Long-term Environmental Problems, Economic Measures and Physical Indicators

Doctoral thesis, 1996

This thesis consists of five papers and an introduction dealing with various aspects of the use of environmental resources. In both Paper I, The marginal cost of CO2 emissions, and Paper II, Discounting and distributional considerations in the context of global warming, we analyse the economics of the greenhouse effect. Focus is put on the choice of discount rate. It is shown that this choice is of crucial importance for the cost analysis and that its value can not be determined on objective grounds, mainly since one of the components of the discount rate, the pure rate of time preference, is ultimately a question of value judgements. We argue that the pure rate of time preference should be put equal to zero. Discounting is, however, justified if per capita income grows. But over longer time periods, the growth rate is expected to fall, and this then holds true for the discount rate as well. In Paper II we also develop a method for weighting costs with respect to the level of income of the group affected. The argument for giving higher weights to damage affecting poor groups or countries is the same as the argument for discounting costs in the future: the assumption of a declining marginal utility of income, implies that the value of one USD loss is higher for a poor than for a rich person. Using standard assumptions about damage functions related to climate change, and including the considerations above, we estimate the marginal cost of CO2 emissions to lie in the range 260-590 USD/ton C (for a time horizon of 300 to 1000 years), an estimate which justifies large emission reductions. The estimate is approximately 50 to 100 times larger than estimates made by Nordhaus. The difference is almost entirely due to the way that future costs and differences in income have been treated. Environmental damage that remains for a long time can be seen as a debt to future generations. In Paper III, Defining the Generational Environmental Debt, we use neoclassical economics to derive a method for calculating this debt. The Generational Environmental Debt (GED) for past emissions of CO2 is estimated at 10,000 billion USD. GED can be seen as a monetary indicator of past anthropogenic influence on nature. In Paper IV, Socio-ecological indicators for sustainability, we develop physical indicators which can be used to assess whether societal activities are becoming more sustainable or not. These indicators are characterised by two specific features: (i) they are intended to give early warning signals, and (ii) they are based on a set of general principles or system conditions for sustainability. In Paper V, Stability analysis of harvesting in a predator-prey model, a classical Lotka-Volterra type of model is used for a predator-prey system with two prey and one predator. The predator is being harvested and the response of the system is investigated for different harvesting strategies. We show that the use of a constant intensity harvest function, instead of a constant harvest quota function, makes the system more stable.