Defining Terms for Empirical Research

A basic part of research often taken for granted is the simple definition of a term.  There is a global understanding of what is measured by GDP, for example.  However, there are many terms for which there is no internationally accepted definition -- "environmental goods and services" is one of these because environmental impacts are highly context-specific. This poses difficulty and adds contextual nuance when undertaking a study such as ours on the linkages between trade and the environment.

The distinction between production and/or consumption poses particular difficulties with such research projects. For example, a bicycle manufacturer may spew noxious gases and deplete non-renewable minerals in the production process.  However, the use of bicycles may reduce fossil fuel use by end-users as they bike rather than drive to work. These are just a few of the complexities that organizations like the WTO, the World Bank, the OECD, and others are trying to resolve so that trade statistics can inform more sustainable trade policies.

Another major hurdle for the integration of environmental concerns into trade policy is the accounting of the environmental impact embodied in trade ­in the modern global economy. One of the best-known examples on the world stage is the carbon content of trade: how much carbon dioxide is emitted in the manufacturing of a product that is consumed abroad? And is it fair only to include that in the accounting of the country in which it was manufactured?  Several research institutions are working to develop comprehensive input-output tables that account for environmental impacts and resource use; however, none are yet sufficiently adequate accounting tools.

While there is neither a clear definition of environmental goods and services nor a sufficient accounting tool for environmental trade impacts, empirical analysis, such as that in our "Exploring Trade and the Environment" report, offers some insight into the complexities of the relationship between trade and the environment.

Quantifying Environmental Indicators and Trade

Some of the most influential institutions in the international trade realm are integrating environmental concerns into their trade-related work. Groups such as the WTO, World Bank, United Nations, OECD, and various multilateral trade groups, have convened workgroups to flesh-out definitions of ‘environmental goods and services.’ The challenge, as is usually the case with environmental data, is how best to quantify the associations between trade and environmental conditions.

This is a difficult challenge. The world of environmental metrics is young and evolving (unlike the longstanding world of more traditional trade statistics). And connecting quantifiable environmental values to quantifiable economic values (or the narrower subset of quantifiable trade values), and vice versa, is particularly problematic.  There is, for instance, currently no internationally recognized system of environmental accounts. There is also no universally-agreed-upon environmental equivalent to GDP, or the stock market, and so different organizations have developed their own frameworks for assessing relationships between environmental conditions and trade.

Our latest report, “Exploring Trade and the Environment,” is one attempt to connect quantifiable environmental values to quantifiable economic values. Building on eleven years of research in environmental metrics, and the resulting Environmental Performance Index, the report explores ways of assessing quantifiable associations between environmental factors and trade statistics. One of its more straightforward, yet still significant, findings is a strong correlation between high levels of trade and low environmental impacts on human health (see the ENVHEALTH category in the figure below).

To appreciate what this really means, it’s important to understand the data underlying the terminology we use. ‘Environmental impacts on human health’ comes from the World Health Organization’s ‘Disability-Adjusted Life Years’ (DALYs) measure, and ‘levels of trade’ refers to the percent of a country’s GDP that is generated by imports and exports. The DALY metric is composed of, among other things, measures of infrastructure, such as access to improved drinking water and sanitation sources. The variable itself has a strong correlation with GDP. The finding of a ‘strong association between trade levels and environmental impacts on human health’ is thus hardly surprising: countries with more robust trade also typically have better water and sanitation infrastructure.

On a deeper level, perhaps what is most interesting about this finding is that it demonstrates the interconnectedness of policy problems and solutions. For policymakers in the developing world, for instance, our analysis suggests that improving human health means not only the obvious actions of increased water and sanitation infrastructure investments, but it also means putting in place policies that increase overall national trade levels.

Time trends in trade and CO2 emissions: digging deeper

In a recent study on trade and the environment, the Yale Center for Environmental Law & Policy conducted a pilot time trend analysis, painting a clearer picture of the complex relationship between country-level CO₂emissions and trade intensity. The analysis examines changes in trade intensity (as seen through trade as a percent of GDP) alongside two measures of CO₂ emissions—CO₂ per capita and CO₂ per GDP. The former CO₂ measure indicates emissions intensity per person, while the latter indicates the emissions intensity of the economy.

