Journal Articles

Aldy, J. E., Kotchen, M. J., & Leiserowitz, A. A. (2012). Willingness to Pay and Political Support for a U.S. National Clean Energy Standard. Nature Climate Change , 2 596-599.Abstract

In 2010 and 2011, Republicans and Democrats proposed mandating clean power generation in the electricity sector [1,2,3,]. To evaluate public support for a national clean energy standard (NCES), we conducted a nationally representative survey that included randomized treatments on the sources of eligible power generation and program costs. We find that the average American is willing to pay $162 per year in higher electricity bills (95% confidence interval: $128  $260), representing a 13% increase [4], in support of a NCES that requires 80% clean energy by 2035. Support for a NCES is lower among non‐whites, older individuals, and Republicans. We also employ our statistical model, along with census data for each state and Congressional district [5], to simulate voting behavior on a NCES by Members of Congress assuming they vote consistent with the preferences of their median voter. We estimate that Senate passage of a NCES would require an average household cost below $59 per year, while House passage would require costs below $48 per year. The results imply that an “80% by 2035” NCES could pass both chambers of Congress if it increases electricity rates less than 5% on average.

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Aldy, J. E. (2011). Promoting Clean Energy in the American Power Sector. Environmental Law Reporter , 42, 10131-10149.Abstract

Despite bipartisan interest in advancing American energy policy, comprehensive energy and climate legislation fell short in the Senate last year after passing in the House of Representatives in 2009. The difficulty of coming to broad agreement highlights the need for a more targeted and incremental approach. One promising intermediate step would be a technology-neutral national clean energy standard that applies to the U.S. power sector. This paper proposes a standard that would lower carbon dioxide emissions by as much as 60 percent relative to 2005 levels over twenty years, streamline the fragmented regulatory system that is currently in place, generate fiscal benefits, and help fund energy innovation. Through a simple design and transparent implementation, the National Clean Energy Standard would provide certainty about the economic returns to clean energy that would facilitate investment in new energy projects and lower the emission intensity of the power sector. It would also serve as an ambitious bridge to economy-wide energy and climate policy

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(2011). Real-Time Economic Analysis and Policy Development During the BP Deepwater Horizon Oil Spill. Vanderbilt Law Review , 64 (6), 1795-1817.Abstract

The 2010 BP Deepwater Horizon oil spill posed near-term economic risks to the Gulf of Mexico region and raised questions about appropriate policies to mitigate catastrophic oil spill risks. This essay reviews the Obama Administration’s assessment of the economic vulnerabilities to the spill, the Administration’s May 12, 2010 legislative proposal focused on minimizing the adverse economic impacts to workers and small businesses in the Gulf of Mexico, and the effort to secure an agreement with BP to ensure that those harmed by the spill will receive full compensation. Then, the essay discusses several of the policy reforms advanced by the Administration to reduce the risks of future catastrophic oil spills, including the value of an industry consortium to provide deepwater well containment resources and the need to remove the arbitrary limit on liability for economic damages from offshore drilling. The essay closes with a few policy lessons learned from the spill.

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Aldy, J. E., Krupnick, A. J., Newell, R. G., Parry, I. W. H., & Pizer, W. A. (2010). Designing Climate Mitigation Policy. Journal of Economic Literature , 48 (4), 903-934.Abstract

This paper provides (for the nonspecialist) a highly streamlined discussion of the main issues, and controversies, in the design of climate mitigation policy. The first part of the paper discusses how much action to reduce greenhouse gas emissions at the global level is efficient under both the cost-effectiveness and welfare-maximizing paradigms. We then discuss various issues in the implementation of domestic emissions control policy, instrument choice, and incentives for technological innovation. Finally, we discuss alternative policy architectures at the international level.

