Energy Economics Archives - Page 43 of 55 - An Economic View of the Environment

Low Prices a Problem? Making Sense of Misleading Talk about Cap-and-Trade in Europe and the USA

Some press accounts and various advocates have labeled the Regional Greenhouse Gas Initiative (RGGI) as near “the brink of failure” because of the recent trend of very low auction prices. Likewise, commentators have recently characterized the European Union Emission Trading Scheme (EU ETS) as possibly “sinking into oblivion” because of low allowance prices. Since when are low prices (which in this case reflect low marginal abatement costs) considered to be a problem? To understand what’s going on, we need to remind ourselves of the purpose (and promise) of a cap-and-trade regime, and then look at what’s been happening in the respective markets.

The Purpose and Promise of Cap-and-Trade

A cap-and-trade system– if well designed, implemented, and enforced – will limit total emissions of the regulated pollutant to the desired level (the cap), and will do this (if the cap is binding) in a cost-effective manner, by leading regulated sources to each make reductions until they are all experiencing the same marginal abatement cost (the allowance price). Thus, the sources that initially face the highest abatement costs, reduce less, and those sources that face the lowest abatement costs, reduce more, achieving system-wide minimum costs, that is, cost effectiveness. So, the purpose and promise, in a nutshell, is to achieve the targeted level of aggregate pollution control, and – if the cap is binding – do this at the lowest possible cost.

RGGI Allowance Prices

The Regional Greenhouse Gas Initiative (RGGI) – a downstream cap-and-trade system for CO₂ emissions from the power sector in 10 northeast states (Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont, with New Jersey now in the process of withdrawing from the coalition), was launched with relatively unambitious targets, principally in order to keep prices down to prevent severe leakage of electricity demand and hence leakage of CO₂ emissions from the RGGI region to states and provinces outside of the region (mainly from New York to Pennsylvania).

Emissions are capped from 2012 to 2014, and then, starting in 2015, the cap decreases 2.5% per year until it is down by 10% in 2019. This would represent a level of emissions 13% below the 1990 level of emissions. It was originally thought that this would be some 35% below the Business-as-Usual (BAU) level in 2019. Sounds good. What happened is not that the system performed other than designed, but that “business was not as usual.” That is, what happened is that unregulated power-sector (BAU) emissions in the northeast fell significantly. (See the graph below of the RGGI cap and historical emissions.)

For source, please click here.

So, Why Did Emissions Fall in the RGGI States?

This happened for three reasons. First, because of increasing supplies in the United States of low-cost, unconventional sources of natural gas, prices for this fuel have fallen dramatically since 2008. (See the graph below of natural gas and coal prices.) That has meant greater dispatch of electricity from gas-fueled power plants (relative to coal-fired plants), more investment in new gas-fired generating plants, less investment in coal-fired generating capacity, and retirement of existing coal-fired capacity, all of which has contributed to lower CO₂ emissions.

For source, please click here.

Second, the worst economic recession since the Great Depression hit the United States in 2008, causing dramatic reductions in electricity demand in the industrial and commercial sectors, reducing emissions. (See the graph below of quarterly percentage change in U.S. GDP, 2007-2009.)

For source, please click here.

Third and finally, moderate northeast temperatures have kept down CO₂ emissions linked with both heating and cooling.

Low Emissions, Low Allowance Demand, Low Allowance Prices

So, for the three reasons above, BAU CO₂ emissions from the power sector in the RGGI states are dramatically below what was originally (and quite reasonably) anticipated. The supply of RGGI CO₂ allowances made available at auction is – by law – unchanged, but demand for these allowances has fallen dramatically, hence the fall in RGGI allowance prices. (See the graph below of RGGI allowance prices, 2008-2010.)

For source, please click here.

Given that emissions are below the RGGI cap and – due to expectations regarding future natural gas prices – are likely to remain below the cap, there is no scarcity of allowances. Shouldn’t the price fall to zero? In theory, yes, except that the system has an auction reservation price of $1.86 per ton built in, thereby creating a price floor of precisely this amount.

Is RGGI a Failure?

So, the cap put in place by the RGGI system is being achieved, but it is not binding. RGGI may not be particularly relevant, but it is not thereby a flawed system; surely it is not a failure. Rather, a great environmental success has been achieved by the “fortunate coincidence” of low natural gas prices, economic recession, and mild weather. This is hardly something to be lamented.

