Research Frontiers in the Economics of Climate Change

Academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields. In this article I briefly discuss eight overlapping areas of current research in which further effort particularly is warranted. These areas include decision criteria for policy; risk assessment and adaptation; uncertainty and learning; abatement cost and the innovation and diffusion of technology; and the credibility of policies and international agreements. Further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers.

Economic Analysis and the Formulation of U.S. Climate Policy

Economic analysts within government agencies as well as outside government has played a noticeable and increasing role in formulating U.S. climate policy. However, that role has remained limited; in particular, economic analysis has largely been ignored and occasionally even derided in the context of setting targets for GHG control. This paper explores this uneasy relationship between analysis and policy during several U.S. administrations. Some of these problems stem from the incompleteness of the economic analyses themselves, and economic analysts sometimes have not been the most effective advocates for their own findings. However, I think one of the biggest obstacles to more effective use of economic analysis in climate policymaking has been a basic lack of desire among many policymakers for the fruits of the analyses. This reluctance has been especially marked when the economic analysis clashes with strongly held preconceptions – from either side – about what climate policy ought to be.climate change, Kyoto Protocol, Council of Economic Advisers

Understanding the Design and Performance of Emissions Trading Systems for Greenhouse Gas Emissions: Proceedings of an Experts' Workshop to Identify Research Needs and Priorities

Chapter I: Modeling Challenges in Analyzing GHG Trading Frederic Ghersi, former visiting scholar, Resources for the Future and Michael Toman, adjunct professor Johns Hopkins University and University of California-Santa Barbara and former senior fellow, Resources for the Future Chapter II: Experimental Methods for Research into Trading of GHG Emissions R. Andrew Muller, McMaster University Chapter III: Exploring the Behavioral Underpinnings of Carbon Trading Jason Shogren, University of Wyoming Chapter IV: Greenhouse Gas Trading: Design Issues Seeking Research Answers Tom Tietenberg, Colby College

Sustainable Decisionmaking: The State of the Art from an Economics Perspective

Government, corporate and other decision makers are more and more often being urged to 'act sustainably' and to pursue policy paths toward 'sustainable development.' However, application of these concepts is hampered by serious interdisciplinary disagreements about the interactions of humans with their environment. Moreover, reducing disagreements about sustainability cannot be achieved solely through an improvement in scientific knowledge. These observations lead me to express skepticism about the capacity of any more or less mechanistic rule, economic, scientific or otherwise, to provide definitive and reliable answers about sustainable policies or conduct. However, there are processes and procedures that can help guide decisionmaking. I underscore the need for a methodologically pluralistic approach to addressing sustainability issues, while also underscoring the importance of addressing economic costs and benefits as one critical element of sustainability assessment. Practitioners of cost-benefit analysis are increasingly recognizing the need for embedding their findings in a broader set of information. A pluralistic approach, without mechanistic decision rules, only increases the need to have greater quantity and maturity of political discussion and education about sustainability than seems often to prevail.

The Roles of the Environment and Natural Resources in Economic Growth Analysis

The primary aim of this paper is pedagogical. We first present and discuss a “wiring diagram” framework in order to elucidate the general links between economic growth and "natural capital." After developing the general framework, we develop parallel frameworks applicable to several specific sectors of the economy (agriculture, forestry, and manufacturing). Two appendices provide a mathematical formulation of the economy-wide framework and a brief historical review of the role of natural resources and the environment in economic growth theory.economic growth, natural resources, sustainable development

Climate Change Policy

Having risen from relative obscurity as few as ten years ago, climate change now looms large among environmental policy issues. Its scope is global; the potential environmental and economic impacts are ubiquitous; the potential restrictions on human choices touch the most basic goals of people in all nations; and the sheer scope of the potential response—a significant shift away from using fossil fuels as the primary energy source in the modern economy—is daunting. In this paper, we explore the economics of climate change policy. We examine the risks that climate change poses for society, the benefits of protection against the effects of climate change, and the costs of alternative protection policies. We organize our discussion around three broad themes: why costs and benefits matter in assessing climate change policies, as does the uncertainty surrounding them; why well-designed, cost-effective climate policies are essential in addressing the threat of climate change; and why a coherent architecture of international agreements is key to successful policy implementation. We conclude the paper with a summary of key policy lessons and gaps in knowledge.

