Reflections from Cambridge on the Climate Talks in Doha

Ever since I returned – some two weeks ago – from Doha, Qatar, the site of the Eighteenth Conference of the Parties (COP-18) of the United Nations Framework Convention on Climate Change (UNFCCC), I have planned to offer some commentary on this year’s annual climate negotiations, including the principal outcome, namely, the “Doha Gateway.” I decided to wait, mainly in order to put some geographic and temporal distance between the conference and my thoughts, so that I could reflect on “the forest,” rather than enumerating “the trees.”

Then, a few days ago, a reporter from the Harvard Gazette, Alvin Powell, came to my office to discuss this very subject. Having covered this and related topics for a number of years, he has considerable background on both the science and the policy. And he had done his homework to prepare for the interview. When I read the published result just now in the Harvard Gazette, I realized that this is – in fact – the reflection I had wanted to write for readers of this blog. So I’m offering it here.

The interview started with a quick history of climate negotiations, a brief description of my own role at COP-18 in Doha, and then an assessment of the conference’s outcome. From there, the conversation became more freewheeling, with Mr. Powell asking me about the status of U.S. climate policy, as well as the potential role and responsibility of a major research university such as ours. At the end of the interview, we returned to reflections on the slow pace of international climate negotiations.

You can read the original version in the Harvard Gazette here, but I also offer the published version below without any editing (but with the addition of some hyperlinks for interested readers).

Harvard Gazette

Climate change on world stage

Q&A with Robert Stavins on prospects for adopting a plan to confront it

By Alvin Powell

Harvard Staff Writer

Wednesday, December 19, 2012

International climate talks wrapped up last week in Qatar. Harvard Professor Robert Stavins attended and characterized the gathering as a qualified success, representing another step in a long process of reaching a workable international agreement.

Gazette staff writer Al Powell talked with Stavins about the work of international delegates and the prospects for a meaningful agreement going forward.

GAZETTE: Can you explain the purpose of these talks?

STAVINS: In 1992, at a United Nations conference in Rio de Janeiro, a major outcome was the adoption of the United Nations Framework Convention on Climate Change. Among other things, that convention provided for annual conferences at which representatives of countries would get together to discuss and negotiate how to address the threat of climate change. These annual negotiations go by the name of a “Conference of the Parties,” commonly abbreviated as a “COP.” COP-1 took place in Berlin in 1995, and COP-18 just took place in Doha, Qatar, in December 2012.

GAZETTE: What is your role at these conferences?

STAVINS: My role is typically on behalf of the Harvard Project on Climate Agreements. Our purpose is to help the various national negotiating teams identify modes of international cooperation that will address climate change in ways that are scientifically sound, economically rational, and politically pragmatic.

We hold events to which everyone is invited, two events this time. One of the mandates that came out of the Durban conference in December 2012 was for the delegates to think about new ways they can make use of the market to address the threat of climate change. We put together a panel of people to talk about potential “new market mechanisms.” We had a room with a capacity of several hundred, and every seat was taken. People were standing in the aisles, sitting on the floors, and spilling out into the hallway waiting to get in. In other words, interest in our intellectual contributions was at a high level. Importantly, the session was jointly sponsored with the Enel Foundation and the International Emissions Trading Association, which is a trade association of companies interested in emissions trading and related mechanisms.

The second event was co-sponsored with the government of the State of Qatar, and looked forward, post-Doha, to the potential paths ahead, with particular focus on the problems of arid countries, a chronic issue for the Middle East. The panel included Fahad Bin Mohammed Al-Attiya, chairman of the Qatar National Food Security Programme, who is one of the key thinkers and leaders on these issues.

In addition, we carry out bilateral meetings with negotiating teams and also do press meetings. Typically, we hold a couple dozen such meetings.

GAZETTE: How do you feel the conference went?

STAVINS: My view is that these international negotiations need to be viewed not as a sprint, in which you win or lose, but as a very long distance relay race, and the Qataris succeeded in handing off the baton.

