[ submitted in partial fulfillment of the requirements for the module GD104 Economic Principles of Global Sustainable Development with adjustments ] “The pollution problem is a consequence of population,” said Hardin (1968:1245), arguing that pollution is inevitable with the rise in population and hence is a ‘tragedy of the commons’. However, his explanation for pollution does not necessarily reflect the process by which climate change takes place over time. In this essay, I shall argue that climate change is not a ‘tragedy of the commons’ by assessing the natural barriers to enter the atmospheric sink market, as well as the excludability within its sequential usage game. Theoretically, ‘tragedy of the commons’ is a market failure where common resource goods become depleted due to their nature of being non-excludable yet rivalrous. Hardin (1968) mentioned that air cannot be fenced, and yet one’s pollution costs another. In this essay, the resource is the atmospheric sink where global emissions are released into, and climate change will refer to the rise in levels of atmospheric carbon dioxide (or equivalent) as well as temperatures. Additionally, ‘atmospheric sink exploitation’ will refer to the direct extraction of the resource at a higher level than is socially optimum and sustainable. Natural barriers to entryIn 2013, the Intergovernmental Panel on Climate Change claimed that it is extremely likely that over 50% of the rise in global temperatures was induced by humans (Stocker et al.). This is also supported by the hockey-stick figures of economic activity and carbon dioxide levels shown below. As seen on Figure 1, the GDP per capita of selected countries saw a significant rise in the 19th century, and a similar movement is also seen on Figure 2 in the level of atmospheric carbon dioxide levels. With this, it is unsurprising to know that global temperatures have also risen rapidly between the 19th to the 21st century, as shown below. The figures above show that as economic activity grew significantly, levels of atmospheric carbon dioxide and temperatures rose in a similar manner. One may question why the rise of the three figures have only started in the 19th century. Hardin (1968) claims that such exhaustion of resource would be caused by actions made out of self-interest, but this does not explain the rapid uptrend in all three graphs over the past century. An alternative explanation for this phenomenon is the rise in incentives and possibility for exploitation which encouraged humans to empower themselves to exploit the atmospheric sink. Although experts disagree about the key factors that had caused the Industrial Revolution to begin in Britain then, their proposed explanations had one thing in common: the British generation of the 19th century faced a situation that others and those preceding them did not (O’Rourke et. al, 2017), which allowed them to act upon their pre-existing self-interest, improve their economic productivity and consequently, exploit the atmospheric sink. In other words, they had successfully broken into the barrier to exploit it. One explanation for the abrupt revolution was proposed by Robert Allen (2011), who attributed it to Britain’s relatively expensive labour and cheap energy sources. Because of this, there were benefits to be earned by switching to energy-intensive technology (O’Rourke et. al, 2017). In this case, the barrier to exploitation was technology, and with sufficient incentive, the British were able to overcome it. Since they were the ‘first-movers’ and faced little competition upon entry, they were able to exploit Cheap Natures — the “uncommodified natures whose work can be appropriated for free or low cost” (Moore, 2019:54). In economic terms, this translates to low marginal costs of using the resource, as they were still highly available. Today, even though it is difficult to create artificial barriers to such exploitation, there are still natural barriers. The difference is that anyone from today’s generation would have to compete with all the pre-existing exploiters of the atmospheric sink. This sets high barriers to entry for the market. Indeed, one may argue that there seems to be little that restricts someone from tapping into the atmospheric sink. However, it is important to note that for a ‘newcomer’ or a new player to start exploiting the atmospheric sink, one needs sufficient incentive, and such incentive is currently hindered due to the existing oligopolistic—and hence oligopsonistic—nature of the atmospheric sink market: a large share of both the resources and consumers is controlled by only few powerful firms. In fact, 71% of global greenhouse gas (GHG) emissions could be linked to just 100 fossil fuel producers (Griffin, 2017). This substantial contribution by this sector means that fossil fuel oligopolists are also atmospheric sink oligopsonists. Although 26.8% of GHG emissions are not energy-related (Ritchie, 2020), it can be argued that even if these sectors are not as concentrated, there must be barriers, or perhaps lack of incentives, preventing them from polluting just as much as the energy industry does. Thus, in hopes of keeping overall GHG emissions low, it is essential to first study why the leading pollutant sector is where they are today. For this reason, the following discussion will be limited to the fossil fuel energy industry. One study by Richard Heede (2019) found that 35% of total energy-related carbon dioxide equivalent emissions since 1965 can be traced back to only 20 ‘Carbon Major’ entities, further highlighting the market concentration in the industry. The Guardian graphic below reflects his findings. An explanation for the sustenance of their power to exploit is the natural barrier to enter the fossil fuel product market, which, arguably, is also the atmospheric sink product market. It is these few powerful companies who distribute their products to many consumers globally. Oligopolies like them benefit from vast economies of scale, which makes it difficult for other economic actors to start competing with them. With such high outputs, these firms are able to provide goods or services at relatively low average costs, as their fixed costs are being spread over a large volume of production. As an example, Russell Rhine (2001) calculated the average costs (AC) of fossil fuel electricity production in 1995 and produced the diagram below. As shown above, with a high initial AC, it is indeed difficult for one to enter the market and compete with those already producing at lower AC and taking advantage of economies of scale. A physics-based approach by Bejan & Lorente (2017:121) also showed that a larger power generation correlates with greater thermodynamic efficiency, which is “the ratio between the power output of an engine divided by the rate of heat input to that engine (or divided by the rate of fuel consumption)”, further supporting the idea that there is a productive advantage of mass production. To an extent, all this excludes other economic actors from joining the atmospheric sink market and preserves the market power that existing actors possess. Therefore, while the atmospheric sink is not excludable in nature, the way that the market works naturally creates a barrier for any ordinary individual to exploit it. Due to this, these atmospheric sink oligopsonists are able to acquire ‘units’ of the atmospheric sink at low prices because while the supply is plentiful, the buyers are few. The vast availability of fossil fuels for each individual firm maintains relatively low marginal costs of burning them, and hence of exploiting the atmospheric sink. Therefore, the fewer the direct exploiters there are, the more the undervaluation of the atmospheric sink. Not to mention that there are also external costs of atmospheric sink consumption which may further worsen this undervaluation. Additionally, it is this market power that sustains supernormal profits, which encourages top exploiting firms to continue operations. Had there been a more competitive market, each individual firm would face higher marginal costs of burning fossil fuels and lower demand. It is therefore in the interest and power of these companies to keep the market barriers high. Game sequentialityAnother reason why the exploitation of the atmospheric sink is excludable is the fact that the game is not simultaneous, but instead sequential over generations. This is because each generation could not make decisions at the same time. This, assuming that the atmospheric sink is non-renewable, provides earlier movers (or generations) with ‘early-mover’ advantage: the ability to exclude the later movers in this game from benefitting off the resource. As various greenhouse gases last longer than the average human life expectancy, emissions occur at the expense of future generations. Carbon dioxide, for instance, may last 300-1,000 years in the atmosphere (Buis, 2019), while other GHGs may last up to 50,000 years (Solomon et al., 2008). Thus, assuming that the atmospheric sink is totally finite and non-renewable, a typical game could be illustrated by the tree diagram below. At first, there is 100% of the atmospheric sink available. The first generation has the choice to either exhaust all of it, leaving none for the generations to come, or to use just a part of it (i.e. 50%). Suppose that this generation chooses the latter, it allows the second generation to choose between using all that is left (50%), or just a part of it (i.e. 25%). If they decide to leave some of the resource for the next generation, then a similar choice is also faced by the third generation, and so on. In reality, each generation has the choice to divide the resource with the future generations in many different ratios. Unlike in simultaneous games, the players of this game are not interdependent: each generation depends on preceding generations, but not on future ones. A rational generation would not consider the benefits that future generations may gain from its compromise and thus use more of the resource than socially optimum and sustainable, depending on the percentage of the sink that provides each unique generation with the most benefit. Besides, unlike in repeated games, this game model makes it impossible for disadvantaged players (i.e. future generations) to punish cheaters (i.e. earlier generations) who may not act fairly. Furthermore, even if one generation decides to be altruistic and preserves a reasonable amount of resource for the subsequent generations, there is no guarantee that the next generation would do the same. Hence, in this case, as opposed to the ‘tragedy of the commons’ (commonly illustrated through the Prisoner’s Dilemma), the excessive usage of the resource over time takes place due to the fact that each player is able to exclude subsequent players, who would have to bear the costs of preceding decisions and are incapable of punishing preceding unfair practices. The tree diagram above ignores the different ways by which the atmospheric sink may be shared within a