BOOK REVIEW

ROBERT E. KOHNSouthern Illinois University at Edwardsville, U.S.A.

The International Yearbook of Environmental and Resource Economics 2002/2003:A Survey of Current Issues, Edited by Tom Tietenberg and Henk Folmer, EdwardElgar, Cheltenham, 2002, 426 pages.

This book is the third annual volume summarizing the latest developments in en-vironmental and resource economics, a field in which, according to the editorsof the series, Tom Tietenberg and Henk Folmer, ‘the literature is exploding interms of the number of topics addressed, the number of methodological approachesbeing applied and the sheer number of articles being written’. The editors areto be commended for originating this series and for engaging the collaborationof eminent specialists in their subdisciplines. Each chapter draws not only on itsauthor’s or authors’ expertise but on the work of major scholars in that same area.There is a combined total of almost a thousand references, averaging well overa 100 for each chapter. In drawing on such an extensive literature, this series ofyearbooks is the successor to William J. Baumol and Wallace E. Oates’ Theoryof Environmental Policy, that, over two editions, gathered together and inspired ageneration of environmental and resource economists.

In the first chapter, on climate change, Carlo Carraro of the University of Veniceaddresses the current interest in adaptations to global warming, such as floodcontrol and adjustments to drought and increases in sea level. Although it is theabatement of carbon dioxide that attacks the immediate cause of global warming,the long atmospheric life of greenhouse gases leaves the earth vulnerable to theunfavorable impact of past emissions. From an economic point of view, adaptationand abatement should be jointly pursued to the point that the marginal cost perunit of benefit for both kinds of activities are equal, but unfortunately, as Carraroreports, ‘Integrated studies do not yet explicitly report adaptation costs’. It may bethat one of the problems in putting the marginal costs of adaptation on a basis com-parable to abatement is that unknown numbers of endangered plant and wildlifespecies benefit from abatement, whereas the benefits of adaptation accrue almostentirely to humans.

Klaus Conrad of Mannheim University specializes in the application of com-putable general equilibrium models to environmental and resource issues. Amonghis contributions to the Yearbook is a useful demonstration of the ‘double dividend’effect. He shows that a carbon tax that reduces carbon dioxide emissions 10% in

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each country in Europe (the first dividend) would provide tax revenue that couldenable those countries to reduce the required contributions of employers to socialsecurity, which would increase the demand for labor (the second dividend). Conradis able to show that in all twelve countries in his computable general equilibriumsimulation, the favorable ‘substitution effect of labor for energy outweighs the neg-ative output effect resulting from lower growth when the tax is imposed’, so thatall countries in his model benefit by the double dividend. Conrad optimisticallysuggests the possibility of a ‘third dividend’ in the form of ‘more leisure’. Hisnumerical results are especially significant because, unlike the solutions of my ownnumerical general equilibrium models, such as the one in this journal, which ‘aresimulated with arbitrarily chosen equations and parameters’, and are meant simplyto portray optimal conditions (Kohn), Conrad’s computable general equilibriummodels are based on ‘elasticities of substitution ... [and the] magnitude of exogen-ous variables’ that are empirically determined, so that his solutions approximatereal world outcomes.

In the third chapter, which is as beautifully written as it is factually replete, Ray-mond B. Palmquist and V. Kerry Smith of North Carolina State University makethe case that hedonic property value techniques for measuring pollution damage‘are one of the ‘success stories’ of modern applied microeconomic analysis’. Theydescribe how economists, statistically regressing property values on site-specificpollution levels or on distances from a hazardous waste facility, are able to es-timate consumers’ willingness to pay to avoid damage from the offending toxicsubstance. Their chapter of the Yearbook relates several compelling examples oflaw suits, brought against polluters for environmental damages, that were signific-antly strengthened by hedonic evidence of what consumers had been found willingto pay to avoid the kind of damage that the plaintiffs had suffered.

