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Martin Weitzman’s Contributions to Environmental Economics

Many of the world’s most eminent economists and climate scientists gathered on October 11^th, 2018, at Harvard Kennedy School to celebrate and honor the career of Martin L. Weitzman, professor of economics at Harvard University, who is “retiring” following four decades of research and writing which have illuminated thought and policy across a broad range of important realms. During his “retirement,” Marty will serve as a Research Professor in Harvard’s Department of Economics.

The October 11^th event, “Frontiers in Environmental Economics and Policy: A Symposium in Honor of Martin L. Weitzman,” which drew about 250 people, was organized and hosted by the Harvard Environmental Economics Program (HEEP), with additional support from the Harvard University Center for the Environment and the Mossavar-Rahmani Center for Business and Government at the Kennedy School.

A video of the entire event is available here.

Having learned so much from Marty Weitzman, including during the 26 years that he and I have been co-hosting the Harvard Seminar in Environmental Economics and Policy, I was delighted to moderate the symposium. From the earliest days of planning the event until the day of the symposium, my team – Rob Stowe, HEEP Executive Director, Jason Chapman, HEEP Program Manager, and Casey Billings, HEEP Program Coordinator – and I were inspired by the breathtaking contributions Marty has made to the once-emerging and now mature global discipline of environmental economics.

In my blog essay today, I want to provide for those who could not attend a sense of what it was like to be there, and remind those who did attend what transpired.

Introducing Professor William Nordhaus

I began the symposium by introducing our keynote speaker, William D. Nordhaus, who just a few days earlier had been announced as a recipient of this year’s Nobel Prize in Economics for his work on modeling the economics of climate change and related public policies.

The cliche that “our speaker needs no introduction” certainly applied here, and so I was very brief, noting first that for nearly four decades, Bill Nordhaus has written about the economics of the environment. Building on his background as a macro-economist concerned about economic growth, Bill began to give particular attention to the role of energy generation and use in the 1970s, not long after beginning his academic career. What is truly remarkable is that it was in the early 1980s that he began working on the economics of global climate change, long before most other economists were even aware of the problem, let alone analyzed it.

Bill has been on the faculty at Yale University since 1967, where he is the Sterling Professor of Economics, and Professor in Yale’s School of Forestry and Environmental Studies. He is a member of the National Academy of Sciences, a Fellow of the American Academy of Arts and Sciences, a Distinguished Fellow of the American Economic Association, and a Research Associate of the National Bureau of Economic Research. In addition to his many scholarly achievements, he served as a Member of the President’s Council of Economic Advisers in the Carter administration.

What is particularly striking about Bill Nordhaus’s contributions is that — as long as I can remember — he has made his path-breaking DICE model of global climate change economics accessible to and usable by other researchers around the world.

Keynote Address by Bill Nordhaus

Bill launched his presentation, “The Intellectual Footprint of Martin Weitzman in Environmental Economics,” by stating that Marty “has changed the way we think about economics and the environment.” He then went on to itemize Weitzman’s impressive body of work, including his series of studies on the share economy; his research on the Soviet Union and central planning; his seminal 1974 paper, “Prices vs. Quantities,” which provided fresh insight on how regulatory policy can best be leveraged to maximize public good; and his work on so-called “fat tails” and the “dismal theorem,” which questioned the value of a standard benefit-cost analysis when conditions could result in catastrophic events, even if the probability of such events is very low.

But Nordhaus devoted much of his talk to highlighting Weitzman’s extraordinary contributions to the field of environmental economics, in particular, the economics of climate change and climate change policy. It was Weitzman’s “revolutionary” series of papers on the ideal measures of national income, Nordhaus stated, that focused early attention on the need to take the harmful impacts of pollution into account when tabulating the gross domestic product (GDP), a concept referred to as “Green GDP.”

“Our output measures do not include pollution,” said Nordhaus. “They include goods like cars and services like concerts and education, but they do not include CO₂ that is pumped into the atmosphere.” He explained that pollution abatement measures are often blamed for causing a drag on the economy, but aren’t credited for the health and welfare benefits they create.

“If our incomes stay the same but we are healthier, and live a year longer or ten years longer, that will not show up in the way we measure things,” Nordhaus remarked. “But we can apply these Weitzman techniques to value improvements in health and happiness.”

“Those who claim that environmental regulations hurt growth are completely wrong, because they are using the wrong yardstick,” Bill continued. “Pollution should be in our measures of national output, but with a negative sign, and if we use green national output as our standard, then environmental and safety regulations have increased true economic growth substantially in recent years…For this important insight we applaud Martin Weitzman, a radically innovative spirit in economics.”

A Panel of Leading Environmental Economists

Following the keynote address by Nordhaus, I welcomed to the stage fellow economists Maureen Cropper, Lawrence Goulder, Michael Greenstone, Charles Kolstad, Richard Newell, Robert Pindyck, and James Stock for a lively panel discussion. Each of these economists have themselves made important contributions to scholarship and policy in the environmental realm.

To each panelist, I posed a question about a different aspect of Marty Weitzman’s key contributions – ranging from climate change policy to biodiversity and fisheries management.

