Economics, Science, and Policy
International Environmental Problems: A Primer
One of the main virtues of the market system is that it allows people and firms to exchange goods at a relatively low cost by relying on a series of decentralized markets. The presence of these markets enables people to improve their welfare by exchanging the goods that they produce for goods that they can use and value more highly. The theory of international trade shows that the same principle is at work when countries engage in free trade: by specializing in the production of various goods in which they may enjoy either a comparative advantage or absolute advantage they are able to realize greater gains from trading goods with one another than simply consuming the goods themselves.
At the same time, many of the environmental problems we observe arise from some form of market failure. While markets can be efficient ways of distributing goods, they may not necessarily lead to optimal outcomes if the price of goods does not include all of the environmental costs associated with their production or consumption. One of the main ways in which all of the costs may not be included and markets might fail is when the rights to a resource are not well defined. Rights might not exist in the case of open-access resources, where no one party owns the resource and the resource is free to be exploited by all, such as fisheries on the open sea. In this case, the price of the fish might not take into account the over-exploitation of fish stocks and the risk of the stock falling below some critical level. Problems can also arise around common-pool resources where different parties each have access rights but do not manage the resource collectively, either because a common governance framework has not been established or is not strong enough to overcome individual incentives that contribute to overexploitation and degradation of the resource. Examples include shared aquifers across international boundaries and regional fisheries. Alternatively, the resource may be a public good, where the nature of the resource is such that it is impossible to exclude people from using or benefiting from it. Examples of such goods are the protective ozone layer in the Earth’s atmosphere or the genetic capital embodied in biodiversity. There may also be public bads, as in the case of greenhouse gases, when everybody potentially suffers the consequences of climate change. One consequence of public goods is that countries have incentives to let others bear the cost of any actions, such as maintaining biodiversity, reducing greenhouse gas emissions, or eliminating ozone-depleting substances, since they can enjoy the benefits from actions taken by other countries p. xliiwithout incurring any cost themselves. This type of behavior is called free-riding, and can either lead to overexploitation of the resource (in the case of a public bad) or under-provision of the resource (in the case of a public good). Collectively, those common-pool resources and public goods that are truly international in nature are considered the global commons: resources shared equally by all countries that can be potentially degraded or destroyed.
It may also be the case that the pollution or environmental degradation associated with the production or consumption of a good is not included in the price (negative externalities). Problems also arise when the scale of activity becomes great enough to have a measurable and negative impact on local ecosystems: for example, higher harvesting levels may reduce fish or wildlife populations below some critical level; or the cumulative effect from effluent flows discharged into a river from different countries may exceed the assimilative ability of a river to break down waste. Finally, problems can also occur from policy failures: government programs or regulations that have negative effects upon the environment. An example of such a failure might be subsidies to encourage fishers to switch from inshore fisheries to ocean fisheries, which increases pressure upon marine fish stocks.
Rapid population growth and subsequent development in countries around the world and the concomitant increase in trade have led to impacts outside the local environment and, increasingly, upon the global environment. At the same time, an increasing awareness of environmental issues and the interaction and interdependence of ecosystems, many of which cross national boundaries, has focused attention on the global or international nature of many of these problems. Solutions to environmental problems can be difficult in and of themselves: the nature of the environmental processes at work might not be well understood; it may be costly to identify the parties involved (either those who benefit or bear the costs); and it may be costly to create some kind of mechanism through which a solution can be implemented (whether it is through regulation, the allocation of rights, the establishment and collection of fees, or some other mechanism). These problems are only compounded when the problems cross political boundaries. The issues become particularly troublesome when the benefits and environmental costs are distributed such that some countries enjoy much of the benefit while others bear much of the environmental cost. Those bearing the damage may be countries downstream, or downwind, that receive the pollution from industrial activity in polluting countries that have little incentive to change their behavior if they do not suffer the consequences from their actions.
While there is no difference between the nature of the issues that arise p. xliiiin terms of global environmental problems and those that might arise in a community or country, there is one fundamental difference in terms of the environment in which they occur. International environmental problems, by definition, are those that involve more than one country; consequently, there is no one overarching set of international laws or institutions that has the ability to address problems, enact solutions, and enforce them. To respond to those problems, countries have to pursue cooperative arrangements such as Multilateral Environmental Agreements (MEAs), which are agreements between different countries over how to handle various common environmental problems. As of today, there are thousands of MEAs. A selection of these agreements is summarized in Appendix 7.
