The 2023 FREE Network Retreat, an annual face-to-face event for members of the FREE Network, gathered its representatives to share and exchange research ideas and to discuss its institutes’ respective work and joint efforts within the Network. An academic session highlighted multiple overarching areas of interest and opportunities for research collaboration and included a plenary session on topics ranging from theoretical underpinning of Vladimir Putin’s regime to climate change beliefs and to consumer behaviour in credit markets. A session addressing the respective institute’s work during the last year also demonstrated the importance and relevance of the FREE Network’s joint initiatives on gender, democracy and media, and climate change and environment: FROGEE, FROMDEE and FREECE. This brief gives a short outline of the plenary session and an overview of some further topics covered during the conference.
The Academic Day
The Academic Day consisted partly of a plenary session and partly of an academic session. The academic session was outlined to demonstrate the wide spectrum of research interests within the network and to promote and highlight the opportunities for research collaboration. Designed as a series of poster sessions, each organized around a common research theme, it allowed for an exchange of ideas between presenting researchers and the audience while displaying the overlap of the various research interests across the institutes. At the same time, the poster session combined the broad range of topics within 10 overarching subjects (trade, gender, migration and education, public economics, energy, labor, political economy and development, macro, conflict, and theory and auctions).
The plenary session further illustrated the wide variety of topics the FREE Network researchers’ work on. During the plenary session, three distinguished presentations were held, summarized in what follows.
“Why Did Putin Invade Ukraine? – A Theory of Degenerate Autocracy”
Firstly, Konstantin Sonin, Professor at the University of Chicago Harris School of Public Policy, gave a presentation of his working paper (with Georgy Egorov, Northwestern University) in which the Russian full-scale invasion of Ukraine is explained through a theoretical framework on dictators’ decision-making in degenerate autocracies.
Sonin outlined how the beliefs about Ukraine in Kremlin, prior to the invasion, were factually wrong. For example, Kremlin believed that Ukraine, despite plenty of facts pointing in the opposite direction, lacked a stable government and had an incapable army. Further, it was believed that the US and Europe wouldn’t care about Ukraine and that Russian troops would be welcomed as liberators – the latter exemplified by the fact that Russia sent police and not the army during the first phase of the invasion. He also stressed that the decision to invade Ukraine is likely to have disastrous consequences for Vladimir Putin, his regime, and for Russia as a whole. This is, however, not the first example of a disastrous decision made by a leader of an autocratic regime, leading up to the question: What explains such choices that should not rationally have been made? And how can leaders make them in highly institutionalized environments where they are surrounded by councils and advisors who are supposed to possess the best expertise?
The model presented by Sonin assumes a leader in such highly institutionalized environment that wishes to stay in power and whose decisions are based on input from subordinates. The subordinates differ in level of their expertise and the leader thus chooses the quality of advice that he receives through his choice of subordinates. In turn, while giving advice to the leader, the subordinate considers two factors: the vulnerability of the leader and their own prospects should the leader fall. In equilibrium there is a tradeoff as competent subordinates are also less loyal (since a more competent person might know when to switch alliances and have better prospects if the regime changes).
The leader also has access to repression as an instrument. Repression decreases his changes to be overthrown but raises the stakes for a potential future power struggle, as a leader with a history of repression is more likely to be repressed by his successor.
This interaction creates a feedback loop. If a dictator chooses repression, he feels more endangered, and he then chooses a more loyal subordinate who is less likely to deceive him for personal gain under a potential new regime. However, this leads to the appointment of less competent subordinates whereafter the information that flows to the leader becomes less and less reliable – as illustrated by Kremlin’s beliefs about Ukraine prior to the war.
There are three types of paths in equilibrium, Sonin explained; 1. “stable autocracy”, with leaders altering in power and choosing peaceful paths without repressions 2. “degenerate autocracy” – where the incumbent and opponent first replace each other peacefully and then slide into the repression-based change of power (until one of them dies and the story repeats), and 3. “consecutive degenerate autocracy” – where each power struggle is followed by repression.
Concluding his presentation, Sonin highlighted that in a degenerate autocracy such as Russia, individual decisions by the leader are rarely crucial due to the high level of institutionalization. However, as shown by the model, the leader is inevitably faced with a situation where he is surrounded by incompetent loyalists feeding him bad intel and setting him up to make disastrous decisions – most recently displayed in Vladimir Putin’s decision to invade Ukraine.
“Facing the Hard Truth: Evidence from Climate Change Ignorance”
Pamela Campa, Associate Professor at Stockholm Institute of Transition Economics, gave the conference’s second presentation, which detailed her work (with Ferenc Szucz, Stockholm University) on climate change skepticism.
Campa opened her talk with the current paradox regarding climate change, where, in the scientific community there is a strong consensus about the existence of climate change, but in society at large, skepticism is largely prevalent. This can be exemplified by one quarter of the US population not believing in global warming in 2023, and Europeans not believing in the fact that humans are the main driver of climate change.
According to Campa, the key question to answer is therefore “Why does ignorance about climate change persist among the public – in spite of the overwhelming evidence?”. One possible explanation may be a deficit in comprehension; people simply don’t understand the complexity of climate change and thus follow biased media and/ or politicians more or less sponsored by lobbyists. However, research have shown scientifical literacy to be quite uncorrelated with climate change denial, contradicting the above explanation. The second hypothesis, and of focus in the study, instead revolve around the concept of information avoidance. To test the hypothesis that people actively avoid climate change information, the authors key in on coal mining communities in the US having been exposed to negative shocks in the form of layoffs. These communities are of interest given their strong sense of identity and the fact that they are directly affected by the green transition. Arguably, a layoff shock would negatively affect not only their economy, but also pose a threat to their perceived identity. Given the context, it can thus be assumed that these communities to a larger extent would avoid information on climate change and information post-shock to restore the threatened identity.
The authors consider US counties experiencing mass layoff (more than 30 percent of mining jobs lost between 2014 and 2017) as treated counties, finding that in these counties, learning about climate change is 30 to 40 percent lower than in counties having experienced no mass layoffs. To account for the fact that the layoff itself may cause changes in learning, the authors also consider an instrument variable analysis in which gas prices are exploited as instrument for the layoffs – once again displaying the fact that people in affected communities believe climate change to be caused by humans to a lesser extent, when compared to counties in which no mass layoffs had occurred.
Interestingly, when controlling with other industries with somewhat similar characteristics (such as metal mining), the drop in climate change learning disappears, feeding in the notion of “identity-based information avoidance”.
The lack of support for and consensus among the public of the ongoing climate change and its drivers might pose a threat for the green transition as well as reduce personal effort to reduce the carbon footprint, Campa concluded.
“Consumer Credit with Over-Optimistic Borrowers”
In the plenary session’s last presentation, Igor Livshits, Economic Advisor and Economist at the Federal Reserve Bank of Philadelphia, presented his working paper (with Florian Exler, University of Vienna, James MacGee, Bank of Canada and Michèle Tertilt, Mannheimer University) on consumer credit and borrower’s behaviour.
There has been much debate on whether and how to regulate consumer credit products to limit misuse of credit. In 2009/2010 several initiatives and regulations (such as the 2009 Credit Card Accountability Responsibility and Disclosure Act) were introduced with the aim of protecting consumers and borrowers from arguments that sellers of credit products exploit lack of information and cognitive capacity of borrowers. There is however a lack of evaluation of such arguments and subsequent regulations, which Livshits explained to be the motivation behind the paper.
The paper differentiates between over-optimistic borrowers (behaviour borrowers) and rational borrowers (rationalists). While both types face the same risks, behaviour borrowers are more prone to shocks and are at the same time unaware of these worse risks (i.e., they believe they are rationalists). Focusing on these types of borrowers, the paper introduces a model in which the lenders endogenously price credit based on beliefs about the borrower type. Households decide whether to spend or save and if to file for bankruptcy in an environment in which they are faced with earning shocks and expense shocks.
In this structural model of unsecured lending and default, Livshits finds that behavioral borrowers’ “risky” behaviour negatively affects rationalists since both types are pooled together and, thus rationalists are overpaying to cover for the behaviour borrowers. A calibration of the model also suggests that behavioral borrowers borrow too much and file for bankruptcy too little and too late.
Livshits argued that the model does not provide evidence of the notion that borrowers need protection from lenders, but rather that borrowers need to be protected from themselves. In fact, had behaviour borrowers been made aware of the fact that they are overly optimistic about the actual state of their future incomes, they would borrow 15 percent less.
To address the increased risks behaviour borrowers take at the cost of rationalists, policies such as default made easier, taxation on borrowing, financial literacy efforts and score-dependent borrowing limits could all be considered. Such policies may lower debt and reduce bankruptcy filings but as they may also reduce welfare and exhibit scaling difficulties.
Updates from the Institutes
During the Retreat, the respective institutes shared the previous year’s work, and updates within the FREE Network’s three joint projects were also presented. These go under the acronyms of FROMDEE (Forum for Research on Media and Democracy in Eastern Europe), FREECE (Forum for Research on Eastern Europe; Climate and the Environment) and FROGEE (Forum for Research on Gender Economics in Eastern Europe), and address areas of great relevance in Eastern Europe and the Caucasus. Researchers from all FREE Network institutes work on these topics, with the most recent policy paper written in coordination by SITE, KSE and CenEA (with expert Maja Bosnic, Niras International Consulting). The policy paper focuses on the gender dimension of the reconstruction of Ukraine – putting emphasis on the necessity of gender budgeting principles throughout the various parts of reconstruction. An upcoming joint research paper will consider the effects of gasoline price increase on household income across the Network’s countries, written under the FREECE umbrella.
The three themes of gender, media and democracy, and environment and climate are not only purely research topics within the institutes. They also reflect developments and challenges that the institutes to a various extent face in the respective contexts in which they operate. The work focusing on the reconstruction of Ukraine is an excellent example of an area that encompasses all three.
Another example of the relevance of the three themes features prominently in one of the institutes’ most tangible contribution to their respective societies: their education programs. Nataliia Shapoval, Vice President for Policy Research at Kyiv School of Economics (KSE), emphasized how KSE has – amid Russia’s war on Ukraine – managed to greatly expand. Over the past year, KSE has launched 8 new bachelor’s and master’s programs, some of which are directly targeted at ensuring postwar reconstruction competence. On a similar note, Lev Lvovskiy, Academic Director at the Belarusian Research and Outreach Center (BEROC) mentioned the likelihood of next year being able to offer students a bachelor’s program in economics and several business courses in Vilnius – BEROC’S new location. BEROC’s effort in providing quality education in economics to Belarus’ exile youth is considered a fundamental investment in the future of the country – providing a competent leading class capable of installing democracy and fair elections in Belarus once the current regime is gone. The emphasis on education was further highlighted by Salome Gelashvili, Practice Head, Agriculture & rural policy at the International School of Economics Policy Institute (ISET-PI) who not only mentioned the opening of a master’s program in Finance at ISET but also the fact that an increasing number of students who’ve recently graduated from PhD’s abroad are now returning to Georgia. Such investments into education are necessary to counter Russian propaganda in the region all three agreed, emphasizing the need to continually stem Russia’s negative influence in the region. This investment into education is also important to hinder countries from sliding away from democratic values – realized in Belarus and threatening in Georgia.
To further delve into the issues of democratic backsliding, a tendency that has been recently observed not only in the region but also more widely across the globe, FROMDEE will organize an academic conference in Stockholm on October 13th, 2023.
The 2023 FREE Network Retreat provided a great opportunity for the Networks’ participants to jointly take part of new research and to share experiences, opportunities, and knowledge amongst each other. The Retreat also served as reminder of the importance of continuously supporting economic and democratic development, through research, policy work, and networking, in Eastern Europe and the Caucasus.
List of Presenters
- Konstantin Sonin, University of Chicago Harris School of Public Policy
- Pamela Campa, Stockholm Institute of Transition Economics
- Igor Livshits, Federal Reserve Bank of Philadelphia
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Climate change can increase the vulnerability of women to various risks, including natural disasters, food insecurity, water scarcity, and health problems. Women may also face unique challenges in accessing resources and services, which can limit their ability to adapt to a changing climate. Developing countries, with their more traditional gender roles, are even more likely to experience disproportionate impacts of climate change on women, and Georgia is no exception. Thus, the country needs to address this problem through a comprehensive approach which accounts for the social, economic, and environmental factors that contribute to gender inequality.
According to Georgia’s fourth national communication report to the United Nation’s Framework Convention on Climate Change, the negative impacts of climate change on ecosystems and the economy can hinder Georgia’s path toward sustainable development. Therefore, a key focus for the country should be to develop climate-resilient practices and reduce the vulnerability of communities exposed to these impacts.
The climate scenarios in the communication report present a worrying picture of warming trends in the country, mainly due to increased temperatures in the last summer and autumn seasons, as depicted in Figure 1 (MEPA, 2021). Such alterations in weather patterns often lead to glacier retreat, water scarcity, coastal erosion, and biodiversity loss in different regions of Georgia (ibid).
Figure 1. Average summer and winter temperatures in Georgia, 1900-2021.
An increasing body of international research has demonstrated that climate change can have adverse effects on agricultural production, food security, water management, and public health. Furthermore, research has revealed that these effects are not gender-neutral, with women and children being among the most affected groups (World Bank Group, 2021).
Climate Change Impacts on Women – A Georgian Perspective
Women in developing countries like Georgia experience various impacts of climate change, which affect them differently than men. The effects might vary according to region or community, but some common signs can be identified. The main channels through which women are disproportionally affected by climate change are discussed in the following sub-sections.
Climate change has a significant effect on human health, with women being more vulnerable due to various cultural, social, and economic factors (Sbiroli et al., 2022). In particular, women appear to be more susceptible to infectious diseases and undernutrition, especially in middle and low-income countries (ibid).