First, Richard Newell, the President and CEO of Resources for the Future (RFF) and a former student of Weitzman when he studied for his Ph.D. in Public Policy at the Harvard Kennedy School, described Weitzman’s seminal paper, “Prices vs. Quantities”, as a “gift that keeps on giving” for economists and policy makers invested in improving regulatory policy.

Next, Charlie Kolstad, a Senior Fellow at the Stanford Institute for Economic Policy Research, focused on Marty Weitzman’s research on biodiversity, and cited it for its “significance and importance.”

Third up was Larry Goulder, the Shuzo Nishihara Professor of Environmental and Resource Economics at Stanford University and a former colleague of Weitzman in the Harvard Department of Economics. Larry described the importance of Marty’s work on long-term discounting, and commended his 1998 paper on declining discount rate profiles, noting that it has affected public policies in Denmark, France, and Norway, as well as public discussion in the Netherlands, Sweden, and elsewhere. Larry noted that “it’s very important, because it affects decisions as to how much we should invest in infrastructure, in mitigation, and in other realms.”

Fourth on the panel was Bob Pindyck, the Bank of Tokyo-Mitsubishi Professor of Economics and Finance at the Sloan School of Management at MIT, who is very familiar with Marty Weitzman’s work on fat-tailed distributions, and has contributed to that literature himself. Bob cited Weitzman’s prescient 2007 paper “Subjective Expectations and Asset-Return Puzzles” for its significant influence upon the later modeling of the economics of catastrophic climate change.

Next was Jim Stock, the Harold Hitchings Burbank Professor of Political Economy at Harvard University. I asked Jim to comment on the effect of Marty’s work on the policy world. Jim started by crediting Weitzman for the “tremendous influence” his ideas have had upon the formation of public policy in the United States and around the world, citing the nine-state Regional Greenhouse Gas Initiative (RGGI), and the Clean Power Plan introduced by President Obama in 2015.

Sixth on the panel was Maureen Cropper, Distinguished University Professor and Chair of the Department of Economics at the University of Maryland. Maureen had kindly agreed to talk about Marty Weitzman’s research and outreach in the realm of fisheries management. Maureen explained that his modeling work in Iceland and elsewhere had affected thinking and discussion around the world regarding the use of taxes and quotas to regulate fishing industries. “This is another example of the use of a simple model and treatment of uncertainly that really did start a conversation among fisheries economists when it came out,” she said.

Finally Michael Greenstone, the Milton Friedman Professor in Economics at the University of Chicago, agreed to reflect on how Weitzman’s theoretical insights were fundamental as the foundation for sound empirical analysis. Greenstone noted that Marty’s work “takes something you are kind of confused about, and then after you read it, you can’t understand how in the world you were confused beforehand. It just clarifies things in a way that is really beautiful.”

A Book of Testimonials

Many of those who attended the symposium — and many who were not able to join us — wanted to tell Marty directly how they feel about him and his work. And so we assembled and presented to Marty a book in which we had compiled 60 testimonial letters, including from some of his admirers who could not be with us at the symposium, such as: Orley Ashenfelter, Greg Mankiw, Kerry Smith, Bob Solow, Nick Stern, Cass Sunstein, and others. As I presented Marty with the book of letters, I took a moment to read aloud from just one of the letters from another person who could not be with us:

When I was an undergraduate in the economics department at MIT, you were a bright and rising young star. Later, as a faculty member, I routinely assigned your papers to my environmental economics students. Your scholarship and your leadership enriched their experiences — and mine — tremendously.

I will never forget when you announced that you were moving on to Harvard — what a blow! —but the universe has seen fit to bring us together once again. It is an honor to acknowledge your extraordinary contributions to the field, and to thank you for shining a light for all of us.

All the best,

Larry

Lawrence Bacow, President, Harvard University

More Memories

The book did not end with the testimonial letters. On a personal note, it has been 26 years since Marty Weitzman and I launched the Harvard Seminar in Environmental Economics and Policy. Over those 52 semesters, we have hosted a total of 398 seminars! In the very first semester — the fall of 1992 — the seminar presenters included, among others, in alphabetical order: Bill Nordhaus, Kerry Smith, Bob Solow, Rob Stavins, Kip Viscusi, and Marty Weitzman.

In virtually every one of these 400 seminars, everyone in the seminar room – including me — learned not only from each seminar’s presenter, but from Marty’s concise and relevant questions which would inevitably go directly to the heart of the matter. So, I was pleased to include in the book copies of all 52 seminar schedules, beginning with the fall of 1992 and culminating with the fall of 2018. I will not say “concluding” with the fall of 2018, because I trust that my collaboration with Marty, which I have valued highly, will continue.

Marty Weitzman has been a treasure for Harvard and for the global scholarly community. All of us are confident that his contributions will continue to be forthcoming.

Marty Weitzman Responds

Following the Symposium, Weitzman took several minutes to reflect on his remarkable career, recognizing that while he has pursued projects across multiple disciplines, his research would often hit dead ends.

