Natural capital, subjective well-being, and the new welfare economics of sustainability: Some evidence from cross-country regressions

The measurement of natural capital and its management during the economic development process are important aspects of the capital approach to sustainable development. However, the assessment of social welfare in terms of genuine savings (or changes in total wealth per capita) is arguably too limited. This paper tries to make a case for the incorporation of subjective well-being measures in debates about sustainable development by exploring the macro-level relationship between subjective well-being and natural capital in a cross-country setting. It is tested whether natural capital per capita is correlated with subjective well-being in a sample of fifty-eight developed and developing countries, using natural capital data from the World Bank's Millennium Capital Assessment. Bivariate regressions indicate that it is. When multiple regression models are estimated that include (a) major country-level determinants of subjective well-being (GNI per capita, social capital, income distribution, unemployment, inflation), and (b) regional dummy variables for ex-Soviet Union and Latin American countries, the positive correlation remains. The role of data outliers is carefully explored, and the sensitivity of the results to the use of alternative subjective well-being measures (i.e. life satisfaction, happiness, and a combined life satisfaction and happiness index) is investigated. This does not change the nature of the results. The findings arguably strengthen the case for a ‘new welfare economics of sustainability’ that takes subjective well-being measures into account.     

The impact of urbanization on CO2 emissions: Evidence from developing countries

This paper analyzes the impact of urbanization on CO₂ emissions in developing countries from 1975 to 2003. It contributes to the existing literature by examining the effect of urbanization, taking into account dynamics and the presence of heterogeneity in the sample of countries. The results show an inverted-U shaped relationship between urbanization and CO₂ emissions. Indeed, the elasticity emission-urbanization is positive for low urbanization levels, which is in accordance with the higher environmental impact observed in less developed regions. Among our contributions is the estimation of a semi-parametric mixture model that allows for unknown distributional shapes and endogenously classifies countries into homogeneous groups. Three groups of countries are identified for which urbanization's impact differs considerably. For two of the groups, a threshold level is identified beyond which the emission-urbanization elasticity is negative and further increases in the urbanization rate do not contribute to higher emissions. However, for the third group only population and affluence, but not urbanization, contribute to explain emissions. The differential impact of urbanization on CO₂ emissions should therefore be taken into account in future discussions of climate change policies.     

Adolescents’ (un)happiness in transition

In this paper, we analyse the life satisfaction of adolescents in transition countries, comparing their life satisfaction with that of their peers in non-transition countries. We find that, at the start of transition, ceteris paribus, the life satisfaction of the adolescents in our sample of transition countries is somewhat smaller, but not significantly so, than the life satisfaction of the adolescents in our sample of non-transition countries. With the economic crisis of the early 1990s, however, the difference increased dramatically, but, by the beginning of the 2000s, this gap had again become fairly limited. From that point, respondents’ health situation, their material wealth and their school experience mattered much more than whether they lived in a transition country or not. Unlike the literature on adults, we do not find that after controlling for individual level variables, macro variables play an important role in adolescent happiness.     

Do environmental benefits matter? Evidence from a choice experiment among house owners in Germany

Residential buildings strongly contribute to global CO₂ emissions due to the high energy demand for electricity and heating, particularly in industrialised countries. Within the EU, decentralised heat generation is of particular relevance for future climate policy, as its emissions are not covered by the EU ETS. We conducted a choice experiment concerning energy retrofits for existing houses in Germany. In the experiment, the approximately 400 sampled house owners could either choose a modern heating system or an improved thermal insulation for their home. We used standard and mixed logit specifications to analyse the choice data. We found environmental benefits to have a significant impact on choices of heating systems. However, they played no role in terms of insulation choices. Based on the estimated mixed logit model, we further obtained willingness-to-pay (WTP) measures for CO₂ savings.     

Gender and climate change: Do female parliamentarians make difference?

This paper investigates whether female political representation in national parliaments influences climate change policy outcomes. Based on data from a large sample of countries, we demonstrate that female representation leads countries to adopt more stringent climate change policies. We exploit a combination of full and partial identification approaches to suggest that this relationship is likely to be causal. Moreover, we show that through its effect on the stringency of climate change policies, the representation of females in parliament results in lower carbon dioxide emissions. Female political representation may be an underutilized tool for addressing climate change.     

