rff reader in environmental and resource policy - alliance for

R E S O U R C E S F O R T H E F U T U R E • W A S H I N G T O N , D C , U S A

THE RFF READER IN

ENVIRONMENTAL

AND

RESOURCE POLICY

S E C O N D E D I T I O N

W A L L A C E E . O AT E S , E D I TO R

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page i

Copyright © 2006 by Resources for the Future. All rights reserved.

Printed in the United States of America

No part of this publication may be reproduced by any means,whether electronic or mechanical, without written permission.Requests to photocopy items for classroom or other educational useshould be sent to the Copyright Clearance Center, Inc., Suite 910,222 Rosewood Drive, Danvers, MA 01923, USA (fax +1 978 6468600; www.copyright.com). All other permissions requests shouldbe sent directly to the publisher at the address below.

An RFF Press bookPublished by Resources for the Future1616 P Street NWWashington, DC 20036-1400USAwww.rffpress.org

Library of Congress Cataloging-in-Publication Data

The RFF reader in environmental and resource policy / edited byWallace E. Oates.— 2nd ed.

p. cm.Rev. ed. of: The RFF reader in environmental and resource man-

agement. c1999.“An RFF Press book”—T.p. verso.Includes bibliographical references.ISBN 1-933115-16-5 (alk. paper) — ISBN 1-933115-17-3

(pbk. : alk. paper)1. Environmental policy. I. Oates, Wallace E. II. Resources for

the Future. III. RFF reader in environmental and resource man-agement. IV. Title.

GE170.R447 2005333.7--dc22 2005029361

The paper in this book meets the guidelines for permanence anddurability of the Committee on Production Guidelines for BookLongevity of the Council on Library Resources.

This book was originally designed by Diane Kelly. The second edi-tion was typeset by Peter Lindeman. Cover design by Marc AlainMeadows, Meadows Design Office Inc., www.mdomedia.com.

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page ii

About Resources for the Future and RFF Press

Resources for the Future (RFF) improves environmental and natural resource poli-cymaking worldwide through independent social science research of the highestcaliber. Founded in 1952, RFF pioneered the application of economics as a tool fordeveloping more effective policy about the use and conservation of naturalresources. Its scholars continue to employ social science methods to analyze criticalissues concerning pollution control, energy policy, land and water use, hazardouswaste, climate change, biodiversity, and the environmental challenges of developingcountries.

RFF Press supports the mission of RFF by publishing book-length works thatpresent a broad range of approaches to the study of natural resources and theenvironment. Its authors and editors include RFF staff, researchers from thelarger academic and policy communities, and journalists. Audiences for publica-tions by RFF Press include all of the participants in the policymaking process—scholars, the media, advocacy groups, NGOs, professionals in business and gov-ernment, and the public.

Resources for the FutureDirectors

OfficersFrank E. Loy, Chair

Lawrence H. Linden, Vice ChairPhilip R. Sharp, President

Edward F. Hand, Vice President–Finance and AdministrationLesli A.Creedon, Vice President–External Affairs

Editorial Advisers for RFF PressWalter A. Rosenbaum, University of Florida

Jeffrey K. Stine, Smithsonian Institution

Catherine G. AbbottVicky A. BaileyMichael J. Bean

Norman L. Christensen, Jr.Maureen L. CropperW. Bowman Cutter

John M. Deutch

E. Linn Draper, Jr.Mohamed T. El-Ashry

J. Andres EspinosaDod A. Fraser

Kathryn S. FullerMary A. Gade

David G. HawkinsLawrence U. Luchini

Michael A. MantellJames F. O’Grady, Jr.

Steven W. PercyMark A. Pisano

Matthew R. SimmonsRobert N. StavinsJoseph E. Stiglitz

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page iii

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiWallace E. Oates

An Economic Perspective on Environmental Policy and Resource Management: An Introduction . . . . . . . . . . . . . . . . . . xv Wallace E. Oates

Part 1. Science and Environmental Policy

1. What the Science Says: How We Use It and Abuse It to Make Health and Environmental Policy . . . . . . . . . . . . . . . . . . . . . 3James Wilson and J.W. Anderson

2. Using Science Soundly: The Yucca Mountain Standard . . . . . . . . . . . 7Robert W. Fri

Part 2. Valuation of the Environment and Benefit-Cost Analysis

3. Economics Clarifies Choices about Managing Risk . . . . . . . . . . . . . . 15Myrick Freeman III and Paul R. Portney

4. Health-Based Environmental Standards: Balancing Costs with Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Paul R. Portney and Winston Harrington

5. Discounting the Future: Economics and Ethics . . . . . . . . . . . . . . . . . 28Timothy J. Brennan

Contents

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page v

6. Time and Money: Discounting’s Problematic Allure . . . . . . . . . . . . 35Paul R. Portney

7. How Much Will People Pay for Longevity? . . . . . . . . . . . . . . . . . . . . 38Alan J. Krupnick

8. The Faustian Bargain: Risk, Ethics, and Nuclear Energy . . . . . . . . 43Allen V. Kneese

Part 3. Environmental Regulation

9. Market-Based Approaches to Environmental Policy: A ‘Refresher’ Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Paul R. Portney

10. Trading Cases: Five Examples of the Use of Markets in Environmental and Resource Management . . . . . . . . . . . . . . . . . 56James Boyd, Dallas Burtraw, Alan Krupnick, Virginia McConnell, Richard G. Newell, Karen Palmer, James N. Sanchirico, and Margaret Walls

11. Economics Incentives Versus Command and Control . . . . . . . . . . . . 66Winston Harrington and Richard D. Morgenstern

12. Unleashing the Clean Water Act: The Promise and Challenge of the TMDL Approach to Water Quality . . . . . . . . . . . . . 72Jim Boyd

13. Penny-Wise and Pound Fuelish? New CarMileage Standards in the United States . . . . . . . . . . . . . . . . . . . . . . 77Paul R. Portney

14. Is Gasoline Undertaxed in the United States? . . . . . . . . . . . . . . . . . 83Ian Parry

15. Pay as You Slow: Road Pricing to Reduce Traffic Congestion . . . . . . 88Ian Parry and Elena Safirova

16. Cleaner Air, Cleaner Water: One Can Lead to the Other in the Chesapeake Bay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Anonymous

Part 4. Environmental Accounting and Statistics

17. Accounting for the Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Spencer Banzhaf

vi CONTENTS

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page vi

18. Greening the GDP: Is It Desirable? Is It Feasible? . . . . . . . . . . . . . 101Joel Darmstadter

Part 5. Environmental Federalism

19. Environmental Federalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109Robert M. Schwab

20. The Arsenic Rule: A Case for Decentralized Standard Setting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Wallace E. Oates

21. The Interstate Transport of Air Pollution: A Regulatory Dilemma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118Alan Krupnick and Jhih-Shyang Shih

22. State Innovation for Environmental Improvements: Experimental Federalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Winston Harrington, Karen L. Palmer, and Margaret Walls

Part 6. Resource Management and Conservation

23. Catching Market Efficiencies: Quota-Based Fisheries Management . . . . . . . . . . . . . . . . . . . . . . . 131James Sanchirico and Richard Newell

24. Marketing Water: The Obstacles and the Impetus . . . . . . . . . . . . . 136Kenneth D. Frederick

25. Ecosystem Management: An Uncharted Path for Public Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Roger A. Sedjo

26. Carving Out Some Space: A Guide to Land Preservation Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146James Boyd, Kathryn Caballero, and R. David Simpson

27. A Market Approach to Land Preservation . . . . . . . . . . . . . . . . . . . . 151Virginia McConnell, Margaret Walls, and Elizabeth Kopits

28. Preserving Biodiversity as a Resource . . . . . . . . . . . . . . . . . . . . . . .158Roger A. Sedjo

CONTENTS vii

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page vii

29. Cost-Effective Conservation: A Review of What Works to Preserve Biodiversity . . . . . . . . . . . . . 163Paul Ferraro and R. David Simpson

