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  1. The Institutional Originsof Transatlantic Discord on Climate Change Jonathan B. Wiener Duke University, RFF, EHESS & CIRED IDDRI, Paris 31 January 2006

  2. Why the US-Europe Discord on Climate Policy? • National Net Benefits (perceived)? • Design of the Climate Treaties? • Ideology/culture – against climate, against precaution? • Domestic Political Institutions?

  3. Disaggregating Decisions: a Multi-level Game Global Net Benefits National Net Benefits National B > C National B > C • Domestic Institutions: • Executive • Legislative • Judicial • Other Institutions… Institutions… Actors: Firms, NGOs, Individuals, Parties … Actors… Actors…

  4. 1. Role of National Net Benefits in the “Tragedy of the Climate Commons” • Atmosphere = open-access disposal site for GHGs. • Control is costly to each emitter; but Benefits of control would be shared widely. = Incentives for overuse. • Uncertainties? Yes, but “is it real or a hoax?” = wrong question. • Neither all “true” nor all “false”: probabilistic risk scenarios. • Rate of change (not just ultimate level) matters. Gradual/anticipated may = benign; Faster/Abrupt/unanticipated = more damage. Varies by regional resilience. Even with uncertainty, expected value of damages > 0. • Yet even if very “real,” solutions are not simple. Diagnosis vs. remedy. • It’s worth limiting access to the commons, where B > C for the collective group (Kaldor-Hicks). • International law of treaties: participation requires consent, so requires B > C for each individual party (Pareto-improving).

  5. National Net Benefits? A Very Rough BCA for the US • BenefitsCosts • (not incl. abrupt change) • KP, CO2 only, no trading 0.1-0.3 % GDP 1.0-3.0 % • CO2, Annex B trading 0.1-0.3 % 0.5-1.5 % • Multigas, Annex B trading 0.1-0.3 % + 0.2-0.6 % • Multigas, Full Trading 0.1-0.3 % ++ 0.1-1.0 % • with global participation • Sinks + biodiversity lower • Include China, DCs ++ lower • Optimal path targets lower • See Stewart & Wiener, Reconstructing Climate Policy (2003), pp. 45-46.

  6. National Net Benefits (perceived) ? • Recall that the US joined the Montreal Protocol in 1987 in part based on a BCA done by EPA and Council of Economic Advisers, showing B > C. • Does the KP yield net benefits to the EU ? • Not clear whether KP yields national net benefits to the US. • EU initial opposition to flexibility mechanisms (trading) = raise costs = less incentive for US to join. • Irony: since 2001, the EU is using trading (ETS) – originally urged by the US – while the US is using government technology funding. The Market and the State have switched sides of the Atlantic! • Russia and China may perceive benefits to global warming (agriculture). • Need to reduce costs, increase benefits, offer side payments to attract their participation. • Russia’s demands to join KP: extra allowances to sell, more sink credits, and favorable treatment re WTO & natural gas. • Opposition to, or neglect of, engaging China & India = US fear of leakage (competitiveness losses, plus undermines environmental effectiveness) = US reluctant to join. EU should have engaged China & India to engage the US. Just cajoling the US won’t work.

  7. Varying Impacts of Climate Change: Losers, Winners ? Tol (2001) Source: Richard S.J. Tol, “Estimates of the damage costs of climate change, Part II. Dynamic estimates,” working paper, Hamburg University / Vrije University / Carnegie Mellon University, May 2001, Figure 13, p.38. In lower panel, impacts for CEE&FSU are on left axis, all others on right axis.

  8. Varying Impacts: Mendelsohn et al. (2000) From R. Mendelsohn, W. Morrison, M. Schlesinger and N. Adronova. "Country-Specific Market Impacts from Climate Change”, Climatic Change 45 (2000) 553-569.

