Category Archives: Forest Policy

What to Expect at COP-20 in Lima

On Monday, December 1st, the Twentieth Conference of the Parties (COP-20) of the United Nations Framework Convention on Climate Change (UNFCCC) commences in Lima, Peru. Over the next two weeks, delegations from 195 countries will discuss and debate the next major international climate agreement, which – under the auspices of the Durban Platform for Enhanced Action – is to be finalized and signed one year from now at COP-21 in Paris, France.

What to Expect in Lima

Because of the promise made in the Durban Platform to include all parties (countries) under a common legal framework, this is a significant departure from the past two decades of international climate policy, which – since the 1995 Berlin Mandate and the 1997 Kyoto Protocol – have featured coverage of only a small subset of countries, namely the so-called Annex I countries (more or less the industrialized nations, as of twenty years ago).

The expanded geographic scope of the incipient Paris agreement – combined with its emerging architecture in the form of a pragmatic hybrid of bottom-up nationally determined contributions (NDCs) plus top-down elements for monitoring, reporting, verification, and comparison of contributions – represents the greatest promise in many years of a future international climate agreement that is truly meaningful.

A Diplomatic Breakthrough:  The Key Role of the China-USA Announcement

If that confluence of policy developments offers the promise, then it is fair to say that the recent joint announcement of national targets by China and the United States (under the future Paris agreement) represents the beginning of the realization of that promise. From the 14% of global CO2 emissions covered by nations participating (a subset of the Annex I countries) in the Kyoto Protocol’s current commitment period, the future Paris agreement with the announced China and USA NDCs covers more than 40% of global CO2 emissions. With Europe, already on board, the total amounts to more than 50% of emissions.

It will not be long before the other industrialized countries announce their own contributions – some quite possibly in Lima over the next two weeks. More importantly, the pressure is now on the other large, emerging economies – India, Brazil, Korea, South Africa, Mexico, and Indonesia – to step up. Some (Brazil, Korea, Mexico?) may well announce their contributions in Lima, but all countries are due to announce their NDCs by the end of the first quarter of 2015.

The announced China-USA quantitative contributions are themselves significant. For China, capping its emissions by 2030 (at the latest) plus increasing its non-fossil energy generation to 20% by the same year will require very aggressive measures, according to a recent MIT analysis. For the USA, cutting its emissions by 26-28% below the 2005 level by 2025 means doubling the pace of cuts under the country’s previous international commitment.

Thus, the China-USA announcement begins the fulfillment of the promise of the Durban Platform. A sufficient foundation is being established for meaningful future steps, and thereby the likelihood of a successful outcome in Paris has been greatly increased.  The talks in Lima over the next two weeks will produce at least a rough draft of the the Paris agreement, which can then be elaborated and finalized over the coming year, and signed (with abundant photo opportunities for heads of state) in Paris in December, 2015.

Keeping Our Eyes on the Prize

There will be — indeed, already have been — pronouncements of failure of the Lima/Paris talks from some green groups, primarily because the talks will not lead to an immediate decrease in emissions and will not prevent atmospheric temperatures from rising by more than 2 degrees Celsius (3.6 degrees Fahrenheit), which has become an accepted, but essentially unachievable political goal. These well-intentioned advocates mistakenly focus on the short-term change in emissions among participating countries (for example, the much-heralded 5.2% cut by the Annex I countries in the Kyoto Protocol’s first commitment period), when it is the long-term change in global emissions that matters.

In other words, they ignore the geographic scope of participation, and do not recognize that — given the stock nature of the problem — what is most important is long-term action.  Each agreement is no more than one step to be followed by others.  And most important now for ultimate success later is a sound foundation, which is precisely what may finally be provided by the China-USA announced contributions under the Durban Platform structure of a hybrid international policy architecture.

All in all, this may turn out to be among the most important moments in two decades of international climate negotiations. And this means – at a minimum – that the next two weeks in Lima should be very interesting indeed.

Upcoming Events at COP-20 in Lima

As with previous Conferences of the Parties, we – the Harvard Environmental Economics Program and the Harvard Project on Climate Agreements (HPCA) – will be at the Lima talks for their second week, December 7-12. We will be participating in a number of events, and will be holding bilateral meetings with key national delegations.

In all cases, our contributions to the discussions will draw on our compendium of knowledge from our 70 research initiatives in Argentina, Australia, China, Europe, India, Japan, and the United States. Our purpose continues to be to help identify and advance scientifically sound, economically sensible, and politically pragmatic policy options for addressing global climate change.

For those of you who will be in Lima (as well as the rest of you), here is the schedule of COP-20 events that are co-sponsored by HPCA or in which I am participating as HPCA Director. It is going to be a very busy week, but I will try to blog – or at least tweet – about these events and other developments. After I return from Lima, I will follow up with an assessment.


Monday, December 8, 4:45 – 6:15 pm, Room: Machu Picchu

Sponsors: Harvard Project on Climate Agreements, Centre for European Economic Research (ZEW), and Enel Foundation

“Implications of the energy-efficiency gap for reducing greenhouse-gas emissions”

The discussion will be based on our Duke-Harvard research project (sponsored by the Alfred P. Sloan Foundation) on the “energy-efficiency gap”—the apparent difference between predicted and measured rates of adoption of energy-efficiency technology. Panelists will explore the implications of this gap for climate-change mitigation.


Daniele Agostini, Head of Low Carbon Policies and Carbon Regulation, Enel Group

Andreas Löschel, Chair of Microeconomics, and Energy and Resource Economics, University of Münster, and Research Associate, ZEW

Richard Newell, Gendell Professor of Energy and Environmental Economics, Nicholas School of the Environment, Duke University, and Director, Duke University Energy Initiative

Robert Stavins, Director, Harvard Project on Climate Agreements and Albert Pratt Professor of Business and Government, Harvard Kennedy School

Jesus Tamayo Pacheco, President of the Supervisory Body for investment in energy and mines of Peru

See also background paper


Tuesday, December 9, 12:00 – 2:00 pm, China Pavilion

Sponsors: National Center for Climate Change Strategy and International Cooperation (NCSC), National Development and Reform Commission (NDRC), People’s Republic of China

“International Cooperation: Towards the 2015 Agreement –A perspective from international think tanks”

This event aims at exchanging ideas from various international think tanks on the design of the 2015 Agreement with consideration of interaction and cooperation of parties on bilateral and multilateral basis, with a view to provide for inputs to the debates of the negotiation of the 2015 Agreement.


H.E. Minister Xie Zhenhua, Head of Chinese Delegation to COP-20 and Vice Chairman, NDRC

Li Junfeng, Director General, NCSC

Zou Ji, Deputy Director, NCSC

Robert Stavins, Director, Harvard Project on Climate Agreements

Du Xiangwan, Former Vice President, Chinese Academy of Engineering

Martin Kohl, President, South Center

Jennifer Morgan, Global Director of Climate Program, World Resources Institute

Teresa Ribera, President, Institute for Sustainable Development and International Relations


Tuesday, December 9, 4:30 – 6:10 pm, International Emissions Trading Association (IETA) Pavilion

“What Role will Markets Play in the 2015 Climate Agreement? How can the Agreement Facilitate Linkage of Carbon Pricing Policies?”


Dirk Forrister, President & CEO, IETA

Robert Stavins, Director, Harvard Project on Climate Agreements

David Hone, Chief Climate Change Adviser, Shell Research

Anna Lindstedt, Ambassador for Climate Change, Government of Sweden

Mary Nichols, Chair, California Air Resources Board

Amber Rudd, Parliamentary Under Secretary of State, Department of Energy and Climate Change, Government of the United Kingdom

See also background paper


Thursday, December 11, 11:30 am – 1:00 pm, Room: Caral

Sponsors: International Emissions Trading Association, Arizona State University, Harvard Project on Climate Agreements

“Linkage among climate policies in the 2015 Paris agreement”

Panelists will discuss how the Paris agreement might facilitate or impede linkage among cap-and-trade, carbon tax, and non-market regulatory systems. Panelists will also address related issues involving market mechanisms in the new agreement.


Daniel Bodansky, Foundation Professor of Law, Sandra Day O’Connor College of Law, Arizona State University

Dirk Forrister, President & CEO, IETA

Robert Stavins, Director, Harvard Project on Climate Agreements

Alexia Kelley, Senior Climate Change Advisor, U.S. Department of State

Nathaniel Keohane, Vice President for International Climate, Environmental Defense Fund

Ulrika Raab, Senior Advisor Climate Change, Swedish Energy Agency

See also background paper


On the Origins of Research

In response to my last essay at this web site, “On Becoming an Environmental Economist,” several readers suggested that someday I should write about the origins of my various research initiatives over the past 25 years.  Today, I’m doing that sooner than anyone might have expected!

This is feasible because — also quite recently — I was asked by my colleague, Hannah Riley Bowles, the instructor in the Harvard Kennedy School’s Doctoral Research Seminar, to make a presentation to the first-year students in the Ph.D. program in public policy on how research programs develop.  To prepare for this, I reflected on my research projects over the past 25 years since receiving my PhD in economics at Harvard and joining the Kennedy School faculty, and as I began to write some notes for my presentation, a flow chart of research origins, subjects, and products started to emerge.  You can view my PowerPoint presentation (you need to use Slide Show mode to see the animation) here.

In this essay, I describe the elements of that flow chart of research sources, topics, and selected publications (and provide some screen shots of the PowerPoint deck).

As will probably be apparent, I found the process of preparing for Professor Bowles’s seminar valuable, because it forced me – for the first time in 25 years – to step back and reflect systematically on the origins of my research projects and the connections among them.  So, I recommend this process to other researchers, as I think you may find it rewarding.  And, for would-be researchers, that is, PhD students, I hope the results below will be informative.

An Ex Post Exploration of How Research Programs Develop

In carrying out this ex post exploration of how research programs may develop, I identified eleven types of sources of research ideas and projects.  In approximate chronological order (but not necessarily in order of importance), these are:

      • Dissertation
      • Involvement with the Policy World
      • Picking Up on Someone Else’s Work
      • Conferences
      • Funders
      • Student Interest
      • Responding to Others’ Work
      • Teaching
      • Consulting
      • Class Assignment
      • Invitation

I begin with how my dissertation research subsequently led to several avenues of further research and writing.

Dissertation — Analyzing Land Use

My 1988 Ph.D. thesis examined econometrically the factors that had led to the dramatic depletion of forested wetlands in the southern United States over the previous five decades.  Before commenting on how my dissertation stimulated my subsequent research, I should acknowledge that my dissertation topic itself grew of out of some consulting work I was doing at the time for the Environmental Defense Fund, in particular an analysis for James T. B. Tripp of how U.S. Army Corps of Engineers flood control projects were providing economic incentives for landowners to convert their forested wetlands to agricultural croplands.

My dissertation led directly to a pair of journal articles published in 1990 in the American Economic Review (with Adam Jaffe) and the Journal of Environmental Economics and Management.  But more striking – given the theme of this essay – is that several years later I realized that the general econometric approach and simulation model could be applied to a very different question, namely, analyzing the anticipated costs of biological carbon sequestration as a means of reducing net concentrations of carbon dioxide (CO2) in the atmosphere, linked with global climate change.  That recognition led to another article in the American Economic Review (1999), and then to a series of other, related projects on carbon sequestration (with Richard Newell 2000, and with Ruben Lubowski and Andrew Plantinga 2006, both in the Journal of Environmental Economics and Management), as well as a broader research initiative on factors affecting land-use decisions (with Plantinga and Lubowski in the Journal of Urban Economics in 2002 and Land Economics in 2008).  More recent work with Andrew Plantinga and Robin Cross (that does not appear in the schematic below) has involved an econometric analysis of the concept and reality of “terroir” associated with the production of premium wines (American Economic Review 2011, Journal of Wine Economics 2011).

A Less Direct Legacy of Dissertation:  Economics of Technological Change

A fundamental aspect of the econometric modeling involved in some of the land-use models above, including my dissertation research, was the estimation of the parameters of an empirical distribution of some heterogeneous attribute of land parcels, such as potential crop revenue (due to varying land quality, for example).  As costs of production fall, for example, that distribution would be swept, with various parcels going into production at various points in time.  Adam Jaffe and I hoped that this same sort of model could be applied to the process of technological diffusion, that is, the process of gradual adoption of some new technology over time.

As it turned out, however, the model was less useful than we first thought it would be for analyzing the factors affecting technology diffusion, and so we abandoned it for that purpose.  But this led us to explore other conceptual and empirical approaches to assessing the factors that lead to the diffusion of environmental technologies.  We developed a new framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology, including Pigouvian taxes, technology adoption subsidies, and technology standards, with an empirical application to the diffusion of thermal insulation in new home construction, comparing the effects of energy prices, insulation cost, and building codes (Journal of Environmental Economics and Management 1995).  Related work with Nolan Miller and Lori (Snyder) Bennear followed in 2003 (American Economic Review).

Given our interest in the diffusion (adoption) of energy-efficiency technologies, it was natural to think about exploring the factors that affect the innovation (commercialization) of such technologies.  A very different model was developed — with Richard Newell taking the lead as part of his Harvard dissertation research — and an empirical application was made to analyzing the innovation of specific household energy-consuming durable goods (such as water heaters and air conditioners).  This work appeared in the Quarterly Journal of Economics in 1999.

More broadly, our interest in the innovation and diffusion energy efficiency technologies led us to explore in a series of articles the so-called “energy paradox” of apparently slow diffusion of technologies that appear to pay for themselves, as well as other issues related to energy-efficiency technological change (Energy Journal 1994, Resource and Energy Economics 1994, Energy Policy 1994, Elsevier Handbook of Economics 2003, Ecological Economics 2005, Energy Economics 2006, and many others).  And, recently, with a resurgence of interest in the energy paradox in the context of global climate change, Richard Newell and I have launched a new research initiative, with support from the Alfred P. Sloan Foundation.

Because I’ve sought to describe the origins of my research somewhat chronologically, I began with my dissertation research.  The fact that several strands of research — some directly related and some indirectly related to my dissertation — subsequently emerged will surely not surprise academic readers of this essay.  However, a considerably greater influence (indeed, the most important influence) on my research portfolio has come from my involvement — not with fellow scholars — but with practitioners in the world of public policy.  That may come as a surprise to some readers, and it is to this illustration of the two-way street between research and practice to which I now turn.

