Eastern Europe's Change of Climate

The Kyoto Protocol in Eastern and Central Europe

By: Dr. Sam Vaknin

Also published by United Press International (UPI)


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Written November 7, 2002

Updated March 4, 2005

The 185 member states of the United Nations Climate Change Convention will meet shortly to contemplate what steps may be needed to implement the Kyoto protocol, now ratified by more than 130 countries, including Russia and the European Union. Signatories have ten years - starting in 2003 - to cut their emissions of greenhouse gases.

In the decade or so of transition, the countries of central and eastern Europe have suffered droughts and floods in equal measure. They attribute this shift in climate patterns to global warming. Ironically, the crumbling of their smokestack industrial infrastructure reduced their emissions by 38 percent between 1990-2000, according to a report presented at the conference. In Estonia, transition's poster kid, emissions declined by 56 percent, according to ETA, the news agency.

The OECD countries increased theirs by 8.4 percent over the same period. This disparity between rich and poor nations in Europe casts a cynical light over the European Union's constant environmental castigation of east Europeans. The EU adopted the Kyoto protocol in May 2002 and committed itself to a total reduction of 8 percent of emissions by 2012.

Even if wildly optimistic forecasts regarding car usage and the restoration of central and east Europe's manufacturing base are met - emissions would still be well in compliance with annex I of the Kyoto protocol, which lists the reductions required of the candidate countries.

This cannot be said about the current members of the European Union and other rich, industrialized polities. Lawmakers in the former communist bloc are aware of it. Quoted by Radio Free Europe/Radio Liberty, the Russian Federation Council Science, Culture, Education, Health, and Ecology Committee Chairman Viktor Shudergov told the news agency Rosbalt in October 2002:

"We must calculate and anticipate the maximum possible improvement for our own industry so that in a few years we don't find ourselves purchasing (pollution) quotas. Russia is currently the world's major supplier of oxygen in the atmosphere. Other countries are using Russia's biological resources to develop their industries. The USA has every possibility to reduce its own emissions but refuses to do so. It would have been more useful if the main source of ecological pollution, the United States, had participated."

Central and east Europeans have a few things going for them as far as the environment goes. Public transport is more developed in the countries in transition than in the rest of the continent. Industry - rebuilt from scratch - invariably comes equipped to minimize pollution. Private cars are less ubiquitous than in Western Europe. Vast swathes of countryside remain virtually untouched, serving as "green lungs" and carbon sinks.

If, as the European Commission envisions, a community-wide regime of emissions-trading is established, the countries east of the Oder-Neisse line could well benefit as net sellers of unused quotas. According to Ziarul Financiar, a Romanian financial newspaper, in 2001, the government of Romania negotiated the sale of some $20 million in carbon dioxide emission rights to Japan.

A similar deal - this time for c. $4 million - was struck with the Swiss. The money was used to refurbish the decrepit central heating systems in a few townships. The interesting twist is that the very enhancement of the energy efficiency of the antiquated pipelines freed for sale portions of the emissions quota.

It is telling that Romania was unable or unwilling to sell its emissions to the United Kingdom, Denmark, or the Netherlands, all three of which host functional emissions-trading pilot projects. The trading rules are so complex - certain sectors and gases are excluded and fiendishly intricate auctions regulate the initial allocation of quotas - that many potential buyers and sellers prefer to abstain.

Estonia circumvented the nascent exchanges altogether. It convinced the Dutch, Finns, Germans, and Swedes to invest in reducing carbon dioxide emissions in Estonia. The reductions, according to the Baltic News Service, will be applied to the quotas of the investing nations.

Still, the political leadership of most countries in transition understands that it has at least to be seen to be supportive of the Kyoto process. Russia announced in the World Summit on Sustainable Development in Johannesburg in September 2002 its intention to ratify the protocol by the end of 2004, as it did. A year later (2003), it also hosted the International Conference on Climate Change. Its then Prime Minister Mikhail Kasyanov boasted of a one third reduction in emissions in recent years.