True enough, the RGGI system does have flaws (such as its narrow scope limited to electricity generation, and its lack of a simple safety valve, as I have written about in the past). But the low allowance prices are evidence of a success outside of the RGGI market, not evidence of failure within the RGGI market.

If the RGGI states have the desire and the political will to tighten the cap in the future, then the system can again become binding, environmentally relevant, and cost-effective. That’s an ongoing political debate.

To be fair, I should note that the same outcome I have described here can be spun – perhaps for political purposes – quite differently. Recently, a self-described “free-market energy blog” commentator claimed – not without some justification – that RGGI is irrelevant or worse: “Bottom line, the program has raised electricity prices, created a slush fund for each of the member states, and has had virtually no impact on emissions or on global climate change.”

Phrased differently, due to exogenous circumstances (I’ve described above), the RGGI program is non-binding, and so has no direct effect on emissions, but its relatively low auction reservation price does lead to very small impacts on electricity prices, and produces revenues for participating states, revenues which those states would surely claim are of value for state-level energy-efficiency and other programs that indirectly do affect CO2 emissions. So, the real bottom line is that low RGGI allowance prices are not a consequence of poor system design or a fatal flaw of cap-and-trade systems in general, but rather a consequence of what are in reality some exogenous coincidences that have turned out to be good news for the environment.

Now, let’s turn to the European Union Emissions Trading Scheme (EU ETS).

EU ETS Allowance Prices

Unlike RGGI, the EU ETS has not been irrelevant. It has successfully capped European CO₂ emissions, achieved significant emissions reductions, and it has done so — more or less — cost-effectively. (More about this hedging on cost-effectiveness below). Not surprisingly, like RGGI, the EU ETS has some design flaws (principally, its limited scope – electricity generation and large-scale manufacturing – and lack of a safety-valve), but as with RGGI, its low allowance prices should not be taken as bad news, but to some degree as good news, and certainly not as a sign of failure of the EU ETS.

Hand-wringing in Europe over Low Allowance Prices

There has been much hand-wringing in Europe over the “failure of the system” because of low allowance prices. Indeed, Danish Energy Minister Martin Lidegaard said earlier this month that low carbon prices threaten the EU ETS.

Of course, he’s correct that EU ETS allowance prices are “low.” They are down from their historic average of about $20 per ton of CO₂ to about $9 per ton currently (having reached an all-time low of $7.88 in early April). Here’s a graph of EU ETS allowance prices (EUAs) over the crucial period of change, January 2007 to January 2009.

For source, please click here.

At this point in this essay, I probably don’t need to say that this pattern is partly explained by the global recession, which has hit Europe particularly hard (and now threatens a double-dip recession in a number of European nations). Lower European – and global – demand has meant decreased economic activity in Europe, hence lower energy demand, lower CO₂ emissions, and therefore lower demand and lower prices for EU ETS allowances.

Even if we assume a growth rate of European CO₂ emissions 1 percent less than the growth rate of GDP (represented by the dotted “counterfactual” BAU line in the graph below, which estimates what emissions would have been from 2005 to 2010 without the introduction of the EU’s Emissions Trading System), the evidence makes clear that the EU ETS has succeeded in reducing emissions significantly below what would be expected from the recession alone.

For source, please click here.

This is where an important caveat needs to be introduced. Also feeding into this allowance price depression has been a set of national and regional energy policies, such as those promoting use of renewables, which have served to reduce emissions, demand for allowances, and hence allowance prices (while rendering the overall CO2 program less cost-effective by ensuring that marginal abatement costs remain heterogeneous). So, to the degree that the low allowance prices are due to so-called complimentary policies, the low prices are bad news about public policy (in cost-effectiveness terms), not good news. But this refers to misguided complimentary policies (which fail to bring about any incremental emissions reductions — under the cap-and-trade umbrella — and drive up aggregate cost), not to any design flaw in the EU ETS itself.

