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.

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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.

Speakers:

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 paperhttp://belfercenter.ksg.harvard.edu/publication/24749

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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.

Speakers:

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

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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?”

Speakers:

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 paperhttp://belfercenter.ksg.harvard.edu/publication/24568

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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.

Speakers:

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 paperhttp://belfercenter.ksg.harvard.edu/publication/24568

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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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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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