“I’m drawn to things that are conceptually unclear, where it’s not clear how you want to make your way through this maze,” he said. “It’s difficult to describe a creative process, but I get some sort of an inspiration…Most of the time it’s a waste of time because I can’t formalize it, so I try and try and just nothing comes of it. But occasionally it clicks and since it’s typically in an area that’s been understudied, that’s why it’s so dispersed across different fields.”

Weitzman spoke proudly of his work in environmental economics, stating that he “took a decisive step in that direction a few decades ago…getting into the forefront rather than…following everything that went on.” Yet he admitted that he is not very optimistic about the current pace of efforts to combat the harmful mid- and long-term impacts of global climate change.

“It’s not merely sufficient to cut back on carbon emissions or to stabilize carbon emissions. We’ve more or less done that in the last few years, although it could go either way,” he said. “The stuff that does the damage is the stock of carbon dioxide. To get the stock of carbon dioxide to go down, it has almost nothing to do with stabilizing the flow. You have to get the flow down to net zero. That’s what’s so difficult. And the public does not realize that. Victory on the flow front doesn’t translate into victory on the stock front, and that’s what counts.”

As is typical of his style, Marty did not reveal his future plans, saying only that they remain to be determined. But certainly all those in attendance at the symposium hope that he will continue contributing to the academic and policy discussions surrounding climate change and other critically important environmental economic issues.

What Should We Make of China’s Announcement of a National CO2 Trading System?

On December 19, 2017, the government of China announced that it is commencing development of a nationwide CO₂ trading system, that when launched will become the world’s largest carbon trading system, annually covering about 3.5 billion tons of CO₂ emissions in China’s electric power sector. That approaches twice the size of what is currently the world’s largest carbon trading system, the European Union Emissions Trading System, which accounts for about 2 billion tons per year, and is nearly nine times the size of the largest U.S. system, the California AB-32 cap-and-trade system, which covers about 400 million tons of annual emissions.

The ultimate purpose of the newly announced Chinese trading system is to help the country meets its emissions and renewable energy targets which are part of its Nationally Determined Contribution under the Paris Agreement, in particular, peaking its CO₂ emissions by 2030, and achieving 20% of the country’s energy supply from renewables. Note that coal currently accounts for 65% of China’s electricity generation. Wind and solar capacity have been growing rapidly, but still account for only 4% and 1% of generation, respectively.

The Chinese carbon market will double the share of global CO₂emissions covered by worldwide carbon-pricing systems to almost 25 percent. For this and other reasons, the December announcement was greeted with excited praise from climate activists (but simultaneously with disregard and skepticism from conservative opponents of climate action). The most reasonable assessment, however, is between those two extremes, as I explain in this essay. That said, the December announcement by China of its plan to develop and launch a nationwide CO₂ trading system is an important landmark on the long road to addressing the threat of global climate change.

Some Brief History for Context

In 2011, China’s 12^th Five-Year Plan (2011-2015) first included a statement about the government’s intention to develop – gradually – a nationwide carbon market. Subsequently, in 2013 and 2014, seven pilot emissions trading programs were launched in the cities of Beijing, Chongqing, Shanghai, Shenzhen, and Tianjin, plus two provincial systems in Guangdong and Hubei. In total, these covered some 3,000 sources, with total annual CO₂ emissions of 1.4 billion tons. The designs of the systems were intentionally varied, to facilitate learning, and allowance prices ranged from $3 to $10 per ton of CO₂.

Then, in the lead-up to the Paris climate negotiations, on September 25, 2015, President Xi Jinping met at the White House with U.S. President Barack Obama, and announced that China would launch its nationwide CO₂ trading system in 2017, presumably covering electricity, iron and steel, chemicals, cement, and paper production.

The announcement last month was the culmination of this brief history, as China seeks to move ahead with its “pledges” under the Paris Agreement, at the same time as the Trump administration in the United States intends to withdraw altogether from the Agreement (in November, 2020, the soonest that such withdrawal can take place under the rules of the Agreement).

What’s Known about the Chinese Carbon Trading System

China’s December announcement that it is commencing development of a nationwide CO₂ trading system, beginning with the electric power sector only, provided few details. Apparently, the system is intended to eventually include electricity, building materials, iron and steel, non-ferrous metal processing, petroleum refining, chemicals, pulp and paper, and aviation, but will start with the electricity sector alone. Like most operating systems in the world, it will regulate only CO₂, not other greenhouse gases (GHGs), which in China’s case means potentially addressing more than 80% of its total GHG emissions.

The system will not be a cap-and-trade system per se (unlike the CO₂ trading systems in Europe and California, for example), because there will not be an administratively set mass-based cap of some quantity of emissions. Rather, the trading system will be rate-based, meaning that it will be in terms of emissions per unit of electricity output. This is also called a tradable performance standard, whereby the government sets a performance standard (a benchmark emissions rate per unit of output), sources receive permits (allowances) based on their electricity output and their benchmark, and sources are allowed to trade. Such tradable performance standards have been used previously in a variety of contexts, including the U.S. EPA leaded gasoline phasedown in the 1990s, U.S. Corporate Average Fuel Economy (CAFE) standards to regulate motor-vehicle fuel efficiency, the Obama Administration’s Renewable Fuel Standard, and California’s Low Carbon Fuel Standard.