Multiple Goals Typically Require Multiple Policy Instruments

No doubt, Minister Lidegaard is aware of the allowance price impacts of the recession, and I hope he’s aware of the allowance price consequences of these other energy and environmental policies. The problem arises, however, because he sees the fundamental purpose of the EU ETS as somewhat broader than what I described at the beginning of this essay (namely, achieving emissions consistent with some cap, and doing so cost-effectively – if the cap is binding). For him – and many other European observers – “the purpose of the ETS was to cap CO₂ emissions in the E.U. and ensure clear economic incentives for investment in renewables.” So, the hand-wringing is not about a failure to achieve emissions reductions cost-effectively, but to have prices high enough to achieve other goals – in this case, greater use of renewable sources of energy. For others, the “other goals” have involved allowance prices high enough to bring about some targeted amount of technology innovation.

As I have written at this blog in the past, having multiple policy goals typically necessitates multiple policy instruments. For example, if the goal is a combination of reducing emissions cost-effectively and having prices maintained at some minimum (whether to bring about greater use of renewable energy sources or to inspire more technology innovation), then two policy instruments are needed to do the job: a cap-and-trade system for the first goal in combination with a carbon tax in the form of a price floor (as in RGGI) for the second goal.

Don’t Throw Out the Baby with the Bath Water

In other words, the EU ETS has not failed, but the design was inadequate (that is, incomplete) for what politicians now seem to want. If the Europeans want a price floor in their system (or better yet, a price collar, which would combine a price floor with a safety valve, i.e., price ceiling), then this is certainly feasible technically and economically. Likewise, if the EU member states have the desire and the political will to tighten the cap in the future, there are a variety of ways in which they can accomplish this, rendering the program more stringent and increasing allowances prices. But, in any event, the European Commission’s Energy division, Environment division, and Climate division should sort out the real effects of the “complimentary policies” that have contaminated the EU ETS, and which fail to bring about additional emissions reductions but drive up costs. Whether any of this is feasible politically is a question that my European colleagues and friends can best address.

If the Durban Platform Opened a Window, Will India and China Close It?

In my December 12^th essay – following the 17^th Conference of the Parties (COP-17) of the United Nations Framework Convention on Climate Change (UNFCCC), which adjourned on December 11, 2011 – I offered my assessment of the Durban climate negotiations by taking note of three major outcomes of the negotiations: (1) elaboration on several components of the Cancun Agreements; (2) a second five-year commitment period for the Kyoto Protocol; and (3) a “non-binding agreement to reach an agreement” by 2015 that will bring all countries under the same legal regime by 2020. Subsequently, in my January 1^st essay – The Platform Opens a Window: An Unambiguous Consequence of the Durban Climate Talks – I focused on the third outcome of the talks, the “Durban Platform for Enhanced Action.”

Some Necessary History

The U.N. Framework Convention on Climate Change, adopted at the U.N. Conference on Environment and Development (the first “Earth Summit”) in Rio de Janeiro, Brazil, in 1992, contains what was to become a crucial passage: “The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof.” [emphasis added] The countries considered to be “developed country Parties” were listed in an appendix to the 1992 Convention – Annex I.

The phrase – common but differentiated responsibilities – was given a specific interpretation three years after the Earth Summit by the first decision adopted by the first Conference of the Parties (COP-1) of the U.N. Framework Convention, in Berlin, Germany, April 7, 1995 – the all important Berlin Mandate, which interpreted the principle as: (1) launching a process to commit (by 1997) the Annex I countries to quantified greenhouse gas emissions reductions within specified time periods (targets and timetables); and (2) stating unambiguously that the process should “not introduce any new commitments for Parties not included in Annex I.”

Thus, the Berlin Mandate established the dichotomous distinction whereby the Annex I countries are to take on emissions-reductions responsibilities, and the non-Annex I countries are to have no such responsibilities whatsoever. This had wide-ranging and profound consequences, because it became the anchor that prevented real progress in international climate negotiations. With 50 non-Annex I countries having greater per capita income than the poorest of the Annex I countries, the distinction is clearly out of whack.

But, more important than that, this dichotomous distinction means that: (a) half of global emissions soon will be from nations without constraints; (b) the world’s largest emitter – China – is unconstrained; (c) aggregate compliance costs are driven up to be four times their cost-effective level, because many opportunities for low-cost emissions abatement in emerging economies are taken off the table; and (d) an institutional structure is perpetuated that makes change and progress virtually impossible.

The dichotomous Annex I/non-Annex I distinction remained a central – indeed, the central – feature of international climate negotiations ever since COP-1 in Berlin in 1995. Then, at COP-15 in 2009, there were hints of possible change.