The Qataris invited us to Doha last summer to help them begin to think about what success at the December conference would look like and how they could achieve it. There were three aspects to what we identified in advance as success, and they achieved all three, though maybe not to the degree or in the way that every country in the world would have preferred.

GAZETTE: What were those three?

STAVINS: First, they successfully brought to a close negotiations on a second commitment of the Kyoto Protocol, that is, extending the protocol beyond its first commitment period, which expires at the end of 2012. The second commitment period is now set. It will run to 2020. Second, they also brought to a successful close negotiations in what was called the Long Term Cooperative Action track, which included a set of issues that were put on the table at COP-13 in Bali in December 2007. Third, they began to make some progress on the one remaining negotiating track, which is the Durban Platform for Enhanced Action. They initiated discussions about establishing, by 2015, a comprehensive new international agreement, for implementation by 2020, that will include all key countries in the world, including the major emerging economies of China, India, Brazil, Korea, South Africa, and Mexico. That itself is a departure from the Kyoto Protocol, which is focused exclusively on a subset of countries of what used to be characterized as the industrialized world.

The negotiators from around the world did not make as much progress on the Durban platform as I would have hoped. But at a very minimum they did no harm, and that’s very important. That is, they did not introduce any problematic text into the negotiations that will later cause problems. In general, my view of these annual Conferences of the Parties is similar to the physician’s Hippocratic Oath: Do no harm, and keep things moving ahead.

GAZETTE: In looking at news coverage, I read about two emotions, anger and despair, felt by some after the conference. Are those warranted?

STAVINS: AOSIS [Alliance of Small Island States] nations are the most extreme in their point of view, for very good reasons, and they were surely disappointed by the outcomes. They’ve been very vocal, again for good reason. But the major emitters, the only ones that can do anything about the problem — the United States, China, the other large economies of the world, among them — there was recognition that in the real world, this is what success looks like.

I think of this as if we’re back at Bretton Woods in 1944, when Europe was in shambles. An agreement was reached at Bretton Woods, but it took 50 years to establish the World Trade Organization, and to continue the process of putting the global financial house in order. The problem of global climate change is actually more difficult politically than the economic problems that the world faced after World War II. We have this terrible situation where those who can reduce their emissions now are not the ones who will be damaged by climate change. You’re asking current voters to foot the bill, while it’s the future generation that will benefit from reduced damage. Furthermore, any country taking action will foot the bill for its costs, but the benefits of those actions — reduced climate change — will be spread globally. Hence, for any individual country the direct benefits of action will inevitably be less than the direct costs of action, despite the fact that global benefits may be considerably greater than global costs. That’s the global commons problem, and it creates an incentive for each country to free ride on the actions of others. So politically, it’s an exceptionally challenging problem.

GAZETTE: What about the gap between the emissions cuts that were promised and that have been achieved?

STAVINS: What became clear to me at the conference is that there is increasing acceptance of three facts from a broad set of delegations. One was that the frequently discussed target of limiting concentrations to 450 parts per million [of CO2 in the atmosphere], which is equated to approximately 2 degrees centigrade maximum warming, is simply not achievable.

Number two, there’s increasing recognition that a bottom-up international policy architecture is probably the future path forward, not a top-down approach. By top down, I mean a highly centralized approach like the Kyoto Protocol, with targets and timetables, as opposed to a bottom-up, pledge-and-review approach in which each country essentially says, “Look, this is what I can do,” and they put all of those into the hopper.

The third thing I observed was that there was greatly increased acceptance of the reality that market–based approaches to emissions reduction are absolutely essential. One heard this in the past from economists and from certain countries, but now it is unanimous, except for the small set of Marxist economies that essentially object to the world economic order.

GAZETTE: Where does the U.S. stand on that issue?

STAVINS: The U.S. has been at the forefront of that approach back to the Clinton administration. What’s interesting is that the official U.S. commitment under this pledge-and-review approach, a 17 percent reduction below 2005 emissions by the year 2020, is very likely to be achieved.