Time trends show that the most common phenomenon is a decline in emissions per GDP with increasing trade intensity, an indication that economies become more carbon efficient as trade becomes a greater portion of GDP. However, the data also reveal a troubling trend among countries: emissions per capita most commonly increase with increasing trade, an indication that trade might be harmful in terms of emissions.

The exciting news—at least for those interested in trade and environmental quality—is that this trend is by no means universal. Many countries have managed decreasing emissions per capita with increases in trade intensity. This elite group includes many European nations—Germany, France, the UK, Sweden and Denmark—as well as several countries in the Americas—Belize, Colombia, and Cuba.

While considerable work is still needed help deepen understanding of the complicated relationships between trade and the environment and while the statistical findings do not support drawing conclusions about causation, it is interesting to pose the question - what are these nations doing differently?

Downloads:
Executive Summary.
Press Release.
Full Report.
Data (Beta Version).

World Oceans Day

Did you know that June 8th was World Oceans Day?  Keep your eyes peeled next February for the release of the world's first Ocean Health Index, put together by Conservation International, the National Geographic Society, and the New England Aquarium.  

The Index's goals are much the same as our land-based Environmental Performance Index - to develop an analytically rigorous and data-driven approach to assessing the health and well-being of the world's oceans, to track and measure ecosystem vitality and public health, and to better inform policymakers.  Check out more about the Index at http://bit.ly/crmTyl and check out our Q&A session with Steve Katona, Managing Director of the project.

Nifty New LCA Calculator

Sleek and simple new Life Cycle Assessment (LCA) calculator makes it simple for all levels of business to calculate their environmental impact – from cradle to grave.

EPA Revisits Hydraulic Fracturing and Drinking Water

As oil prices increase and energy security becomes a concern in the US, more is being done to explore cleaner burning fuels such as natural gas. Natural gas has seen big increases in the number of wells and total production as shale gas extraction, in particular, intensifies. The EPA projects that 20% of US gas supply will come from shale gas by 2020.

An EPA report in 2004 found that "there was little to no risk of fracturing fluid contaminating underground sources of drinking water during hydraulic fracturing of coalbed methane production wells." But public concern over the process by which shale gas is extracted  known as hydraulic fracturing, or "fracking," has escalated with the growing number of wells.  Each well requires the pumping of tremendous amounts of fracking fluid into the earth and, according to the EPA's 2004 report, "[t]here is very little documented research on the environmental impacts that result from the injection and migration of these fluids into subsurface formations, soils, and USDWs."  Until last year (when the EPA called for the voluntary reporting of chemicals used in fracking fluids), many of the chemicals used in fracking were unknown.  Chemicals now known to sometimes be involved in the process include: diesel fuel (which contains benzene and other toxic chemicals), polycyclic aromatic hydrocarbons, methanol, formaldehyde, ethylene glycol, hydrochloric acid, and sodium hydroxide. Given this situation, the EPA has announced another study to examine the effects of hydraulic fracturing on drinking water and groundwater.  The EPA aims to issue preliminary findings in 2012 and a full report in 2014.  The draft study plan is available at here.

2010 Green World Cup

Testifying before the USCC

On April 8, I was invited to testify before the U.S.-China Economic and Security Review Commission (USCC) on China’s green energy and environmental policies. The purpose of the USCC is to “monitor, investigate, and submit to Congress an annual report on the national security implications” of the U.S.-China relationship and to “provide recommendations where appropriate, to Congress for legislative and administrative action.” This particular hearing was divided into four sessions, drawing upon perspectives from the administration, implications of China’s domestic and international policies, and industry.

I was in the esteemed company of Dr. Elizabeth Economy, C.V. Starr Senior Fellow and Director of Asia Studies at the Council of Foreign Relations, and Rob Bradley, Director of the International Climate Policy objective in the Climate Change and Energy Program at the World Resources Institute (and my former colleague).  The Commission specifically asked me to talk about China’s role in the UN Climate Change Change conference in Copenhagen last December, and the implications of China’s actions for the United States and developing countries. 