The Copenhagen Accord (2009) and the Cancun Agreements (2010) began a process of blurring the Annex I/non-Annex I distinction. But this blurring was only in the context of the interim pledge-and-review system established at COP-15 in Copenhagen and certified at COP-16 in Cancun, not in the context of an eventual successor to the Kyoto Protocol. Thus, the Berlin Mandate retained its centrality.

The Durban Platform for Enhanced Action

The third of the three outcomes of the December 2011 talks in Durban, South Africa – the Durban Platform for Enhanced Action – eliminates the Annex I/non-Annex I (or industrialized/developing country) distinction. In the Durban Platform, the delegates reached a non-binding agreement to reach an agreement by 2015 that will bring all countries under the same legal regime by 2020. That’s a strange sentence, but it’s important.

Rather than adopting the Annex I/non-Annex I (or industrialized/developing country) distinction, the Durban Platform focuses instead on the pledge to create a system of greenhouse gas reductions including all Parties (that is, all key countries) by 2015 that will come into force by 2020. Nowhere in the text of the decision are phrases such as “Annex I,” “common but differentiated responsibilities,” “distributional equity,” “historical responsibility,” all of which had long since become code words for targets for the richest countries and blank checks for all others.

Thus, in a dramatic departure from some seventeen years of U.N. international negotiations on climate change, the 17^th Conference of the Parties in Durban turned away from the Annex I/non-Annex I distinction, which had been the centerpiece of international climate policy and negotiations since it was adopted at the 1^st Conference of the Parties in Berlin in 1995. In truth, only time will tell whether the Durban Platform delivers on its promise, or turns out to be another “Bali Roadmap,” leading nowhere, but there is a key unambiguous consequence of this development.

Durban Opens a Window

By replacing the Berlin Mandate, the Durban Platform has opened an important window. National delegations from around the world now have a challenging task before them: to identify a new international climate policy architecture that is consistent with the process, pathway, and principles laid out in the Durban Platform, namely to find a way to include all key countries (such as the 20 largest national and regional economies that together account for upwards of 80% of global carbon dioxide emissions) in a structure that brings about meaningful emissions reductions on an appropriate timetable at acceptable cost, while remaining within the overall framework provided by the UNFCCC.

Is India Seeking to Close the Window?

As part of the agreement to launch the Durban Platform for Enhanced Action, the nations of the world agreed to initiate a work plan on enhancing mitigation ambition. As a first step, each country was to submit its initial ideas.

On February 28, 2012, the Indian government made its official submission to the UNFCCC, “Increasing Ambition Level under Durban Platform for Enhanced Action.” In seventeen paragraphs across three pages of text, India’s submission makes absolutely clear its view that the Durban Platform is under the overall legal umbrella of the UNFCCC, and therefore that the principles of “equity” and “common but differentiated responsibilities” remain intact and must inform all commitments for enhanced action. In fact, the lion’s share of India’s submission talks about the responsibilities of industrialized countries, not about India’s ideas for its own contributions.

India’s submission actually quantifies what it sees as the necessary future commitments of Annex I (“developed”) countries – by referring to the 2007 Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change: “AR4 has recommended that Annex I Parties should reduce their emissions at least by 25-40% in the short term by 2020” [emphasis added]. But, in truth, AR4 made no such recommendation. Indeed, the IPCC – in general – does not make any policy recommendations whatsoever. This is one of the key organizing principles under which the IPCC operates. I know this from decades of direct work with the IPCC, having served as a Lead Author in two rounds of the IPCC, and currently serving as a Coordinating Lead Author in AR5.

China Weighs In

A week after India made its submission, the Chinese government followed suit on March 8^th with “China’s Submission on Options and Ways for Further Increasing the Level of Ambition.” The submission is consistent with India’s, maintaining that industrialized countries alone bear responsibility for reducing emissions before 2020: “Developed country Parties should take the lead in reducing their emissions by undertaking ambitious mitigation commitments and fulfill their obligations by providing financial resources and transferring technology to developing country Parties.”

They Have a Point

India and China have a point. The Durban Platform did not supplant the Convention, so the general notions of “equity” and “common but differentiated responsibilities” do remain. But – and here is the key reality – the Durban Platform did replace the Berlin Mandate. And so a window has been opened to explore new, more sophisticated, and more subtle ways of involving all key countries in an environmentally effective and cost-effective global agreement, with a new interpretation of common but differentiated responsibilities.

