Clean Water Act Archives - An Economic View of the Environment

A Rising Star Shares His Thoughts on Land Use & Climate Policy

In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I’ve had the pleasure of engaging in conversations with a significant number of outstanding economists, who have carried out important work relevant for environmental, energy, and resource policy, including by serving in important government positions. That inevitably brings with it the reality that many of the people I’ve spoken with have been senior leaders in the profession, with the emphasis on the word “senior.” I’m very pleased to say that in my most recent podcast, I’ve broken that mold with someone who is a young, rising star in the world of environmental economics, particularly in the realm of analyzing the causes and consequences of changes in land use. I’m referring to my colleague, Charles Taylor, a relatively new Assistant Professor of Public Policy at the Harvard Kennedy School. You can listen to our complete conversation here.

Taylor’s research often uses satellite data to address policy questions associated with land use, and at the beginning of our conversation, he explains that he first got interested in land use issues during his time spent as a consultant at McKinsey & Company, following his undergraduate years at the University of Virginia.

“I got to go work abroad in Qatar, Brazil, and Europe, and get a lot of exposure to these big climate change and land-based initiatives that governments and the private sector were doing. And I got really excited by that, and also very quickly learned I didn’t want to be a consultant,” he says. “I felt that I wanted to get more either skin in the game at that time or more in depth into the issues, and that prompted my journey into more of the entrepreneurial world.”

Charles soon connected with David Tepper, a former banker who shared his passion for land use issues, and together they co-founded Earth Partners, a private company that provides land restoration and bio-energy services intended to help rebuild soils, habitats, and other critical ecosystems.

“How do we restore ecosystems to meet all the challenges we’re facing, from water to food security to pollution to climate change, and how do we do that at scale? [The idea was to] start a company [dedicated to] next generation land management,” he remarks. “A lot of the challenges we’re facing as a society directly or relate to land management, and looking around, I didn’t really see any companies or organizations taking that head on.”

Charles notes that he decided to pivot from his entrepreneurial venture into academia once he realized the limits of what can be accomplished with capital alone.

“We had great small-scale investors who wanted to do good things, but you still had to get their money back in a few years and that limits the scope of what you can do if you really want transformational change,” he explains. “So, that made me say, okay, what if I went back to the research side and found some way I could contribute to these problems on the other side while keeping one foot or at least half my brain in this world of how this … on the ground world works?”

Much of Charles Taylor’s current academic research relates directly to environmental economics associated with land use decisions, and is intended to inform lawmakers and other stakeholders of the benefits of specific policy choices.

“Humans have touched nearly every acre of non-barren land on earth. We’ve transformed it. We farm it for our food. We take its water. We shape its rivers for reservoirs, for irrigation. We use the wood for forests. We build on it for housing… We get our energy out of it, increasingly for renewable energy. We need a lot of it for siting wind and solar. And then climate change interacts with all this,” he says. “So, there’s all these questions I am really curious about [and am interested in] quantifying and using some of the empirical tools we have [to do that].”

Taylor references a recent paper he co-authored with Caltech Assistant Professor Hannah Druckenmiller that examines land use regulation under the Clean Water Act.

“You might see this spurious relationship between where wetlands are lost and more flood damages, for example, to think of one of the benefits of wetlands. And that paper was just trying to find an empirical way to uncover that and give an estimate of the value of wetlands that then could be used by the EPA in measuring the cost and benefits of these types of regulations, which are super important and cover almost all land use decisions and where you’re going to build in the U.S.,” he explains.