Environment ministries - a novel fixture - have proliferated throughout the region and, backed by the international community, have become assertive. The Croat minister of environment, for instance, warned his own government in March, in his first national report on local climate changes, of international sanctions due to a considerable increase in the emissions of noxious gases since 1990.

According to the Regional Environmental Center for Central and Eastern Europe, many countries in the region - including three New Independent States, Ukraine, Bulgaria, and the Czech Republic - have completed national climate change action plans. Hungary, Kazakhstan and Russia are preparing theirs. The BBC says that Slovenia is working on a program of its own, though in compliance with the Kyoto requirements.

Less scrupulous politicians regard the environment as another way to extract funds from Western governments and multilateral lending institutions. Especially active are the European Bank for Reconstruction and Development (EBRD) and the World Bank. The former approved $12 million to Vetropak Straza, Croatia's only glass factory. The money will be invested in a new technology with less harmful emissions.

Together with Citibank, the EBRD is committed to financing the $470 million conversion of the Bulgarian thermal power plants, Maritsa 2 and 3 to more efficient and less polluting coal burning. The Bank is collaborating with the Dutch to establish a carbon credits market exclusive to its client states - the countries of central and eastern Europe and the Balkan.

Pollution-phobic European countries - mainly in Scandinavia - work with the World Bank and match its funds in specific environmental undertakings. Thus, the Danish Agency of Environment has financed 13 projects in Bulgaria last year, part of $18 million it has granted that country alone since 1995. It is now assisting Bulgaria in its application for world Bank funds to counter the effects of past pollution.

CommentVisions: "What role should biofuels play in our future energy mix?"

Technologies that appear at first blush and in the lab to be both benign and efficacious often turn out, upon widespread implementation, to be counter-productive or even detrimental. We have yet to accurately capture and model the complexity of reality. Emergent phenomena, unintended consequences, unexpected and undesirable by-products, ungovernable economic and other processes all conspire to adversely affect the trajectories of even the most thoroughly studied inventions.

Biofuels are the poster children of such good intentions gone terribly awry. Rather than retard global warming, scientists (such as Holly Gibbs, a postdoctoral researcher at Stanford's Woods Institute for the Environment, Matt Struebig from Queen Mary, University of London, and Emily Fitzherbert from the Zoological Society of London and University of East Anglia) are now warning that they may enhance and accelerate it by encouraging deforestation in the tropics. Indeed, the higher the prices fetched by biofuels, the more rainforests are being ferociously decimated in the quest for arable land.

Moreover, biofuels are energy-inefficient: their production consumes more energy than they yield in burning. The disastrous effect they have on food prices is amply documented. Another study demonstrates that their consumption releases more carbon dioxide into the atmosphere than the quantity of fossil fuels that they replace.

This "carbon debt" is especially true if we take into account the gases released by the incineration of trees mowed down to make place for the (often state subsidized) cultivation of biofuels. There is also a "biodiversity debt": up to five-sixths of indigenous species are extinguished once a forest is cleared to make way for oil palm plantations, for instance.

Though much hyped, biofuels should not serve as part and parcel of the energy policy mix. Some wonks suggest that biofuels should be allowed to be grown only on marginal or degraded land. But, this would require enormous investments in fertilizers and other technologies intended to halt soil erosion and nutrient leeching. From the point of view of environmental accounting, such tracts better be re-forested. Forests recycle rainwater, act as carbon skins, prevent floods, and serve as habitats to species, some of them endangered.

CommentVisions: "Are we doing enough to ensure a rapid and smooth transition to carbon neutral transport systems this century?"

The sense of urgency evident in this question emanates from two scenarios: peak oil and global warming. I am using the word "scenarios" judiciously as the first is bogus and the second relies heavily on computer models. Moreover, it is not clear that our scarce resources are put to the best use in designing and implementing a carbon-neutral transport system "this century". They may be far better deployed in encouraging and researching carbon sequestration or other cleanup technologies, for instance.

The sciences of ecology and climatology (and meteorology) should not be confused with the hysterical hype and interest-driven fad that is environmentalism. The science is not yet there. We know precious little about the incredibly complex and entangled dynamics of global warming: who stands to benefit from it (yes, there are those, too!) and who to suffer. We know even less about the pernicious impacts that well-intentioned (and highly profitable) technologies such as biofuels and electric engines may have on our environment and natural endowments.

