HEEP Publications

2010
Matheny, Andrew Philip. “Reducing the impact of price shocks in energy-intensive economies.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2010. dp16_matheny.pdf
Kremer, Michael, Edward Miguel, Jessica Leino, and Alex Peterson Zwane. “Spring Cleaning: Rural Water Impacts, Valuation, and Property Rights Institutions.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2010.Abstract

Using a randomized evaluation in Kenya, we measure health impacts of spring protection, an investment that improves source water quality. We also estimate households’ valuation of spring protection, and simulate the welfare impacts of alternatives to the current system of common property rights in water, which limits incentives for private investment. Spring infrastructure investments reduce fecal contamination by 66%, but household water quality improves less, due to recontamination. Child diarrhea falls by one quarter. Travel-cost based revealed preference estimates of households’ valuations are much smaller than both stated preference valuations and health planners’ valuations, and are consistent with models in which the demand for health is highly income elastic. We estimate that private property norms would generate little additional investment while imposing large static costs due to above marginal-cost pricing, private property would function better at higher income levels or under water scarcity, and alternative institutions could yield Pareto improvements.

dp24_kremer-etal.pdf
Olmstead, Sheila M, and Robert N Stavins. “Three Key Elements of Post-2012 International Climate Policy Architecture.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2010.Abstract

We describe three essential elements of an effective post-2012 international global climate policy architecture: a means to ensure that key industrialized and developing nations are involved in differentiated but meaningful ways; an emphasis on an extended time path of targets; and inclusion of flexible market-based policy instruments to keep costs down and facilitate international equity. This architecture is consistent with fundamental aspects of the science, economics, and politics of global climate change; addresses specific shortcomings of the Kyoto Protocol; and builds upon the foundation of the United Nations Framework Convention on Climate Change.

dp18_olmstead-stavins.pdf
2009
Cooper, Richard N. “The Case for Charges on Greenhouse Gas Emissions.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

The proposal discussed in this paper is to levy a common charge on all emissions of greenhouse gases, worldwide. All countries would be covered in principle, but the proposal could be implemented with a much smaller number of countries, provided they covered most of the emissions. While all greenhouse gases should in principle be covered, this paper will address mainly carbon dioxide, quantitatively the most important greenhouse gas; extensions to other greenhouse gases could be made with little or (in the case of methane) much difficulty. The charge would be internationally adjusted from time to time, and each country would collect and keep the revenue it generated. This paper will discuss in turn the motivation for such a proposal, how it would be implemented, its likely economic effects, the relationship to energy security, the possibility of mixing an emission charge with other schemes to limit emissions, especially “cap-and-trade” schemes, and the negotiability of such an agreement.

dp7_cooper.pdf
Stavins, Robert N, and Sheila M Olmstead. “Comparing Price and Non-Price Approaches to Urban Water Conservation.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of marketbased and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs, similar to results for pollution control in earlier decades. Price-based approaches may also compare favorably to prescriptive approaches in terms of monitoring and enforcement. Neither policy instrument has an inherent advantage over the other in terms of predictability and equity. As in any policy context, political considerations are also important.

dp1_stavins-olmstead.pdf
Zeckhauser, Richard, and Cass R Sunstein. “Dreadful Possibilities, Neglected Probabilities.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009. dp3_zeckhauser-sunstein.pdf
Frankel, Jeffrey. “An Elaborated Proposal for Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

This paper offers a detailed plan to set quantitative national limits on emissions of greenhouse gases, building on the foundation of the Kyoto Protocol. It attempts to fill in the most serious gaps: the absence of targets extending as far as 2100, the absence of participation by the United States and developing countries, and the absence of reason to think that countries will abide by commitments. The plan elaborates on the idea of a framework of formulas that can assign quantitative limits across countries, one budget period at a time. Unlike other proposals for century-long paths of emission targets that are based purely on science (concentration goals) or economics (cost-benefit optimization), this plan is based partly on politics. Three political constraints are particularly important. (1) Developing countries are not asked to bear any cost in the early years. (2) Thereafter, they are not asked to make any sacrifice that is different in kind or degree than was made by those countries that went before them, with due allowance for differences in incomes. (3) No country will accept an ex ante target that costs it more than 1% of GDP in present value, or more than 5% of {GDP} in any single budget period, or will abide by it ex post. An announced target path that implies a future violation of these constraints will not be credible, and thus will not provide the necessary signals to firms today. Thus paper tries out specific values for the parameters in the formulas (parameters that govern the extent of progressivity and equity, and the speed with which latecomers must eventually catch up). The resulting target paths for emissions are run through the WITCH model. The outcome is reasonable, in terms of both carbon abatement and economic cost, even though the targets obey the political constraints.

