Environmental policy and human capital inequality: A matter of life and death

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.     

Pollution Permits and Sustainable Growth in a Schumpeterian Model

In Chapter 4 of their book (“Endogenous Growth Theory,” MIT Press, Cambridge, MA (1998)), Aghion and Howitt introduce environmental pollution in an aggregate Schumpeterian model and characterize the optimal path. In this paper, we study the equilibria in a decentralized economy compatible with their model. First, we study the trade-off between environmental quality and growth and identify the channels of transmission of environmental policy into growth performance. Then, we compute the levels of the tools which are used to implement the optimum.     

Prospects for Reconciling the Conflict between Economic Growth and Biodiversity Conservation with Technological Progress

Abstract: The conflict between economic growth and biodiversity conservation is understood in portions of academia and sometimes acknowledged in political circles. Nevertheless, there is not a unified response. In political and policy circles, the environmental Kuznets curve (EKC) is posited to solve the conflict between economic growth and environmental protection. In academia, however, the EKC has been deemed fallacious in macroeconomic scenarios and largely irrelevant to biodiversity. A more compelling response to the conflict is that it may be resolved with technological progress. Herein I review the conflict between economic growth and biodiversity conservation in the absence of technological progress, explore the prospects for technological progress to reconcile that conflict, and provide linguistic suggestions for describing the relationships among economic growth, technological progress, and biodiversity conservation. The conflict between economic growth and biodiversity conservation is based on the first two laws of thermodynamics and principles of ecology such as trophic levels and competitive exclusion. In this biophysical context, the human economy grows at the competitive exclusion of nonhuman species in the aggregate. Reconciling the conflict via technological progress has not occurred and is infeasible because of the tight linkage between technological progress and economic growth at current levels of technology. Surplus production in existing economic sectors is required for conducting the research and development necessary for bringing new technologies to market. Technological regimes also reflect macroeconomic goals, and if the goal is economic growth, reconciliatory technologies are less likely to be developed. As the economy grows, the loss of biodiversity may be partly mitigated with end‐use innovation that increases technical efficiency, but this type of technological progress requires policies that are unlikely if the conflict between economic growth and biodiversity conservation (and other aspects of environmental protection) is not acknowledged.     

Sustainable development indicators: a case study on the city of Flagstaff and Coconino county

The application of capitalist theory and the perception of an autonomous economy have created a range of environmental and social ramifications not addressed via traditional economic reasoning. In order to effectively and efficiently abate sustainability issues, the sustainable development discourse developed evaluation methods such as sustainable development indicators to gauge progress towards sustainability in communities without using traditional cost–benefit methods of analysis. The indicators created in this work are intended to be applied as a method of project evaluation in local community development departments. Using local growth management policy as a basis, these indicators have been designed to show how a development project contributes to policy goals that relate to all three dimensions of sustainability: environmental, economic, and socio-economic.     

A characterization of sustainability with indicators

Economists favor the use of criteria to characterize sustainability. In practice, policy-makers use indicators, i.e., measurements based on the current economic state and decisions, representing given sustainability issues. In this paper, I introduce a criterion characterizing sustainability with indicators and thresholds acting as constraints. I interpret the thresholds as minimal rights to be guaranteed to all generations, and define sustainable trajectories as those satisfying all the constraints at all times. The new criterion is a “generalized” maximin criterion. The approach is applied to a simple production-consumption economy with non-renewable resources. To derive some policy recommendations on the use of indicators to deal with sustainability, I discuss the implications of such a criterion in terms of trade-off between sustainability thresholds, efficiency, and time-consistency. In particular, the resulting problem is time-inconsistent, and sustainability thresholds may be revised over time. Following the time-inconsistent policy based on indicators, with dynamic revision of the thresholds, may, however, result in a sustained utility path, and even in utility growth.     

Strategic environmental policy; eco-dumping or a green strategy?

The Porter hypothesis claims that a strong environmental policy best serves the interests of a nation's export industry. While this hypothesis seems to be based on some form of bounded rationality, this paper argues that governments may have good reasons for setting an especially strong environmental policy even though firms are fully rational. If the available abatement technology turns the environment into an “inferior input”, competitiveness is spurred by a strong environmental policy. The government should take advantage of this, and set an especially strict emission quota or an especially high emission tax. The findings in the paper also has consequences for the desirability of international cooperation with respect to national environmental policy. If a strict environmental policy spurs competitiveness, the environment is better protected without cooperation.     