Springmann et al. (2016) found that, by 2050, Georgia could experience about 32.36 climate-related deaths per million due to malnutrition caused by a lack of fruits and vegetables in people’s diets and due to increased health complications associated with undernutrition. In Georgia, malnutrition is a significant gender equality concern. According to the Global Nutrition Report, women in Georgia disproportionally experience exposure to undernutrition translated into underweight. Similarly, women represent the majority of Georgians with obesity (26.8 percent, compared to 22.2 percent among men). Both these issues may be further exacerbated by climate change in the future.
Furthermore, in Georgia, women are more likely to care for sick family members. According to Geostat, 31 percent of women who have sick or dependent family members are involved in providing them care, compared to only 15 percent of the men. This puts women at greater risk of exposure to climate change-induced infectious diseases, given that research has demonstrated an increased risk of such diseases worldwide, including in areas in Europe that have climate profiles similar to Georgia (Mora et al., 2022; Gray et al., 2009).
Figure 2. Prevalence of underweight among adults (>18) in Georgia, 2000-2016.
Water and Food Scarcity
Climate change is also known to affect food and water supply through changes in agricultural conditions, droughts, and floods. In developing countries as women are often responsible for food and water supply, they are disproportionally affected by water shortages resulting from climate change (Figueiredo & Perkins, 2013). Women in poor rural households in Georgia are likely to face similar challenges.
Women in Georgia also play a crucial role in agriculture (according to Geostat, 47 percent of workers in agricultural holdings were women in 2021). Fluctuations in temperature and precipitation patterns can reduce crop yields, leading to lower income and food insecurity. This may disproportionately affect female farmers, as access to agricultural technologies, land ownership and lack of necessary knowledge and skills are some of the significant barriers for women involved in agriculture in Georgia (Gamisonia, 2015).
Economic Impacts and Access to Resources
One of the main reasons to why women are disproportionally affected by climate change is that their underlying economic conditions are less favourable than men’s (Yadav & Lal, 2018). In 2021, the majority of people outside the labor force were women (65 percent), while men constituted 35 percent (Geostat). It is important to mention that in the same year, only 33 percent of women were employed in Georgia, compared to 49 percent of men. Additionally, the average salary for women was 1056 GEL (813 GEL in the agricultural sector), while men earned an average of 1538 GEL (1006 GEL in the agricultural sector). Finally, although poverty rates among women in Georgia are slightly lower than among men, 17.1 vs. 17.9 percent respectively (absolute poverty rates in 2021), the poverty data does not account for the gender-biased distribution of household resources. Women face larger barriers in obtaining financial resources (collaterals, loans, etc.) than men because they own less property. For different types of property, only 44 percent are owned by at least one woman, according to the National Agency of Public Registry of Georgia. The corresponding number for men is 56 percent. Geostat data further indicates that households headed by men make up 63 percent of the total number of households, whereas households headed by women account for only 37 percent. These unfavorable conditions hinder women’s access to vital information and resources required for climate change adaptation and mitigation.
The discussed impacts may be especially prominent for women in poor rural households. Climate change-induced natural disasters are typically more detrimental for households dependent on agriculture (Dagdeviren et al., 2021), especially subsistence farmers and poor agricultural workers (in particular those without access to technology or resources). In Georgia, women are in majority in both these categories.
Natural Disasters and Displacement
Climate-driven disasters are over 14 times more likely to cause fatalities among women and children than men, according to UNHCR (2022). Additionally, women in agrarian societies impacted by climate change are less likely to use adaptive measures, putting them at higher risk of displacement (Palacios, Sexsmith, Matheu & Gonzalez, 2023). Such risks are also likely to pertain to the rural areas of Georgia.
Georgia’s International Obligations and Policies
In previous decades Georgia has made significant progress when it comes to incorporating gender equality and climate change into the policy agenda. In particular, Georgia follows numerous international legislative initiatives regarding sustainable development, gender equality, and climate change.
Georgia is a party to the Paris Agreement and the Beijing platform (a comprehensive roadmap for women’s rights and empowerment, which lists the problems associated with gender inequality and different strategies to overcome them, signed by Georgia in 1995). It is also a signatory of the Gender Action Plan (GAP), adopted a year after the Paris Agreement to integrate gender into targets and increase effectiveness, fairness, and sustainability.
The updated Nationally Determined Contribution (NDC) of Georgia includes a dedicated section on gender and climate change. This section aims to promote gender mainstreaming, encourage equal participation, empower women, build capacity, and develop climate policies that are responsive to gender considerations. Furthermore, the Long-term Low-emission Development Strategies for Paris Agreement parties (including Georgia) has a communication and awareness-raising strategy that seeks to address gender, youth, and people with disabilities in its outreach efforts (United Nations, 2022).
Despite these commitments, Georgia is lagging when it comes to tackling the issues of climate change and gender in coordination. For example, even though Georgia has adopted a Gender Equality Law and Action Plan, it does not address climate change issues. Therefore, municipalities are not required to consider gender aspects of climate change impacts.
Identified Gaps and Policy Recommendations
Despite the number of policies and measures undertaken, unsolved problems hinder the country’s ambition to adhere to gender-mainstreamed climate change-addressed policymaking.
For example, there is a lack of gender-disaggregated data on the impacts of climate change in Georgia, which prevents policymakers from developing targeted strategies to address women’s needs. Therefore, collecting and analyzing disaggregated data with gender-specific impacts in mind is recommended. Additionally, involving women in decision-making and ensuring their participation in climate change efforts is crucial as their unique experiences and perspectives can inform more effective and equitable responses to climate change impacts.
As previously mentioned, climate change in Georgia is expected to exacerbate water and food scarcity, which can disproportionately affect women. Therefore, implementing climate-resilient water management strategies and increasing access to climate-resilient agricultural practices, such as crop diversification and improved irrigation systems, can help increase farm productivity and reduce the adverse impacts of climate change on women.
Furthermore, there is a need to provide women with access to financial resources and services and to address gender-based inequalities that may limit women’s ability to access information and resources necessary for climate change adaptation and mitigation.
Finally, addressing the impacts of climate change on women in Georgia will require a coordinated and sustained effort from a range of stakeholders, including governments, civil society organizations, and local communities, so that women are not left behind in the global effort to address the impacts of climate change.
To effectively address the impacts of climate change on women in Georgia, it is essential to recognize that various social, economic, and cultural factors shape women’s experiences. For example, women in rural areas may face different challenges than women in urban areas; women with few economic means may be disproportionately affected by climate change. Therefore, policies should not only integrate gender-mainstreaming, but also account for these heterogeneities, to ensure that different parties of the society are adequately addressed within the climate change policy agenda.
- Dagdeviren, H., Elangovan, A., & Parimalavalli, R. (2021). Climate change, monsoon failures and inequality of impacts in South India. Journal of Environmental Management.
- Figueiredo, P., & Perkins, P. E. (2013). Women and water management in times of climate change: participatory and inclusive processes. Journal of Cleaner Production, 188-194.
- Gamisonia, N. (2015). Climate Change and Women. Heinrich Böll Stiftung.
- Global Nutrition Report. (2023). Global Nutrition Report. https://globalnutritionreport.org/resources/nutrition-profiles/asia/western-asia/georgia/
- Geostat. https://www.geostat.ge/en
- Gray, J. S., Dautel, H., Estrada-Peña, A., Kahl, O., & Lindgren, E. (2009). Effects of Climate Change on Ticks and Tick-Borne Diseases in Europe. National Library of Medicine.
- MEPA. (2021). Fourth National Communication of Georgia to the UNFCCC. Tbilisi: UNDP.
- Mora, C., McKenzie, T., Gaw, I. M., Dean, J. M., Hammerstein, H. v., Knudson, T. A., Franklin, E. C. (2022). Over half of known human pathogenic diseases can be aggravated by climate change. Nature Climate Change.
- National Agency of Public Registry of Georgia. https://www.napr.gov.ge/
- Palacios, H. V., Sexsmith, K., Matheu, M., & Gonzalez, A. R. (2023). Gendered adaptations to climate change in the Honduran coffee sector. Women’s Studies International Forum.
- Sbiroli, E., Geynisman-Tan, J., Sood, N., Maines, B. A., Junn, J. H.-J., & Sorensen, C. (2022). Climate change and women’s health in the United States: Impacts and opportunities. The Journal of Climate Change and Health.
- Springmann, M., Mason-D’Croz, D., Robinson, S., Garnett, T., Godfray, H. C., Gollin, D., Scarborough, P. (2016). Global and regional health effects of future food production under climate change: a modelling study. National Library of Medicine.
- UNHCR. (2022). Gender, Displacement and Climate Change. Potsdam Institute for Climate Impact Research.
- United Nations. (2022). Long-term Low-emission Development Strategies. United Nations.
- World Bank Group. (2021). Climate Risk Country Profile: Georgia. World Bank Group.
- World Bank. (2021). Climate Change Knowledge Portal. https://climateknowledgeportal.worldbank.org/country/georgia
- Yadav, S. S., & Lal, R. (2018). Vulnerability of women to climate change in arid and semi-arid regions: The case of India and South Asia. Journal of Arid Environments, 4-17.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Understanding how people perceive climate risks and what factors influence this perception is important for a shift towards more sustainable consumer behavior and thus a reduction of greenhouse gas emissions. This policy brief presents the results from a survey on the attitudes to climate change and environmentally responsive behavior among the urban Belarusian population aged 18-75. The findings show that 72.7 percent of the respondents consider climate change as a threat to the country in the coming 20 years. This climate risk perception, however, does not fully result in more sustainable consumer behavior in Belarus. The survey also reveals that the mass media, with the exception of the Internet, have no influence on the formation of people’s attitudes toward climate change.
Global warming constitutes one of the major threats to humanity and an obstacle to achieving sustainable development. 72 percent of global greenhouse gas emissions are attributed to households (IPCC, 2022), underlining the importance of individual behavioral changes to tackle global warming.
Acknowledging climate change as a risk is a precondition to shift people’s behavior towards sustainable practices (Le Coq and Paltseva, 2021). Thus, the objective of the study underlying this brief is to analyze whether the population in Belarus considers climate change as a threat, and which factors and media channels might have an effect on such perceptions. Additionally, the brief will explore whether climate change risk perceptions actually translate into more environmentally sustainable consumer behavior.
Climate Change as a Threat
The online-survey was conducted in April, 2022 among the urban population in Belarus aged 18-75. The purpose of the survey was to collect individual data on environmentally responsible behaviors and climate change perceptions. The sample includes 1029 individuals and is representative by age, gender and region. According to the survey, 72.7 percent of the respondents consider climate change as a threat to the country in the coming 20 years.
To explore which demographic and socio-economic variables (e.g., education, age, gender, income, and mass media) influence the perception of climate change as a risk among the Belarusian population, we employ a logistic regression model. The results reveal that gender, personal experience of extreme weather events and exposure to climate change information on the Internet play an important role in forming climate change risk perceptions among Belarusians, as depicted in Table 1.
Table 1. Determinants of Climate Change Risk Perception
Women are 6.1 percent more likely to consider climate change as a threat than men. This could be due to a higher level of empathy exhibited by women, making them more worried about consequences of extreme weather events and environmental protection and more sensitive to the risk of environmental degradation (Milfont and Sibley, 2016). Respondents with personal experience from, or those who have close persons having suffered significant damage from severe weather events such as floods or violent storms in the past two years, are 25.2 percent more likely to perceive climate change as a risk. Thus, personal experience of severe weather events is one of the main factors that impact climate change risk perception. The literature also confirms that climate beliefs are linked to these experiences (see for instance Spence et al., 2011; Dai et al., 2015; Demski et al., 2017 and Bergquist et al., 2019). Interestingly, out of all types of mass media included in the analysis (TV, newspapers, radio and the Internet), only exposure to environmental information on the Internet makes individuals 5.5 percent more likely to take climate change seriously. This indicates that nowadays people in Belarus get independent analytical and expert information on climate problems mainly from the Internet.
Environmentally Responsible Behavior
The same survey data was used to analyze environmentally responsible behavior among the Belarusian population. Although more than 72 percent of the respondents consider environmental change as a threat, the climate risk perception does not fully project into more sustainable behaviors – even within this subgroup. As illustrated in Figure 1, this belief is very well translated into such environmentally responsible actions as water saving, energy saving, mobility and repairing. The share of people engaged in these activities on a regular basis account for 62-73 percent. These behaviors are however financially beneficial to the practitioner, and may largely be because of economic reasons rather than an effort to minimize the impact on the environment. At the same time, the survey shows that people in Belarus less often engage in such environmentally friendly actions such as waste separation, reduced use of plastic bags or use of own bag when shopping (see Figure 1). These actions are not linked to any financial benefits and are often associated with higher time costs (e.g., waste separation) or loss of convenience (e.g., decreased plastics use). This suggests that environmentally responsible behavior among the Belarusian population is largely determined by external factors, rather than a product of intrinsic care of the environment.
Figure 1. Frequency of Environmentally Responsible Behaviors Among the Respondents who Consider Climate Change as a Risk
Survey results show that the urban population in Belarus recognizes global warming as a serious problem, with 72.7 percent of the respondents seeing climate change as a threat to the country in the next 20 years. However, these beliefs have not yet fully projected into green consumption behavior.
With this in mind, efforts to shift Belarusians towards environmentally responsive behavior should be strengthened. Endeavors need to be made to raise public awareness of environmental issues and to promote a sustainable lifestyle among the Belarusian population. In particular, and in addition to the Internet, the role of mass media (such as television, radio and print media) to deliver the message on the need for more sustainable consumption and greater involvement in environmentally friendly actions, ought to be increased.