Part 7. Energy Policy for the Twenty-First Century

30. Setting Energy Policy in the Modern Era: Tough Challenges Lie Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171William A. Pizer

31. Petroleum: Energy Independence is Unrealistic . . . . . . . . . . . . . . .175Ian W.H. Parry and J.W. Anderson

32. Coal: Dirty Cheap Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181J.W. Anderson

33. Nuclear Power: Clean, Costly, and Controversial . . . . . . . . . . . . . . 184Paul R. Portney

34. Renewable Sources of Electricity: Safe Bet or Tilting at Windmills? . . . . . . . . . . . . . . . . . . . . . . . . . . 188Joel Darmstadter and Karen Palmer

35. The Effectiveness and Cost of Energy Efficiency Programs . . . . . . . 193Kenneth Gillingham, Richard Newell, and Karen Palmer

Part 8. Global Climate Change

36. Climate Change and Climate Policy . . . . . . . . . . . . . . . . . . . . . . . . 201J.W. Anderson

37. How Much Climate Change is Too Much? An Economics Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213Jason F. Shogren and Michael A. Toman

38. Choosing Price or Quantity Controls for Greenhouse Gases . . . . . . 225William A. Pizer

39. Rethinking Fossil Fuels: The Necessary Step Toward Practical Climate Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . .235Raymond J. Kopp

40. Forest “Sinks” as a Tool for Climate-Change Policymaking . . . . . . 240Roger A. Sedjo

viii CONTENTS

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page viii

Part 9. Thinking About Sustainable Development

41. The Difficulty in Defining Sustainability . . . . . . . . . . . . . . . . . . . . . 247Michael A. Toman

42. An Almost Practical Step Toward Sustainability . . . . . . . . . . . . . . 253Robert Solow

Part 10. Environmental Policy in Developing andTransitional Countries

43. Are Market-Based Instruments the Right First Choice for Countries in Transition? . . . . . . . . . . . . . . . . . . . . . . . . . 265Ruth Greenspan Bell

44. Demonstrating Emissions Trading in Taiyuan, China . . . . . . . . . . . 270Richard D. Morgenstern, Robert Anderson, Ruth Greenspan Bell, Alan J. Krupnick, and Xuehua Zhang

45. Saving the Trees by Helping the Poor: A Look at Small Producers along Brazil’s Transamazon Highway . . . . . . . . . 275Charles Wood and Robert Walker

46. Small is Not Necessarily Beautiful: Coping with Dirty Microenterprises in Developing Countries . . . . . . . . . . . . . . . 279Allen Blackman

47. New Investment Abroad: Can It Reduce Chinese Greenhouse Gas Emissions? . . . . . . . . . . . . . . . . . . . . . . . 284Allen Blackman

Part 11. New Horizons in Environmental Management

48. Fighting Antibiotic Resistance: Can Economic Incentives Play a Role? . . . . . . . . . . . . . . . . . . . . . . . . . . 289Ramanan Laxminarayan

49. Fending Off Invasive Species: Can We Draw the Line Without Turning to Trade Tariffs? . . . . . . . . . . . . . . . . . . . 293Michael Margolis

CONTENTS ix

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page ix

Part 12. An Historical Perspective

50. Forty Years in an Emerging Field: Economics and Environmental Policy in Retrospect . . . . . . . . . . . . 301Wallace E. Oates

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

x CONTENTS

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page x

xi

Preface

The original motivation for The RFF Reader had its source in themany articles from Resources that I had been using as supple-mentary readings in my undergraduate course in environmentaleconomics at the University of Maryland. Resources is a quar-terly publication of Resources for the Future (RFF) that containsarticles providing brief, yet quite incisive, nontechnical treat-ments of a range of central issues: analytical techniques for theevaluation of environmental programs, useful findings fromspecific pieces of empirical research, and balanced assessmentsof important policy programs. Through the years, I had foundthat these shorter pieces could usefully supplement the morelengthy (and sometimes ponderous) discussion in many of thestandard texts. And it occurred to me that a collection of thesearticles in book form could provide a supplementary reader thatmany instructors might find valuable for their courses—in envi-ronmental economics, environmental policy, and in interdisci-plinary programs

But, as it worked out, the first edition of the Reader reachedan even broader audience. While these articles can be helpful tostudents, they can also provide insightful treatments of environ-mental issues to the larger community concerned with environ-mental and resource management. In particular, the papersmake clear the important contribution that an economic per-spective can make to the understanding of these issues and tothe design and evaluation of environmental policy. Thus, thefirst edition of the Reader served the purpose of providing con-cise economic analyses of environmental problems both for stu-dents and for a somewhat more general audience.

But things change rapidly on the environmental front. And,since the publication of the first edition of the Reader in 1999,much has happened to our understanding of the science, eco-nomics, and politics of environmental issues. The Reader hadthus become a bit dated, and it seemed the time had come torevise and update its contents. This volume is the result of thateffort. A couple of specific comments concerning the new edi-

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xi

xii PREFACE

tion may be helpful. In the first edition, nearly allthe articles (in fact, all but two) came directly fromvarious issues of Resources. In the revised edition, Ihave taken somewhat greater liberty in the selectionof chapters to draw on some other outlets for RFFwritings. But the basic principles remain the same.The articles are concise, typically four or five pages,and explain in a nontechnical way either a method-ological approach to the analysis of environmentalproblems or the analysis of an actual issue (such assome form of air or water pollution or global cli-mate change). The great bulk of the articles con-tinue to come from Resources. However, in theireffort to communicate their findings more broadly,RFF researchers have reached out to a number ofother outlets, including other RFF publications,and books and periodicals published elsewhere. Ihave taken advantage of this wider range of sourcesin this second edition of the Reader.

As I did in the first edition, I have grouped thepapers into sections that roughly parallel the struc-ture of a typical course in environmental econom-ics. Following my introduction and overview of theeconomic perspective on environmental issues arepapers on science and its role in environmental pol-icymaking. The next two sections take up basicmethodological issues in the valuation of environ-mental amenities (what economists call “benefit-cost analysis”) and in the design and implementa-tion of policy measures for environmentalregulation. Many of the later sections address spe-cific environmental problems such as global climatechange, biodiversity, the management of the world’sfisheries, and the pressing challenges of environ-mental deterioration in developing and transitionalcountries.

I have expanded the revised edition in severalways that I hope will prove helpful. There is a newsection on environmental accounting and statisticsthat sets forth the need for a broader and more sys-tematic way to assemble data on the environmentand that explores the proposal to incorporate mea-sures of environmental use and services into ourconstruction of Gross Domestic Product (GDP). Ihave also introduced a new section devoted exclu-

sively to energy issues, since energy problems figureso prominently in our environmental prospects forthe twenty-first century. To highlight some of thenew and more innovative applications of economicanalysis, there is a section on “New Horizons inEnvironmental Management,” including papers thatexamine what economists have to say, in one case,about the troubling issue of growing antibioticresistance and, in the other, about the problem ofinvasive species. The Reader concludes with a pieceof my own from Resources that looks back over thepast forty years and explores the changing role ofeconomics in environmental policymaking. This isitself a fascinating story that begins with a virtuallytotal disregard of economic considerations in theearly environmental legislation in the 1970s, butevolves into a setting in which economic analyses ofenvironmental programs and the use of economicincentives in actual policy measures have become aroutine part of policymaking.

To make the new edition current, I have, insome instances, simply discarded articles from thefirst edition and, where possible, replaced themwith more recent pieces. In all cases, authors havebeen offered the opportunity to revise their papersor, in an option more frequently taken, to includean “Update Box” along with the original paper, eachof which discusses, in a brief paragraph or two, anysignificant new developments (e.g., new findings orlegislation) since the article was originally pub-lished. Authors also provide a short list of“Suggested Readings” for those who would like toexplore the issue in greater depth. Finally, I want tocall attention to the rich source of current informa-tion and analyses of environmental issues that isavailable on the RFF web site (http://www.rff.org).