  9. Does greater use of BCA in the US explain US opposition? But: convergence on BCA? USA • Congress requires BCA: TSCA (1975), Paperwork Reduc. Act (1980), UMRA (1995), SDWA amdts. (1996). But also often forbids BCA (e.g. CAA 109). • Every President since Jimmy Carter has required BCA of new regulations • Carter EO 12044 (1978): economic impact • Reagan EO 12291 (1981): Bs must “outweigh” Cs, else OMB “return letter” • Clinton EO 12866 (1993): “justify”; R-R, qualitative, distributional effects • 2001- : still using Clinton EO. More “Return” letters. Plus new “Prompt letters”: also using BCA to say Yes (e.g. trans-fat labels, defibrillators). • New RIA Guidelines (2003): more CEAs; lower discount rates (3% as well as 7%); probabilistic scenarios if >$1b; BCA of homeland security regs. Europe • “Proportionality principle” = BCA • “Communication on PP” (Feb. 2000): PP requires BCA • Member States’ implementation of PP: cost, proportionality criteria added. • Better Regulation initiative: Impact Assessment guidelines (2002, 2005): BCA • But: institutional gap: no OMB/OIRA to supervise BCA.

  10. 2. Design of the Climate Treaties • Goals • EU initial position ~1989: taxes; then targets & timetables • US ~1989: unclear, then ‘no’; 1993-97 ‘yes’; 2001 ‘no’ … • Scope (coverage of gases, sectors, sinks) • EU ~1989: energy sector CO2 only, no sinks • US ~1989: a framework treaty, then a protocol on each gas • Instrument choice • EU ~1989: taxes, or national caps with no trading • US ~1989: trading, but no caps • Participation of major emitters • EU ~1989: unaddressed, or industrialized countries act first • US ~1989: unaddressed Selection criteria: • Effectiveness • Cost max(B-C) • Dynamic innovation • Fairness

  11. Comprehensive scope: Advantages • EU position ~1989: CO2 only, energy only, no sinks • US proposal late 1989: “comprehensive approach”: all GHGs, sources & sinks • Environmental advantages • Prevents perverse cross-gas shifts from regulating one gas alone (e.g. CO2 to CH4; or CO2 to N2O) • Encourages conservation of forest sinks (biodiversity) • Economic advantages • Different countries have different emissions portfolios: some more energy CO2, others more Land Use & Forestry, more CH4, etc. • Lowers cost of abatement: 60% or more

  12. Scope:Index of Global Warming Potential (GWP) (Source: D. Schimel et al. in IPCC, Climate Change 1995: The Science of Climate Change 65-131 (1996))

  13. Comprehensive coverageprevents perverse Cross-Gas Shifts

  14. Comprehensive scope = solution to “Risk-Risk Tradeoffs” (Cambridge MA: Harvard University Press, 1995)

  15. Comprehensive scope also reduces Costs Comprehensive: FCCC, Kyoto Not (energy CO2 only): EU ETS, RGGI, …

  16. Comprehensive scope: Disadvantages • Negotiation costs -- increase or decrease ? • Administrative practicality ? • GHG index • need some index; can’t avoid comparing • imperfect index value is better than zero • can improve index over time • Monitoring emissions • can monitor diverse GHGs • can improve monitoring, via incentives • “precautionary paradox”: uncertainty & inaction

  17. Comprehensiveness in Kyoto: GHGs FCCC Article 4(2)(b): covers “emissions ofcarbon dioxide and other greenhouse gasesnot controlled by the Montreal Protocol.” 4(2)(c): “Calculations … should take into account thebest available scientific knowledge, including of the effective capacity of sinks and therespective contributions of such gases to climate change.” Kyoto Protocol, Article 3(1): covers “aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A” Annex A: 6 sets of greenhouse gases: carbon dioxide (CO2) But: methane (CH4) Black carbon (soot) ? nitrous oxide (N2O) Sulfate aerosols ? hydroflourocarbons (HFCs) perflourocarbons (PFCs) sulfur hexaflouride (SF6)

  18. Comprehensiveness in Kyoto: Sinks • Kyoto Protocol • Allows credit for sinks • Restricts credit to new sinks; neglects conservation of existing sinks (biodiversity) • Restricts credit for sinks in CDM • The Hague (Dec. 2000): EU sought limits on sinks • Bonn / Marrakech (2001): • Put quantitative limits on sink credits (though not as tight as sought at The Hague) • Russia got extra sink credits

  19. Instrument Choice • Selection criteria: • Effectiveness • Cost • Dynamic innovation • Fairness • Conduct: • technology standards • policy efforts • Quantity: • fixed emissions caps • cap & trade (Kyoto, EU ETS, McCain-Lieberman, …) • Price: • emissions taxes • civil tort liability • subsidies for emissions abatement, technology R&D • Information: • disclosure of emissions, liabilities

