Abstract: Despite the global environmental benefits of increasing the amount of protected areas, how these conservation policies affect the well-being of nearby individuals is still under debate. Using household surveys with highly disaggregated geographic references, we explored how national parks affect local wages in Costa Rica and how these effects vary within different areas of a park and among different social groups. We found that a park’s effects on wages vary according to economic activity and proximity to the entrance of the park. Wages close to parks are higher only for people living near tourist entrances. Workers close to entrances are not only employed in higher-paid activities (nonagricultural activities) but also receive higher wages for these activities. Agricultural workers, however, are never better off close to parks (neither close to or far from the entrances). Also, workers close to parks but far away from tourist entrances earn similar or lower wages than comparable workers far away from parks. Our results are robust to different econometric approaches (OLS and matching techniques). The location of national park entrances and the possibility that agricultural workers can switch to higher-paid service activities near tourist entrances may be important tools for helping local workers take advantage of the economic benefits of protected areas.

Abstract: World oil supply disruptions lead to U.S. economic losses. Because oil is fungible in an integrated world oil market, increased oil consumption, whether from domestic or imported sources, increases the economic losses associated with oil supply disruptions. Nevertheless, increased U.S. oil production expands stable supplies and dampens oil price shocks, whereas increased U.S. oil imports boosts the share of world oil supply that comes from unstable producers and exacerbates oil price shocks. Some of the economic losses associated with oil supply disruptions—gross domestic product losses and some transfers abroad—are externalities that can be quantified as oil security premiums. To estimate such premiums for domestic and imported oil, we take into account projected world oil market conditions, probable oil supply disruptions, the market response to oil supply disruptions, and the resulting U.S. economic losses. Our estimates quantify the security externalities associated with increased oil use, which derive from the expected U.S. economic losses resulting from potential disruptions in world oil supply.

Abstract: Most developed and developing country governments levy taxes on gasoline and diesel fuel used by motor vehicles. However, outside of the United States and Europe, automobile and heavy truck externalities have not been quantified, so policymakers have little guidance on whether prevailing tax rates are anywhere close to their corrective levels. This paper develops a general approach for roughly gauging the magnitude of motor vehicle externalities, and hence the corrective tax on gasoline and diesel, for individual countries, based on pooling local data sources with extrapolations from U.S. data. The analysis is illustrated for the case of Chile, though it could be readily applied to other countries with appropriate data collection.

Abstract: Trees have multiple purposes in rural Ethiopia, providing significant economic and ecological benefits. Planting trees supplies rural households with wood products for their own consumption, as well for sale, and decreases soil degradation. We used cross-sectional household-level data to analyze the determinants of household tree planting and explored the most important tree attributes or purpose(s) that enhance the propensity to plant trees. We set up a sample selection framework that simultaneously took into account the two decisions of tree growers (whether or not to plant trees and how many) to analyze the determinants of tree planting. We used logistic regression to analyze the most important tree attributes that contribute to households’ tree-planting decisions. We found that land size, age, gender, tenure security, education, exogenous income, and agro-ecology increased both the propensity to plant trees and the amount of tree planting, while increased livestock holding impacted both decisions negatively. Our findings also suggested that households consider a number of attributes in making the decision to plant trees. These results can be used by policymakers to promote tree planting in the study area by strengthening tenure security and considering households’ selection of specific tree species for their attributes.

Abstract: This paper is based on a World Bank–sponsored effort to develop a global estimate of adaptation costs, considering the implications of global climate change for industrial forestry. It focuses on the anticipated impacts of climate change on forests broadly, on industrial wood production in particular, and on Brazil, South Africa, and China. The aim is to identify likely damages and possible mitigating investments or activities. The study draws from the existing literature and the results of earlier investigations reporting the latest comprehensive projections in the literature. The results provide perspective as well as estimates and projections of the impacts of climate change on forests and forestry in various regions and countries. Because climate change will increase forest productivity in some areas while decreasing it elsewhere the impacts vary for positive to negative by region. In general, production increases will shift from low-latitude regions in the short term to high latitude regions in the long term. Planted forests will offer a major vehicle for adaptation.

