Friday, June 19, 2009

Climate change - classic negative externality

For sometime now, it has been widely acknowledged that while the developed economies, led by the US, have been the chief culprits of climate change, its major brunt has been borne by the poorer nations. The Lancet has an excellent density equalizing illustration of the source and victims of climate change for the 1950-2000 period.

The top map illustrates which countries are considered more responsible for climate change - that is "undepleted cumulative CO2 emissions" - and the bottom map shows the countries that will be most harmed by climate change — that is, "the regional distribution of four climate-sensitive health consequences (malaria, malnutrition, diarrhea, and inland flood-related fatalities)".

As the map shows, while the US, W Europe and China are the overwhelmingly biggest culprits, Africa and South Asia bear almost all of the burden. Interestingly, the effect on US, W Europe (and even China) is minuscule as to be almost irrelevant.

Judging by the locations of cause and effect, one could easily describe climate change as the "mother of all externalities" and the classic negative externality. In the absence of any arrangement to internalize these costs, the developed economies have gained at the expense of their developing country counterparts. The Lancet study appears to indicate that the costs on the poorer nations have been far out of proportion by any yardstick.

It would be instructive for someone to study the subsidy reaped by the developed economies by not paying for the costs of their climate change producing actions, and the cost inflicted on the developing countries due to the climate change producing activities of the richer nations. In other words, for the past half a century, the poorer nations may have been paying a "climate change tax" to the richer nations, which they can ill-afford.

(HT: Economix)

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