Friday, July 25, 2008

Big Questions in Environmental Economics

I have returned from 4 days and nights at the NBER Summer Institute. The highlights included Marty Weitzman's talk on "fat tails" at the Environmental Meetings and the dinner celebrating Marty Feldstein's major contributions as President of the NBER for the last 30 years. It does amaze me that Dr. Feldstein took over the bureau at the age of 38. If you want to see this year's conference program go to

There were over 100 people attending the environmental meetings. While I can't say that every paper presented was great, each of them highlighted different exciting things going on in environmental economics. My friend Matt Kotchen asked over lunch what I thought were the top issues in environmental economics these days. I sat down and thought about this and here are my top 5. They are not in order;

1. How large are learning by doing effects for renewable energy technologies such as wind and solar?

2. How much damage will we suffer from climate change if average world temperature increases by T degrees? Where T takes on the values 1, 2, 5, 10, 30 c? Marty Weitzman's point is that each of these states of the world have non-zero probability of taking place. So, how much damage and who suffers the damage from each of extreme weather events?

3. When carbon pricing is introduced, which industries, nations and households will bear the incidence of this taxation?

4. Are consumers indifferent between "natural capital" and man-made engineered products? So for example, think of gentically modified foods versus organic foods -- are you indifferent? Is there any price differential such that you would be indifferent or do you view the GMO as "frankenfoods" that you wouldn't touch?

5. What are the causes of environmentalism? When people are environmentalists how does this affect their answer to #4 above?

6. Building on #5, we need structural consumer demand estimates of the willingness to pay for "green" products (think of the Prius) or tofu and how these estimates vary by population demographics and ideology.