For those unfamiliar with the organization,RFF is an independent, nonprofit institution,located in Washington, DC, that undertakesresearch and public education on environmentaland natural resource issues. Through the years, RFFhas been the source of much fundamental andimportant research, both basic and applied, intoenvironmental policymaking. Indeed, the very firstrecipients of the prestigious Volvo Prize in

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xii

PREFACE xiii

Environmental Science were Allen Kneese and JohnKrutilla of RFF for their path-breaking work in theanalysis of environmental problems. I have beenmost grateful over many years to have a continuingassociation with RFF as one of their UniversityFellows, and I am delighted to have this opportu-

nity to assemble a collection of RFF readings that Ihope many will find as valuable as I have.

Wallace E. OatesUniversity of Maryland and

Resources for the Future

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xiii

An Economic Perspective onEnvironmental and ResourceManagementAn Introduction

Wallace E. Oates

The central concern of economics is the allocation of scarceresources. The basic problem is one of using our limited meansto provide an array of goods and services that satisfies peoples’preferences in an efficient and equitable manner. It doesn’trequire much reflection to realize that our environmentalresources are scarce. Clean air and water, the diversity ofspecies, and perhaps even a stable global climate are clearly notavailable in unlimited supply, irrespective of human activities.Perhaps economics has something useful to say about the man-agement of our environment.

This is indeed the case. I shall suggest here that economicshas three basic and important messages for environmental pro-tection. First, economic analysis makes a compelling case forthe proposition that an unfettered market system will generateexcessive pollution. A market system, in a sense, “overuses”many of the services provided by the environment, resulting inexcessive environmental degradation. Thus, economics makes abasic and persuasive case for the need for public intervention inthe form of environmental regulation.

Second, economics provides some guidance for the settingof standards for environmental quality. It provides one approachto answering the question: How clean should the environmentbe? In fact, this approach is simply a straightforward applicationof the general economic principle that any activity should beextended to the point where the marginal benefits equal themarginal costs.

And third, once we have determined the standards or tar-gets for environmental quality (and even if, incidentally, this

xv

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xv

xvi INTRODUCTION

determination is made irrespective of marginalanalysis), economics has some important things tosay about the design of the policy instruments toachieve these standards. In particular, economicanalysis suggests how we can structure policy mea-sures so as to realize our environmental goals in themost effective and least-cost ways.

In this introduction, I want to explain andexplore these three ideas, for nearly all the papers inthis book draw on this conceptual framework inone way or another. In fact, it is the purpose of thisvolume to show how basic economic analysis canhelp us to understand the causes of environmentaldegradation and to design policies to protect andimprove the environment.

Free Markets and the EnvironmentEconomists have a deep appreciation of the marketsystem. Guiding the individualized choices of bothconsumers and producers, a system of markets hasthe capacity to channel our limited resources intotheir most highly valued uses. In pursuing theirown gain, individuals (as Adam Smith put it) “areled by an invisible hand” to promote the socialgood.

Markets generate and make use of a set ofprices that serve as signals to indicate the value (orcost) of resources to potential users. Any activitythat imposes a cost on society by using up some ofits scarce resources must come with a price, wherethat price equals the social cost. For most goods andservices (“private goods” as economists call them),the market forces of supply and demand generate amarket price that directs the use of resources intotheir most highly valued employment.

There are, however, circumstances where amarket price may not emerge to guide individualdecisions. This is often the case for various forms ofenvironmentally damaging activities. In the firsthalf of this century at Cambridge University, A.C.Pigou set forth the basic economic perspective onunpriced goods (encompassing pollution) in hisfamous book, The Economics of Welfare. Since Pigou,many later economists have developed Pigou’sinsights with greater care and rigor. But the basic

idea is straightforward and compelling: the absenceof an appropriate price for certain scarce resources(such as clean air and water) leads to their excessiveuse and results in “market failure.”

The source of this failure is what economistscall an “externality.” A good example is the classiccase of the producer whose factory spreads smokeover an adjacent neighborhood. The producerimposes a real cost on the community in the formof dirty air, but this cost is “external” to the firm.The producer does not bear the cost of the pollu-tion in the same manner that it does for the labor,capital, and raw materials that it employs. The priceof labor and such materials induces the firm toeconomize on their use, but, because the health andaesthetic costs of foul air are borne by the largercommunity, there is no such incentive for the firmto control its smoke emissions and thereby con-serve clean air. The point is simply that whenever ascarce resource comes free of charge (as is typicallythe case with our limited stocks of clean air andwater), it is virtually certain to be used to excess.

Many of our environmental resources areunprotected by the appropriate prices that wouldconstrain their use. From this perspective, it ishardly surprising to find that the environment isoverused and abused. A market system simplydoesn’t allocate the use of these resources properly.In sum, economics makes a clear and powerfulargument for public intervention to correct marketfailure with respect to many kinds of environmentalresources. Markets may work well in guiding theproduction of private goods, but they cannot berelied upon to provide the proper levels of “socialgoods” (like environmental services).1

But if we can’t rely on markets to “manage” ourenvironmental resources, what principles shouldwe employ to regulate their use? To this I turn next.

The Setting of Standards for Environmental QualityThere is a basic economic principle that indicatesthe efficient level of any economic activity: extendthat activity to the level at which the benefits froman additional “unit” of the activity equal the costs.

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xvi

INTRODUCTION xvii

Economists sometimes refer to these extra units as“incremental” or “marginal.” Thus, the condition forthe economically correct level of any activity can bestated simply as the equality of marginal benefitswith marginal cost.

The intuition here is straightforward. So longas higher levels of a particular service yield addi-tional (marginal) benefits that exceed the additional(marginal) costs, we are obviously better off provid-ing the additional units of the service than not pro-viding them. But it clearly would not be a good ideato go past the point where marginal benefits equalmarginal cost, for any units past this point wouldcost more than they are worth (i.e., marginal costwould exceed marginal benefits for such units).

The moral of this exercise for environmentalpolicy, from the standpoint of economic efficiency atleast, is that we should set standards for environmen-tal quality such that the benefits at the margin fromfurther tightening the standards exactly equal themarginal cost of pollution control (often called “mar-ginal abatement cost”). Note that this implies that, ingeneral, the economically efficient level of pollutionis not zero. The cost of a perfectly pure environmentwould simply be too much to make it worthwhile.Economics is, in a sense, rather pragmatic when itcomes to setting standards for things. It recognizesthat tradeoffs and compromises are needed in orderto make the best use of our limited resources.

While this guidance for the setting of environ-mental standards seems straightforward and sensi-ble in principle, it is not so easy to implement.Consider, for example, the case of improved airquality. In considering the benefits from a proposalto introduce a more stringent standard for clean air,we must somehow quantify the improvement inwell-being that comes with the associated reducedlevels of illness and increased longevity. And this,along with any other benefits (such as reduceddamages to materials and wildlife), must be com-pared to the additional abatement costs that themeasure would entail. Such quantitative analysesare not easy, but neither are they impossible. Part IIof this volume presents a series of short essays thattake up some of the difficult problems that arise in“benefit-cost analysis.”

It is interesting in this regard that the earlymajor pieces of environmental legislation in theUnited States almost completely ignored the eco-nomic approach to the setting of environmentalstandards. The Clean Air Act Amendments of 1970,which still embody the basic principles for air-quality management in the U.S., literally directedthe Environmental Protection Agency to set stan-dards for air quality so stringent that no one any-where in the United States would suffer any adversehealth effects from air pollution. The courts haveconsistently held that, since this law was silent onthe role of costs in setting air quality standards,these costs may not be taken into account. Twoyears later, the U.S. Congress declared in the CleanWater Act Amendments of 1972 that the goal wasthe complete elimination of “all discharges into thenavigable waters by 1985.”