For this and much more, please listen to my podcast conversation with Charles Taylor, the 62nd episode over the past five years of the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.
Navroz Dubash, Professor, Centre for Policy Research, New Delhi.
Paul Joskow, Elizabeth and James Killian Professor of Economics emeritus, MIT.
Maureen Cropper, Distinguished University Professor, University of Maryland.
Orley Ashenfelter, the Joseph Douglas Green 1895 Professor of Economics, Princeton University.
Jonathan Wiener, the William and Thomas Perkins Professor of Law, Duke Law School.
Lori Bennear, the Juli Plant Grainger Associate Professor of Energy Economics and Policy, Nicholas School of the Environment, Duke University.
Daniel Yergin, founder of Cambridge Energy Research Associates, and now Vice Chair of S&P Global.
Jeffrey Holmstead, who leads the Environmental Strategies Group at Bracewell in Washington, DC.
Daniel Jacob, Vasco McCoy Family Professor of Atmospheric Chemistry & Environmental Engineering at Harvard.
Michael Greenstone, Milton Friedman Distinguished Service Professor of Economics, University of Chicago.
Billy Pizer, Vice President for Research & Policy Engagement, Resources for the Future.
Daniel Bodansky, Regents’ Professor, Sandra Day O’Connor College of Law, Arizona State University.
Catherine Wolfram, Cora Jane Flood Professor of Business Administration, Haas School of Business, University of California, Berkeley, currently on leave at the Harvard Kennedy School.
James Stock, Harold Hitchings Burbank Professor of Political Economy, Harvard University.
Mary Nichols, long-time leader in California, U.S., and international climate change policy.
Geoffrey Heal, Donald Waite III Professor of Social Enterprise, Columbia Business School.
Kathleen Segerson, Board of Trustees Distinguished Professor of Economics, University of Connecticut.
Meredith Fowlie, Professor of Agricultural and Resource Economics, U.C. Berkeley.
Karen Palmer, Senior Fellow, Resources for the Future.
Severin Borenstein, Professor of the Graduate School, Haas School of Business, University of California, Berkeley.
Michael Toffel, Senator John Heinz Professor of Environmental Management and Professor of Business Administration, Harvard Business School.
Emma Rothschild, Jeremy and Jane Knowles Professor of History, Harvard University.
Nathaniel Keohane, President, C2ES.
Amy Harder, Executive Editor, Cypher News.
Richard Zeckhauser, Frank Ramsey Professor of Political Economy, Harvard Kennedy School.
Kimberly (Kim) Clausing, School of Law, University of California at Los Angeles
Hunt Allcott, Professor of Global Environmental Policy, Stanford Doerr School of Sustainability.
Meghan O’Sullivan, Jeane Kirkpatrick Professor of the Practice of International Affairs at Harvard Kennedy School.
Robert Lawrence, Albert Williams Professor of International Trade and Investment, Harvard Kennedy School.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

Who Killed Cap-and-Trade?

In a recent article in the New York Times, John Broder asks “Why did cap-and-trade die?” and responds that “it was done in by the weak economy, the Wall Street meltdown, determined industry opposition and its own complexity.” Mr. Broder’s analysis is concise and insightful, and I recommend it to readers. But I think there’s one factor that is more important than all those mentioned above in causing cap-and-trade to have changed from politically correct to politically anathema in just nine months. Before turning to that, however, I would like to question the premise of my own essay.

Is Cap-and-Trade Really Dead?

Although cap-and-trade has fallen dramatically in political favor in Washington as the U.S. answer to climate change, this approach to reducing carbon dioxide (CO₂) emissions is by no means “dead.”

The evolving Kerry-Graham-Lieberman legislation has a cap-and-trade system at its heart for the electricity-generation sector, with other sectors to be phased in later (and it employs another market-based approach, a series of fuel taxes for the transportation sector linked to the market price for allowances). Of course, due to the evolving political climate, the three Senators will probably not call their system “cap-and-trade,” but will give it some other creative label.

The competitor proposal from Senators Cantwell and Collins — the CLEAR Act — has been labeled by those Senators as a “cap-and-dividend” approach, but it is nothing more nor less than a cap-and-trade system with a particular allocation mechanism (100% auction) and a particular use of revenues (75% directly rebated to households) — and, it should be mentioned, some unfortunate and unnecessary restrictions on allowance trading.

And we should not forget that cap-and-trade continues to emerge as the preferred policy instrument to address climate change emissions throughout the industrialized world — in Europe, Australia, New Zealand, and Japan (as I wrote about in a recent post).

But back to the main story — the dramatic change in the political reception given in Washington to this cost-effective approach to environmental protection.

A Rapid Descent From Politically Correct to Politically Anathema

Among factors causing this change were: the economic recession; the financial crisis (linked, in part, with real and perceived abuses in financial markets) which thereby caused great suspicion about markets in general and in particular about trading in intangible assets such as emission allowances; and the complex nature of the Waxman-Markey legislation (which is mainly not about cap-and-trade, but various regulatory approaches).

But the most important factor — by far — which led to the change from politically correct to politically anathema was the simple fact that cap-and-trade was the approach that was receiving the most serious consideration, indeed the approach that had been passed by one of the houses of Congress. This brought not only great scrutiny of the approach, but — more important — it meant that all of the hostility to action on climate change, mainly but not exclusively from Republicans and coal-state Democrats, was targeted at the policy du jour — cap-and-trade.