- Bergquist, M. et al. (2019). “Experiencing a severe weather event increases concern about climate change”. Frontiers in psychology, 10, 220. doi: 10.3389/fpsyg.2019.00220
- Dai, J. et al. (2015). “Extreme weather experiences and climate change beliefs in China: An econometric analysis”. Ecological Economics, 116, pp. 310-321. doi: https://doi.org/10.1016/j.ecolecon.2015.05.001.
- Demski, C. et al. (2017). “Experience of extreme weather affects climate change mitigation and adaptation responses”. Climatic Change, 140, pp. 149–164. doi: 10.1007/s10584-016-1837-4.
- IPCC (2022). “Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change”. [P.R. Shukla, J. Skea, R. Slade, A. Al Khourdajie, R. van Diemen, D. McCollum, M. Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A. Hasija, G. Lisboa, S. Luz, J. Malley, (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA. doi: 10.1017/9781009157926.
- Milfont T. and Sibley, C. (2016). “Empathic and social dominance orientations help explain gender differences in environmentalism: A one-year Bayesian mediation analysis”. Personality and Individual Differences, 90, pp. 85 – 88. doi: https://doi.org/10.1016/j.paid.2015.10.044.
- Le Coq, C. and Paltseva, E. (2021). “Green Concerns and Salience of Environmental Issues in Eastern Europe”. FREE Policy Brief. https://www.hhs.se/en/about-us/news/site-publications/publications/2021/green-concerns-and-salience-of-environmental-issues-in-eastern-europe/
- Spence, A. et al. (2011). “Perceptions of climate change and willingness to save energy related to flood experience”. Nature climate change, 1, pp. 46-49. doi: https://doi.org/10.1038/nclimate1059
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The phasing out of coal is considered a key component of the upcoming energy transition. While environmentally appealing, this measure will have a devastating effect on those working in the coal industry. Using the dissolution of the UK coal industry under Margret Thatcher as a natural experiment, we estimate the long run costs of being displaced as a coal miner. We find that within the first year of displacement, earnings fall by 80-90 percent, relative to the earnings of a carefully matched blue-collar manufacturing worker, while the wages of miners who find alternative employment fall by 40 percent. The losses are persistent and remain significant fifteen years after displacement. Our results are considerably above the estimates provided by other studies in the job displacement literature and may serve as a guide for policy makers when aiming for a just energy transition.
The Coal Mining Industry and Global Warming
According to the recent IPCC report, limiting global warming to 2 degrees Celsius requires a near complete and rapid elimination of coal in the global use of energy. Such a drastic measure is bound to have devastating effects on anybody economically linked to and dependent on the coal industry. Our back-of-the-envelope calculation suggests that the closure of the currently 2300 active industrial coal mines would translate into more than 5 million displaced coal miners. In Figure 1 we plot the spatial distribution of coal mines, indicating the locations of the upcoming displacements globally.
Figure 1. Location of industrial coal mines. The seven biggest producers and exporters of coal are marked in green.
In a new paper (Rud et al., 2022), we estimate the average loss in the earnings of coal miners who have been displaced following one of the most notorious labor disputes of the 20th century: the dissolution of the coal sector in the UK. When Margaret Thatcher came into power many of the mines were unprofitable (Glyn, 1988). Considering the mines to be ripe for closures, the UK government publicly announced the closure of 20 mines in 1984. After additional information on further closures reached the press, the Union of Miners called for a general strike. The strike lasted for nearly a year and ended with a devastating defeat of the miners. From 1985 and onwards, the closure of mines proceeded at such an incredible pace that the dissolution of the UK coal industry is considered the most rapid in the history of the developed world (Beatty and Fothergill, 1996). As shown in Figure 2, the closures resulted in an equally rapid displacement of miners, from 250 000 employed miners in 1975 to less than 50 000 by 1995.
Figure 2. Coal Mining Employment in the UK 1975-2005
The Effects of UK Coal Mine Closures on Miners
At the heart of our empirical analysis is the New Earnings Survey, a longitudinal dataset covering 1 percent of the UK population since 1975. For the period 1979-1995 (marked in gray in Figure 2), among the 25-55 years old and those who were employed by the same mine for at least two consecutive years, we identify 2152 miners who experienced a final separation from a mine. In our baseline specification, these miners are matched to a single manufacturing worker using a large array of observables such as age, gender, hours worked, pre-separation employment and earnings, geographical administrative unit (county), as well as whether their respective wage was determined in a collective agreement. By the nature of the exercise we are unable to match on industry and instead match on detailed occupational information. A variety of other matching procedures suggest our results are robust.
In Figure 3 we plot the estimated differences in the evolution of earnings and wages for four years before, and fifteen years after displacement. The coefficients are estimated conditional on time and individual fixed effects. Due to the normalization of the dependent variable, the estimates should be interpreted as the percentage change relative to pre-displacement values. In Panel A of Figure 3 we show that hourly wages and weekly earnings conditional on employment drop by around 40 percent in the year after displacement and recover only slowly. It should be noted that the losses in earnings conditional on employment are not driven by changes in hours since the two series are close to identical.
In Panel B of Figure 3 we show the effect on earnings taking into account the losses of those who have not been successful in finding alternative employment in another industry. To get to these results we need to make some assumptions since the New Earnings Survey neither includes earnings information on the self-employed, nor on those who are active in the informal sector. Many other studies in the job displacement literature share similar data limitations, so we follow their approach in dealing with these. On the one hand, we assume zero individual earnings for periods without any observed labor earnings in the data, as assumed by Schmieder et al. (2022) and Bertheau et al. (2022). This assumption does not appear too strong since there is some evidence suggesting that ignoring the self-employed only marginally affects the results (Upward and Wright, 2017; Bertheau et al., 2022). On the other hand, we complement our results with an approach inspired by Jacobson (1993) where we keep only individuals who experience positive earnings within four years after displacement. The latter approach provides a more conservative estimate of displacement costs by assuming zero earnings only for individuals who eventually return to work.
Figure 3. The hourly wage and earnings conditional on employment (Panel A), and overall earnings costs of final displacement from a mine (Panel B).
Interpreting all periods of missing information as zeros, we find the initial losses to be around 90 percent of pre-displacement earnings within the first year after separation, while the more conservative estimates are only slightly lower at around 80 percent in the short run. In the long run, the losses are persistent and remain significantly depressed even fifteen years after displacement. Over the fifteen years after displacement these numbers amount to the miners losing on average between 4 to 6 times of their pre-displacement earnings. This implies that miners only receive 40-60 percent of the present discounted counterfactual earnings.
Our estimates are considerably above those provided by studies in the job displacement literature that focus on mass layoffs. Couch and Placzek (2010), for instance, report initial losses to amount to about 25-55 percent, while Schmeider et al. (2022) find initial earnings losses to be around 30-40 percent. Davis and Wachter (2012) estimate the long-run effects based on US data and find the present discounted earnings losses to be on average 1,7 times the workers’ pre-displacement earnings.
The large estimated individual costs to the displaced miners are likely due to a combination of at least two reasons. First, the complete collapse of the sector forces displaced miners to reallocate and search for another job in other industries, and likely other occupations. Since coal mining is a highly specialized occupation, this greatly reduces miners’ ability to transfer the accumulated human capital to another activity (Beatty and Fothergill, 1996; Samuel, 2016). Second, most coal miners are employed in remote and rural areas where mining is often the main employer, something which remains an issue for current miners around the world (see Figure 1). This feature reduces local economies’ capacity to absorb displaced miners after a mine closure and, due to the need to relocate, greatly increases workers’ job searching costs.
While it is important to globally transition away from the excessive use of fossil fuels, we should keep in mind the devastating effects such transition will end up having on some groups. And while coal miners are particularly vulnerable to the upcoming energy transition, the ramifications do not stop there. Individuals employed in industries linked to the coal industry are likely to also be affected by its dissolution. Moreover, individuals employed in industries providing local services, such as retail stores, restaurants and pubs are likely to experience a significant drop in demand. Thus, the impact of coal mine closures on coal dependent communities typically goes far beyond the displacement of miners (Aragon et al., 2018). The closure of mines will lead to spikes in local unemployment, often unregistered (“hidden”), as well as an exodus of the population. Estimating and accounting for these effects is important if we aim to provide a just energy transition for all.
Attempts have been made to foster economic recovery of affected communities. Regeneration policies have included re-training of local workers, support of small and medium-sized businesses, and investments in local infrastructure, among others. However, their success has been limited and former mining communities remain among the poorest in the UK (Beatty et al., 2007). Preparing a set of policies which will have the capacity to reduce the costs of the transition, as not to repeat the devastating experience of UK coal miners and their communities, is an important task ahead of current policy makers.
- Aragon, F., Rud, J. P. and Toews, G. (2018). Resource shocks, employment, and gender: Evidence from the collapse of the UK coal industry. Labour Economics, 52, pp. 54–67.
- Beatty, C. and S. Fothergill. (1996). Labour market adjustment in areas of chronic industrial decline: the case of the UK coalfields. Regional studies, 30(7), pp. 627–640.
- Beatty, C., Fothergill, S. and Powell, R. (2007). Twenty years on: has the economy of the UK coalfields recovered? Environment and Planning A, 39(7), p. 1654.
- Bertheau, A. Maria Acabbi, E., Barceló, C., Gulyas, A., Lombardi, S. and Saggio R. (2022). The unequal consequences of job loss across countries. American Economic Review: Insights. Forthcoming.
- Couch, K. and Placzek, D. (2010). Earnings losses of displaced workers revisited. American Economic Review, 100(1), pp. 572–589.
- Davis, S. and von Wachter, T. (2012). Recessions and the cost of job loss. Brookings Papers on Economic Activity.
- Glyn, A. (1988). Colliery results and closures after the 1984–85 coal dispute. Oxford Bulletin of Economics and Statistics, 50(2), pp. 161–173.
- Jacobson, L., Lalonde, R. and Sullivan, D. (1993). Earnings losses of displaced workers. American Economic Review, 83(4), pp. 685–709.
- Rud, J. P., Simmons, M., Toews, G. and Aragon, F. (2022). Job displacement costs of phasing out coal. IFS Working Paper, 22/37.
- Schmieder, J., von Wachter, T. and Heining, J. (2022). The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany. Mimeo.
- Upward, R. and Wright, P. (2017). Don’t look down: The consequences of job loss in a flexible labour market. Economica, 2019(86), pp. 166–200.
Policymakers in Europe are currently faced with the difficult task of reducing our reliance on Russian oil and gas without worsening the situation for firms and households that are struggling with high energy prices. The two options available are either to substitute fossil fuel imports from Russia with imports from other countries and cut energy tax rates to reduce the impacts on firms and household budgets, or to reduce our reliance on fossil fuels entirely by investing heavily in low-carbon energy production. In this policy brief, we argue that policymakers need to also take the climate crisis into account, and avoid making short-term decisions that risk making the low-carbon transition more challenging. The current energy crisis and the climate crisis cannot be treated as two separate issues, as the decisions made today will impact future energy and climate policies. To exemplify how large-scale energy policy reforms may have long-term consequences, we look at historical examples from France, the UK, and Germany, and the lessons we can learn to help guide us in the current situation.
The war in Ukraine and the subsequent sanctions against Russia have led to a sharp increase in energy prices in the EU since the end of February 2022. This price increase came after a year when global energy prices had already surged. For instance, import prices for energy more than doubled in the EU during 2021 due to an unusually cold winter and hot summer, as well as the global economic recovery following the pandemic and multiple supply chain issues. Figure 1 shows that the price of natural gas traded in the European Union has increased steadily since the summer of 2021, with a strong hike in March 2022 following the beginning of the war.
Figure 1. Evolution of EU gas prices, July 2021-May 2022
Concerns about energy dependency, towards Russian gas in particular, are now high on national and EU political agendas. An embargo on imports of Russian oil and gas into the EU is currently discussed, but European governments are worried about the effects on domestic energy prices, and the economic impact and social unrest that could follow. Multiple economic analyses argue, however, that the economic effect in the EU of an embargo on Russian oil and gas would be far from catastrophic, with estimated reductions in GDP ranging from 1.2-2.2 percent. But a reduction in the supply of fossil fuels from Russia would need to be compensated with energy from other sources, and possibly supplemented with demand reductions.
In parallel, on April 4th, the Intergovernmental Panel on Climate Change (IPCC) released a new report on climate change. One chapter analyses different energy scenarios, and finds that all scenarios that are compatible with keeping the global temperature increase below 2°C involve a strong decrease in the use of all fossil fuels (Dhakal et al, 2022). This reduction in fossil fuel usage over the coming decades is illustrated in red in Figure 2.
It is thus important that, while EU countries try to decrease their dependency on Russian fossil fuels and cushion the effect of energy-related price increases, they also accelerate the transition to a low-carbon economy. And how they manage to balance these short- and long-run objectives will depend on the energy policy decisions they make. For instance, if policymakers substitute Russian oil and gas with increased coal usage and new import terminals for LNG, this can lead to a “carbon lock in” and make the low-carbon transition more challenging. In this policy brief, we analyze what lessons can be drawn from past historical events that lead to large-scale structural changes in energy policy. Events that all shaped our current energy systems and conditions for climate policy.
Figure 2. Four energy scenarios compatible with a 2°C temperature increase by 2100.
Structural Changes in Energy Policy in France, the UK, and Germany
We focus on three “energy policy turning points” triggered by three geopolitical, political or environmental crises: the French nuclear plan triggered by the 1973 oil crisis; the UK early closure of coal mines and the subsequent dash for gas in the 1990s, influenced by the election of Margaret Thatcher in 1979; and the German nuclear phase-out triggered by the 2011 Fukushima catastrophe.