One objective of using this approach is to insulate – or at least cushion – the (electricity) sector and the larger economy from “carbon market shock.” By regulating the emissions rate (per unit of product output), rather than emissions per se, the rate-based approach may help mitigate the political worry about constraining economic growth, but does so by essentially rewarding (subsidizing) higher levels of output. This relative inefficiency of China’s rate-based system, compared with a mass-based cap-and-trade approach is highlighted in a new paper by Lawrence Goulder (Stanford University) and Richard Morgenstern (Resources for the Future) and one by William Pizer (Duke University)and Xiliang Zhang (Tsinghua University). (There is a parallel impact and concern – in cap-and-trade systems – with an output-based updating allocation, which can address competitiveness impacts but also introduces inefficiencies by subsidizing dirty production. This mechanism – which affects only energy-intensive and trade-exposed industries – was proposed in the Waxman-Markey climate legislation and is employed in California’s system.)

The rate-based approach is intended to have a smaller impact on marginal production costs than the mass-based cap-and-trade approach, and thereby is likely to have a smaller impact on the price of products (whether electricity or manufactured goods). This is the motivation for using this approach in an output-based updating allocation, as described above, and it carries with it the parallel disadvantage of insulating consumers from (some of) the social costs of their consumption decisions. The problem is exacerbated in the case of China’s evolving system because the performance standards (emission benchmarks) are set not only by sector, but by various categories of electricity production within the sector. As some categories are, in effect, subsidized by other categories, the cost-effectiveness of the overall system declines. There is a lack of incentive for the carbon market to move energy consumption from coal to natural gas, for example, because of the multi-benchmark approach.

Finally, it appears that allowances will be allocated without charge, at least in the early stages of the program, which has been typical of emissions trading systems in other parts of the world, and may lessen political resistance while also sacrificing potential efficiency gains associated with auctioning allowances and recycling revenues.

What’s Unknown about the Chinese Carbon Trading System

Among the key design elements that are unknown as of now (at least to me) are the following:

(1) What will the total allocation of allowances initially be and how will it change (presumably decrease) over time? Apparently the overall “cap” will be set by adding up the expected emissions of compliance entities, based on their historical emissions. Then, allocations will be reduced, presumably based on technology performance benchmarks.

(2) When will trading commence?

(3) What share of allowances will be distributed for free, and how many – if any – will be auctioned (and how will any auctions operate)?

(4) What provisions will there be for monitoring and enforcement, and will there be fines or other penalties for non-compliance?

(5) How will the system interact with other Chinese climate policies? This is an important question, because so-called “complementary policies” that seek to regulate sources under the cap of a cap-and-trade system can lead to perverse outcomes, as in the European Union and California.

(6) What is the time-path for expanding the scope of the system to include more sectors, and what sectors will be added?

(7) When and how, if at all, will China seek to link its system with carbon-pricing and other climate policies in other parts of the world?

Given all of these open questions plus the limited sectoral scope of the announced system, it is reasonable to ask: what should we make of all this?

How Significant was the Chinese Announcement?

The announcement, despite all the caveats, was a significant step along the road of climate change policy developments, because the Chinese system will eventually be very important, because of its magnitude and because of the importance of China in CO₂ emissions and climate change policy. However, the announcement was not a launch per se, but a statement about a forthcoming launch.

More broadly, the announcement and the eventual launch of the system will have significant effects on other governments around the world – regional, national, and sub-national. Some will be encouraged to launch or maintain their own carbon trading systems, and to increase the ambition of their systems. Why do I say this?

A frequently stated fear of adopting climate policies, including carbon pricing, is the competitiveness effects of those policies, due to emission, economic, and employment leakage. This is more a political issue than a real economic one, but it is nevertheless important. Since the greatest fear in this realm is that domestic factories will relocate to China, that concern will be greatly reduced – or at least it should be – when and if China has put in place a serious climate policy, whether through carbon markets or otherwise.

China is moving slowly and cautiously, which is wise. Not long ago, they were considering launching a system that would initially cover 7,000 companies in several sectors, but the 2017 announcement is of a system that covers 1,700 companies in the electricity sector alone. Of course, it is still important, given that the electricity sector (with its large coal and natural gas plants) accounts for fully a third of China’s CO₂ emissions.

During the next two years, the Chinese government – apparently through its National Development and Reform Commission (NDRC), which will administer the trading system – will begin by developing systems for data reporting, registration, & trading – gathering and verifying plant-level emissions data. This will facilitate the establishment of baselines for allocations of allowances. Beyond this, a wide range of rules will need to be established. Following some tests, the actual spot market may launch in 2020 (the same year the Paris Climate Agreement essentially replaces the Kyoto Protocol).

The Path Ahead

As inevitably seems to be the case, the best assessment of this new policy lies somewhere between the extremes. The December announcement by China was neither as exciting as some of the applause from climate activists might suggest, nor was the announcement as meaningless as conservatives have claimed.

