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International Environmental Transfers

This study explores the challenges and solutions for international environmental transfers, focusing on the credibility problems faced by both donor and recipient countries. It discusses the impact of lobbying, diffuse environmental interests, and noncredible conditionality. The case study of the Global Environment Facility highlights the importance of addressing these issues for successful environmental aid programs.

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International Environmental Transfers

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  1. International Environmental Transfers

  2. The Case for International Environmental Transfers • Income effect • Environmental protection as a normal good • Rich countries have more income to devote to environmental protection • Lobbying • Rich countries bear the externalities, but don’t share profits • Protection is underprovided because environmental interests are diffuse and producer interests are concentrated • Interest group organization • NGOs are denser, older, wealthier in the North

  3. If concern is so much greater in developed countries, why are there so few transfers?

  4. Coase theorem revisited • Without transaction costs, bribery is efficient; property rights don’t matter • With transaction costs: • search • bargaining • enforcement suboptimal level of bribes

  5. Aid agency • Don’t commit Commit LDC • LDC •

  6. Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply

  7. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  8. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 1: Noncredible recipient commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  9. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 1: Noncredible recipient commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  10. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 1: Noncredible recipient commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  11. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 1: Noncredible recipient commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  12. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 2: Noncredible donor commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  13. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 2: Noncredible donor commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  14. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 2: Noncredible donor commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  15. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 2: Noncredible donor commitment Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  16. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 3: Noncredible conditionality Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  17. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 3: Noncredible conditionality Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  18. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 3: Noncredible conditionality Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  19. C-P-T T+P-C C-P P-C -P-T P+T -P -P C -C 0 0 North South Problem 3: Noncredible conditionality Aid agency • Don’t commit Commit LDC • LDC • Comply Don’t comply Comply Don’t comply AA AA • • ~Disburse D ~D Disburse

  20. Conclusions • Transaction costs can prevent donors from offering aid in the first place • The credibility problem need not be on the recipient’s side • The three types of credibility problems are observationally equivalent

  21. Case Study: bargaining problems and the GEF • Politics of GEF (Global Environment Facility - 1990 -) • 1990-1993, $1 bil; 1993, $2 bil • North-South conflict • North • Global problems, additionality, incremental cost • “Green” conditionality (“integration”) • World Bank control • South • Obtain new funds but avoid new conditionality • Sustainable development • UN control

  22. Turf battle + Poor implementation, project selection Deadlock over organizational mission Bargaining problems and GEF Compromise: unclear objectives, implementation shared by WB, UNDP, UNEP • UNCED (UN Conference on Environment and Development) • June/92; summit → high stakes

  23. Keohane & Levy framework • Concern → conditionality (concern generally asymmetric) • Contractual environment: limited lending agency discretion in bargaining; commitment to punishing; monitoring • Capacity → involuntary defection • WB: most failures due to lack of institutional capacity • On-going funding for recipient governments • Competition from sectoral lobbies in donor countries → misdirection of funds • NGOs as solution • Coordination: bilateral, IFIs, NGOs, regional development banks can reinforce or undermine (Indonesia)

  24. Criticisms • A laundry list, not a theory • Testing? • Generating intermediate-range hypotheses • Research design • More hypotheses than cases • Selection bias • Still, a useful starting point

  25. Environmental Politics in Europe: Coordination, bargaining and transfers

  26. Expectations • Expectations: good results in Europe • High concern • Contractual environment: transparent, institution dense, multiple linkages • High capacity • But volume finds poor results. Why? • Case selection: looking for cases involving financial transfers (most cases in Europe don’t) • Success in “coordination” cases in Europe: • LRTAP, Baltic and North Seas pollution, Mediterranean • Leaders shame laggards

  27. Chloride pollution in the Rhine • Perfect case for Coasian bargaining • Small “n”; transparency; narrow issue; very accurate measurement ; winners and losers clear • Puzzle of the formal outcome: • Netherlands, Germany, Switzerland pay France; • only Netherlands benefits; • Germany, Switzerland are the polluters • Coase: MdPA lowest marginal cost of reduction

  28. Chloride pollution in the Rhine • But transaction costs (bargaining) interfered • Incentives to misrepresent • Distributional bargaining Delay • Private adaptation → reduced concern • Decline of mining → reduced problem

  29. Nuclear safety in Eastern Europe • Remember Chernobyl? • RBMK, VVER-440, VVER-1000 • Asymmetric concern → conflict over solution • Income effect • Austerity programs and the IMF • foreign currency crunch • Puzzle: West’s weak bargaining position: • Short-term fix →reduced incentives for closure • Lack of coordination • Capture by Western industry

  30. Other environmental assistance to Eastern Europe • Expectation: substantial aid because • Trans-boundary effects, lower marginal cost of abatement in EE • Potential expansion of EU • Institution-rich environment: EU, EBRD, WB, G-24 • Outcome: little aid, less conditionality. Why?

  31. Other environmental assistance to Eastern Europe • Principal-agent problems, organizational mission, inertia, other agendas: • World Bank: • Energy projects • Macroeconomics • EBRD: • private sector projects • partnership in investment → constrained by supply of interested investors • need for speed

  32. Demand for aid Environmental exports Interest groups Other environmental assistance to Eastern Europe • Lack of coordination in bilateral programs • Why? Endogenous aid: • Examples: nuclear industry, contractors, consultants • Dilemma: if aid programs don’t serve a domestic constituency, aid amounts will be lower

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