Goings On for Summer 2010

RFF researchers have previously written about the role of liability rules in preventing environmental harm, including such diverse areas as toxic pollution, hazardous wastes, underground storage tanks, nuclear power, commercial space exploration, and oil spills. On oil spills, Mark Cohen, the vice president for research, has examined optimal liability rules and enforcement policy to prevent oil spills. He subsequently published research analyzing how the courts have treated firms held liable for causing environmental harms such as oil spills. James Boyd, a senior fellow, has written about liability rules and the role of financial responsibility requirements. More recently, Nathan Richardson, a visiting scholar, has reviewed the relevant environmental laws to determine the liability rules most likely facing BP and other firms involved in the current oil spill crisis.

Following the Gulf oil spill, the president ordered a moratorium on deepwater oil drilling off the U.S. coast. What impact would a permanent ban on offshore drilling have on the price of oil or our nation's energy security? What if the government were to impose new regulatory standards that raised the cost of drilling for oil by 10 to 20 percent? Stephen Brown, a non-resident fellow, has studied these issues and reports on the impact of an offshore drilling moratorium or an increase in regulatory costs.

Many RFF Fellows have worked on developing methodologies and assessing natural resource damages. During the Exxon Valdez spill, Raymond Kopp, a senior fellow, was part of a team that evaluated the public's willingness-to-pay to avoid wildlife destruction in the Alaskan spill. Jim Boyd has written extensively on natural resource damages in a marine context, including a recent paper explaining the concept of lost ecological wealth and its relevance to natural resource damages. He shows how the Gulf Coast oil spill could change the way in which ecosystem damages are estimated going forward.

As policymakers begin to reassess how catastrophic risk is accounted for in regulatory policy, RFF'S expertise in this subject may be particularly useful. Roger Cooke, the Chauncey Starr Senior Fellow, is an expert on uncertainty and risk analysis and has written on such diverse topics as health risks from oil fires in Kuwait following the first Gulf War, chemical weapons disposal, nuclear risk, etc. Carolyn Kousky, an RFF fellow, is an expert on natural resource management and decisionmaking under uncertainty and has studied how both individuals and policymakers respond to changes in extreme events. Both of these researchers together have recently analyzed the extent to which extreme catastrophic events can be predicted and insured against.

"We are now grappling with how we should change and indeed, transform, our energy system to deal with global warming over decades ahead," Sharp said. "Significantly cutting emissions of greenhouse gases is a daunting challenge—global in scope, reaching deep into our economy, and requiring a long-term focus."

In the United States and elsewhere, major public and private efforts are underway to change the way we produce and use energy, Sharp said. Many incentives have been put in place to advance energy efficiency, renewables, and lower-carbon fuels, and to develop potentially critical technologies such as carbon capture and storage and advanced nuclear reactors.

"The hard challenge is to design a policy framework or architecture that will hold up over many years and change our economy in the most cost-effective way," Sharp said.

"We appear to have a choice between two broad strategies: put a rising price on carbon or regulate emitters of carbon under the current provisions of the Clean Air Act. Pricing carbon, of course, can be accomplished either by adopting a tax that rises over time or adopting a cap on emissions with allowance trading—or some combination of the two. Either strategy—pricing carbon or regulating emitters—can put us on a path to cut emissions; both will spur some level of technological innovation."

Most economists and many policy analysts, however, believe the pricing option is superior in terms of finding the least-costly emissions reductions and providing incentives for continuous technological innovation.

"Of course, in judging either strategy it is critical to know the details where the devil and angels reside," Sharp said. "In pursuing such a long-term challenge requiring persistent policy, there are a few, perhaps obvious, lessons from our previous experience:

• We should pursue a portfolio of fuels and technologies—indeed, a portfolio of policies. Do not put all your eggs in one basket, as the saying goes. • We should periodically conduct major assessments of the effectiveness of our policies—perhaps every four to five years. Such evaluation should not only be done inside the government, but also independently of the government. Congressional committees, naturally, will need to continue their critical oversight role. • And, whenever possible in policymaking, we should capitalize on the dynamism competitive markets can provide in meeting our policy goals."

"Unless the nation responds aggressively to the challenges of energy security and climate change, the energy system of the future will look very much like the one of today," Fri said. It will be cleaner as environmental regulations continue to tighten and increasingly efficient as old capital stock turns over. Electricity will continue to be produced mostly by burning fossil fuels and most light-duty vehicles will continue to rely on gasoline. "But more of the same is not destiny," Fri said, outlining four strategies that would help government policy spur technological change in the private sector:

Align private incentives with public goals. Both price signals and regulation can provide the necessary incentive to drive innovation: the former is usually more directly linked to the desired outcome (pricing carbon directly affects carbon dioxide production, for example) and the latter can also have a potent effect as has been the case with refrigerator efficiency and light-duty vehicles. But the danger of unintended side effects must be considered: the efficiency standard for light-duty vehicles substantially reduced fuel-consumption but it also helped induce a vast market for unregulated trucks posing as sports utility vehicles.