1. International Agreements
International agreements may take various forms. The most common are treaties, conventions, and protocols; all of which are agreements between member countries. Treaties are legal agreements under international law in which the countries that sign the documents spell out their obligations or responsibilities. Conventions are agreements that establish a general framework or objectives, for which subsequent protocols will embody the details of how the objectives are to be achieved. Agreements do not become effective (that is, binding upon the countries that signed the agreement) until they come into force, and agreements do not come into force unless a sufficient number of countries have ratified the agreement. A treaty or convention only applies to those countries that are signatories, although provisions in the agreement may govern trade with non-parties, and countries may be able to make reservations at the time they sign an agreement (making a unilateral statement that modifies or excludes a certain portion of the agreement) as well as renounce their participation in an agreement at a later date.
The first set of international agreements between countries are primarily concerned with conflicts over shared resources, such as how to address the problems created by resources (e.g., fish stocks and migratory wildlife) that move between different countries or waterways that pass across national boundaries. In these cases, the common-pool nature of the resource means that the first to capture the resource can lay claim to it, which can lead to overexploitation as countries “race for the resource”. Examples of such agreements include the 1923 Convention for the Preservation of the Halibut Fishery of the Northern Pacific Ocean and the Bering Sea, and the treaties signed between the USA and Canada over shared boundary waters in 1909, and the USA and Mexico over the shared p. xlivwaters of the Rio Grande in 1906. In recent years, a number of new agreements have been struck between countries sharing transboundary water resources, reflecting the growing importance of water as pressure on water resources grows.
Efforts to address high seas fisheries have been less successful. The approach here has been for member countries that exploit the same fishery to establish regional fisheries management organizations; examples of fisheries targeted include tuna, salmon, and other migratory fish stocks with organizations covering, among other areas, the South and Central Pacific, Northwest Atlantic, and Southeast Atlantic (SEAFO). Growing public concern over unsustainable exploitation of marine resources has led to efforts to strike broader agreements; a notable example is the Agreement On Port State Measures To Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing, established in 2009, although it has yet to enter into force.
In the past four decades, MEAs have increasingly been concerned with issues of pollution, environmental degradation, and the global commons. The UN Conference on the Human Environment, held in Stockholm in 1972, helped establish the United Nations Environmental Program (UNEP) and created a public awareness of the global nature of many of these problems. In 1983, the UN established the World Commission on Environment and Development (subsequently renamed the Bruntland Commission after its head) that issued the report “Our Common Future” in 1987 promoting the idea of sustainable development. That was followed by the Earth Summit in 1992 in Rio de Janiero, where countries committed to addressing three major global environmental issues: climate change (the United Nations Framework Convention on Climate Change); biodiversity (the Convention for the Protection of Biodiversity); and desertification (the United Nations Convention to Combat Desertification).
Countries have used MEAs to address shared environmental problems such as the long-range transport of pollutants. These are pollutants that can travel significant distances before deposition and can cause air pollution, marine pollution, or water pollution. One of the best known examples of such a problem is acid rain in both Eastern North America and in Scandinavia, which is caused by industrial activity elsewhere. In the case of Eastern Canada and the United States, the acid rain is caused by the emission of coal-fired power plants in the US Midwest that create sulfur oxides by burning coal. Prevailing weather patterns carry the emissions several hundred miles to the east and north, where the sulfur compounds react and eventually become deposited along with precipitation, making the rain highly acidic in places where it can have a significant effect on both freshwater lakes and forest ecosystems. More broadly, because these harmful p. xlvactivities often take place outside of the countries or regional jurisdiction where the costs are incurred, various governance authorities need to reach an agreement to help solve the problem. This problem has been addressed on a regional basis in both North America and in Europe, where countries have undertaken steps to identify and reduce the amount of emissions through the installation of scrubbers and other equipment, and utilizing alternative fuels.
Another example of international action to address pollutants is the Basel Convention (1989). It was convened to address the issue of hazardous wastes and the perceived threat from illegal shipments and improper disposal of these wastes. One concern that has been raised is that some countries could become pollution havens, such that political entities would set lower environmental standards and thereby become locations where toxic industries would locate, as well as receiving toxic waste from other countries. The objectives of the agreement are to limit the transboundary shipment between countries and to create a means of defining and tracking the movement of such wastes, as well as allowing countries to refuse to accept these wastes.
Perhaps the most successful example of international action to address a global environmental problem is the Montreal Protocol (1987), which was designed to address the issue of ozone-depleting substances. Chlorofluorocarbon compounds (CFCs) were widely used cooling substances because they are inert, non-toxic, and inexpensive to produce. However, it has been shown that the breakdown of CFCs in the atmosphere is causing a thinning in the ozone layer of the Earth’s atmosphere. This received widespread publicity with the discovery of a “hole” in the ozone layer over the Antarctic in 1985. The ozone layer reduces the amount of ultraviolet radiation that reaches the Earth’s surface, and thinning of this layer increases the amount of ultraviolet radiation reaching the surface, with negative effects for all life on Earth. The ozone layer is a classic example of a public good; all countries benefit from its presence. The Montreal Protocol specified a series of reductions in the use of CFC compounds with an eventual ban upon the use of such substances. The Protocol is widely acknowledged as leading to a sharp reduction in the production and use of CFC compounds in recent years, and a corresponding increase in the ozone layer.