In response to the global oil price shock of 1973, France adopted the “Messmer plan”. The aim was to rapidly transition the country away from dependence on imported oil by building enough nuclear capacity to meet all the country’s electricity needs. Two slogans summarised its goals: “all electric, all nuclear”, and “in France, we may not have oil, but we have ideas” (Hecht 2009). The first commissioned plants came online in 1980, and between 1979-1988 the number of reactors in operation in France increased from 16 to 55. As a consequence, the share of nuclear power in the total electricity production rose from 8 to 80 percent, while the share of fossil fuels fell from 65 to 8 percent.
Figure 3. French electricity mix
In the UK, the election of Margaret Thatcher in 1979 opened the way for large market-based reform of the energy sector. Thatcher’s plan to close dozens of coal pits triggered a year-long coal miners’ strike in 1984-85. The ruling Conservative party eventually won against the miners’ unions and the coal industry was deeply restructured, with a decrease in domestic employment – not without social costs (Aragon et al, 2018) – and an increase in coal imports. At the same time, the electricity market’s liberalization in the 1990s facilitated the development of gas infrastructure. As an indirect and unintended consequence, when climate change became a prominent issue at the global level in the 2000s, there was no strong pro-coal coalition left in the UK (Rentier et al, 2019). Aided by a portfolio of policies making coal-fired electricity more expensive – a carbon tax in particular – the coal phase-out was relatively easy and fast (Wilson and Staffel, 2018, Leroutier 2022): between 2012 and 2020, the share of coal in the electricity production dropped from 40 to 2 percent.
In 2011, the Fukushima nuclear catastrophe in Japan triggered an early and unexpected phase-out of nuclear energy in Germany. The 2011 “Energiewende” (energy transition) mandated a phase-out of nuclear power plants by 2022, while including provisions to reduce the share of fossil fuel from over 80 percent in 2011 to 20 percent in 2050. The share of nuclear energy in the electricity production in Germany was halved in a decade, from 22 percent in 2010 to 11 percent in 2020. At the same time, the share of renewable energy increased from 13 to 36 percent, and that of natural gas from 14 to 17 percent.
In these three examples, climate objectives were never the main driver of the decision. Nevertheless, in the case of France and the UK, the crisis resulted in an energy sector that is arguably more low-carbon than it would have been without the crisis. Although the German nuclear phase-out was accompanied by large subsidies to renewable energies, its effect on the energy transition is ambiguous: some argue that the reduction in nuclear electricity production was primarily offset by an increase in coal-fired production (Jarvis et al, 2022).
The three crises also had different consequences in terms of dependence on fossil fuel imports. The French nuclear plan resulted in an arguably lower energy dependency on imported fossil fuels. The closure of coal mines in the UK had ambiguous effects on energy security, with an increase in coal imports and the use of domestic gas from the North Sea. Finally, Germany’s nuclear phase-out, combined with the objective of phasing out coal, has been associated with an increase in the use of fossil fuels from Russia: gas imports remained stable between 2011 and 2020, but the share coming from Russia increased by 60 percent over the period. In 2020, Russia stood for 66 percent of German gas imports (Source: Eurostat). Which brings us back to the current war in Ukraine.
The Current Crisis is Different
The context in which the current energy crisis is unfolding is different from the three above-mentioned events in two important ways.
First, scientific evidence on the relationship between fossil fuel use, CO2 emissions and climate damages has never been clearer: we know quite precisely where the planet is heading if we do not drastically reduce fossil fuel use in the coming decade. From recent research in economics, we also know that price signals work and that increased prices on fossil fuels result in lower demand and emission reductions (Andersson 2019; Colmer et al. 2020; Leroutier 2022). High fuel prices can also have long-term impacts on consumption patterns: US commuters that came of driving age during the oil prices of the 70s, when gasoline prices were high, still drive less today (Severen and van Benthem, 2022). The other way around, low fossil fuel prices have the potential to lock in energy-intensive production: plants that open when electricity and fossil fuel prices are low have been found to consume more energy throughout their lifetime, regardless of current prices (Hawkins-Pierot and Wagner, 2022).
Second, alternatives to fossil fuels have never been cheaper. It is most obvious in the case of electricity production, where technological progress and economies of scale have led to a sharp decrease in the cost of renewable compared to fossil fuel technologies. As shown in Figure 4, between 2010 and 2020 the cost of producing electricity from solar PV has decreased by 85 percent and that of producing electricity from wind by 68 percent. From being the most expensive technologies in 2010, solar PV and wind are now the cheapest. Given the intermittency of these technologies, managing the transition to renewables requires developing electricity storage technologies. Here too, prices are expected to decrease: total installed costs for battery electricity storage systems could decrease by 50 to 60 percent by 2030 according to the International Renewable Agency.
Finding alternatives to fossil fuels has historically been more challenging in the transport sector. However, recent reductions in battery costs, and an increase in the variety of electric vehicles available to customers, have led to EVs taking market share away from gasoline and diesel-powered cars in Europe and elsewhere. The costs of the battery packs that go into electric vehicles have fallen, on average, by 89 percent in real terms from 2010 to 2021.
Figure 4. Evolution of the Mean Levelised Cost of Energy by Technology in the US
Options for Policy-Makers
Faced with a strong increase in fossil fuel prices and an incentive to reduce our reliance on oil and gas from Russia, policy-makers have two options: increase the availability and decrease the price of low-carbon substitutes – by, for example, building more renewable energy capacity and subsidizing electric vehicles – or cut taxes on fossil fuels and increase their supply, both domestically and from other countries.
Governments have pursued both options so far. On the one hand, the Netherlands, the UK, and Italy announced an expansion of wind capacities compared to what was planned, in an attempt to reduce their dependence on Russian gas, and France ended gas heaters subsidies. On the other hand, half of EU member states have cut fuel taxes for a total cost of €9 billion by the end of March 2022, the UK plans to expand oil and gas drilling in the North Sea, and Italy might re-open coal-fired plants.
To guide policymakers faced with the current energy crisis, there are valuable lessons to draw from the experiences of energy policy reform in France, the UK and Germany. France’s push for nuclear energy in the 1970s shows that large-scale structural reform of electricity and heat production is possible and may lead to large drops in CO2 emissions and an economy less dependent on domestic or foreign supplies of fossil fuels. A similar “Messmer plan” could be implemented in the EU today, with the goal of replacing power plants using coal and natural gas with large-scale solar PV parks, wind farms and batteries for storage. Similarly, the German experience shows the potential danger of implementing a policy to alleviate one concern – the risk of nuclear accidents – with the consequence of facing a different concern later on – the dependence on fossil fuel imports.
One additional challenge is that the current energy crisis calls for a short-term response, while investments in low-carbon technologies made today will only deliver in a few years. Short-term energy demand reduction policies can help, on top of long-term energy efficiency measures. For example, a 1°C decrease in the temperature of buildings heated with gas would decrease gas use by 10 billion cubic meters a year in Europe, that is, 7 percent of imports from Russia. Similarly, demand-side policies could reduce oil demand by 6 percent in four months, according to the International Energy Agency.
Ending the reliance on Russian fossil fuels and alleviating energy costs for firms and households is clearly an important objective for policymakers. However, by signing new long-term supply agreements for natural gas and cutting energy taxes, policymakers in the EU may create a carbon lock-in and increase fossil fuel usage by households, thereby making the inevitable low-carbon transition even more difficult. The solutions thus need to take the looming climate crisis into account. For example, any tax relief or increased domestic fossil fuel generation should have a clear time limit; more generally, all policies decided today should be evaluated in terms of their contribution to domestic and European climate objectives. In this way, the current energy crisis is not only a challenge but also a historic opportunity to accelerate the low-carbon transition.
- Andersson, Julius J. 2019. “Carbon Taxes and CO2 Emissions: Sweden as a Case Study.” American Economic Journal: Economic Policy, 11(4): 1-30.
- Aragón, F. M., Rud, J. P., & Toews, G. 2018. “Resource shocks, employment, and gender: Evidence from the collapse of the UK coal industry.” Labour Economics, 52, 54–67. doi: 10.1016/j.labeco.2018.03.007
- Colmer, Jonathan, et al. 2020. “Does pricing carbon mitigate climate change? Firm-level evidence from the European Union emissions trading scheme.” Centre for Economic Performance Discussion Paper, No. 1728, November 2020.
- Dhakal, S., J.C. Minx, F.L. Toth, A. Abdel-Aziz, M.J. Figueroa Meza, K. Hubacek, I.G.C. Jonckheere, Yong-Gun Kim, G.F. Nemet, S. Pachauri, X.C. Tan, T. Wiedmann, 2022: Emissions Trends and Drivers. In IPCC, 2022: Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [P.R. Shukla, J. Skea, R. Slade, A. Al Khourdajie, R. van Diemen, D. McCollum, M. Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A. Hasija, G. Lisboa, S. Luz, J. Malley, (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA. doi: 10.1017/9781009157926.004
- IPCC. 2022. Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [P.R. Shukla, J. Skea, R. Slade, A. Al hourdajie, R. van Diemen, D. McCollum, M. Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A. Hasija, G. Lisboa, S. Luz, J. Malley, (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA. doi: 10.1017/9781009157926
- Hawkins-Pierot, J & Wagner, K. 2022, “Technology Lock-In and Optimal Carbon Pricing,” Working Paper
- Hecht, Gabrielle. 2009. The Radiance of France: Nuclear Power and National Identity after World War II. MIT press.
- Jarvis, S., Deschenes, O., & Jha, A. 2022. “The Private and External Costs of Germany’s Nuclear Phase-Out.” Journal of the European Economic Association, jvac007. doi: 10.1093/jeea/jvac007
- Leroutier, M. 2022. “Carbon pricing and power sector decarbonization: Evidence from the UK.” Journal of Environmental Economics and Management, 111, 102580. doi: 10.1016/j.jeem.2021.102580
- Le Coq, C & Paltseva,E. 2022. “What does the Gas Crisis Reveal About European Energy Security?” FREE Policy Brief
- Rentier, G., Lelieveldt, H., & Kramer, G. J. 2019. “Varieties of coal-fired power phase-out across Europe.” Energy Policy, 132, 620–632. doi: 10.1016/j.enpol.2019.05.042
- Severen, C., & van Benthem, A. A. (2022). “Formative Experiences and the Price of Gasoline.” American Economic Journal: Applied Economics, 14(2), 256–84. doi: 10.1257/app.20200407 :
- Wilson, I.A.G., Staffell, I., 2018. “Rapid fuel switching from coal to natural gas through effective carbon pricing.” Nature Energy 3 (5), 365–372.
Changes in individual behavior are an essential component of the planet’s effort to reduce carbon emissions. But such changes would not be possible without individuals acknowledging the threat of anthropogenic climate change. This brief discusses the climate change risk perceptions across Europe. We show that people in Eastern Europe are, on average, less concerned about climate change than those in Western Europe. Using detailed survey data, we find evidence that the personal experience of extreme weather events is a key driver of green concern, and even more so in the non-EU Eastern part of Europe. We argue that this association might be explained by the relatively low quality and informativeness of public messages concerning global warming in this part of Europe. If information is scarce or perceived as biased, personal experience will resonate more.
Climate change is one of the main threats to humanity. Tackling it entails a combined effort from all parts of society, from regulatory changes and industries adopting new greener business models to consumers adjusting their behavior. While an individual’s contribution to climate change may appear insignificant, research shows that the aggregate effect of mobilizing already known changes in consumer behavior may allow the European Union (EU) to reduce its carbon footprint by about 25% (Moran et al., 2020).
However, the first step for people to adjust their consumption patterns is to acknowledge the threat of anthropogenic climate change. Public ignorance about climate change’s impacts remains high across the world. Furthermore, citizens of more polluting countries are often relatively less concerned about climate change. This lack of awareness is not well-understood, in part due to the multi-dimensional local factors affecting it (Farrell et al., 2019).
This brief discusses the potential drivers of climate risk perceptions, focusing on the differences between Western Europe, Eastern European states that are part of the EU, and non-EU Eastern European countries. We first present the climate change concerns across these regions. We then discuss to which extent the country’s pollution exposure measures and individuals’ socio-economic characteristics can explain these differences. We show that the personal experience of extreme weather events is a key driver of green concern, and even more so in the non-EU part of Eastern Europe. We relate this result to the relatively low salience and informativeness of public messages concerning climate in this part of Europe and discuss potential policy implications.
Green Concerns and Pollution Exposure Across Europe
Figure 1 compares, across Europe, the share of poll respondents who see climate change as a major threat, based on the data from the Lloyd’s Register Foundation World Risk Poll 2020. While there is a significant variation in climate risk perception within each region, respondents in Eastern Europe are, on average, less concerned about climate change than those in Western Europe. We observe a similar pattern between the EU and non-EU parts of Eastern Europe.
Exposure to pollution does not seem to clearly explain these differences. Moreover, the patterns of correlation between climate concern and pollution differ across regions and measures of pollution exposure. The left panel of Figure 2 presents averages across the regions for two pollution measures: carbon emissions (which is, perhaps, reflecting climate threat in general) and air quality (which is more directly associated with health risks). We can see that CO2 emissions are the highest in the non-EU part of Eastern Europe, the least environmentally concerned region. Still, the EU part of Eastern Europe has the lowest average emissions per capita across the three regions (this ranking likely results from the interaction between reliance on fossil fuels, industrial structure, and level of development across the three regions). At the same time, when it comes to the average air quality (measured as the percentage of population exposed to at least 10 micrograms of PM2.5/m3), the non-EU EasternEuropean region is doing better than its EU counterpart, which is more climate concerned. Here, better average air quality in the non-EU Eastern European region is due to its relatively low population density, and consequently, low PM2.5 exposure in large parts of Russia. (See, more on the air quality gap within the EU in Lehne, 2021).