  20. Trading reduces Cost (OECD Model Results for 2020) Source: Barrett (1992)

  21. Instruments in Kyoto: Emissions Trading Kyoto Protocol, Article 17: “The conference of the Parties shall define the relevant principles, modalities, rules and guidelines, in particular for verification, reporting and accountability for emissions trading. The Parties included in Annex B may participate in emissions trading for the purposes of fulfilling their commitments under Article 3. Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article.” 1990s: US advocated, EU opposed emissions trading The Hague (Dec. 2000): EU sought quantitative limit on trading, via “supplementarity” Bonn / Marrakech (2001): EU agreed that no quantitative limit on trading is implied by “supplemental.” But added: seller’s reserve requirement. 2005: EU launches its own “Emissions Trading System.” CO2 sources only.

  22. Instruments in Kyoto: JI and CDM FCCC Article 4(2)(a): “... These [Annex I] Parties mayimplement such policies and measures jointlywith other Parties” Kyoto Protocol Article 6: “(1) For the purpose of meeting its commitments under Article 3, any Party included inAnnex Imaytransfer to, or acquire from, any other such Party emission reduction units …, provided that: (a) Any such project has the approval of the Parties involved; (b) Any such project provides a reduction in emissions by sources, or an enhancement of removals by sinks, that isadditionalto any that would otherwise occur; ... (d) The acquisition of emission reduction units shall besupplementalto domestic actions for the purposes of meeting commitments under Article 3. …” Kyoto Protocol Article 12: “(1) Aclean development mechanismis hereby defined. … (3) Under the clean development mechanism: (a) Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and (b) Parties included in Annex I may use thecertified emission reductionsaccruing from such project activities to contribute to compliance . . .”

  23. But: Small Effect of Kyoto Protocolon Global Emissions, Concentrations Effect of the Kyoto Protocol (shown in blue) on (1) the projected total, worldwide emission of CO2; and on (2), the resulting concentration of the gas in the atmosphere (in parts per million by volume, ppmv), if Kyoto caps applied through the year 2100. Emissions are in units of petagrams (1015 grams) of carbon, or equivalently, billions (109) of metric (2,200 lb) tons per year. In each figure the black reference line (labeled IPCC) is the projected scenario, called IS92a, developed by the Intergovernmental Panel on Climate Change. Shown for reference in the second figure is the pre-industrial CO2 concentration of roughly 275 ppmv. (From Jae Edmonds, “Beyond Kyoto: Toward A Technology Greenhouse Strategy,” Consequences, vol. 5 no. 1 (1999), Figure 1, pp. 17-28, at http://www.gcrio.org/CONSEQUENCES/vol5no1/beyond.html .) Assumes US joins, and zero leakage to non-Annex I countries.

  24. (Washington DC: AEI Press, 2003)

  25. Engaging Participation: Importance of Developing Countries Source: Council of Economic Advisers (CEA),Economic Report of the President (1998) p171

  26. Institutions Matter:Voting Rules for Adopting Law Majority: Rule by N/2 + 1 Unanimity: Rule by N Fiat: Rule by 1 See Buchanan & Tullock, The Calculus of Consent (1962)

  27. Institutions Matter:Voting Rules for Adopting Law Coercion. Consent. Costs to dissenters, Costs of free riding, e.g. rents extracted e.g. slow to act Majority: Rule by N/2 + 1 Fiat: Rule by 1 Unanimity: Rule by N Assumed in National International many analyses law law Collective Net Benefits Individual Net Benefits (Kaldor-Hicks) (Pareto-improving) Polluters Pay Beneficiaries pay

  28. Problem: Cooperation among Countries with Heterogeneous Interests Source only (bear costs of policy) e.g.: Russia, China? “Coop. losers”? Victim only (reap benefit from policy) e.g.: small island countries Both Source & Victim (both costs and benefits) e.g.: most countries. Some free riders. “Free riders”: share benefits; prefer: Free ride > Both act > Neither acts > Act alone. “Cooperative losers”: lose from others’ acting (e.g., gain from global warming); prefer: Neither acts > Free ride > Both act > Act alone. = Raises side payment needed to attract participation.

