Sustainable Development International Trade and International Agreements Chapter 20 © 2007 Thomson Learning/South-WesternCallan and Thomas, Environmental Economics and Management, 4e.

Understanding Sustainable Development

3 Sustainable Development as a Global Objective Sustainable development refers to managing earth’s resources to assure long-term quality and abundance for future generations Aims to achieve economic prosperity and environmental quality Also referred to as intergenerational equity Involves fundamental change in how society makes market decisions – both consumption and production In practice, there are criticisms and concerns e.g., Nobel Laureate Robert Solow argues against using sustainable development as a policy objective because it is a vague concept; instead consider sustainability as an obligation to future generations

4 Growth and the Environment Sustainable development relies on the premise that economic growth and environmental quality must not be competing goals. Why is this important? Data show that the environmental impact per unit of income associated with growth must decline between 3.5 and 4 percent per year to avoid further pollution and natural resource depletion Problem is more serious for developing countries that have high growth rates and rapidly rising populations, such as China and India

5 Growth and the Environment Environmental Kuznets Curve (EKC) Research has examined whether a technical relationship exists between economic growth and pollution A model of this relationship is the environmental Kuznets curve (EKC), an inverted U shape, implying that: Early stages of industrialization are linked to relatively high pollution levels when growth is a priority and environmental controls are lenient or nonexistent More advanced economic development is linked to a shift in the opposite direction with greater concern for environmental quality and a strengthening of environmental regulation A consensus is forming that this tradeoff is not as severe as once believed

6 Environmental Kuznets Curve More advanced stages of development Early stages of industrial development Income per capita Pollution EKC

7 Framework for Sustainable Development United Nations Conference on Environment and Development (UNCED) – commonly known as the Rio Summit – was a forum held in 1992 to discuss issues relating to sustainable development Included in the summit’s key documents were: Agenda 21 – a voluntary action plan outlining the course for worldwide progress toward sustainable development Rio Declaration – a list of 27 principles to act as guidelines for achieving global environmental quality and economic development

8 Framework for Sustainable Development (continued) World Summit on Sustainable Development (WSSD) was held in Johannesburg in 2002 to renew interest in sustainable development and assess progress since the Rio Summit Among the summit’s accomplishments: Adopted a plan to fully implement Agenda 21 Strengthened the notion of sustainable development Established over 300 partnership initiatives to complement government actions aimed at sustainable development

Controlling Transboundary Pollution

10 International Agreements to Control Transboundary Pollution Montreal Protocol and Amendments Aimed at phasing out ozone-depleting substances Established and made permanent a Multilateral Fund to help developing nations in this effort U.N. Framework Convention on Climate Change (UNFCCC) Garnered a commitment by each signatory nation to launch a strategy limiting releases of greenhouse gases (GHGs) Kyoto Protocol to the UNFCCC  Calls for 38 developed nations to reduce GHG emissions to 5.2% below 1990 levels by 2012 with no targets on developing countries  Provides for the use of market-based instruments, called flexible mechanisms to achieve emissions targets, including a trading system of GHG allowances

11 International Agreements to Control Transboundary Pollution (continued) London Dumping Convention (LDC) Prohibits ocean dumping of certain wastes, including radioactive wastes US-Canada Air Quality Agreement Calls for each country to set emissions caps on sulfur dioxide (SO 2 ) and nitrogen oxides (NO x )

International Trade and Environmental Protection

13 Free Trade Versus Protectionism Proponents of free trade argue that nations should trade with one another because there are tangible gains, such as Higher worldwide output Efficiency gains from specialization More competition and lower prices in global markets Protectionism supports using trade barriers to protect the domestic economy from foreign competition, because they believe trade can have negative consequences such as Unfair competition Job losses Threats to environmental quality

14 Concerns about International Trade and Environmental Quality Production costs are lower in nations with more lenient environmental standards, giving their producers a competitive advantage, sometimes called the pollution haven effect Quality of imports produced in nations with lax regulations on toxic chemical use, fuel efficiency, coal consumption, etc. may lead to international externalities

15 Counter Arguments Economic gains from trade will help poorer nations afford the costly cleanup of environmental pollution An improved economy can provide means to implement better environmental policy, as implied by environmental Kuznets curve  This argument is consistent with sustainable development Both sets of arguments were part of negotiations for major international trade agreements

International Trade Agreements and Environmental Goals

17 North American Free Trade Agreement (NAFTA) NAFTA was reached by the U.S., Mexico, and Canada in 1992 NAFTA Provisions dealing with the environment include: Commitment to sustainable development Agreement to implement NAFTA with the aim of environmental protection and not to lower standards to attract investment Consensus to aim for congruence of each country's environmental regulations Agreement that NAFTA dispute settlement panels will solicit environmental experts as needed

18 NAFTA (continued) The three nations formed the North American Commission for Environmental Cooperation (CEC) to address environmental impact of increased tradeNorth American Commission for Environmental Cooperation (CEC) In 1992, the U.S. and Mexico initiated an Integrated Border Environmental Plan (IBEP) Aimed at improving water quality, monitoring air pollution, tracking hazardous waste, and promoting pollution prevention for the border region Border 2012 Program extends efforts of the IBEP and the Border XXI Program; aims to protect health and environment in the border region following sustainable development Border 2012 Program

19 General Agreement on Tariffs and Trade (GATT) Executed in 1947, GATT was a major international treaty aimed at reducing trade barriers Environmentalists were concerned about how GATT rulings might run counter to environmental goals e.g., under GATT, an import cannot be restricted solely on the basis of an exporter using a pollution-generating input or production method After negotiations called the Uruguay Round, countries had to use least trade restrictive measures to achieve environmental goals, and World Trade Organization (WTO) was formed as successor to GATT

20 World Trade Organization (WTO) An international association aimed at facilitating trade and overseeing trade policy It established a Committee on Trade and Environment (CTE), whose directive is: To identify the relationship between trade measures and environmental measures to foster sustainable development To recommend any necessary changes to the multilateral trading system