Abstract: Current and proposed greenhouse gas cap-and-trade systems allow regulated entities to offset abatement requirements by paying unregulated entities to abate. These offsets from unregulated entities are believed to contain system costs and stabilize allowance prices. However, the supply of offsets is highly uncertain. Furthermore, the offset supply uncertainty may be correlated with other sources of uncertainty in emissions trading systems. This paper presents a model that incorporates both uncertainties in the supply of offsets and in abatement costs. Using numerical methods we solve the model under a variety of parameter settings, including a system that includes allowance price controls. We find that as uncertainty in offsets and uncertainty in abatement costs become more negatively correlated, expected abatement plus offset purchase costs increase, as does the variability in allowance prices and emissions from the regulated sector. Imposing an allowance price collar that limits the upper and lower cost substantially mitigates cost increases as well as the variability in prices and emissions, while roughly maintaining expected environmental outcomes.

Abstract: This paper provides an updated assessment of economically efficient taxes on gasoline (used by light-duty vehicles) and diesel (used by heavy-duty trucks) to address various highway externalities in the United States. The (second-best) corrective fuel taxes are estimated, and we discuss the implications of fuel economy regulations and prospective (nationwide) controls on carbon emissions. We also examine how optimal fuel taxes depend on how they interact with the broader fiscal system. Our baseline estimates of the corrective taxes on gasoline and diesel are $1.23 and $1.15 per gallon, respectively. However, optimal fuel taxes can be substantially higher if extra revenues are used to reduce distortionary income taxes, or substantially lower if revenues are not used to enhance economic efficiency.

Abstract: The introduction of a price on carbon dioxide will have important effects on the U.S. economy, and especially important effects on the electricity sector, which currently accounts for about 40 percent of carbon dioxide emissions. This paper examines alternative approaches to the distribution of allowance value to the sector, including free allocation to consumers through electricity and natural gas local distribution companies (LDCs). Recent proposals in the U.S. Congress, including H.R. 2454, have suggested this option as a way to address impacts on consumers and potential regional inequities. We compare allocation to electricity LDCs with a system in which allowances are auctioned and revenues returned to households as a per capita dividend. We evaluate the outcomes under alternative assumptions about how LDCs, which are regulated entities, pass through the allowance value to final residential, commercial, and industrial customers. Our results show that the LDC approach raises the price of allowances and imposes greater costs on households than the per capita dividend option. We also evaluate a more complete characterization of H.R. 2454 and show that an incremental reform to that bill would greatly reduce costs and have more balanced impacts across households in different income groups and regions.

Abstract: This article provides a critical missing piece to the global climate change governance puzzle: how to create incentives for the major developing countries to reduce carbon emissions. The major developing countries are projected to account for 80 percent of global emissions growth over the next several decades, and substantial reductions in the risk of catastrophic climate change will not be possible without a change in this emissions path. Yet the global climate governance measures proposed to date have not succeeded and may be locking in disincentives as carbon-intensive production shifts from developed to developing countries. A multi-pronged governance approach will be necessary. We identify a new strategy that will be an important component of any successful effort. Our strategy recognizes that in the context of climate change the simplified Coasian approach to pollution should be updated to include a more complete view of the options firms face in response to emissions reduction pressure and the sources of that pressure. We demonstrate how governments and non-governmental organizations can use expanded corporate carbon reporting boundaries and product carbon disclosure to harness social norms in developed countries. This informal social license pressure, in turn, will create incentives for firms to seek emissions reductions from their domestic and global supply chains. The private market pressure conveyed through supply chains will reduce leakage from developed countries, create new incentives for developing country firms and national governments, and play a surprisingly important role in the formation and implementation of a successful post-Kyoto global policy architecture.

Abstract: Much of the guidance about potential impacts of reduce emissions from deforestation and degradation (REDD) speculates how efforts would be implemented and draws lessons from other mechanisms, such as payments for ecosystem services (PES). However, with few REDD activities underway, little evidence indicates whether REDD projects are meeting these expectations. This article examines 17 REDD interventions under development in Indonesia, reports trends in project design, and assesses the extent to which interventions follow the model of pro-poor PES schemes. I find that a dominant type of REDD intervention follows a concession model and seeks to prevent large-scale conversion to plantations by outside actors. Although these projects fit the definition of PES at the scale at which the environmental service is transacted, PES characteristics are not a primary component of on-the-ground implementation. Small-holder actors are recognized as essential to the long-term success of the intervention, but are not the main focus.