Some of these extreme strictures have beenrelaxed in later legislation and/or their implementa-tion has been modified by presidential executiveorders. For example, in Executive Order 12291,President Reagan required benefit-cost studies forall major new regulatory measures (as PresidentCarter had done under an earlier executive order).Such systematic studies of the benefits and costs ofproposed programs continue in the executivebranch. Moreover, there have been overtures inCongress to override provisions in laws that pro-hibit costs from being considered, but they havenot come to a vote. In fact, we find ourselvespresently subject to a somewhat puzzling and con-flicting set of requirements. First, some legislation(under, for example, certain sections of the CleanAir and Clean Water Acts) prohibits taking costsinto consideration in the setting of environmentalstandards. In sharp contrast, other legislation(including parts of the Toxic Substances ControlAct and the basic pesticide law, the FederalInsecticide, Fungicide, and Rodenticide Act)requires a balancing of benefits against costs.Second, and more confusing, even where a law pro-hibits regulators from considering costs, they muststill conduct benefit-cost analyses for major rules!

This is not to say that the findings from abenefit-cost study should constitute the sole crite-

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xvii

xviii INTRODUCTION

rion for deciding whether or not to undertake anew environmental program. The complexities inestimating benefits and costs and the importance ofother objectives suggest that it would probably beunwise to institute a rigid rule requiring that anyproposed program pass a benefit-cost test. At thesame time, such analyses surely provide importantinformation that should be an integral part of thedecisionmaking process.

The Choice of Policy InstrumentsOnce we have set specific targets for environmentalprograms, there remains the critical and challengingtask of designing a set of regulatory measures toattain the targets. Here again, economics providessome valuable insights. In particular, it is importantthat a regulatory regime achieves its targets effec-tively and in the least costly way. A good system ofregulatory instruments will both minimize abate-ment costs in the short run and provide incentivesover the longer term for firms to discover and intro-duce yet better techniques for controlling pollution.

It is here that a set of incentive-based policyinstruments has real appeal. Our earlier discussionsuggested that excessive pollution results from theabsence of an appropriate price to induce controlson waste emissions. The implication is that we cancorrect the resulting market failure through theintroduction of the missing price. Economic analy-sis thus points directly to a concrete policy pro-posal: the introduction of a surrogate price in theform of a unit tax on polluting waste emissions.Such a tax can play the role of the missing price byproviding the needed incentive to polluters to econ-omize on their use of the environment; cost-minimizing polluters will respond to the tax by cut-ting back on their polluting waste emissions.

For example, suppose we have set a standardfor air quality requiring that sulfur emissions in aparticular region be cut by 50 percent. One way toachieve this goal would be to introduce a tax perpound of sulfur emissions and simply raise the taxto a sufficiently high level to induce a 50 percentreduction in sulfur discharges. Such a regulatorystrategy has some appealing properties. It is

straightforward to show that a system of effluenttaxes can attain the target at the minimum total costto society. In addition, the system provides firmswith an incentive over the longer term to seek newand cheaper ways to control waste emissions, forsuch R&D efforts by polluting firms can reducetheir tax bills and increase their profits. Systems ofenvironmental taxes (or “green taxes” as some callthem) effectively redirect the powerful profit motiveof the market to the protection of the environment.

The environmental-tax approach is not theonly way to mobilize economic incentives on behalfof the environment. An interesting alternative is asystem of tradeable emissions permits (sometimescalled a “cap-and-trade system”). Under thisapproach, the environmental authority issues a lim-ited number of permits, each of which allows a cer-tain number of pounds of pollutants per year to beemitted into the environment. The total number ofsuch permits is limited to ensure that the predeter-mined standard for environmental quality isattained. But these permits have the importantproperty that they can be traded: polluting firmsbuy and sell them in a market. Firms with relativelyhigh costs of pollution control can purchase rightsto emit a particular pollutant from those who cancontrol their emissions more inexpensively. In thisway, standard cost-minimizing behavior leads to aleast-cost pattern of pollution control efforts amongfirms. Likewise, such cap-and-trade systems (likeenvironmental taxes) provide a longer-run incentivefor the discovery and introduction of more effectiveand less costly control technologies. Such systemsare currently in use in the United States for the con-trol of sulfur and nitrogen-oxide emissions into theatmosphere (and are discussed in chapters nine andten). Moreover, some form of an emissions-tradingsystem is under serious consideration for use on aglobal scale to address the problem of global warm-ing. In fact, in 2005, the European Union intro-duced the largest and most ambitious emissions-trading system in the world to meet the Europeancommitment under the Kyoto Protocol for thereduction of carbon-dioxide emissions to curtailglobal climate change.

As with the setting of environmental standards,

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xviii

INTRODUCTION xix

the economic approach to the choice of policyinstruments was essentially ignored in the earlypieces of environmental legislation. Instead, envi-ronmental authorities employed so-calledcommand-and-control (CAC) techniques for pollu-tion control. Such CAC regimes often consisted ofdirectives to individual polluters that specified, attimes in considerable detail, the precise forms ofcontrol measures that were to be adopted. Manystudies have documented the unnecessarily highcosts that these programs have imposed on pol-luters and the economy by restricting flexibility inpolluter responses. Not only this, but such mea-sures typically provided little in the way of incen-tives for efforts to develop more effective controltechnologies, since firms are basically concernedwith complying with the relevant directives.

Over time, we have come to appreciate theneed for attaining our environmental objectives effi-ciently. For one thing, if we can keep control costsdown, we will be in a position to do more in theway of environmental cleanup. There has, in conse-quence, been a growing interest in the use ofincentive-based policy instruments, including notonly taxes and systems of transferable permits, butsuch things as deposit-refund systems and variousforms of legal liability that can, in certain instances,give polluters appropriate inducements for adopt-ing control measures. Even where the CACapproach is still used, it is recognized that it isimportant not to specify control technologies, but toallow firms some flexibility in determining the mosteffective and least-cost way to comply with the limitthat the regulatory authority imposes on its emis-sions.

Some Further IssuesIn this introduction, I have focused attention onthree basic ideas or lessons that economic analysisprovides for environmental and resource manage-ment. Economics does, of course, have interestingand important things to say on other matters. InPart 5 of this volume, for example, there are fouressays addressing the issue of “environmental feder-alism,” the question of how to assign regulatory

responsibility for environmental managementamong the different levels of government. Theseessays suggest some principles for making thisassignment.

More generally, the reader will find that thethree ideas discussed in this introduction manifestthemselves in a wide variety of forms in the essaysthat make up this book. Even for an issue like bio-diversity (addressed in Part 6), one with importantethical content, policy choices involve the use ofour scarce resources—and thus inescapably haveeconomic dimensions. Perhaps the most challeng-ing of all—because of its enormous potential conse-quences, scientific uncertainties, and distant timehorizon—is the issue of global climate change. Part8 offers five essays on this critical issue. In view ofits importance and inherent complexity, researchersat RFF have, and are, devoting a major effort to thestudy of climate change and the range of availablepolicy responses on both a national and globalscale. This revised edition of The RFF Reader intro-duces a new section (Part 7) on “Energy Policy forthe Twenty-First Century.” In view of the crucialrole of energy for the economy, national security,and the environment (including global climatechange), energy policy has a high priority on thenational and global agenda. The essays in Part 7explore systematically various sources of energyand their potential for addressing future energyneeds.

Part 10 of The RFF Reader turns to the analysisof pressing environmental issues in developingcountries and nations that are making the transitionfrom formerly socialist regimes to more democraticand market-oriented systems. The course of envi-ronmental management in the developing world isclearly going to have a profound impact on thefuture of the global environment. And here theissue of scarce resources presses especially hard onthe capacity to introduce ameliorative measures forthe environment. Sensible goals and efficient policymeasures may be even more important in this set-ting than in the industrialized world.

Part 11, a new section to The RFF Reader con-tains essays that apply economic analysis to twonewly emerging issues: antibiotic resistance and the

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xix

xx INTRODUCTION

problem of invasive species. These essays call atten-tion to the fact that what are seemingly solely scien-tific issues have important economic dimensionsthat need to be explored. They provide examples ofthe relevance of basic economic analysis to the chal-lenging variety of new environmental issues.