Involvement with the Policy World

A phone call I received in the late spring of 1988 — a week before my Harvard graduation — from Senator Timothy Wirth (D-Colorado), and a meeting shortly thereafter in Washington with Senator Wirth and his long-time friend and colleague, Senator John Heinz (R-Pennsylvania) led to an agreement that I would direct for them a study intended to inform the Presidential debates on environmental policy in that election year — Project 88:  Harnessing Market Forces to Protect the Environment (and a follow-up study in 1991, Project 88 — Round II, Incentives for Action: Designing Market-Based Environmental Strategies).

Many pages could be written — and, indeed, many have been written — about the influence that Project 88, sponsored by Senators Wirth and Heinz, subsequently had on policy developments at the federal level in Washington (including the path-breaking SO2 allowance trading program in the 1990 Clean Air Act amendments), within many states, and internationally in locations ranging from the European Union to China.  But my purpose in this essay is to examine the origins of my research portfolio, and so I will turn instead to reflect on the ways my experience with Project 88 (and related policy engagements with the White House, the Congress, and others) stimulated new paths of my scholarly research.

One path of research activity soon focused on normative analysis of alternative policy instruments, including work on:  transaction costs in cap-and-trade markets (Journal of Environmental Economics and Management 1995), the effects of correlated uncertainty on the choice between price and quantity instruments (Journal of Environmental Economics and Management 1996), vintage-differentiated regulations (Stanford Environmental Law Journal 2006), and policy instruments in second-best settings (with Lori Bennear, Environmental and Resource Economics 2007).  [The work on correlated uncertainty also illustrates an example of another source of research ideas, namely picking up on research by someone else, because this work was directly inspired by a footnote in Professor Martin Weitzman‘s classic work on “Prices vs. Quantities” (Review of Economic Studies 1974).]

Another area of work on normative analysis of policy instruments focused broadly on market-based instruments (with Robert Hahn, American Economic Review 1992; with Richard Newell, Journal of Regulatory Economics 2003; and the Elsevier Handbook of Environmental Economics 2003).  Other work focused more specifically on cap-and-trade systems (Journal of Economic Perspectives 1998; with Robert Hahn, Journal of Law and Economics 2011; and with Richard Schmalensee, Journal of Economic Perspectives 2013).

A conceptually distinct path of research that also found its origins in my work on Project 88 has involved examinations of the positive political economy of environmental policy (with Robert Hahn, Ecology Law Quarterly 1991; with Nathaniel Keohane and Richard Revesz, Harvard Environmental Law Review 1998; with Robert Hahn and Sheila Olmstead, Harvard Environmental Law Review 2003).

Even this extensive set of research projects and publications that derive from my work on Project 88 — depicted in the figure above — understates the influence that my work on Project 88 with Senators Wirth and Heinz has had on my scholarly research over the years.  This is because much of my work on global climate change policy, for example, has in fact focused on the potential use of market-based instruments in that realm, but for purposes of this essay, I associate that later work on climate policy with two other origins, namely, conferences and funders.

Conferences and Funders

Gradually over the 25 years since receipt of my PhD, my research has evolved from diverse work across environmental and natural resources economics, to more and more focus each year on various aspects of global climate change and related public policies.

“Climate skeptics” and other opponents of action to address climate change have sometimes accused the research community of focusing on climate change because “that is where the money is.”  Although there are sound reasons for focusing on climate change other than the availability of funds (such as the importance of the problem, and the methodological challenges it poses), there is some partial truth to the accusation.  Indeed, numerous national governments and major philanthropic foundations have made it their goal to stimulate research (and action) on climate change.

One part of my work in this realm has been research on national and sub-national climate policy instruments, often focused on the design of market-based instruments, including but not limited to cap-and-trade mechanisms (Brookings Institution 2007; Harvard Environmental Law Review 2008; Oxford Review of Economic Policy 2008; and my work on the Intergovernmental Panel on Climate Change, Second, 1995, and Third, 2001, and Fifth Assessment Reports.

An invitation from the Doris Duke Charitable Foundation to propose and eventually direct an international research and outreach project on international climate policy architecture led to much (but not all) of my work on international climate policy cooperation (with Joseph Aldy and Scott Barrett, Climate Policy 2003; with Scott Barrett, International Environmental Agreements 2003: with Sheila Olmstead, American Economic Review 2006; three books with Joseph Aldy published by Cambridge University Press 2007, 2009, 2010; an article with Judson Jaffe and Matthew Ranson, Ecology Law Quarterly 2010; and ongoing work on the IPCC Fifth Assessment Report 2010-2014; and much more).

Student Interest

Many professors who are reading this essay will not be the least bit surprised to learn that another origin of research ideas has been interest expressed by graduate students.  Three important examples stand out in my case.

One I have already written about above.  When Richard Newell (my very first PhD student) came to Harvard for graduate school in 1993, he brought with him an abiding interest in the relationship between science, technology, and policy.  At the time, Adam Jaffe and I were continuing our work on the diffusion of energy-efficiency technologies, and then the U.S. Department of Energy (DOE) solicited proposals for research that could improve the modeling of technological change in integrated assessment models of climate change (so this covers two other origins — involvement with the policy world, and potential funding).  All of this came together in a joint research initiative, funded by DOE, which supported Newell’s dissertation research on factors affecting the pace and direction of energy-efficiency technology innovation.  This led to a subsequent publication with Jaffe and Newell (Quarterly Journal of Economics 1999), as well as series of other collaborations with Newell, which are on-going to this day.

In 1999, Sheila (Cavanagh) Olmstead came to the Harvard PhD program in public policy with a strong background and keen interests in water resources and water policy.  I brought on board Michael Hanemann, then a professor at the University of California at Berkeley, as a collaborator, and together we applied (successfully) to the National Science Foundation for a grant that supported Sheila’s dissertation research on econometrically estimating demand for municipal water in the presence of block-rate pricing schedules.  Not only did that lead directly to some published work (with Olmstead and Hanemann, Journal of Environmental Economics and Management 2007), but led indirectly to other research on water pricing(with Olmstead, Water Resources Research 2009).

The work on carbon sequestration and land use described above with Ruben Lubowski and Andrew Plantinga (Journal of Environmental Economics and Management 2006; Journal of Urban Economics 2002; Land Economics 2008) also deserves mention in this part of the essay, because it all grew out of Ruben Lubowski‘s PhD dissertation research at Harvard.

Responding to Others’ Work

I mentioned above an example of picking up on someone else’s work (in a positive sense), namely a footnote in Marty Weitzman’s classic 1974 article on “Prices vs Quantities” in which he noted that he was assuming statistical independence between marginal benefits and marginal costs, which stimulated me to relax that assumption and pursue the analysis (which led to my article on the effects of correlated uncertainty in 1996 in the Journal of Environmental Economics and Management).

By contrast, sometimes researchers can be stimulated to do work in order to question others’ previous work (and related conventional wisdom).  This was the case with my collaborative work examining the topic of “corporate social responsibility,” an area of scholarship that some colleagues and I believed was populated by research and writing that generated more heat than light.  A conference we organized at Harvard led to a subsequent book that examined Environmental Protection and the Social Responsibility of Firms:  Perspectives from Law, Economics, and Business (with Harvard Law School professor, Bruce Hay, and Harvard Business School professor, Richard Vietor, 2005).  Later, I took the next step with a follow-up article with Vietor and his Harvard Business School colleague, Forest Reinhardt (Review of Environmental Economics and Policy 2008), and another with Reinhardt (Oxford Review of Economic Policy 2010).


Classroom teaching can itself provide inspiration for research.  In 2002, I was teaching a small “reading and research course” for PhD students interested in environmental economics, and lamented one day that the increasingly popular concept of “sustainability” seemed to lack a clear definition or interpretation that made sense in economic terms.  I offered a possible economic interpretation in class, and within a week, two students — Gernot Wagner and Alexander Wagner (unrelated) — had written out a mathematically formalized version of my interpretation.  We collaborated on writing a brief article that provided background as well as further exploration (Economic Letters 2003).


It may (or may not) come as a surprise that consulting (work I do outside of my Harvard responsibilities, sometimes for compensation, sometimes not) can also lead to interesting research ideas.  In my case, this has led to my thinking more carefully — with collaborators — about the analytical methods that surround net present value analysis (also called, benefit-cost analysis).

This has led to a series of papers on various dimensions of net present value analysis in the environmental realm, including such topics as:  the meaning, limits, and value of the Kaldor-Hicks criterion (with Kenneth Arrow and others, Science 1996); the role of discounting (with Lawrence Goulder, Nature 2002); new benefit-estimation methods (with Paul Portney, Journal of Risk and Uncertainty 1994; and with Lori Bennear and Alexander Wagner, Journal of Regulatory Economics 2005); and the use of Monte Carlo analysis to incorporate uncertainty in regulatory impact analysis (with Judson Jaffe, Regulation and Governance 2007).

Also, as I mentioned at the outset, my 1988 dissertation topic had grown out of some consulting work I was doing at the time for the Environmental Defense Fund.

Class Assignments

Many of my PhD students over the years have written term papers for courses that led to manuscript that were eventually published in academic journals.  But in my own case, because my PhD training in economics at Harvard did not include any courses in environmental economics (none existed at the time, as you may have noted in my previous essay, “On Becoming an Environmental Economist”), the only example I can provide of this origin of research is in a different area, namely economic history.  This is an area in which I took two wonderful courses from Professor Jeffrey Williamson (about which I wrote in my previous post).  An econometric analysis I carried out for one of those courses — “A Model of English Demographic Change: 1573-1873” was subsequently published (Explorations in Economic History 1988).

Invitations (and other origins)

There’s a clear positive correlation between the onset of grey hair and the frequency of invitations to write articles (or books) for publication.  These have included:  an article with Don Fullerton on how economists view the environment in Nature (1998); an article on common property resources in the American Economic Review (2011); my ongoing column, “An Economic Perspective” in The Environmental Forum (2006-present); my blog, “An Economic View of the Environment,” which was launched in 2009; two books of my collected works, 1988-1999 and 2000-2011 (Edward Elgar 2001, 2013); and three editions of a book of selected readings in environmental economics (W. W. Norton 2000, 2005, 2012).

Results of an Ex Post Exploration of Research Origins

Putting all of that together in a single flow chart results in the figure below, which is much clearer in a PDF version.  You can also view the entire PowerPoint presentation (you need to use Slide Show mode to see the animation) here.

As I said at the outset, I found the process of preparing this slide deck for Professor Bowles’s seminar valuable, because it enabled me to step back and reflect systematically on the origins of my research initiatives over the years and the relationships among them.  I recommend this process to other academics, because I believe it can be rewarding.  And, for academics in-the-making, that is, PhD students, I hope this essay may be informative.

On Becoming an Environmental Economist

My essay this month represents a departure from my standard blog posts about a contemporary environmental policy issue.  Rather, it is of a more personal nature, and stems from the fact that the second volume of my collected papers has just been published by Edward Elgar, Economics of Climate Change and Environmental Policy:  Selected Papers of Robert N. Stavins, 2000-2011 (2013), a successor to the first volume, published in 2000, Environmental Economics and Public Policy:  Selected Papers of Robert N. Stavins, 1988-1999.

When the publisher invited me to collect my papers in these edited volumes, it was suggested that I write a personal introduction in which I might reflect on the professional path that led to my research and writing.  I did this, and the introductory chapter of the second volume contains my latest reflections on that path.  This essay essentially consists of an abbreviated version.  My hope is that some readers will find it of interest, particularly students and others who aspire to work in this exciting and growing field.

A Professional Path

Over the past two decades, environmental and resource economics has evolved from what was once a relatively obscure application of welfare economics to a prominent field of economics in its own right.  The number of articles on the natural environment appearing in mainstream economics periodicals has continued to increase, as has the number of economics journals dedicated exclusively to environmental and resource topics.  Likewise, the influence of environmental economics on public policy has increased significantly, particularly as greater use has been made of market-based instruments for environmental protection.

In retrospect, my own professional path may now appear somewhat direct, if not altogether linear, but it hardly seemed so as I traveled along it.  The path I describe below took me back and forth across the United States and to several continents, and it took me from physics to philosophy, to agricultural extension, to international development studies, to agricultural economics, and eventually to environmental economics.  It culminated in my receipt in 1988 of a Ph.D. degree in economics at Harvard University, where I have since been a faculty member at the John F. Kennedy School of Government.  During this time, much has changed in the profession.

Early Days at Harvard

The early ascendency of the field of environmental economics, during the period from 1970 to 1990, was centered within departments of agricultural and resource economics, mainly at U.S. universities, and at Resources for the Future (RFF), the Washington research institution.  Within most economics departments, however, environmental studies remained a relatively minor area of applied welfare economics.  So, when I enrolled in the Ph.D. program in Harvard’s Department of Economics in 1983, and when I received my degree five years later, no field of study was offered in the field of environmental or resource economics.

Fortunately, Harvard permitted its graduate students to develop an optional, self-designed field as one of two “special fields” on which they were to be examined orally before proceeding to dissertation research.  Without an active environmental economist in the Department of Economics (Robert Dorfman had retired, and Martin Weitzman had yet to move to Harvard from the Massachusetts Institute of Technology), I developed an outline and reading list of the field through correspondence with leading scholars from other institutions, most prominently Kerry Smith, then at North Carolina State University.  My proposal to prepare for and be examined in the special field of environmental and resource economics (along with econometrics) was approved by the Department’s director of graduate study, Dale Jorgenson.  So began my entry into the scholarly literature.

A Nurturing Environment at Cornell

But my interest in environmental economics pre-dated by a considerable number of years my matriculation at Harvard.  Like many others before and since, I came to the field because of a personal interest in the natural environment (the origin of which I describe below).  This personal interest evolved into a professional one while I was studying for an M.S. degree in agricultural economics at Cornell University in the late 1970’s, where my thesis advisor and mentor was Kenneth Robinson.  I had originally gone to Cornell to study for a professional degree in international development, but found agricultural economics more appealing, largely because of the opportunity to examine social questions with quantitative methods within a disciplinary framework.

