations of their most efficient utilisation and are, therefore, in general undesirable. The exceptions to this rule are based either on second-best arguments (the infant industry argument) or on strategic considerations that lead to Prisoner's Dilemma situations (the optimum tariff and strategic trade policy). Moreover, the stylised facts of post-war economic history suggest that outward-oriented development strategies employed, e.g., by East Asian countries have been much more successful than import substitution and the striving for self-reliance that were the philosophies of development in many Latin American countries and the Council of Mutual Economic Aid. On the background of this historical experience and of the theoretical work of the last decades, most economists now accept the general validity of the free-trade principle, at least as a good rule of thumb (Krugman (1987)). This view has come under attack again, now by environmentalists.

There are several reasons for environmentalists to be sceptical about free trade and unrestricted factor movements. Free trade has specialisation effects and inevitably some countries will specialise in the production of pollution-intensive goods. This will increase environmental disruption in these countries and, if there is transfrontier pollution, also elsewhere. The second problem is that of capital mobility and foreign direct investment. Owners of capital are looking for the most profitable investment opportunities. Since high levels of environmental regulation raise production costs, capital will, ceteris paribus, move to the country with the lowest pollution abatement requirements.

Introduction

Twenty-five years ago, in an introductory article to research in environmental economics, Kneese (1971) distinguished between two types of environmental problem: ‘global’ problems which affect the entire planet and ‘regional’ problems which include ‘all those other than global’. In justifying this last classification, Kneese reasoned:

The conclusion to this sentence hints at a possibly important research agenda: international management of environmental resources. Yet, it is only fairly recently that this topic has been the subject of serious examination by economists. The purpose of this chapter is to explain why the transboundary aspect of environmental protection should be ‘one of the main problems’ of environmental management, and to develop elements of a theory which explain the extent to which institutions may be capable of correcting such problems.

The dilemma of international pollution control

The essence of international environmental relations is that countries interact. When any one country chooses its transboundary pollution policy, it will consider what policies other countries will choose, or how others will respond to its own choice. It is in this sense that international pollution control is a ‘game’.

Introduction

Environmental policy is traditionally analysed assuming that pollution externalities are the only market failures. In recent years, however, policy makers have increasingly recognised the importance of interactions between environmental policy and other policies aimed at addressing non-environmental distortions. In particular, the revenues from pollution taxes can be used to cut other, distortionary taxes. In conducting such an environmental tax reform, governments may reap a ‘double dividend’ – not only a cleaner environment but also non-environmental benefits associated with lower distortionary taxes (see e.g., Pearce (1991), Pezzey (1992), and Repetto et al. (1992)). Governments in Europe are particularly concerned about the adverse impact of high levels of distortionary labour taxation on employment and labour supply. Some analysts claim that a shift from labour towards environmental taxation may help to boost employment by encouraging employers to substitute labour for polluting inputs (including energy). Moreover, lower levels of labour taxation might stimulate labour supply.

The non-environmental dividend can be defined in various ways. This chapter focuses on the non-environmental dividend in terms of higher levels of employment. However, in addition to employment, other economic variables, such as transfers and profits, may directly impact overall welfare. Therefore, at several places, the chapter refers to changes in these non-environmental variables also as dividends.

The rest of this chapter is organised as follows. Section 2 develops a simple general equilibrium model to explore the employment and welfare effects of an environmental tax reform, i.e., raising environmental taxes and using the revenues to cut labour taxes. Due to the presence of a distortionary labour tax, a decline in employment produces a first-order loss in welfare (section 3).

The controversy at the core of this chapter is whether current and anticipated trends in economic and social development, combined with projections for population growth, are compatible with maintaining good health for all. Whereas there has been a doubling of life expectancy over the past century, there are still considerable uncertainties about how the health transition will continue. The way in which such trends are interpreted depends to a large extent on the perspectives held by scientists and policy-makers. In this chapter, developments in population that are related to policy and health dynamics are interpreted according to the three perspectives outlined in Chapter 10 and are compared to UN projections. The consequences for population size and the health risks of stagnating economic growth and of food and water crises are assessed in four cases.

Controversies related to population and health

World population has more than tripled between 1900 and 1996, rising from about 1.6×109 (Kuznets, 1966) to 5.8×109 (UNFPA, 1996), i.e. an average annual growth of 1.3%. Such a rate of growth is extremely rapid by any historical perspective. Population growth and its potential consequences for people and the environment have long been an issue of concern. Since the time of Malthus (1789) the population issue has been the subject of a furious debate, both in the scientific and the policy community (Ehrlich, 1968; Cohen, 1995). Specific concerns about population growth have varied from one generation to the next.

