Review of Environmental Economics and Policy - recent issues

Editorial Board

Sun, 12 Jul 2009 21:15:43 PDT

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Sun, 12 Jul 2009 21:15:43 PDT

Introduction to the Issue

Stavins, R., Carraro, C., Kolstad, C. — Sun, 12 Jul 2009 21:15:43 PDT

Understanding Oil Price Behavior through an Analysis of a Crisis

Maugeri, L. — Sun, 12 Jul 2009 21:15:43 PDT

This article seeks to identify and explain both the fundamental and the more controversial elements that shape the dynamics of the oil market, using the recent oil crisis as the basic framework for analysis. The article suggests that the price of oil is essentially a function of the current and future spare capacity of oil. However, spare capacity alone cannot fully explain the extent and timing of oil price movements. Other important factors must be taken into account, including, above all, the expectations of market operators, who tend to be influenced by both the perceived current and future level of spare capacity and the unreliable data that have plagued the oil world since its inception. The article also suggests that bottlenecks in the oil refining system may play an important role in oil price movements, but tends to downgrade the importance of other factors, such as the influence of OPEC and financial speculation. Finally, the article suggests some reforms to make the oil market more transparent and possibly more stable, which is a prerequisite for making investments in energy efficiency and renewables in the near future.

Greenhouse Gas Auctions and Taxes: Some Political Economy Considerations

Hahn, R. W. — Sun, 12 Jul 2009 21:15:43 PDT

Many economists suggest that a cap-and-trade program and a carbon tax represent promising mechanisms for addressing climate change. A potentially attractive feature of both policies is that they have the potential to recycle revenues in an efficient manner. In the case of cap and trade, this would involve using auction revenues; in the case of a tax, it would involve using tax revenues. This article evaluates various arguments for auctions and taxes in light of political realities and finds that the enthusiasm for auctions and taxes has not been accompanied by sober assessments of whether and how the revenues would actually be used. Most of the evidence suggests that at least some of the revenues would not be spent wisely. Specifically, the article urges the government to compare a realistic set of policy options, while recognizing that the feasibility of different types of mechanisms can change over time. Furthermore, it is suggested that the introduction of political economy considerations may lead to an optimal level of pollution control that is less stringent than conventional economic analysis would suggest.

The Local and Global Benefits of Green Tax Policies in China

Cao, J., Ho, M. S., Jorgenson, D. W. — Sun, 12 Jul 2009 21:15:43 PDT

This article describes a multidisciplinary study of market-based policies for controlling air pollution in China. While previous studies have examined the costs and benefits of pollution control separately, this approach determines them together using an economy–environment model for China. We employ air dispersion simulations and population maps to calculate health damages due to air pollution. This provides estimates of incremental damages for industry output and fuel use. Based on these marginal damages, we simulate the effect of "green taxes" on the economy and show that the environmental benefits exceed the aggregate costs, ignoring adjustment costs for individual sectors.

Environmental Pollution in China: Status and Trends

Vennemo, H., Aunan, K., Lindhjem, H., Seip, H. M. — Sun, 12 Jul 2009 21:15:43 PDT

The state of China's environment is receiving attention from all over the world. This article reviews the current status and trends of environmental pollution in China. We argue that China is able to contain, and to some extent improve, air and water quality for the urban population at the local level. The situation is uneven when it comes to problems at the regional level. On the one hand, surface water quality in the South is improving and particle emissions are stable. On the other hand, nitrogen oxide emissions are increasing rapidly and sulfur oxide emissions have been on the rise until very recently, despite intense official pressure to bring sulfur emissions down. China's CO₂ emissions have grown rapidly in recent years, causing global concern. However, we argue that future growth in CO₂ emissions is likely to be slower. Overall, China appears to be following a path similar to the one taken by more industrialized countries.