Rather, cautious optimism seems to be in order. China is serious about climate change, and is thinking long-term. The country appears to be methodically working to develop a meaningful carbon trading system. What is important now is developing a robust system that can be effective, expanded in scope, and gradually made more stringent. Among the greatest challenges will be achieving the cooperation of the provincial governments, not to mention the compliance of the regulated entities.

Development of the system has begun, with the real launch of trading likely to take place in 2020, which is a key year for Chinese climate policy for other reasons, as well. In that year, China will release its next Five-Year Plan, and it will submit its updated Nationally Determined Contribution to the UNFCCC under the Paris Agreement. What will the United States be doing that year? Not much, just electing a President!

Environmental Economics – A Personal Perspective

Today, I wish to take a brief hiatus from reflecting on the current status of climate change policy, whether in the often traumatic context of policy pronouncements – or rather, Twitter messages – from U.S. President Trump and his administration, or in the broader, longer-term context of global actions. Rather, I want to seize on this mid-summer opportunity to think about the past rather than the present. In particular, I would like to reflect on the four decades in which I have been engaged in the world of environmental policy, most recently – for the past 30 years – as a scholar, from my professorial perch at Harvard.

This reflection is facilitated by the fact that two years ago, I was asked by the editor of the Singapore Economic Review, Professor Euston Quah, to write about the evolution of the field of environmental economics. I was pleased to do so, and I decided to take a quite personal approach to summarizing what otherwise would have required a rather Herculean effort. The result was published earlier this year: “The Evolution of Environmental Economics: A View from the Inside,” Singapore Economic Review, volume 62, number 2, 2017, pages 251-274.

[By coincidence, in just a few days, I am travelling to Singapore to make two presentations – on August 4^th at the 2017 Singapore Economic Review Conference, and on August 6^th at the 7th Congress of the East Asian Association of Environmental and Resource Economics.]

Evolution of the Field of Environmental Economics

Over the past three to four decades, environmental and resource economics has evolved from what was once a relatively obscure application of welfare economics to a prominent field of economics in its own right. The number of articles on the natural environment appearing in mainstream economics periodicals has continued to increase, as has the number of economics journals dedicated exclusively to environmental and resource topics. Likewise, the influence of environmental economics on public policy has increased significantly, particularly as greater use has been made of market-based instruments for environmental protection.

My article this year in the Singapore Economic Review provides one economist’s perspective on this twenty-year evolution, first by tracing it through personal reflections on the professional path that has led to my research and writing, and then by summarizing some highlights of my research. That article was itself rendered feasible because of two previous book projects.

In 1998, my tenth year on the Harvard faculty, I was asked by the British publisher, Edward Elgar Publishing Limited, if I would be willing to assemble my selected papers for a book. I responded with enthusiasm, and selected 23 articles from the 80 (published and unpublished) papers I had produced as of then – frequently with co-authors – from the time I received my Ph.D. in 1988 through 1999. Making the selection was not any easy task, but it was a rewarding one. I categorized my research into seven topic areas: generic issues in environmental economics; benefits and costs of environmental regulation, and the potential use of efficiency and other criteria for evaluating environmental goals; normative analysis of policy instruments; positive analysis of policy instruments; environmental technology innovation and diffusion; land-use change; and global climate change policy. The resulting volume, Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988-1999, was published in 2000.

In 2011, ten years after the publication of my first set of selected papers (1988-1999), Edward Elgar Publishing Limited suggested a second volume. I selected 26 articles from the many more (published and unpublished) papers I wrote over the decade. The papers again fell into seven (somewhat different) categories: generic issues in environmental economics; methods of environmental policy analysis; economic analysis of alternative environmental policy instruments; the economics of technological change; natural resource economics; domestic (national and sub-national) climate change policy; and international dimensions of climate change policy. This led to the publication in 2013 of Economics of Climate Change and Environmental Policy: Selected Papers of Robert N. Stavins, 2000-2011.

In those two volumes and in the recent article in the Singapore Economic Review, I not only summarized highlights of my research, but I also provided a description of the professional path I have taken. In this blog essay, I am pleased to offer an abridged version below (with the addition of some relevant hyperlinks).

A Professional Path

In retrospect, my professional path may appear somewhat direct, if not altogether linear, but it hardly seemed so as I travelled along it. The path I describe took me back and forth across the United States and to several continents, and it took me from physics to philosophy, to agricultural extension, to international development studies, to agricultural economics, and eventually to environmental economics. During this time, much has changed in the profession.

The early ascendency of the field of environmental economics, during the period from 1970 to 1990, was centered within departments of agricultural and resource economics, mainly at U.S. universities, and at Resources for the Future (RFF), the Washington research institution. Within most economics departments, environmental studies remained a relatively minor area of applied welfare economics. So, when I enrolled in the Ph.D. program in Harvard’s Department of Economics in 1983, and when I received my degree five years later, no field of study was offered in the field of environmental or resource economics.