Figure 1: Climate concerns in Eastern and Western Europe
The right panel of Figure 2 shows correlations between (country-level) climate concerns and pollution. For CO2, the correlation is negative in all three regions, suggesting that, within each region, more emitting countries are less concerned. This negative correlation, however, is the strongest in the EU-part of Eastern Europe and almost absent in the non-EU part. The differences between the regions are even more striking for the correlation between climate concerns and air quality: both in Western Europe and in the EU part of Eastern Europe, citizens of countries with worse air quality are more concerned about climate change. However, in non-EU Eastern Europe, the relation is the exact opposite: lower concerns about climate change go hand-in-hand with worse quality of air.
Figure 2: Emissions vs. Climate concerns in Eastern and Western Europe, 2018
Green Concerns and Socio-economic Characteristics
Lower climate concerns in EU-part of the Eastern bloc have been documented before; they are often explained by the Eastern-European economies’ high reliance on coal and other fossil fuels, low-income levels, and other immediate problems that lower the priority of climate issues (e.g., Lorenzoni and Pidgeon 2006, Poortinga et al., 2018, or Marquart-Pyatt et al., 2019). Additionally, the literature suggests that climate beliefs are linked to individuals’ socio-economic characteristics, such as level of education, income, or gender (see, e.g., Poortinga, 2019), which may be different across the regions.
However, the regional differences in climate beliefs also persist when we use individual-level data and control for respondents’ individual characteristics, as well as for country-level variables, such as GDP per capita, oil, gas, and coal dependence of the economies, and exposure to emissions (at the country level, as our individual data does not have this information). This is illustrated in Column 1 of Table 1.
Table 1: Climate change beliefs determinants, individual-level cross-section data.
In what follows, we explore another key driver, the personal experience of extreme weather events. While there is a sizable literature on the effect of experience on climate beliefs, that factor was never, to our knowledge, considered to understand the difference in climate risk perception between the EU- and non-EU parts of Eastern Europe.
Green Concern and Salience of Environmental Issues
In line with the recent climate risk perceptions literature (e.g., Van der Linden, 2015), we show that personal experience increases the likelihood of considering climate change as a major threat across all three regions (see column 2 in Table 1). The association is stronger in the EU part of Eastern Europe and even more so in the non-EU part (even if the difference between the last two is not statistically significant). This finding is confirmed when we control for (observable and unobservable) country-specific effects, such as social norms, via the inclusion of country-level fixed effects. In this case, extreme weather events make respondents more climate-conscious within each country (Column 3 of Table 1). In this specification, the effect differs statistically between the two groups of Eastern-European countries, even if only at a 10% significance level. To put it differently, the impact of personal experience with extreme weather events seems to close a sizable part of the gap in climate risk perceptions across the regions and more so in the non-EU part of Eastern Europe.
Our preferred explanation for this finding is that personal experience resonates with the quality and informativeness of public messages concerning global warming. If information is scarce or perceived as biased, personal experience will resonate more. The low political salience of environmental issues in Eastern Europe, inherited from its Soviet past (McCright, 2015), and lower media quality in Eastern Europe (see e.g., Zuang, 2021) are likely to affect the quality of public discourse concerning the risks of climate change, and, consequently, the information available to individuals.
The climate-related legislative effort across Eastern Europe reflects the low political importance of climate change in the region. According to the data from Grantham Research Institute on Climate Change and the Environment, non-EU transition countries, on average, have adopted 8 climate-related laws and policies, while the corresponding figure is 11.5 for EU transition countries and 18 for the countries in Western Europe. Further, Figure 3 shows a positive correlation between climate change concerns and the number of climate-related laws for Western Europe and the EU-part of Eastern Europe but a negative one for the non-EU part of Eastern Europe and Caucasus countries. One possible interpretation of these differences is that climate change is relatively low on the political agenda of (populist) regimes in the non-EU part of Eastern Europe, as climate-related legislative activity (proxied by, admittedly rough, a measure of the number of laws) does not reflect the intensity of population climate preferences.
Figure 3: Climate concern vs. Climate legislation
Regarding the influence of media quality, column (4) of Table 1 shows that the effect of personal experience on climate change concern is negatively correlated with media freedom. One interpretation could be that individuals in countries with freer media infer less from their extreme weather experience because more accurate media coverage about climate risks improves the population’s knowledge on the issue.
Of course, the causality of the climate belief-experience relationship could also go in the other direction – people who are more concerned about climate change could be more likely to interpret their personal experience as weather-related extreme events. It is impossible to distinguish with the data at hand. However, Myers et al. (2013) show that both channels are present in the US, and the former channel dominates for the people less engaged in the climate issue. Stretching this finding to the Eastern Europe case, we argue that more precise information on the importance of climate change may partially have the same effect as experience – i.e., it will increase people’s awareness and concern about the consequences of global warming.
This brief addresses the differences in climate change beliefs between Eastern and Western Europe, as well as within Eastern Europe. It discusses the determinants of these differences and stresses the importance of personal experience, especially in the non-EU part of Eastern Europe. It relates this finding to the relatively low accuracy of information and quality of public discourse about climate change in the region.
We know already that tackling climate change requires reliable and accurate sources of information. This is especially crucial given what we outline in this brief. This issue resonates with the current social science analysis of the diffusion of climate change denial (see e.g., Farell et al., 2019, on the significant organized effort in spreading misinformation about climate change). Such contrarian information that relays uncertainty and doubt regarding the severity of the global climate change threat could have a severe impact, especially in situations with low political salience of climate change, like in non-EU Eastern Europe. A significant effort of both governments and civil society is needed to provide adequate information and mobilize the population in our common fight against climate change.
- Farrell, J., McConnell, K., and Brulle, R. (2019). Evidence-based strategies to combat scientific misinformation. Nature Climate Change, 9(3), 191-195.
- Lehne, J. (2021), Pollution and the COVID-19 Pandemic: Air Quality in Eastern Europe, FREE Policy brief.
- Lorenzoni, I., Pidgeon, N.F., (2006). Public Views on Climate Change: European and USA Perspectives. Climatic Change 77.
- (2019) Climate Change Views, Energy Policy Preferences, and Intended Actions Across Welfare State Regimes: Evidence from the European Social Survey, International Journal of Sociology, 49:1, 1-26,
- McCright, A., Dunlap, R and Marquart-Pyatt, S. (2015). Political ideology and views about climate change in the European Union. Environmental Politics. 25. 1-21..
- (2020) Quantifying the potential for consumer-oriented policy to reduce European and foreign carbon emissions, Climate Policy, 20:sup1, S28-S38
- Myers, T., Maibach, E., Roser-Renouf, C., Akerlof, K. and Leiserowitz, A. (2013). The Relationship Between Personal Experience and Belief in the Reality of Global Warming. Nature Climate Change. 3. 343-347.
- Poortinga, W., S. Fisher, G. Böhm, L. Steg, L. Whitmarsh and C. Ogunbode, (2018) European Attitudes to Climate Change and Energy: Topline Results from Round 8 of the European Social Survey.
- Poortinga, W., L. Whitmarsh, L. Steg, G. Böhm, S. Fisher, (2019) Climate change perceptions and their individual-level determinants: A cross-European analysis, Global Environmental Change, Volume 55, 2019, Pages 25-35,
- Van der Linden, S. (2015). The social-psychological determinants of climate change risk perceptions: Towards a comprehensive model. Journal of Environmental Psychology, 41, 112-124.
- Zhuang M. (2021), Media Freedom in Eastern Europe, FREE Policy brief https://freepolicybriefs.org/2021/02/22/media-freedom-eastern-europe/
The COVID-19 pandemic has drawn attention to a pre-existing threat to global health: the quality of air in cities around the world. Prolonged exposure to air pollution has been found to increase the mortality rate of COVID-19. This is a particular concern for much of Eastern Europe, where emissions regularly exceed safe levels. This policy brief analyses recent data on air quality in the region and the factors that explain a persistent East-West divide in pollution in Europe. It concludes by evaluating to what extent lockdowns in 2020 provided a temporary respite from pollution in the region.
The WHO estimates that air pollution causes seven million premature deaths every year (WHO 2018). COVID-19 has further amplified these health risks, as air pollution can increase both the chance of catching respiratory diseases and their severity. At the same time, the pandemic has resulted in lockdowns and a general slowdown in economic activity which are widely perceived as having led to a temporary improvement in air quality.
This brief provides an overview of recent trends in air quality in Eastern European cities using data from the World Air Quality Index. It addresses three questions:
- How did air pollution in Eastern Europe compare to Western Europe prior to the pandemic?
- What are the main sources of air pollution in Eastern European cities and can they be addressed by policymakers?
- Was there a significant improvement in air quality in 2020 as a result of COVID-19?
Air Pollution in Eastern Europe
Most measures of air quality in Europe show a stark East-West divide. Map 1 plots the share of days in 2019 where air pollution, as measured by PM 2.5 (fine particulate matter), exceeded levels classified as unhealthy for the general population. On average, cities to the east of the former Iron Curtain experienced over 100 such days, compared to an average of 20 days in Western Europe. These averages mask significant variation within both regions; Tallinn was among the best performing cities while Naples was among the worst.
The gap in air quality between Eastern and Western Europe has been linked to differences in health outcomes for decades. Shortly after the fall of the Soviet Union, Bobak and Feachem (1995) found that air pollution accounted for a significant share of the Czech Republic and Poland’s mortality gap with respect to Western Europe. The European Environment Agency’s 2020 report provides estimates for ‘years of life lost’ attributable to different pollutants. Figure 1, which plots these estimates for PM 2.5, highlights the fact that Eastern European countries, in particular those in the Balkans, continue to experience significantly higher mortality related to pollution, as compared to their Western European counterparts.
Sources of Air Pollution
A number of factors contribute to the pattern of pollution shown on Map 1, not all of which are under policymakers’ direct control. For example, two of the cities on the map with the unhealthiest air – Sarajevo and Skopje – are surrounded by mountains that prevent emissions from dissipating.
In addition to immutable geographic factors, policies elsewhere may also be contributing to pollution in the region. Stricter regulations in Western Europe can have adverse effects if they result in polluting industries migrating eastwards. Bagayev and Lochard (2017) show that as EU countries adopt new air pollution regulations, the share of their imports from Eastern Europe and Central Asia in pollution-intensive sectors increases. Stricter rules can also result in outdated technology being exported to other countries. A Transport & Environment report found that over 30,000 high-emission diesel cars were exported from Western Europe to Bulgaria in 2017 and argued that such flows will continue as Western European cities impose Low Emission Zones and diesel bans (Transport & Environment 2018).
Power generation, and in particular coal power, is likely to be the single most important determinant of the gap in air quality between Eastern and Western European cities. Coal power accounts for over 60% of electricity production in Poland, Serbia, Bosnia Herzegovina, and North Macedonia, and remains an important energy source in the majority of Eastern European countries (BP 2020). Many of the coal power plants in the region have been operating for decades and are not equipped with modern desulphurisation technology that would help to reduce their emissions. A report by the Health and Environment Alliance found that 16 coal power plants in the Western Balkans collectively produce more emissions than the 250 power plants in the European Union, while only being able to generate 6% of the power (Matkovic Puljic et al. 2019).
Countries in the region are taking steps to reduce their dependence on coal power. In September 2020, the Polish government struck an agreement with labour unions that would see coal phased out by 2049. Coal accounts for 75% of Poland’s current electricity and Map 1 shows that air in the Upper Silesian Coal Basin, in the south of the country, is particularly polluted. Despite such commitments, Western European countries have in recent years been faster at transitioning away from coal. If this trend continues, the gap in air quality may even increase in the short run.
Did COVID-19 Improve Air Quality?
Last spring, a number of headlines from around the world featured the phrase “A breath of fresh air” (e.g. Reuters, The Economic Times, EUIdeas). These articles described measurable improvements in air quality in cities with government-mandated lockdowns. Recent academic publications have confirmed these reports in a variety of settings including the US (Berman and Ebisu 2020), China (Chen et al. 2020), and Korea (Ju et al. 2020).
While Eastern Europe was less affected by the initial wave of COVID-19 than Western Europe, most countries imposed lockdowns and social distancing measures that can be expected to have affected air quality. Figure 2 uses daily data from the World Air Quality Index for 221 European cities to compare average air pollution in 2020 to 2019. Overall, these plots suggest that air quality did improve in Eastern European cities relative to the previous year. However, not all types of pollutants declined and the declines are slightly smaller on average than in Western European cities. Panels A, B, and C plot air quality indices for fine particulate matter (PM 2.5), nitrogen dioxide (NO2), and sulfur dioxide (SO2) respectively. Dots below the line represent cities where the average air quality index was lower (indicating less pollution) in 2020 than in 2019. The declines are largest for NO2 – a gas that is formed when fuel is burned. The reduction in traffic and transportation in all European cities is likely to have contributed to this drop. By contrast, there were no statistically significant declines in SO2. This may be due to the fact that power generation, which is the source of most SO2 emissions, was less affected by lockdowns than transportation.
Source: Author’s calculations based on the World Air Quality Index COVID-19 dataset. Each marker represents a city. Markers below the 45-degree line represent cities where emissions for the respective category of pollutant were lower in 2020 than in 2019. For reasons of presentation, outliers were excluded from panels B and C.
The variation in COVID-19 prevalence over the course of 2020 is visible when tracking pollution over time. Figure 3 shows that average daily NO2 emissions in Western European cities dropped most from March to June of 2020, during the first wave of the pandemic. NO2 levels were comparable to the previous year in July and August when case numbers fell and restrictions were lifted. In the last months of the year, as the second wave hit, NO2 emissions once more dropped below the previous year’s average. This pattern is similar for Eastern European cities but the decline in NO2 in the first half of the year is less pronounced.
The COVID-19 epidemic has highlighted the health costs of air pollution. The preliminary evidence suggests that long-term exposure to pollution increased COVID-19 mortality rates (Cole et al. 2020, Wu et al. 2020). This is a particular concern for countries across Eastern Europe which – at the time of writing – are still grappling with the second wave of the pandemic in Europe. Many people in this region have been exposed to polluted air for decades.