Fund purpose-driven basic research. Basic research will be essential for creating an energy system that is affordable and effective but it must be plausibly connected to desired outcomes. One way would be to focus on fundamental changes in our energy options, such as artificial photosynthesis, which could revolutionize the capture and storage of solar energy. Another would be to encourage experts from diverse disciplines, such as nanotechnology and genomic engineering, to converge on a problem.

Focus applied research to overcoming well-defined market barriers. Unlike basic research, the Department of Energy's applied research programs cover fairly well-defined technologies, which in some cases have a reasonable chance of market success if they meet attainable technical and commercial goals. Market barriers could be a risk that an innovator is unwilling to accept, such as demonstration of carbon capture and stor-age, or a problem of market structure, as is often the case in adopting energy efficiency measures

Invest with great care in technologies that do not yet have markets. In the past, government energy programs have invested heavily in technologies that were not competitive at the time but seen as needed in the future to meet public policy goals. Unfortunately, such programs usually don't work out very well. The market turns out not to materialize, or if it does, addresses the problem in ways that were not foreseen. The crash of oil prices in the 1980s—not the synthetic fuels program—solved the looming oil crisis of the 1970s. "This is not to say, of course, that government should never invest in insurance policies, only that it should do so with its eyes open," Fri said.

As RFF expands and focuses its research horizons on emerging policy areas, it has concentrated on recruiting notable academicians to fill key senior-level roles. That effort has attracted five leading scholars who are steeped in policy experience drawn from their work in academia as well as government.

The newest additions to the research staff will augment RFF work in a variety of disciplines, including ecosystem management, energy efficiency, solar power, fuel economy, food and drug safety, land and water conservation, urban congestion, and mass transit.

Researchers joining RFF so far in 2010 include Fellows Joshua Linn and Lucija Muehlenbachs, Visiting Scholars Randall Lutter and P. Lynn Scarlett, and Nonresident Fellow Kenneth Small.

"We are delighted that these outstanding individuals are part of the RFF family," said President Phil Sharp. "Their backgrounds and perspectives will further solidify our reputation for sound and serious research." Vice President for Research Mark Cohen added that "the range of academic and policy experience that these new researchers bring to RFF will be enormous assets to our policy re-search."

Joshua Linn: Linn's research focuses on corporate responses to environmental regulation and market incentives. Several of his studies have investigated the effect of the Corporate Average Fuel Economy standards on new vehicle characteristics and the effects of different regulatory instruments on technology adoption in the electric power sector. In research on the manufacturing sector and new vehicle markets, Linn has empirically studied the effect of prices on energy efficiency and new vehicle fuel economy. He has published in leading general interest and field journals in environmental, energy, and health economics.

Linn joined RFF as a fellow in March 2010. Previously, he was an assistant professor in the Economics Department at the University of Illinois at Chicago and a visiting research scientist at MIT, where he served as the executive director of the MIT Study of the Future of Solar Energy.

Randall Lutter: Lutter, a former chief economist and deputy commissioner for policy at the U.S. Food and Drug Administration (FDA), joined RFF as a visiting scholar on May 1. His research will focus on the economics of selected regulatory issues related to risk, including food safety and the environment.

During his tenure at FDA, Lutter oversaw policies on a variety of public health concerns, ranging from pandemic flu countermeasures to the risks of imported and counterfeit drugs, and from nanotechnology to genetically engineered animals. He also changed the management of FDA'S advisory committees to improve transparency and predictability.

Before joining FDA in 2003, Lutter was a resident scholar with the American Enterprise Institute and a fellow with the AEI-Brookings Joint Center for Regulatory Studies. From 1991 to 1997, he served at the Office of Management and Budget in the Office of Information and Regulatory Affairs, and from 1997 to 1998 he was senior economist for regulation and the environment at the President's Council of Economic Advisers.

Lutter coedited the 2004 RFF Press book, Painting the White House Green: Rationalizing Environmental Policy Inside the Executive Office of the President, which examined the interface between economics and environmental policymaking at the top levels of the federal government.

He received his B.A. in economics from the University of California at Berkeley and his M.A. and Ph.D. in economics from Cornell University.

Lucija Anna Muehlenbachs: Muehlenbachs, who joined RFF as a fellow on July 1, will pursue research on energy-related topics as part of the Center for Energy Economics and Policy. A 2002 graduate of the University of Alberta, Muehlenbachs received her PH.D. in agricultural and resource economics in 2009 at the University of Maryland.

