Joseph E. Aldy, Matthew J. Kotchen, Mary F. Evans, M. Fowlie, A. Levinson, K. Palmer
This article considers the treatment of cobenefits in benefit-cost analysis of federal air quality regulations. Using a comprehensive data set on all major Clean Air Act rules issued by the Environmental Protection Agency over the period 1997–2019, we show that (1) cobenefits make up a significant share of the monetized benefits; (2) among the categories of cobenefits, those associated with reductions in fine particulate matter are the most significant; and (3) cobenefits have been pivotal to the quantified net benefit calculation in nearly half of cases. Motivated by these trends, we develop a simple conceptual framework that illustrates a critical point: cobenefits are simply a semantic category of benefits that should be included in benefit-cost analyses. We also address common concerns about whether the inclusion of cobenefits is problematic because of alternative regulatory approaches that may be more cost-effective and the possibility for double counting.
{"title":"Cobenefits and Regulatory Impact Analysis: Theory and Evidence from Federal Air Quality Regulations","authors":"Joseph E. Aldy, Matthew J. Kotchen, Mary F. Evans, M. Fowlie, A. Levinson, K. Palmer","doi":"10.1086/711308","DOIUrl":"https://doi.org/10.1086/711308","url":null,"abstract":"This article considers the treatment of cobenefits in benefit-cost analysis of federal air quality regulations. Using a comprehensive data set on all major Clean Air Act rules issued by the Environmental Protection Agency over the period 1997–2019, we show that (1) cobenefits make up a significant share of the monetized benefits; (2) among the categories of cobenefits, those associated with reductions in fine particulate matter are the most significant; and (3) cobenefits have been pivotal to the quantified net benefit calculation in nearly half of cases. Motivated by these trends, we develop a simple conceptual framework that illustrates a critical point: cobenefits are simply a semantic category of benefits that should be included in benefit-cost analyses. We also address common concerns about whether the inclusion of cobenefits is problematic because of alternative regulatory approaches that may be more cost-effective and the possibility for double counting.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88008792","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is a lot we know about climate change, but there is also a lot we don’t know. Even if we knew how much CO2 will be emitted over the coming decades, we wouldn’t know how much temperatures will rise as a result. And even if we could predict the extent of warming that will occur, we can say very little about its impact. I explain that we face considerable uncertainty over climate change and its impact, why there is so much uncertainty, and why we will continue to face uncertainty in the near future. I also explain the policy implications of climate change uncertainty. First, the uncertainty (particularly over the possibility of a catastrophic climate outcome) creates insurance value, which pushes us to earlier and stronger actions to reduce CO2 emissions. Second, uncertainty interacts with two kinds of irreversibilities: CO2 remains in the atmosphere for centuries, making the environmental damage from CO2 emissions irreversible, pushing us to earlier and stronger actions and reducing CO2 emissions requires sunk costs, that is, irreversible expenditures, which pushes us away from earlier actions. Both irreversibilities are inherent in climate policy, but the net effect is ambiguous.