The pandemic has also demonstrated that air quality can improve relatively quickly when human behaviour changes. The data described in this brief suggest that Eastern Europe was no exception in this regard, although the declines were confined to some categories of pollutants. Achieving a more general, and sustained improvement in air quality will require a shift from coal power towards cleaner forms of energy.
Stimulus packages aimed at a post-pandemic economic recovery can provide an opportunity for policy to reorient the economy and accelerate such a shift. The consultancy Vivid Economics, which rated G20 member countries’ proposed stimulus packages in terms of their environmental impact, found that the ‘greenest’ stimulus proposals are those of the European Commission, France, UK, and Germany. Russia is one of the worst performers on this index (Vivid Economics 2020). Whether governments in Eastern Europe are able to take advantage of this opportunity will depend on their respective fiscal space and whether they make improving air quality a priority.
- Bagayev, Igor, and Julie Lochard, 2017. “EU air pollution regulation: A breath of fresh air for Eastern European polluting industries?.” Journal of Environmental Economics and Management 83: 145-163.
- Berman, Jesse D., and Keita Ebisu. 2020 “Changes in US air pollution during the COVID-19 pandemic.” Science of the Total Environment 739: 139864.
- BP 2020 “Statistical Review of World Energy – all data, 1965-2019“
- Bobak, Martin, and Richard GA Feachem. 1995. “Air pollution and mortality in central and eastern Europe: an estimate of the impact.” The European Journal of Public Health , no. 2: 82-86.
- Cole, Matthew, Ceren Ozgen, and Eric Strobl, 2020. “Air pollution exposure and COVID-19.”.
- Chen, Kai, Meng Wang, Conghong Huang, Patrick L. Kinney, and Paul T. Anastas, 2020. “Air pollution reduction and mortality benefit during the COVID-19 outbreak in China.” The Lancet Planetary Health 4, no. 6: e210-e212.
- European Environment Agency 2020. “Air Quality in Europe – 2020 report“, EEA Report No 9/2020
- Matkovic Puljic, V., D. Jones, C. Moore, L. Myllyvirta, R. Gierens, I. Kalaba, I. Ciuta, P. Gallop, and S. Risteska. 2019. “Chronic coal pollution–EU action on the Western Balkans will improve health and economies across Europe.” HEAL, CAN Europe, Sandbag, CEE Bankwatch Network and Europe Beyond Coal, Brussels.
- Ju, Min Jae, Jaehyun Oh, and Yoon-Hyeong Choi. 2020. “Changes in air pollution levels after COVID-19 outbreak in Korea.” Science of The Total Environment 750: 141521.
- Transport & Environment, 2018. “Briefing: Dirty diesels heading east”
- Vivid Economics, 2020. “Greenness of Stimulus Index” December 2020 update
- World Air Quality Index, 2021. “Worldwide COVID-19 dataset“
- World Health Organization, 2018. “WHO Global Ambient Air Quality Database (update May 2018)”
- Wu, Xiao, Rachel C. Nethery, Benjamin M. Sabath, Danielle Braun, and Francesca Dominici, 2020. “Exposure to air pollution and COVID-19 mortality in the United States.” medRxiv
On the 24th of October, SITE held the first of its series of Energy Talks, replacing what for one decade had been known as SITE Energy Day. For this first edition, SITE invited Thomas Sterner, Professor of Environmental Economics at the University of Gothenburg to give a presentation under the headline of “Technological Development, Geopolitical and Environmental Issues in our Energy Future”. To comment on the presentation, Leonid Neganov, Minister of Energy of Moscow Region, and Karl Hallding, Senior Research Fellow at the Stockholm Environment Institute (SEI), had been invited. This policy brief reports on the important subjects presented by our guests as well as the discussion that took place during the event.
From climate change concerns to climate change targets
Thomas Sterner began his presentation by addressing the well-known issue of climate change, a constantly current topic.
Different versions of Figure 1 (below) have been used extensively by those discussing climate change over the last decades, most notably by the previous US President Al Gore in his 2006 documentary “An Inconvenient Truth”. It shows the concentration of CO2 (carbon-dioxide) in the atmosphere over the past 400,000 years. There is wide agreement within the scientific community that the emissions of greenhouse gases (GHG), such as CO2, methane and nitrous oxides, have led to the shifting weather patterns and increased temperature over the past century (NASA, 2017).
Figure 1. Level of CO2 in the Atmosphere
Predicting the impact of these emissions is far from an exact science: the temperature increases are likely to be unevenly spread across the world as shown in Figure 2. Some areas are likely to be particularly afflicted, especially coastal lowlands susceptible to flooding and semi-arid areas where droughts can become more likely. Unless current emission levels start to decrease, we are likely to observe severe results of climate change within 20 years, such as displacement and increased migration in the wake of extreme weather (NIC, 2016). For instance, adverse health effects in China, or decreasing productivity in South-East Asia, have already become apparent due to current increased temperatures (Kan, 2011; Kjellstrom, 2016).
Figure 2. Predicted Temperature Increase
To tackle this issue and its negative economic impacts, many policy makers have agreed to replace fossil fuels with renewables. Renewables is the collective term of energy sources that have a neutral or negative net-effect of GHG emissions and are extracted through resources that are continuously replenished, e.g. solar, wind and hydro power, and biomass energy.
As the issue of climate change is a global one, the transition to renewables needs to be global too. International climate agreements have hence long been the accepted norm to approach climate change issues. The Paris Agreement is currently the guiding principle, in spite of the announcement of the Trump administration to withdraw the United States. Though instrumental in creating a momentum in the transition to lower levels of GHG emissions, it comes with many flaws. Its goal of a maximum average temperature increase of 2°C might be considered radical given current levels. However, the policy instruments that the target depends on – the Intended Nationally Determined Commitments (INDCs) – shift the responsibility to individual nations and remove the global responsibility. As Thomas Sterner pointed out, the first three words of this acronym remove indeed any binding force, and elementary game theory tells us that it will be hard, not to say unlikely, for all signatories to remain cooperative in achieving the target of 2°C.
Investing in renewables: from political choice to competitive choice
As stated above, investing in renewables is a necessary condition to achieve climate change targets. Indeed, there are some countries that have pushed the development of renewables with the aim to reduce the fossil fuel dependency to a minimum level in a very near future (see Figure 3). However, most of these investments are currently driven by political will. A natural question is whether renewables technologies can be competitive.
It is a fact that costs of renewables have been severely decreased in the last decade (Timmons et al., 2014). However, as Thomas Sterner mentioned, the cost of renewables and of fossil fuels are still very place and time specific and depends on the scale. Investments in renewables are growing and solar and wind power have both seen production capacities increasing markedly yearly over the last years (GWEC, 2016; IEA, 2017a). However, coming from an initial low level, it will take some time before we will be able to rely on them.
Even with massive investments and decreasing generation costs, the intermittent nature of most renewable energies will still impede the competitiveness of renewables. Solar and wind power are the technologies where most of the development has been centred (Frankfurt School-UNEP Centre/BNEF, 2017). They are highly weather dependent and electricity production from these sources cannot be secured all of the time. This makes countries dependent on backup technologies. In some countries, the obvious answers to these challenges have been hydro and nuclear power. Both technologies have their respective drawbacks though.
Figure 3. World’s Top 10 Investors in Renewable Energy in 2016
Hydro power requires a geography that allows for dams, which in turn change the nature markedly around them and may not be available during drought periods. Nuclear energy has surrounding safety aspects that most recently came to light with the 2011 Fukushima Daaiichi nuclear disaster, leading Germany to decide to shut down all of its 17 reactors by 2022 (25 % of the country’s electricity production). Moreover, it may also be technically difficult to have nuclear as a backup technology given the associated ramping and start-up constraints.
Two further remarks on the intermittency problem can be made. First, this problem is likely to become more severe when policymakers push for large-scale electrification (c.f. EU Energy Roadmap established in 2011). For example, the full electrification of transport or heating sector will drive up the demand for and consumption of electricity. As this happens, the need for something to secure constant energy access will increase.
Second, only the development of technologies that allow electricity storage could solve this issue permanently. However, the current technological progress regarding batteries’ capacity cannot yet offer the solution (J. Dizard, 2017).
Oil price, a reference price
Another important aspect stressed by Thomas Sterner was to take into account the significant role of fossil fuel prices. Although identifying an optimal oil price for a fossil-free future is not a straightforward procedure, as discussed during the event.
The high price of oil during the late 00s and early 10s stimulated the development of alternative technologies. As awareness of climate change and its effects increased among policy makers and the general public, there was a momentum to push for the development of renewables.
As investments in renewables went up, so did investments in another less green technology: hydraulic fracturing, or fracking. In the 10 years between 2005 and 2015, the United States alone saw the extraction of shale gas and oil to increase six-fold. (EIA, 2016) In part to maintain a market share, OPEC countries exceeded their own set production limits and oil prices tumbled from around $100 per barrel to around $50 (Economist, 2014).
With roughly three years behind us of somewhat stable and low oil prices, the question is what the implications of this are. It makes it more difficult to phase out fossil fuels as demand for them goes up, depressing efforts put into the research and deployment of renewables. Energy efficiency also becomes less important, driving up waste and stopping investments in energy conservation.
On the other hand, with low oil prices, investments in the fossil-fuels industry are also less likely to take place. Keeping resources in the ground becomes more palatable as profit margins are pushed down. This, in turn, is likely to have a positive effect on environment by decreasing the level of GHG emissions.
The invited guests, Leonid Neganov and Karl Hallding spoke more in depth about two central countries that contribute in shaping global environmental policy.
The local conditions, Russia and China examples
As the world’s fourth largest supplier of primary energy and the largest supplier of natural gas to the EU (IEA, 2017b), Russia presents an interesting case to observe as a country supplying fossil fuels. Leonid Neganov, Minister of Energy of Moscow Region, commented on the current policy direction of the country. He explained that non-renewable, GHG emitting energy sources make up a majority, roughly 60% of the Russian energy balance. The rest is provided by more or less equal shares of nuclear and hydro power. New renewable technologies make up a miniscule share of an estimate 0.2% of the current total.
According to Neganov, in the coming 20 years, we should not expect to see too much of a change. Though total output is expected to increase, the share of GHG-neutral energy will remain more or less constant, though the share of renewables are set to increase to 3% according to the current drafts of Russian energy policy. A more pronounced transition to other energy sources are more likely in a longer perspective towards 2050, even though circumstances may naturally change over the coming decades.
Other available information also points to that Russia has decided to tackle the shift in consumption of its major market in Europe by widening its geographic reach. Massive infrastructure investments, such as the Altai and TurkStream gas pipelines, will enable Russia to more easily reach markets that are currently beyond any practical reach.
With the Altai pipeline, Russia will be able to provide China with natural gas at a much greater level than before. China being by far the largest producer of coal sees an opportunity to shift away from the consumption of a resource that during winters causes its major cities to periodically become enveloped in clouds of smog and at the same time also decrease its GHG emissions. The environmental benefits of natural gas as opposed to coal should not be exaggerated though. Thomas Sterner pointed out that methane, the main compound of natural gas, is a considerably more potent GHG than CO2. A total leakage of an estimated 1% negates the environmental benefits, he said.
Karl Hallding, Senior Research Fellow at SEI, particularly stressed the need to look at China. It is the supplier of half of the world’s coal, extraction levels remain high. (BP, 2017) Domestic consumption is decreasing but consumption of Chinese coal is, however, more likely to shift geographic location rather than to be left in the ground, said Hallding. Through massive infrastructure investments, such as the New Silk Road, and in energy production in Sub-Saharan Africa, China spreads its influence (IEA, 2016). By exporting emissions, the impact at the global level will not change.
- Allmendinger, Waldron, 2007. “Global Climate Change” http://www.geo.cornell.edu/eas/energy/the_challenges/global_climate_change.html (2017-10-27)
- BP, 2017. “BP Statistical Review of World Energy June 2017”, http://www.bp.com/statisticalreview, (2017-10-26).
- Dizard John, 2017. “Batteries are not atom bombs, integerated circuits or penicillin”, July.
- Economist, 2014. “Sheiks v shale”, Leader in the Economist, 2014-12-04. https://www.economist.com/news/leaders/21635472-economics-oil-have-changed-some-businesses-will-go-bust-market-will-be (2017-10-27).
- Energy Information Administration. 2016. “Shale gas and tight oil plays production in the U.S. from 1999 to 2015”. Statista. https://www.statista.com/statistics/183740/shale-gas-production-in-the-united-states-since-1999/, (2017-10-27).
- EU Commission, “Supplier countries” https://ec.europa.eu/energy/en/topics/imports-and-secure-supplies/supplier-countries, (2017-10-27)
- EU Commission, 2011. Energy Roadmap 2050,
- Frankfurt School-UNEP Centre/BNEF, 2017. “Global Trends in Renewable Energy Investment 2017” https://europa.eu/capacity4dev/unep/documents/global-trends-renewable-energy-investment-2017, (2017-10-27).
- GWEC, 2016. “Global Wind Report”, http://gwec.net/global-figures/graphs/, (2017-10-27).
- IEA, 2017a. “2016 Snapshot of Global Photovoltaic Markets”, Report IEA PVPS T1-31:2017, http://www.iea-pvps.org/fileadmin/dam/public/report/statistics/IEA-PVPS_-_A_Snapshot_of_Global_PV_-_1992-2016__1_.pdf, (2017-20-27)
- IEA, 2017b. “Key World Energy Statistics” http://www.iea.org/publications/freepublications/publication/KeyWorld2017.pdf, (2017-10-26)
- IEA, 2016. “Boosting the Power Sector in Sub-Saharan Africa –China’sinvolvement”, http://www.iea.org/publications/freepublications/publication/partner-country-series—boosting-the-power-sector-in-sub-saharan-africa—chinas-involvement.html, (2017-10-26).