One of the defining issues in environmental and resource economics today, mo-tivated by concerns over deforestation, desertification, extinction of species, anddepletion of natural resources caused by economic activity, is sustainability. Thereis sustainability when resources are being allocated so that the utility that will beenjoyed by representative individuals in future generations is at least as great asthat of the representative individual in the present generation. John C. V. Pezzeyof the Australian National University and Michael A. Toman, of Resources forthe Future distinguish weak versus strong sustainability. According to the weakdefinition, there is sustainability when the consumption of goods and the exist-ence of environmental resources are perfectly substitutable arguments in the utilityfunction, so that more manufactured goods and produced resources can perfectlysubstitute for diminutions of natural resources. According to the strong definition,there are minimum levels of particular environmental resources, below which thereis no substitutability of goods or of produced resources. These minimum levelsmay be ‘constraints that limit environmental degradation or ... [they may be] ‘hard’ecological constraints’.

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At the annual meeting of the American Association for the Advancement of Sci-ence, President Peter H. Raven warned ‘of the loss of fully two-thirds of all specieson Earth by the end of the century’ and was highly critical of the economist, BjornLomborg, who, calling himself ‘the skeptical environmentalist’, had counteredwith what Lomborg called ‘the more realistic figure of 0.7% over the next 50 years’(Raven, pp. 3–4, Lomborg, p. 249). Whether the actual rate of biodiversity loss willbe closer to the high estimate of 67% or to the low estimate, equivalent to 1.4% bythe end of the century, the loss of species, which is irredeemable, is almost entirelycaused by the economic activity of humans. Pezzey and Toman respect ‘absolutelimits on how much resource or system depletion or degradation is acceptable’ toadvocates of strong sustainability, and they are probably correct that ‘no advocateof strong sustainability argues for preserving all stocks’. It might, for example, bereasonable to sacrifice 1% of all species if that could guarantee the survival of theremaining 99%, but unfortunately no such guarantees are possible, and there willbe those who believe, even with the lowest expected extinction of 1.4% of species,that strong sustainability is an impossible dream.

The environmental movement in the 1960’s began with widespread public con-cern over the morbidity and mortality caused by air pollution. The fifth chapter ofthe Yearbook, by Anna Alberini of the University of Maryland and Alan Krupnickof Resources for the Future, confirms that the health effects of air pollution con-tinue to be the subject of important research, conducted now in developing coun-tries as well as in industrialized countries. Most of that research is focused onthe benefits of reducing the risk of premature death from air pollution, becausethey constitute 70 to 80% of the monetary benefits of abating pollutants such asground-level ozone and airborne particulate matter. Although economists custom-arily value a statistical life on the basis of the higher wage rates that employeesrequire for jobs that entail greater risks of fatality, Alberini and Krupnick anticipatethat estimates of the value of a statistical life will eventually be derived from studiesmore appropriately oriented to the environmental risks themselves and are able toprovide some interesting examples of research aimed in that direction.

John M. Antle of Montana State University and Bruce A. McCarl of TexasA&M examine the economics of carbon sequestration in agricultural soils. It iswell known that carbon is sequestered in trees, but not that some ‘80% of global[carbon] is stored in soils’ or that, with changes in tillage and cropping practices,U.S. farmers could sequester enough carbon to ‘offset about 10% of the U.S.commitment to Kyoto’. Because the marginal cost of sequestering carbon in soilranges ‘from near zero to hundreds of dollars’ per metric ton, this type of pollutioncontrol lends itself to market oriented incentives, though such incentives wouldhave to continue after the soil is saturated with carbon to ensure that farmers willstave off volatilization. Antle and McCarl see great promise in paying farmers indeveloping countries to sequester carbon, and the fine article by El-Fadel, Jamaliand Khorbotly on the potential of Lebanese land to sequester carbon, that recentlyappeared in the present journal, reveals a readiness of developing countries to take

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advantage of the kind of incentives that Antle and McCarl envisage (El-Fadel et al.,2002). While sequestration is not as permanent an antidote to global warming asemission abatement, because underground bacterial activity eventually releases thestored carbon, it can provide intermediate control while nations shift to renewablesources of energy, such as wind and solar power, for generating electricity.

In the seventh chapter of the Yearbook, David Harrison Jr., of National Eco-nomic Research Associates recounts the successful history of tradable permits incontrolling lead content in gasoline, ozone depleting chemicals and acid rain, andreaffirms the desirability of controlling climate change by such permits. ‘Under atypical tradable permit system’, he explains, ‘an aggregate cap on emissions is setand allocated initially to covered sources. Each source must hold permits to coverits emissions, with sources free to buy and sell permits from each other’. In thecase of the SO2 acid rain trading program, ‘trading appears to have reduced [com-pliance] costs by about one-third in the first five years of the program (Phase I) andappears poised to reduce costs by about one-half when the effects of banking andPhase II controls are taken into account’. In the case of greenhouse gas emissions,however, the Kyoto Protocol limits trading to developed countries, and though thisstill ‘could reduce overall costs’, it would be ‘substantially less than under fullinternational trading’.