The faculty at Cornell and the care given to graduate students (including masters students like me) were both outstanding.  Ken Robinson, my first mentor within the economics profession, became my ongoing role model for intellectual integrity.  It was a very sad day in 2010 when Professor Robinson passed away.

A course in linear algebra, brilliantly taught by S. R. Searle, inspired me to pursue quantitative methods of analysis, and I was fortunate to then have the opportunity to study econometrics with Tim Mount.  One summer I had the great privilege of learning comparative economic systems in a small workshop setting from George Staller of the Cornell Department of Economics.   Working with Bud Stanton, I had my first experience teaching at the university level, and with Olan Forker, I had my first try at serious writing.  All of this led to research and writing of an M.S. thesis, “Forecasting the Size Distribution of Farms:  A Methodological Analysis of the Dairy Industry in New York State.”  The methodology in question was a variable Markov transition probability matrix, the cells of which were estimated econometrically in a multinomial logit framework.  Much to my surprise, this work subsequently received the Outstanding Master’s Thesis Award in the national competition of the American Agricultural Economics Association.

A Defining Move from Ithaca to Berkeley

Armed with my M.S. degree, I moved from Cornell to Berkeley, California, where I eventually met up with Phillip LeVeen, who had until shortly before that time been a faculty member in the Department of Agricultural and Resource Economics at the University of California, Berkeley.  Phil was another superb mentor, and from him I learned the power of using simple models — by which I mean a set of supply and demand curves hastily drawn on a piece of scrap paper — to develop insights into real-world policy problems.  He introduced me to a topic that was to occupy me for the next few years — California’s perpetual concerns with water allocation.  I remember many afternoons spent working with Phil at his dining room table on questions of water supply and demand.

This work with Phil LeVeen led to a consultancy and then a staff position with the Environmental Defense Fund (EDF), the national advocacy group consisting of lawyers, natural scientists, and — then almost unique among environmental advocacy organizations — economists.  At EDF, I was able to experience for the first time the use of economic analysis in pursuit of better environmental policy.  With W. R. Zach Willey, EDF’s senior economist in California, as a role model, and Thomas Graff, EDF’s senior attorney, as my mentor, I thrived in EDF’s collegial atmosphere, while thoroughly enjoying life in Berkeley’s “gourmet ghetto,” as my neighborhood was called.  Sadly, Tom Graff — without whose mentorship I would not be where I am today — passed away in 2009 after a heroic battle with cancer.

Although I found the work at EDF exceptionally rewarding, I worried that I would eventually be constrained — either within the organization or outside it — by my limited education.  So, like many others in similar situations, I considered a law degree as the next logical step.  In fact, I came very close to enrolling at Stanford Law School, but instead, in 1983, I accepted an offer of admission to the Department of Economics at Harvard, moved back east to Cambridge, Massachusetts, and began what has turned out to be a long-term relationship with the University.

Origins of Interest in Environmental Economics

But where did my interest in the natural environment begin?  Not at Cornell; it was present long before those days.  But it had not yet arisen when I was studying earlier at Northwestern University, from which I received a B.A. degree in philosophy, having departed from my first scholarly interest, astronomy and astrophysics.

Rather, the origins of my affinity for the natural environment and my interest in resource issues are to be found in the four years I spent in a small, remote village in Sierra Leone, West Africa, as a Peace Corps Volunteer, working in agricultural extension (in particular, paddy rice development).  It was there that I was first exposed both to the qualities of a pristine natural environment and the trade-offs associated with economic development.

So, I had begun in astrophysics, moved to philosophy (both at Northwestern), then to agricultural extension in a developing country (Sierra Leone), then to international development studies and subsequently to agricultural economics (both at Cornell), then to environmental economics and policy (EDF), and eventually to graduate study in economics at Harvard.

From Berkeley to Cambridge

My dissertation research at Harvard was directed by a committee of three faculty members:  Joseph Kalt, Zvi Griliches, and Adam Jaffe.  Joseph Kalt was the first faculty member at the Department of Economics to validate my interest in environmental and resource issues, and he was unfailingly generous to me and many other graduate students in making his office (and computer, then a rather scarce resource) available at all hours.  Now a colleague at the Kennedy School, Joe provided examples never to be forgotten — that economics could be a meaningful and enjoyable pursuit, and that excellence in teaching was a laudable goal.

Zvi Griliches was not only my advisor and mentor, but my spiritual father as well.  Generations of Harvard graduate students would offer similar testimony.  My own father had died only a year before I entered Harvard, and Zvi soon filled for me many paternal needs.  It is now more than a decade since Zvi himself passed away.  I felt as if I had lost my father a second time.

If Zvi Griliches provided caring and inspiration, Adam Jaffe provided invaluable day-to-day guidance.  It was Adam who convinced me not to go on the job market in my fourth year with what would have been a mediocre dissertation, but to put in another year and do it right.  That turned out to be some of the best professional advice I have ever received.  Our intensive faculty-student relationship from dissertation days subsequently evolved into a very productive professional (and personal) one that continues to this day.  The name of Adam Jaffe appears frequently in my curriculum vitae as a co-author; he has been and continues to be much more than that.

Although they were not members of my thesis committee, I should acknowledge two other faculty members at the Harvard Department of Economics who played important roles in my education.  I was fortunate to take two courses in economic history (a department requirement) from Jeffrey Williamson, who had recently arrived from the University of Wisconsin.  Williamson’s class sessions were as close as anything I have witnessed to being an economic research laboratory.  In class after class, we would carefully dissect one or more articles — examining hypothesis, theoretical model, data, estimation method, results, and conclusions.  If there was any place where I actually learned how to carry out economic research, it was in those classes.

The other name that is important to highlight is that of Lawrence Goulder, then a faculty member at Harvard, and now a professor at Stanford.  I say this not simply because he was willing to be my examiner in my chosen field of environmental and resource economics, nor because he subsequently became such a close friend.  Rather, what is striking about my professional relationship with Larry is the degree to which he has been an unnamed collaborator on so many projects of mine.  Although he and I have co-authored no more than a few articles, his name probably appears more frequently than anyone else’s in the acknowledgments of papers I have written.  There is no one whose overall judgement in matters of economics I trust more, and no one who has been more helpful.

First Steps for a Newly-Minted Ph.D. Recipient

When I began graduate school at Harvard in 1983, it was my intention to return to EDF as soon as I received my degree.  But by my third year in the program, I had decided to pursue an academic career, although one that was heavily flavored with involvement in the real world of public policy.  Within the context of this professional objective, it was not a difficult decision to accept the offer I received in February, 1988, to become an Assistant Professor at the Kennedy School.  Although some of the other offers I received at that time were also very attractive, the choice for me was obvious, and I have never regretted it — not for a moment.

I remain at the Kennedy School today, where I was promoted to Associate Professor in 1992 (an untenured rank at Harvard), and to a tenured position as Professor of Public Policy in 1997.   In 1998, I accepted an appointment as the Albert Pratt Professor of Business and Government.

Twenty-Five Years on the Harvard Faculty

Two years later, I launched the Harvard Environmental Economics Program, which today brings together — from across the University — thirty Faculty Fellows and twenty-five Pre-Doctoral Fellows, who are graduate students studying for the Ph.D. degree in economics, political economy and government, public policy, or health policy.  The Program, which I continue to direct, forms links among faculty and graduate students engaged in research, teaching, and outreach in environmental, natural resource, and energy economics and related public policy, by sponsoring research projects, convening workshops, and supporting graduate (and undergraduate) education.

A key reason why the Program — and its various projects, including the Harvard Project on Climate Agreements — have been so successful is the superb administrative leadership and staff support  it enjoys.  Everyone who has been involved in virtually any way has come away impressed by our Executive Director, Robert Stowe, and Program Manager, Jason Chapman.

At the Kennedy School, I have had an excellent mentor, William Hogan, and a superb advisor and friend, Richard Zeckhauser.  Over the years, five successive deans have provided leadership, guidance, and support (including abundant time for my research and writing) — Graham Allison, Robert Putnam, Albert Carnesale, Joseph Nye, and David Ellwood.  At Harvard more broadly, I have benefitted from regular interactions with Daniel Schrag, director of the Harvard University Center for the Environment, and Martin Weitzman of the Department of Economics.  For two decades, Marty and I have co-directed a bi-weekly Seminar in Environmental Economics and Policy, which has provided me with frequent opportunities to learn both from seminar speakers and from Marty’s questions and comments.  I will refrain from naming the many others at Harvard and elsewhere from whom I continue to learn — including my many co-authors — only because the list of such valued colleagues and friends is so long.  Included have been a most remarkable set of Ph.D. students, many of whom have gone on to productive — indeed illustrious — careers.

Along the way, I have had my share of administrative responsibilities at Harvard, including serving as Director of Graduate Studies for the Doctoral Program in Public Policy and the Doctoral Program in Political Economy and Government, and Co-Chair of the Harvard Business School-Harvard Kennedy School Joint Degree Programs.  Outside of Harvard, I have had the privilege of being a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, and the founding Editor and now Co-Editor of the Review of Environmental Economics and Policy, as well as a member of the Board of Directors of Resources for the Future, the Scientific Advisory Board of the Fondazione Eni Enrico Mattei, and numerous editorial boards. I must also note that I serve as an editor of the Journal of Wine Economics.  In 2009, I was elected a Fellow of the Association of Environmental and Resource Economists.

Working with the “Real World”

What originally attracted me to the Kennedy School was the possibility of combining an academic career with extensive involvement in the development of public policy.  I have not been disappointed.  Indeed, a theme that emerges from my collected papers is the interplay between scholarly economic research and implementation in real-world political contexts.  This is a two-way street.   In some cases, my policy involvement has come from expertise I developed through research, following a path well worn by academics.  But, in many other cases, my participation in policy matters has stimulated for me entirely new lines of inquiry.

What I have characterized as involvement in policy matters is described at the Kennedy School as faculty outreach, recognized to be of great institutional and social value, along with the two other components of our three-legged professional stool — research and teaching.  Because they relate to a number of the papers collected in this volume, I should note that my outreach efforts fall into five broad categories:  advisory work with members of Congress and the White House (for example, Project 88, a bipartisan effort co-chaired by former Senator Timothy Wirth and the late Senator John Heinz, to develop innovative approaches to environmental and resource problems); service on federal government panels (for example, my role as Chairman of the Environmental Economics Advisory Committee of the U.S. Environmental Protection Agency Science Advisory Board); on-going consulting — often on an informal basis — with environmental NGOs (most frequently, the Environmental Defense Fund) and private firms; advisory work with state governments; and professional interventions in the international sphere, such as service as a Lead Author for the Second and the Third Assessment Reports and a Coordinating Lead Author for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, professional roles with the World Bank and other international organizations, and advisory work with foreign governments.

Finally, because my two books of collected papers focus on my articles, not my books, I should note that over the years I have been privileged to be co-editor with Joseph Aldy of Post-Kyoto International Climate Policy:  Implementing Architectures for Agreement (Cambridge University Press, 2010), Post-Kyoto International Climate Policy:  Summary for Policymakers (Cambridge University Press, 2009), and Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (Cambridge University Press, 2007); editor of three editions of Economics of the Environment (W. W. Norton, 2000, 2005, 2012); co-editor with Bruce Hay and Richard Vietor of Environmental Protection and the Social Responsibility of Firms:  Perspectives from Law, Economics, and Business (Resources for the Future, 2005); editor of The Political Economy of Environmental Regulation (Edward Elgar, 2004), co-editor with Paul Portney of Public Policies for Environmental Protection (Resources for the Future, 2000); and author of Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988-1999 (Edward Elgar, 2000).

The New Volume

That last book is the predecessor of the new volume.  Whereas the first volume (Stavins 2000) included selected papers from the period 1988 through 1999, the second volume covers the period from 2000 through 2011.  To prepare this new book, I selected 26 articles from the (many more) published papers I wrote  — frequently with co-authors — over the past decade.  Making this selection was not an easy task, but it was a rewarding one, because choosing the papers and organizing them has forced me to step back and reflect on the set of research endeavors in which I have been engaged over this decade, and thus to think more clearly about current and possible future directions.

The book is divided into seven parts.  The papers in Part I provide an overview of environmental and resource economics, treating broadly several key topics, including economic views of:  the problem of the commons (Stavins, American Economic Review, 2011); the history of U.S. environmental regulation (Hahn, Olmstead, and Stavins, Harvard Environmental Law Review, 2003); and corporate social responsibility (Reinhardt, Stavins, and Vietor, Review of Environmental Economics and Policy, 2008).

The articles in Part II deal with methods of environmental policy analysis, focusing, respectively, on:  interpreting sustainability in economic terms (Stavins, Wagner, and Wagner, Economic Letters, 2003); the use of discounting in net present value analysis (Goulder and Stavins, Nature, 2002); the development of a new revealed-preference method for inferring environmental benefits (Bennear, Stavins, and Wagner, Journal of Regulatory Economics, 2005); and the value of formal assessment of uncertainty (that is, Monte Carlo analysis) in regulatory impact analysis (Jaffe and Stavins, Regulation and Governance, 2007).

Part III turns to economic analysis of alternative environmental policy instruments, with examinations of: vintage-differentiated environmental regulation (Stavins, Stanford Environmental Law Journal, 2006); cost heterogeneity and the potential savings from employing market-based environmental policies (Newell and Stavins, Journal of Regulatory Economics, 2003); the effects of allowance allocations on the performance of cap-and-trade systems (Hahn and Stavins, Journal of Law and Economics, 2011); and second-best theory and the use of multiple policy instruments (Bennear and Stavins, Environmental and Resource Economics, 2007).

Part IV focuses on a topic that also received considerable treatment in the predecessor to this volume, namely the economics of technological change.  Here the articles include: a survey of the literature on environmental policy and technological change (Jaffe, Newell, and Stavins, Environmental and Resource Economics, 2002); an analysis of the interaction of environmental and technological market failures (Jaffe, Newell, and Stavins, Ecological Economics, 2005); an empirical assessment of the effect of environmental regulation on technology diffusion in the case of chlorine manufacturing (Miller, Snyder, and Stavins, American Economic Review Papers and Proceedings, 2003); and the effects of economic and policy incentives on carbon mitigation technologies (Jaffe, Newell, and Stavins, Energy Economics, 2006).