A coopetitive model for the green economy

The paper proposes a coopetitive model for the Green Economy. It addresses the issue of the climate change policy and the creation and diffusion of low-carbon technologies. In the present paper the complex construct of coopetition is applied at macroeconomic level. The model, based on Game Theory, enables us to offer a set of possible solutions in a coopetitive context, allowing to find a Pareto solution in a win–win scenario. The model, which is based on the assumption that each country produces a level of output which is determined in a non-cooperative game of Cournot-type and that considers at the same time a coopetitive strategy regarding the low technologies, will suggest a solution that shows the convenience for each country to participate actively to a program of low carbon technologies within a coopetitive framework to address a policy of climate change, thus aiming at balancing the environmental imbalances.     

Does transition make you happy?1

This paper analyses life satisfaction in transition countries using evidence from the World Values Survey. The paper demonstrates that individuals in transition economies on average record lower values of self‐reported satisfaction with life compared with those in non‐transition countries. A comparison across time for a smaller sample of countries shows that life satisfaction levels have returned close to pre‐transition levels in most cases, after a dip in the mid‐1990s. The socio‐economic groups that exhibit relatively higher levels of happiness include students, people with higher levels of education and those on higher incomes. Happiness declines with age until the early‐50s and is slow to recover afterwards. Self‐employed people in transition countries show a level of satisfaction as high as, or higher than, full‐time employees, in contrast to evidence from non‐transition countries. In addition, satisfaction levels are highest in those countries where standards of economic governance are most advanced and where inequality is lower.     

Reducing climate change impacts on agriculture: Global and regional effects of mitigation, 2000–2080

What are the implications for agriculture of mitigating greenhouse gas emissions? By when and by how much are impacts reduced? Where does it matter most? We investigated these questions within the new A2 emission scenario, recently developed at the International Institute of Applied Systems Analysis with revised population and gross domestic product projections. Coupling an agro-ecological model to a global food trade model, two distinct sets of climate simulations were analyzed: 1) A non-mitigated scenario, with atmospheric CO₂ concentrations over 800 ppm by 2100; and 2) A mitigation scenario, with CO₂ concentrations stabilized at 550 ppm by 2100. Impacts of climate change on crop yield were evaluated for the period 1990–2080, then used as input for economic analyses. Key trends were computed over the 21st century for food demand, production and trade, focusing on potential monetary (aggregate value added) and human (risk of hunger) impacts. The results from this study suggested that mitigation could positively impact agriculture. With mitigation, global costs of climate change, though relatively small in absolute amounts, were reduced by 75–100%; and the number of additional people at risk of malnutrition was reduced by 80–95%. Significant geographic and temporal differences were found. Regional effects often diverged from global net results, with some regions worse off under mitigation compared to the unmitigated case.     

No matter how it is measured, income declines with global warming

The contemporaneous relationship between temperature and income is important because it enables economists to estimate the economic impact of global warming without assuming a structural model. Until recently, empirical evidence generally suggests that there is a negative relationship between temperature and income, and, therefore, global warming has an adverse impact on economic activity. However, Nordhaus (2006) argues that the temperature-income relationship depends on how income is measured. We show in this paper that the results of Nordhaus (2006) may be due to an omitted-variable problem. Based on a well-motivated temperature-income model, we find that the relationship between temperature and income is not dependent on income measurement. Our regression results show that the adverse impact of an increase of 1 °C in temperature can be as much as a 3% decrease in total income for the G-7 nations. Therefore, our results suggest an aggressive climate mitigation policy.     

Climate policy vs. agricultural productivity shocks in a dynamic computable general equilibrium (CGE) modeling framework: The case of a developing economy

The main objective of this paper is to compare the cost of climate policy consistent with the 2 °C global warming target (Paris Agreement target) with the cost of climate change induced agricultural productivity shocks, using a recursive dynamic CGE model for India. The social cost of carbon, in terms of loss in agriculture sector, is estimated to be about 2 percent of GDP, at zero rate of discount, under conservative forecasts of fall in agricultural productivity. In comparison, the cost of climate policy consistent with the Paris Agreement target of 2 °C is about 1 percent of GDP. Thus, there is a strong case for the adoption of ambitious climate policy in India, provided other countries also adhere to the same. Besides, revenues generated from the carbon tax and emission allowance could be a means to support the development and adoption of new energy and agricultural technologies, to increase social sector expenditure and to reduce abatement costs.     

