Two Intensities Analysis of London Accord

Transcription

1 Two Intensities Analsis of London Accord Hiroshige TANAKA Professor of Facult of Economics, Chuo Universit, Higashinakano 742-1,Hachioi-cit, Toko , JAPAN. abstract London Accord is constructed b the two intensities on low carbon communities in theoretical framework. This article makes clear the characteristics of the two inxes approach. We analze the propert of the two inxes approach in the dnamical adustment procedure and equilibrium situation. We make the first step to clarif the theoretical framework of London Accord. 1. Introduction Globalizing economic activities and centralization of government might appear commonl in man advanced countries. Man environmental and social problems require betterment with voluntar contributions of man agents of government, firms, resints and NPO. Global environmental problems seem to require the global public polic to be effective for each stakeholr 1. For the problems new effective methods or technologies are possibl veloped b supporting funds and efforts of these agents. Sustainable velopment of communities could be achieved b a cooperation and improved or voluntar participation of multi stakeholrs 2. B effective cooperation of stakeholrs corporations or non-profit organizations could achieve sustainable management and contribute to improve social welfare 3. Since man stakeholrs seek self interests, 1 Medows et all(2005) and Gleeson and Low(2001) review global sustainabilit sstems. 2 Nssens (2006) indicates problems on multi-goal and multi-stakeholr organizations. 3 Hirshland(2006) consirs the reason wh the CSR are promoted globall since

2 probabl contributions of man stakeholrs are ficient and out of balanced to promote sustainabilit 4. We must investigate incentives of voluntar contributions and vise a sustainable scheme to foster and to facilitate them 5. Price mechanism in market econom is vital role in the resource allocation. The inxes to substitute or complement the price are investigated in the external market econom. In this essa, we consir the mechanism which sends stakeholrs signals toward low carbon emission communities. We consir the properties of energ intensit and carbon intensit in the framework of London Accord Mol We are obliged to convert the wa of life and production sstem in our societ into more energ efficient sstem to achieve the sustainabilit at a global scale. Man new technologies or policies are veloped or proposed to attain the energ efficient societ. Probabl each method seems to contain merits and merits at the same time and shows various benefits and costs to be termined. Some innovations might proceed in a sires of progresses and mature for long time consequentl. We should take strategic approach to accelerate the innovation process. Evaluating the relative advantage of each method, we should select the best mix of the policies. It is largel possible that each measure or technolog shows environmental advantage with the costs of crease of consumption and production in the econom. Sometimes we are targeting to construct conflicting goals for the econom and the environment. The goals for sustainabilit could be guid b arranging snthetic social inxes which satisf some proper characteristics. London Accord focuses on the functions of a couple of inxes the energ intensit and the carbon intensit 6. Consiring the two inxes, we explain some notations as follows. The quantit of energ J is measured b Joule. The 4 Marshall(2005) consirs collaborative solutions for environmental management. 5 Tanaka(2004),(2005),(2007a)(2007b) velops the theor of corporate governance(tirole(2001)) and formulation of Altruism(Tanaka(1998) for the cision process in multi stakeholr communities. 6 Krapivin and Varotsos(2007) review the theoretical analsis of globalization and sustainabilit. Bosetii,Garraro and Galeotti( 2006) consir dnamical properties of carbon and energ intensit. 2

3 scale of national product is noted b GDP. It is a sirable target for climate change that we achieve higher with lower consumption of J. We should sign a clear signal challenging the climate change as price mechanism in market econom pla the role on achieving efficient resource allocations. We must emplo more efforts or resources to increase efficienc of regarding to J. The velopments of new production technologies or the reform of transformation or distribution sstem might contribute improvement of the combination and J for global environmental problems. We indicate the level of resources invested or consumed to improve as. e e notes the volume of effort to improve energ efficienc J. e and e are trad in markets b the price of the unit. London Accord argues the properties of the five capitals; natural capital, human capital, social capital, manufactured capital and financial capital 7. Resources are invested or poured into some capitals intensivel according to relative advantage of them. In other words, resources are arranged among feasible targets for climate changes. If the total resource newl available to polices for constructing the sustainable societ is given b E, the fund G to improve environment and povert problems is expected to enlarge resource restriction in the area of challenging global environmental problems. The condition is expressed b e + e = E G. (1) + The new technologies to improve energ efficienc possibl increase national products but plete J for the econom. In some case, the new technologies to improve efficienc of solar energ replace a part of fossil energ but possibl crease J for the total energ generation. In other case, the advanced equipment in power station requires great investment but is able to generate higher level of J. Although we can suppose both possibilities, it is appropriate to consir the former case mainl. It is assumed that and J are the monotone increasing and creasing functions of e and e as 7 Forum for the Future(2007) pp