It has been more difficult to establish agreements around the global commons, notably biodiversity and climate change. People have placed increasing value upon preserving biodiversity because of the possible richness of the genetic material embodied in wild populations, as well as the inherent value given to maintaining wildlife. One of the best known agreements is the Convention on International Trade in Endangered Species (CITES)p. xlvi (1973). This agreement is designed, through the use of permits, to regulate trade in both animals and plants that are considered endangered and, if needed, to impose export bans based upon the status of the particular species (which are listed in various appendices depending upon the degree to which they are considered threatened). While CITES has been relatively successful, especially in protecting certain CITES listed species, such as crocodilians, there is increasing concern that biodiversity continues to be lost. This point has been underscored by the most recent Millennium Ecosystem Assessment, which issued a report examining the state and trends in ecosystems around the world in 2005 and found biodiversity in many regions facing severe threats. The Convention for the Protection of Biodiversity (CPB) (1992), initiated at the Earth Summit, has tried to develop a framework for providing a mechanism by which biodiversity can be maintained in member countries. The convention envisages a mechanism by which wealthier countries can fund efforts to preserve biodiversity in less developed countries, and establishes the rights to the ownership of genetic material found within countries to create an economic incentive for sustaining biodiversity. However, to date, these efforts have failed to reverse the downward trend in biodiversity, especially within the developing world.
As outlined in the preceding section, the United Nations Framework Convention on Climate Change (UNFCCC), signed by over 160 countries at the 1992 Earth Summit in Rio de Janeiro and coming into force in 1994 following ratification by over 50 nations, is perhaps the most high-profile international agreement today. Under the agreement, Annex I countries (more developed countries) committed themselves to return their emissions of greenhouse gases to 1990 levels by the year 2000. This commitment was modified by the Kyoto Protocol in 1997. A new round of negotiations is underway to determine the successor agreement to the Kyoto Protocol, which expires in 2012. It was hoped that the Copenhagen Conference of 2009 would result in a binding global climate change agreement; however, negotiations were unsuccessful. The ultimate objective of the UNFCCC is to stabilize greenhouse gas concentrations at a level such that there is no detrimental impact upon the global climate. As can be expected, this is the classic public goods problem – countries would benefit from the actions taken to reduce emissions regardless of where they take place. Many developing countries have argued that the more developed countries should take the lead in reducing emissions and that it is unfair to expect them to forgo development opportunities (through the use of inexpensive fossil fuels like coal) that were available to developed countries in their earlier stages of development. Developed countries argue among themselves how best to measure credits and debits for greenhouse gas emissions because different p. xlviimethods of calculation can make a significant difference to countries in terms of the greenhouse gas reductions they need to make. Even so, progress vis-à-vis carbon reduction policies and technology have recently been made.
The Copenhagen Accord stipulated the creation of a $100 billion per year fund by 2020 to help developing countries mitigate climate change. There have also been pushes for further research and adoption of carbon capture and storage (CCS) and reducing emissions from deforestation and forest degradation (REDD); however, countries are still reluctant to commit to more meaningful targets as CO2 levels continue to rise, let alone to funding any significant international efforts to address climate change.
2. Trade and the Environment
At the same time that an increasing number of MEAs are being pursued, either internationally or on a regional basis, countries are also engaged in similar efforts to boost trade among themselves. As in the case of MEAs, such efforts have taken one of two forms: the first has been through either bilateral or regional trade pacts such as the North American Free Trade Agreement (NAFTA) – a trade agreement between Canada, the United States and Mexico – and other agreements such as the European Union; while the second has been a sustained effort to establish an agreement governing international trade more generally. The first outcome of this effort was GATT (General Agreement on Tariffs and Trade). GATT was formed after the Second World War, and established a framework and series of rules for trade between signatory countries through various rounds (meetings held between member countries over the past 50 years designed to further rules within a particular area). The Uruguay Round, which ended with the Marrakesh Agreement in 1994, provided the basis for the World Trade Organization (WTO), an organization designed to enforce the trade rules agreed to by member countries through adjudicating trade disputes between member countries and enforcing any judgments.
