Abstract: Conservation investments are increasingly evaluated on the basis of their return on investment (ROI). Conservation ROI analysis quantitatively measures the costs, benefits, and risks of investments so conservancies can rank or prioritize them. This paper surveys the existing conservation ROI and related literatures. We organize our synthesis around the way studies treat recurring, core elements of ROI, as a guide for practitioners and consumers of future ROI analyses. ROI analyses involve quantification of a consistent set of elements, including the definition and measurement of the conservation objective as well as identification of the relevant baselines, the type of conservation investments evaluated, and investment costs. We document the state of the art, note some open questions, and provide suggestions for future improvements in data and methods. We also describe ways ROI analysis can be extended to a broader suite of conservation outcomes than biodiversity conservation, which is the typical focus.

Abstract: This paper describes specific ways in which the analysis of ecosystem goods and services can be included in terrestrial carbon sequestration assessments and planning. It specifically reviews the U.S. Geological Survey’s LandCarbon assessment methodology for ecosystem services. The report assumes that the biophysical analysis of co-effects should be designed to facilitate social evaluation. Accordingly, emphasis is placed on natural science strategies and outputs that complement subsequent economic and distributional analysis.

Abstract: The study describes existing federal policies that permit or promote ecosystem services analysis, management, investments, and markets. Our survey discusses: 1) current programs that stimulate or support the measurement of ecosystem services; 2) existing federal drivers of ecosystem services analysis; and 3) programs that stimulate investment in ecosystem services. Understanding existing capacity is important to federal and other leaders who see opportunities for environmental policy innovations—such as payments, markets, and management practices—based on ecological wealth and services.

Abstract: This paper reviews the economic justification for voluntary environmental programs to derive defensible measures of their positive social outcomes. We consider ideal experimental and statistical designs to detect and attribute benefits. We also explore a set of more practical approaches to benefit attribution that take into account the data gaps and statistical challenges that often make more rigorous approaches infeasible.

Abstract: The paper addresses the definition and measurement of liability for marine oil pollution accidents. The economic value of lost or injured ecosystem goods and services is argued to be the most legally, economically, and ecologically defensible measure of damages. This is easier said than done, however. Calculating lost ecological wealth with any precision is an enormous scientific and economic undertaking. The paper proposes practical ways to improve our futureability to calculate such losses.

Abstract: Economic analyses of nature must somehow define the “environmental commodities” to which values are attached. This paper articulates a set of principles to guide the choice and interpretation of nonmarket commodities. We describe how complex natural systems can be decomposed consistent with what can be called “ecological production theory.” Ecological production theory—like conventional production theory—distinguishes between biophysical inputs, process, and outputs. We argue that a systems approach to the decomposition and presentation of natural commodities can inform and possibly improve the validity of nonmarket environmental valuation studies. We raise concerns about the interpretation, usefulness, and accuracy of benefit estimates derived without reference to ecological production theory.

Abstract: In this paper, I address a difficult, important, and long-standing problem in national income accounting: How to capture the welfare contributions of nonmarket, public environmental goods? The strategy I advocate here is to use principles from economic accounting, welfare economics, and environmental valuation to define the nonmarket units that should be used in a quantity index of ecological goods and services. A goal is to mimic the household-level foundations of conventional national income or product accounts, but extend them to the nonmarket natural economy. I describe the underlying theory and show how it can be used to define a practical, empirical strategy for constructing a welfare-significant ecological quantity index.

Abstract: Nutrient pollution continues to be one of the central problems facing the Chesapeake Bay. Environmental service fees, like the sewer surcharge recently signed by Maryland Governor Erlich, can enhance the cost effectiveness of pollution control efforts as well as finance infrastructure investments. This paper looks at ways environmental fees, service charges, and taxes have been used to create incentives to reduce pollution from urban and rural sources, increase cost effectiveness of pollution control and promote innovation in pollution control strategies. We provide an overview of the economic theory of how environmental service fees should be structured. We then look at three examples of how fees have been used to improve water quality: sewer surcharges, a nutrient fee for farms in the Netherlands, and a surcharge on property taxes in the Florida Everglades. We end by discussing the lessons these experiences hold for water resource management in the Chesapeake Bay.

Abstract: Green gross domestic product (green GDP) is meant to account for nature’s value on an equal footing with the market economy. Several problems bedevil green GDP, however. One is that nature does not come prepackaged in units like cars, houses, and bread. Even worse, green GDP requires measurement of the benefits arising from public goods provided by nature for which there are no market indicators of value. So what should green GDP count? That is the subject of this paper. Ecological and economic theory are used to describe what should be counted—and what should not—if green GDP is to account for the nonmarket benefits of nature.