dp8_frankel.pdf
Stavins, Robert N. “Environmental Economics.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

This article provides an overview of the economics of environmental policy, including the setting of goals and targets, notably the Kaldor-Hicks criterion and the related method of assessment known as benefit-cost analysis. Also reviewed are the means of environmental policy, that is, the choice of specific policy instruments, featuring an examination of potential criteria for assessing alternative instruments, with focus on cost-effectiveness. The theoretical foundations and experiential highlights of individual instruments are reviewed, including conventional command-and-control mechanisms and market-based instruments.

dp5_stavins.pdf
Frankel, Jeffrey. “Global Environmental Policy and Global Trade Policy.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

The global climate regime and the global trade policy regime are on a collision course. National efforts to reduce emissions of greenhouse gases (GHGs) instill among environmentalists fears of leakage and among businesspeople fears of lost competitiveness. Policy-makers respond to these fears. In 2008, legislative attempts in both Washington, DC, and Brussels to enact long-term targets for reduced emission of GHGs included provisions for possible penalties against imports from countries perceived as non-participating. Trade measures, if well designed, could in theory be WTO-compatible, in light of the precedent of the shrimp-turtle case, in particular. But the actual provisions emerging from the political process are likely to violate the rules of the WTO, which poses the scenario of a WTO panel rejecting a major country’s climate change legislation. That would be a nightmare for the supporters of the WTO and free trade as much as for the supporters of the Kyoto Protocol and environmental protection. The issue is just the latest and largest instance of fears among many environmentalists that the WTO is an obstacle to their goals in general. For many critics, the WTO is a symbol of globalization, which they fear. The first part of this paper discusses the broader issue of whether environmental goals in general are threatened by the global free trade system. The paper then focuses exclusively on the narrower question of trade measures in the effort to implement climate change policy and whether they are likely to be successful. It concludes with specific recommendations for how border measures could be designed so that they were more likely to be true to the goal of reducing leakage and yet consistent with the WTO.

dp9_frankel.pdf
Stavins, Robert N, and Judson Jaffe. “Linkage of Tradable Permit Systems in International Climate Policy Architecture.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009. dp6_stavins-jaffe.pdf
Zeckhauser, Richard, and Cass R Sunstein. “Overreaction to Fearsome Risks.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009. dp2_zeckhauser-sunstein.pdf
Weitzman, Martin L. “Reactions to the Nordhaus Critique.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

In this paper I comment on the reactions of William Nordhaus to a recent article of mine entitled "On Modeling and Interpreting the Economics of Catastrophic Climate Change" that appeared in the February 2009 issue of the Review of Economics and Statistics. My target audience here is PhD-level general economists, but this paper could also be viewed as a somewhat less technical supplement to my article, which some interested non-economist readers might conceivably find useful on its own account.

dp11_weitzman.pdf
Weitzman, Martin L. “Some Basic Economics of Extreme Climate Change.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009.Abstract

Climate change is characterized by deep structural uncertainty in the science coupled with an economic inability to evaluate meaningfully the welfare losses from high temperature changes. The probability of a disastrous collapse of planetary welfare from too much CO2 is non-negligible, even if this low probability is not objectively knowable. This paper attempts to explain (in not excessively technical language) some of the most basic issues in modeling the economics of catastrophic climate change. The paper builds to a tentative conclusion that, no matter what else is done realistically to slow CO2 buildups, economic analysis lends some support to undertaking serious research now into the prospects of "fast geoengineering preparedness"–as a state-contingent emergency option offering at least the possibility of knocking down catastrophic temperatures rapidly.

dp10_weitzman.pdf
Zeckhauser, Richard, Carolyn Kousky, and John Pratt. “Virgin Versus Experienced Risks.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2009. dp4_zeckhauser-kousky-pratt.pdf
2008
Cooper, Richard N.The Case for Charges on Greenhouse Gas Emissions.” Cambridge, Massachusetts, USA: Harvard Project on Climate Agreements, 2008. Publisher's VersionAbstract
The proposal discussed in this paper is to levy a common charge on all emissions of greenhouse gases, worldwide. All countries would be covered in principle, but the proposal could be implemented with a much smaller number of countries, provided they covered most of the emissions. While all greenhouse gases should in principle be covered, this paper will address mainly carbon dioxide, quantitatively the most important greenhouse gas; extensions to other greenhouse gases could be made with little or (in the case of methane) much difficulty. The charge would be internationally adjusted from time to time, and each country would collect and keep the revenue it generated. This paper will discuss in turn the motivation for such a proposal, how it would be implemented, its likely economic effects, the relationship to energy security, the possibility of mixing an emission charge with other schemes to limit emissions, especially "cap-and-trade" schemes, and the negotiability of such an agreement.

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