China's 11th Five-Year Plan and the Environment: Reducing SO2 Emissions

Cao, J., Garbaccio, R., Ho, M. S. — Sun, 12 Jul 2009 21:15:44 PDT

China's rapid economic growth has been accompanied by a high level of environmental degradation. One of the major sources of health and ecosystem damages is sulfur dioxide (SO₂). Reducing SO₂ emissions is a priority of China's environmental authorities, and the 11th Five-Year Plan (2006–2010) includes the target of reducing total SO₂ emissions by 10 percent from the 2005 level. Given the rapid increase in SO₂ emissions that is expected to occur in absence of intervention, attaining this target will require a significant effort. This article examines the two major policy measures the government is taking to achieve the SO₂ target: a shutdown of many small, inefficient power plants and the installation of desulfurization equipment on existing and new coal-fired plants. We present results from a joint U.S.–China study that we participated in, which estimated the costs and benefits of these policies. We then estimate the economy-wide impacts of the two policies using a multisector model of the Chinese economy. We find that in the aggregate, the economic benefits of the shutdown of the small power plants are large enough to offset the costs of the desulfurization equipment, even without considering the substantial environmental benefits from the reduction of emissions of SO₂ and other pollutants.

The State of Environmental and Resource Economics: A Google Scholar Perspective

Auffhammer, M. — Sun, 12 Jul 2009 21:15:44 PDT

Until recently, ISI Thompson's Web of Science/Social Sciences Citation Index was the only rigorous tool for tracking citation counts of academic research papers. The recent emergence of Google Scholar provides an alternative measure for tracking citation counts for refereed journal articles, conference proceedings, working papers, and government reports. This article provides an overview of the state of environmental and resource economics using the Google Scholar measure of citations. It ranks and compares the major field journals, and the most cited papers in these journals, the most cited papers in the field that have been published in general economics journals, and the most cited technical books and textbooks, as well as the most cited researchers in the field.

Evaluating Environmental and Resource Economics Journals: A TOP-Curve Approach

Rousseau, S., Verbeke, T., Rousseau, R. — Sun, 12 Jul 2009 21:15:44 PDT

This article applies an alternative approach to the measurement of scholarly quality, namely the use of TOP-curves, in order to rank journals in the field of environmental and resource economics. This measure summarizes the incidence, intensity, and inequality of these journals’ highly cited articles. Moreover, TOP-curves allow analysts to rank journals according to TOP-dominance. The journal ranking based on the TOP-dominance criterion does not match the ranking based on the journals’ impact factors. Indeed, TOP-curves provide more detailed information on the relative ranking of journals since they take into account the composition and the distribution of citations within the top group.

Policy Monitor: U.S. Experience with Transferable Development Rights

McConnell, V., Walls, M. — Sun, 12 Jul 2009 21:15:44 PDT

To address the externalities that arise from local land uses, some communities in the United States have turned to Transferable Development Rights (TDRs) as a promising policy tool. TDRs separate the right to develop from the land itself, and create a market that allows those rights to be transferred from one location to another. If the markets work well, targeted areas are protected from development, thereby maintaining them as open space, buffers for water pollution control, wildlife habitat, or scenic vistas, or for other uses; the transferred rights are used to develop other areas more densely than would otherwise be the case. While TDRs have been established in many communities in the last 30 years, only a handful have been successful in achieving local land use goals. The design of TDR markets is complex because they must be integrated with local zoning regulations and they depend critically on local economic conditions in the housing and land markets. This article summarizes the key elements in the design of TDR programs and reviews a number of existing markets to identify which have performed well and which have not. The evolution of the successful markets is described, and lessons learned for future TDR programs are presented.

Reflections--Energy Efficiency Policy: Pipe Dream or Pipeline to the Future?

Tietenberg, T. — Sun, 12 Jul 2009 21:15:44 PDT

In recent years, the amount of both private and public money dedicated to promoting energy efficiency has increased a great deal. Is this a good investment? This "Reflections" article examines the potential for further investment opportunities, the case for government intervention, and the evidence on the effectiveness of the various forms of intervention. The evidence suggests that the challenge of breaking down the barriers is more difficult than conventional wisdom would have us believe. Internalizing externalities and assuring an adequate flow of information is helpful, but not likely to be sufficient. The significant challenges posed by these barriers suggest that policy makers must recognize an expanded set of barriers and respond with some ingenuity in applying an expanded set of available instruments.