Abstract: This paper advocates consistently defined units of account to measure the contributions of nature to human welfare. We argue that such units have to date not been defined by environmental accounting advocates and that the term “ecosystem services” is too ad hoc to be of practical use in welfare accounting. We propose a definition, rooted in economic principles, of ecosystem service units. A goal of these units is comparability with the definition of conventional goods and services found in GDP and the other national accounts. We illustrate our definition of ecological units of account with concrete examples. We also argue that these same units of account provide an architecture for environmental performance measurement by governments, conservancies, and environmental markets.

Abstract: This paper describes the construction of an ecological services index (ESI). An ESI is meant to summarize and track over time the magnitude of beneficial services arising from the natural environment. A central task of this paper is to define rigorously ecosystem services so that services can be counted in an economically and ecologically defensible manner—a requirement if ecological contributions to welfare are to be incorporated into the national accounts. This paper advocates a particular economic structure and relates it to index theory and makes concrete recommendations for the measurement of such an index.

Abstract: Habitats and the services they provide are part of our nation’s portfolio of natural capital assets.As for many components of this portfolio, it is difficult to assess the value of their services, and thiscomplicates regulators’ investment decisions, especially when the alternative use is measurable. Theprincipal objective of this report is to suggest possible strategies for the National Marine Fisheries Service(NMFS) as it applies economic analyses and arguments in support of the agency’s trustee responsibilities.Many approaches are possible, and as we discuss, the “right” strategy will depend on the questions asked,the resources available, and the agency’s role in the consultation process. We discuss in detailbioeconomic modeling and ecosystem indicator approaches to habitat value assessment. Although theapproaches are discussed independently, multiple tools could be used simultaneously across differentregions or within the same region on different aspects of one consultation.

Abstract: Via technology and operations standards, U.S. regulation exerts an important influence overworldwide marine safety standards. But in addition, several other aspects of U.S. law deserve widerinternational consideration and adoption. First, the Oil Pollution Act’s natural resource damage provisionsare an innovative and effective way to deter marine pollution and provide for the restoration of injuredecological resources. Second, the relatively strict financial requirements imposed on marine transportershelp ensure that polluters, rather than the public, pay if damage is caused. Liability and financialresponsibility rules are not unknown in other countries. But the United States has a longer history withimplementation and applies its rules more expansively. As both environmental concerns and globalmarine trade flows increase, U.S. experience with these rules will be instructive to other nationscontemplating oil pollution reforms.

Abstract: Water pollution taxes, or effluent fees, have long been advocated by environmental economists as a regulatory approach to cost effectively achieve water quality improvements. The article reviews the arguments in favor of taxes and traces the history of the idea in U.S. policy debates. Particular attention is given to the institutional challenges presented by a tax system and its application in watershed contexts where transport phenomena are important. The article also addresses the question of why effluent taxes are so rarely seen in practice.

Abstract: Ecosystem compensation and exchange programs require benefit analysis in order to guarantee that compensation or trades preserve the social benefits lost when ecosystems are destroyed or degraded. This study derives, applies, and critiques a set of ecosystem benefits indicators (EBIs). Organized around the concept of ecosystem services and basic valuation principles we show how GIS mappings of the physical and social landscape can improve understanding of the ecosystem benefits arising from specific ecosystems. The indicator system focuses on landscape factors that limit or enhance an ecosystem's ability to provide services and that limit or enhance the expected value of those services. The analysis yields an organized, descriptive, and numerical depiction of sites involved in specific mitigation projects. Indicator-based evaluations are applied to existing wetland mitigation projects in Florida and Maryland in order to practically illustrate the virtues and limits of the approach.

Abstract: Financal assurance rules, also known as financial responsibility or bonding requirements, foster cost internalization by requiring potential polluters to demonstrate the financial resources necessary to compensate for environmental damage that may arise in the future. Accordingly, assurance is an important complement to liability rules, restoration obligations, and other regulatory compliance requirements. The paper reviews the need for assurance, given the prevalence of abandoned environmental obligations, and assesses the implementation of assurance rules in the United States. From the standpoint of both legal effectiveness and economic efficiency, assurance rules can be improved. On the whole, however, cost recovery, deterrence, and enforcement are significantly improved by the presence of existing assurance regulations.

Abstract: The study explores challenges associated with, and the feasibility of, financial assurance requirements for liabilities arising under U.S. environmental statutes, with a particular emphasis on liabilities associated with natural resource damages (NRDs). The overlap between federal NRD liability and financial assurance arises in the context of two financial assurance rules: one for waterborne vessels that carry oil or hazardous substances, and one for offshore facilities used for oil exploration, drilling, production, or transport. The report addresses the rules’ history, their role as a complement to other forms of environmental regulation, and their impact on the regulated community and providers of coverage. Despite numerous difficulties and over objections from the regulated community, the rules have been implemented with success and without significant shortfalls in coverage availability.