For example, replacing the dichotomous Annex I/non-Annex I distinction with a formula that generates a continuous spectrum of degrees of responsibility would be fully consistent both with the Durban Platform for Enhanced Action and the U.N. Framework Convention on Climate Change. Such a formulaic approach – as developed by Professors Jeffrey Frankel and Valentina Bosetti for the Harvard Project on Climate Agreements – merits serious consideration, along with other innovative international policy architectures.

Although some in the press and blogosphere have characterized the Chinese and Indian submissions as hitting “the brakes on Durban pledges” and “hitting the reset button on international climate change commitments,” in reality the Chinese and Indian submissions refer only to emission reductions prior to 2020, whereas the Durban Platform for Enhanced Action focuses on (agreeing by 2015 on) a new international agreement that would be implemented only in 2020. Thus, there’s no inconsistency.

Stay Tuned

Whether or not the submissions by China and India are part of a diplomatic dance or represent a real step backward from their positions in Durban, the fact remains that the Durban Platform – by replacing the Berlin Mandate – has opened an important window. Governments around the world need fresh, outside-of-the-box ideas over the next few years of a possible future international climate policy architecture that can meet the call of the Durban Platform while remaining true to the Framework Convention on Climate Change. That’s the challenge, as well as the opportunity.

Reflections on Twenty Years of Policy Innovation

In 2009, the U.S. Congress considered but ultimately failed to enact legislation aimed at limiting U.S. greenhouse-gas (GHG) emissions. The bill under consideration at that time, the American Clean Energy and Security Act of 2009, was the last in a series considered over several years. Sponsored by Representatives Henry Waxman (D-California) and Edward Markey (D-Massachusetts), the bill passed the U.S. House of Representatives but failed to win sufficient support in the Senate. No legislation was enacted, and by 2010, both Congress and the White House had abandoned efforts to pass federal climate legislation.

Over months of contentious debate, while the Waxman-Markey bill and subsequent Senate action were being considered, millions of Americans were introduced for the first time to the phrase “cap and trade,” a regulatory approach that first came to prominence in the 1990s as the centerpiece of a national program to address the threat of acid rain by limiting emissions of sulfur dioxide (SO₂), primarily from electric power plants.

The 1990 SO₂cap-and-trade program was conceived by the administration of President George H. W. Bush and was widely viewed as a success. Yet cap and trade became a lightning rod for congressional opposition to climate legislation from 2009 through 2010.

Some of that hostility reflected skepticism about whether climate change was real and, if it was, whether humans played a key role in causing it. A larger group of opponents in Congress worried about the proper role of government and the costs of combating climate change, particularly given the lack of commitments for action by the large emerging economies of China, India, Brazil, Korea, South Africa, and Mexico. The congressional debate touched only lightly on the relative merits of various policy options to reduce greenhouse-gas emissions. Thus, cap and trade may not have been defeated on its merits (or demerits), but rather as collateral damage in the larger climate policy wars.

Congress (to the extent it did assess policy alternatives to cap and trade), as well as the broader community of analysts and observers in the late 2000s, raised a number of substantive questions about the merits of this policy instrument as a means for responding to a major environmental policy challenge of the sort posed by climate change:

How do the costs of a market-based approach, such as cap-and-trade, compare with traditional regulatory policies to reduce pollution?

Can market-based policies—and the markets they create—be trusted to reduce emissions? That is, are they environmentally effective?

What are the distributional impacts of market-based environmental policies; who are the winners and losers?

How well does a cap-and-trade system stimulate technological innovation, as compared with an environmental policy that sets performance standards, specifies technologies for reducing pollution, or both?

In May 2011, the Harvard Environmental Economics Program hosted a two-day research workshop and policy roundtable in Cambridge, Massachusetts, to reflect on these and other questions in light of twenty years of experience implementing the SO₂ cap-and-trade program, established under Title IV of the Clean Air Act Amendments (CAAA) of 1990. Also known as the Acid Rain Program and the SO₂ allowance-trading system, Title IV represented the first large-scale application of cap and trade to control pollution—in the United States or any other country. (Of course, the largest emissions trading program in the world is now the European Union Emissions Trading System (EU ETS), a greenhouse-gas, cap-and-trade system that was implemented in 2005 and whose design was influenced by the U.S. SO₂ program.)