- IPCC, 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” (Technical Summary) https://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_TS_FINAL.pdf (2017-10-27)
- Kan, Haidong, 2011. “Climate Change and Human Health in China”, Environmental Health Perspectives, 119(2), A60-A61.
- Kjellström, Tord, 2016. “Impact of Climate Conditions on Occupational Health and Related Economic Losses: A New Feature of Global and Urban Health in the Context of Climate Change”, Asia Pacific Journal of Public Health, 28(2S), 28S-37S.
- NASA, 2017. “Scientific consensus: Earth’s climate is warming”, https://climate.nasa.gov/scientific-consensus/, (2017-10-27).
- NIC, 2016. “Implications for US National Security of Anticipated Climate Change”, NIC WP 2016-01 https://www.dni.gov/files/documents/Newsroom/Reports%20and%20Pubs/Implications_for_US_National_Security_of_Anticipated_Climate_Change.pdf, (2017-10-27).
- Timmons, David; Harris, Jonathan M.; and Broch, Brian, 2014 “The Economics of Renewable Energy”, Global Development and Environment Institute, Tufts University, http://www.ase.tufts.edu/gdae/education_materials/modules/RenewableEnergyEcon.pdf, (2017-10-27).
This policy brief summarizes the discussion at the 8th annual SITE Energy Day conference, devoted to market adaptations and policies necessary to address the green transition. Recent energy trends with ever more green energy-mixes will have consequences for the functioning of related markets as well as implications for appropriate policy responses. New financial solutions, technological developments, international cooperation, and national policy initiatives in both developing and developed countries are examples of adaptations to this transition process. To discuss these issues, the conference brought together a group of distinguished experts from the energy industry, policy community and academia.
In December 2014, world leaders have gathered in Peru (Lima) for the 20th annual meeting of the United Nations Framework Convention on Climate Change. This convention has as an objective to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system” (see UNFCCC’s webpage). Even though the agreement to reduce emissions to a sustainable level may take years to be negotiated, at least 195 countries have ratified the UFCCC convention. The willingness to reduce environmentally harmful emissions has led to many countries changing their energy profile to include more green energy, a process that is often referred to as “green transition”.
It may be worth mentioning that the label “green transition” consists of two conceptual components. “Green” refers to the ability to generate environmentally friendly energy, which has become a key challenge for our society. Indeed, a majority of people now recognize the pressing need to cut pollution in the face of climate change and environmental degradation. The wording “transition” acknowledges that a shift toward a greener energy mix seems unavoidable, but this shift may not occur immediately or uniformly around the globe. The required time for change is long and the shift itself may not be smooth. To put it differently, the green transition has had and will continue to have wide-ranging consequences for businesses, governments, and the international community.
As a result, there is a need to carefully address the potential implications for the existing energy and related markets and market players, and for government policies, as well as new markets and new policies triggered by the green transition. These topics were the focus of the 8th SITE Energy Day, a half-day conference held at the Stockholm School of Economics on December 2, 2014.
Green Transition and the Energy Markets
The first panel focused on how energy markets have responded to green transition and how they may react in the future. Speakers from electricity companies, regulatory bodies and think tanks discussed how the green transition may affect the use of traditional financial instruments by energy companies; the choice of economically viable technology for producing green energy; and the way markets could be integrated to increase the efficiency of green energy.
As green transition almost always introduces more intermittent production, it is likely that market uncertainty will increase. This is one of the reasons why traditional financial instruments may not be fully adequate. The first speaker Laurent Cheval, Head of Nordic and Fuel Origination in the business division Asset Optimization & Trading at Vattenfall discussed this issue extensively. Energy companies face substantial financial risks since both prices and quantities may be highly volatile. To mitigate these risks, market participants may use an array of financial products. In mature energy markets, the products are fairly standardized. However, more complex and tailor-made financial products are required to face the ongoing changes in the sector. For example, the increased share of renewable energy combined with more interconnected markets create specific market risks. To hedge against risks associated with weather changes, future fuel costs, interest rates and so on, more and more energy providers trade customized derivatives “over-the-counter” (OTC) rather than through a centrally-cleared exchange. Another example is the development of decentralized power production and the rise of the “Prosumer” who simultaneously produces and consumes power. So far, the relevant regulation is underdeveloped and there is an additional demand for innovative financial solutions. Large energy companies such as Vattenfall are for instance offering a range of financial hedging solutions combined with actual physical handling and delivery of energy products.
Green transition should in the long run lead to a domination of environment friendly energy. However it is important that only economically viable technologies subsist. It is therefore necessary to assess the cost of producing green energy. Lars Andersson, Head of Wind Power Unit at the Swedish Energy Agency, reported on an extensive study done by the Agency on this issue. Over the last five years, the production cost of wind power has fallen consistently and capacity usage has increased. This dramatic change in the wind power industry likely implies that the existing subsidies for building wind power plants gradually will be phased out. It is unclear how the industry will react to these cuts in subsidies. Furthermore, according to Andersson, wind production faces at least two challenges. Without developing the capabilities for energy storage, electricity markets will face more energy imbalances as the share of wind power increases. Additionally, the support from the local communities is needed to ensure an expansion of wind power. Addressing these issues requires the development of new regulation and defining a common goal which may promote cooperation between stakeholders.
Ultimately the green transition will end when and if the green energies are largely adopted around the globe. One way to accelerate this green transition may be to coordinate action and development of governmental policies. Martin Ådahl, Chefsekonom at Centerpartiet, and Daniel Engström, Programchef Miljö och Klimat at Fores, presented the current state of the international climate policy and discussed the benefits of linking carbon emission rights markets. Because of conflicting interests, the likelihood of reaching an agreement within the current United Nations climate negotiations is rather small.
However, Ådahl and Engström suggested that the focus should instead be on reaching agreements between big polluter countries that contribute the lion’s share of global emissions. Indeed, regional emission trading schemes already exist in the EU, the US and China, the three regions which together account for over 50 percent of global emissions. One potential shortcoming of this suggestion is that it may not be enough to stabilize greenhouse gas concentrations in the atmosphere. Thereby, Ådahl and Engström discussed the possibility to link current cap-and-trade markets, as a first step toward an international system with a more formal global agreement. Linking cap-and-trade markets has many benefits, especially in the form of efficiency gains. However, emission caps vary across countries and regions because of different political goals or priorities. When markets are linked, difference in abatement costs (or allowance prices) would lead to a flow of allowances and emissions from countries/regions with low abatement cost to countries with higher ones. Thereby prices would be equalized, benefiting entities with cheaper allowances. To avoid opportunistic behavior, countries would first have to agree ex ante on an exchange rate between different countries’ emission rights. Second, a clear regulatory framework is required. Both Ådahl and Engström emphasized the need of an international organization devoted to climate economics. Such an institutional body could not only regulate the links between cap-and-trade markets, but also provide concrete solutions and technical models to improve on the market design.
Environmental Policies: International Experience
The second panel focused on how governments may promote green transition. Anna Pegels, Senior Researcher at the German Development Institute (DIE), reviewed green policy initiatives in developing countries. Pegels argued based on evidence from e.g. India and South Africa that it is possible to combine substantial growth with green energy. This is good news since emerging countries are among the highest polluters. However, to change a country’s energy profile, governments need to intervene and develop new industrial policies.
Governments can set long-term goals, which are supported by short- and mid-term targets. However, given the large profits that are at stake, officials may likely be subject to the risk of capture and corruption. To limit such risks, Pegel emphasized the need to introduce competition in the energy sector as a whole. Subsidized feed-in tariffs for renewable energy for example should be only a first step, to reach a certain scale of production. But the technology is mature enough that producers should be able to bear some additional risk in their current activity. This should increase the scope for competition. Finally, it is essential that governments continuously engage in policy revision cycles and learn from other countries’ experiences.
Benjamin Sovacool, Professor of Business and Social Sciences at Aarhus University and Director of the Danish Centre for Energy Technologies, talked about the process of low carbon transition in the Nordic region. In spite of large investments into renewable energy, fossil fuels still dominate the consumption in the Nordic countries and considerable measures need to be taken in the decades ahead to make the transition to a greener energy mix. Sovacool highlighted four areas which could help reduce the carbon footprint of the Nordic countries: renewable energy, increased energy efficiency of buildings, transportation, and carbon capture and storage (CCS). In order to be successful, the green transition has to bring about a systemic change engaging actors across the economy, particularly including end-users. There should also be a focus on additional technological progress. Finally, Sovacool noted that a rapid emission reduction such as the one planned in the Nordic countries is unlikely to be followed on a global scale in the near future due to a lack of political feasibility.
The green transition is expected to have a profound impact on the functioning and structure of energy markets as well as the policies that facilitates this transition.
There is an ongoing process of decentralization in the energy sector, with the rise of “prosumer” market places that alter market dynamics. Moreover, market uncertainty is increasing due to more intermittent production (due to renewables) and a stronger interconnectedness between energy markets. It is likely that energy imbalances will be a major concern and that more and more energy trade will take place on real time markets (as opposed to e.g. on the day-ahead market). As markets’ linking becomes stronger, the interdependence between markets in terms of energy type and geographical location will be intensified. The need for coordination and international cooperation will be even more pressing. The uncertainty regarding the development of international cooperation, but also regarding national policy changes, may however disrupt energy markets. Measures such as withdrawing existing subsidies must be handled in a gradual and strategic manner so as not to discourage investment. A key issue for governments is to have a credible green policy in the long-term. Such credibility will also depend on the level of involvement of different actors in the green transition, including the necessity to have a multilevel engagement of the end-users.
- Energimyndigheten, (2014), Produktionskostnads-bedömning för Vindkraft i Sverige, ER 2014:16
- Pegels, A. (Ed.). (2014), Green industrial policy in emerging countries, Vol. 34, Routledge
- Rutqvist, J., Engström, A.and Ådahl, M., A Bretton Woods for the Climate. Fores, 2010
- SITE 8th Energy Day, http://www.hhs.se/en/about-us/calendar/site-external-events/2014/site-energy-day/
- UNFCCC, (n.d). First steps to a safer future: Introducing The United Nations Framework Convention on Climate Change, http://unfccc.int/essential_background/convention/items/6036.php [8 December 2014]
In a world of perfect markets, where prices are “right”, consumers’ choice should, with few exceptions, be limited only by their budget constraints. But in the case of agricultural products, the “right” prices are not in place. One reason is that producers in this sector do not bear the costs for the externalities they generate. Focusing on the case of the Baltic Sea, this brief provides some insights into why livestock producers are, by and large, exempted from environmental policies, and raises the question whether something should be done about it.
An Italian expression describes the attempt to juggle too many projects or attain too many goals at once, with the tacit implication that something is bound to fail. “Avere troppa carne al fuoco“: literally, to have too much meat on the grill. This, in a metaphorical but also quite literal sense, is the dominant impression left by some summer reading about the situation of the Baltic Sea.
The Baltic Sea is home to the world’s largest anthropogenic “dead zone”. The main culprit is the unsustainable livestock production in the region, generating externalities (i.e., costs that economic actors impose on others without paying a price for it) that short-circuit the functioning of the markets, creating a case for regulatory intervention. The concept of externalities is today most famously related to the issue of carbon dioxide emissions and climate change, felt by many as the most pressing challenge mankind has to deal with at present. In recent years, a lot of brain power has been spent on this, but there is more to environmental degradation and climate change than just CO2 and rising temperatures. A very conspicuous example is literally under our eyes, in the water body that lies between our lands. What should we do about it?
A Layman Understanding of the Background
For at least three decades, eutrophication (i.e., nutrient accumulation) and hypoxia (i.e., oxygen depletion) in the Baltic Sea has triggered and boosted each other in a vicious cycle. The nutrients discharged in the water fertilize the ocean floor resulting in an excess algal bloom. This underwater forest consumes oxygen, thus altering the balance between chemical elements in the water, so that even more nutrients are released and the cycle continues (for further references, see [16, 19, 21]). Beyond the algae and the decreased transparency of the water, these deep changes in the sea environment start to make them noticed in fish stocks depletion, but can more generally become devastating to both the marine and terrestrial ecosystems. Moreover, according to researchers, these conditions are going to increase the sensitivity of the area to the global climatic changes expected in the near future. This is seriously threatening a large part of economic activities in the whole catchment of the sea, an area of 22,500,000 km2 over nine countries with 85 million inhabitants.
Since 1974, all sources of pollution around the sea have been subject to a single convention, the Helsinki Convention, signed by the then seven Baltic coastal states. The Helsinki Commission, or HELCOM, is the governing body of the Convention, whose present Contracting Parties are Denmark, Estonia, the European Community, Finland, Germany, Latvia, Lithuania, Poland, Russia and Sweden. For over three decades, HELCOM has monitored the situation. Alarming reports have followed one upon the other, together with policy recommendations to the contracting parties.
As stated on its website, “the work of HELCOM has led to improvements in various fields, but further work is still needed [… and] the remaining challenges are more difficult than earlier obstacles”. Reductions in emissions achieved so far are low hanging fruits, concerning major point sources, such as larger cities’ sewage treatment plants and industrial wastewater outlets. Due to both technical and socio-economic obstacles, achieving further reductions will be a tougher task. This is because it is now time to address diffuse sources of nutrients such as run-off from over-fertilized agricultural lands. Nevertheless, according to numerous studies (among others, [19, 23]), a substantial reduction of the nutrient load discharged into the sea appears necessary in order to reduce further damage; all the more, so given that it takes many decades for the sea to recover. The question is hence whether more stringent policy instruments might be needed.