Announcements

Sun, 12 Jul 2009 21:15:44 PDT

Introduction to the Issue

Stavins, R., Carraro, C., Kolstad, C. — Sat, 10 Jan 2009 10:12:56 PST

Climate Economics: A Meta-Review and Some Suggestions for Future Research

Heal, G. — Sat, 10 Jan 2009 10:12:56 PST

What have we learned from the outpouring of literature as a result of the Stern Review of the Economics of Climate Change? A lot. We have explored the models and the possible parameter values much more thoroughly. The Stern Review has catalyzed a fundamental rethinking of the economic case for action on climate change. We are now in a position to identify conditions that are sufficient to make a case for strong action on climate change, but more work is needed before we can have a fully satisfactory account of the relevant economics. In particular, we need to better understand how climate change affects natural capital—the natural environment and the ecosystems comprising it—and how this in turn affects human welfare.

On the Empirical Significance of the Hotelling Rule

Livernois, J. — Sat, 10 Jan 2009 10:12:56 PST

The Hotelling Rule—that price net of marginal cost must rise at the rate of interest in nonrenewable resource markets—forms the theoretical core of the economics of nonrenewable resources. It is present in one form or another in every modern paper on nonrenewable resource economics, and is the conceptual and theoretical framework used by economists to understand and model the long-run evolution of prices and supplies for nonrenewable resources. But what do we know about the empirical significance of the Hotelling Rule? What practical insights has it provided for understanding what we have actually observed in nonrenewable resource markets and how has it stood up to empirical scrutiny? These are the questions addressed in this paper. I review the evidence on the behavior of market prices over time, the evidence on the effects of technological change, direct tests of the Hotelling Rule, and the performance of the Hotelling Valuation Principle.

Cap and Trade, Rehabilitated: Using Tradable Permits to Control U.S. Greenhouse Gases

Keohane, N. O. — Sat, 10 Jan 2009 10:12:56 PST

This article presents the case for using a cap and trade program (i.e., tradable permits) to control U.S. greenhouse gas emissions. The analysis draws two basic distinctions between such an approach and a carbon tax (the alternative favored by many economists). The first concerns how the value of emissions is allocated. Under cap and trade, the government can capture the value of emissions by auctioning permits or by freely distributing allowances to emitters. A carbon tax would generally capture the entire value as revenue. While free distribution has efficiency costs, it gives policy-makers important flexibility to resolve distributional issues. The second distinction is that a tradable permit system sets the quantity of allowable emissions, while a tax sets the price. In the context of international policy, cap and trade promotes cost-effective abatement and broad participation. A quantity approach may also be preferred on efficiency grounds. Although the prevailing view among economists is that uncertainty about marginal costs favors taxes, that view ignores the possibility of allowance banking and borrowing, and overlooks growing scientific evidence that climate change will be highly nonlinear and characterized by "tipping points." A simple thought experiment illustrates how a prices-versus-quantities argument might favour cap and trade.

Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions

Metcalf, G. E. — Sat, 10 Jan 2009 10:12:56 PST

This article describes a revenue and distributionally neutral approach to reducing U.S. greenhouse gas emissions that uses a carbon tax. The revenue from the carbon tax is used to finance an environmental earned income tax credit designed to be distributionally neutral. The credit is linked to earned income and helps offset the regressivity of the carbon tax. The carbon tax reform proposal is also revenue neutral and avoids conflating carbon policy with debates over the appropriate size of the federal budget. The article provides a distributional analysis of the proposal and also makes a number of political, economic, and administrative arguments in favor of a carbon tax and responds to the arguments that have commonly been made against using a tax-based approach to reducing U.S. emissions.

Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade

Murray, B. C., Newell, R. G., Pizer, W. A. — Sat, 10 Jan 2009 10:12:56 PST

On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change—such as taxes or a "safety-valve" price ceiling for cap-and-trade—while environmental advocates have sought a more clear quantitative limit on emissions. This article presents a simple modification to the idea of a safety valve: a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.

Policy Monitor--The Evolution of Solid and Hazardous Waste Regulation in the United States

Jenkins, R. R., Kopits, E., Simpson, D. — Sat, 10 Jan 2009 10:12:56 PST

This article reviews the evolution and interaction of legislation, regulation, and practical experience concerning solid and hazardous waste management and site cleanup in the United States. The evolution of waste laws provides insights that fall under three themes. First is the effect of new information. Early waste legislation was written in an environment of limited information. As understanding of waste management, disposal, and cleanup issues improved, the governing statutes were amended and the regulations refined. Second, new waste laws were sometimes a reaction to structural and behavioral responses to previous regulation. For example, the Brownfields Law was written to address poorly functioning property markets for land tainted by real or perceived contamination, attributed in part to the liability rules in the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Third is the balance of responsibility between federal and state government. Initially, waste issues were solely the purview of state and local governments. With the advent of the Resource Conservation and Recovery Act and CERCLA, the federal government took on a prominent regulatory role and established baseline national regulations. In the past three decades, the state's role has expanded again, resulting in a variety of enforcement- and incentive-based state programs. This diversity across states may be evidence of efficient accommodation of local preferences and conditions.

Reflections--The Emerging Literature on Emissions Trading in Europe

Convery, F. J. — Sat, 10 Jan 2009 10:12:56 PST

The European Union Emissions Trading Scheme (EU ETS), inaugurated in 2005, is arguably the most important application of environmental economics the world has ever seen. It has generated an important literature, focused on understanding its origins and history, the allocation of allowances, the implications of competitiveness and the distribution of costs and benefits, the extent of abatement, the economic efficiency of the scheme, the implications of the new entrant provisions, and the study of markets, trading, and finance. This article reviews the recent literature and other sources of information and data on the EU ETS; identifies some of the most interesting emerging trends and articles in the emissions trading literature, especially those that appear to have been interesting and useful to our peers in the profession; and provides some general insights concerning what the emissions trading literature has to offer to those involved in the policy process. The author used 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.

Note--On the Timing of Greenhouse Gas Emissions Reductions: A Final Rejoinder to the Symposium on "The Economics of Climate Change: The Stern Review and its Critics"

Dietz, S., Stern, N. — Sat, 10 Jan 2009 10:12:56 PST

Announcements

Sat, 10 Jan 2009 10:12:56 PST

Introduction to the Issue

Stavins, R., Carraro, C., Kolstad, C. — Sat, 19 Jul 2008 08:53:24 PDT

Instrument Choice in Environmental Policy

Goulder, L. H., Parry, I. W. H. — Sat, 19 Jul 2008 08:53:24 PDT

The choice of pollution control instrument is a crucial environmental policy decision. We examine the extent to which various environmental policy instruments meet major evaluation criteria, including cost-effectiveness, distributional equity, the ability to address uncertainties, and political feasibility. Instruments considered include emissions taxes, tradable emissions allowances, subsidies for emissions reductions, performance standards, mandates for the adoption of specific technologies, and subsidies for research toward new, "clean" technologies. We consider policies that address pollution externalities and policies that deal with market failures associated with efforts to invent or deploy new technologies. Several themes emerge. First, no single instrument is clearly superior along all the dimensions relevant to policy choice; even the ranking along a single dimension often depends on the circumstances involved. Second, significant trade-offs arise in the choice of instrument: for example, assuring a reasonable degree of distributional equity will often require a sacrifice of cost-effectiveness. Third, it is sometimes desirable to design hybrid instruments that combine features of various "pure" instruments. Fourth, for many pollution problems, more than one market failure may be involved, which may justify (on efficiency grounds, at least) employing more than one instrument. Finally, potential interactions among environmental policy instruments and among regulatory jurisdictions need to be carefully considered.

Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction

Bushnell, J., Peterman, C., Wolfram, C. — Sat, 19 Jul 2008 08:53:24 PDT

This article considers the efficacy of various types of environmental regulations when they are applied locally to pollutants, such as greenhouse gases, whose damages extend beyond the jurisdiction of the local regulator. While previous work has noted the possibility for leakage, whereby polluting sources move outside the jurisdiction of the regulation, we identify an additional problem that occurs when policies are targeted downstream, at consumers of goods whose production creates pollution. Specifically, we show how consumer-based policies can be circumvented by a simple reshuffling of who is buying from whom. We argue that the leakage problems are more pronounced with regulations that impose costs on firms than with subsidies that reward production of low-polluting goods. Reshuffling problems are more pronounced when the options for compliance are more flexible, such as with market-based regulations. We conclude that localities may be able to have the greatest impact on global pollutants when they enact relatively inflexible regulations such as efficiency standards or targeted subsidies.

Perspectives on Pollution Abatement and Competitiveness: Theory, Data, and Analyses

Pasurka, C. — Sat, 19 Jul 2008 08:53:24 PDT

The implementation of environmental regulations has raised concerns about the effect of pollution abatement on the competitiveness of firms, industries, and nations. These concerns have led to efforts to assess the relationship between pollution abatement and competitiveness. This article presents national- and industry-level data on pollution abatement costs and emissions, and discusses the theoretical and empirical literature on the link between pollution abatement and competitiveness. The article first reviews theoretical perspectives on the link between competitiveness and pollution abatement. Next, historical data on pollution abatement costs and emissions across nations and industries are summarized. Finally, the article reviews the empirical evidence on the link between pollution abatement and indicators of competitiveness.

Corporate Social Responsibility Through an Economic Lens

Reinhardt, F. L., Stavins, R. N., Vietor, R. H. K. — Sat, 19 Jul 2008 08:53:24 PDT

Business leaders, government officials, and academics are focusing considerable attention on the concept of "corporate social responsibility" (CSR), particularly in the realm of environmental protection. Beyond complete compliance with environmental regulations, do firms have additional moral or social responsibilities to commit resources to environmental protection? How should we think about the notion of firms sacrificing profits in the social interest? May they do so within the scope of their fiduciary responsibilities to their shareholders? Can they do so on a sustainable basis, or will the forces of a competitive marketplace render such efforts and their impacts transient at best? Do firms, in fact, frequently or at least sometimes behave this way, reducing their earnings by voluntarily engaging in environmental stewardship? And finally, should firms carry out such profit-sacrificing activities (i.e., is this an efficient use of social resources)? We address these questions through the lens of economics, including insights from legal analysis and business scholarship.

Corporate Social Responsibility and the Environment: A Theoretical Perspective

Lyon, T. P., Maxwell, J. W. — Sat, 19 Jul 2008 08:53:24 PDT

This article surveys the growing theoretical literature on the motives for and welfare effects of environmental corporate social responsibility (CSR). We show how both market and nonmarket forces are making environmental CSR profitable, and also discuss altruistic CSR. In particular, nongovernmental organizations strongly influence CSR activities, through both public and private politics. CSR can have varied effects, from attracting green consumers or investors, to preempting government regulation, to encouraging regulation that burdens rivals. Welfare effects of CSR are subtle, and there is no guarantee that CSR enhances social welfare. We identify numerous areas in which additional theoretical work is needed.

The (Not So) New Corporate Social Responsibility: An Empirical Perspective

Portney, P. R. — Sat, 19 Jul 2008 08:53:24 PDT

There now exists a large and growing literature on what has come to be known as "corporate social responsibility" (CSR). The largest strand of this literature is devoted to studies that attempt to determine whether CSR is associated with superior financial performance for those firms that engage in it. This article first provides a definition of CSR that makes it possible to talk about it in a concrete way; it then identifies the ways in which CSR might lead to superior financial performance; next it reviews the empirical evidence bearing on this hypothesis; finally, the paper concludes by asking whether this much-hyped phenomenon is really that new after all and suggests that normative judgments about CSR are more complicated than one might think.