The aim of the land and food submodel is to simulate the key features of the global changes in land use and land cover that result from demand for food and the requirements of forestry. The submodel can reproduce the major historical trends in land use and land cover, food demand and supply, fertiliser use, etc. This is done, to a large extent, by employing of exogenous policy scenarios. The interaction with the other submodels, in particular CYCLES, allows the exploration of linkages between population growth, water availability and climate change on the one hand and food production on the other.

Introduction

The Earth's vegetation patterns have always changed in response to natural changes in, for example, geology, biology and climate. However, over the last few centuries human activities have made a considerable contribution to such changes. Natural ecosystems, forests, savannahs and wetlands have all been severely affected. The combination of growing populations and higher per capita food consumption has led to the gradual expansion of the land area used for food production and grazing. Increasing population density has led to forms of permanent agriculture which make more intensive use of land and this trend towards intensification is likely to continue in the decades to come. The growing demand for food may cause an imbalance between what can be produced and what is needed.

This chapter explores dystopian futures. After a summary of the uncertainties and risks discussed for each of the subsystems, integrated experiments are presented in which world view and management style throughout the world system are at odds. We also investigate the effectiveness of various response options and of the timing of certain policy measures.

Introduction

In the previous chapter we outlined possible futures which are based on coherent sets of assumptions about how the world system functions and how it is managed. These are called utopias and constitute the diagonal elements in the matrix presented in Figure 10.7. In a way, they are idealised and therefore implausible images of the future. In this chapter we first present some simulation experiments in which dystopian trends are explored with the integrated TARGETS 1.0 model. This is a prelude to the next section in which we analyse in more detail images of the future where world view and management style are at odds. These are referred to as integrated dystopias (see Chapter 11) and they are actually more plausible because they contain real-world tensions between diverging world views and management styles. Two major chains which cause feedback loops are presented as a framework discussing some interesting dystopian futures and to give an assessment of associated risks. Finally, we explore the adequacy of response actions in terms of intensity and timing, and the consequences of allocating insufficient investments to the food, water and energy sectors.

This submodel simulates the supply and demand for fuels- and electricity, given a certain level of economic activity. It is linked to other submodels, for example through investment flows, population sizes and emissions. The energy model consists of five modules: Energy Demand, Electric Power Generation, and Solid, Liquid and Gaseous Fuel supply. Effects such as those of depletion, conservation, fuel substitution, technological innovation, and energy efficiency are incorporated in an integrated way, with prices as important signals. Renewable sources are included as a non-thermal electricity option and as commercial biofuels.

Introduction

Modern societies as they have developed over the last two centuries require a continuous flow of processed fuels and materials. Until some 200 years ago energy needs were largely met by renewable fluxes such as water and biomass. Since then energy has increasingly been derived from the fossil fuels coal, oil and gas. To be useful these fuels have to be extracted, processed and converted to heat and chemicals. For all these steps the production factors labour, land, capital, and energy and material inputs, are required. All three steps are also accompanied by waste flows, the largest being the emission of carbon dioxide (CO2) during combustion. Figure 5.1 shows the use of fossil fuels in million tonnes of oil equivalents over the period 1800–1990. The graph shows an increase in the use of coal, followed by the penetration of oil and later natural gas.

The CYCLES submodel describes the long-term dynamics of the global biogeochemical cycles of carbon (C), nitrogen (N), phosphorus (P) and sulphur (S), their interactions and their impacts on climate change. The model analysis balances past carbon and nitrogen budgets – emphasising the importance of the N fertilisation feedback – and supports the future projections of the fate of anthropogenic emissions of both carbon and nitrogen compounds in the global environment presented in Chapter 16. This chapter focuses on the link between the global cycles of C and N and their feedbacks, providing calculations of global flows of these basic elements and their related compounds within and between the major reservoirs.

Introduction

Carbon, hydrogen and oxygen, together with the basic nutrient elements nitrogen, phosphorus and sulphur, are essential for life on Earth. The term ‘global biogeochemical cycles’ is used to describe the transport and transformation of these substances in the global environment. In recent decades detailed studies have been carried out on the global biogeochemical cycles of the basic elements, in particular carbon (C), nitrogen (N), phosphorus (P) and sulphur (S) (Bolin et al., 1979; Bolin and Cook, 1983; Schlesinger, 1991; Butcher et al., 1992; Wollast et al., 1993). Figure 8.1 depicts how anthropogenic disturbances of the global cycles of the basic elements of C, N, P and S lead to a variety of global environmental consequences.

