At the the Paris Climate Conference in December 2015, it was agreed that annual global temperature increase must be kept below 2 degrees, and a target of a 1.5 degree annual increase was set. Most environmental policies currently focus on emissions reductions and adaptation. This column discusses a new set of technologies collectively known as climate engineering, and explores their potential effectiveness and role in climate change economics. A lot of uncertainty surrounds the costs and effects of climate engineering tools, but it is clear that they would change the optimal levels of emissions reduction currently discussed in literature.
Garth Heutel, Juan Moreno-Cruz, Katherine Ricke, 04 June 2016
Shyamal Chowdhury, Annabelle Krause, Klaus F. Zimmermann, 28 April 2016
Across the world, 650 million people still lack access to clean water, despite great progress over last two decades. This column looks at the case of Bangladesh, where around 45 million people are at risk from drinking water that is contaminated with naturally occurring arsenic. Drinking this water can lead to symptoms of arsenicosis, which have a significant negative impact on mental health and thus on household productivity and wellbeing.
Eva Arceo, Rema Hanna, Paulina Oliva, 16 April 2016
Pollution levels are orders of magnitude higher in lower-income countries than in the developed world. This means that studies of the health effects of pollution based on data from the latter will not necessarily be relevant to the former. This column reports on the effect of air pollution on infant mortality in Mexico City. Significant effects are found that are much larger than found in earlier work based on US data. These findings highlight the potential pitfalls of naively extrapolating findings from high-income to developing countries.
Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Andreas Weber, 23 January 2016
While some of the costs of climate change won’t be incurred for centuries, the actions to mitigate them need to be taken today. Over such a long timespan, small changes in discount rates can drastically change the attractiveness of such investments. This column presents estimates of appropriate discount rates for very long time horizons. The long-run discount rate for one important risky asset class – real estate – is estimated at 2.6%. This provides an upper bound on long-run discount rates for climate change abatement, one that is substantially lower than some of the rates currently being employed.
Yana Jin, Mu Quan, Chiara Ravetti, Zhang Shiqiu, Timothy Swanson, 02 December 2015
Many cities in China have notoriously high levels of air pollution. Given its tight control over the media, the Chinese government has a high degree of control over public information about air quality. This column explores the government’s incentive to downplay the seriousness of pollution spikes. Households that rely exclusively on public media are found to engage in less self-protective behaviours. This could lead to substantial public health costs in the long run that might otherwise have been avoided.
Ejaz Ghani, Arti Grover Goswami, William Kerr, 18 November 2015
Urbanisation in India is taking many twists and turns. Organised manufacturing is moving out of urban areas, while unorganised manufacturing is transitioning towards urban areas. As the fourth greatest energy consumer in the world, how the country manages this ongoing industrialisation and urbanisation process will have important environmental implications. This column looks at the relationship between growth, geography, and energy efficiency in manufacturing in India. Electricity consumption per unit of output has declined in urban and rural areas, but these overall trends mask substantial variation between states and substantial potential for further efficiency improvements in energy-intensive industries.
James Feyrer, Erin T. Mansur, Bruce Sacerdote, 16 November 2015
Fracking has driven an oil and natural gas boom in the US over the past decade. This column examines the impact these mining activities have had on local and regional economies. US counties enjoy significant economic benefits, including increased wages and new job creation. These effects grow as the geographic radius is extended to include neighbouring areas in the region. The results suggest that the fracking boom provided some insulation for these areas during the Great Recession, and lowered national unemployment by as much as 0.5%.
Matthew E. Kahn, Cong Sun, Siqi Zheng, 08 July 2015
China’s cities suffer from extremely high levels of air pollution, and Chinese consumers spend more than $US100 million on anti-smog products per year. Using recent internet sales data, this column explores how investing in such self-protection products varies for consumers with different income brackets. The urban poor are shown to be less likely to engage in this health-improving strategy. This suggests that cross-sectional income comparisons understate lifetime inequality.
Áureo de Paula, John Lynham, Timothy Halliday, 22 June 2015
For policy to target air pollution optimally, a thorough understanding of its harms is required. However, disentangling the health effects of specific pollutants has proved challenging, as multiple chemicals tend to co-occur in industrial pollution. This column exploits volcanic emissions in Hawaii to examine the health impact of a specific pollutant – airborne particulates. Short-term exposure to particulate pollution is found to increase pulmonary-related hospitalisations and expenditures, particularly among very young children.
Carlo Carraro, 07 February 2015
China and the US have recently agreed to reduce their greenhouse gas emissions. This column asks what quantifiable impact the new targets will have, whether they are any better than previous approaches, and if so, whether they are enough to avoid dangerous climate change. While insufficient for keeping temperature increase below the 2°C limit, the US and China’s bilateral commitments are a step in the right direction, and form the basis for a stronger international agreement in Paris later this year.