Abstract: The EPA is likely to face a big legal problem on the path to regulating greenhouse gases under the Clean Air Act (CAA). Actions the agency is taking now will likely set it on a mandatory path to regulation of GHGs under the comprehensive “National Ambient Air Quality Standards” (NAAQS) program—a scheme that almost everyone who has studied the CAA thinks is a very poor fit for GHG regulation and which blocks use of arguably more effective schemes within the CAA. Unless the EPA can win a lawsuit challenging an interpretation of the CAA that has stood for more than 30 years, or Congress explicitly takes away the agency’s authority to set a GHG NAAQS with new legislation, the agency will have to navigate the complex NAAQS process—with potentially large effects on the efficiency and effectiveness of GHG regulation.

Abstract: There is a low but uncertain probability that climate change could trigger “mega-catastrophes,” severe and at least partly irreversible adverse effects across broad regions. This paper first discusses the state of current knowledge and the defining characteristics of potential climate change mega-catastrophes. While some of these characteristics present difficulties for using standard rational choice methods to evaluate response options, there is still a need to balance the benefits and costs of different possible responses with appropriate attention to the uncertainties. To that end, we present a qualitative analysis of three options for mitigating the risk of climate mega-catastrophes—drastic abatement of greenhouse gas emissions, development and implementation of geoengineering, and large-scale ex ante adaptation—against the criteria of efficacy, cost, robustness, and flexibility. We discuss the composition of a sound portfolio of initial investments in reducing the risk of climate change mega-catastrophes.

Abstract: We analyze the cost-effectiveness of electric utility rate payer–funded programs to promote demand-side management (DSM) and energy efficiency investments. We develop a conceptual model that relates demand growth rates to accumulated average DSM capital per customer and changes in energy prices, income, and weather. We estimate that model using nonlinear least squares for two different utility samples. Based on the results for the most complete sample, we find that DSM expenditures over the last 18 years have resulted in a central estimate of 1.1 percent electricity savings at a weighted average cost to utilities (or other program funders) of about 6 cents per kWh saved. Econometrically-based policy simulations find that incremental DSM spending by utilities that had no or relatively low levels of average DSM spending per customer in 2006 could produce 14 billion kWh in additional savings at an expected incremental cost to the utilities of about 3 cents per kWh saved.

Abstract: For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.

Abstract: Many states have been in the forefront in implemention programs to reduce carbon dioxide emissions, including regional cap-and-trade programs. A major issue Congress will need to address in any federal climate legislation is the future role of state programs that are already underway. One of the key questions is whether Congress will allow states to have more stringent reduction targets. This paper provides an overview of some of the key isuses regarding state–federal roles in a federal climate program and identifies four possible mechanisms that have been suggested for allowing states to set more stringent reduction targets.

Abstract: Recent events in the financial and insurance markets, as well as the looming challenges of a globally changing climate point to the need to re-think the ways in which we measure and manage catastrophic and dependent risks. Management can only be as good as our measurement tools. To that end, this paper outlines detection, measurement, and analysis strategies for fat-tailed risks, tail dependent risks, and risks characterized by micro-correlations. A simple model of insurance demand and supply is used to illustrate the difficulties in insuring risks characterized by these phenomena. Policy implications are discussed.

Abstract: Whether tradable permits are appropriate for transition and developing economies—given their special social and cultural circumstances, such as the lack of institutions and lack of expertise with market-based policies—is much debated. We conducted interviews and surveyed a sample of firms subject to emissions trading programs in Santiago, Chile, one of the first cities outside the OECD that has implemented such trading. The information gathered allowed us to study which factors affect the performance of the trading programs in practice and the challenges and advantages of applying tradable permits in less developed countries.

Abstract: Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed on distributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence in Costa Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel—both directly and via bus transportation— would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive. Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Abstract: Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed on distributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence in Costa Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel—both directly and via bus transportation— would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive. Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Abstract: The U.S. Clean Air Act Amendments of 1990 initiated the first large experiment in the use of market-based regulation to control environmental problems with the introduction of an emissions trading program for sulfur dioxide emissions. Later that decade the second large trading program began for control of nitrogen oxide emissions. Although these programs are widely viewed as successful, their development and the emergence of associated environmental markets took various turns that provide lessons for the development of new markets, including markets for greenhouse gas emissions. This paper reviews the history of these programs and provides a glimpse of their future given the introduction of new regulations affecting multiple pollutants and given the expected implementation of climate policy.