{"title":"What We Know and Don’t Know about Climate Change, and Implications for Policy","authors":"R. Pindyck","doi":"10.1086/711305","DOIUrl":"https://doi.org/10.1086/711305","url":null,"abstract":"There is a lot we know about climate change, but there is also a lot we don’t know. Even if we knew how much CO2 will be emitted over the coming decades, we wouldn’t know how much temperatures will rise as a result. And even if we could predict the extent of warming that will occur, we can say very little about its impact. I explain that we face considerable uncertainty over climate change and its impact, why there is so much uncertainty, and why we will continue to face uncertainty in the near future. I also explain the policy implications of climate change uncertainty. First, the uncertainty (particularly over the possibility of a catastrophic climate outcome) creates insurance value, which pushes us to earlier and stronger actions to reduce CO2 emissions. Second, uncertainty interacts with two kinds of irreversibilities: CO2 remains in the atmosphere for centuries, making the environmental damage from CO2 emissions irreversible, pushing us to earlier and stronger actions and reducing CO2 emissions requires sunk costs, that is, irreversible expenditures, which pushes us away from earlier actions. Both irreversibilities are inherent in climate policy, but the net effect is ambiguous.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90398377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Economic analysis has much to contribute in many spheres of public policy, but the fields of environmental and energy policy stand out for the centrality of economic issues. With regard to the environment, the relative attractiveness of many leading policy alternatives that emerge in the context of climate change and global warming depends on the social discount rate, an economic construct. Economic analysis is essential for judging the potential costs, and for some areas benefits, that may be associated with rising global temperatures, and for assessing the relativemerits of abatement and amelioration strategies. A crucial economic insight is that when designing policies to reduce any type of environmental degradation, whether air, water, or noise pollution, it is essential to consider the relative costs of emission reduction at different point sources and to search for least-cost strategies to achieve a given emission target. With regard to energy, current tax and regulatory policies play important roles in affecting the utilization of various fossil fuel and renewable energy sources. The rate of economic growth is one of the primary drivers of aggregate energy demand, both within countries and globally. Public spending on energy research and development and intellectual property rules surrounding newdiscoveries are likely to be key determinants of the future viability of alternatives to current energy sources. In recognition of the importance of economics to the study of both environmental and energy policy, and with the generous support of the Alfred P. Sloan Foundation, the National Bureau of Economic Research (NBER) is pleased to launch a new annual initiative—the Environmental and Energy Policy and the Economy series—that will encourage leading economic researchers to prepare research papers on current issues in these two fields. The researchers must abide by the NBER’s prohibition on policy recommendations, but they are encouraged to draw
{"title":"Series Introduction","authors":"J. Poterba","doi":"10.1086/706896","DOIUrl":"https://doi.org/10.1086/706896","url":null,"abstract":"Economic analysis has much to contribute in many spheres of public policy, but the fields of environmental and energy policy stand out for the centrality of economic issues. With regard to the environment, the relative attractiveness of many leading policy alternatives that emerge in the context of climate change and global warming depends on the social discount rate, an economic construct. Economic analysis is essential for judging the potential costs, and for some areas benefits, that may be associated with rising global temperatures, and for assessing the relativemerits of abatement and amelioration strategies. A crucial economic insight is that when designing policies to reduce any type of environmental degradation, whether air, water, or noise pollution, it is essential to consider the relative costs of emission reduction at different point sources and to search for least-cost strategies to achieve a given emission target. With regard to energy, current tax and regulatory policies play important roles in affecting the utilization of various fossil fuel and renewable energy sources. The rate of economic growth is one of the primary drivers of aggregate energy demand, both within countries and globally. Public spending on energy research and development and intellectual property rules surrounding newdiscoveries are likely to be key determinants of the future viability of alternatives to current energy sources. In recognition of the importance of economics to the study of both environmental and energy policy, and with the generous support of the Alfred P. Sloan Foundation, the National Bureau of Economic Research (NBER) is pleased to launch a new annual initiative—the Environmental and Energy Policy and the Economy series—that will encourage leading economic researchers to prepare research papers on current issues in these two fields. The researchers must abide by the NBER’s prohibition on policy recommendations, but they are encouraged to draw","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78155293","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Copyright","authors":"","doi":"10.1086/708459","DOIUrl":"https://doi.org/10.1086/708459","url":null,"abstract":"","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87499991","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates an augmented measure of national output inclusive of environmental pollution damage in the US economy over a 60-year period. The paper reports two primary findings. First, air pollution intensity declined precipitously from the 1950s to the modern era. Air pollution damage comprised roughly 30% of output in the post–World War II economy, declining to under 10% in 2016. Second, accounting for pollution damage significantly affects growth rates. Prior to the passage of the Clean Air Act in 1970, gross domestic product outpaced environmentally adjusted value added (EVA), defined as GDP less air pollution damage. Following passage of the act, EVA grew more rapidly than GDP. Macroeconomic and environmental policies, as well as the business cycle, appreciably affect damages and EVA growth.