Part V consists of three articles in the area of natural resource economics dealing with land and water resources:  an analysis of the factors driving land-use change in the United States (Lubowski, Plantinga, and Stavins, Land Economics, 2008); an econometric examination of the significance of terroir, the notion that wine quality is primarily determined by location (Cross, Plantinga, and Stavins, American Economic Review Papers and Proceedings, 2011); and an assessment of urban water demand under alternative pricing structures (Olmstead, Hanemann, and Stavins, Journal of Environmental Economics and Management, 2007).

Part VI consists of four articles on domestic (national and sub-national) climate change policy, beginning with a description and assessment of a comprehensive U.S. cap-and-trade system for carbon dioxide and other greenhouse gas emissions (Stavins, Oxford Review of Economic Policy, 2008), and followed by:  an examination of the interactions of national and sub-national climate policies (Goulder and Stavins, American Economic Review Papers and Proceedings, 2011); an econometric study of the carbon-sequestration supply function (Lubowski, Plantinga, and Stavins, Journal of Environmental Economics and Management, 2006); and an assessment of the factors that affect the costs of biological carbon sequestration (Newell and Stavins, Journal of Environmental Economics and Management, 2000).

Finally, Part VII focuses on the international dimensions of climate change policy, and consists of four articles:  a comparison of alternative global climate change policy architectures (Aldy, Barrett, and Stavins, Climate Policy, 2003); an assessment of the Kyoto Protocol (Stavins, Milken Institute Review, 2005); an examination of a promising post-Kyoto international climate regime (Olmstead and Stavins, American Economic Review Papers and Proceedings, 2006); and a detailed examination of a key element of emerging international climate policy architecture, namely the linkage of regional, national, and sub-national tradable permit systems (Ranson, Jaffe, and Stavins, Ecology Law Quarterly, 2010).

Reflections on Common Themes

Selecting the essays for this second volume of my papers permitted me to take note of some common themes that emerge from this decade of research and writing.  First, there is the value — or at least, the potential value — of economic analysis of environmental policy.  The cause of virtually all environmental problems in a market economy is economic behavior (that is, imperfect markets affected by externalities), and so economics offers a powerful lens through which to view environmental problems, and therefore a potentially effective set of analytical tools for designing and evaluating environmental policies.

A second message, connected with the first, is the specific value of benefit-cost analysis for helping to promote efficient policies.  Economic efficiency ought to be one of the key criteria for evaluating proposed and existing environmental policies.  Despite its limitations, benefit-cost analysis can be useful for consistently assimilating the disparate information that is pertinent to sound decision making.  If properly done, it can be of considerable help to public officials when they seek to establish or assess environmental goals.

Third, the means governments use to achieve environmental objectives matter greatly, because different policy instruments have very different implications along a number of dimensions, including abatement costs in both the short and the long term.  Market-based instruments are particularly attractive in this regard.

Fourth, an economic perspective is also of considerable value when reflecting on the use of natural resources, whether land, water, fisheries, or forests.  Excessive rates of depletion of these resources are frequently due to the nature of the respective property-rights regimes, in particular, common property and open-access.  Economic instruments — such as ITQ systems in the case of fisheries — can and have been employed to bring harvesting rates down to socially efficient levels.

Fifth and finally, policies for addressing global climate change — linked with emissions of carbon dioxide and other greenhouse gases — can benefit greatly from the application of economic thinking.  On the one hand, the long time-horizon of climate change, the profound uncertainty in links between emissions and actual damages, and the possibility of catastrophic climate change present significant challenges to conventional economic analysis.  But, at the same time, the ubiquity of energy generation and use in modern economies means that only market-based policies — essentially carbon pricing regimes — are feasible instruments for achieving truly meaningful emissions reductions.  Hence, despite the challenges, an economic perspective on this grandest of environmental threats is essential.

Final Words

On a personal level, the professional path I have taken offers some confirmation that research can influence public policy, and it also illustrates that involvement in public policy can stimulate new research.  The quest — both professional and personal — that took me from Evanston, Illinois, to Sierra Leone, West Africa, to Ithaca, New York, to Berkeley, California, and finally to Cambridge, Massachusetts suggests some consistency of purpose and even function.  I continue to find myself doing similar things, but in different contexts.  It is fair to say that my professional life has taken me along a path that has brought me home.  The words of T. S. Eliot (1943) ring true:

                                        We shall not cease from exploration
                                        And the end of all our exploring
                                        Will be to arrive where we started
                                        And know the place for the first time.

Selecting the papers for this volume forces me to reflect on the past and think more clearly about the future.  The twenty-six articles that comprise this book and the twenty-two essays that comprised the predecessor volume are the product of twenty-three wonderful years on the faculty of the Harvard Kennedy School.  During this time, I have continued to learn about environmental economics and related public policy from colleagues, collaborators, students, friends, and inhabitants of the ”real world” of public policy, individuals from government, private industry, advocacy groups, and the press.  I hope that my learning will continue.

Cap-and-Trade, Carbon Taxes, and My Neighbor’s Lovely Lawn

The recent demise of serious political consideration of an economy-wide U.S. CO2 cap-and-trade system and the even more recent resurgence in interest among policy wonks in a U.S. carbon tax should prompt reflection on where we’ve been, where we are, and where we may be going.


Almost fifteen years ago, in an article that appeared in 1998 in the Journal of Economic Perspectives, “What Can We Learn from the Grand Policy Experiment?  Lessons from SO2 Allowance Trading,” I examined the implications of what was then the very new emissions trading program set up by the Clean Air Act Amendments of 1990 to cut acid rain by half over the succeeding decade.  In that article, I attempted to offer some guidance regarding the conditions under which cap-and-trade (then known as “tradable permits”) was likely to work well, or not so well.  Here’s a brief summary of what I wrote at the time:

(1)  SO2 trading was a case where the cost of abating pollution differed widely among sources, and where a market-based system was therefore likely to have greater gains, relative to conventional, command-and-control regulations (Newell and Stavins 2003). It was clear early on that SO2 abatement cost heterogeneity was great, because of differences in ages of plants and their proximity to sources of low-sulfur coal. But where abatement costs are more uniform across sources, the political costs of enacting an allowance trading approach are less likely to be justifiable.

(2)  The greater the degree to which pollutants mix in the receiving airshed or watershed, the more attractive a cap-and-trade (or emission tax) system will be, relative to a conventional uniform standard. This is because taxes or cap-and-trade can – in principle – lead to localized “hot spots” with relatively high levels of ambient pollution. Some states (in particular, New York) tried unsuccessfully to erect barriers to trades they thought might increase deposition within their borders.  This is a significant distributional issue.  It can also be an efficiency issue if damages are nonlinearly related to pollutant concentrations.

(3)  The efficiency of a cap-and-trade system will depend on the pattern of costs and benefits. If uncertainty about marginal abatement costs is significant, and if marginal abatement costs are quite flat and marginal benefits of abatement fall relatively quickly, then a quantity instrument, such as cap-and-trade, will be more efficient than a price instrument, such as an emission tax (Weitzman 1974).  With a stock pollutant (such as CO2), this argument favors a price instrument (Newell and Pizer 2003).  However, when there is also uncertainty about marginal benefits, and marginal benefits are positively correlated with marginal costs (which, it turns out, is a relatively common occurrence for a variety of pollution problems), then there is an additional argument in favor of the relative efficiency of quantity instruments (Stavins 1996).

(4)  Cap-and-trade will work best when transaction costs are low (Stavins 1995), and the S02 experiment showed that if properly designed, private markets will tend to render transaction costs minimal.

5)  Considerations of political feasibility point to the wisdom of proposing trading instruments when they can be used to facilitate emissions reductions, as was done with SO2 allowances and lead rights trading, less so for the purpose of reallocating existing emissions abatement responsibility (Revesz and Stavins 2007).

(6)  National policy instruments that appear impeccable from the vantage point of Cambridge, Massachusetts, Berkeley, California, or Madison, Wisconsin, but consistently prove infeasible in Washington, D.C., can hardly be considered “optimal.”

Implications for CO2 Policy

In the same article, I noted that many of these issues could be illuminated by considering a concrete example:  the “current interest” in applying cap-and-trade to the task of cutting CO2 emissions to reduce the risk of global climate change.  Some of the points I made in this regard in my 1998 article were:

(a)  The number of sources of CO2 emissions are vastly greater than in the case of SO2 emissions as a precursor of acid rain, where the focus could be placed on a few hundred electric utility plants.  Feasibility considerations alone argue for market-based instruments (cap-and-trade or taxes) to achieve meaningful reductions of CO2 emissions.

(b)  The diversity of sources of CO2 in a modern economy and the consequent heterogeneity of emission reduction costs bolster the case for using cost-effective market-based instruments.

(c)  As the ultimate global-commons problem, CO2 is a truly uniformly-mixed pollutant.  With no concern for hot spots, market-based instruments present none of the problems that can arise in the case of localized environmental threats.

(d)  Any pollution-control program must face the possibility of emissions leakage from regulated to unregulated sources. This would be a severe problem for an international CO2 program, where emissions would tend to increase in nonparticipant countries. Furthermore, it raises concerns for the emission-reduction-credit (not cap-and-trade) system in the Kyoto Protocol known as the Clean Development Mechanism (CDM).  Such an offset system can lower aggregate costs by substituting low-cost for high-cost control, but may also have the unintended effect of increasing aggregate emissions beyond what they would otherwise have been, because there is an incentive for adverse selection: sources in developing countries that would reduce their emissions, opt in, and receive credit for actions they would have taken anyway.

(e)  Although any trading program could potentially serve as a model for the case of global climate change, I argued that the trading system that accomplished the U.S. phaseout of leaded gasoline in the 1980s merited particular attention. The currency of that system was not lead oxide emissions from motor vehicles, but the lead content of gasoline. So too, in the case of global climate, great savings in monitoring and enforcement costs could be had by adopting input trading linked with the carbon content of fossil fuels. This is reasonable in the climate case, since – unlike in the SO2 case – CO2 emissions are roughly proportional to the carbon content of fossil fuels and scrubbing alternatives are largely unavailable, at least at present.

(f)   Natural sequestration of CO2 from the atmosphere by expanding forested areas is available (even in the United States) at reasonable cost (Stavins 1999).  Hence, it could be valuable to combine any carbon trading (or carbon tax) program with a carbon sequestration program, although this will raise significant challenges in regard to monitoring and enforcement.

(g)  In regard to carbon permit allocation mechanisms, auctions would have the advantage that revenues could be used to finance reductions in distortionary taxes.  Free allocation could increase regulatory costs enough that the sign of the efficiency impact could conceivably be reversed from positive to negative net benefits (Parry, Williams, and Goulder 1999).  On the other hand, free allocation of carbon permits would meet with much less political resistance.

The Necessity of Market-Based Instruments:  Cap-and-Trade or Carbon Taxes

I concluded that developing a cap-and-trade system for climate change would bring forth an entirely new set of economic, political, and institutional challenges.  At the same time, I recognized that the diversity of sources of CO2 emissions and the magnitude of likely abatement costs made it equally clear that only a market-based instrument – some form of carbon rights trading or (probably revenue-neutral) carbon taxes – would be capable of achieving the domestic targets that might eventually be forthcoming.

In other words, my conclusion in 1998 strongly favored a market-based carbon policy, but was somewhat neutral between carbon taxes and cap-and-trade.  Indeed, at that time and for the subsequent eight years or so, I remained agnostic regarding what I viewed as the trade-offs between cap-and-trade and carbon taxes.  What happened to change that?  Three words:  The Hamilton Project.

The Making of an Advocate

For those of you who don’t know, the Hamilton Project is an initiative based at the Brookings Institution that – according to its web site – “offers a strategic vision and produces innovative policy proposals on how to create a growing economy that benefits more Americans.”

In 2007, the Project’s leadership asked me to write a paper proposing a U.S. CO2 cap-and-trade system.  I responded that I would prefer to write a paper proposing the use of a market-based CO2 policy, describing the two alternatives of cap-and-trade and carbon taxes.  I explained that I was by no means opposed to the notion of a carbon tax, having written about such approaches for more than twenty years.  Indeed, I noted, both cap-and-trade and carbon taxes would be good approaches to the problem; they have many similarities, some tradeoffs, and a few key differences.

The Hamilton Project leaders said no, they wanted me to make the best case I could for cap-and-trade, not a balanced investigation of the two policy instruments.  Someone else would be commissioned to write a proposal for a carbon tax.  (That turned out to be Professor Gilbert Metcalf of Tufts University – now on leave at the U.S. Department of the Treasury – who did a splendid job!)  Thus, I was made into an advocate for cap-and-trade.  It’s as simple as that.

Giving It My Best Shot

I argued in my Hamilton Project paper (which you can read here) that despite the tradeoffs between the two principal market-based instruments that could target CO2 emissions, the best (and most likely) approach for the short to medium term in the United States was a cap-and-trade system, based on three criteria:  environmental effectiveness, cost effectiveness, and distributional equity.  Although my position was not simple capitulation to politics, I argued that sound assessments of environmental effectiveness, cost effectiveness, and distributional equity should be made in a real-world political context.

I said that the key merits of the cap-and-trade approach were, first, the program could provide cost-effectiveness, while achieving meaningful reductions in greenhouse gas emissions levels.  Second, it offered an easy means of compensating for the inevitably unequal burdens imposed by a climate policy.  Third, it provided a straightforward means to link with other countries’ climate policies.  Fourth, it avoided the political aversion in the United States to taxes.  Fifth, it was unlikely to be degraded – in terms of its environmental performance and cost effectiveness – by political forces. And sixth, this approach had a history of successful adoption and implementation in this country over the past two decades.

I recognized that there were some real differences between taxes and cap-and-trade that needed to be recognized.  First, environmental effectiveness:  a tax does not guarantee achievement of an emissions target, but it does provide greater certainty regarding costs.  This is a fundamental tradeoff.  Taxes provide automatic temporal flexibility, which needs to be built into a cap-and-trade system through provision for banking, borrowing, and possibly cost-containment mechanisms.  On the other hand, political economy forces strongly point to less severe targets if carbon taxes are used, rather than cap-and-trade – this is not a tradeoff, and is why virtually no environmental NGOs have favored the carbon-tax approach.