4 ( e ) and J ( e ). It is assumed that the inequalities ( e ) > 0 an J ( e ) < 0 are satisfied 8. We refer this assumption as negative prospect b distinguishing from the positive prospect. C is the total amount of carbon emitted in a nation. The growth of is a main factor to increase carbon emission. Joule consumption b burning coal or oil increases Carbon emission largel but the renewable energ is possibl assumed to affect carbon emission in a limited wa. The relation between carbon emission and Joule pends on the energ sources termined b energ policies. Carbon function is expressed b C = F(, J ). (2) The shape of the carbon function is transformed b technologies, methods and policies for the global warming. The energ intensit is fined b J ( e EI ( e ). Similarl, the carbon intensit is fined b ) F( ( e ), J ( e )) CI. J ( e ) It is assumed that the inequalities > 0 and > 0 are satisfied. 3. Methods of indication for minimizing carbon emission In this section, we consir implications of inx approach in climate change b emploing a mol analsis. The policies for minimizing carbon emission are rived b solving the first orr conditions of the following Lagrange function (3). λ is a Lagrange multiplier. Differentiating F(, J ) + λ ( e + e E G) (3) with regard to e and e, we rive the following conditions + λ = 0, + λ = 0. It is certain that the inequalit 8 This assumption is reflected b negative prospect. Some technologies intend to increase J b additional investment of e. The positive prospect J ( e ) > 0 is discussed later. 4

5 = < 0 holds. Consiring (4), we can suppose that J and satisf a positive correlation 9. That is, (4) expresses the increment of J required b one unit enlargement of in the most efficient carbon emission. In orr to construct low carbon emission communities, the pletion of energ efficienc is obtained b a expense of creasing GDP. (4 ) implies that the pletion of J required b the growth of GDP to achieve low carbon communities creases to lower in lower marginal pletion effect of energ or higher marginal national product. That is, the economic or shadow price should be termined b the rate of the two marginal effects of energ and product. The rate will be set up as a targeting inx for market oriented solution for climate change. In this essa, policies based on (4) is named b direct or single inx approach. London Accord adopts two inxes expected to arrange investments for man fields of pleting carbon effectivel and efficientl. We assume that the most efficient social sstem with carbon emission is attained in the condition satisfies the highest level of carbon intensit. To solve the solution the Lagrange function is scribed as follows. F( ( e ), J ( e ( e ) (4) )) + μ ( e + e E G) (5) μ is a Lagrange multiplier. Differentiating (5) with e and e, the first orr conditions of low carbon communities is written b + μ = 0, 9 In the case of positive prospect for energ technologies J ( e ) > 0, (4) is positive. If our societ construct b these technologies, the growth of can be achieved b pleting J. In this condition, we could attain the growth of and pletion of J at the same time. So we could easil find the wa to low carbon societ. 5

6 F + μ = 0. 2 B arranging the above tow expressions, we ensure that the growth rate of Joule and GDP satisf F ( ) =. (6) Although we must velop some more investigation, the following result is obtained b comparing (5) and (6). Consiring the left si of (6) is transformed into F 1 For the relativel small econom <1, (6) is assumed to be larger than negative value of (4). Inx approach seems to target greater substation rate between the energ J and the product. Finall. We consir the energ intensit. Emploing the following Lagrange function J ( e ( e (7) ) + α ( e + e E G). (8) ) α is a Lagrange multiplier. The first orr conditions of the energ intensit are exhibited b + α = 0, J + α = 0. 2 The above expressions are arranged b + = 0. (9) J 6

