The Economics of Pollution

Kevin Lewis

December 30, 2009

The cost of climate policy in the United States

Sergey Paltsev, John Reilly, Henry Jacoby & Jennifer Morris
Energy Economics, December 2009, Pages S235-S243

We re-evaluate prospects for US economic growth and the likely costs of advanced technologies given recent developments, and then apply the MIT Emissions Prediction and Policy Analysis (EPPA) model to evaluate three core GHG policy scenarios for the US that cap emissions at different levels. The three policy scenarios involve allowance allocations that through 2050 are: (1) constant at present emissions levels, (2) linearly reduced to 50% below present, (3) linearly reduce emissions to 80% below present. The cumulative allowance allocations over the horizon of the policy are 287, 203 and 167 Gt of CO2 equivalent, respectively. We compare the results to previous analysis of these same policy scenarios to evaluate how the changed growth and technology prospects affect the results. We focus on 203 and 167 Gt scenarios because current proposals envision deep cuts in emissions from present. The 167 Gt scenario is closest to proposals currently being considered by Congress and supported by the US Administration however we do not attempt to model specific details of actual proposals. We test results to alternative assumptions about program coverage and banking behavior. Measured in terms of changes in economic welfare, the economic cost of 203 and 167 Gt cases is in the range of 2 to 3% by 2050, with CO2 prices between $48 and $67 in 2015 rising to between $190 and $266 by 2050. Implementation details matter: when an idealized economy-wide cap-and-trade is replaced by coverage omitting some sectors, or if the credibility of long-term target is weak (limiting banking behavior) prices and welfare costs change substantially.


The Income-Temperature Relationship in a Cross-Section of Countries and its Implications for Predicting the Effects of Global Warming

John Horowitz
Environmental and Resource Economics, December 2009, Pages 475-493

Hotter countries are poorer on average. This paper attempts to separate the historical and contemporaneous components of this income-temperature relationship. Following ideas by Acemoglu et al. (Am Econ Rev 91(5):1369-1401, 2001), we use colonial mortality data to account for the historical role of temperature since colonial mortality was highly correlated with countries' average temperatures. The remaining income-temperature gradient, after colonial mortality is accounted for, is most likely contemporaneous. This contemporaneous effect can be used to estimate the consequences of global warming. We predict that a 1°C temperature increase across all countries will cause a decrease of 3.8% in world GDP. This prediction is robust across functional forms and an alternative method for separating historical effects.


The economics of global light pollution

Terrel Gallaway, Reed Olsen & David Mitchell
Ecological Economics, 15 January 2010, Pages 658-665

This paper is the first analysis of the economic factors of global light pollution. Light pollution commonly refers to excessive or obtrusive artificial light caused by bad lighting design. Light pollution generates significant costs including negative impacts on wildlife, health, astronomy, and wasted energy-which in the U.S. amounts to nearly 7 billion dollars annually. Current scientific models of light pollution are purely population based. The current paper utilizes unique remote sensing data and economic data from the World Bank to quantify the economic causes of light pollution globally. Fractional logit models show that, similar to other types of pollution, both population and GDP are significant explanatory variables.


System Justification, the Denial of Global Warming, and the Possibility of "System-Sanctioned Change"

Irina Feygina, John Jost & Rachel Goldsmith
Personality and Social Psychology Bulletin, forthcoming

Despite extensive evidence of climate change and environmental destruction, polls continue to reveal widespread denial and resistance to helping the environment. It is posited here that these responses are linked to the motivational tendency to defend and justify the societal status quo in the face of the threat posed by environmental problems.The present research finds that system justification tendencies are associated with greater denial of environmental realities and less commitment to pro-environmental action. Moreover, the effects of political conservatism, national identification, and gender on denial of environmental problems are explained by variability in system justification tendencies. However, this research finds that it is possible to eliminate the negative effect of system justification on environmentalism by encouraging people to regard pro-environmental change as patriotic and consistent with protecting the status quo (i.e., as a case of "system-sanctioned change").Theoretical and practical implications of these findings are discussed.


Climatic natural disasters, political risk, and international trade

Chang Hoon Oh & Rafael Reuveny
Global Environmental Change, forthcoming

This paper statistically analyzes the effects of climatic natural disasters and political risk on bilateral trade in a large-N sample of countries and years. Our theory suggests that the effects of these forces on trade need to be studied together and that the two forces may interact with one another. In the statistical analysis, the unit of analysis is a pair of countries and the model is based on the trade gravity design. The results show that the direct effects of increases in the incidence of disasters and the political risk level in the importer or the exporter countries are negative, reducing trade. The results for the interaction between the two forces show (1) as the incidence of disasters increases, the marginal effect of political risk on trade becomes more negative, which indicates a greater decline in trade and (2) as political risk declines the marginal effect of disasters becomes less negative, indicating a smaller decline in trade. Additional analyses demonstrate the robustness of these results to changes in model specification, disaster measure, and estimation method. In the bigger picture, our findings suggest that if climate change increases the incidence of climatic disasters as projections of the global science suggest, the growth of economic globalization may decline, ceteris paribus.