Fortunately, Harvard permitted its graduate students to develop an optional, self-designed field as one of two fields on which they were to be examined orally before proceeding to dissertation research. Without a resident environmental economist in the Department of Economics (Martin Weitzman had yet to move to Harvard from the Massachusetts Institute of Technology), I developed an outline and reading list of the field through correspondence with leading scholars from other institutions, most prominently Kerry Smith, then at North Carolina State University. My proposal to prepare for and be examined in the field of environmental and resource economics (along with my other field, econometrics) was approved by the Department’s director of graduate study, Dale Jorgenson. So began my entry into the scholarly literature of the field.

But my interest in environmental economics pre-dated by a considerable number of years my matriculation at Harvard. Like many others before and since, I came to the field because of a personal interest in the natural environment (the origin of which I describe below). This personal interest evolved into a professional one while I was studying for an M.S. degree in agricultural economics at Cornell University in Ithaca, New York, in the late 1970’s, where my thesis advisor and mentor was Kenneth Robinson. I had originally gone to Cornell to study for a professional degree in international development, but found agricultural economics more appealing, largely because of the opportunity to examine social questions with quantitative methods within a disciplinary framework.

The faculty at Cornell and the care given to graduate students (including masters students like myself) were outstanding. Kenneth Robinson, my first mentor within the economics profession, became my ongoing role model for intellectual integrity. It was a sad day many years later, in 2010, when Professor Robinson passed away.

A course in linear algebra, brilliantly taught by S. R. Searle, inspired me to pursue quantitative methods of analysis, and I was fortunate to have the opportunity to study econometrics with Timothy Mount. One summer I had the privilege of learning about comparative economic systems in a small workshop setting from George Staller of the Cornell Department of Economics. Working with Bud Stanton, I had my first experience teaching at the university level, and with Olan Forker, I had my first try at serious writing. All of this led to my research and writing of an M.S. thesis, “Forecasting the Size Distribution of Farms: A Methodological Analysis of the Dairy Industry in New York State.” The methodology in question was a variable Markov transition probability matrix, the cells of which were estimated econometrically in a multinomial logit framework. Much to my surprise, this work subsequently received the Outstanding Master’s Thesis Award in the national competition of the American Agricultural Economics Association.

Armed with my M.S. degree, I moved from Ithaca to Berkeley, California, where I eventually met up with Phillip LeVeen, who had until shortly before that time been a faculty member in the Department of Agricultural and Resource Economics at the University of California, Berkeley. Phil was another superb mentor, and from him I learned the power of using simple models — by which I mean a set of supply and demand curves hastily drawn on a piece of scrap paper — to develop insights into real-world policy problems. He introduced me to a topic that was to occupy me for the next few years — California’s perpetual concerns with water allocation. I remember many afternoons spent working with Phil at his dining room table on questions of water supply and demand.

This work with Phil LeVeen led to a consultancy and then a staff position with the Environmental Defense Fund (EDF), the national advocacy group consisting of lawyers, natural scientists, and — then almost unique among environmental advocacy organizations — economists. This marked the beginning of what became an ongoing professional relationship with this rather remarkable organization. At EDF, I was able to experience for the first time the use of economic analysis in pursuit of better environmental policy. With W. R. Zach Willey, EDF’s senior economist in California, as a role model, and Thomas Graff, EDF’s senior attorney, as my mentor, I thrived in EDF’s collegial atmosphere, while thoroughly enjoying life in Berkeley’s “gourmet ghetto,” as my neighborhood was called. Sadly, Tom Graff — without whose passionate and wise mentorship I would not be where I am today — passed away in 2009 after a heroic battle with cancer.

Although I found the work at EDF rewarding, I worried that I would eventually be constrained — either within the organization or outside it — by my limited education. So, like many others in similar situations, I considered a law degree as the next logical step. In fact, I came very close to enrolling at Stanford Law School, but instead, in 1983, I accepted an offer of admission to the Department of Economics at Harvard, moved back east to Cambridge, Massachusetts, and began what has turned out to be a long-term relationship with the University.

But where did my interest in the natural environment begin? Not at Cornell; it was present long before those days. But it had not yet arisen when I was studying earlier at Northwestern University, from which I received a B.A. degree in philosophy, having departed from my first scholarly interest, astronomy and astrophysics.

Rather, the origins of my affinity for the natural environment and my interest in resource issues are to be found in the four years I spent in a small, remote village in Sierra Leone, West Africa, as a Peace Corps Volunteer, working in agricultural extension (in particular, paddy rice development). It was there that I was first exposed both to the qualities of a pristine natural environment and the trade-offs associated with economic development.

So, I had begun in astrophysics, moved to philosophy (both at Northwestern), then to agricultural extension in a developing country (Sierra Leone), then to international development studies and subsequently to agricultural economics (both at Cornell), then to environmental economics and policy (EDF), and eventually to graduate study in economics at Harvard.

My dissertation research at Harvard was directed by a committee of three faculty members: Joseph Kalt, Zvi Griliches, and Adam Jaffe. Joseph Kalt was the first faculty member at the Department of Economics to validate my interest in environmental and resource issues, and he was unfailingly generous to me and many other graduate students in making his office (and personal computer, then a rather scarce resource) available at all hours. Later a colleague at the Kennedy School, Joe provided examples never to be forgotten — that economics could be a meaningful and enjoyable pursuit, and that excellence in teaching was a laudable goal.