A “policy brief” synthesizing the main conclusions and insights that emerged from the May 2011 Harvard workshop and roundtable has just been released, The SO₂ Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation. The workshop and roundtable – sponsored by the Alfred P. Sloan Foundation – featured a dream team of economists and legal experts who had conducted extensive research on the SO₂ allowance-trading system, as well as leaders of non-governmental organizations and former government officials who had guided the formulation and passage of the CAAA.

The new policy brief examines the design, enactment, implementation, and performance of the SO₂ allowance trading system, with an eye toward identifying lessons learned for future efforts to apply cap and trade to other environmental challenges, including global climate change. The first section provides background on the acid rain program and summarizes data and analysis on its benefits. Subsequent sections examine key questions regarding cost, environmental effectiveness, market performance, distributional implications, and effects on technology innovation. The report also examines the political context of the formulation, enactment, and implementation of the SO₂ allowance-trading system. Finally, the conclusions feature some reflection on implications for climate change policy.

The participants in the research workshop were: Joseph Aldy, Assistant Professor of Public Policy, Harvard Kennedy School; Dallas Burtraw, Darius Gaskins Senior Fellow, Resources for the Future; Denny Ellerman, Part-time Professor, European University Institute, Robert Schuman Centre for Advanced Studies; Michael Greenstone, 3M Professor of Environmental Economics, Massachusetts Institute of Technology; Lawrence H. Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University; Robert Hahn, Director of Economics, Smith School, University of Oxford; Paul L. Joskow, President, Alfred P. Sloan Foundation; Erin T. Mansur, Associate Professor of Economics, Dartmouth College; Albert McGartland, Director, National Center for Environmental Economics, U.S. Environmental Protection Agency; Brian J. McLean, Former Director, Office of Atmospheric Programs, U.S. Environmental Protection Agency; W. David Montgomery, Senior Vice President, NERA Economic Consulting; Erich J. Muehlegger, Associate Professor of Public Policy, Harvard Kennedy School; Karen L. Palmer, Senior Fellow, Resources for the Future; John Parsons, Executive Director, Center for Energy and Environmental Policy Research, MIT Sloan School of Management; Forest L. Reinhardt, John D. Black Professor of Business Administration, Harvard Business School; Richard L. Schmalensee, Howard W. Johnson Professor of Economics and Management, MIT Sloan School of Management; Daniel Schrag, Sturgis Hooper Professor of Geology, Harvard University; Robert N. Stavins, Albert Pratt Professor of Business and Government, Harvard Kennedy School; Thomas Tietenberg, Mitchell Family Professor of Economics, Emeritus, Colby College; and Jonathan B. Wiener, William R. and Thomas L. Perkins Professor of Law, Duke University Law School.

The participants in the policy and politics roundtable were: Robert Grady, General Partner, Cheyenne Capital Fund (1989–1991: Associate Director, Office of Management and Budget for Natural Resources, Energy & Science; 1991–1993 Executive Associate Director, OMB, and Deputy Assistant to the President); C. Boyden Gray, Principal, Boyden Gray & Associates (1989–1993: White House Counsel); Fred Krupp, President (1984–present), Environmental Defense Fund; Mary D. Nichols, Chairman, California Air Resources Board (1993–1997: Assistant Administrator for Air and Radiation, U.S. Environmental Protection Agency); Roger Porter, IBM Professor of Business and Government, Harvard Kennedy School (1989–1993: Assistant to the President for Economic and Domestic Policy); Richard L. Schmalensee, Howard W. Johnson Professor of Economics and Management, MIT Sloan School of Management (1989–1991: Member, President’s Council of Economic Advisers); and Philip Sharp, President, Resources for the Future (1975–1995: Member, U.S. House of Representatives, Indiana, and Chairman, Energy and Power Subcommittee, House Committee on Natural Resources).

I want to acknowledge the contributions of all of these participants in the research workshop and policy roundtable, as well as the comments and edits some provided on earlier drafts of the policy brief. Their expertise and experience made this project possible. And, of course, I’m very grateful to the Alfred P. Sloan Foundation for having provided generous support for the workshop and for the preparation of the study. I hope you find it of interest and value.