Over the past 30 years, a growing appreciationof the importance of the economic perspective onenvironmental and resource management hasemerged. Our experience with environmental legis-lation and policy has made it clear that ignoring thelessons of economics takes a heavy toll on ourefforts to clean up the environment and to do so ina relatively efficient way. This last point is becomingincreasingly important as we try to improve envi-ronmental quality yet further. We have come a longway in cleaning up the air in our cities and our pol-luted lakes and rivers. This has been relatively easyin the sense that there exist straightforward mea-sures for improving the environment when initiatingcleanup programs. However, in the current lingo,we have picked the “low-hanging fruit,” and wenow must invest in more complex and expensivemethods for further environmental improvements.This means that there will be an even larger pre-mium both on the selection of sensible environ-mental targets and the design of cost-effective regu-latory measures to attain these targets. Economicanalysis has much to contribute to this effort. In thefinal essay in this volume (Part 12), I offer reflec-tions on the evolution of the role of economics in

environmental policymaking. It is encouraging tofind that, in contrast to the early major legislationon the environment, current debate over environ-mental measures routinely employs economicanalysis both in the discussion of appropriate stan-dards for environmental quality and in the selectionof policy instruments for attaining these standards.

Note 1. Two qualifications are worthy of note here. First, there

are some cases where voluntary negotiations among a smallgroup of affected parties can effectively resolve an “external-ity.” Such cases are the subject of the famous paper byRonald Coase, “The Problem of Social Cost,” Journal of Lawand Economics (October 1960): 1-44. Although the Coasiantreatment has gotten considerable attention in the literature,its applicability remains limited. The major environmentalproblems, including, for example, urban air pollution andwater pollution, cannot be addressed through voluntarymarket mechanisms; they require public regulatory interven-tion. Second (and closely related), one might envision a sys-tem where markets are supplemented by a perfect tort sys-tem such that polluters are fully liable for the costs of anydamages that they impose on society. Such liability could, inprinciple, provide the needed incentives for efficient levels ofpollution abatement. Liability rules, in fact, have an impor-tant role to play in environmental protection, but the variousimperfections inherent in any practicable legal system forenvironmental protection leave a large role for regulatorymeasures.

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page xx

Part 1Science and Environmental Policy

RFF Reader_2005_Part 1 11/21/05 12:00 PM Page 1

What the Science SaysHow We Use It and Abuse ItTo Make Health and Environmental Policy

James Wilson and J.W. Anderson

1

Environmental policy is always based on science—up to apoint. But defining that point is often a matter of fierce disputeand political combat. Then the quality of the science involvedbecomes an issue.

Decisions are easiest when threats and benefits are immedi-ately visible to the naked eye. No one questioned, for instance,the proposition that burning soft coal in fireplaces and furnacesmeant smoky skies over St. Louis. When people got sufficientlytired of the smoke, as they finally did in 1937, this source ofhome heating was outlawed with no argument over causation.But much of the modern environmental protection movementhas been a response to menaces that are invisible, indirect, anddetectable only through advanced technology. The effect hasbeen to draw subtle and complex scientific issues into the arenasof politics.

The debates burn hottest where scientific uncertainty is thegreatest and economic stakes are the highest. Scientific uncer-tainty comes in many forms.

About-Face on ThresholdsWhen science changes, environmental regulation has great diffi-culty adapting. One dramatic example is the issue of carcino-gens’ thresholds—whether there are doses below which car-cinogens have no adverse effect on health. On that one, theconsensus among scientists has reversed twice in less than fiftyyears.

In an ideal setting, the best science wouldflow, pure and undefiled, into the

policymaking process. But this isn’t whathappens. The best assurance of good public

policy lies not only in scientific knowledgeper se, but in open debate, caution, and a

regulatory system capable of self-correction.

3

Originally published in Resources, No. 128, Summer 1997.


4 PART 1: SCIENCE AND ENVIRONMENTAL POLICY

Until the 1950s, it was a settled principle oftoxicology that every poison had a threshold belowwhich the dose was too slight to do harm. But withrising anxiety about the environmental causes ofcancer, especially in the context of the debatesabout nuclear radiation and weapons testing, itbegan to seem more prudent to assume that car-cinogens generally had no thresholds. One resultwas the famous Delaney Clause that Congress wroteinto the 1958 Food, Drug, and Cosmetics Act.

The Delaney Clause banned all carcinogensfrom any processed food. At the time Congress, likethe experts advising it, was under the impressionthat carcinogens were few and readily identifiable.But over time research found more and more sub-stances that, if fed to rats in sufficiently massiveamounts, could cause cancer. Some were naturallypresent in common foods—including orange juice.At the same time the increasing sophistication ofmeasuring techniques identified traces of widelyused pesticides and fungicides in many foods.

The regulatory system generally responded tothese unwelcome findings by ignoring them. But atthe same time the science was changing. Improvedunderstanding of the processes by which cancersoriginate and develop made it seem increasinglylikely that thresholds exist after all. The regulatorsthemselves became convinced of that, although theDelaney Clause remained the law. The Food andDrug Administration quietly whittled away at theclause until the courts told them to go no further.

There’s a high cost to society when governmentmust enforce laws that make no sense to the peoplecharged with enforcing them. It engenders cynicismamong the regulators, and among the public iterodes confidence in both the law and its enforce-ment. But while Congress increasingly understoodthat the law was unenforceable, it refused to con-sider any reform that might be attacked as loweringthe standard of health protection.

Lawsuits Force the IssueA lesson for science policy lies in the way this paral-ysis was ended. It wasn’t the advance of science thatdid it, although the science was certainly advanc-

ing. Instead, as often happens in environmentalaffairs, the issue was forced by litigation—in thiscase, litigation brought by people who wanted theDelaney Clause enforced more literally. In 1992 afederal appellate court decision raised the prospectthat the Environmental Protection Agency would berequired to ban many widely used pesticides, withdrastic implications for farmers’ crops and retailfood prices. That got the attention of Congress, andin 1996 it replaced Delaney’s flat ban with a morerealistic standard of “reasonable certainty” of noharm. According to its authors, the phrase wasintended to mean a lifetime risk of cancer of nomore than one in a million. With this change, thelaw is now back in conformity with scientific opin-ion and the regulators’ actual practice.

Opinion Masked as ScienceIf it is possible to draw up a list of the circum-stances that generate strife over the application ofscience to policy, along with changing science, dis-putes among scientists must also be near the top. Tomany laymen, certainty and precision is the essenceof science: as they understand it, a scientific ques-tion can have only one right answer. But especiallyin matters of public health, it is often essential tomake policy decisions long before the science isentirely clear. When people’s lives and welfare are atstake, it is not possible to wait until every technicaldoubt has been resolved.

The situation is frequently aggravated by scien-tists who underestimate the uncertainties in theirown work, leading them to blur the line betweenscience and policy. Endless examples have turnedup in the congressional hearings in 1997 on theEPA’s proposals to revise the air quality standards forozone and particulate matter. The EPA’s Clean AirScience Advisory Committee (CASAC) set up a spe-cial panel of experts on ozone, and the panel cameto general agreement that, within the range of stan-dards under discussion, there was no “bright line” todistinguish any of them as being “significantly moreprotective of public health” than the others. Settingthe standard, they said, was purely a policy choice.But the law specifically authorizes CASAC panels to


CHAPTER 1: WHAT THE SCIENCE SAYS 5

offer policy advice, and more than half of the panelwent on to offer EPA their various and conflictingpersonal opinions as to where the standard shouldbe set. CASAC is deliberately organized to representa wide range of views and interests.

The policymakers, most of them trained aslawyers, seized whichever of these personal opin-ions agreed with their own and cited them as thevoice of science itself. In congressional hearing afterhearing, EPA’s Administrator, Carol Browner,defended her proposed standards as merely reflect-ing “the science.” Her adversaries then quoted backto her the opinions of scientists who disagreed,some of them members of CASAC and others offi-cials of the Clinton administration.