Oil prices and life satisfaction: asymmetries between oil exporting and oil importing countries

In spite of general consensus on the importance of oil prices for objective measures of economic well-being across countries, almost no research has been carried out to analyse the effects of oil prices on subjective well-being internationally. Using the World Values Survey (2009 World Values Survey 1981–2008 Official Aggregate v.20090901. (2009) World Values Survey Association, Aggregate File Producer: ASEP/JDS, Madrid. Available at www.worldvaluessurvey.org (accessed September 2010). [Google Scholar]), we help fill this gap by studying the effects of oil prices on life satisfaction for two groups of countries, oil importers and oil exporters. Although some previous studies have shown negative effects of oil prices on subjective well-being of one oil importing country the United States, since it is an outlier in terms of dependence on automobiles and in gasoline consumption per capita, these findings may not be representative of other oil importing countries. Our results show that, in fact, oil prices have quite strong negative effects on life satisfaction in a sample of over 40 oil importing countries. By contrast, for oil exporting countries for which there have been virtually no previous quantitative studies, but theoretical analyses suggest the results could be ambiguous, we find strong positive effects on life satisfaction. Hence, our results reveal quite strong asymmetries in the effects of oil prices on life satisfaction between oil importers and oil exporters.     

Technology transfer with transboundary pollution: A signalling approach

There are increasing complaints from the developing world that developed countries seem reluctant to transfer green technology, despite its benefits in helping to solve the climate problem. Identifying a signalling effect of technology transfer that was neglected by the previous literature, this paper offers a rationale for this reluctance in a North‐South model with transboundary pollution. In a benchmark case with complete information, the North makes complete technology transfer, leading to a Pareto improvement. However, if the North's valuation on climate damage is its private information, the North does not completely transfer the technology in “almost all” of the equilibria.     

How much should we trust life satisfaction data? Evidence from the Life in Transition Survey

We analyse responses to two similar life satisfaction questions asked at different points in the same wave of a major cross-country household survey covering the transition region, Turkey and five Western European countries. We show that while the answers to the two questions are broadly consistent for most people, the responses for some groups differ significantly. Respondents of a lower socio-economic status and with a more favourable parental background show systematically higher levels of self-reported satisfaction in the later question. We also find evidence that responses to the later question are influenced by preceding questions on social capital. Our results have important implications for the design and length of household surveys that contain subjective questions.     

Probabilistic temperature change projections and energy system implications of greenhouse gas emission scenarios

This paper explores the implications for global average temperature change of a set of reference and mitigation scenarios in a probabilistic framework. First, we use published probability density functions for climate sensitivity to investigate the likelihood of achieving targets expressed as levels or rates of global average temperature change. We find, for example, that limiting warming to 3 C above pre-industrial levels with at least a medium likelihood requires cumulative emissions reductions on the order of 30-60% below one unmitigated reference scenario by 2100, while a more favorable baseline scenario requires no reductions at all to achieve this outcome with the same likelihood. We further conclude that the rate of temperature change may prove to be more difficult to control, especially if most of the mitigation effort is postponed until later in the century. Rate of change targets of 0.1–0.2 °C/decade are unlikely to be achieved by a target for the long-term level of climate change alone. Second, we quantify relationships between mitigation costs and the likelihood of achieving various targets and show how this depends strongly on the reference scenario. Third, we explore relationships between medium-term achievements and long-term climate change outcomes. Our results suggest that atmospheric concentrations and the share of zero-carbon energy in the middle of the 21st century are key indicators of the likelihood of meeting long-term climate change goals cost-effectively. They also suggest that interim targets could be an effective means of keeping long-term target options open. Our analysis shows that least-cost mitigation strategies for reaching low climate change targets include a wide portfolio of reduction measures. In particular, fundamental long-term structural changes in the energy system in these scenarios are a necessary but not sufficient condition to achieve high likelihoods for low temperature targets. The cost-effective portfolio of emissions reductions must also address demand-side measures and include mitigation options in the industry, agriculture, and the forest sector.     