generation, and how this may affect its existing users. At any one point in time, a simultaneous game takes place, where each economic actor decides how much of the atmospheric sink they would use at the same time as other economic actors do. As stated before, even within generations, there are natural barriers to exploit the atmospheric sink. For end-consumers, this excludability is reflected by the prices attached to the goods and services which contribute to such exploitation. However, these prices commonly do not account for the social costs of the exploitation itself. Thus, it is the undervaluation of the costs of atmospheric exploitation, rather than its non-excludability, that may explain the excessive pollution released by any one generation. Aside from that, it is important to examine whether an exploitative decision in this game affects those of the following generations just as much as it does the same one. It needs to be clarified how finite exactly the atmospheric sink is. This is because, the more that current decisions affect the future generations in comparison to the present one, the greater are the social costs being excluded from the decision-making process of every generation. The more the future externalities, the more excludable the atmospheric sink is, and thus the less likely it is that mere overpopulation explains climate change. A finite pie would still be demolished even if only one person takes their piece at a time; having a couple grab their pieces at once only speeds up the process. Having considered the oligopsonistic and oligopolistic nature of the atmospheric sink resource and product markets, as well as the sequentiality of the atmospheric sink usage game, it can therefore be concluded that the atmospheric sink does not fulfill the non-excludability criterion of a common resource good, and thus cannot be a subject of the ‘tragedy of the commons’. My analysis showed that instead, it is the very fact that the atmospheric sink is excludable that incentivizes its exploitation through supernormal profits and ‘early-mover’ advantage. Indeed, the market failure of climate change arises not from the non-excludability of the atmospheric sink, but market power and externalities. Further research is required on the internalization of externalities, utilization of market power, and behaviour of non-energy related firms. Additionally, a better understanding of the future impact of present-day decisions would be the first challenge in internalizing the future costs of economic decisions. In tackling this problem, it is hence essential to recognize the power and influence that each economic actor possesses in the continuous process of allowing future generations a more equal chance of taking pleasure in the climate. Bibliography Allen, R. C., 2011. Global economic history: a very short introduction, Oxford: Oxford University Press.
Bejan, A., Almerbati, A. & Lorente, S., 2017. Economies of scale: The physics basis. Journal of Applied Physics, 121(4), p.044907. Bowles, S. et al., 2017. Unit 1 The capitalist revolution. The Economy. Available at: https://core-econ.org/the-economy/book/text/01.html [Accessed November 22, 2020]. Buis, A., 2020. The Atmosphere: Getting a Handle on Carbon Dioxide – Climate Change: Vital Signs of the Planet. NASA. Available at: https://climate.nasa.gov/news/2915/the-atmosphere-getting-a-handle-on-carbon-dioxide/ [Accessed December 2, 2020]. Griffin, P., 2017. The Carbon Majors Database. CDP. Available at: https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/327/original/Carbon-Majors-Report-2017.pdf?1501833772. Hardin, G., 1958. The Tragedy of the Commons - JSTOR. Available at: https://www.jstor.org/stable/1724745 [Accessed December 4, 2020]. Heede, R., 2019. TopTwenty Rank 1965-2017. Climate Accountability Institute. Available at: https://climateaccountability.org/carbonmajors.html [Accessed December 6, 2020]. Moore, J.W., 2019. Capitalocene and Planetary Justice. Maize, (6), pp.49–54. O’Rourke, K. et al., 2017. Unit 2 Technology, Population, and Growth. The Economy. Available at: https://core-econ.org/the-economy/book/text/02.html [Accessed November 24, 2020]. Rhine, R., 2001. Economies of scale and optimal capital in nuclear and fossil fuel electricity production. Atlantic Economic Journal, 29(2), pp.203–214. Ritchie, H. & Roser, M., 2020. CO₂ and Greenhouse Gas Emissions. Our World in Data. Available at: https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions [Accessed November 21, 2020]. Ritchie, H. & Roser, M., 2020. Emissions by sector. Our World in Data. Available at: https://ourworldindata.org/emissions-by-sector [Accessed December 5, 2020]. Solomon, S. et al., 2008. Climate change 2007: the physical science basis, Cambridge: Cambridge University Press. Available at: https://www.ipcc.ch/site/assets/uploads/2018/05/ar4_wg1_full_report-1.pdf [Accessed December 2, 2020] Stocker, T. F. et al., 2013. Climate change 2013: the physical science basis.: Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge: Cambridge University Press. Available at: http://www.climatechange2013.org/report/full-report/ [Accessed December 3, 2020] Taylor, M. & Watts, J., 2019. Revealed: the 20 firms behind a third of all carbon emissions. Available at: https://www.theguardian.com/environment/2019/oct/09/revealed-20-firms-third-carbon-emissions [Accessed December 2, 2020].
0 Comments
Leave a Reply. |
scholastichere are posts about study tips and materials academichere also are some of my academic work categories
All
|