A more productive way to approach policychoices is to acknowledge uncertainty and take itexplicitly into account. Do you go on a picnic if theweather report forecasts a 60 percent chance of rain?Do you commit society to a complex new air qualityregulation if there’s a 40 percent chance that it willnot provide health benefits as intended? Attemptingto quantify risk is an important step in making pol-icy decisions. Unfortunately, it violates the currentstyle of politics, in which it is safer to minimizeresponsibility and discretion by suggesting that deci-sions are determined solely by the science.

But which science? Toxicology looks for themechanisms of damage to health at the molecularlevel, in terms that can be demonstrated in the lab-oratory, and tends to dismiss anything less specificas mere speculation. Epidemiology, on the otherhand, sees reality in the statistical associationsbetween the presence of a pollutant and the evi-dence of damage. As Mark Powell has pointed outin his RFF discussion paper on EPA’s use of sciencein setting ozone policy, the tension within theagency between the toxicologists and the epidemi-ologists is as old as EPA itself. On clean air, CASACis similarly divided.

In the current round of debate over clean airrules, the policymakers who support tighter stan-dards cite the epidemiologists. Those who resisttighter standards cite the toxicologists. At presentthe differences between the two specialties’ posi-tions on particulate matter is substantial, and there

is no one view that represents settled and acceptedscientific truth.

Science as Proxy for Other IssuesIn the vehement debates over science, scientificuncertainty often becomes the proxy for otherissues—in the case of the Clean Air Act, for the for-bidden subject of economic costs. The act prohibitsEPA from taking costs into account in setting stan-dards. Opponents of proposed regulations, unableto pursue their argument that the costs will out-weigh any prospective benefits to health, go afterthe scientific basis of the regulations instead.

Confusion also arises when science asks thewrong question—sometimes because the lawrequires it. Here again the Clean Air Act providesexamples. To take a prominent one, the act wantsscience to tell the regulators what effects each of sixcommon pollutants has on human health. Since thepollutants are regulated separately, the health effectshave to be studied separately. Scientists have beentrying to tell the regulators for some years that itwould be far more useful to investigate these pollu-tants mixed together, in the “soup” that peopleactually breathe, because the presence of one com-pound can affect the impact of another. ButCongress has never responded to that advicebecause the concept of mixtures doesn’t fit easilyinto the existing statutory framework for regulation.When environmental reality collides with statutorytradition, it’s not always the statute that gives way.

Sometimes the Wrong BattleScience, or what seems to be science, can some-times be flatly wrong. The process of scientificinquiry is self-correcting over time. That is its great-est strength. But policy doesn’t always wait for thecorrections.

The Superfund program originated, notori-ously, in response to mistaken and exaggerated sci-entific judgment. The Love Canal, in Niagara Falls,NY, had been well-known locally as a toxic chemi-cal dump that was leaking insecticide into LakeErie. But it suddenly became a national news story


6 PART 1: SCIENCE AND ENVIRONMENTAL POLICY

and a symbol of a new range of hidden environ-mental dangers, when in the summer of 1978 thestate’s health commissioner declared it a threat tothe health of people living there. It was an electionyear in New York, and suddenly politicians at alllevels, including President Carter, were competingto show concern and protect the residents. The fol-lowing year a scientific consultant to the localhomeowners association reported findings thatindicated a wide range of threats to health. Thenanother consultant engaged by EPA reported evi-dence of high rates of chromosome damage amongresidents. Those claims established the atmospherein which Congress began to draft the Superfundlegislation.

Subsequently, review panels within EPAseverely criticized the contractor’s chromosomereport, and a special committee of scientists set upby the governor of New York dismissed all of thehealth findings as inconclusive. But by the time thathappened, the Superfund bill was approaching finalpassage.

It would be pleasant to think that some mecha-nism might be invented to allow the best science toflow, pure and undefiled, directly into policy. Butthat’s hardly realistic, amidst the turbulence ofrapidly developing science and especially in a fieldthat, like environmental and health protection, hasemerged as one of the leading battlegrounds ofnational politics. The best assurance of good publicpolicy seems to lie in open debate, caution, and aregulatory system capable of self-correction.

Research Needs Funding

One point on which improvement is both possibleand badly needed is the funding of scientificresearch relevant to regulatory decisions. Privateand public spending in this country to meet thefederal requirements for pollution control andabatement during the mid-1990s was in the rangeof $140 billion a year. Congress gives EPA less thanhalf of one percent as much to spend on all its sci-entific and technological work for all purposes, asadly disproportionate effort to ensure that environ-mental rules have the best possible scientific base.

It’s not only the general pressure to cut thebudget that inhibits adequate spending on scienceto support environmental regulation. Concernsabout global warming have led to substantial out-lays of federal science money on other purposes,and on other agencies than EPA. Currently, the EPAscience budget is only about 10 percent of total fed-eral spending on environmental scientific researchand development.

The purpose of balancing the budget is toenhance the economy’s efficiency and promotefuture growth. But budget cuts won’t help the econ-omy if they lead to the waste of resources on mis-guided policy.


Note: Page numbers in italics indicate figures andtables.

absorption, of carbon, 240–243accidents, traffic. see highway safetyAcid Rain program, 57–58advance recycling fee (ARF), 125–126adverse health effects

and pollutants, 22, 22AERE (Association of Environmental and Resource

Economists), 303, 304Agreement on Sanitary and Phytosanitary (SPS)

standards, 296air pollution

environmental effects, 75–76, 84, 93–94and nuclear power, 185transboundary flow, 118–122transition countries, 279–283, 281See also carbon dioxide emissions

anti-cancer compounds, 159antibiotic resistance, 289–292appliance standards, 194–196

See also energy efficiency programsArctic National Wildlife Refuge, 179ARF (advance recycling fee), 125, 125–126arsenic standard, 115–117Association of Environmental and Resource

Economists (AERE), 303, 304automakers, 79, 81, 178–179

See also hybrid vehicles; transportation sectorAydede, Sema, 33

batteries, recycling, 126benefit-cost analysis (BCA)

arsenic standard, 115climate policy, 216–217Delaney Clause, 16greenhouse gases (GHG), 221–223and normative guidance, 17nuclear energy, 43–48and other considerations, 25–26Regulatory Impact Analysis (RIA), 24reservations about, 17–19right-to-a-safe-environment argument, 21–27

BES (Bureau of Environmental Statistics) (pro-posed), 97–100

biodiversityconservation funding, 163–168invasive species, 293–297preservation of, 158–162

biomass, 189, 240–243See also renewable energy

blackouts, 124Bohi, Douglas, 86bottle bill, 126Brandeis, Louis, 124Brazil, 275–278, 277Browner, Carol, 5Brundtland Commission, 247–248Buhle, Eric, 296Bureau of Environmental Statistics (BES) (pro-

posed), 97–100Bush (George H.W.) administration, 204, 265

Index

307

RFF Reader_2005_part 12 11/18/05 3:23 PM Page 307

Bush (George W.) administrationarsenic standard, 115domestic oil production, 179Kyoto Protocol, 207–209

CAA. see Clean Air Act (CAA)CAC systems, 52, 67–71CAFE standards, 77–82Calvert County (MD), 153–156, 154, 155, 156cancer treatments, 159cap-and-trade systems

acceptance of, 56–65arguments for, 232China, 270–274, 273Clean Air Interstate Rule, 118emergence of, 303–304European Union (EU), 59, 302greenhouse gases (GHG), 226–227IFQ programs, 131–135vs. pollution taxes, 52–54transition countries, 265–269

carbon dioxide emissionscarbon-14 problem, 9–10climate policy, 235–239coal, 180–183environmental effects, 84, 173and fuel combustion, 177–178and nuclear power, 185reductions, 196–197, 209–211, 242–243See also air pollution; electricity generation;

greenhouse gases (GHG)carbon sinks, 240–243carbon tax. see emissions taxescarpools, 89–90CASAC (Clean Air Science Advisory Committee),