Harrison’s ‘cost savings are in comparison to estimates of the costs that wouldhave been incurred if the same emission reductions had been achieved under acommand-and-control regime’. It is a limitation of Harrison’s information-richchapter that it compares tradable permits with command-and-control regulationsexclusively. Alternatively, Klaus Conrad in Chapter 2 simulates emission taxesas well as tradable permits with his computable general equilibrium models andnotes an important difference: ‘Whereas for taxes the recycling of revenues is animportant issue, for permits it is not because the initial endowment is based onthe grandfathering principle and not on auctioning the permits’. Accordingly, it isonly with emission taxes that the double dividend is attained. If global warming iscontrolled by emission taxes, Conrad assumes that each country would tax its ownemissions and distribute the tax revenue domestically. Some of this tax revenuecould be used to subsidize domestic sequestration of carbon and, through interna-tional grants of tax revenue, to subsidize sequestration in developing countries aswell. It is not a criticism of Harrison’s chapter that it does not consider emissiontaxes, for it is the tradable permits approach that the Kyoto Protocol mandated,largely under pressure from the Clinton Administration as a prerequisite for U.S.participation in the accord. However, given Carraro’s interest in an ‘idea of com-bining taxes and permits’, there may be a place for both taxes and permits ‘in thecase of climate change’.

The Yearbook concludes with a chapter that expands the scope of environmentaland resource economics in an exciting way. Bryan Norton and Ben A. Minteer, bothof the Georgia Institute of Technology, relate the history of environmental ethics, aphilosophical movement that has gone largely unnoticed by mainline economists,

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even though some of their basic ideas are challenged by it. Whereas environmentaleconomists tend to value nature and natural objects as commodities that can betraded off against manufactured goods, environmental ethicists oppose economicmeasures for valuing natural objects. They extend the ideas of ‘moral standing’and ‘intrinsic value’ from humans to ‘nonhumans, such as individual animals orecosystems’. Moreover, they insist on ‘evidences of intrinsic value beyond anyparticular human experiences’. Differences of opinion regarding what kinds of ob-jects have intrinsic value has ‘led to open schisms among academic environmentalethicists’, some of whom attribute intrinsic value to composites ‘such as species orecosystems’ while others insist that ‘only individual organisms [can] have intrinsicvalue’.

Pezzey and Toman position themselves in the mainstream when, in their chapterof the Yearbook, they assert that ‘our outlook is firmly anthropocentric, and oweslittle to ‘deep ecology’ thinking’. Yet their definition of strong sustainability al-lows the reader to test the arguments of environmental ethicists. Can manufacturedgoods and capital substitute for an endangered species that goes extinct as a resultof human incursions on its habitat? Does substitutability depend upon whether ornot the species is genetically close to some still flourishing species? Is a speciesan appropriate entity in the utility function or should it be individual membersof a species, and if the latter, does each member have such moral standing andintrinsic value that its loss, especially if it is the consequence of economic activity,can mean that human welfare has not been sustained? On such issues, Norton andMinteer call for interaction between mainstream environmental economists andenvironmental ethicists, which they say ‘will uncover or create shared values’ andpave the way for ‘collective actions’ on the difficult problems we face. The strongending to the Yearbook suggests that it will accelerate the explosion of interest inenvironmental and resource economics that fostered it in the first place.

References

El-Fadel, M., Jamali, D. and Khorbotly, D.: 2002, ‘Land use, land use change and forestry relatedGHG emissions in Lebanon: Economic valuation and policy options’, Water, Air, and Soil Pollut.137, 287–303.

Kohn, Robert E.: 2003, ‘Israel’s need to import freshwater’, Water, Air, and Soil Pollut. 143,(forthcoming).

Lomborg, Bjørn: 2001, The Skeptical Environmentalist: Measuring the Real State of the World,Cambridge University Press, Cambridge.

Raven, Peter H.: 2002, ‘Science, Sustainability, and the Human Prospect’, AAAS PresidentialAddress, Boston, 14 February 2002.