A new energy security paradigm for the twenty-first century

Conventional energy security has been focused on the depletion of natural resources, particularly oil, natural gas and coal. More recently, the link between energy security and the military has been made, focused on the defence of international oil tanker chokepoints and the free flow of oil through these trade routes. This paper considers a possible future in which, the impacts of climate change have been realized far earlier than most experts have previously expected. This has promoted a transition to cleaner energy technologies long before the depletion of fossil fuel resources. In this scenario, the peak in demand for fossil fuels occurs before the peak in supply and some nations are strongly promoting the development and deployment of clean energy technologies. Some private companies developing and deploying these technologies benefit from sudden market expansion, fuelled largely by the world's richest nations struggling to reduce their carbon footprint.In this scenario the countries of the world would fall into one of the three categories: (1) the countries willing and readily able to adjust in response to rapid and serious climate change, (2) the countries willing to adjust, but facing significant economic hardship without external assistance and protection, (3) and those countries unwilling and, perhaps to their perception at least, unable to play a part in combating climate change. In this scenario, the Western Economies will likely fall under the first category while the BRIC countries (Brazil, Russia, India, China) might fall into the second category. These nations together are needed to achieve a viable, powerful, and effective formal or informal “Clean Energy Alliance”. Some countries however will probably fall into the third category. This paper considers how countries in the first two categories could respond by adjusting their foreign, trade and even military policies.If climate change is as severe and as pressing as some fear, leadership will be needed from those nations who are most capable of responding to the crisis. Within a generation, the great powers might find themselves shifting from keeping trade routes open to constraining the same trade. Severe climate change impacts could even approach the timescale of technological innovation needed to respond to this crisis. This paper proposes that our world may need new military and foreign policy options as well as new energy technology options in the years to come. Parallels are drawn between the challenge of decarbonising the global energy systems in the early twenty-first century and the ethical imperative of ending slavery in the early nineteenth century.     

Estimation of consistent multi-country FEERs

Most studies on equilibrium exchange rates focus on a limited number of G7 countries. But in a situation of world imbalances, emerging countries can no longer be excluded. The study of all equilibrium exchange rates is delicate. First, the trade model has to be balanced at the aggregate level. This paper suggests a method to achieve world balance both in volume and in value. Second, the N − 1 bilateral exchange rates cannot ensure that the N areas will reach their macroeconomic equilibrium simultaneously. This paper examines the existing solutions to solve the N − 1 problem and proposes an alternative which minimizes the distance to the current-account targets. Finally, in order to compare the relevance of the different methodologies, FEERs are calculated for 19 industrialized and developing countries. The results, which are taking into account the modification on output gap assessment induced by the 2008–2009 crisis, lead for the year 2010 to a USD closed to its equilibrium, a RMB undervalued by around 35% in real effective terms and to a EUR/USD parity equals to 1.47.     

Regional, national, and spatially explicit scenarios of demographic and economic change based on SRES

We report here spatially explicit scenario interpretations for population and economic activity (GDP) for the time period 1990 to 2100 based on three scenarios (A2, B1, and B2) from the IPCC Special Report on Emissions Scenarios (SRES). At the highest degree of spatial detail, the scenario indicators are calculated at a 0.5 by 0.5 degree resolution. All three scenarios follow the qualitative scenario characteristics, as outlined in the original SRES scenarios. Two scenarios (B1 and B2) also follow (with minor adjustments due to scenario improvements) the original SRES quantifications at the level of 4 and 11 world regions respectively. The quantification of the original SRES A2 scenario has been revised to reflect recent changing perceptions on the demographic outlook of world population growth. In this revised “high population growth” scenario, A2r world population reaches some 12 billion by 2100 (as opposed to some 15 billion in the original SRES A2 scenario) and is characterized by a “delayed fertility transition” that is also mirrored in a delayed (economic) development catch-up, resulting in an initially stagnating and subsequently only very slow reduction in income disparities. The spatially explicit scenario interpretation proceeds via two steps. Through a combination of decomposition and optimization methods, world regional scenario results are first disaggregated to the level of 185 countries. In a subsequent second step, national results are further disaggregated to a grid cell level, taking urbanization and regional (rural–urban) income disparities explicitly into account. A distinguishing feature of the spatially explicit scenario results reported here is that both methodologies, as well as numerical assumptions underlying the “downscaling” exercise, are scenario-dependent, leading to distinctly different spatial patterns of population and economic activities across the three scenarios examined.     