Thus, the first priority should be to invest in scientific studies and to formulate a set of questions and research protocols that are not the poisoned outcomes of political interference, NGO meddling, and mass panic, fomented by a sensation-hungry press and manufactured by compromised scientists. A carbon-neutral transport system sounds like a great idea. But, so did biofuels, DDT, and the Green Revolution.

CommentVisions: “As the first decade of the 21st Century closes, can we be pleased with the progress we have made in the development of energy efficiency and the mitigation of climate change?”


The response to climate change has hitherto been characterized either by dewy-eyed romanticism or by malignant optimism ("if we only recognize the magnitude and nature of the problem and throw money and new technologies at it, all will be well"). These twin fallacies (really, psychological defense mechanisms) have led to the adoption of implementation of measures and technologies that ranged from the futile (ethanol in gas) to the harmful (biofuels). In lieu of devising effective strategies to cope with this potential threat, leaders and civil society (NGOs, multilateral organizations) engaged in grandstanding (The Kyoto Protocol) and stonewalling, often kowtowing to special interests. The remarkable gains in energy efficiency we did gain were driven by market forces, mainly in the wake of price hikes in oil and its derivatives. Humanity failed to otherwise cope with global warming and to mitigate its consequences. It failed even to merely prepare for them in a coherent and analytical manner.


CommentVisions: “Are commercial partnerships between science and industry the best way to reduce GHG (Greenhouse Gases) emissions?”


If the reduction of GHG is a public good, it should be provided mainly by the government (or by NGOs), possibly - but not necessarily - in conjunction with industry. If cutting emissions is essentially a commercial or private good, it is best left to market forces (firms, exchanges) with science merely providing guidance and input to agents and players.


It would seem that environmental goods are public goods.


Pure public goods are characterized by:


I. Nonrivalry - the cost of extending the service or providing the good to another person is (close to) zero.


Most products are rivalrous (scarce) - zero sum games. Having been consumed, they are gone and are not available to others. Public goods, in contrast, are accessible to growing numbers of people without any additional marginal cost. This wide dispersion of benefits renders them unsuitable for private entrepreneurship. It is impossible to recapture the full returns they engender. As Samuelson observed, they are extreme forms of positive externalities (spillover effects).


II. Nonexcludability  - it is impossible to exclude anyone from enjoying the benefits of a public good, or from defraying its costs (positive and negative externalities). Neither can anyone willingly exclude himself from their remit.


III. Externalities - public goods impose costs or benefits on others - individuals or firms - outside the marketplace and their effects are only partially reflected in prices and the market transactions. As Musgrave pointed out (1969), externalities are the other face of nonrivalry.


The usual examples for public goods are lighthouses - famously questioned by one Nobel Prize winner, Ronald Coase, and defended by another, Paul Samuelson - national defense, the GPS navigation system, vaccination programs, dams, and public art (such as park concerts). To this we should add mitigating the effects of climate change, cleaner air, and similar environmental goods.


It is evident that public goods are not necessarily provided or financed by public institutions. But governments frequently intervene to reverse market failures (i.e., when the markets fail to provide goods and services) or to reduce transaction costs so as to enhance consumption or supply and, thus, positive externalities. Governments, for instance, provide preventive care - a non-profitable healthcare niche - and subsidize education because they have an overall positive social effect.


Still, pure public goods do not exist, with the possible exception of national defense. Samuelson himself suggested [Samuelson, P.A - Diagrammatic Exposition of a Theory of Public Expenditure - Review of Economics and Statistics, 37 (1955), 350-56]:


"... Many - though not all - of the realistic cases of government activity can be fruitfully analyzed as some kind of a blend of these two extreme polar cases" (p. 350) - mixtures of private and public goods. (Education, the courts, public defense, highway programs, police and fire protection have an) "element of variability in the benefit that can go to one citizen at the expense of some other citizen" (p. 356).