7 Consequentl, the intensit of energ implies the pletion rate of J and growth rate of of the two efforts e and e equilibrate each other in the low carbon communities. (9) is rewritten b (10). In other words, the rate between J and should be equal to rate of marginal effect of two efforts e and e. Consiring the intensit of energ emplos average rate J instead of marginal in the case (4), this intensit sends more cautious signal to plete J than the single inx approach. J = > 0. (10) Noticing that (7) is rewritten b 1 F ( + ) (11) two intensities approach adopted b London Accord indicate the larger econom more effort to plete J. Finall, two intensities approach more sophisticate valuation for policies for climate change in dnamic arrangement process. In a equilibrium, two inxes (7) and (10) turn into the intical value. To simpl the expression J the elasticit of energ to carbon emission is noted b ε. Making F (10) equal to (11), 1 = J (1 ) (12) ε is rived. J pletion accompanied b crease of production becomes larger as J or ε increases. That is, the economic or market value of energ pends on the elasticit of energ to carbon emission. 4. Remarks To achieve low carbon emission we should target to combine the economic or market value to resource allocation between production and energ 7

8 efficienc improvements in the direct one inx approach. On the other, London Accord is constructed b the two intensities on low carbon communities in theoretical framework. This article makes clear the characteristics of the two inxes approach. Two main results are confirmed. First, the two inxes approach makes man effective signals to moving communities into low carbon sstem of societ in the dnamical adustment procedure. Second, in the goal the economic or market termine the resource allocation between econom and environment value pend on energ J and the elasticit of energ to carbon emission. References Barrow,C.J. (2006) Environmental Management for Sustainable Development 2ed., Routledge. Bosetti,V, C.Carraro and M.Galeotti(2006), The Dnamics of Carbon and Energ Intensit in a Mol of Endogenous Technical Change, The Energ Journal special issue, pp Gleeson,B. and N.Low(2001), Governing for the Environment: Global Problems, Ethics and Democrac, Palgrave. Corporation of London (2006) Financing the Future : The London Principles, the Role of UK Financial Services in Sustainable Development, 6A5F75E/0/SUS_financingfuture.pdf Forum for the Future(2007),Investments to combat climate changeexploring the sustainable solution. Hirshland,M.J.(2006),Corporate Social Responsibilit and the Shaping of Global Public Polic, Palgrave. Krapivin,V.F. and C.A.Varotsos (2007), Globalization and Sustainable Development : Environmental Agendas, Springer-Praxis Publishing. The London Accord(2007,2008), Marshall,G.R.(2005), Economics for Collaborative Environmental Management: Renegotiating the Commons, Earthscan. Meadows,D.,J.Ranrs and D.Meadows(2005),Limits to Growth: The 30-ear Update, Earthscan. Nssens,N.(ed),(2006),Social Enterprise: At the Crossroads Market, Public Policies and Civil Societ, Routledge. 8

9 Tanaka,H.(1998), Redistribution Tax unr Non-Benevolent Governments, Public Choice 96, pp Tanaka,H.(2004), Theoretical Analsis for Corporate Social Responsibilit, Global Environmental Polic in Japan No 9, pp.1-9 (written in Japanese). Tanaka,H.(2005), How Bank Monitoring Can Work in the Development Proect, Journal of JBIC Institute No22, pp (written in Japanese). Tanaka,H.(ed.)(2007a), Environmental Governance and communication function, Chuo Universit Gendai GP. Tanaka,H.(2007b).A Theoretical Analsis for Sustainabilit Function of SRI Fund Organizations : A Sustainable Framework of London Mechanism The Institute of Economic Research Discussion Paper Series of Chou Universit, No 96,2007. Tirole,J.(2001), Corporate Governance, Econometrica,68(1),pp Acknowledgments I acknowledge Mr. Simon Mills, Sustainable Development Coordinator in the Cit of London, and Professor Michael Mainelli for offering current materials of sustainabilit program veloped b the Cit of London. 9