Optimal resource extraction and uncertainty about new technology

The optimal extraction policy of a known resource stock in an economy which has imperfect information about existence of a new technology is discussed. The optimal program is shown to depend on the remaining stock and the current information about existence of the new technology (which is updated every period). For two special forms of social welfare function, the optimal extraction policy is shown to be more conservative than in the situation of perfect information. The effects of improved information and greater availability of the known stock on the optimal extraction policy are also investigated.     

Environmental policy with upstream pollution abatement technology firms

This paper examines how the existence of an upstream abatement technology sector affects optimal environmental policy. We explore whether the policy should be especially stringent in order to spur a successful export industry based on abatement technology. Furthermore, we investigate if a stringent policy can be used to increase competition in the upstream sector. Our point of departure is a three-stage game between a government in a country with a polluting downstream industry, and a limited number of upstream firms supplying abatement technologies. The government moves first, and may use its environmental policy strategically to influence the behavior of the upstream technology firms. We find that an especially stringent environmental policy towards the polluting downstream sector may be well founded, as it increases competition between the technology suppliers, leading to lower abatement costs. However, to our surprise, an especially stringent environmental policy is not a particularly good industrial policy with respect to developing successful new export sectors based on abatement technology.     

西部大开发与环境保护政策的取向

实施西部大开发战略是我国跨世纪的重大决策，党中央和国家已将生态建设和环境保护放在十分重要的地位。文章对我国当前的环境保护政策进行了归纳和分析，指出了其中存在的困难和问题在于立法机制不健全、可行性差、与市场机制不相适应等。西部地区应认识和吸取有益经验，制定出与市场经济相适应的环境政策，实现西部地区经济社会与环境的协调发展。     

Environmental policy and macroeconomic dynamics in a new Keynesian model

This paper studies the dynamic behavior of an economy under different environmental policy regimes in a New Keynesian model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price adjustment alters significantly the performance of the environmental policy regime put in place; (iii) the optimal environmental policy response to shocks is strongly influenced by the degree to which prices adjust and by the monetary policy reaction.     

Minimax regret discounting

The paper considers an environmental policy decision in which the appropriate approach for discounting future costs and benefits is unknown. Uncertainty about the discount rate is formulated as a decision under Knightian uncertainty. To solve this, we employ minimax regret, a decision criterion that is much less conservative then the related criterion maximin—in particular, it can be shown to implement a “proportional response” in that it equally balances concern about the mistake of doing too little with that of doing too much. Despite the criterion's balanced nature, the minimax regret solution mimics a policy that maximizes the present discounted value of future net benefits with an effective (certainty-equivalent) discount rate that declines over time to the lowest possible rate. In addition to reinforcing Weitzman's (1998) original limiting result, the approach generates concrete policy advice when decision makers are unable to specify a prior over possible discount rates. We apply it to the Stern–Nordhaus discounting debate and find that the effective discount rate converges to the Stern rate in just under 200 years.     

Minimax regret discounting

The paper considers an environmental policy decision in which the appropriate approach for discounting future costs and benefits is unknown. Uncertainty about the discount rate is formulated as a decision under Knightian uncertainty. To solve this, we employ minimax regret, a decision criterion that is much less conservative then the related criterion maximin—in particular, it can be shown to implement a “proportional response” in that it equally balances concern about the mistake of doing too little with that of doing too much. Despite the criterion's balanced nature, the minimax regret solution mimics a policy that maximizes the present discounted value of future net benefits with an effective (certainty-equivalent) discount rate that declines over time to the lowest possible rate. In addition to reinforcing Weitzman's (1998) original limiting result, the approach generates concrete policy advice when decision makers are unable to specify a prior over possible discount rates. We apply it to the Stern–Nordhaus discounting debate and find that the effective discount rate converges to the Stern rate in just under 200 years.     