  29. Disadvantages ofPartial, local action (e.g. by EU only, or US only, or RGGI, California) • Emissions growth not limited in unregulated areas • “Leakage” of emissions to unregulated places • Undermines effectiveness • Raises costs • Political fear of leakage = unwilling to adopt policy • Higher abatement cost (lost trading opportunities) • Market power by fewer permit sellers • Patchwork of different rules • Constitutional constraints on action by US states

  30. Examples of Side Payments to attract Participation in International Environmental Regimes

  31. Disadvantages of Side Payments • Aid/cash: direct subsidies for abatement without caps (e.g. government aid, CDM payments) • Perverse incentive / moral hazard = increases MC but reduces AC, may increase total emissions (Oates, Kohn) • CDM projects may induce domestic leakage (no caps) • CDM sales may undercut attraction of formal trading: why agree to a cap, if CDM credits sell at the same price? • Government aid programs may be distorted by politics • Tax + pay = undermine incentive effect of tax • Compare: Cap & Trade with “headroom” allowances as side payment (as in 1990 Clean Air Act, and Kyoto for Russia) • Cap avoids perverse incentive • Decentralized, competitive, private sector, innovation • Or: linkage to other issues, e.g. WTO entry, health co-benefits

  32. “Participation Efficiency”: Instrument Choice under Consent Voting Rule Minimize sum of CNP + CP : CNP = Costs of non-participation (uncontrolled sources, “leakage” of emissions to unregulated countries, higher abatement cost, market power) + CP = Costs of securing participation, i.e. costs of making side payments (out of pocket costs, perverse incentives)

  33. Participation Efficiency of Alternative Instruments

  34. Trading vs. Taxes: a broader comparison • Uncertainty • Taxes superior if MC’ > MB’ ; otherwise Trading superior (Weitzman 1974; Pizer) • Stock pollutant = flat MB ? But abrupt damages = steep MB ? • Dynamic adjustment • More difficult with quantity rules than with price rules? E.g., NY City taxicab medallions, vs. tax changes. • Engaging participation • Tax would not attract participation by key players • Who would administer? • Tax plus side payment = undermines incentive effect of tax? • “Fiscal cushioning” – principal/agent problems • Domestic tax/subsidy games to cushion key industries • Tax authority may maximize revenues, not tax externality • More costly to monitor true compliance with tax than with cap • Undermines environmental performance of taxes

  35. Pros and Cons of Kyoto • Pros • Scope: Comprehensive – all GHGs, sources and sinks • Instrument: Cap & trade (plus JI, CDM) • Participation: • headroom allowances to engage Russia • Cons • Scope: limits on use of sinks, & no credit for conserving forests • Instrument: limits on full trading • Participation: • Failure to engage China, India, Brazil, etc. • As a result, failure to engage US, Australia • Targets • 2012: too stringent; 15-30% below BAU = tighter than optimal path (Hammitt: 3% below BAU); US would bear 50-80% of the total required reductions from BAU • Post-2012: ??? (Hammitt: 5% below BAU by 2020, 20% by 2050) • Compliance: ??

  36. 3. Ideology?Public Attitudes on Climate • Americans… • Favor US action to limit GHGs if other G8 countries act: 86% • Favor US doing as much or more to limit GHGs than average of G8: 98% • Assume US is already doing as much or more to limit GHGs than average of G8: 68% • US should join Kyoto Protocol: 73% • Assume Bush favors Kyoto Protocol: 43% • Assume Bush opposes Kyoto Protocol: 43% • There is a consensus among scientists that global warming exists and could do significant damage: • Republicans: Yes 41%, No 46% • Democrats: Yes 62%, No 33% • Favor McCain-Lieberman bill: 83%. • Even if it costs $15/household/month: 68%. From Program on International Policy Attitudes, poll conducted June 2005, data at: http://www.pipa.org/OnlineReports/ClimateChange/ClimateChange05_Jul05/ClimateChange05_Jul05_rpt.pdf

