Review of Environmental Economics and Policy Advance Access originally published online on December 4, 2008
Review of Environmental Economics and Policy 2009 3(1):1-3; doi:10.1093/reep/ren023
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Introduction to the Issue
Welcome to the fifth issue of the Review of Environmental Economics and Policy, which once again includes articles, a symposium, and a set of features.
In the first of two articles in this issue, Geoffrey Heal reviews what we have learned about the economics of global climate change and related public policy from the extensive literature that has emerged in response to the controversial Stern Review of the Economics of Climate Change. Heal provides his own perspective on the Stern Review (which was the focus of a symposium in our Winter 2008 issue) as well as his views on how the recent debate affects the economic case for action on climate change. He moves on from there to identify some of the greatest uncertainties about the economics of climate change and hence where future economic research can be most valuable. He focuses in particular on the need to better understand the impact of climate change on "natural capital," that is, the natural environment and its ecosystems.
The second article—by John Livernois—turns to what is surely one of the most important principles in the entire realm of environmental and resource economics, the Hotelling Rule (1931), which holds that it is optimal for the net price (price minus marginal cost) of a nonrenewable natural resource to increase over time at the rate of interest, and that such a pattern will be observed in perfectly competitive markets. This theoretical proposition is well understood and may be said to be at the heart of virtually all economic models of nonrenewable natural resource exploitation. But what does the empirical evidence tell us about its application and validity in the real world? That is the subject of this second article.
This issue of the Review continues with a symposium on a topic that is both important and timely, particularly now with the inauguration of the administration of President Barack Obama and the swearing in of the new U.S. Congress in Washington, D.C. What approach—what policy instrument—should the United States use as it seeks to enact meaningful legislation to reduce emissions of carbon dioxide and other greenhouse gases?
In the first of three articles in this symposium on Alternative U.S. Climate Policy Instruments, Nathaniel Keohane presents the case for using a cap-and-trade system (tradable permits) to reduce U.S. greenhouse gas emissions. He draws two basic distinctions between such an approach and a carbon tax, the alternative favored by many economists. First, Keohane notes that under cap-and-trade, the allowance-allocation choice gives the government important flexibility to address distributional issues. Second, he focuses on the price–quantity distinction, a subject of considerable research by economists since Martin Weitzman's landmark work in 1974, and argues that the possibility of allowance banking and borrowing, plus evidence that climate change will be highly nonlinear, may tip the scales in favor of quantity (cap-and-trade) rather than price (tax) mechanisms.
In the second article in the symposium, Gilbert Metcalf describes an approach to reducing U.S. greenhouse gas emissions that uses a revenue-neutral carbon tax. In his proposal, the revenue from the carbon tax would be used to finance an environmental earned income tax credit designed to be distributionally neutral, which would help offset what would otherwise be a regressive tax. Metcalf maintains that by making the carbon tax revenue neutral, policy makers could avoid conflating carbon policy with debates over the size of the federal budget. He also provides several additional political, economic, and administrative arguments in favor of the carbon tax approach, and responds to some of the arguments that have been made against using a tax-based approach to reducing U.S. greenhouse gas emissions.
The symposium's third article—by Brian Murray, Richard Newell, and William Pizer—proposes a "hybrid" approach that combines elements of both cap-and-trade and a carbon tax. The authors begin by observing that much of the economics community has emphasized price-based policies to address climate change—whether through taxes or a "safety-valve" price ceiling for cap-and-trade—whereas environmental advocates have typically sought a more clear quantitative limit on emissions. In the hope of bridging the gap between competing interests and potentially improving efficiency relative to tax or other price-based policies, these authors propose a modification to the safety valve, namely a quantitative limit that they call an allowance reserve. In this regard, they highlight the importance of capturing the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.
In addition to articles and symposia, every issue of the Review includes several regular features. Maureen Cropper edits "Policy Monitor," which reviews policy developments that are of particular interest to environmental and resource economists. The fifth article in the series, by Robin Jenkins, Elizabeth Kopits, and David Simpson, reviews the evolution and interaction of legislation, regulation, and practical experience concerning solid and hazardous waste management and site cleanup in the United States.
Each issue also includes "Reflections." After four very well received contributions from V. Kerry Smith, we are fortunate to be able to expand our "stable" of authors and plan to rotate the "Reflections" column among several authors. In this issue, Frank Convery reflects on emissions trading in Europe. He reviews the recent literature and other sources of information and data on the European Union Emissions Trading Scheme (EU ETS) and draws on survey responses from twenty-eight scholars in the emissions trading field to help identify some of the most interesting, valuable, and prescient research on the EU ETS.
Our Winter 2008 issue featured a symposium on "The Economics of Climate Change: The Stern Review and Its Critics," and our Summer 2008 issue provided comments from symposium authors Robert Mendelsohn, Thomas Sterner and U. Martin Persson, and John Weyant on the fourth article in the symposium, by Simon Dietz and Nicholas Stern. In the current issue, we include a "final rejoinder" from Dietz and Stern.
Lastly, the "Announcements" feature offers updates on conferences, workshops, calls for papers, and other relevant news from the world of environmental and resource economics. As we have emphasized in the past, the content of this feature depends entirely upon voluntary submissions from our readers. We hope very much that you will take time to send us announcements from your institution. Please take a look at our current and past announcements for ideas about the types of announcements that would likely be of interest to your fellow environmental economists.
We hope you find this fifth issue of the Review of Environmental Economics and Policy to be interesting and useful. We appreciate the proposals we have been receiving for articles and symposia, and encourage you to keep sending them. We also remain very interested in hearing your thoughts and reactions to any and all aspects of the Review.
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