The reason is the combination of CO2 regulations which are now in place because of the Supreme Court decision [freeing the EPA to treat CO2 like other pollutants under the Clean Air Act], together with five other regulations or rules on SOX [sulfur compounds], NOX [nitrogen compounds], coal fly ash, particulates, and cooling water withdrawals. All of those will have profound effects on retirement of existing coal-fired electrical generation capacity, investment in new coal, and dispatch of such electricity. Combined with that is California, which Jan. 1, 2013, is putting in place a CO2 cap-and-trade system that is more ambitious in percentage terms than Waxman-Markey was in the U.S. Congress. Add to that the recent economic recession, which reduced emissions. And more important than any of those is what new, unconventional sources of natural gas in the United States have done to the price and price trajectory of natural gas, and the dramatic movement from coal to natural gas for generating electricity.

GAZETTE: Are there things that places like Harvard can do?

STAVINS: My view is that the best thing that Harvard can do is to carry out first-rate research, combined with the best possible teaching, and effective outreach to the public sector and the private sector. That’s our comparative advantage. In other words, our greatest impacts on the environment, including with regard to global climate change, will be through our products (research findings, smart and capable alumni, and direct impact on the policy world and private industry), not our processes. The emissions reductions that Harvard will achieve as a result of changing our carbon footprint, for example, whether it’s through increased energy efficiency of some buildings or some other means, are absolutely trivial compared with our impacts on the world [through teaching, research, and outreach]. And all of us — students, faculty, and administrators — have only so much time available. A very important concept in economics is “opportunity cost,” and there’s an important opportunity cost of a faculty member’s time, for example. If they’re working on one thing, they can’t be working on something else.

GAZETTE: Isn’t there kind of a living-laboratory aspect to what we’re doing?

STAVINS: I agree with that. So the one caveat — which I always mention — to what I said would be if direct actions by the University to limit emissions or energy demand were part and parcel of a research initiative or part and parcel of teaching, then those would be part of our core functions.

GAZETTE: Does that extend to the conversation on divestment?

STAVINS: I guess the way in which it links to that issue is whether or not symbolic actions are of value, but again you have to weigh symbolic actions against truly meaningful actions.

GAZETTE: What’s the most important thing for a member of the public to know about the climate talks and about climate change generally?

STAVINS: I think the most important thing to understand is that this is a long-term problem. Economically, a cost-effective approach is going to be very gradual reductions in emissions, not sudden changes. We’re not confiscating everyone’s automobiles tomorrow, but putting in place incentives or regulations so that next time they buy an automobile they move in the right direction, one that is less carbon intensive.

A massive amount of technology change is going to be required. That’s long term, and the creation of durable international institutions is going to be necessary, and that’s long term. That’s why that cliché we always hear from ballplayers each spring when they’ve lost their first 10 games — that it’s a marathon, not a sprint — applies even more to global climate change policy.

People should get neither excited nor depressed, in my view, over one single negotiation. It’s an ongoing process that’s going to be with us for a long time.

GAZETTE: Are you confident that ultimately what needs to happen will happen?

STAVINS: I’m not sure that it will happen through a centralized, top-down, international agreement. Nor am I even certain that the core of the action will be through international negotiations. Remember, 20 countries and regions account for about 90 percent of emissions. So there are alternative venues where meaningful action can happen without requiring agreement from 195 countries! One way or another, — through national action, bilateral action, multilateral action — things will be addressed. That doesn’t mean they will be addressed without the world first experiencing significant climate change damages.

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If the Durban Platform Opened a Window, Will India and China Close It?

In my December 12th essay – following the 17th Conference of the Parties (COP-17) of the United Nations Framework Convention on Climate Change (UNFCCC), which adjourned on December 11, 2011 – I offered my assessment of the Durban climate negotiations by taking note of three major outcomes of the negotiations:  (1) elaboration on several components of the Cancun Agreements; (2) a second five-year commitment period for the Kyoto Protocol; and (3) a “non-binding agreement to reach an agreement” by 2015 that will bring all countries under the same legal regime by 2020.   Subsequently, in my January 1st essay – The Platform Opens a Window: An Unambiguous Consequence of the Durban Climate Talks – I focused on the third outcome of the talks, the “Durban Platform for Enhanced Action.”