4–5CCGTs (combined-cycle gas turbines), 285CEMs (continuous emission monitors), 57,

273–274CFB (circulating fluidized bed) boilers, 285CFCs (chlorofluorocarbons), 54Chesapeake Bay, 93–94China

cap-and-trade systems, 270–274, 273coal consumption, 181emissions reductions, 202

greenhouse gases (GHG), 284–285, 285chlorofluorocarbons (CFCs), 54circulating fluidized bed (CFB) boilers, 285Clean Air Act (CAA) (1970)

Chesapeake Bay, 94command-and-control (CAC) systems, 52government responsibilities, 109–112health-based environmental standards, 21–22SIP process, 118–122SO2 allowance trading, 56–58

Clean Air Interstate Rule, 118Clean Air Science Advisory Committee (CASAC),

4–5Clean Water Act (CWA) (1977)

effects, 52, 73government responsibilities, 73–74, 109provisions, 59–60

Climate Challenge programU.S. Department of Energy, 195

climate changeoverview, 220and climate policy, 201–212, 216–217energy efficiency programs, 193–197, 197risk management, 214–216scientific uncertainty, 213–224and technology, 173See also greenhouse gases (GHG)

climate policybenefit-cost analysis (BCA), 216–217carbon emissions, 235–239and climate change, 201–212, 216–217forest sinks, 240–243

Clinton administrationarsenic standard, 115and climate change, 204–207gasoline taxes, 87

CO2 emissions. see carbon dioxide emissionscoal, 180–183, 236Coase, Ronald, 161–162Colorado Big-Thompson project, 139combined-cycle gas turbines (CCGTs), 285command-and-control (CAC) systems

Clean Air Act (CAA) (1970), 52vs. economic incentives (EI), 67–71

congested roadways, 88–92, 123–128conservation

308 INDEX


biodiversity, 163–168Brazil, 275–278, 277rural poor, 275–278

Consumer Price Index (CPI), 99–100continuous emission monitors (CEMs), 57,

273–274corporate average fuel economy (CAFE) standards,

77–82cost analysis. see benefit-cost analysis (BCA)costs-are-considered-anyway argument, 24–25CPI (Consumer Price Index), 99–100Cropper, Maureen, 33cross-media approach, 93–94CWA. see Clean Water Act (CWA) (1977)

Daly, Herman, 248Dasgupta, Partha, 255decentralized decision making, 109–114, 115–117

See also benefit-cost analysis (BCA)Delaney Clause, 4, 16Delucchi, Mark, 85demand-side management, 194–195, 196

See also energy efficiency programsdensity, 62–64, 151–157developing countries

cap-and-trade systems, 265–269pollution, 279–283, 281

development rights, 62–64, 151–157DICE (dynamic integrated climate-economy), 231discounting, 28–34, 35–37, 248, 255–256Discounting and Intergenerational Equity (RFF),

36–37DOE

Climate Challenge program, 195Energy Policy Act (1992), 195and pollution reduction, 182renewable energy, 191, 192

domestic oil production, 179DOT, 127drugs, 289–292dynamic integrated climate-economy (DICE), 231

easement contracts, 148–150economic growth

measurement by GDP, 101–105and oil consumption, 175–179

economic incentives (EI), vs. CAC systems, 67–71economics

and environmental policy, 301–305and ethics, 28–34messages for environmental protection, xv–xxand normative guidance, 16–17and sustainability, 253–262

ecosystem management, 141–145, 163–168effluent trading, 58–60Ehrlich, Anne, 248Ehrlich, Paul, 248EIA (Energy Information Administration), 172,

192electric vehicles, 237

See also transportation sectorelectricity generation

coal, 180–183nuclear power, 184–187oil consumption, 172–173renewable energy, 188–192, 191See also carbon dioxide emissions

emissions controlschoosing, 225–234costs, 227–229

emissions taxesarguments for, 230–231, 232greenhouse gases (GHG), 226–227

emissions trading programs. see cap-and-trade sys-tems

endangered species. see biodiversityEndangered Species Act (ESA), 144energy efficiency programs, 193–197, 197Energy Information Administration (EIA), 172,

192energy policy, 171–174Energy Policy Act (1992), 195Energy Policy Act (2002), 191Energy Policy Act (2005), 190energy security, 185Energy Star program, 195, 196

See also energy efficiency programsEnergy Tax Incentives Act (2005), 186environmental federalism, 109–114environmental policy

and economics, 301–305and science, 3–6

INDEX 309


Environmental Protection Agency (EPA)Bureau of Environmental Statistics (BES) (pro-

posed), 97–100Office of Solid Waste, 127State Innovation Grant Program, 126

environmental quality standards, xvi–xviiienvironmental statistics, 97–100ESA (Endangered Species Act), 144ethanol, 177ethics, and economics, 28–34ETS (European Trading System), 53, 59, 210, 302European Union (EU)

European Trading System (ETS), 53, 59, 210,302

policy decisions, 67–68experimental federalism, 123–128Express Lanes Demonstration Program (ELDP), 90externalities, defined, xvi

farmers, property rights, 275–278federalism

environmental, 109–114experimental, 123–128

fires, forest, 276–277fishing industry, 61–62, 131–135fission energy, benefit-cost analysis (BCA), 43–48Food, Drug and Cosmetics Act (1958), 4foreign direct investment (FDI), 284–285foreign oil. see oil consumptionforest fires, 276–277forest management, 141–145Forest Service (U.S.), 141–145forest sinks, 240–243fossil fuels. see carbon dioxide emissionsFramework Convention on Climate Change

(FCCC), 204fuel combustion, 177fuel economy

standards, 77–82, 178–179taxes, 89

funding, for research, 6, 238fusion, 47–48FutureGen, 182

gas mileage, 77–82gasoline taxes, 83–87, 84

genetic resources, 159–162geothermal resources, 189

See also renewable energyglobal climate change. see climate changeGore, Al, 205, 206government responsibilities

Clean Air Act (CAA) (1970), 109–112Clean Water Act (CWA) (1977), 73–74, 109federal vs. local, 109–114

“green” GDP, 101–105“green power” marketing, 190greenhouse gases (GHG)

China, 284–285, 285choosing controls, 225–234and climate change, 213–224emissions, 195, 221–223, 228, 229, 284–285See also climate changerisk management, 215–216

Greenstone, Michael, 98gross domestic product (GDP)

accounting, 98limitations of, 101–105measure of economic activity, 101–105, 254pollution control expenditures, 103

Guthrie, Paul, 94

habitat conservation, 146–150, 163–168Hansen, James E., 204Harsanyi, John, 33Hartwick, John, 255, 256, 260health-based environmental standards, balancing,

21–27health risks, Yucca Mountain, 9–11high-occupancy/toll (HOT) lanes, 88–91, 125high-occupancy vehicle lanes (HOV) lanes, 88–91,

125highway safety, 79, 80–81, 84–85human intrusion

and environmental risks, 10Hume, David, 32hybrid vehicles, 178

See also transportation sectorhydropower, 188

See also renewable energy

IA (integrated assessment) modeling, 219, 220

310 INDEX


IFQ (individual fishing quota) programs, 131–135IGCC (integrated gasification combined-cycle),

182India, emissions reductions, 202individual fishing quota (IFQ) programs, 131–135individual transferable quotas (ITQs), 61–62infectious diseases, 289–292integrated assessment (IA) modeling, 219, 220integrated gasification combined-cycle (IGCC),

182intergenerational fairness, 248, 255–256

See also discountingIntergovernmental Panel on Climate Change

(IPCC), 204–207, 214–215, 219–220,227–228

interjurisdictional competition, 112–113international trade, 293–297invasive species, 293–297IPCC (Intergovernmental Panel on Climate