The central question in this chapter is: can the world population be provided with an adequate and sustainable supply of clean water? We report on experiments with the AQUA submodel and attempt to offer insight into the role of population and economic growth, intensive agriculture, technology and pricing. Again three cultural perspectives are applied to establish model routes which reflect different assumptions and societal responses. The model experiments provide a number of water projections for the next century. We review low, medium and high risk developments and the effects of various water policy strategies. The chapter concludes with a proposal for future policy priorities to safeguard a sustainable supply of clean fresh water.

Introduction

There are too many uncertainties to give a simple answer to the question whether we will have enough clean water for the next century. However, we can do some exploratory work if we make certain assumptions. In this chapter, we present such an exploration based on the AQUA submodel (Chapter 6). As a heuristic device for composing coherent sets of assumptions, different perspectives are used (see Chapter 10). First, we discuss some of the major questions, uncertainties and controversies related to water and sustainable development. We then look for coherence in the different points of view by considering the controversies from three perspectives: the hierarchist, the egalitarian and the individualist. Next, we use the three perspectives to implement ‘model routes’ within the AQUA submodel and to present model–based projections of water in the next century. Finally, we distinguish low, moderate and high risk futures, and analyse the effects of different water policy strategies. More detailed background information can be found in Hoekstra (1997).

Introduction

We know that the future is inherently uncertain, yet we are fascinated by insights into ways in which we may be influencing the planet. This interest is intensified because there is widespread perception that the world is changing at an unprecedented speed. Undeniably, many parts of the global system are accelerating or decelerating compared to previously observed, natural rates of change. For some people these processes of change may just look like more of the same. There are, however, underlying behavioural and structural changes at work which suggest deeper, more radical change in the longer term. Many of those long-term changes can be viewed as part of transition processes. Several of these are within the human system: from many to 1 or 2 children per family, twice as many older people per thousand compared to today, a factor of 3 to 5 less energy and water use per unit of economic activity, increasing pressure to cultivate more land and use it more intensively to feed the population. More gradual, but possibly of overriding importance, are the changes in the environmental system, such as the accelerating increase in the concentration of some atmospheric gases and increasing accumulation of pollutants in soils and water bodies which are the result of past and present practices. It is difficult to disentangle the human-induced, structural long-term changes from the natural changes, which makes it even harder to see where the world is heading.

The key question underlying the controversies addressed in this chapter is to what extent the global biogeochemical cycles and the climate system are being disturbed by anthropogenic processes. The CYCLES submodel is used to explore the influence of various model routes on future projections of global environmental change. These routes are characterised by specific assumptions about the key processes within the global carbon (C) and nitrogen (N) cycle and the climate system. This creates the possibility to assess various emission scenarios, paving the way for the more integrated experiments described in Chapters 17 and 18. It is reiterated that the current state of scientific knowledge with respect to global C and N cycles and climate change is still beset with major uncertainties.

Introduction

Although scientific knowledge of global biogeochemical cycles is increasing rapidly, there are still major gaps. Subjective interpretation of these gaps results in different assessments of the rate, magnitude and impacts of human-induced changes in global cycles. The climate debate exemplifies the kind of intellectual battle that can take place, given uncertainties about the global biogeochemical cycles of the basic elements carbon (C), nitrogen (N), phosphorus (P) and sulphur (S), and the climate system. In general, the controversies within the scientific community on global biogeochemical cycles focus on the relationships among the physical, biological and chemical processes comprising the complex dynamics of the global biogeochemical cycling as well as the role of the various feedbacks.

This chapter introduces Part Two of the book, which reports on experiments with submodels of TARGETS 1.0 carried out to assess a number of global change controversies. The experiments include a range of utopias and dystopias to discover whether the problem at the core of each controversy is likely to occur, and if so, under what conditions. The hierarchist utopia, which reflects the assumptions behind many reputable scenario studies, is used as a reference case to explore issues such as population growth, demand for food, water and energy, the environmental consequences of these pressures, and a range of societal responses. The results of integrated experiments with the TARGETS 1.0 model are presented at the end of this part of the book.

Introduction

Part One of this book described tools for performing integrated assessments of global change. The aim of Part Two is to gain insights by using these tools, both withthe separate submodels and with the integrated TARGETS 1.0 model. The main goal of TARGETS is to put possible developments within the subsystems of the world into perspective in an integrated way. In this way we hope to provide a context for discussing global change and sustainable development. The quantitative modelling framework is used to support the qualitative framing of important issues. Though they are partial and limited in scope, the resulting images of possible global futures enable us to localise areas of tension and directions for sustainable development strategies.