In principle, both carbon taxes and cap-and-trade can achieve cost-effective reductions, and – depending upon design — the distributional consequences of the two approaches can be the same.  But the key difference is that political pressures on a carbon tax system will most likely lead to exemptions of sectors and firms, which reduces environmental effectiveness and drives up costs, as some low-cost emission reduction opportunities are left off the table.  But political pressures on a cap-and-trade system lead to different allocations of the free allowances, which affect distribution, but not environmental effectiveness, and not cost-effectiveness.

I concluded that proponents of carbon taxes worried about the propensity of political processes under a cap-and-trade system to compensate sectors through free allowance allocations, but a carbon tax would be sensitive to the same political pressures, and should be expected to succumb in ways that are ultimately more harmful:  reducing environmental achievement and driving up costs.

Of course, such positive political economy arguments look much less compelling in the wake of the defeat of cap-and-trade legislation in the U.S. Congress and its successful demonization by conservatives as “cap-and-tax.”

A Political Opening for Carbon Taxes?

Does the defeat of cap-and-trade in the U.S. Congress, the obvious unwillingness of the Obama White House to utter the phrase in public, and the outspoken opposition to cap-and-trade by Republican Presidential candidate Mitt Romney indicate that there is a new opening for serious consideration of a carbon-tax approach to meaningful CO2 emissions reductions?

First of all, there surely is such an opening in the policy wonk world.  Economists and others in academia, including important Republican economists such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic supporters of a national carbon tax.  And a much-publicized meeting in July at the American Enterprise Institute in Washington, D.C. brought together a broad spectrum of Washington groups – ranging from Public Citizen to the R Street Institute – to talk about alternative paths forward for national climate policy.  Reportedly, much of the discussion focused on carbon taxes.

Clearly, this “opening” is being embraced with enthusiasm in the policy wonk world.  But what about in the real political world?  The good news is that a carbon tax is not “cap-and-trade.”  That presumably helps with the political messaging!  But if conservatives were able to tarnish cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a tax – as a tax!   Also, note that Romney’s stated opposition and Obama’s silence extend beyond disdain for cap-and-trade per se.  Rather, they cover all carbon-pricing regimes.

So as a possible new front in the climate policy wars, I remain very skeptical that an explicit carbon tax proposal will gain favor in Washington, no matter what the outcome of the election.  Note that the only election outcome that could lead to an aggressive and successful move to a meaningful nationwide carbon pricing regime would be:  the Democrats take back control of the House of Representatives, and the Democrats achieve a 60+ vote margin in the Senate, and the President is reelected.  A quick check at Five Thirty Eight (Nate Silver’s superb election forecast website at the New York Times) and other polling web sites makes it abundantly clear that the probability of such Democratic control of the White House and Congress is so small that it’s hardly worth discussing.

What About Fiscal Policy Reform?

A more promising possibility – though still unlikely – is that if Republicans and Democrats join to cooperate with either a Romney or Obama White House to work together constructively to address not only the short-term fiscal cliff at the end of this calendar year, but also the longer-term budgetary deficits the U.S. government faces, and if as part of this they decide to include not only cuts in government expenditures, but also some significant “revenue enhancements” (the t-word is not allowed), and if (I know, this is getting to be a lot of “if’s”) it turns out to be easier politically to eschew increases in taxes on labor and investment and therefore turn to taxes on consumption, then there could be a political opening for new energy taxes, in particular, (drum roll ….) a carbon tax.

Such a carbon tax – if intended to help alleviate budget deficits – could not be the economist’s favorite, a revenue-neutral tax swap of cutting distortionary taxes in exchange for implementing a carbon tax.  Rather, as a revenue-raising mechanism – like the Obama administration’s February 2009 budget for a 100%-auction of allowances in a cap-and-trade scheme – it would be a new tax, pure and simple.  Those who recall the 1993 failure of the Clinton administration’s BTU-tax proposal – with a less polarized and more cooperative Congress than today’s – are not optimistic.

Nor is it clear that a carbon tax would enjoy more support in budget talks than a value added tax (VAT) or a Federal sales tax.  The key question is whether the phrases “climate policy” or “carbon tax” are likely to expand or narrow the coalition of support for an already tough budgetary reconciliation measure.  The key group to bring on board will presumably be conservative Tea Party Republicans, and it is difficult to picture them being more willing to break their Grover Norquist pledges because it’s for a carbon tax.


Even if the much-ballyhooed political opening for carbon taxes is largely illusory, the opening for policy wonks is real.  And here is where action is happening, and should continue to happen.  At some point the politics will change, and it’s important to be ready.  This is why economic research on carbon taxes is very much needed, particularly in the context of broader fiscal challenges, and it is why I’m pleased to see it happening at Resources for the Future, Harvard University, and elsewhere.

Bottom Line

I would personally be delighted if a carbon tax were politically feasible in the United States, or were to become politically feasible in the future.  But I’m forced to conclude that much of the current enthusiasm about carbon taxes in the academic and broader policy-wonk community in the wake of the defeat of cap-and-trade is – for the time being, at least – largely a manifestation of the grass looking greener across the street.

Economics of the Environment

The Sixth Edition of Economics of the Environment: Selected Readings has just been published by W. W. Norton & Company of New York and London.  Through five previous editions, Economics of the Environment has served as a valuable supplement to environmental economics texts and as a stand-alone book of original readings in the field of environmental economics.  Nearly seven years have passed since the previous edition of this volume was published, and it is now more than three decades since the first edition appeared, edited by Robert and Nancy Dorfman.  The Sixth Edition continues this tradition.

Motivation and Audience

Environmental economics continues to evolve from its origins as an obscure application of welfare economics to a prominent field in its own right, which combines elements from public finance, industrial organization, microeconomic theory, and many other areas of economics.  The number of articles on the environment appearing in mainstream economics periodicals continues to increase, and more and more economics journals are dedicated exclusively to environmental and resource topics.

There has also been a proliferation of environmental economics textbooks for college courses.  Many are excellent, but none can be expected to provide direct access to timely and original contributions by the field’s leading scholars.  As most teachers of economics recognize, it is valuable to supplement the structure and rigor of a text with original readings from the literature.

Scope and Style

With that in mind, this new edition of Economics of the Environment consists of thirty-four chapters that instructors will find to be of great value as a complement to their chosen text and their lectures.  The scope is comprehensive, and the list of authors is a veritable “who’s who” of environmental economics, including:  Joseph Aldy, Kenneth Arrow, Trudy Cameron, Ronald Coase, Maureen Cropper, Peter Diamond, George Eads, Jeffrey Frankel, Rick Freeman, Don Fullerton, Lawrence Goulder, John Graham, Robert Hahn, Michael Hanemann, Jerry Hausman, Steven Kelman, Nathaniel Keohane, Alan Krupnick, Lester Lave, John Livernois, Eric Maskin, Leonardo Maugeri, Gilbert Metcalf, Richard Newell, Roger Noll, William Nordhaus, Wallace Oates, Sheila Olmstead, Elinor Ostrom, Karen Palmer, Ian Parry, Carl Pasurka, Robert Pindyck, William Pizer, Michael Porter, Paul Portney, Forest Reinhardt, Richard Revesz, Milton Russell, Michael Sandel, Richard Schmalensee, Steven Shavell, Jason Shogren, Kerry Smith, Robert Solow, Nicholas Stern, Laura Taylor, Richard Vietor, and myself.

The articles are timely, with more than 90 percent published since 1990, and half since 2005.  There are two completely new sections of the book, “Economics of Natural Resources” and “Corporate Social Responsibility,” and all of the chapters in the section on global climate change are new to the sixth edition.

In order to make the readings in Economics of the Environment accessible to students at all levels, one criterion I use in the selection process is that articles should not only be original and well written — and meet the highest standards of economic scholarship — but also be non-technical in their presentations.  Hence, readers will find virtually no formal mathematics in any of the book’s 34 chapters throughout its 733 pages.

The Path Ahead

Environmental economics is a rapidly evolving field.  Not only do new theoretical models and improved empirical methods appear on a regular basis, but entirely new areas of investigation open up when the natural sciences indicate new concerns or the policy world turns to new issues.  Therefore, this book remains a work in progress.  I owe a great debt to the teachers and students of previous editions who have sent their comments and suggestions for revisions.  Looking to future editions, I invite all readers — whether teachers, students, or practitioners — to send me any thoughts or suggestions for improvement.

In the meantime, if you’re interested finding out more about the book, immediately below is a chapter-by-chapter summary of the book.  Alternatively, you can check out the W. W. Norton or Amazon web sites.


Appendix:  A Summary of Economics of the Environment, Sixth Edition

Part I of the volume provides an overview of the field and a review of its foundations.  Don Fullerton and I start things off with a brief essay about how economists think about the environment (Nature 1998).  This is followed by the classic treatment of social costs and bargaining by Ronald Coase (Journal of Law and Economics 1960), and a new article by Jason Shogren and Laura Taylor on the important, emerging field of behavioral environmental economics (Review of Environmental Economics and Policy 2008).

The Costs of Environmental Protection

Part II examines the costs of environmental protection, which might seem to be without controversy or current analytical interest.  This is not, however, the case.  This section begins with a survey article by Carl Pasurka that reviews the theory and empirical evidence on the relationship between environmental regulation and so-called “competitiveness” (Review of Environmental Economics and Policy 2008).

A somewhat revisionist view is provided by Michael Porter and Class van der Linde, who suggest that the conventional approach to thinking about the costs of environmental protection is fundamentally flawed (Journal of Economic Perspectives 1995).  Karen Palmer, Wallace Oates, and Paul Portney provide a careful response (Journal of Economic Perspectives 1995).

The Benefits of Environmental Protection

In Part III, the focus turns to the other side of the analytic ledger — the benefits of environmental protection.  This is an area that has been even more contentious — both in the policy world and among scholars.  Here the core question is whether and how environmental amenities can be valued in economic terms for analytical purposes.

The book features a provocative debate on the stated-preference method known as “contingent valuation.”  Paul Portney outlines the structure and importance of the debate, Michael Hanemann makes the affirmative case, and Peter Diamond and Jerry Hausman provide the critique (all three articles are from the Journal of Economic Perspectives 1994).

In the final article in Part III, the book turns to a concept that is both very important in assessments of the benefits of environmental regulations and is also very widely misunderstood — the value of a statistical life.  In an insightful essay, Trudy Cameron seeks to set the record straight (Review of Environmental Economics and Policy 2010).

There are two principal policy questions that need to be addressed in the environmental realm:  how much environmental protection is desirable; and how should that degree of environmental protection be achieved.  The first of these questions is addressed in Part IV and the second in Part V.

The Goals of Environmental Policy:  Economic Efficiency and Benefit-Cost Analysis

In an introductory essay, Kenneth Arrow, Maureen Cropper, George Eads, Robert Hahn, Lester Lave, Roger Noll, Paul Portney, Milton Russell, Richard Schmalensee, Kerry Smith, and I ask whether there is a role for benefit-cost analysis to play in environmental, health, and safety regulation (Science 1996).

Then, Lawrence Goulder and I focus on an ingredient of benefit-cost analysis that non-economists seem to find particularly confusing, or even troubling — intertemporal discounting (Nature 2002).  Next, Robert Pindyck examines a subject of fundamental importance — the role of uncertainty in environmental economics (Review of Environmental Economics and Policy 2007).  Steven Kelman provides an ethically-based critique of benefit-cost analysis, which is followed by a set of responses (Regulation 1981).

Part IV concludes with an up-to-date essay by John Graham on the critical role of the U.S. Office of Management and Budget in federal regulatory impact analysis (Review of Environmental Economics and Policy 2008).

The Means of Environmental Policy:  Cost Effectiveness and Market-Based Instruments

Part V examines the policy instruments — the means — that can be employed to achieve environmental targets or goals.  This is an area where economists have made their greatest inroads of influence in the policy world, with tremendous changes having taken place over the past twenty  years in the reception given by politicians and policy makers to so-called market-based or economic-incentive instruments for environmental protection.

Lawrence Goulder and Ian Parry start things off with a broad-ranging essay on instrument choice in environmental policy (Review of Environmental Economics and Policy 2008).  Following this, I examine lessons that can be learned from the innovative sulfur dioxide allowance trading program, set up by the Clean Air Act Amendments of 1990 (Journal of Economic Perspectives 1998).  Finally, Michael Sandel provides a critique of market-based instruments, with responses offered by Eric Maskin, Steven Shavell, and others (New York Times 1997).

Economics of Natural Resources

Part VI consists of three essays on a new topic for this book — the economics of natural resources.  First, John Livernois examines the empirical significance of a central tenet in natural resource economics, namely the Hotelling Rule — the proposition that under conditions of efficiency, the scarcity rent (price minus marginal extraction cost) of natural resources will rise over time at the rate of interest (Review of Environmental Economics and Policy 2009).

Essays by Leonardo Maugeri (Review of Environmental Economics and Policy 2009) and Sheila Olmstead (Review of Environmental Economics and Policy 2010), respectively, examine two particularly important resources:  petroleum and water.

The next four sections of the book treat some timely and important topics and problems.

Corporate Social Responsibility and the Environment

Part VII examines corporate social responsibility and the environment, discussion of which has too often been characterized by more heat than light.  Forest Reinhardt, Richard Vietor, and I provide an overview of this realm from the perspective of economics, examining the notion of firms voluntarily sacrificing profits in the social interest.  In a second essay, Paul Portney provides a valuable empirical perspective (both are from the Review of Environmental Economics and Policy 2008).

Global Climate Change

Part VIII is dedicated to investigations of economic dimensions of global climate change, which may in the long term prove to be the most significant environmental problem that has arisen, both in terms of its potential damages and in terms of the costs of addressing it.  First, a broad overview of the topic is provided in a survey article by Joseph Aldy, Alan Krupnick, Richard Newell, Ian Parry, and William Pizer (Journal of Economic Literature 2010).

Next, William Nordhaus critiques the well-known Stern Review on the Economics of Climate Change, and Nicholas Stern and Chris Taylor respond (both are from Science 2007).  In the final essay in this section, Gilbert Metcalf examines market-based policy instruments that can be used to address greenhouse gas emissions (Journal of Economic Perspectives 2009).