Change), 204–207, 214–215, 219–220,227–228

ITQs (individual transferable quotas), 61–62

Kazimi, Camilla, 84Kneese, Allen, 52Kopp, Raymond, 37Krupnick, Alan J., 94Kyoto Protocol

carbon sinks, 240–243cost analysis, 221–223history of, 205–211

land preservationmarket-based approaches, 151–157strategies, 146–150

land use, 62–64Large Final Emitters (LFE), 227LDTs (light duty trucks), 78, 79–81leakage, 243LFE (Large Final Emitters), 227Lieberman, Joseph I., 209light duty trucks (LDTs), 78, 79–81Lind, Robert, 35–36locally undesirable land uses (LULUs), 18longevity, 38–42Love Canal, 5–6

Mäler, Karl-Göran, 255, 260, 261marine fisheries, 61–62market-based instruments (MBIs). see cap-and-

trade systemsmarket system, xviMBIs. see cap-and-trade systemsMcCain, John, 209McGartland, Albert M., 110measure of economic welfare (MEW), 102Merck, 162metropolitan planning organizations (MPOs), 127Mexico, 279–283, 281Millennium Ecosystem Assessment, 166Moldan, Bedrich, 265–266Montreal Protocol (1987), 54Morton, Brian, 94MPOs (metropolitan planning organizations), 127multinational corporations, 284–285multiple-use management, 141–143

National Ambient Air Quality Standard (NAAQS),25, 41, 119, 121

National Biodiversity Institute (Costa Rica), 162National Cancer Institute, 162National Electronics Product Stewardship

Initiative, 125National Highway Traffic Safety Administration

gasoline taxes, 83–87national-income-and-product-accounts (NIPA),

102, 104National Pollutant Discharge Elimination System

(NPDES), 58–60National Research Council (NRC), Yucca Mountain

standard, 7–12Nepstad, Dan, 276net metering, 191net national product (NNP), 101–105, 254, 259New Zealand, 131–135NIPA (national-income-and-product-accounts),

102, 104NNP (net national product), 101–105, 254, 259Nordhaus, William, 28, 102, 231, 254normative guidance

and economics, 16–17NOx emissions, 93–94NPDES (National Pollutant Discharge Elimination

INDEX 311


System), 58–60NRC (National Research Council), Yucca Mountain

standard, 7–12nuclear energy, 43–48, 184–187nuclear waste disposal, 7–12, 46Nussbaum, Martha, 33

Oates, Wallace E., 110Ocean Action Plan, 133OECD (Organisation for Economic Co-operation

and Development), 266, 269oil consumption

CAFE standards, 77–82dependence on foreign oil, 176, 176–177and economic growth, 175–179energy security, 172–173See also petroleum

oil tax. see petroleumOPEC, 86opportunity costs

defined, 15–16and discounting, 29–32

Organisation for Economic Co-operation andDevelopment (OECD), 266, 269

Organization of Petroleum Exporting Countries(OPEC), 86

Ose, Doug, 97ozone policy, 4–5Ozone Transport Assessment Group (OTAG), 119

patents, 291–292PAYT pricing, 54, 127PDR (purchase of development rights) programs,

152–153People’s Republic of China (PRC). see Chinapetroleum

rethinking, 236–237taxes, 83–87, 84, 173, 179See also transportation sector

PHARE program, 265Pigou, A.C., xvi, 98, 302plutonium, 45policy auction, 127–128policy-making process, xviii–xix, 3–6pollution

and adverse health effects, 22, 22

reduction, 182taxes, 52–54transition countries, 279–283, 281

Portney, Paul R., 33, 110Poterba, James, 86power outages, 124price-based mechanisms. see emissions taxesproduct stewardship, 125property rights, farmers, 275–278public health, 289–292purchase of development rights (PDR) programs,

152–153

quantity mechanisms. see cap-and-trade systems

radioactive waste, 7–12RAMPs (regional air management partnerships),

119–121Rawls, John, 33recycling, 60–61, 123–128regional air management partnerships (RAMPs),

119–121Regulatory Impact Analysis (RIA), 24regulatory instruments, choice of, xviii–xixReilly, William K., 265renewable energy, 188–192, 191renewable energy production credits (REPCs), 191renewable portfolio standards (RPS), 190–191Repetto, Robert, 255research, funding for, 6, 238resistance, antibiotic, 289–292RIA (Regulatory Impact Analysis), 24right-to-a-safe-environment argument, 21–27risk management

climate change, 214–216role of economics, 15–20

risks, health, 9–11road congestion, 88–92, 123–128road-pricing initiatives, 88–92road tolls, 88–92, 125Ruesink, Jennifer, 296rural poor, 275–278

Safe Drinking Water Act, 116safe minimum standard, 249–251, 250SAFETEA-LU bill, 90

312 INDEX


safety valve approach, 232–233Sagoff, Mark, 32Schelling, Thomas, 33Schwarzenegger, Arnold, 209science vs. policy, 3–12scientific uncertainty

climate change, 213–224security, energy, 172–173, 185Shogren, Jason F., 295Simon, Julian, 248sinks, carbon, 240–243SIP process, 118–122Small, Kenneth, 84, 85, 86SO2 allowance trading, 57–58solid waste, 60–61, 124–127“sound science”, 7–12sport utility vehicles (SUVs), 78, 79–81sprawl. see land preservationSPS standards, 296state implementation plan (SIP) process, 118–122State Innovation Grant Program, 126state policies, 127–128statistics, environmental, 97–100Stiglitz, Joseph, 28Superfund program, 5–6sustainability

defined, 247–252and economics, 253–262

SUVs, 78, 79–81

Taiyuan, China, 270–274, 273tax-and-subsidy policies, 125–126taxes

fuel economy, 89petroleum, 83–87, 84, 173, 179reform, 87

taxol, 159TDRs (transferable development rights), 63–64,

147, 151–157TEC (total emissions control) system, 271, 273technology

and climate change, 173and fuel economy standards, 79–80and pollution reduction, 182

TEP systems. see cap-and-trade systemsTerborgh, John, 164

Thomas, Jack Ward, 142timber industry, 143TMDL approach, 72–76Tobin, James, 102, 254toll roads, 88–92, 125Toman, Michael, 86total emissions control (TEC) system, 271, 273total maximum daily load (TMDL) approach,

72–76total suspended particulates (TSP), 110tradable allowances. see cap-and-trade systemstradable emissions permits (TEP) systems. see cap-

and-trade systemstrade restrictions, invasive species, 293–297traffic accidents. see highway safetytraffic congestion, 88–92, 123–128Transamazon Highway, 275–278, 277transboundary pollution, 118–122

See also air pollution; water pollutiontransferable development rights (TDRs), 63–64,

147, 151–157transition countries

cap-and-trade systems, 265–269pollution, 279–283, 281

transparency, 267–268transportation sector, 178–179, 237

See also petroleumTSP (total suspended particulates), 110turnpikes, 88–92, 125

UN Conference on Environmental andDevelopment (UNCED), 161, 162

Union of Concerned Scientists, 44U.S. Agency for International Development

(USAID), 265, 266U.S. Consumer Price Index (CPI), 99–100U.S. Department of Energy

Climate Challenge program, 195Energy Policy Act (1992), 195and pollution reduction, 182renewable energy, 191, 192

U.S. Department of Transportation (DOT), 127U.S. Forest Service, 141–145USAID, 265, 266

value of a statistical life (VSL), 38–42

INDEX 313

RFF Reader_2005_part 12 11/18/05 3:23 PM 3

warming, 202–203See also climate change

water emissions trading, 58–60water pollution

Chesapeake Bay, 93–94effect of air quality, 75–76TMDL approach, 72–76transition countries, 280

water rights, 136–140Weinberg, Alvin M., 43, 45, 47Weitzman, Martin L., 255Whitman, Christine, 115willingness to pay (WTP), 39–42

wind power, 188–189See also renewable energy

Wirth, Timothy, 203–204, 205Wolf, Susan, 33World Bank, 41, 266, 269World Commission on Environment and

Development, 247–248World Health Organization (WHO), 291World Trade Organization (WTO), 292, 294–295WTP (willingness to pay), 39–42

Yucca Mountain, 7–12

314 INDEX


rff reader in environmental and resource policy - alliance for

Documents