Given the heat China came under immediately following Copenhagen for supposedly “wrecking” the Copenhagen deal, this was an important opportunity to move past the “sound and fury” (to quote my co-panelist Rob Bradley) of the negotiations in December to provide insights and recommendations as to how the U.S. can work constructively with China in the months leading up to Cancun.

In my written testimony, I made several points that I then reiterated to the Commissioners during the hearing.  These were:

• China is acting on climate change, and they’re acting because they want to.  Questioning the motivations of the Chinese toward climate change was a key aim of the Commission.  If precedent has shown anything, it’s that China engages internationally on global issues where it perceives an alignment with domestic interests. In the case of climate change, China has adopted a similar “scientific outlook” with respect to climate change and the negotiations themselves, bringing an army of academics, scientists, and technocrats who have all probably read the IPCC reports (as opposed to the U.S. delegation, whose roster consisted primarily of political representatives). National concerns over energy and food security, drought, changing monsoon patterns, rising sea levels, and social stability – the consequences of climate change – resonate with both the Chinese leadership and increasingly the Chinese public.  Therefore, China has made significant commitments to address their current and growing contribution to global climate change, most notably a pledge to reduce carbon intensity 40 to 45 percent from 2005 levels by 2020. And since Copenhagen, China has shown that they are not backing down from this pledge either.

• How can we believe the Chinese are making real progress in their mitigation actions? Multiple on-the-ground government, non-government, academic, and industry partners are working with Chinese partners to build capacity to measure, report, and verify energy and climate data in China. Within China, there is strong evidence that the high-level messages voiced are being echoed on the ground.  While the central government has been investing huge amounts  Lawrence Berkeley National Laboratory (LBNL) has been partnering with Tsinghua University to evaluate many of China’s energy conservation programs. A Chinese NGO called the Innovation Center for the Environment and Transportation (iCET) is partnering with the U.S.-based Climate Registry to create China’s first voluntary emissions registry. The World Resources Institute is training Chinese companies to use internationally standardized greenhouse gas accounting tools and methods.  My colleagues and I at the Yale Center for Environmental Law and Policy have been working for the past two years with the Chinese government to systematically measure environmental performance in all 31 Chinese provinces.

• The U.S. is falling behind in terms of mobilizing clean energy and technology partnerships with China.  The U.S is poised at a critical juncture to break the “suicide pact” with China and to capitalize on opportunities to cooperate together on climate change.  Unfortunately, the United States is already late in coming to the game with respect to green energy and environmental cooperation with China. The Chinese already have longstanding partnerships with E.U. nations, several developing countries, and others.  For example, China and Japan also announced before Copenhagen a suite of 42 projects in clean energy and environmental cooperation as part of a decade-long partnership on these issues. In relation to developing countries, last November China pledged $10 billion worth of aid to Africa, which includes construction of 100 clean energy projects.  Fortunately, while the U.S. may have shown up late to the game, it’s not over yet.  All the pieces are in place for the United States and China to work together on clean energy research, energy efficiency, renewable energy, clean coal and carbon capture and sequestration projects, and clean vehicle technology through mechanisms such as the ten-year Strategic and Economic Dialogue (S&ED), the Ten Year Energy and Environment Framework, and the U.S.-China Clean Energy Research Center formed last July.

The Commission followed the testimonies with some thoughtful questions that reflected their particular interest in some of the economic and trade implications of China’s climate policies.  A line of rhetoric that has become pervasive in the media and throughout Capitol Hill of late is the notion that China is somehow beating the U.S. in terms of clean energy and technology and that we’re losing jobs to China as a result.  While it’s true that China is putting more than the U.S. in clean energy investments ($34.6 billion versus the U.S.’s $18.6 billion, according to this recent report by Pew), this does not necessarily mean that China is winning the race yet nor is it necessarily constructive to speak singularly in these terms.  However, after hearing from several staffers on Capitol Hill, it seems that this sound byte is what spurs Senators and Representatives these days.  My argument to the USCC was that we need to move past this idea of who’s winning what and figure out where we can run the race together.  As the old adage goes, if you can’t beat ‘em, join ‘em?