Abstract: Increasingly popular tailored regulation (TR) initiatives like EPA’s Project XL allow plants to voluntarily substitute site-specific environmental performance standards for command-and-control regulations that dictate pollution abatement strategies. TR can significantly reduce participants’ costs of complying with environmental regulations. But in doing so, it can also provide participants with a competitive advantage. We show that this can have undesirable welfare consequences when it enables relatively inefficient firms in oligopolistic markets to "steal" market share from more efficient firms. One critical determinant of whether or not TR has such adverse welfare impacts is the regulator’s policy regarding the diffusion of TR agreements among non-participating firms.

Abstract: There is a growing interest in incentive-based policies to motivate conservation by landowners. These policies include full- and partial-interest land purchases, tax-based incentives, and tradable or bankable development rights. Using legal and economic analysis, this paper explores potential pitfalls associated with the use of such policies. Incentive-based policies promise to improve the cost effectiveness of habitat preservation, but only if long-run implementation issues are meaningfully addressed. While the paper compares conservation policies, particular attention is devoted to the use of conservation easements and in particular a set of easement contracts and transactions in the state of Florida. The easement analysis highlights the importance of conservation policies' interactions with property markets, land management practices, and bureaucratic incentives. Specific challenges include difficulties associated with the long-term enforcement and monitoring of land use restrictions, the lack of market prices as indicators of value for appraisal, and the way in which incentives target specific properties for protection.

Abstract: The paper discusses the design of environmental remediation laws in countries struggling with fundamental market and institutional reforms. Optimal cleanup standards, liability rules, and enforcement are discussed from the standpoint of both economic efficiency and practical implementation. Particular attention is paid to financing mechanisms and issues that arise during privatization.

Abstract: Improved environmental accounting is increasingly seen by corporate managers and environmental advocates alike as a necessary complement to improved environmental decision-making within the private sector. This paper develops an economic approach to the evaluation of environmental accounting's benefits and derives the value, and determinants, of improved accounting information in several production and capital budgeting contexts. Using concepts from managerial economics, finance, and organizational theory, the analysis identifies the types of environmental accounting improvement that are most likely to yield significant financial and environmental benefits.

Abstract: The concept of pollution prevention, or "P2," signifies a new, proactive environmental mindset that targets the causes, rather than the consequences, of polluting activity. While anecdotal evidence suggests that P2 opportunities exist and that many have been pursued, there is also the perception that the pace of P2 is far too slow. To explore that claim—and to shed light on barriers to P2 innovation—this paper presents case studies of industrial P2 projects that were in some way unsuccessful. While based on a very limited sample, the evidence contradicts the view that firms suffer from organizational weaknesses that make them unable to appreciate the financial benefits of P2 investments. Instead, the projects foundered because of significant unresolved technical difficulties, marketing challenges, and regulatory barriers. Based on evidence from the cases, the paper concludes with a discussion of environmental policy reforms likely to promote P2 innovation..

Abstract: The paper develops a framework to evaluate permits granted to firms under the Environmental Protection Agency's Project XL — with emphasis on the novel air permit granted to the Intel Corporation. We describe the permit, the process that created it, and the types of costs and benefits likely to arise from this type of "facility-specific" regulatory arrangement. Among other things, the paper describes the permit's impact on environmental quality, production costs, transaction costs, and Intel's strategic market position. The paper also considers how an estimate of the costs and benefits — both to Intel and society — might be estimated. While facility-specific regulation typically conjures images of production cost savings as processes are re-engineered and low-cost abatement strategies pursued, the Intel case highlights perhaps a more important source of benefit: flexibility in the form of streamlined permitting. Flexibility in this form allows for accelerated product introductions, with potentially significant benefits to the firm and possibly to society.

Abstract: Progress toward electricity market deregulation has brought controversy over whether or not utilities are entitled to compensation for "stranded costs," i.e., costs utilities will not be able to recover due to the advent of competition in their markets. This paper uses a legal and economic analysis of contracts to address the desirability of utility cost recovery. First, underlying principles of law are reviewed to determine whether or not there is a legal presumption of recovery. Then, the analysis considers whether or not an implicit "regulatory compact" between utilities and regulators follows from principles in the economic analysis of law, particularly theories of efficient breach and implicit contracts. The paper concludes that recovery should occur in only a proscribed set of circumstances and that, when called for, compensation should be partial, rather than full.

Abstract: This paper explores ways in which economic analysis can help resolve the stranded cost controversy that has arisen in debates over electricity market deregulation. "Stranded costs" are costs electric utilities will not recover as power markets move from protected monopolies to an open, competitive environment. The paper begins with a description of the stranded cost problem, its magnitude, and the prominent arguments for and against recovery. We then turn to an analysis of contracts in order to understand whether there is, or should be, a legal duty to compensate utility shareholders for unrecovered costs. The paper also argues that efficient approaches to electricity deregulation will rely on more than an analysis of contracts. In particular, the politics of deregulation should be viewed as an independent constraint that affects the desirability of alternative approaches to stranded costs.