Jean-Marie Grether, Nicole A. Mathys, Caspar Sauter, 31 January 2015
Spatial inequalities in territorial-based greenhouse emissions matter in terms of regulation, both at the international and subnational levels. This column decomposes these inequalities worldwide for the two major greenhouse gases over the period 1970–2008. Within-country inequalities are larger, and rising, while between-country inequalities are smaller and falling. Moreover, social tensions arising from the discrepancy between the distribution of emissions and the distribution of damages appear to be larger within than between countries, and larger for carbon dioxide than for methane.
Jean Pisani-Ferry, 07 November 2014
A triple-dip recession in the Eurozone is now a distinct possibility. This column argues that additional monetary stimulus is unlikely to be effective, that the scope for further fiscal stimulus is limited, and that some structural reforms may actually hurt growth in the short run by adding to disinflationary pressures in a liquidity trap. The author advocates using tax incentives and tighter regulations to encourage firms to replace environmentally inefficient capital.
Jeffrey Frankel, 09 September 2014
Subsidies for food and energy are economically inefficient, but can often be politically popular. This column discusses the efforts by new leaders in Egypt, Indonesia, and India to cut unaffordable subsidies. Cutting subsidies now may even be the politically savvy choice if the alternative is shortages and an even more painful rise in the retail price in future. Ironically, it is India’s new Prime Minister Modi – elected with a large electoral mandate and much hype about market reforms – who is already shrinking from the challenge.
Mark Hoekstra, Steve Puller, Jeremy West, 03 September 2014
‘Cash for Clunkers’ was billed as a stimulus programme that would boost sales to the ailing US auto industry in 2009. This column shows that the design of the programme actually caused it to reduce revenues to the industry it was designed to help. The authors estimate that the entire increase in sales during the programme would have happened anyway in the following eight months. Moreover, since more fuel-efficient cars tend to be less expensive, the fuel economy requirement of the programme incentivised households to buy cheaper cars.
Rick van der Ploeg, Aart de Zeeuw, 31 July 2014
Many ecological systems feature ‘tipping points’ at which small changes can have sudden, dramatic, and irreversible effects, and scientists worry that greenhouse gas emissions could trigger climate catastrophes. This column argues that this renders the marginal cost-benefit analysis usually employed in integrated assessment models inadequate. When potential tipping points are taken into account, the social cost of carbon more than triples – largely because carbon emissions increase the risk of catastrophe.
Pascal Lamy, Ian Goldin, 28 March 2014
Excessive short-termism is always a problem for policy, but the Global Crisis has brought it sharply into focus. This column introduces a report that discusses how a shift to longer-term solutions is necessary and possible. A key message is that businesses as well as governments need to take a longer-term view. The report identifies ways to overcome the current impasse in key economic, climate, trade, security, and other negotiations.
Mathilde Mathieu, Thomas Spencer, Oliver Sartor, 22 March 2014
The US unconventional energy boom has reversed the decline of domestic production, lowered oil and gas imports, reduced gas prices, and created political space for tougher regulations on coal-fired power plants. This column argues that it is not a panacea, however. Even if current estimates prove accurate, the long-run benefits to the US economy will be relatively small. Improving energy efficiency and promoting low-carbon technologies will be just as important as before – especially for the EU, given its more limited known reserves of unconventional oil and gas.
Derek Kellenberg, Arik Levinson, 01 March 2014
Economic theory predicts that international environmental agreements will fail due to free-rider problems, and previous empirical work suggests that such agreements do not in fact reduce emissions. This column presents evidence that the Basel Convention and Ban on trade in hazardous waste has also been ineffective. The authors find no evidence that Annex-7 countries that ratified the Ban slowed their exports to non-Annex-7 countries as the agreement requires.
Jeffrey Frankel, 27 February 2014
Market-based mechanisms such as cap-and-trade can tackle externality problems more efficiently than command-and-control regulations. However, politicians in the US and Europe have retreated from cap-and-trade in recent years. This column draws a parallel between Republicans’ abandonment of market-based environmental regulation and their recent disavowal of mandatory health insurance. The author argues that in practice, the alternative to market-based regulation is not an absence of regulation, but rather the return of inefficient mandates and subsidies.
Enrica De Cian, Samuel Carrara, Massimo Tavoni, 22 December 2013
After the Fukushima incident in 2011, many countries decided to shrink their nuclear power programmes. This article presents recent research on the optimal role of nuclear power in reducing carbon emissions. Phasing out nuclear power would be costly, since it is currently the cheapest low-carbon alternative to fossil fuels. However, these costs would be largely offset by the implicit subsidy to R&D in renewables, which suffers from innovation externalities. Still, carbon pricing and explicit R&D subsidies would be a more efficient way of determining the future of nuclear power.