One of the Commissioners also brought up border-tax adjustment policies, which are increasingly being debated on Capitol Hill as a provision in an energy or climate bill, to address competitiveness concerns of U.S. businesses who fear economic losses specifically to countries like China if the U.S. takes on significant climate actions and China does not.  This was an issue Todd Stern, U.S. Special Envoy on Climate Change, brought up in Copenhagen and received a vitriolic response from the Chinese, who remarked that China would not tolerate such trade measures because they violate WTO regulations (although the jury is still out as to whether border-tax adjustment policies do actually violate WTO rules).  Both Rob Bradley and I cautioned the Commission in their recommendations to Congress that they should tread carefully in these waters because carbon taxation could go both ways.  The Chinese have been considering taxing importers of energy and carbon-intensive goods, which could hurt the U.S. (take a look at these import/export figures of U.S.-China trade).  Furthermore, I argued to the USCC that a border-tax adjustment policy by the U.S. toward China might not produce the intended policy changes or environmental effects in China, given the source of much of Chinese emissions.  My former colleagues at WRI in conjunction with the Peterson Institute for International Economics produced a fascinating analysis of competitiveness issues between the U.S. and China, looking at energy and carbon intensive sectors such as iron, steel, copper, aluminum, cement, glass, paper, and basic chemicals – all of which represent the biggest sources of Chinese emissions.  What they found is that China’s exports of these carbon-intensive goods to the U.S. are relatively small. I made the point to the USCC that most of Chinese cement, which accounts for over half of China’s CO2 emissions, is consumed domestically.  Therefore, as the study concludes, such policies could actually sour U.S.-China cooperation on climate change and not produce the desired results:

“[...] unilateral efforts like trade measures that attempt to impose comparable costs on carbon-intensive imports may not have the desired effects, and could threaten international cooperation on climate change. Many of the trade-specific measures are intended to bring China to the climate negotiating table. However, China’s exports of carbon-intense goods to the U.S. are relatively small. Therefore, trade measures aimed at leveraging China to adopt stricter emissions regulations domestically would, in fact, provide little incentive and could sour the prospects for international cooperation.”

A full transcript of the hearing, including the Q&A will be available on the USCC’s website soon. When it becomes available, I’ll let you know so you can read about how I gave my speech using an Apple iPad©, encountered a technical snafu, and was called an “early adopter” by the Commissioners.  It was a good icebreaker, but then I was confused when they proceeded to ask me all about the iPad, and not China …

2010 EPI Reveals Need for More Research on Development & Ecosystems

A guest post by Jacob Meyer, Research Assistant, Yale Center for Environmental Law & Policy

In the 2010 EPI, the relationship between Environmental Health and log GDP per capita typifies a logistic function, colloquially known as an S-curve. The S-curve is a well-known relationship that can be found across disciplines. Chemistry, physics, biology, linguistics, statistics, and economics all find evidence of behaviors that follow the S-curve model. In economics, it is typically employed to describe the pace of technology adoption or innovation. There is often a slow start, followed by a period of rapid advancement, which tapers to slower ending. That the Environmental Health scores follow this pattern is not surprising; public health has always been a major concern of policymakers.

What is perhaps more surprising is that the scores for Ecosystem Vitality do not follow the same pattern. Part of this can be explained by the fact that industrialization has historically required enormous consumption of fossil fuels. However, the data are widely dispersed, and the regressed relationship does not appear to be very strong. This implies that the measures that make up the Ecosystem Vitality score have not received the attention that policymakers have given Environmental Health indicators in the developed world. The data calls for more research – better understanding the relationship between ecosystem protection and economic development could help rapidly developing countries avoid the past environmental errors of the developed world.