Muehlenbachs has used computational methods to study issues in the oil and gas industry. She has experience in structural estimation of dynamic programming models, and has estimated conventional oil and gas extraction costs as well as the probability of change in recoverable reserves, production, and prices. Her current research interests lie in financial assurance of environmental liability, public disclosure of environmental violations, and oil and gas activity on First Nation reserve lands.

P. Lynn Scarlett: Scarlett, deputy secretary and chief operating officer at the U.S. Department of the Interior from 2005 to 2009, has joined RFF as a visiting scholar, focusing on climate change and its effects on land, water, and wildlife; conservation policies; and ecosystem adaptation strategies. Her research will explore the nexus of science and policy, the challenges of large landscape conservation, and the opportunities of using natural landscapes to benefit communities.

From 1982 through 2001, Scarlett held a variety of positions at the Los Angeles—based Reason Foundation, a nonpartisan public policy organization. She served briefly as president of the organization in 2001 before being appointed to the Interior Department.

After leaving government, she was named the Zurich Financial Services Distinguished Visiting Lecturer on Climate Change at the Bren School of Environmental Science and Management at the University of California, Santa Barbara. She also has been an independent consultant with the Environmental Defense Fund on issues pertaining to climate, ecosystem services, and stewardship of open lands.

She is a member of the Commission on Climate and Tropical Forests, and from 2003 to 2004, she chaired the Wildland Fire Leadership Council, an interagency, intergovernmental forum for implementing the National Fire Plan. She serves on the boards of the American Hiking Society, the Continental Divide Trail Alliance, and RESOLVE, and is a trustee emeritus of the Udall Foundation.

Scarlett received her B.A. and M.A. in political science from the University of California, Santa Barbara, where she also completed doctoral coursework and exams in political science.

Kenneth A. Small: Small, research professor and professor emeritus of economics at the University of California at Irvine, is RFF's newest nonresident fellow. He specializes in urban, transportation, and environmental economics, with recent research covering urban highway congestion, measurement of value of time and reliability, effects of fuel efficiency standards, public transit pricing, and fuel taxes.

Previously, Small was associate editor of Transportation Research Part B—Methodological, and he remains on the editorial boards of that and four other professional journals. He was also North American coeditor of the international journal Urban Studies. Small has served on several study committees of the National Research Council, examining cost–benefit analysis and the federal program on congestion management and air quality. His book, Urban Transportation Economics, was recently updated in a new edition (Economics of Urban Transportation), which has become a widely cited standard reference in the field.

Small was honored in 1999 with the distinguished member award by the Transport & Public Utilities Group of the American Economic Association, and in 2004 with the distinguished transportation research award by the Transportation Research Forum. He has advised many public and private groups including the Canadian Royal Commission on National Passenger Transportation, the European Union, the South Coast Air Quality Management District, the World Bank, and the California Air Resources Board.

Resources for the Future was awarded the FEEM 20th Anniversary Prize in Environmental Economics at the Fourth World Congress of Environmental and Resource Economists held in June in Montreal, Canada.

FEEM (Fondazione Eni Enrico Mattei) is a nonpartisan research institution headquartered in Italy that is devoted to the study of sustainable development and objective analysis on a wide range of environmental, energy, and global economic issues. The prize celebrates the 20th anniversary of FEEM'S founding in 1989. Corecipient of the prize is Martin L. Weitzman, professor of economics at Harvard University. The prizes bestow a monetary award of €10,000 to each awardee.

In awarding the prize, judges of the international competition, considering more than 90 nominations, said:

"It is difficult to think of any group of economists who have had more impact in environmental economics, particularly in terms of its extension to actual policymaking, than Resources for the Future. RFF has probably incubated more research and made more advances than any other organization by getting researchers started on careers, by supporting a distinguished staff of senior researchers, and by providing infrastructure for the profession in general.

Acknowledged as the organization that got environmental and resource economics off the ground in the '50s and '60s, RFF remains highly influential and productive in the field of research, and continues as a leader in effective interface with the policy process and in capacity building. Particularly in the United States, RFF invented the field as a serious contributor to policy choices and key driver of market-based environmental policy.

RFF has pioneered the application of economics as a tool to develop more effective policy about the use and conservation of natural resources. Its scholars continue to analyze critical issues concerning pollution control, energy and transportation policy, land and water use, hazardous waste, climate change, biodiversity, ecosystem management, public health, and the environmental challenges of developing countries."

In accepting the award, RFF President Phil Sharp expressed the institution's deep gratitude and emphasized the important role that resource and environmental economics plays in helping address global challenges. RFF will use its share of the prize to support further research and continue its tradition of objective analysis.

Following the award presentation, Richard Schmalensee, a member of the RFF Board of Directors and former dean of the Sloan School at MIT, gave the session's keynote speech on the structure and merits of various renewable energy policy options.