Contrasting future paths for an evolving global climate regime

This paper explores two different conceptions of how an emerging climate regime might evolve to strengthen incentives for more vigorous cooperation in mitigating global climate change. One is the paradigm that has figured most prominently in negotiations to this point: the establishment of targets and timetables for countries to limit their aggregate greenhouse gas emissions. The other approach consists of a variety of loosely coordinated smaller scale agreements, each one of which addresses a different aspect of the challenge, and is enforced in its own way. The primary conclusion is that an agreement of the first type may be more cost-effective, but that a system of agreements of the second type would likely sustain more abatement overall.Climate Change Mitigation and Green House Gases,Climate Change Economics,Montreal Protocol,Environmental Economics&Policies,Transport Economics Policy&Planning

"green stimulus,"economic recovery, and long-term sustainable development

This paper discusses short-run and long-run effects of"green stimulus"efforts, and compares these effects with"non-green"fiscal stimuli. Green stimulus is defined here as short-run fiscal stimuli that also serve a"green"or environmental purpose in a situation of"crisis"characterized by temporary under-employment. A number of recently enacted national stimulus packages contain sizeable"green"components. The authors categorize effects according to their a) short-run employment effects, b) long-run growth effects, c) effects on carbon emissions, and d)"co-benefit"effects (on the environment, natural resources, and for other externalities). The most beneficial"green"programs in times of crisis are those that can stimulate employment in the short run, and lead to large"learning curve"effects via lower production costs in the longer term. The overall assessment is that most"green stimulus"programs that have large short-run employment and environmental effects are likely to have less significant positive effects for long-run growth, and vice versa, implying a trade-off in many cases between short-run and long-run impacts. There are also trade-offs for employment generation in that programs that yield larger (smaller) employment effects tend to lead to more employment gains for largely lower-skilled (higher-skilled) workers, so that the long-term growth effects are relatively small (large). Ultimately, the results reinforce the point that different instruments are needed for addressing different problems.Environmental Economics&Policies,Energy Production and Transportation,Climate Change Mitigation and Green House Gases,Climate Change Economics,Transport Economics Policy&Planning

The Benefits of Reduced Air Pollutants in the U.S. from Greenhouse Gas Mitigation Policies

Policies that reduce emissions of greenhouse gases can simultaneously alter emissions of conventional pollutants that have deleterious effects on human health and the environment. This paper first describes how these "ancillary" benefits—benefits in addition to reduced risks of climate change—can result from greenhouse gas (GHG) mitigation efforts. It then discusses methodologies for assessing ancillary benefits and provides a critical review of estimates associated with reductions of criteria air pollutants. We find that these benefits in the U.S. may be significant, indicating a higher level of "no regrets" greenhouse gas abatement than might be expected based on simple economic calculations of abatement cost. However, the magnitude of ancillary benefits realized by any program of GHG mitigation is highly dependent on the location, pollutant, degree of exposure, and the economic behavior of individuals in response to the program. It is also highly dependent on the interaction of GHG abatement policies with the policies used for regulating conventional pollutants. We identify a rule of thumb to suggest ancillary benefits could be on the order of 30 percent of the incremental cost of GHG mitigation. For modest carbon reduction that do not result in changes in emissions of sulfur dioxide by electric utilities, ancillary benefits may be as high as $7 per ton. Greater benefits could be obtained with larger GHG reductions, although the costs of abatement would also be much greater.

Energy and Economic Development: An Assessment of the State of Knowledge

Energy development is an integral part of enhanced economic development. The fact that expanded provision and use of energy services is strongly associated with economic development leaves open how important energy is as a causal factor in economic development, however; and energy development competes with other opportunities for scarce capital and opportunities for policy and institutional reform. In this paper we first give a brief conceptual discussion that seeks to identify the channels through which increased availability of energy services might be a key to stimulating economic development along different stages of the development process. We then examine some empirical work to see what evidence it might provide regarding possible channels of influence. The evidence underscores the importance of energy development in concert with other forms of development. More work is needed to better understand the magnitude of energy’s importance for economic development.energy, economic development, productivity, poverty alleviation