Probabilistic assessment of sea level during the last interglacial stage

Robert Kopp, Frederik Simons, Jerry Mitrovica, Adam Maloof & Michael Oppenheimer
Nature, 17 December 2009, Pages 863-867

With polar temperatures ~3-5 °C warmer than today, the last interglacial stage (~125 kyr ago) serves as a partial analogue for 1-2 °C global warming scenarios. Geological records from several sites indicate that local sea levels during the last interglacial were higher than today, but because local sea levels differ from global sea level, accurately reconstructing past global sea level requires an integrated analysis of globally distributed data sets. Here we present an extensive compilation of local sea level indicators and a statistical approach for estimating global sea level, local sea levels, ice sheet volumes and their associated uncertainties. We find a 95% probability that global sea level peaked at least 6.6 m higher than today during the last interglacial; it is likely (67% probability) to have exceeded 8.0 m but is unlikely (33% probability) to have exceeded 9.4 m. When global sea level was close to its current level (≥-10 m), the millennial average rate of global sea level rise is very likely to have exceeded 5.6 m kyr-1 but is unlikely to have exceeded 9.2 m kyr-1. Our analysis extends previous last interglacial sea level studies by integrating literature observations within a probabilistic framework that accounts for the physics of sea level change. The results highlight the long-term vulnerability of ice sheets to even relatively low levels of sustained global warming.


Evaluating Science Arguments: Evidence, Uncertainty, and Argument Strength

Adam Corner & Ulrike Hahn
Journal of Experimental Psychology: Applied, September 2009, Pages 199-212

Public debates about socioscientific issues are increasingly prevalent, but the public response to messages about, for example, climate change, does not always seem to match the seriousness of the problem identified by scientists. Is there anything unique about appeals based on scientific evidence-do people evaluate science and nonscience arguments differently? In an attempt to apply a systematic framework to people's evaluation of science arguments, the authors draw on the Bayesian approach to informal argumentation. The Bayesian approach permits questions about how people evaluate science arguments to be posed and comparisons to be made between the evaluation of science and nonscience arguments. In an experiment involving three separate argument evaluation tasks, the authors investigated whether people's evaluations of science and nonscience arguments differed in any meaningful way. Although some differences were observed in the relative strength of science and nonscience arguments, the evaluation of science arguments was determined by the same factors as nonscience arguments. Our results suggest that science communicators wishing to construct a successful appeal can make use of the Bayesian framework to distinguish strong and weak arguments.


Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets

Meghan Busse, Christopher Knittel & Florian Zettelmeyer
NBER Working Paper, December 2009

The dramatic increase in gasoline prices from close to $1 in 1999 to $4 at their peak in 2008 made it much more expensive for consumers to operate an automobile. In this paper we investigate whether consumers have adjusted to gasoline price changes by altering what automobiles they purchase and what prices they pay. We investigate these effects in both new and used car markets. We find that a $1 increase in gasoline price changes the market shares of the most and least fuel-efficient quartiles of new cars by +20% and -24%, respectively. In contrast, the same gasoline price increase changes the market shares of the most and least fuel-efficient quartiles of used cars by only +3% and -7%, respectively. We find that changes in gasoline prices also change the relative prices of cars in the most fuel-efficient quartile and cars in the least fuel-efficient quartile: for new cars the relative price increase for fuel-efficient cars is $363 for a $1 increase in gas prices; for used cars it is $2839. Hence the adjustment of equilibrium market shares and prices in response to changes in usage cost varies dramatically between new and used markets. In the new car market, the adjustment is primarily in market shares, while in the used car market, the adjustment is primarily in prices. We argue that the difference in how gasoline costs affect new and used automobile markets can be explained by differences in the supply characteristics of new and used cars.


Qualitative Effects of Cash-for-Clunkers Programs

Eugenio Miravete & Maria Moral Rincón
University of Texas Working Paper, October 2009

We document how automobile scrappage incentives similar to the '2009 Car Allowance Rebate System' (CARS) may influence drivers' tastes in favor of fuel-efficient automobiles. Between 1994 and 2000 the market share of diesel automobiles doubled after Spanish government sponsored two scrappage programs. We show that demand for diesel automobiles was not driven only by better mileage; that gasoline and diesel models became closer substitutes over time; and that automobile manufacturers reduced their markups on gasoline automobiles as their demand decreased. These programs simply accelerated a change of preference that was already on its way when they were implemented.


Malapportionment, Gasoline Taxes, and the United Nations Framework Convention on Climate Change

Lawrence Broz & Daniel Maliniak
University of California Working Paper, November 2009

Gasoline taxes vary widely among industrialized countries, as does support for the United Nations' effort to curtail the use of fossil fuels to address the climate change problem. We argue that malapportionment of the electoral system affects both the rate at which governments tax gasoline and the extent to which governments participate in global efforts to ameliorate climate change. Malapportionment results in a "rural bias" such that the political system disproportionately represents rural voters. Since rural voters in industrialized countries rely more heavily on fossil fuels than urban voters, our prediction is that malapportioned political systems will have lower gasoline taxes, and less commitment to climate change amelioration, than systems with equitable representation of constituents. We find that malapportionment is negatively related to both gasoline taxes and support for the Kyoto Protocol to the United Nations Framework Convention on Climate Change (where "support" is measured as the duration of the spell between the signing of the Protocol and ratification by the domestic legislature).

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