环境保护中的退耕还林(草)工程与可持续发展

环境保护是我国的一项基本国策,退耕还林(草)是保护环境的有效措施．加强环境教育,完善环境法制,加强现代科技管理,发展生态经济,通过退耕还林(草)工程贯彻可持续发展战略,最终达到环境与经济、社会“共赢”的目的。     

Threshold management in a coupled economic–ecological system

Economic analysis of optimal ecosystem management in the presence of a threshold has typically ignored the potential for induced behavioral responses. This paper contributes to the literature on non-convex ecosystem management by considering the implications of a particular behavioral response in a regional economy – that of amenity-led growth – to changes in ecosystem services generated by a lake ecosystem subject to a eutrophication threshold. The essential policy challenge is to achieve optimal levels of lake nutrients and urbanization given that improvements to water quality will induce additional migration and urbanization in the region with attendant ecological impacts. We show that policies that ignore the recursive relationship between urbanization and water quality unintentionally exacerbate boom-bust cycles of regional growth and decline and risk pushing the system towards long-run economic decline. In contrast, the optimal policy accounts for the behavioral feedbacks to improved ecosystem services, and balances regional growth and ecological degradation.     

Threshold management in a coupled economic–ecological system

Economic analysis of optimal ecosystem management in the presence of a threshold has typically ignored the potential for induced behavioral responses. This paper contributes to the literature on non-convex ecosystem management by considering the implications of a particular behavioral response in a regional economy – that of amenity-led growth – to changes in ecosystem services generated by a lake ecosystem subject to a eutrophication threshold. The essential policy challenge is to achieve optimal levels of lake nutrients and urbanization given that improvements to water quality will induce additional migration and urbanization in the region with attendant ecological impacts. We show that policies that ignore the recursive relationship between urbanization and water quality unintentionally exacerbate boom-bust cycles of regional growth and decline and risk pushing the system towards long-run economic decline. In contrast, the optimal policy accounts for the behavioral feedbacks to improved ecosystem services, and balances regional growth and ecological degradation.     

Modeling a sustainable Saudi Arabian economy: the real issues

This paper develops a macroeconomic framework for creating a competitive and sustainable Saudi Arabian economy, taking into account the interrelationships among social, environmental, and economic factors. The objective of the research is to build a model that will allow for evaluating the effects of a wide range of emissions abatement policies on economic growth and development. The research methodology is grounded in econometric modeling of the Saudi economy over the period 1980–2010. The estimated parameters of the model were used to project long-term gross domestic product (GDP) growth paths based on three environmental degradation abatement scenarios. The results suggest that the sustainability of economic growth in Saudi Arabia critically depends on aggressive emissions-reduction policies since policy scenarios corresponding to higher pollution cuts yielded higher, sustained long-term GDP. The results also broadly reject the Environmental Kuznets Curve (EKC) hypothesis, implying that a turning point in the relationship between CO₂ emissions and per capita GDP is yet to be attained.     

Cost-effective environmental policy: implications of induced technological change

Cost-effective environmental policy generally requires that all emission sources are faced with the same tax. In this paper I discuss how the existence of induced technological change may alter this result, if at least some of the effect is external to the firm. Focusing on Learning by doing (LBD) effects in abatement activities, it is shown that emission sources with external learning effects should be faced with a higher tax than emission sources with only autonomous technological change. By using simple numerical simulations, it is further investigated to what degree a cost-effective climate policy differs from a free quota market, under various assumptions about learning effects, diffusion of technology and environmental targets. The results indicate that optimal taxes may be significantly higher in the industrial world than in the developing world. Moreover, the industrial world's share of global abatement may be much higher in a cost-effective solution than in a free quota market. The global cost savings of a fully flexible implementation of the Kyoto Protocol are further questioned, as potential spillover effects of technological growth in the industrial world are not internalised in the market.     

Environmental policy à la carte: Letting firms choose their regulation

Under uncertainty, the optimal choice between price and quantity instruments depends on the technology of the regulated firms, which is often private information. We consider an environmental policy that delegates the prices-versus-quantities decision to the firms by offering them the choice between an emissions tax and permit trading. Such an approach is currently used in Swiss climate policy. We provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit-trading regime. We demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints, and that all firms gain from the introduction of the instrument choice compared to optimally designed single-instrument policies. Furthermore, we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation.     

Economic growth and environmental pollution under the max-min principle

This paper first analyzes the interactions between capital accumulation and environmental pollution under the program of sustained constant utility, which depends on per capita consumption and pollution, over all generations. Then the optimal program of economic growth is discussed. The implications of the constant-utility criterion (or the max-min principle) are compared with those of the utilitarian criterion which has been widely adopted in environmental pollution literature. Subsequently, the analysis incorporates pollution-abatement investment and exhaustible resources. We conclude that the max-min principle works fairly satisfactorily in this world.