Energy and Carbon Dynamics at Advanced Stages of Development: An Analysis of the U.S. States, 1960–1999

This paper explores the relationships among economic development, energy consumption, and carbon dioxide (CO2) emissions by focusing on a set of advanced economies, the U.S. states. Energy consumption and emissions grew 50–60 percent on average over the 1960–1999 period. The states’ per capita energy consumption and emissions have grown on average 2 percent annually as income and population growth have outpaced improvements in energy intensity of output and carbon intensity of energy. The energy consumption income elasticity is positive but decreasing in income, although energy production takes an inverted-U shape, reflecting the electricity imports among high income states. The standard CO2 measure, corresponding to energy production, is characterized by an inverted-U environmental Kuznets curve. Adjusting emissions for interstate electricity trade yields an emissions–income relationship that peaks and plateaus. The carbon intensity of energy declines in income for total energy consumption and the industrial, residential, and commercial sectors.Engel curve, environmental Kuznets curve, cubic spline, Kaya identity

Real-Time Economic Analysis and Policy Development during the BP Deepwater Horizon Oil Spill

The 2010 BP Deepwater Horizon oil spill posed near-term economic risks to the Gulf of Mexico region and raised questions about appropriate policies to mitigate catastrophic oil spill risks. This essay reviews the Obama Administration's assessment of the economic vulnerabilities to the spill, the Administration's May 12, 2010 legislative proposal focused on minimizing the adverse economic impacts to workers and small businesses in the Gulf of Mexico, and the effort to secure an agreement with BP to ensure that those harmed by the spill will receive full compensation. Then, the essay discusses several of the policy reforms advanced by the Administration to reduce the risks of future catastrophic oil spills, including the value of an industry consortium to provide deepwater well containment resources and the need to remove the arbitrary limit on liability for economic damages from offshore drilling. The essay closes with a few policy lessons learned from the spill.

A Preliminary Review of the American Recovery and Reinvestment Act’s Clean Energy Package

The American Recovery and Reinvestment Act included more than $90 billion in strategic clean energy investments intended to promote job creation and promote deployment of low-carbon technologies. In terms of spending, the clean energy package has been described as the nation’s “biggest energy bill in history.” To provide a preliminary assessment of the Recovery Act’s clean energy package, this paper reviews the rationale, design, and implementation of the act. The paper surveys the policy principles for clean energy stimulus and describes the process of crafting the clean energy package during the 2008–2009 Presidential Transition. Then, the paper reviews the initial employment, economic activity, and energy outcomes associated with these energy investments and provides a more detailed case study on the Recovery Act’s support for renewable power through grants and loan guarantees. The paper concludes with lessons learned.economic stimulus, tax credits, energy loan guarantees, climate change, renewable energy

The Promise and Problems of Pricing Carbon: Theory and Experience

Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

Climate Change: An Agenda for Global Collective Action

Over the past decade, and especially over the past few years, climate change has emerged as one of the most important issues facing the international community. A global consensus now exists that climate change represents a significant potential threat to the world's well-being. But there is disagreement about how and when to address that threat. To motivate the discussion of both the timing and magnitude of emissions mitigation policy, the paper begins with an overview of the underlying science and economics. Understanding the uncertainties and differences in the timing of costs and benefits of climate change mitigation helps frame the extensive discussion of political economy issues that we examine in the second section. Specifically, we explore the interaction of economic and political concerns in enforcing emissions commitments and encouraging developing country participation within the "voluntaristic" framework entailed by the current system of global governance. Given these political economy constraints, in the third section we evaluate the Kyoto Protocol and alternative formulations to climate change policy. We conclude that modifications to the Kyoto framework are required to advance the effort to address climate change. At the very least, a thorough re-examination of alternative frameworks may prove helpful in building a global consensus behind a more effective strategy. The final section concludes with a discussion of one promising approach to addressing climate change: a flexible hybrid system that combines a permit trading program with the ability of governments to sell additional permits at a given maximum price.Environment, Technology and Industry, Regulatory Reform, Other Topics

Age Variations in Workers' Value of Statistical Life

This paper develops a life-cycle model in which workers choose both consumption levels and job fatality risks, implying that the effect of age on the value of life is ambiguous. The empirical analysis of this relationship uses novel, age-dependent fatal and nonfatal risk variables. Workers' value of statistical life exhibits an inverted U-shaped relationship over workers' life cycle based on hedonic wage model estimates, age-specific hedonic wage estimates, and a minimum distance estimator. The value of statistical life for a 60-year old ranges from $2.5 million to$3.0 million -- less than half the value for 30 to 40-year olds.

Adjusting the Value of a Statistical Life for Age and Cohort Effects

To resolve the theoretical ambiguity in the effect of age on the value of statistical life (VSL), this article uses a novel, age-dependent fatal risk measure to estimate age-specific hedonic wage regressions. VSL exhibits an inverted-U shaped relationship with age. In the year 2000 cross-section, workers’ VSL rises from $3.2 million (ages 18–24), to$9.9 million (35–44), and declines to $3.8 million (55–62). Controlling for birth-year cohort effects in a minimum distance estimator yields a peak VSL of$7.8 million at age 46 and flattens the VSL-age relationship. The value of statistical life-year also follows an inverted-U shape with age.value of statistical life, job risks, hedonic wage regression, VSLY

Age Differences in the Value of Statistical Life: Revealed Preference Evidence

Revealed preference evidence, especially based on wage-risk tradeoffs in the labor market, provides the primary empirical basis for analyses of the value of statistical life (VSL). This market evidence also provides guidance on how VSL varies with age. While labor market studies have generated conflicting evidence—some showing that VSL rises with age and others showing that VSL declines with age—more refined estimates that take into account the age variation in job fatality risks or life-cycle patterns of consumption show an inverted-U relation between the VSL and age. The value of a statistical life year shows a similar pattern and is not time-invariant. Applying estimates of the VSL-age relationship to an analysis of the Clear Skies initiative illustrates the implications of recognizing the age-VSL relationship.value of statistical life, VSL, value of statistical life year, risk

Using the Market to Address Climate Change: Insights from Theory and Experience

Emissions of greenhouse gases linked with global climate change are affected by diverse aspects of economic activity, including individual consumption, business investment, and government spending. An effective climate policy will have to modify the decision calculus for these activities in the direction of more efficient generation and use of energy, lower carbon-intensity of energy, and – more broadly – a more carbon-lean economy. The only approach to doing this on a meaningful scale that would be technically feasible and cost-effective is carbon pricing, that is, market-based climate policies that place a shadow-price on carbon dioxide emissions. We examine alternative designs of three such instruments – carbon taxes, cap-and-trade, and clean energy standards. We note that the U.S. political response to possible market-based approaches to climate policy has been and will continue to be largely a function of issues and structural factors that transcend the scope of environmental and climate policy.Global Climate Change, Market-Based Instruments, Carbon Pricing, Carbon Taxes, Cap-And-Trade, Clean Energy Standards