Iceland Ranks at Top of 2010 Environmental Performance Index

The latest Environmental Performance Index (EPI), produced by the Yale Center for Environmental Law and Policy and by the Center for International Earth Science Information Network at Columbia University, was released this week, identifying Iceland as the world leader in addressing pollution control and natural resource management challenges. The rankings cover 25 metrics aggregated into ten categories including: air pollution, water resource management, forestry, biodiversity and habitat, and climate change. Iceland is followed in the rankings by Switzerland, Costa Rica, Sweden, and Norway, each having a broad-based commitment to environmental protection. The countries found at the bottom of the rankings are mainly from the African continent. Their low ranks are based on very weak results in terms of environmental health measures, as they lack basic amenities such as clean water and sanitation.

The latest rankings, made public in a session at the World Economic Forum in Davos this week, again show a number of European countries at the higher end of the spectrum, though there were a number of surprises. For one, Costa Rica is ranked third, reflecting its substantial efforts towards environmental protection, while building its economy and strengthening its national identity. Meanwhile, the U.S. ranks 61^st globally, which is a reflection of weak performance on greenhouse gas emissions and air pollution. However, since the data is mainly from 2007 and 2008, the results do not reflect the Obama Administration’s environmental efforts, but rather represent the years of environmental neglect that preceded his inauguration.

The 2010 EPI provides a pilot experiment of looking at trend data. The rankings provide an interesting way to see, on an issue-by-issue basis, who has succeeded and who has fallen short in terms of policy performance. Collecting such information makes it easier to both identify best policy practices, and to disseminate such information. However, efforts to collate “Change EPI index” – that is data that helps us to understand who is making progress, and who is stagnant or declining – has proven to be difficult.

The 2010 EPI also enables one to identify drivers of policy success, using a variety of tools. The EPI shows that the most important determinants for success are the level of GDP and the scale of investments directed toward environmental protection. Yet at every level of development some countries perform better than anticipated, while others lag behind.

The EPI continues to be limited by available data. In many cases, there is not comprehensively collected or methodologically consistent data on important issues. A significant number of countries failed to report data in some key areas. The importance of sound data emerged as a major theme at Copenhagen, and it is of upmost importance that we invest in better environmental metrics and in the external verification of the data reported.

The EPI shows the importance of using quantitative tools in the decisionmaking progress, as it enables policymakers to benchmark progress. It demonstrates the value of being able to understand the strengths and weaknesses of existing policy and strengthen those that work. The full results and accompanying analysis are available at http://epi.yale.edu.

Newsweek Green Rankings

Newsweek has just released its first corporate Green Rankings “scoring” 500 large American companies on their performance in responding to pollution control and natural resource management challenges. This ranking represents another step towards a more transparent world where companies know that their environmental performance is being scrutinized. 

I am especially pleased to see the Newsweek rankings as well as the Carbon Disclosure Project’s latest corporate greenhouse gas emissions scorecard since the Yale Center for Environmental Law and Policy has been promoting data-driven, analytically rigorous analysis of “green” performance for more than a decade.

The Newsweek project (on which I was an advisor) compiles an impressive range of information, gathered by three of the country’s top environmental research firms, about corporate environmental results and practices. Each company’s “Green Score” reflects three components: (1) Environmental Impact, which draws from quantitative measures and modeled results covering a range of issues including greenhouse gas emissions, air pollution and water use; (2) Green Policies, which examines corporate governance and practices related to the environment; and (3) Environmental Reputation, which reflects survey data on attitudes from corporate and environmental experts.

Having a more fact-based and empirical picture of which companies are doing well – and which less so – with regard to environmental management will be of interest to a variety of stakeholders, including the communities where these companies operate as well as their customers, suppliers, and employees.  Perhaps most importantly, environmental performance in general and “carbon exposure” in particular are increasingly of interest to those in the capital markets. As Congress continues to discuss climate legislation, and as the prospect of carbon charges in one form or another looms, investors have begun to ask which companies have been attentive to climate change and will therefore be advantaged in a carbon-constrained world. Likewise, they want to know which companies and industries will be relatively more burdened.  The Carbon Disclosure Project’s rankings are particularly relevant in this regard.

In some important respects, the Green Rankings (and the CDP report) raise more questions than answers. But this is to be expected in a world of haphazard environmental data.  Indeed, the index methodologies will be refined in the years ahead – and the picture painted will be sharpened.