  37. Comparing Risk Regulation: More Precautionary Than Thou ? “In the US they believe that if no risks have been proven about a product, it should be allowed. In the EU we believe something should not be authorized if there is a chance of risk.” -- Pascal Lamy, EU Trade Commissioner, 1999 EU US “More and More, Europeans Find Fault with US: Wide Range of Events Viewed as Menacing” -- NY Times, 9 April 2000, p.A1 “Precaution is for Europeans” – NY Times, April 2003 “Europe is considered fairly risk-averse … America, on the other hand, is often seen as having a strong risk-taking culture” – The Economist, 24 January 2004 • View espoused by: • EU officials • NGOs • News media • Scholars • Genetic Engineering, GMO foods / crops • Hormones in Beef, including rBST • Climate Change • Toxic Chemicals E.g. Vogel et al. (2000, 2003), Kramer (2004): Reversal (“flip-flop”) in relative US/EU precaution over 1970-2000 • Guns • Antitrust

  38. Comparing Precaution: Hypotheses about the Evolution of US and European Policies • Globalization yields Harmonization • Convergence • Divergence • “Flip-Flop” • “Hybridization” • EU risk-averse, US risk-taking ? Or, • US adversarial legalism, EU informal corporatist ? • US more PP in 1970s, EU more PP since 1990s • Borrowing, learning • Heterogeneity across & within regulatory systems

  39. Flip-Flop: Evidence EU US • 1970s: Sweden; German “Vorsorgeprinzip” • Lead phaseout (Ethyl Corp. v. EPA, D.C. Cir. 1976) • 1980s: Marine treaties • Species (TVA v. Hill, S.Ct. 1978) • 1990s: Rio treaties. Maastricht Treaty 130r (now 174) adopts PP. Member States adopt PP. ‘No’ to GMOs, beef. • Default assumptions in RA • Benzene(S.Ct. 1980) (OSHAct) (“show us your risk assessment” before you regulate). … Alar controversy. • Carter, Reagan, Clinton = Exec. orders requiring Cost-Benefit • 27 Questions re Communication • 2000: Commission issues “Communication on the PP” • 2001: ECJ on BSE. Late Lessons. • 2002: Action Plan - Better Regulation, Impact Assmts. (BCA) • ECFI case on antibiotics in feed • 2005: REACH • Revisions at Rio; Cartagena • WTO case on Beef Hormones • ‘No’ to Kyoto. Jo’burg WSSD. • Iraq War. WTO case on GM foods. San Francisco adopts PP.

  40. Comparing Precaution:Method 1: Case Studies • “Narrow and deep” inquiry • Not just GMOs, Climate … • Fosters pragmatic dialogue, reduces acrimony over abstract rhetoric of “principle” • Sheds light on real policies, consequences, choices • Greater detail on institutional context and process history (Blomquist) - surrounding the PP, e.g. Implementation & Enforcement, Proportionality Principle, Impact Assessment, Tort law as a backup to ex ante regulation. • But: sampling bias remains – “my cases vs. your cases”

  41. “The Reality of Precaution” Project Project Objective: Move beyond abstract rhetoric to compare actual policies over a wide array of cases. • Four Transatlantic Dialogues: • Bruges, January 2002 • Airlie House, June 2002 • Berlin, June 2003 • Duke Univ. Sept. 2004 • Genetically Modified Foods • Mad Cow Disease (BSE) • Acrylamides in food • Chemicals (TSCA and REACH) • Phthalates • Marine Environment • Biodiversity • Nuclear Energy • Automobile Fuels (Diesel) • Ozone Depletion & Climate Change • New Drug Approval • Medical Errors, ADRs, Patient Safety • Health Supplements • Children’s Health • Antibiotics in animal feed • Smoking • Cell phones • Youth violence • Terrorism & WMD • Information Disclosure Policies

  42. CFCs and GHGs • Stratospheric Ozone Depletion: US acted first, favored targets • Molina & Rowland paper 1974 • Bans on CFCs in aerosols: Oregon 1975, all of US in 1978 • US halts SST. Europe goes ahead with Concorde. • Europe adopts production cap that exceeds current production • “Ozone Hole” 1985 • Montreal Protocol 1987, followed by London, Copenhagen: phaseout • Climate Change: EU acted first, favored targets • Arrhenius 1896; rising CO2 concentration; hotter years 1988- . • Europe presses for treaty; US joins FCCC (Rio 1992) provided no targets & timetables. • US signs Kyoto Protocol (1997) but Clinton Admin. never submits to Senate for ratification. Bush Admin. withdraws (2001). • EU moves ahead with Kyoto targets, emissions trading.