From Pickhardt, Michael's paper titled "Fifty Years after Samuelson's 'The Pure Theory of Public Expenditure': What Are We Left With?":


"... It seems that rivalry and nonrivalry are supposed to reflect this "element of variability" and hint at a continuum of goods that ranges from wholly rival to wholly nonrival ones.

In particular, Musgrave (1969, p. 126 and pp. 134-35) writes:


'The condition of non-rivalness in consumption (or, which is the same, the existence of beneficial consumption externalities) means that the same physical output (the fruits of the same factor input) is enjoyed by both A and B. This does not mean that the same subjective benefit must be derived, or even that precisely the same product quality is available to both. (...) Due to non-rivalness of consumption, individual demand curves are added vertically, rather than horizontally as in the case of private goods".


"The preceding discussion has dealt with the case of a pure social good, i.e. a good the benefits of which are wholly non-rival. This approach has been subject to the criticism that this case does not exist, or, if at all, applies to defence only; and in fact most goods which give rise to private benefits also involve externalities in varying degrees and hence combine both social and private good characteristics' ".


The Transformative Nature of Technology


It would seem that knowledge - or, rather, technology - is a public good as it is nonrival, nonexcludable, and has positive externalities. The New Growth Theory (theory of endogenous technological change) emphasizes these "natural" qualities of technology.


The application of Intellectual Property Rights (IPR) alters the nature of technology from public to private good by introducing excludability, though not rivalry. Put more simply, technology is "expensive to produce and cheap to reproduce". By imposing licensing demands on consumers, it is made exclusive, though it still remains nonrivalrous (can be copied endlessly without being diminished).


Yet, even encumbered by IPR, technology is transformative. It converts some public goods into private ones and vice versa.


Consider highways - hitherto quintessential public goods. The introduction of advanced "on the fly" identification and billing (toll) systems reduced transaction costs so dramatically that privately-owned and operated highways are now common in many Western countries. This is an example of a public good gradually going private.


Books reify the converse trend - from private to public goods. Print books - undoubtedly a private good - are now available online free of charge for download. Online public domain books are a nonrivalrous, nonexcludable good with positive externalities - in other words, a pure public good.


Environmental  goods require an initial investment (the price-exclusion principle demanded by Musgrave in 1959 does apply at times). Nor is strict nonrivalry possible - at least not simultaneously, as Musgrave observed (1959, 1969). Our world is finite - and so is everything in it. The economic fundament of scarcity applies universally - and public goods are not exempt. This is called "crowding" and amounts to the exclusion of potential beneficiaries (the theories of "jurisdictions" and "clubs" deal with this problem).


Nonrivalry and nonexcludability are ideals - not realities. They apply strictly only to the sunlight. As environmentalists keep warning us, even the air is a scarce commodity. Technology gradually helps render many goods and services - including, hopefully, environmental ones - asymptotically nonrivalrous and nonexcludable.




Samuelson, Paul A. and Nordhaus, William D. - Economics  - 17th edition - New-York, McGraw-Hill Irian, 2001


Heyne, Paul  and Palmer, John P. - The Economic Way of Thinking - 1st Canadian edition - Scarborough, Ontario, Prentice-Hall Canada, 1997


Ellickson, Bryan - A Generalization of the Pure Theory of Public Goods - Discussion Paper Number 14, Revised January 1972


Buchanan, James M. - The Demand and Supply of Public Goods - Library of Economics and Liberty - World Wide Web: http://www.econlib.org/library/Buchanan/buchCv5c1.html


Samuelson, Paul A. - The Pure Theory of Public Expenditure - The Review of Economics and Statistics, Volume 36, Issue 4 (Nov. 1954), 387-9


Pickhardt, Michael - Fifty Years after Samuelson's "The Pure Theory of Public Expenditure": What Are We Left With? - Paper presented at the 58th Congress of the International Institute of Public Finance (IIPF), Helsinki, August 26-29, 2002.


Musgrave, R.A. -  Provision for Social Goods, in: Margolis, J./Guitton, H. (eds.), Public Economics - London, McMillan, 1969, pp. 124-44.


Musgrave, R. A. - The Theory of Public Finance -New York, McGraw-Hill, 1959.


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