The same fate would have befallen any front-running climate policy.

Does anyone really believe that if a carbon tax had been the major policy being considered in the House and Senate that it would have received a more favorable rating from climate-action skeptics on the right? If there’s any doubt about that, take note that Republicans in the Congress were unified and successful in demonizing cap-and-trade as “cap-and-tax.”

Likewise, if a multi-faceted regulatory approach (that would have been vastly more costly for what would be achieved) had been the policy under consideration, would it have garnered greater political support? Of course not. If there is doubt about that, just observe the solid Republican Congressional hostility (and some announced Democratic opposition) to the CO₂ regulatory pathway that EPA has announced under its endangerment finding in response to the U.S. Supreme Court decision in Massachusetts vs. EPA.

(There’s a minor caveat, namely, that environmental policy approaches that hide their costs frequently are politically favored over policies that make their costs visible, even if the former policy is actually more costly. A prime example is the broad political support for Corporate Average Fuel Economy (CAFE) standards, relative to the more effective and less costly option of gasoline taxes. Of course, cap-and-trade can be said to obscure its costs relative to a carbon tax, but that hardly made much difference once opponents succeeded in labeling it “cap-and-tax.”)

In general, any climate policy approach — if it was meaningful in its objectives and had any chance of being enacted — would have become the prime target of political skepticism and scorn. This has been the fate of cap-and-trade over the past nine months.

Why is Political Support for Climate Policy Action So Low in the United States?

If much of the political hostility directed at cap-and-trade proposals in Washington has largely been due to hostility towards climate policy in general, this raises a further question, namely, why has there been so little political support in Washington for climate policy in general. Several reasons can be identified.

For one thing, U.S. public support on this issue has decreased significantly, as has been validated by a number of reliable polls, including from the Gallup Organization. Indeed, in January of this year, a Pew Research Center poll found that “dealing with global warming” was ranked 21^st among 21 possible priorities for the President and Congress. (It should be noted some polls are not consistent with these.) This drop in public support is itself at least partly due to the state of the national economy, as public enthusiasm about environmental action has — for many decades — been found to be inversely correlated with various measures of national economic well-being.

Although the lagging economy (and consequent unemployment) is likely the major factor explaining the fall in public support for climate policy action, other contributing factors have been the so-called Climategate episode of leaked e-mails from the University of East Anglia and the damaged credibility of the Intergovernmental Panel on Climate Change (IPCC) due to several errors in recent reports.

Furthermore, the nature of the climate change problem itself helps to explain the relative apathy among the U.S. public. Nearly all of our major environmental laws have been passed in the wake of highly-publicized environmental events or “disasters,” ranging from Love Canal to the Cuyahoga River.

But the day after Cleveland’s Cuyahoga River caught on fire in 1969, no article in The Cleveland Plain Dealer commented that “the cause was uncertain, because rivers periodically catch on fire from natural causes.” On the contrary, it was immediately apparent that the cause was waste dumped into the river by adjacent industries. A direct consequence of the “disaster” was, of course, the Clean Water Act of 1972.

But climate change is distinctly different. Unlike the environmental threats addressed successfully in past legislation, climate change is essentially unobservable. You and I observe the weather, not the climate (note the dramatic difference of opinion about the reality of climate change between climatologists and television weathercasters). Until there is an obvious and sudden event — such as a loss of part of the Antarctic ice sheet leading to a disastrous sea-level rise — it’s unlikely that public opinion in the United States will provide the bottom-up demand for action that has inspired previous Congressional action on the environment over the past forty years.

Finally, it should be acknowledged that the fiercely partisan political climate in Washington has completed the gradual erosion of the bi-partisan coalitions that had enacted key environmental laws over four decades. Add to this the commitment by the opposition party to deny the President any (more) political victories in this year of mid-term Congressional elections, and the possibility of progressive climate policy action appears unlikely in the short term.

An Open-Ended Question

There are probably other factors that help explain the fall in public and political support for climate policy action, as well as the changed politics of cap-and-trade. I suspect that readers will tell me about these.

Unintended Consequences of Government Policies: The Depletion of America’s Wetlands

Private land-use decisions can be affected dramatically by public investments in highways, waterways, flood control, or other infrastructure. The large movement of jobs from central cities to suburbs in the postwar United States and the ongoing destruction of Amazon rain forests have occurred with major public investment in supporting infrastructure. As these examples suggest, private land-use decisions can generate major environmental and social externalities – or, in common language, unintended consequences.

