Friday, December 26, 2008

Latin America and global warming (II)

A recent report by the United States Geological services, published by The Washington Post ( on December 25th ,indicate how severe the global warming problem is expected to be, toward the end of this century. It says for instance, that the global sea level, will rise by 4 feet , instead of the previously 1,5 feet estimated .Besides it states that previous research, might underestimated the real consequences of global warming, concerning climate shift. What is the best strategy for less developed countries?.
Poor countries should implement a trading scheme, for dealing with firms which contaminates the environment(asides of other instruments such tax incentives) . This scheme is like the microeconomics side of global warming ,and works as a secondary markets, which trade green bonds , issued by those firms which protect the environment, gaining a credit for it, because it has market value. As long as that bond get traded ,its value goes upward because those which contaminates want to buy it , making a sort of payment for the damage on the environment .
The microeconomics of this scheme, works on the basis that clean environment, has become a scarce good, which therefore has a price that market is willing to pay for. The more severe becomes the consequences of global warming, the more valuable those assets which set a price to such a consequences will be .-
1º C increase in temperatures ,is set to decrease growth rate in poor countries by
-1,09%,and up to -1,58% - 2,01%,considering a broader time span ,because of lagged response in productive sectors due to this temperatures changes .(NBER. June 2008 . WP 14132).-
The speed of adaptation make by itself another problem, because the effect of temperature shocks ,strength over time rather than diminish. There is little evidence, that poor countries adapt and eliminate the negative consequences of global warming, faster than rich countries do .Just to give a deeper insight ,1º C higher temperatures in poor countries is associated with 2,37% lower growth in agricultural product ,close to 50% of GDP in poor countries ,(0,34% in rich countries ,less than 10% in rich countries),and 2,44% in industry and a -3% drop in investment.
On the other side, higher temperatures has a direct effect on political instability, which in turn affect economic growth .This is so, because of expected riots, public demonstration and violence, due to the sharp change on productive conditions and therefore survive chances for populations segments, heavily dependent upon agricultural products. In fact, the real side consequence of 1º C higher, is a 1% falling in per capita income. Thus low speed of adaptation, and greater impact on income level on poor countries than rich countries make obvious what the best strategy is for overcoming the effect of global warming: Poor and Less developed countries , must have their own strategy to cope with global warming impact. .