Policy Monitor: Urban Air Pollution in India

Narain, U. — Sat, 19 Jul 2008 08:53:24 PDT

The majority of India's population still lives in villages, but towns and cities are growing rapidly. The increased economic activity that has accompanied this urbanization has also contributed to rising air pollution in India. Like much of the world, India has relied solely on command-and-control policies to reduce air pollution from mobile sources, establishing stricter vehicle emissions standards (along with improved fuel quality) to control emissions from new vehicles, and inspection and maintenance programs for vehicles already in use. As for stationary sources, traditionally the emphasis has also been on command-and-control policies (establishing emission standards and granting permits to operate). However, in recent years India has begun to implement voluntary agreements and information disclosure programs. This article reviews the institutions and policies that have been established in India to control air pollution. We also review how these institutions and policies have been applied to reduce air pollution in the Indian capital, Delhi, and the extent to which they are being implemented in other Indian cities.

Reflections on the Literature

Smith, V. K. — Sat, 19 Jul 2008 08:53:24 PDT

This article considers the large literature on "happiness economics," which uses people's answers to survey questions about their happiness to address economic policy tradeoffs. The authors of this literature contend that their assessments provide a measure of respondents’ "true internal utility." They have also argued that these assessments can be used to measure the tradeoffs people would make to change policy. Happiness economics seems to have captivated both the editors and referees of the flagship journals in economics. Theorists are trying to reconcile existing economic models with the empirical results of happiness economics, and behavioral economists are using the empirical results to support calls for new approaches to consumer sovereignty. Serious responses to happiness economics from environmental economists are long overdue. This article examines how a happiness survey would fare if it had to face the same standards used to evaluate contingent valuation or stated choice questions.

Comments on Simon Dietz and Nicholas Stern's Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics

Mendelsohn, R., Sterner, T., Persson, U. M., Weyant, J. P. — Sat, 19 Jul 2008 08:53:24 PDT

Announcements

Sat, 19 Jul 2008 08:53:24 PDT

Review of Environmental Economics and Policy - recent issues

Editorial Board

Contents

Subscription

Introduction to the Issue

Understanding Oil Price Behavior through an Analysis of a Crisis

Greenhouse Gas Auctions and Taxes: Some Political Economy Considerations

The Local and Global Benefits of Green Tax Policies in China

Environmental Pollution in China: Status and Trends

China's 11th Five-Year Plan and the Environment: Reducing SO2 Emissions

The State of Environmental and Resource Economics: A Google Scholar Perspective

Evaluating Environmental and Resource Economics Journals: A TOP-Curve Approach

Policy Monitor: U.S. Experience with Transferable Development Rights

Reflections--Energy Efficiency Policy: Pipe Dream or Pipeline to the Future?

Announcements

Introduction to the Issue

Climate Economics: A Meta-Review and Some Suggestions for Future Research

On the Empirical Significance of the Hotelling Rule

Cap and Trade, Rehabilitated: Using Tradable Permits to Control U.S. Greenhouse Gases

Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions

Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade

Policy Monitor--The Evolution of Solid and Hazardous Waste Regulation in the United States

Reflections--The Emerging Literature on Emissions Trading in Europe

Note--On the Timing of Greenhouse Gas Emissions Reductions: A Final Rejoinder to the Symposium on "The Economics of Climate Change: The Stern Review and its Critics"

Announcements

Introduction to the Issue

Instrument Choice in Environmental Policy

Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction

Perspectives on Pollution Abatement and Competitiveness: Theory, Data, and Analyses

Corporate Social Responsibility Through an Economic Lens

Corporate Social Responsibility and the Environment: A Theoretical Perspective

The (Not So) New Corporate Social Responsibility: An Empirical Perspective

Policy Monitor: Urban Air Pollution in India

Reflections on the Literature

Comments on Simon Dietz and Nicholas Stern's Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics

Announcements