These efforts to create rules to improve trade between countries have become increasingly contentious because of a perceived conflict between the wish to liberalize trade by reducing the amount of rules and government discretion over trade, and the need to take into account environmental considerations. While Article XX of GATT does allow for countries to make exceptions in terms of trade for goods that pose a risk to human, animal, and plant life, or if conservation measures are required for the protection of exhaustible resources, it forbids such exceptions where they are used as a pretext to create trade barriers.
p. xlviiiThe best known example of a conflict between environmental and trade issues is the Tuna–Dolphin dispute between the United States and Mexico. The United States had passed a law prohibiting the importation of tuna from countries where the incidental kill of dolphins exceeded a certain amount (dolphins follow tuna, and certain catching methods, such as the purse seine net, can trap the dolphins along with the tuna). A US environmental group sued to enforce the law, arguing that the nets used by Mexican fishers were killing too many dolphins, and a US federal judge agreed, banning tuna imports from Mexico. Mexico brought the dispute to the GATT panel (a special body struck to hear disputes) and the GATT panel in 1991 found that the ban contravened GATT rules (although it allowed a labeling scheme that identified dolphin-friendly catching systems to stand). While the decision was never formally adopted by GATT, because the United States and Mexico reached an agreement, the case has been used as an example where trade rules have supplanted a government’s ability to make environmental policy. This concern has carried over into the WTO, which has created the Committee on Trade and the Environment (CTE), which is trying to recognize environmental concerns without creating a series of exceptions that make any trade rules meaningless.
At the same time, due to concerns raised about the ability of countries to make environmental policy given international trade rules, an increasing number of MEAs are also incorporating trade measures into their agreements. Examples of such MEAs include CITES, the Montreal Protocol, and the Basel Convention (all described above). In addition, agreements such as the United Nations Framework Convention on Climate Change envisage market-based mechanisms as one possible way to address environmental problems.
A variety of trade measures can be used to further environmental objectives. These measures include information-gathering measures such as labeling, reporting, and the requirement for notification and prior informed consent (for receiving toxic or potentially hazardous goods). More stringent trade measures may include the requirement of either export and import permits or licenses, as well as selective import or export bans which may be between parties to an agreement, as well as trade bans with countries that are not party to the agreement. These trade measures serve various purposes, but the most important objective is to make sure that all of the environmental factors are known and presumably incorporated into the exchange when trade takes place. Other objectives may include: collecting and disseminating environmental information; monitoring certain environmental factors; and the prevention of trade diversion and industrial relocation (where stricter environmental measures simply p. xlixserve to redirect production or pollution to different locations rather than leading to a change in behavior and reduction in pollution).
The effectiveness of MEAs depends both upon the full participation of countries that are affected by, or contribute to, the environmental problem, as well as compliance with the agreement. The absence of a critical country from, or significant non-compliance with, an agreement may mean that the environmental problem only worsens. Given the interest in expanding trade found in most countries today, the ability to enter into agreements that facilitate trade can act as a strong inducement for countries that might have reservations about the costs associated with addressing environmental issues, as well as any possible diminution in government sovereignty. In addition, by setting environmental standards and policies within these different agreements, there is evidence that other countries, even if unwilling to sign formal agreements, may still adopt similar standards and policies. Finally, to the extent that concerns about environmental issues are associated with higher income levels, increased international trade may help address environmental issues through improving people’s welfare.
In recent years, these efforts to resolve international environmental problems have broadened beyond states working exclusively in formal bilateral processes, and now include non-governmental organizations (NGOs) and businesses in efforts to promote and identify more sustainable business practices and products. These activities focus on creating codes of conduct, developing eco-labeling, and promulgating principles that take into account not only the environmental, but also social, aspects of producing and selling goods and services, both domestically and internationally. These efforts reflect some of the frustration among NGOs with the slow pace of international processes in addressing some of the more pressing environmental issues. There are a number of such initiatives under way, ranging from agreements identifying lending criteria (the Equator Principles), the emission of greenhouse gases (the Carbon Disclosure Project), certifying sustainable forest management (such as Sustainable Forestry Initiative (SFI), Forestry Stewardship Council (FSC), and Programme for the Endorsement of Forest Certification (PEFC), sustainable fisheries and other traded goods. In some cases, these efforts may involve national governments in developing national schemes or have even been sanctioned by the UN. Examples of the latter include the UN working with multinational corporations and leading NGOs to develop the United Nations Global Compact, elaborating standards of socially responsible corporate behavior, as well as the United Nations Principles of Responsible Investment (UNPRI). Overall, these efforts are likely to continue and expand, providing not only an alternative system of governance (otherwise known as NSMD or non-state market driven approach) while states continue to work to overcome the p. lchallenges of fashioning international agreements, but also helping provide an understanding of how to effectively approach these complex issues and providing the basis on which countries may ultimately be able to address problems such as global warming.