Zvi Griliches was not only my advisor and mentor, but my spiritual father as well. Generations of Harvard graduate students would offer similar testimony. My own father had died only a year before I entered Harvard, and Zvi soon filled for me many paternal needs. It is now approaching two decades since Zvi himself passed away. I felt as if I had lost my father a second time.

If Zvi Griliches provided caring and inspiration, Adam Jaffe provided invaluable day-to-day guidance. It was Adam who convinced me not to go on the job market in my fourth year with what would have been a mediocre dissertation, but to put in another year and do it right. That turned out to be some of the best professional advice I have ever received. Our intensive faculty-student relationship from dissertation days subsequently evolved into a very productive professional (and personal) one that continues to this day. The name of Adam Jaffe appears frequently in my curriculum vitae as a co-author; he has been and continues to be much more than that.

Although they were not members of my thesis committee, I should acknowledge two other faculty members at the Harvard Department of Economics who played important roles in my education. I was fortunate to take two courses in economic history (a department requirement) from Jeffrey Williamson, who had recently arrived from the University of Wisconsin. Williamson’s class sessions were as close as anything I have seen to being economic research laboratories. In class after class, we would carefully dissect one or more articles — examining hypothesis, theoretical model, data, estimation method, results, and conclusions. If there was any place where I actually learned how to carry out economic research, it was in those classes.

The other name that is important to highlight is that of Lawrence Goulder, then a faculty member at Harvard, and now a professor at Stanford. I say this not simply because he was willing to be my examiner in my chosen field of environmental and resource economics, nor because he subsequently became such a close friend. Rather, what is striking about my professional relationship with Larry is the degree to which he has been an unnamed collaborator on so many projects of mine. Although he and I have co-authored no more than a few articles, his name probably appears more frequently than anyone else’s in the acknowledgments of papers I have written. There is no one whose overall judgement in matters of economics I trust more, and no one who has been more helpful.

When I began graduate school at Harvard in 1983, it was my intention to return to EDF as soon as I received my degree. But by my third year in the program, I had decided to pursue an academic career, although one that was heavily flavored with involvement in the real world of public policy. Within the context of this professional objective, it was not a difficult decision to accept the offer I received in February, 1988, to become an Assistant Professor at the Kennedy School. Although some of the other offers I received at that time were also very attractive, the choice for me was obvious, and I have never regretted it — not for a moment.

I remain at the Kennedy School today, where I was promoted to Associate Professor in 1992 (an untenured rank at Harvard), and to a tenured position as Professor of Public Policy in 1997. In 1998, I accepted an appointment as the Albert Pratt Professor of Business and Government, and in 2017, I was appointed the A. J. Meyer Professor of Energy and Economic Development.

In the year 2000, I launched the Harvard Environmental Economics Program, which today brings together — from across the University — thirty-two Faculty Fellows and twenty-seven Pre-Doctoral Fellows, who are graduate students studying for the Ph.D. degree in economics, political economy and government, public policy, or health policy. The Program, which I continue to direct, forms links among faculty and graduate students engaged in research, teaching, and outreach in environmental, natural resource, and energy economics and related public policy, by sponsoring research projects, convening workshops, and supporting graduate (and undergraduate) education.

A key reason why the Program — and its various projects, including the Harvard Project on Climate Agreements — have been so successful is the marvelous administrative leadership and staff support it enjoys. Everyone who has been involved in virtually any way has come away impressed by our Executive Director, Robert Stowe, Program Manager, Jason Chapman, and Bryan Galcik, Communications Coordinator.

At the Kennedy School, I have had an excellent mentor, William Hogan, and a superb advisor and friend, Richard Zeckhauser. Over the years, six successive deans have provided leadership, guidance, and support (including abundant time for my research and writing) — Graham Allison, Robert Putnam, Albert Carnesale, Joseph Nye, David Ellwood, and Douglas Elmendorf. At Harvard more broadly, I have benefitted from regular interactions with Daniel Schrag, director of the Harvard University Center for the Environment, and Martin Weitzman of the Department of Economics. For two decades, Marty and I have co-directed a bi-weekly Seminar in Environmental Economics and Policy, which has provided me with frequent opportunities to learn both from seminar speakers and from Marty’s questions and comments.

I will also note that Harvard President Drew Faust has provided superb leadership of Harvard’s increasing research, teaching, and outreach activity on global climate change, and has been exceptionally supportive of my work on climate change policy. I will refrain from naming the many others at Harvard and elsewhere from whom I continue to learn — including my many co-authors — only because the list of such valued colleagues and friends is so long. Included have been a most remarkable set of Ph.D. students, many of whom have gone on to productive — indeed illustrious — careers.

