Review of Environmental Economics and Policy

This article traces the evolution of pollution auctions. The article examines how auction design began with an initially simple auction format and has progressed over time, focusing on auctions in three key pollution regulation programs: the EU Emissions Trading Scheme, the US Regional Greenhouse Gas Initiative, and the California Cap-and-Trade Program. In response to the unique characteristics of pollution regulation, which is aimed at achieving both cost containment and market participation, regulators have created novel and interesting auction designs. The article reviews the theoretical and experimental evidence concerning the outcomes of current auction programs and highlights unique design features of these regulatory systems that are fundamental to both their development and success. A key finding of the article is that even small changes in auction design can lead to significant differences in auction outcomes.

The International Maritime Organization has pledged to reduce carbon emissions from the shipping industry by at least 50 percent below 2008 levels by midcentury. The next step is to design a strategy for implementing this commitment. A carbon levy for international maritime fuel is a critical component of this strategy because it provides across-the-board incentives for near-term mitigation, the robust price signal that is ultimately needed for deploying zero-emission vessels (ZEVs), and near-term funding for R & D and infrastructure investment for ZEVs. This article discusses the rationale for an international maritime carbon levy, key design and implementation issues, and the environmental impacts of such a levy.

This article proposes and evaluates four hypotheses about US pollution and environmental policy over the past half century. First, air and water pollution has declined substantially, although greenhouse gas emissions have not. Second, environmental policy explains a large share of these trends. Third, much of the regulation of air and drinking water pollution has benefits that exceed costs, although the evidence for surface water pollution regulation is less clear. Fourth, while the distribution of pollution across social groups is unequal, market-based environmental policies and command and control policies do not appear to produce systematically different distributions of environmental outcomes. I also discuss recent innovations in methods and data that can be used to evaluate pollution trends and policies, including the increased use of environmental administrative data, statistical benefit–cost comparisons, analysis of previously understudied policies, more sophisticated analyses of pollution transport, micro-macro frameworks, and a focus on the distribution of environmental outcomes.

There is widespread agreement among most economists that economy-wide carbon pricing will be a necessary (although not necessarily sufficient) component of any policy that can achieve meaningful and cost-effective CO₂ reductions in large, complex economies. But there is less agreement about which of two carbon pricing instruments will be better. Some support carbon taxes, while others favor cap-and-trade. How do these two pricing approaches compare? In this survey and synthesis of theory and experience, I show that when carbon taxes and carbon cap-and-trade systems are designed in ways that make them truly comparable, their characteristics and outcomes are similar and, in some respects, fully equivalent. But the two approaches can perform quite differently along some specific dimensions, sometimes favoring taxes and sometimes cap-and-trade. The key differences in performance depend on details of program design. Indeed, what appears at first glance to be a dichotomous choice between two distinct instruments can turn out to be a choice of specific design elements along a policy continuum.

Canada and the United States have a rich history of policy interventions aimed at improving environmental outcomes from agricultural production. We review the agri-environmental programs in these two countries as well as the related economic literature. Despite the impacts of agriculture on land, water, and climate quality, the literature on agri-environmental programs has largely focused on a few major programs or the adoption of specific management practices. Far less research evaluates programs on active farmland, environmental regulation of agriculture, and the interactions of these policies and programs. Further research is also needed on how the heterogeneity of environmental characteristics and processes affects the outcomes of management practices and how these outcomes might be affected by climate change. Given the continued substantial impacts of agriculture on environmental outcomes, the increased interest of agricultural processors and consumers in these outcomes, and the potential for new models and data to inform research, we conclude that this is an ideal time to examine and apply lessons learned from past program successes and failures as we seek to improve the performance of the next generation of agri-environmental policy interventions.

European agri-environmental policy has diverse and competing objectives. The Common Agricultural Policy has been the main policy framework guiding the European Union (EU) and its member states in the design and implementation of both mandatory and voluntary agri-environmental policy instruments. Voluntary agri-environmental schemes, which were introduced in the 1990s, continue to play a central role in meeting the EU’s environmental and climate objectives. We find that in achieving their objectives these schemes have faced problems including limited environmental impact, low adoption by farmers, and conflicts between their environmental and income support objectives. The article also finds scant empirical evidence concerning the environmental and economic impacts of the agri-environmental schemes. The article concludes with a discussion of the lessons from past experiences and potential future research and policy directions aimed at increasing the EU’s achievement of agri-environmental and climate objectives.

This article provides an overview of agri-environmental policies in Australia and New Zealand. Unlike in other developed countries, there is generally no expectation in Australia and New Zealand that farmers will be fully compensated for the costs of complying with agri-environmental policies. Most expenditures aimed at changing farming practices are allocated to projects in particular locations and have specific targets. While this approach has the potential to support evidence-based targeting of policy expenditures, in practice, the quality of targeting and use of evidence have generally been low, reflecting an apparent lack of concern about policy efficiency and cost-effectiveness. For the same reason, early hopes about the potential to use conservation tenders to allocate agri-environmental funds have not been realized. In contrast, efforts to develop markets for irrigation water in Australia and water quality permits in New Zealand have persisted for many years, lessons have been applied, and economic and scientific evidence has been central in the policy process. Command and control regulation to restrict the clearing of native vegetation in Australia has produced mixed results. These policy experiences suggest that effective and efficient agri-environmental policies require a long-term government commitment and a willingness to change policies as needed.

For nearly 50 years, the Clean Water Act (CWA) has served as the main environmental statute that regulates water quality in the United States. Yet the jurisdictional limits of the act, in terms of which waters are regulated, remain unresolved. This article reviews the complicated history of these waters of the United States (WOTUS) and discusses the important role of economics in understanding the benefits and costs of a narrow versus a broad definition of WOTUS. During the Obama and Trump administrations, several economic analyses arrived at different conclusions regarding whether to expand or reduce CWA protections. We examine the key components of these analyses, including a novel federalism analysis used to support deregulation of US waterways. In this analysis, the Trump administration assumed that states would fill regulatory gaps left by the federal government. We conclude with some thoughts about key issues for the Biden administration to consider as it develops its own definition of WOTUS as well as research priorities for economists seeking to inform the debate about WOTUS.

We discuss contributions by environmental and natural resource (ENR) economists to research and policy analysis of COVID-19. ENR economists have a perspective and tool kit that are particularly well suited to this task. The field of environmental economics began as an interdisciplinary endeavor and has since built on its early legacy to assemble a large set of conceptual models and empirical methods that integrate the relevant natural science, market and nonmarket institutions, and human behaviors to inform policies and shape collective action outcomes. We present elements of policy analysis that together form an integrated framework for studying the pandemic and options for controlling it. We highlight particular tools and skills that provide ENR economists with some comparative advantages for researching and analyzing COVID-19 polices, take stock of what ENR economics research has already achieved, and identify important unresolved issues that ENR economists appear to be especially well qualified to address.