Sustainability, the Commons, and Globalization

Part IX begins with Robert Solow’s economic perspective on the concept of sustainability.  This is followed by Elinor Ostrom’s development of a general framework for analyzing sustainability (Science 2009), and my own historical view of economic analysis of problems associated with open-access resources (American Economic Review 2011).  Then, Jeffrey Frankel draws on diverse sources of empirical evidence to examine whether globalization is good or bad for the environment (Council on Foreign Relations 2004).

Economics and Environmental Policy Making

The final section of the book, Part X, departs from the normative concerns of much of the volume to examine some interesting and important questions of political economy.  It turns out that an economic perspective can provide useful insights into questions that might at first seem to be fundamentally political.

Nathaniel Keohane, Richard Revesz, and I utilize an economic framework to ask why our political system has produced the particular set of environmental policy instruments it has (Harvard Environmental Law Review 1998).  Myrick Freeman reflects on the benefits that U.S. environmental policies have brought about since the first Earth Day in 1970 (Journal of Economic Perspectives 2002).  Lastly, Robert Hahn addresses the question that many of the articles in this volume raise:  what impact has economics actually had on environmental policy (Journal of Environmental Economics and Management 2000)?

What Happened (and Why): An Assessment of the Cancun Agreements

The international climate negotiations in Cancun, Mexico, have concluded, and despite the gloom-and-doom predictions that dominated the weeks and months leading up to Cancun, the Sixteenth Conference of the Parties (COP-16) of the United Nations Framework Convention on Climate Change (UNFCCC) must be judged a success.  It represents a set of modest steps forward.  Nothing more should be expected from this process.

As I said in my November 19th essay – Defining Success for Climate Negotiations in Cancun – the key challenge was to continue the process of constructing a sound foundation for meaningful, long-term global action (not necessarily some notion of immediate, highly-visible triumph).  This was accomplished in Cancun.

The Cancun Agreements – as the two key documents (“Outcome of the AWG-LCA” and “Outcome of the AWG-KP”) are called – do just what was needed, namely build on the structure of the Copenhagen Accord with a balanced package that takes meaningful steps toward implementing the key elements of the Accord.  The delegates in Cancun succeeded in writing and adopting an agreement that assembles pledges of greenhouse gas (GHG) cuts by all of the world’s major economies, launches a fund to help the most vulnerable countries, and avoids some political landmines that could have blown up the talks, namely decisions on the (highly uncertain) future of the Kyoto Protocol.

I begin by assessing the key elements of the Cancun Agreements.  Then I examine whether the incremental steps forward represented by the Agreements should really be characterized as a success.  And finally I ask why the negotiations in Cancun led to the outcome they did.

Assessing the Key Elements of the Cancun Agreements

First, the Cancun Agreements provide emission mitigation targets and actions (submitted under the Copenhagen Accord) for approximately 80 countries – including, importantly, all of the major economies. In this way, the Agreements codify pledges by the world’s largest emitters – including China, the United States, the European Union, India, and Brazil – to various targets and actions to reduce emissions by 2020.  The distinction between Annex I and non-Annex I countries is blurred even more in the Cancun Agreements than it was in the Copenhagen Accord – another step in the right direction!

Also, for the first time, countries agreed – under an official UN agreement – to keep temperature increases below a global average of 2 degrees Celsius.  It brings these aspirations, as well as the emission pledges of individual countries, into the formal UN process for the first time, essentially by adopting the Copenhagen Accord one year after it was “noted” at COP-15.  (There’s also an abundance of politically-correct and in some cases downright silly window dressing in the Cancun Agreements, including repetitive references to various interpretations of the UNFCCC’s principle of “common but differentiated responsibilities,” as well as some discussion of examining a 1.5 C target.)

However, despite even the 2 degree (450 ppm concentration) aspirational target, the Agreements are no more stringent that the collection of submissions made under last year’s Copenhagen Accord.  But, as Michael Levi (Council on Foreign Relations) has pointed out, the Cancun Agreement “should be applauded not because it solves everything, but because it chooses not to.” As my colleagues and I have repeatedly emphasized in our work within the Harvard Project on Climate Agreements, many of the most important initiatives for addressing climate change will occur outside of the United Nations process (despite the centrality of that process).

Second, the Agreements elaborate on the mechanisms for monitoring and verification that were laid out in last year’s Accord.  Importantly, these now include “international consultation and analysis” of developing country mitigation actions.  Countries will report their GHG inventories to an independent panel of experts, which will monitor and verify reports of emissions cuts and actions.

Third, the Agreements establish a so-called Green Climate Fund to deliver financing for mitigation and adaptation. Importantly, the Agreements name the World Bank as the interim trustee of the Fund, despite objections from many developing countries, and create an oversight board, half of which consists of donor nation representatives.  In addition, the Agreements establish a goal by developed countries to mobilize $100 billion annually by 2020 to support mitigation and adaptation in developing countries, a funding target which would include public and private resources (that is, carbon markets and private finance), bilateral and multilateral flows, as well as the Green Climate Fund.

Whether the resources ever grow to the size laid out in Copenhagen and Cancun will depend upon the individual actions of the wealthy nations of the world.  However, it’s interesting that the section in the Cancun Agreements on adaptation comes before the section on mitigation.  Things have come a long way since the days when economists were virtually alone in calling for attention to adaptation (along with mitigation).  I recall when economists were therefore accused of throwing in the towel, and not caring about the environment!

Fourth, the Agreements advance initiatives on tropical forest protection (or, in UN parlance, Reduced Deforestation and Forest Degradation, or REDD+), by taking the next steps toward establishing a program in which the wealthy countries can help prevent deforestation in poor countries, possibly working through market mechanisms (despite exhortations from Bolivia and other leftist and left-leaning countries to keep the reach of “global capitalism” out of the policy mix).

Fifth, the Cancun Agreements establish a structure to assess the needs and policies for the transfer to developing countries of technologies for clean energy and adaptation to climate change, and a – as yet undefined – Climate Technology Center and Network to construct a global network to match technology suppliers with technology needs.

In addition, the Agreements endorse an ongoing role for the Clean Development Mechanism (CDM) and other “market-based mechanisms;” indicate that carbon capture and storage (CCS) projects should be eligible for carbon credits in the CDM; and offer some special recognition of the situations of the Central and Eastern European countries (previously known in UN parlance as “parties undergoing transition to a market economy”) and Turkey, all of which are Annex I countries under the Kyoto Protocol, but decidedly poorer than the other members of that group of industrialized nations.

That’s the 32-page Cancun Agreements in a nutshell.  As a member of one of the leading national delegations said to me in Cancun a few hours after the talks had concluded, “It’s incremental progress, but progress nonetheless.”

Are Such Incremental Steps Really a Success?

Recall from my November 19th essay that the best goal for the Cancun climate talks was to make real progress on a sound foundation for meaningful, long-term global action.  I said that because of some fundamental scientific and economic realities, which I will not repeat here.  In that previous essay, I also described “What Would Constitute Real Progress in Cancun” A quick comparison of my criteria from November 19th and the Cancun Agreements of December 11th tells me that the outcome of Cancun should be judged a success.

My first criterion of success was that the UNFCCC should embrace the parallel processes that are carrying out multilateral discussions on climate change policy:  the Major Economies Forum or MEF (a multilateral venue for discussions – but not negotiations – among the most important emitting countries); the G20 (periodic meetings of the finance ministers – and sometimes heads of government – of the twenty largest economies in the world); and various other multilateral and bilateral organizations and discussions.  Although the previous leadership of the UNFCCC seemed to view the MEF, the G20, and most other non-UNFCCC forums as competition – indeed, as a threat, the UNFCCC’s new leadership under Executive Secretary Christiana Figueres displays a positive and pragmatic attitude toward these parallel processes.

My second criterion was that the three major negotiating tracks be consolidated.  These tracks were:  first, the UNFCCC’s KP track (negotiating national targets for a possible second commitment period – post-2012 – for the Kyoto Protocol); second, the LCA track (the UNFCCC’s negotiation track for Long-term Cooperative Action, that is, a future international agreement of undefined nature); and third, the Copenhagen Accord, negotiated and noted at COP-15 in Copenhagen, Denmark, in December, 2009.

Permit me, please, to quote from my November 19th essay:

Consolidating these three tracks into two tracks (or better yet, one track) would be another significant step forward.  One way this could happen would be for the LCA negotiations to take as their point of departure the existing Copenhagen Accord, which itself marked an important step forward by blurring for the first time (although not eliminating) the unproductive and utterly obsolete distinction in the Kyoto Protocol between Annex I and non-Annex I countries.  (Note that more than 50 non-Annex I countries now have greater per capita income than the poorest of the Annex I countries.)

This is precisely what has happened.  The Cancun Agreements – the product of the LCA-track negotiations – build directly, explicitly, and comprehensively on the Copenhagen Accord.  The two tracks have become one.

Alas, the KP track remains, and a decision on a potential second commitment period (post-2012) for the Kyoto Protocol has been punted to COP-17 in Durban, South Africa, in December, 2011.  It is difficult to picture a meaningful – or any – second commitment period for the Kyoto Protocol, with the United States out of that picture, and with Japan and Russia having stated unequivocally that they will not take up another set of targets, and with Australia and Canada also unlikely to participate.  But note that this issue will have to be confronted in Durban a year from now.  With the first commitment period of the Kyoto Protocol ending in 2012, COP-17 will provide the last opportunity for punting that contentious issue.

If you agree with my view – which I have written about in many previous blog posts – that the Kyoto Protocol is fundamentally flawed and that the Protocol’s dichotomous distinction between Annex I and non-Annex I countries is the heavy anchor that slows meaningful progress on international climate policy, then you will not consider it bad news that a second commitment period for the Protocol is looking less and less likely.  On the other hand, you will, in that case, share my disappointment that the issue has been punted (recognizing, however, that had it not been punted, the Cancun meetings could have collapsed amidst acrimony and recriminations).

I also wrote in my November 19th post:

The UNFCCC principle of “common but differentiated responsibilities” could be made meaningful through the dual principles that:  all countries recognize their historic emissions (read, the industrialized world); and all countries are responsible for their future emissions (think of those rapidly-growing emerging economies).

The Cancun Agreements do this by recognizing directly and explicitly these dual principles.  This can represent the next step in a movement beyond what has become the “QWERTY keyboard” (that is, unproductive path dependence) of international climate policy:  the distinction in the Kyoto Protocol between the small set of Annex I countries with quantitative targets, and the majority of countries in the world with no responsibilities.

A variety of policy architectures can build on these dual principles and make them operational, bridging the political divide which exists between the industrialized and the developing world.  (At the Harvard Project on Climate Agreements, we have developed a variety of architectural proposals that could make these dual principles operational.  See, for example:  “Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations” by Valentina Bosetti and Jeffrey Frankel; and “Three Key Elements of Post-2012 International Climate Policy Architecture” by Sheila M. Olmstead and Robert N. Stavins.)

My third criterion for success was movement forward with specific, narrow agreements, such as on:  REDD+ (Reduced Deforestation and Forest Degradation, plus enhancement of forest carbon stocks); finance; and technology.  Such movement forward has, in fact, occurred in all three domains in the Cancun Agreements, as I described above.

My fourth criterion for success was keyed to whether the parties to the Cancun meetings could maintain sensible expectations and thereby develop effective plans.  This they have done.  The key question was not what Cancun accomplishes in the short-term, but whether it helps put the world in a better position five, ten, and twenty years from now in regard to an effective long-term path of action to address the threat of global climate change.

Despite the fact that some advocacy groups – and for that matter, some nations – are no doubt disappointed with the outcome of Cancun, I think it is fair to say that this final criterion for success was satisfied:  the Cancun Agreements can help put the world on a path toward an effective long-term plan of meaningful action.

Why Did Cancun Succeed?

If you agree with my assessment of success in Cancun, then a reasonable question to ask is why did the Cancun talks produce this successful outcome, particularly in contrast with what many people consider a less successful outcome of the Copenhagen talks last year.  To address this question, let me expand on some points made in an insightful essay by Elliot Diringer, Vice President for International Strategies at the Pew Center on Global Climate Change.

First, the Mexican government through careful and methodical planning over the past year prepared itself well, and displayed tremendous skill in presiding over the talks. Reflect, if you will, on the brilliant way in which Mexican Minister of Foreign Affairs, Patricia Espinosa, who served as President of COP-16, took note of the objections of Bolivia (and, at times, several other leftist and left-leaning Latin American countries, known collectively as the ALBA states), and then simply ruled that the support of 193 other countries meant that “consensus” had been achieved and the Cancun Agreements had been adopted by the Conference.  At a critical moment, Ms. Espinosa noted that “consensus does not mean unanimity,” and that was that!

Compare this with the unfortunate chairing of COP-15 in Copenhagen by Danish Prime Minister Lars Løkke Rasmussen, who allowed the objections by a similar same small set of five relatively unimportant countries (Bolivia, Cuba, Nicaragua, Sudan, and Venezuela) to derail those talks, which hence “noted,” but did not adopt the Copenhagen Accord in December, 2009.

The Mexicans were also adept at facilitating small groups of countries to meet to advance productive negotiations, but made sure that any countries could join those meetings if they wanted.  Hence, negotiations moved forward, but without the sense of exclusivity that alienated so many small (and some large) countries in Copenhagen.

The key role played by the Mexican leadership is consistent with the notion of Mexico as one of a small number of “bridging states,” which can play particularly important roles in this process because of their credibility in the two worlds that engage in divisive debates in the United Nations:  the developed world and the developing world.  We have examined this in our recent Harvard Project on Climate Agreements Issue Brief, Institutions for International Climate GovernanceMexico, along with Korea, are members of the OECD, but are also non-Annex I countries under the Kyoto Protocol.  This gives Mexico — and gave Minister Espinosa — a degree of credibility across the diverse constituencies in the UNFCCC that was simply not enjoyed by Danish Prime Minister Rasmussen at COP-15 last year.

Second, China and the United States set the tone for many other countries by dealing with each other with civility, if not always with understanding.  This contrasts with the tone that dominated in and after Copenhagen, when finger-pointing at Copenhagen between these two giants of the international stage led to a blame-game in the months after the Copenhagen talks.