{"title":"Long-Run Environmental Accounting in the US Economy","authors":"Nicholas Z. Muller","doi":"10.1086/706798","DOIUrl":"https://doi.org/10.1086/706798","url":null,"abstract":"This paper estimates an augmented measure of national output inclusive of environmental pollution damage in the US economy over a 60-year period. The paper reports two primary findings. First, air pollution intensity declined precipitously from the 1950s to the modern era. Air pollution damage comprised roughly 30% of output in the post–World War II economy, declining to under 10% in 2016. Second, accounting for pollution damage significantly affects growth rates. Prior to the passage of the Clean Air Act in 1970, gross domestic product outpaced environmentally adjusted value added (EVA), defined as GDP less air pollution damage. Following passage of the act, EVA grew more rapidly than GDP. Macroeconomic and environmental policies, as well as the business cycle, appreciably affect damages and EVA growth.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83852862","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In many countries, the revenue from gasoline taxes is used to fund highways and other transportation infrastructure. As the number of electric vehicles on the road increases, this raises questions about the effectiveness and equity of this financing mechanism. In this paper, we ask whether electric vehicle drivers should pay a mileage tax. Though the gasoline tax has been traditionally viewed as a benefits tax, we instead take the perspective of economic efficiency. We derive a condition for the optimal electric vehicle mileage tax that highlights a key trade-off. On the one hand, there are externalities from driving, including traffic congestion and accidents, that imply a mileage tax is efficient. On the other hand, gasoline tends to be underpriced, so a low (or even negative) mileage tax might have efficiency benefits in encouraging substitution away from gasoline-powered vehicles. We then turn to an empirical analysis aimed at better understanding the current policy landscape for electric vehicles in the United States. Using newly available, nationally representative microdata, we calculate that electric vehicles have reduced gasoline tax revenues by $250 million annually. We show that the forgone tax revenue is highly concentrated in a handful of states and is highly regressive, as most electric vehicles are driven by high-income households, and we discuss how this motivates and informs optimal policy.
{"title":"Should Electric Vehicle Drivers Pay a Mileage Tax?","authors":"Lucas W. Davis, J. Sallee","doi":"10.1086/706793","DOIUrl":"https://doi.org/10.1086/706793","url":null,"abstract":"In many countries, the revenue from gasoline taxes is used to fund highways and other transportation infrastructure. As the number of electric vehicles on the road increases, this raises questions about the effectiveness and equity of this financing mechanism. In this paper, we ask whether electric vehicle drivers should pay a mileage tax. Though the gasoline tax has been traditionally viewed as a benefits tax, we instead take the perspective of economic efficiency. We derive a condition for the optimal electric vehicle mileage tax that highlights a key trade-off. On the one hand, there are externalities from driving, including traffic congestion and accidents, that imply a mileage tax is efficient. On the other hand, gasoline tends to be underpriced, so a low (or even negative) mileage tax might have efficiency benefits in encouraging substitution away from gasoline-powered vehicles. We then turn to an empirical analysis aimed at better understanding the current policy landscape for electric vehicles in the United States. Using newly available, nationally representative microdata, we calculate that electric vehicles have reduced gasoline tax revenues by $250 million annually. We show that the forgone tax revenue is highly concentrated in a handful of states and is highly regressive, as most electric vehicles are driven by high-income households, and we discuss how this motivates and informs optimal policy.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88940841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Political debates about environmental regulation often center around the effect of policy on jobs. Opponents decry the “job-killing” Environmental Protection Agency (EPA) and proponents point to “green jobs” as a positive policy outcome. Beyond the political debates, Congress requires the EPA to evaluate “potential losses or shifts of employment” that regulations under the Clean Air Act may cause. Yet there is a sharp disconnect between the political importance of the jobs question and the limited research on the job effects of policy and general skepticism in the academic literature about the importance of those job effects for the costs and benefits of environmental regulation. In this paper, we discuss how the existing research on jobs and environmental regulations often falls short in evaluating these questions and consider recent new work that has attempted to address these problems. We provide an intuitive discussion of key questions for how job effects should enter into economic analysis of regulations. And, using an economic model that incorporates labor market frictions, we evaluate a range of environmental regulations in both the short and long run to develop a set of key stylized facts related to jobs and environmental regulations and to identify the key questions that current models cannot yet answer well.