Along the way, I have had my share of administrative responsibilities at Harvard, including serving as Director of Graduate Studies for the Doctoral Program in Public Policy and the Doctoral Program in Political Economy and Government, and Co-Chair of the Harvard Business School-Harvard Kennedy School Joint Degree Programs. Outside of Harvard, I have had the privilege of being a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, and the founding Editor of the Review of Environmental Economics and Policy, as well as a member of the Board of Directors of Resources for the Future, the Scientific Advisory Board of the Fondazione Eni Enrico Mattei, and numerous editorial boards. I must also note that I serve as an editor of the Journal of Wine Economics. In 2009, I was elected a Fellow of the Association of Environmental and Resource Economists.

What originally attracted me to the Kennedy School was the possibility of combining an academic career with extensive involvement in the development of public policy. I have not been disappointed. Indeed, a theme that emerges from my professional engagements over the past twenty-five years is the interplay between scholarly economic research and implementation in real-world political contexts. This is a two-way street. In some cases, my policy involvement has come from expertise I developed through research, following a path well worn by academics. But, in many other cases, my participation in policy matters has stimulated for me entirely new lines of research activity.

Finally, what I have characterized as involvement in policy matters is described at the Kennedy School as faculty outreach, recognized to be of great institutional and social value, along with the two other components of our three-legged professional stool — research and teaching. I should note that my outreach efforts have fallen into five broad categories: advisory work with members of Congress and the White House (for example, Project 88, a bipartisan effort co-chaired by former Senator Timothy Wirth and the late Senator John Heinz, to develop innovative approaches to environmental and resource problems); service on federal government panels (for example, my role as Chairman of the Environmental Economics Advisory Committee of the U.S. Environmental Protection Agency Science Advisory Board); on-going consulting — often on an informal basis — with environmental NGOs (most frequently, the Environmental Defense Fund) and private firms; advisory work with state governments; and professional interventions in the international sphere, such as service as a Lead Author for the Second and the Third Assessment Reports and a Coordinating Lead Author for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, professional roles with the World Bank and other international organizations, and advisory work with foreign governments.

Reflections on Common Themes

Preparing the brief professional autobiography for the 2000 and 2013 books and for the 2017 SER article caused me to review many of the several hundred articles, book chapters, and essays I have written over the years. This allowed me to identify some common themes that emerge from these more than two decades of research and writing.

First, there is the value — or at least, the potential value — of economic analysis of environmental policy. The cause of virtually all environmental problems in a market economy is economic behavior (that is, imperfect markets affected by externalities), and so economics offers a powerful lens through which to view environmental problems, and therefore a potentially effective set of analytical tools for designing and evaluating environmental policies.

A second message, connected with the first, is the specific value of benefit-cost analysis for helping to promote efficient policies. Economic efficiency ought to be one of the key criteria for evaluating proposed and existing environmental policies. Despite its limitations, benefit-cost analysis can be useful for consistently assimilating the disparate information that is pertinent to sound decision making. If properly done, it can be of considerable help to public officials when they seek to establish or assess environmental policies.

Third, the means governments use to achieve environmental objectives matter greatly, because different policy instruments have very different implications along a number of dimensions, including abatement costs in both the short and the long term. Market-based instruments are particularly attractive in this regard.

Fourth, an economic perspective is also of value when reflecting on the use of natural resources, whether land, water, fisheries, or forests. Excessive rates of depletion are frequently due to the nature of the respective property-rights regimes, in particular, common property and open-access. Economic instruments — such as ITQ systems in the case of fisheries — can and have been employed to bring harvesting rates down to socially efficient levels.

Fifth and finally, policies for addressing global climate change — linked with emissions of carbon dioxide and other greenhouse gases — can benefit greatly from the application of economic thinking. On the one hand, the long time-horizon of climate change, the profound uncertainty in links between emissions and actual damages, and the possibility of catastrophic climate change present significant challenges to conventional economic analysis. But, at the same time, the ubiquity of energy generation and use in modern economies means that only market-based policies — essentially carbon pricing regimes — are feasible instruments for achieving truly meaningful emissions reductions. Hence, despite the challenges, an economic perspective on this greatest of environmental threats is essential.

A Personal Message

On a personal level, the professional path I have taken offers confirmation that research can influence public policy, and that involvement in public policy can stimulate new research. The quest — both professional and personal — that took me from Evanston, Illinois, to Sierra Leone, West Africa, to Ithaca, New York, to Berkeley, California, and finally to Cambridge, Massachusetts suggests some consistency of purpose and even function. I find myself doing similar things, but in different contexts. It is fair to say that my professional life has taken me along a path that has brought me home. The words of T. S. Eliot (1943) ring true:

We shall not cease from exploration

And the end of all our exploring

Will be to arrive where we started

And know the place for the first time.

Writing these essays, this year’s article, and today’s blog post have forced me to reflect on the past, and think about the future. The twenty-two articles that comprised the first book of my selected papers and the twenty-six essays that comprised the second volume were the product of twenty-three years on the Harvard faculty (now almost 30 years). I continue to learn about environmental economics and related public policy from colleagues, collaborators, students, friends, and inhabitants of the ”real world” of public policy – individuals from government, private industry, advocacy groups, and the press. I hope my learning will continue.