As Elliot Diringer wrote, they may have recognized that “the best way to avoid blame was to avoid failure.”  Beyond this, although the credit must go to both countries, the change from last year in the conduct of the Chinese delegation was striking.  It appeared, as Coral Davenport wrote in The National Journal, that the Chinese were on a “charm offensive.”  Working in Cancun on behalf of the Harvard Project on Climate Agreements, I can personally vouch for the tremendous increase from previous years in the openness of members of the official Chinese delegation, as well as the many Chinese members of civil society who attended the Cancun meetings.

Third, a worry hovered over the Cancun meetings that an outcome perceived to be failure would lead to the demise of the UN process itself.  Since many nations (in particular, developing countries, which made up the vast majority of the 194 countries present in Cancun) very much want the United Nations and the UNFCCC to remain the core of international negotiations on climate change, that implicit threat provided a strong incentive for many countries to make sure that the Cancun talks did not “fail.”

Fourth, under the pragmatic leadership of UNFCCC Executive Secretary Christiana Figueres, realism may have finally eclipsed idealism in these international negotiations. Many observers have noted that many delegations – and probably most civil society NGO participants – at the previous COPs have misled themselves into thinking that ambitious cuts in greenhouse gases (GHGs) were forthcoming that could guarantee achievement of the 450 ppm/2 degrees C cap.

The acceptance of the Cancun Agreements suggests that the international diplomatic community may now recognize that incremental steps in the right direction are better than acrimonious debates over unachievable targets.  This harkens back to what I characterized prior to COP-16 as the key challenge facing the negotiators:  to continue the process of constructing a sound foundation for meaningful, long-term global action.  In my view, this was accomplished in Cancun.


Further Reading

In a new blog post, Trevor Houser (Peterson Institute for International Economics) argues that the surest way to kill the progress made in the Cancun Agreements is to try to turn them into a legally-binding treaty at COP-17 next year in Durban, South Africa.

For a nice table showing the correspondence of respective elements of the Cancun Agreements and the Copenhagen Accord, see the commentary on the Cancun climate negotiations by Sarah Ladislaw of the Center for Strategic and International Studies.

And for a detailed description of the major elements of the Cancun Agreements, I recommend the summary prepared by the Pew Center on Global Climate Change.

Some previous essays I have written and posted at this blog may be of interest to those who are interested in the Cancun Agreements.  Here are links, in reverse chronological order:

Defining Success for Climate Negotiations in Cancun

Opportunities and Ironies: Climate Policy in Tokyo, Seoul, Brussels, and Washington

Another Copenhagen Outcome: Serious Questions About the Best Institutional Path Forward

What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord

Chaos and Uncertainty in Copenhagen?

Only Private Sector Can Meet Finance Demands of Developing Countries

Defining Success for Climate Negotiations in Copenhagen

Approaching Copenhagen with a Portfolio of Domestic Commitments

Can Countries Cut Carbon Emissions Without Hurting Economic Growth?

Three Pillars of a New Climate Pact

Unintended Consequences of Government Policies: The Depletion of America’s Wetlands

Private land-use decisions can be affected dramatically by public investments in highways, waterways, flood control, or other infrastructure.  The large movement of jobs from central cities to suburbs in the postwar United States and the ongoing destruction of Amazon rain forests have occurred with major public investment in supporting infrastructure.  As these examples suggest, private land-use decisions can generate major environmental and social externalities – or, in common language, unintended consequences.

In an analysis that appeared in 1990 in the American Economic Review, Adam Jaffe of Brandeis University and I demonstrated that the depletion of forested wetlands in the Mississippi Valley – an important environmental problem and a North American precursor to the loss of South American rain forests – was exacerbated by Federal water-project investments, despite explicit Federal policy to protect wetlands.

Wetland Losses

Forested wetlands are among the world’s most productive ecosystems, providing improved water quality, erosion control, floodwater storage, timber, wildlife habitat, and recreational opportunities.  Their depletion globally is a serious problem; and preservation and protection of wetlands have been major Federal environmental policy goals for forty years.

From the 1950s through the mid-1970s, over one-half million acres of U.S. wetlands were lost each year.  This rate slowed greatly in subsequent years, averaging approximately 60 thousand acres lost per year in the lower 48 states from 1986 through 1997.  And by 2006, the Bush administration’s Secretary of the Interior, Gale Norton, was able to announce a net gain in wetland acreage in the United Sates, due to restoration and creation activities surpassing wetland losses.

What Caused the Observed Losses?

What were the causes of the huge annual losses of wetlands in the earlier years?  That question and our analysis are as germane today as in 1990, because of lessons that have emerged about the unintended consequences of public investments.

The largest remaining wetland habitat in the continental United States is the bottomland hardwood forest of the Lower Mississippi Alluvial Plain.  Originally covering 26 million acres in seven states, this resource was reduced to about 12 million acres by 1937.  By 1990, another 7 million acres had been cleared, primarily for conversion to cropland.

The owner of a wetland parcel faces an economic decision involving revenues from the parcel in its natural state (primarily from timber), costs of conversion (the cost of clearing the land minus the resulting forestry windfall), and expected revenues from agriculture.  Agricultural revenues depend on prices, yields, and, significantly, the drainage and flooding frequency of the land.  Needless to say, landowners typically do not consider the positive environmental externalities generated by wetlands; thus conversion may occur more often than is socially optimal.

Such externalities are the motivation for Federal policy aimed at protecting wetlands, as embodied in the Clean Water Act.  Nevertheless, the Federal government engaged in major public investment activities, in the form of U.S. Army Corps of Engineers and U.S. Soil Conservation Service flood-control and drainage projects, which appeared to make agriculture more attractive and thereby encourage wetland depletion.  The significance of this effect had long been disputed by the agencies which construct and maintain these projects; they attributed the extensive conversion exclusively to rising agricultural prices.

In an econometric (statistical) analysis of data from Arkansas, Mississippi, and Louisiana, from 1935 to 1984, Jaffe and I sought to sort out the effects of Federal projects and other economic forces.  We discovered that these public investments were a very substantial factor causing conversion of wetlands to agriculture, with between 30 and 50 percent of the total wetland depletion over those five decades due to the Federal projects.

More broadly, four conclusions emerged from our analysis.  First, landowners had responded to economic incentives in their land-use decisions.  Second, construction of Federal flood-control and drainage projects caused a higher rate of conversion of forested wetlands to croplands than would have occurred in the absence of projects, leading to the depletion of an additional 1.25 million acres of wetlands.  Third, Federal projects had this impact because they made agriculture feasible on land where it had previously been infeasible, and because, on average, they improved the quality of feasible land.  Fourth, adjustment of land use to economic conditions was gradual.

Government Working at Cross-Purposes

The analysis highlighted a striking inconsistency in the Federal government’s approach to wetlands.  In articulated policies, laws, and regulations, the government recognized the positive externalities associated with some wetlands, with the George H.W. Bush administration first enunciating a “no net loss of wetlands” policy.  But public investments in wetlands – in the form of flood-control and drainage projects – had created major incentives to convert these areas to alternative uses.  The government had been working at cross-purposes.

The conclusion that major public infrastructure investments affect private land-use decisions (thereby often generating negative externalities) may not be a surprise to some readers, but it was the 1990 analysis described here that first provided rigorous evidence which contrasted sharply with the accepted wisdom among policy makers.

The Ongoing Importance of Induced Land-Use Changes

As wetlands, tropical rain forests, barrier islands, and other sensitive environmental areas become more scarce, their marginal social value rises.  In general, if induced land-use changes are not considered, the country will engage in more public investment programs whose net social benefits are negative.

What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord

After years of preparation, the Fifteenth Conference of the Parties (COP-15) of the United Nations Framework Convention on Climate Change (UNFCCC) commenced on December 7th, 2009, and adjourned some two weeks later on December 19th after a raucous all-night session.  The original purpose of the conference had been to complete negotiations on a new international agreement on climate change to come into force when the Kyoto Protocol’s first commitment period comes to an end in 2012.  But for at least the past six months, it had become clear to virtually all participants that such a goal was out of reach — and the COP-15 objective was publically downgraded in mid-November to a non-binding agreement by heads of state at a meeting in Singapore of the Asia-Pacific Economic Conference.

I begin by describing what were reasonable expectations going into the Copenhagen negotiations and appropriate definitions of success for COP-15, and then turn to the unprecedented process which unfolded over the final 36 hours of the conference.  Next, I describe the fundamental architecture of the sole product that emerged – the Copenhagen Accord – and describe its key provisions, with an assessment of each component.  I close with an examination of the major pending issues and the available procedural routes ahead.

Sensible Expectations and Definitions of Success for Copenhagen

There was much hand-wringing in the months leading up to COP-15 about how difficult the negotiations had become.  I saw this as something of “A Silver Lining in the Climate Talks Cloud,” because the difficulty was largely a consequence of key countries of the world taking very seriously the task of expanding the coalition of the willing.

Going into Copenhagen, the challenge was very great, largely because of fundamental economic (and hence political) realities, as I explained in a previous post, “Chaos and Uncertainty in Copenhagen?” Given legitimate concerns about issues of efficiency, on the one hand, and distributional equity, on the other hand, it was not surprising that the industrialized countries (particularly the United States) insisted that China and other key emerging economies participate in a future agreement in meaningful and transparent ways, nor that the developing countries insisted that the industrialized countries foot much of the bill.

The key question was whether the negotiators in Copenhagen could identify a policy architecture that is both reasonably cost-effective and sufficiently equitable to generate support from the key countries of the world, and thus do something truly meaningful about the long-term path of global greenhouse gas emissions.  There were (and are) some promising paths forward, as we have documented in the Harvard Project on International Climate Agreements, and as we examine in a pair of current books (Post-Kyoto International Climate Policy: Summary for Policymakers; and Post-Kyoto International Climate Policy:  Implementing Architectures for Agreement).

At the final hour in Copenhagen, the leaders of a small number of key countries worked creatively together to identify a politically feasible path forward.  I have previously argued (“Defining Success for Climate Negotiations in Copenhagen”) that the best goal for the Copenhagen climate talks was to make progress on a sound foundation for meaningful, long-term global action, not some notion of immediate, numerical triumph.  That has essentially been accomplished with the “Copenhagen Accord,” despite its flaws and despite overt challenges from five of some 193 countries represented (Bolivia, Cuba, Nicaragua, Sudan, and Venezuela).

An Unprecedented Process

Before turning to the substance of the Copenhagen Accord, it is worthwhile taking note of the quite remarkable process that led up to its “last-minute” creation.  From all reports, the talks were completely deadlocked when U.S. President Barack Obama arrived on the scene at 8:00 am on Friday, December 18th, the scheduled final day of the conference.  Through a series of bilateral and eventually multilateral meetings of President Obama with Chinese Premier Wen Jiabao, Indian Prime Minister Manmohan Singh, Brazilian President Luiz Inacio Lula da Silva, and South African President Jacob Zuma, a document gradually emerged which was to become the Copenhagen Accord.

It is virtually unprecedented in international negotiations for heads of government (or heads of state) to be directly engaged in, let alone lead, negotiations, but that is what transpired in Copenhagen.  Although the outcome is less than many people had hoped for, and is less than some people may have expected when the Copenhagen conference commenced, it is surely better – much better – than what most people anticipated just three days earlier, when the talks were hopelessly deadlocked.

The Copenhagen Accord – Its Fundamental Architecture

The fundamental architecture of the Copenhagen Accord is one we recently analyzed in the Harvard Project on International Climate Agreements in “A Portfolio of Domestic Commitments: Implementing Common but Differentiated Responsibilities,” and about which I blogged at the end of November (Approaching Copenhagen with a Portfolio of Domestic Commitments).  Essentially, under such an approach each nation commits and registers to abide by its domestic climate commitments, whether those are in the form of laws and regulations or multi-year development plans.  This is essentially the “schedule approach” introduced by the Australian government in spring 2009.

After its release, President Obama characterized the new Accord as “an important first step” at his press conference shortly before returning to Washington.  I would prefer to amend that characterization to call the Accord a potentially very important third step.  Step One was the UN Earth Summit in Rio de Janeiro in 1992, which produced the U.N. Framework Convention on Climate Change.  Step Two was the Kyoto Protocol, signed in Japan in 1997.  But what many policy wonks (myself included), not to mention the United States Senate, immediately recognized was the absence from the Kyoto Protocol of involvement in truly meaningful ways of the key, rapidly-growing developing countries, a small set of important nations that are now better termed “emerging economies” – China, India, Brazil, South Africa, Mexico, and Korea.  This was a primary deficiency of Step Two, as well as the lack of serious attention to the long-term path of emissions (as opposed to the five-year time horizon of Kyoto).

The Copenhagen Accord establishes a framework for addressing both deficiencies, and thereby can be characterized as a potentially very important third step – expanding the coalition of the willing and extending the time-frame of action.  With this step, all of the seventeen countries of the Major Economies Forum– which together account for some 90% of global emissions – are agreeing to participate.  Nevertheless, let’s be honest about the difference between the outcome of the 1997 negotiations in Kyoto (a detailed 20-page legal document, the Kyoto Protocol) and the outcome of the 2009 negotiations in Copenhagen (a general 3-page political statement, the Copenhagen Accord).  Still, it remains true that the COP-15 negotiations were “saved from utter collapse” by the creation and acceptance of the Copenhagen Accord.

The Copenhagen Accord – Key Provisions and Preliminary Assessment

It is unquestionably the case that the Accord represents the best agreement that could be achieved in Copenhagen, given the political forces at play.  Indeed, were it not for the spirited – and as I suggested above, quite remarkable – direct intervention by President Obama, together with the other key national leaders, there would have been no real outcome from the Copenhagen negotiations.  That said, let’s take a critical look at the Accord, item by item.  The key provisions (as I interpret them, with my own numbering, not that of the Accord) are these:

1.      The signatories validate their will to “urgently combat climate change in accordance with the principle of common but differentiated responsibilities and respective capabilities.”  The signatories agree that deep cuts in global emissions are required to hold global temperature increases to 2 degrees Centigrade, and commit to take actions to meet this objective, “consistent with science and on the basis of equity.”