Some Necessary History

The U.N. Framework Convention on Climate Change, adopted at the U.N. Conference on Environment and Development (the first “Earth Summit”) in Rio de Janeiro, Brazil, in 1992, contains what was to become a crucial passage:  “The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof.” [emphasis added]  The countries considered to be “developed country Parties” were listed in an appendix to the 1992 Convention ­– Annex I.

The phrase – common but differentiated responsibilities – was given a specific interpretation three years after the Earth Summit by the first decision adopted by the first Conference of the Parties (COP-1) of the U.N. Framework Convention, in Berlin, Germany, April 7, 1995 ­­– the all important Berlin Mandate, which interpreted the principle as:  (1) launching a process to commit (by 1997) the Annex I countries to quantified greenhouse gas emissions reductions within specified time periods (targets and timetables); and (2) stating unambiguously that the process should “not introduce any new commitments for Parties not included in Annex I.”

Thus, the Berlin Mandate established the dichotomous distinction whereby the Annex I countries are to take on emissions-reductions responsibilities, and the non-Annex I countries are to have no such responsibilities whatsoever.  This had wide-ranging and profound consequences, because it became the anchor that prevented real progress in international climate negotiations.  With 50 non-Annex I countries having greater per capita income than the poorest of the Annex I countries, the distinction is clearly out of whack.

But, more important than that, this dichotomous distinction means that:  (a) half of global emissions soon will be from nations without constraints; (b) the world’s largest emitter – China – is unconstrained; (c) aggregate compliance costs are driven up to be four times their cost-effective level, because many opportunities for low-cost emissions abatement in emerging economies are taken off the table; and (d) an institutional structure is perpetuated that makes change and progress virtually impossible.

The dichotomous Annex I/non-Annex I distinction remained a central – indeed, the central – feature of international climate negotiations ever since COP-1 in Berlin in 1995.  Then, at COP-15 in 2009, there were hints of possible change.

The Copenhagen Accord (2009) and the Cancun Agreements (2010) began a process of blurring the Annex I/non-Annex I distinction.  But this blurring was only in the context of the interim pledge-and-review system established at COP-15 in Copenhagen and certified at COP-16 in Cancun, not in the context of an eventual successor to the Kyoto Protocol.  Thus, the Berlin Mandate retained its centrality.

The Durban Platform for Enhanced Action

The third of the three outcomes of the December 2011 talks in Durban, South Africa – the Durban Platform for Enhanced Action – eliminates the Annex I/non-Annex I (or industrialized/developing country) distinction.  In the Durban Platform, the delegates reached a non-binding agreement to reach an agreement by 2015 that will bring all countries under the same legal regime by 2020.  That’s a strange sentence, but it’s important.

Rather than adopting the Annex I/non-Annex I (or industrialized/developing country) distinction, the Durban Platform focuses instead on the pledge to create a system of greenhouse gas reductions including all Parties (that is, all key countries) by 2015 that will come into force by 2020.  Nowhere in the text of the decision are phrases such as “Annex I,” “common but differentiated responsibilities,” “distributional equity,” “historical responsibility,” all of which had long since become code words for targets for the richest countries and blank checks for all others.

Thus, in a dramatic departure from some seventeen years of U.N. international negotiations on climate change, the 17th Conference of the Parties in Durban turned away from the Annex I/non-Annex I distinction, which had been the centerpiece of international climate policy and negotiations since it was adopted at the 1st Conference of the Parties in Berlin in 1995.  In truth, only time will tell whether the Durban Platform delivers on its promise, or turns out to be another “Bali Roadmap,” leading nowhere, but there is a key unambiguous consequence of this development.