According to researchers at HELCOM, eutrophication of the Baltic Sea is due to the excess of nitrogen and phosphorus loads coming from land-based sources. About 75% of nitrogen and 52% of phosphorus come from agriculture and the livestock sector. In particular, the main reason for the sharp increase in nutrient loads during the last 50 years is the intensification and rationalization process. This was partly stimulated by the EU Common Agricultural Policy in its early phase, with a geographic separation between crop and animal production [6, 9, 10]. On the one hand, animal farms grew ever bigger, in the order of tens of thousands of animals for cattle, hundreds of thousands for swine and millions for chicken farms. These giant facilities produce way more manure than what could be absorbed by crop production in their vicinity. Cheap fodder to these extremely dense animal populations is produced on large scale crop fields elsewhere, too far away for transport of manure to be feasible and instead using high-yield chemical fertilizers. This way, the nutrient surplus is multiplied at both locations; it leaks through the ground or in the waterways from the big heaps of manure that cannot be properly stored or disposed of, and it leaks from the over-fertilized fields (shocking case studies are reported by HELCOM ).
However, a different type of agriculture exists in the area known as Ecological Recycling Agriculture (ERA). This is based on more traditional methods and means that farms have a lower animal density and use the manure as fertilizer in an integrated production of crop to be used for animal feed. In this way, ERA manages to better close the cycle of nutrients with very little dispersion to the environment. Scenarios simulations  show that, expanding the presence of ERA from the negligible shares it currently accounts for (between zero and a few percentage points, varying by sector and country) would contribute considerably to solving the problem. The nitrogen surplus discharged into the sea yearly could decrease by as much as 61% if all agricultural production in Poland and the Baltic states were converted to the standard of the best ERA facilities currently operating (the Swedish ones), without affecting the current volumes of crop and animal products. However, this is not likely to happen spontaneously, precisely because of the externalities discussed above. As long as the external costs are unaccounted for and ignored, scale economies push in the direction of concentration and intensification, which is the current development path of the sector.
A Difficult Question
Zooming out from the Baltic Sea and looking at the bigger picture, one starts to wonder why the agricultural sector is so seldom a part of environmental policy or even the debate. Recent research has raised awareness about the contribution of the agriculture and livestock sector to climate change [5, 8, 14, 17]. Beyond nitrogen and phosphorus, the expansion of livestock farming is behind the rising emissions of methane. It is the next most common greenhouse gas after CO2 and responsible for 19% of global warming from human activities. This is more than the share of all transportation in the world combined .
A new American Economic Review paper  provides a broad picture of the sources of air pollution in the American economy, for the first time computed separately by sector and industry, and with the purpose of incorporating externalities into national accounts. Crop production and livestock production stand out among the five industries with the largest gross external damage (GED), defined as the dollar value of emissions from sources within the industry. In fact, the agricultural sector has the highest GED to value added ratio.
However, greenhouse gases are not the only externality generated by livestock production. The animals’ living conditions under modern farming methods favor the emergence of infections and new diseases that reach much further than through direct consumption of related products, as the recent E. coli episode in Europe brought to attention. The generalized use of antibiotics in animal feed, legal and widespread in some countries , constitutes an even bigger health threat. This is because it has the potential of generating antibiotic-resistant mutations of bacteria against which we would be completely defenseless should they pass to humans.
Moreover, the public has from an animal-rights and ethics perspective become increasingly concerned about the animals’ living conditions. 77% of respondents to the Eurobarometer 2005 believe that the welfare-protection of farm animals in their country needs to be improved. 96% of American respondents to the Gallup 2003 survey say that animals deserve legal protection, and 76% say that animal welfare is more important than low meat prices. Additionally, a comparable share advocates passing strict laws concerning the treatment of farmed animals.
In rich countries, the increased share of meat in the diet, which has been stimulated by decreasing relative prices, constitutes according to some medical research a health hazard in itself. In developing countries, raising livestock is an inefficient and expensive converter of fossil fuels into calories for human consumption. In addition, fodder production often displaces other important land uses such as forests.
It is easy to rationalize the absence of these issues from the policy agenda. It is not just a matter of powerful lobbies. The ownership structure and size composition make the agricultural sector so heterogeneous that the challenges in regulating it can easily be imagined. Adding to this, is the special role of food in culture, the “local” products so often linked to national identity, the romantic idea of the land nourishing its people, and of course the strategic role of being food self-sufficient . In the past, the latter was linked to wars and famines. Perhaps, even in our projections about the future, self-reliance in food production still plays an important role in the perspective of global climate changes and accordingly limited or modified trade flows. However, we cannot afford to grant this sector a special status and ignore all the social costs it generates. Can we learn anything from current research on how all these externalities should be addressed?
In the terminology of Baumol and Oates’ classic book on environmental policy, instruments can be categorized as “command and control”. For example, explicit regulation of standards and technologies with associated prohibitions and sanctions; information provision, that then lets the power in the hands of the consumers; and price-based instruments, in the form of taxes, subsidies or trading schemes. These can be imposed on inputs or output, with different implications .
The relatively high-level standards of EU environmental legislation (legally stipulated maximum livestock density per hectare, requirements of minimum manure storage capacity, ban on winter manure spreading) is effectively enforced in some countries. In the newer members states, on the other hand, issues have been reported  in the form of incomplete translation of EU legislation into the national regulations and ineffective enforcing, significant examples of unlawful practices by foreign companies (e.g. Danish companies in Poland and Lithuania) and limited public access to environmental information. When it comes to non-EU members in the Baltic Sea area, these problems are scaled up, with very large animal farms, lack of many important environmental regulations (no limits on livestock density, capacity of manure storage or ammonia emissions from stored and utilized manure, too generous limits for amount of manure allowed, etc.) and an insufficient environmental information system.
Information undoubtedly plays an important role, but to rely on consumers’ pressure might not be sufficient to solve this type of issues. Consumers are not famously a very effective pressure group, because of organizational issues and the classic collective action problems. Direct regulation of activities is certainly necessary, especially when it comes to the most important rules of the game for producers. However, the heterogeneity of the sector creates a trade-off between environmental precision and transaction costs of implementation and control in practice. For example, the damage of nitrate leaching depends on the type of soil; the policy measure is precise when it restricts leaching losses on sites that have specific characteristics. However, the costs of enforcing measures only at these sites are high. Alternatively, curbing nitrate use in general has low transaction cost, but because it will also affect sites without problems of nitrate in the groundwater, it also has low precision. This may be considered unfair or illegitimate .
Another limit of this approach is the lack of flexibility: once a particular practice becomes forbidden, it is likely that some other behavior emerges from the creativity of the actors involved that was not foreseen by the norm but could potentially present the same problems as the forbidden one. This will happen as long as the private incentives of the actors are not aligned with the policy goal.
Often the best way to curb a particular activity that, as in this case, has a number of unwanted side effects, is not to ban it but to put a price on it. As in the case made for CO2, a market based approach could also in this area offer the advantage of being cost-effective and at the same time stimulate creative new solutions, e.g. new technologies for manure processing. Therefore, one immediate questions concerns why the agriculture sector is not included in the European emission trading scheme (ETS)?
The European Union launched already in 2005 its version of a cap and trade scheme, covering some 11,000 power stations and industrial plants in 30 countries. As from 2013, the scope of the European ETS will be extended to include more sectors such as aviation, but not agriculture or livestock. The main limitation of ETS is that it does not address spatial concentration problems. When emissions have an immediate effect on the local environment, permit trading does not guarantee the achievement of targets at each location. On the contrary, the possibility of trading emission permits combined with economies of scale might lead to the emergence of emission hotspots, sites with highly concentrated amounts of pollutants locally affecting the environment and the population. A proposed variation is a scheme for tradable concentration permits, either for manure  or for animal production . A concentration permit is defined as the permission to deposit a quantity of pollutants at a specific location. The permits can then enter a trading system, but the use of the right remains linked to the site. Some authors believe that in practice, such systems generate high transaction costs and cannot achieve cost-effectiveness.
An input tax, for example on chemical fertilizers or imported fodder, or a direct tax on emissions would only affect the balance between domestic production and imports from countries that do not have the same regulation. Moreover, as discussed above, emissions are far from being the only problem. An alternative, as argued by Wirsenius, Hedenus and Mohlin at the Chalmers University of Technology and University of Gothenburg  is an output tax, i.e. a tax on meat consumption, on the grounds that costs of monitoring emissions are high, there are limited options for reducing emissions apart from output reduction, and the possibility for output substitution in the consumption basket are substantial. Moreover, a tax on consumption would avoid international competition from products that are not produced with the same standards.
A meat tax has shortly appeared in the public debate, for example in the Netherlands and in Sweden, but it has failed to gain much popularity so far. Meat consumption in the area has increased considerably in recent years –between 30% in Germany and 160% in Denmark since 1960 – and relative prices have fallen. By a combination of price and income effects, it has become a norm to eat meat every day, or even at every meal. It must be recognized, though, that while each single policy instrument discussed above has its shortcomings, because of the many interrelated aspects of the problem, a reduction in output, perhaps through a consumption tax, would address in a more comprehensive way all the different externalities related to meat production. After all, maybe there is just too much meat on our grills.
Recommended Further Readings
-  ”Slaktkropparnas kvalitet i ekologisk uppfödning”. Technical report, Ekokött, 2006.
-  J. Alkan-Olsson. Sustainable Water Management: Organization, Participation, Influence, Economy., volume 5, chapter Alternative economic instruments of control. VASTRA, Gothenburg University, 2004.
-  Mary D. Barton. “Antibiotic use in animal feed and its impact on human health”. Nutrition Research Reviews, 13:279–299, 2000.
-  W.J. Baumol and W.E. Oates. The theory of environmental policy. Cambridge Univ Pr, 1988.
-  J. Bellarby, B. Foereid, and A. Hastings. Cool Farming: Climate impacts of agriculture and mitigation potential. Greenpeace International, 2008.
-  M. Brandt and H. Ejhed. Trk transport-retention-källfördelning. Belastning på havet. Naturvårdsverket Rapport, 5247, 2002.
-  F. Braudel, S. Reynolds, and S. Reynolds. The structures of everyday life: The limits of the possible. Harper & Row, Publ., 1981.
-  A. Golub, B. Henderson, and T. Hertel. Ghg mitigation policies in livestock sectors: Competitiveness, emission leakage and food security. In Agricultural and Applied Economics Association 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania. Agricultural and Applied Economics Association, 2011.
-  A. Granstedt. Increasing the efficiency of plant nutrient recycling within the agricultural system as a way of reducing the load to the environment–experience from Sweden and Finland. Agriculture, ecosystems & environment, 80(1-2):169–185, 2000.
-  A. Granstedt and M. Larsson. “Sustainable governance of the agriculture and the Baltic Sea – agricultural reforms”, food production and curbed eutrophication. Ecological Economics, 69:1943–1951, 2010.
-  HELCOM. “Balthazar project 2009-2010: Reducing nutrient loading from large scale animal farming in Russia”. Technical report, 2010.
-  M. Larsson and A. Granstedt. “Sustainable governance of the agriculture and the Baltic Sea–agricultural reforms, food production and curbed eutrophication”. Ecological Economics, 69(10):1943–1951, 2010.
-  Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus. “Environmental accounting for pollution in the United States economy”. American Economic Review, 101:1649–1675, 2011.
-  T. Nauclér and P.A. Enkvist. “Pathways to a low-carbon economy: Version 2 of the global greenhouse gas abatement cost curve”. McKinsey & Company, pages 26–31, 2009.
-  J. Skorupski. “Report on industrial swine and cattle farming in the Baltic Sea catchment area”. Technical report, Coalition Clean Baltic, 2006.
-  B. Smith, A. Aasa, R. Ahas, T. Blenckner, T.V. Callaghan, J. Chazal, C. Humborg, A.M. Jönsson, S. Kellomäki, A. Kull, et al. “Climate-related change in terrestrial and freshwater ecosystems”. Assessment of Climate Change for the Baltic Sea Basin, pages 221–308, 2008.
-  P. Smith, D. Martino, Z. Cai, D. Gwary, H. Janzen, P. Kumar, B. McCarl, S. Ogle, F. OMara, C. Rice, et al. “Greenhouse gas mitigation in agriculture”. Philosophical Transactions of the Royal Society of London, Series B: Biological Sciences, 363(1492):789–813, 2008.
-  H. Steinfeld, P. Gerber, T. Wassenaar, V. Castel, M. Rosales, and C. de Haan. “Livestock’s long shadow: environmental issues and options”. 2006.
-  E. Vahtera, D.J. Conley, B.G. Gustafsson, H. Kuosa, H. Pitkänen, O.P. Savchuk, T. Tamminen, M. Viitasalo, M. Voss, N. Wasmund, et al. “Internal ecosystem feedbacks enhance nitrogen-fixing cyanobacteria blooms and complicate management in the Baltic Sea”. AMBIO: A journal of the Human Environment, 36(2):186–194, 2007.
-  B. Van der Straeten, J. Buysse, S. Nolte, L. Lauwers, D. Claeys, and G. Van Huylenbroeck. “Markets of concentration permits: The case of manure policy”. Ecological Economics, 2011.
-  H. von Storch and A. Omstedt. “The BALTEX Assessment of Climate Change for the Baltic Sea basin, chapter Introduction and summary”. Berlin, Germany: Springer., 2008.
-  S. Wirsenius, F. Hedenus, and K. Mohlin. “Greenhouse gas taxes on animal food products: rationale, tax scheme and climate mitigation effects”. Climatic Change, pages 1–26, 2010.
-  F. Wulff, O.P. Savchuk, A. Sokolov, C. Humborg, and C.M. Mörth. “Management options and effects on a marine ecosystem: assessing the future of the Baltic”. AMBIO: A Journal of the Human Environment, 36(2):243–249, 2007.
-  O. Oenema. “Governmental policies and measures regulating nitrogen and phosphorus from animal manure in European agriculture”. Journal of Animal Science, 2004.