Assessment: Although the Accord notes the importance of the frequently-discussed 2 degrees Centigrade target, it does not spell out actions that will achieve it.  The Accord also notes the importance of the principle of “common but differentiated responsibilities,” which is of great importance to developing countries.

2.      Action and cooperation on adaptation is urgently required, particularly in the least developed countries, small island developing states, and Africa.  Developed countries commit to provide financial resources to support adaptation measures in developing countries.

Assessment: Recognizing the importance of adaptation and providing financial resources to support it in developing countries is an important departure from Kyoto.  Targeting the funds to the “least developed countries” is sensible.

3.      Annex I Parties of the Kyoto Protocol (the 1997 list of the industrialized countries and the emerging market economies of Central and Eastern Europe) commit to implement mitigation actions (specified in Appendix I), and Non-Annex I Parties (the developing world, as defined in the Kyoto Protocol) also commit to implement mitigation actions (specified in Appendix II), all of which will be submitted to the UNFCCC Secretariat by January 31, 2010.

Assessment: These appendices (“schedules”) of domestic mitigation targets, actions, and policies are the heart of the Portfolio approach, as I described above.  This is where the action is.

It is unfortunate (but was probably politically necessary) that the Accord maintains the distinction of Annex I versus non-Annex I countries from the Kyoto Protocol.  I have characterized this distinction in the Kyoto Protocol as the “QWERTY keyboard” (unproductive path dependence) of international climate policy, because it has been the greatest impediment to developing a meaningful international arrangement.  It is because of the presence of this distinction that developing countries have insisted on a continuation of the Kyoto Protocol for a second (post-2012) commitment period.

Note that even if the Annex I list was appropriate in 1997, it surely no longer is:  more than 60 non-Annex I countries now have greater per capita income than the poorest of the Annex I countries.

An important improvement would be to employ a formulaic mechanism that takes a variety of factors into account, including per capita income, to determine the stringency of ambition, targets, or actions for individual countries, rather than the dichotomous distinction of having targets or not (“Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations”).

If a continuous spectrum with all countries listed in the same table is not politically feasible, then a mechanism is needed for countries to transition from one list to the other.  Korea and Mexico joined the OECD six months after Kyoto, but they remain off the Annex I list.

4.      Emissions reductions for the Annex I parties will be measured, reported, and verified according to guidelines (to be established), which will be rigorous and transparent, whereas mitigation actions taken by non-Annex I parties will be subject to domestic measurement, reporting, and verification (MRV) reported through national communications, with international consultation and analysis.

Assessment: There was a great deal of attention to this issue in Copenhagen, with all members of the U.S. delegation talking about the importance of “transparency.”  The compromise seems acceptable:  developing countries employ domestic measurement, reporting, and verification, but it is subject to “international consultation and analysis.”

Interestingly, the Accord is silent on the issue of “international competitiveness” and the possible use of border adjustments (border taxes or import allowance requirements in national cap-and-trade systems).  This is a controversial point, since inclusion of such mechanisms is important in domestic U.S. politics, but is anathema to China, India, and other developing countries.

5.      Least developed countries and small island developing states may undertake actions voluntarily and on the basis of support (from other countries).  Such actions will be subject to international measurement, reporting, and verification.

Assessment: This is the third element of the national schedules, reserved for the poorest developing countries (which contribute only trivially to greenhouse gas emissions), and it seems acceptable, although a graduation mechanism would again be desirable.  Interestingly, if their actions are funded by developed countries, then those actions are subject to the most stringent MRV.  So-called technology transfer mechanisms are included in this context.

6.      The parties will establish positive incentives to stimulate financial resources from developed countries to help reduce emissions from deforestation and degradation.

Assessment: This is a potentially important change, as the lack of meaningful attention to retarding deforestation was a significant deficiency of the Kyoto Protocol.  We have investigated appropriate mechanisms in the Harvard Project on International Climate Agreements (“International Forest Carbon Sequestration in a Post-Kyoto Agreement”).

7.      The parties agree to pursue opportunities to use markets to achieve cost-effective mitigation actions.

Assessment: As we have documented in the Harvard Project (“Linkage of Tradable Permit Systems in International Climate Policy Architecture”), it is very important that future international agreements facilitate or at least not discourage voluntary linkage of national and multi-national cap-and-trade systems.  Needless to say, this provision in the Accord – like virtually all of the provisions – will require specific details to make it operational.

8.      Predictable and adequate funding will be provided to developing countries for emissions mitigation, reduction of deforestation, and adaptation.  There is a collective commitment from developed countries “approaching” $30 billion for the period 2010-2012, “balanced between adaptation and mitigation,” with adaptation funding being prioritized for the most vulnerable developing countries.

Assessment: To whatever degree the funding for mitigation is of government-government form (expanded foreign aid), legitimate concerns exist about both the feasibility of marshalling the necessary amounts and the efficiency of its use.  The private sector needs to be employed, as I have previously argued (“Only Private Sector Can Meet Finance Needs of Developing Countries”).

9.      The developed countries commit to a goal of jointly mobilizing $100 billion annually by 2020 from sources both public and private.

Assessment: It is important that the Accord notes that the funds can come from either public or private sources.  Governments can — through the right domestic and international policy arrangements — provide key incentives for the private sector to provide the needed finance through foreign direct investments for emissions mitigation (clearly a role exists for government assistance for adaptation).  For example, if the cap-and-trade systems which are emerging throughout the industrialized world as the favored domestic approach to reducing CO2 and other greenhouse gas emissions are linked together through the existing, common emission-reduction-credit system, namely the Clean Development Mechanism (CDM), then powerful incentives can be created for carbon-friendly private investment in the developing world.

Clearly the CDM, as it currently stands, cannot live up to this promise, but with appropriate reforms there is significant potential.  Of course, problems of limited additionality will inevitably remain.  Therefore, what is needed is for the key emerging economies to take on meaningful emission targets themselves (even if equivalent to business as usual in the short term), and then participate directly in international cap-and-trade, not government-government trading as envisioned in Article 17 of the Kyoto Protocol (which will not work), but firm-firm trading through linked national and multi-national cap-and-trade systems.

Such private finance stands a much greater chance than government aid of being efficiently employed, that is, targeted to reducing emissions, rather than spent by poor nations on other (possibly meritorious) purposes.

10.  Evaluation of the Accord’s implementation is to be completed by 2015, including consideration of strengthening the long-term goal as the science indicates.

Assessment: Depending upon when the Accord is implemented, completing an assessment by 2015 might or might not be reasonable.  A provision to strengthen the long-term goals of the Accord may be sensible, but it would seem that the provision should provide more generally that the long-term goal should be “adjusted as the science indicates,” so as not to pre-judge what future scientific research may reveal.

11.  In the official version of the Accord released by the UNFCCC, Appendix I (quantified 2020 economy-wide emissions targets for Annex I countries) and Appendix II (nationally appropriate mitigation actions of developing country parties) are left blank, to be completed by January 30, 2010.

Assessment: It is unfortunate that no numbers or other specifics were included in the two appendices, because many of the various parties have previously made public statements regarding commitments, plans, or expectations that would actually have provided considerable information.  Some specificity of the tables – both numerical pledges from Annex I countries and “voluntary pledges” from developing countries — would have better demonstrated the compelling substance of the Accord, and would thereby have given the agreement greater credibility, at least in news media reports.

The Way Forward

Many details regarding these elements of the Accord as well as other unspecified issues remain on the table, and will presumably be examined and negotiated if nations move forward with the Copenhagen Accord and the basic architecture it promulgates.  We are already at work on many of these issues in the Harvard Project on International Climate Agreements, including:

·         metrics for evaluating commitments

·         climate policy review mechanisms

·         compliance mechanisms

·         afforestation and deforestation mechanisms

·         facilitating international market linkage

·         fostering technology transfer

·         methods of negotiating and updating climate agreements

·         methods of providing incentives for developing country participation

·         methods of carbon finance

·         making an international climate agreement consistent with international trade rules

Whether the next step in international deliberations should be under the auspices of the UNFCCC or a smaller deliberative body, such as the Major Economies Forum (MEF), is an important question.  Given the necessity of achieving consensus (that is, unanimity) in United Nations processes and the open hostility of a small set of nations, bilateral and multilateral discussions, including via the MEF, could be an increasingly attractive route, at least over the short term.  (Such questions about preferred institutional venues for international climate negotiations and action constitute an important topic on which we are focusing research in early 2010 in the Harvard Project on International Climate Agreements, and about which I will write in future posts.)

The climate change policy process is best viewed as a marathon, not a sprint.  The Copenhagen Accord – depending upon details yet to be worked out – could well turn out to be a sound foundation for a Portfolio of Domestic Commitments, which could be an effective bridge to a longer-term arrangement among the countries of the world.  We may look back upon Copenhagen as an important moment – both because global leaders took the reins of the procedures and brought the negotiations to a fruitful conclusion, and because the foundation was laid for a broad-based coalition of the willing to address effectively the threat of global climate change.  Only time will tell.


After I completed writing this blog post, I came across a superb essay on the same topic by David Doniger, Policy Director of the NRDC Climate Center in Washington, D.C.  It deserves to be read (and distributed).

What Role for U.S. Carbon Sequestration?

With the development of climate legislation proceeding in the U.S. Senate, a key question is whether the United States can cost-effectively reduce a significant share of its contributions to increased atmospheric CO2 concentrations through forest-based carbon sequestration.  Should biological carbon sequestration be part of the domestic portfolio of compliance activities?

The potential costs of carbon sequestration policies should be one major criterion, and so it can be helpful to assess the cost of supplying forest-based carbon sequestration.  This is a topic which I’ve investigated in a series of papers with various co-authors over the past ten years (“Land-Use Change and Carbon Sinks: Econometric Estimation of the Carbon Sequestration Supply Function.” Journal of Environmental Economics and Management 51(2006): 135-152, with Ruben Lubowski and Andrew Plantinga; “Climate Change and Forest Sinks: Factors Affecting the Costs of Carbon Sequestration.” Journal of Environmental Economics and Management 40(2000):211-235, with Richard Newell; and “The Costs of Carbon Sequestration: A Revealed-Preference Approach.” American Economic Review, volume 89, number 4, September 1999, pp. 994-1009.)   Most useful for policy purposes is probably the 2005 report Kenneth Richards and I wrote for the Pew Center on Global Climate Change (“The Cost of U.S. Forest-Based Carbon Sequestration”).  In that report, we surveyed and synthesized the best cost estimates from all available sources.

Human activities — particularly the extraction and burning of fossil fuels and the depletion of forests — are causing the level of CO2 in the atmosphere to rise.  It may be possible to increase the rate at which ecosystems remove CO2 from the atmosphere and store the carbon in plant material, decomposing detritus, and organic soil.  In essence, forests and other highly productive ecosystems can become biological scrubbers by removing (sequestering) CO2 from the atmosphere.  Much of the current interest in carbon sequestration has been prompted by suggestions that sufficient lands are available to use sequestration for mitigating significant shares of annual CO2 emissions, and related claims that this approach provides a relatively inexpensive means of addressing climate change.  In other words, the fact that policy makers are giving serious attention to carbon sequestration can partly be explained by (implicit) assertions about its marginal cost, or (in economists’ parlance) its supply function, relative to other mitigation options.

Among the key factors that affect estimates of the cost of forest carbon sequestration are: (1) the tree species involved, forestry practices utilized, and related rates of carbon uptake over time; (2) the opportunity cost of the land-that is, the value of the affected land for alternative uses; (3) the disposition of biomass through burning, harvesting, and forest product sinks; (4) anticipated changes in forest and agricultural product prices; (5) the analytical methods used to account for carbon flows over time; (6) the discount rate employed in the analysis; and (7) the policy instruments used to achieve a given carbon sequestration target.

Given the diverse set of factors that affect the cost and quantity of potential forest carbon sequestration in the United States, it should not be surprising that cost studies have produced a broad range of estimates.  Ken Richards and I identified eleven previous analyses that were good candidates for comparison and synthesis, and we made their results mutually consistent by adjusting them for constant-year dollars, use of equivalent annual costs as outcome measures, identical discount rates, and identical geographic scope.  We also employed econometric methods to estimate the central tendency (or “best-fit”) of the normalized marginal cost functions from the eleven studies as a rough guide for policy makers of the projected availability of carbon sequestration at various costs.

Three major conclusions emerged from our survey and synthesis.  First, there is a broad range of possible forest-based carbon sequestration opportunities available at various magnitudes and associated costs.  The range depends upon underlying biological and economic assumptions, as well as analytical cost-estimation methods employed.

Second, a systematic comparison of sequestration supply estimates from national studies produces a range of $25 to $75 per ton for a program size of 300 million tons of annual carbon sequestration. The range increases somewhat- to $30-$90 per ton of carbon-for programs sequestering 500 million tons annually.

Third, when a transparent and accessible econometric technique was employed to estimate the central tendency (or “best-fit”) of costs estimated in the studies, the resulting supply function for forest-based carbon sequestration in the United States is approximately linear up to 500 million tons of carbon per year, at which point marginal costs reach approximately $70 per ton.

A 500 million ton per year sequestration program would be very significant, offsetting approximately one-third of annual U.S. carbon emissions.  At this level, the estimated costs of carbon sequestration are comparable to typical estimates of the costs of emissions abatement through fuel switching and energy efficiency improvements.  This result indicates that sequestration opportunities ought to be included in the economic modeling of climate policies.  And it further suggest that if it is possible to design and implement a domestic carbon sequestration program, then such a program ought to be included in a cost-effective portfolio of compliance strategies when the United States enacts a mandatory domestic greenhouse gas reduction program.  Large-scale forest-based carbon sequestration can be a cost-effective tool that should be considered seriously by policy makers.

Of course, this raises the question of whether a policy that will bring about such biological carbon sequestration cost-effectively can be developed, whether as part of a cap-and-trade system, a related offset scheme, or through some other policy mechanism.  That is a question without easy answers (as I’ve noted in a previous post on the Waxman-Markey legislation), but the cost analyses I’ve reviewed in this post suggest that it is important to explore possible ways of incorporating biological carbon sequestration in future U.S. climate policy.