Durban Opens a Window

By replacing the Berlin Mandate, the Durban Platform has opened an important window.  National delegations from around the world now have a challenging task before them:  to identify a new international climate policy architecture that is consistent with the process, pathway, and principles laid out in the Durban Platform, namely to find a way to include all key countries (such as the 20 largest national and regional economies that together account for upwards of 80% of global carbon dioxide emissions) in a structure that brings about meaningful emissions reductions on an appropriate timetable at acceptable cost, while remaining within the overall framework provided by the UNFCCC.

Is India Seeking to Close the Window?

As part of the agreement to launch the Durban Platform for Enhanced Action, the nations of the world agreed to initiate a work plan on enhancing mitigation ambition.  As a first step, each country was to submit its initial ideas.

On February 28, 2012, the Indian government made its official submission to the UNFCCC, “Increasing Ambition Level under Durban Platform for Enhanced Action.”  In seventeen paragraphs across three pages of text, India’s submission makes absolutely clear its view that the Durban Platform is under the overall legal umbrella of the UNFCCC, and therefore that the principles of “equity” and “common but differentiated responsibilities” remain intact and must inform all commitments for enhanced action.  In fact, the lion’s share of India’s submission talks about the responsibilities of industrialized countries, not about India’s ideas for its own contributions.

India’s submission actually quantifies what it sees as the necessary future commitments of Annex I (“developed”) countries – by referring to the 2007 Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change:  “AR4 has recommended that Annex I Parties should reduce their emissions at least by 25-40% in the short term by 2020” [emphasis added].  But, in truth, AR4 made no such recommendation.  Indeed, the IPCC – in general – does not make any policy recommendations whatsoever.  This is one of the key organizing principles under which the IPCC operates.  I know this from decades of direct work with the IPCC, having served as a Lead Author in two rounds of the IPCC, and currently serving as a Coordinating Lead Author in AR5.

China Weighs In

A week after India made its submission, the Chinese government followed suit on March 8th with “China’s Submission on Options and Ways for Further Increasing the Level of Ambition.”  The submission is consistent with India’s, maintaining that industrialized countries alone bear responsibility for reducing emissions before 2020:  “Developed country Parties should take the lead in reducing their emissions by undertaking ambitious mitigation commitments and fulfill their obligations by providing financial resources and transferring technology to developing country Parties.”

They Have a Point

India and China have a point.  The Durban Platform did not supplant the Convention, so the general notions of “equity” and “common but differentiated responsibilities” do remain.  But – and here is the key reality – the Durban Platform did replace the Berlin Mandate.  And so a window has been opened to explore new, more sophisticated, and more subtle ways of involving all key countries in an environmentally effective and cost-effective global agreement, with a new interpretation of common but differentiated responsibilities.

For example, replacing the dichotomous Annex I/non-Annex I distinction with a formula that generates a continuous spectrum of degrees of responsibility would be fully consistent both with the Durban Platform for Enhanced Action and the U.N. Framework Convention on Climate Change.  Such a formulaic approach – as developed by Professors Jeffrey Frankel and Valentina Bosetti for the Harvard Project on Climate Agreements – merits serious consideration, along with other innovative international policy architectures.

Although some in the press and blogosphere have characterized the Chinese and Indian submissions as hitting “the brakes on Durban pledges” and “hitting the reset button on international climate change commitments,” in reality the Chinese and Indian submissions refer only to emission reductions prior to 2020, whereas the Durban Platform for Enhanced Action focuses on (agreeing by 2015 on) a new international agreement that would be implemented only in 2020.  Thus, there’s no inconsistency.

Stay Tuned

Whether or not the submissions by China and India are part of a diplomatic dance or represent a real step backward from their positions in Durban, the fact remains that the Durban Platform – by replacing the Berlin Mandate – has opened an important window.  Governments around the world need fresh, outside-of-the-box ideas over the next few years of a possible future international climate policy architecture that can meet the call of the Durban Platform while remaining true to the Framework Convention on Climate Change.  That’s the challenge, as well as the opportunity.

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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.

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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)?

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