Estimating worldwide life satisfaction

Whilst studies of life satisfaction are becoming more common-place, their global coverage is far from complete. This paper develops a new database of life satisfaction scores for 178 countries, bringing together subjective well-being data from four surveys and using stepwise regression to estimate scores for nations where no subjective data are available. In doing so, we explore various factors that predict between-nation variation in subjective life satisfaction, building on Vemuri and Costanza's (Vemuri, A.W., & Costanza, R., 2006. The role of human, social, built, and natural capital in explaining life satisfaction at the country level: toward a National Well-Being Index (NWI). Ecological Economics, 58:119-133.) four capitals model. The main regression model explains 76% of variation in existing subjective scores; importantly, this includes poorer nations that had proven problematic in Vemuri and Costanza's (Vemuri, A.W., & Costanza, R., 2006. The role of human, social, built, and natural capital in explaining life satisfaction at the country level: toward a National Well-Being Index (NWI). Ecological Economics, 58:119-133.) study. Natural, human and socio-political capitals are all found to be strong predictors of life satisfaction. Built capital, operationalised as GDP, did not enter our regression model, being overshadowed by the human capital and socio-political capital factors that it inter-correlates with. The final database presents a stop-gap resource that, until robust surveys are carried out worldwide, allows comparisons of subjective life satisfaction between nations to be made with reasonable confidence.     

Democratic revolutions as institutional innovation diffusion: Rapid adoption and survival of democracy

Recent ‘democratic revolutions’ in Islamic countries call for a re-consideration of transitions to and from democracy. Transitions to democracy have often been considered the outcome of socio-economic modernization and therefore slow and incremental processes. But as a recent study has made clear, in the last century, transitions to democracy have mainly occurred through rapid leaps rather than slow and incremental steps. Here, we therefore apply an innovation and systems perspective and consider transitions to democracy as processes of institutional, and therefore systemic, innovation adoption. We show that transitions to democracy starting before 1900 lasted for an average of 50 years and a median of 56 years, while transitions originating later took an average of 4.6 years and a median of 1.7 years. However, our results indicate that the survival time of democratic regimes is longer in cases where the transition periods have also been longer, suggesting that patience paid in previous democratizations. We identify a critical ‘consolidation-preparing’ transition period of 12 years. Our results also show that in cases where the transitions have not been made directly from autocracy to democracy, there are no main institutional paths towards democracy. Instead, democracy seems reachable from a variety of directions. This is in line with the analogy of diffusion of innovations at the nation systems level, for which assumptions are that potential adopter systems may vary in susceptibility over time. The adoption of the institutions of democracy therefore corresponds to the adoption of a new political communications standard for a nation, in this case the innovation of involving in principle all adult citizens on an equal basis.     

Climate change and the transition to a low carbon economy – Carbon targets and the carbon budget

Carbon intensive fuels generate a significant negative externality which is quite relevant for climate change mitigation policy. We propose a dynamic growth model where output is produced using two types of energy sources: fossil fuel and renewable energy. Fossil fuel discovery, extraction, and associated costs are incorporated in our model together with the dynamics of greenhouse gas emissions and consequent damages. Consistent with the empirical facts, our numerical solutions suggest that fossil fuels, especially coal, should not be exploited to depletion. Furthermore, renewable energy should be gradually phased in to meet targets consistent with the Paris 2015 agreement. We show that adopting those policies should slow down the growth rate of cumulative emissions; but the outcome is contingent upon the carbon emission targets set for advanced countries, as distinct from those assigned to developing countries.