  43. Diesel Emissions • EU: promotes Diesel • to reduce CO2 • > 20% of passenger vehicle fleet • US: restricts Diesel • to reduce fine Particulate Matter (PM) • PM reductions = majority of net benefits of all US federal regulation, 1980-2004 • < 3% of passenger vehicle fleet • Simultaneous precaution, but vs. conflicting risks

  44. BSE/vCJD Policies UK EU USA Cases of BSE ~ 200,000 ~ 2,000 ~ 2 (1986-) (1990-) (deer/elk 2001-? Canada 2003) Ban on UK Beef No TemporaryYes (1996-99) (1989-) Ban on MBM in feedYes Yes Yes (1988) (1994) (1997) Ban on eating SRMYes Yes No (1989) (1997) Ban on beef > 30 months oldYes No No (1996) Testing at slaughter No Yes No (2000) Ban on UK, EU Blood Donors No No Yes (leukodepletion) (1999-) (Source: Wiener & Rogers, 2002; George Gray, Harvard School of Public Health, 2002)

  45. Comparing Precautionary Cases: More Precautionary Than Thou ? US EU • 1970s – 80s: • New drug approval • CFCs • Nuclear power • Endangered species • Lead (Pb) in gas/petrol • 1970s – 80s: • Marine environment • Guns • 1990s - present: • Hormones in Beef, rBST • GM foods / crops • Climate • Toxic Chemicals • Diesel - more (CO2) • 1990s - present: • BSE in Beef, Blood • Smoking • Diesel - less (PM) • Youth violence • Terrorism & WMD

  46. Comparing Precaution: Method 2: Aggregate Quantitative Data • Larger database: all risks mentioned in risk literature (254 references) in US and EU, 1970-2004. • 2878 risks. Broad, but shallow. • Unbiased sampling: random & stratified random But: • True universe of risks? • Random vs. Representative sampling • Less information regarding foreign law, member state law ? • Variation within each system & over time • Policies by member states within US, EU • Rise of EU & its competence over E/H/S issues, since late 1980s • Change in EU membership over 1970-2004 • Scoring ambiguities: e.g., ambient vs. emissions standards • Scoring measures standards, not implementation & enforcement • Scoring counts earliness & stringency, not degree of uncertainty

  47. Constructing a Larger Sample Universe of all risks 11,086 “verbatim” risks from 254 sources in literature on risk perceptions, ranking, and classification, 1960-2003, in US and Europe 3,000 “unique” risks (recom-bining essentially identical “verbatim” risks) In 19 categories and 95 sub-categories 2,878 “unique” risks In 18 categories and 92 sub-categories (dropping 122 unique risks, 1 category, and 3 subcategories) 100 in random sample; 92 in stratified random sample

  48. Table I. Risks by Type Percentage in: Code Category Matrix Sample 1 Crime and violence 1.8 3 2 Alcohol, tobacco, and other drugs 3.0 3 3 Medication and medical treatment 6.8 8 4 Transportation 8.2 13 5 Accidents not elsewhere classified 2.4 2 6 Recreation 5.5 8 7 War, security, and terrorism 1.5 3 8 Toxic substances 9.8 8 9 Food and agriculture 9.5 9 10 Pollution 7.5 8 11 Energy production 5.0 3 12 Political, social, and financial 3.4 1 13 Ecogeological 4.0 2 14 Global 2.2 1 15 Human disease/health 9.7 9 16 Occupational 15.0 17 17 Consumer products 3.4 2 18 Construction 1.4 0 Total percentage 100 100 Total number 2,878 100

  49. Testing Hypotheses: Evidence from the Random Sample • Scoring method: • Drew 100 risks at random • Scored each risk in each year, 1970-2003: • +1 if greater EU stringency • 0 if tie • -1 if greater US stringency • Convergence • Divergence • “Flip-Flop” • “Hybridization”

  50. From: Hammitt, Wiener, Swedlow, Kall & Zhou (2005).