In an analysis that appeared in 1990 in the American Economic Review, Adam Jaffe of Brandeis University and I demonstrated that the depletion of forested wetlands in the Mississippi Valley – an important environmental problem and a North American precursor to the loss of South American rain forests – was exacerbated by Federal water-project investments, despite explicit Federal policy to protect wetlands.

Wetland Losses

Forested wetlands are among the world’s most productive ecosystems, providing improved water quality, erosion control, floodwater storage, timber, wildlife habitat, and recreational opportunities. Their depletion globally is a serious problem; and preservation and protection of wetlands have been major Federal environmental policy goals for forty years.

From the 1950s through the mid-1970s, over one-half million acres of U.S. wetlands were lost each year. This rate slowed greatly in subsequent years, averaging approximately 60 thousand acres lost per year in the lower 48 states from 1986 through 1997. And by 2006, the Bush administration’s Secretary of the Interior, Gale Norton, was able to announce a net gain in wetland acreage in the United Sates, due to restoration and creation activities surpassing wetland losses.

What Caused the Observed Losses?

What were the causes of the huge annual losses of wetlands in the earlier years? That question and our analysis are as germane today as in 1990, because of lessons that have emerged about the unintended consequences of public investments.

The largest remaining wetland habitat in the continental United States is the bottomland hardwood forest of the Lower Mississippi Alluvial Plain. Originally covering 26 million acres in seven states, this resource was reduced to about 12 million acres by 1937. By 1990, another 7 million acres had been cleared, primarily for conversion to cropland.

The owner of a wetland parcel faces an economic decision involving revenues from the parcel in its natural state (primarily from timber), costs of conversion (the cost of clearing the land minus the resulting forestry windfall), and expected revenues from agriculture. Agricultural revenues depend on prices, yields, and, significantly, the drainage and flooding frequency of the land. Needless to say, landowners typically do not consider the positive environmental externalities generated by wetlands; thus conversion may occur more often than is socially optimal.

Such externalities are the motivation for Federal policy aimed at protecting wetlands, as embodied in the Clean Water Act. Nevertheless, the Federal government engaged in major public investment activities, in the form of U.S. Army Corps of Engineers and U.S. Soil Conservation Service flood-control and drainage projects, which appeared to make agriculture more attractive and thereby encourage wetland depletion. The significance of this effect had long been disputed by the agencies which construct and maintain these projects; they attributed the extensive conversion exclusively to rising agricultural prices.

In an econometric (statistical) analysis of data from Arkansas, Mississippi, and Louisiana, from 1935 to 1984, Jaffe and I sought to sort out the effects of Federal projects and other economic forces. We discovered that these public investments were a very substantial factor causing conversion of wetlands to agriculture, with between 30 and 50 percent of the total wetland depletion over those five decades due to the Federal projects.

More broadly, four conclusions emerged from our analysis. First, landowners had responded to economic incentives in their land-use decisions. Second, construction of Federal flood-control and drainage projects caused a higher rate of conversion of forested wetlands to croplands than would have occurred in the absence of projects, leading to the depletion of an additional 1.25 million acres of wetlands. Third, Federal projects had this impact because they made agriculture feasible on land where it had previously been infeasible, and because, on average, they improved the quality of feasible land. Fourth, adjustment of land use to economic conditions was gradual.

Government Working at Cross-Purposes

The analysis highlighted a striking inconsistency in the Federal government’s approach to wetlands. In articulated policies, laws, and regulations, the government recognized the positive externalities associated with some wetlands, with the George H.W. Bush administration first enunciating a “no net loss of wetlands” policy. But public investments in wetlands – in the form of flood-control and drainage projects – had created major incentives to convert these areas to alternative uses. The government had been working at cross-purposes.

The conclusion that major public infrastructure investments affect private land-use decisions (thereby often generating negative externalities) may not be a surprise to some readers, but it was the 1990 analysis described here that first provided rigorous evidence which contrasted sharply with the accepted wisdom among policy makers.

The Ongoing Importance of Induced Land-Use Changes

As wetlands, tropical rain forests, barrier islands, and other sensitive environmental areas become more scarce, their marginal social value rises. In general, if induced land-use changes are not considered, the country will engage in more public investment programs whose net social benefits are negative.