Abstract: Financial responsibility rules are an increasingly common form of environmental regulation. Currently, the operators of landfills, underground petroleum storage tanks, offshore rigs, and oil tankers must demonstrate the existence of adequate levels of capital as a precondition to the legal operation of their businesses. Environmental financial responsibility ensures that firms possess the resources to compensate society for pollution costs created in the course of business operations. In addition to providing a source of funds for victim compensation and pollution remediation, financial responsibility is thought to motivate better decision-making, particularly regarding the management of long-term risks. This article describes both the promise of financial responsibility as a complement to conventional environmental regulation and a set of weaknesses associated with its current implementation under U.S. environmental statutes.

Abstract: The paper evaluates the desirability of compensation for regulatory takings. To do so, we describe a public choice model in which regulators' decisions are influenced by competing political interests. We consider how the political incentives of landowners, environmentalists, and taxpayers are affected by alternative compensation rules and in turn describe the regulatory decisions made in such a pluralistic political environment. Modeling the regulator's incentives in this way leads to the conclusion that compensation should not be paid unless environmentalists and property owners have unequal influence politically. Moreover, the model has several counter-intuitive implications when political influence is not balanced. For instance, if environmentalists are disenfranchised they should support compensation, since it reduces property owner opposition to regulation. In contrast, if environmentalists wield disproportionate influence, penalizing rather than compensating landowners can induce more efficient regulation by stimulating landowner opposition. The analysis emphasizes the deadweight social costs of compensation and the desirability of compensation rules conditioned on both diminished land value and irreversible landowner investments.

Abstract: Liability for injury due to hazardous products often hinges on the safety of the defendants product relative to the safety of similar products. For instance, firms that can show their product's safety was "state of the art" can in some cases have their liability removed. This paper explores the legal definition of what it means to be state of the art and considers whether or not the availability of the defense is likely to improve product safety. The state of the art defense's effect on safety is found to depend on whether courts rely on a "technological advancement" or a "customary practice" tests of state of the art. When consumers are under-informed regarding product risks, the technological advancement test improves safety, and welfare, in a broad set of situations.

Abstract: The optimal design of environmental liability policy focuses on two primary policy issues: the cleanup of existing sources of pollution and the definition and enforcement of policies to promote prospectively efficient environmental risk reduction. Through the analysis of a policy toward a pervasive environmental risk--leaking underground storage tanks--we analyze the effectiveness of an existing policy governing retroactive and prospective liability issues and suggest ways in which that policy can be improved. While we find some theoretical support for the public financing of UST cleanups, we also find the current system to be flawed in its implementation. In general, the paper argues that public financing of past pollution cleanup costs can lead to greater future risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, if it is practically or politically impossible to limit public financing to retroactive liabilities alone, the deterrent effect of such a system is vastly reduced.

Abstract: The paper considers the desirability of compensation for land value or investments lost as a result of regulation. We model political support for regulation as a function of the external costs of land use, the impact of regulation on landowner wealth, and the social cost of compensation. Modeling the regulator's incentives in this way leads to the conclusion that compensation should not be paid unless environmentalists and property owners have unequal influence politically. Moreover, the model has several counter-intuitive implications when political influence is not balanced. For instance, if environmentalists are disenfranchised they should support compensation, since it reduces property owner opposition to regulation. In contrast, if environmentalists wield disproportionate influence, penalizing rather than compensating landowners can induce more efficient regulation by stimulating landowner opposition. The analysis emphasizes the deadweight social costs of compensation and the desirability of compensation rules conditioned on both diminited land value and irreversible landowner investments. In addition, we argue that takings compensation can be used to improve the timing, as well as the strength, of regulation.

Abstract: International differences in the timing and speed of the diffusion of technical innovations have profound economic and environmental impacts. For example, they affect the rate of 'convergence' of levels of per capita income in developing and industrialized countries and the rate of global warming. This note investigates the usefulness of macroeconomic statistics as predictors of such differences. Specifically, we test to see whether differences in the timing and speed of the diffusion of four steel and textile core-process innovations (the basic oxygen furnace, continuous casting, the open-end rotor, and the shuttle-less loom) in 48 diverse countries are explained by: GDP per capita, exports as a share of sectoral production, and money stock as a share of GDP. We find that these statistics do in fact explain some international variation in patterns of diffusion; the two steel innovations diffused faster in countries where a relatively high proportion of steel output was exported and that the two textile innovations diffused either earlier or faster in countries with relatively high GDP.