{"title":"Jobs and Environmental Regulation","authors":"Marc A. C. Hafstead, Roberton C. Williams","doi":"10.1086/706799","DOIUrl":"https://doi.org/10.1086/706799","url":null,"abstract":"Political debates about environmental regulation often center around the effect of policy on jobs. Opponents decry the “job-killing” Environmental Protection Agency (EPA) and proponents point to “green jobs” as a positive policy outcome. Beyond the political debates, Congress requires the EPA to evaluate “potential losses or shifts of employment” that regulations under the Clean Air Act may cause. Yet there is a sharp disconnect between the political importance of the jobs question and the limited research on the job effects of policy and general skepticism in the academic literature about the importance of those job effects for the costs and benefits of environmental regulation. In this paper, we discuss how the existing research on jobs and environmental regulations often falls short in evaluating these questions and consider recent new work that has attempted to address these problems. We provide an intuitive discussion of key questions for how job effects should enter into economic analysis of regulations. And, using an economic model that incorporates labor market frictions, we evaluate a range of environmental regulations in both the short and long run to develop a set of key stylized facts related to jobs and environmental regulations and to identify the key questions that current models cannot yet answer well.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74261676","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the “green bond boom” witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies’ financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies’ environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.
{"title":"Green Bonds: Effectiveness and Implications for Public Policy","authors":"Caroline Flammer","doi":"10.1086/706794","DOIUrl":"https://doi.org/10.1086/706794","url":null,"abstract":"This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the “green bond boom” witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies’ financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies’ environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75979820","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is widespread agreement among economists—and a diverse set of other policy analysts—that at least in the long run, an economy-wide carbon-pricing system will be an essential element of any national policy that can achieve meaningful reductions of CO2 emissions cost-effectively in the United States. There is less agreement, however, among economists and others in the policy community regarding the choice of specific carbon-pricing policy instrument, with some supporting carbon taxes and others favoring cap-and-trade mechanisms. This prompts two important questions: How do the two major approaches to carbon pricing compare on relevant dimensions, including but not limited to efficiency, cost-effectiveness, and distributional equity? And which of the two approaches is more likely to be adopted in the future in the United States? This paper addresses these questions by drawing on both normative and positive theories of policy instrument choice as they apply to US climate change policy and draws extensively on relevant empirical evidence. The paper concludes with a look at the path ahead, including an assessment of how the two carbon-pricing instruments can be made more politically acceptable.
{"title":"The Future of US Carbon-Pricing Policy","authors":"Robert Stavins","doi":"10.1086/706792","DOIUrl":"https://doi.org/10.1086/706792","url":null,"abstract":"There is widespread agreement among economists—and a diverse set of other policy analysts—that at least in the long run, an economy-wide carbon-pricing system will be an essential element of any national policy that can achieve meaningful reductions of CO2 emissions cost-effectively in the United States. There is less agreement, however, among economists and others in the policy community regarding the choice of specific carbon-pricing policy instrument, with some supporting carbon taxes and others favoring cap-and-trade mechanisms. This prompts two important questions: How do the two major approaches to carbon pricing compare on relevant dimensions, including but not limited to efficiency, cost-effectiveness, and distributional equity? And which of the two approaches is more likely to be adopted in the future in the United States? This paper addresses these questions by drawing on both normative and positive theories of policy instrument choice as they apply to US climate change policy and draws extensively on relevant empirical evidence. The paper concludes with a look at the path ahead, including an assessment of how the two carbon-pricing instruments can be made more politically acceptable.","PeriodicalId":87249,"journal":{"name":"Environmental and energy policy and the economy","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89492321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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