GREEN ECONOMY: CHALLENGES FOR ECONOMISTS Adis Israngkura Ho Chi Minh City 6 th – 7 th March 2015

Analysis Department Coordination (lack of) Law and Regulation Populist Government Regional and Sub-regional Integration Issues Efficiency: Welfare Enhancing Aspect Distribution: Rent Seeking and Fairness Aspect

Departmental Coordination (lack of) ISSUESEFFICIENCYDISTRIBUTION Carbon Reduction by Sector (NAMA: Nationally Appropriate Mitigation Actions) Welfare loss from inability to equate marginal costs across economic sectors: MCi ≠ MCj Carbon reduction in agriculture can become a burden to the poor: PPP vs. BPP Lack of substitutes: private vs. public transportation or fossil fuel vs. renewable energy. High mitigation cost with minimal mitigation outcome, e.g. fuel tax pricing but lack public transport system. Distributional outcome from energy pricing or carbon tax scheme, e.g. poor commuters suffer more from fuel tax pricing scheme. Win-Win SolutionEstimation of McKinsey Abatement Cost Curve Avoid unnecessary subsidies to the better off industrialists.

Law and Regulation ISSUESEFFICIENCYDISTRIBUTION Property Rights LawUnder investment in ecosystem protection and management due to lack of appropriate payment mechanism. Polluter-pays Principle is well accepted but unable to apply Beneficiary-pays Principle as law does not permit. Competition Law or Anti- Trust Inefficiency (high operating cost) among a few large-scale oil refinery companies. Rent seeking among large-scale oil refinery companies

Populist Government ISSUESEFFICIENCYDISTRIBUTION Renewable Energy Pricing Scheme. Adder Cost Pricing Scheme generally results in Pi ≠ Pj hence MCi ≠ MCj. This is a source of welfare loss. Some renewable energy producers (solar in particular) enjoys excess profits from guaranteed buy back price and declining cost. Energy SubsidiesGovernment subsidies to energy saving devices, e.g., energy saving bulb, air conditioners or machinery can lead to moral hazard behaviour. Government spending on subsidies generally benefits better off recipients.

Regional and Sub-regional Integration ISSUESEFFICIENCYRENT SEEKING Large scale investment in the energy sector Lack of full cost pricing will result in an over investment in the energy sector. Uncompensated victims of large scale investment and economic rent to the investors and banks. Information Asymmetry among countries members Information asymmetry on the part of the investors behaviour will prevent the stock market to respond to the environmental behaviour of the investors. Economic rent will be trapped among these large scale investors and banks.

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