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Robinson, L. A., Hammitt, J. K., Aldy, J. E., Krupnick, A., & Baxter, J. (2010). Valuing the Risk of Death from Terrorist Attacks. Journal of Homeland Security and Emergency Management , 7 (1), Article 14.Abstract

Regulations designed to increase homeland security often require balancing large costs against highly uncertain benefits. An important component of these benefits is the reduced risk of fatalities from terrorist attacks. While the risk to an individual appears small, the benefits may be large when aggregated over the population. U.S. regulatory agencies have well-established approaches for valuing mortality risks, but address risks that differ in significant respects from those associated with terrorism. The best available estimates of the value of small risk reductions, expressed as the value per statistical life (VSL), average about $6.5 million. However, terrorism-related risks may be perceived as more dreaded and ambiguous, and less controllable and voluntary, than the workplace risks underlying many VSL estimates. These factors may increase the VSL appropriate for terrorism risks, possibly doubling the value.

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Aldy, J. E., & Viscusi, W. K. (2008). Adjusting the Value of a Statistical Life for Age and Cohort Effects. Review of Economics and Statistics , 90 (3), 573-581.Abstract

To resolve the theoretical ambiguity in the effect of age on the value of statistical life (VSL), this article uses a novel, age-dependent fatal risk measure to estimate age-specific hedonic wage regressions. VSL exhibits an inverted-U-shaped relationship with age. In the year 2000 cross section, workers’ VSL rises from $3.7 million (ages 18–24) to $9.7 million (35–44), and declines to $3.4 million (55–62). Controlling for birth-year cohort effects in a minimum distance estimator yields a peak VSL of $7.8 million at age 46, and flattens the age-VSL relationship. The value of statistical life-year also follows an inverted-U shape with age.

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Aldy, J. E., & Pizer, W. A. (2008). Issues in Designing U.S. Climate Change Policy. The Energy Journal , 30 (3), 179-210.Abstract

Over the coming decades, the cost of U.S. climate change policy likely will be comparable to the total cost of all existing environmental regulation—perhaps 1–2 percent of national income. In order to avoid higher costs, policy efforts should create incentives for firms and individuals to pursue the cheapest climate change mitigation options over time, among all sectors, across national borders, and in the face of significant uncertainty. Well-designed national greenhouse gas mitigation policies can serve as the foundation for global efforts and as an example for emerging and developing countries. We present six key policy design issues that will determine the costs, cost-effectiveness, and distributional impacts of domestic climate policy: program scope, cost containment, offsets, revenues and allowance allocation, competitiveness, and R&D policy. We synthesize the literature on these design features, review the implications for the ongoing policy debate, and identify outstanding research questions that can inform policy development.

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Aldy, J. E., Ley, E., & Parry, I. W. H. (2008). A Tax-Based Approach to Slowing Global Climate Change. National Tax Journal , 61, 493-517.Abstract

In this paper, we discuss the design of carbon dioxide (CO2) taxes at the domestic and international level and the choice of taxes versus a cap-and-trade system. A strong case can be made for taxes on uncertainty, fiscal, and distributional grounds, though this critically hinges on policy specifics and how revenues are used. The efficient near-term tax is at least $5–$20 per ton of CO2 and the tax should be imposed upstream with incentives for downstream sequestration and abatement of other greenhouse gases. At the international level, a key challenge is the possibility that emissions taxes might be undermined through offsetting changes in other energy policies.

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Aldy, J. E., & Viscusi, W. K. (2007). Age Differences in the Value of Statistical Life: Revealed Preference Evidence. Review of Environmental Economics and Policy , 1 (2), 241-260.Abstract

Revealed preference evidence, especially based on wage-risk tradeoffs in the labor market, provides the primary empirical basis for analyses of the value of statistical life (VSL). This market evidence also provides guidance on how VSL varies with age. While labor market studies have generated conflicting evidence—some showing that VSL rises with age and others showing that VSL declines with age—more refined estimates that take into account the age variation in job fatality risks or life-cycle patterns of consumption show an inverted-U relation between the VSL and age. The value of a statistical life year shows a similar pattern and is not time-invariant. Applying estimates of the VSL-age relationship to an analysis of the Clear Skies initiative illustrates the implications of recognizing the age-VSL relationship.

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Viscusi, W. K., & Aldy, J. E. (2007). Labor Market Estimates of the Senior Discount for the Value of Statistical Life. Journal of Environmental Economics and Management , 53 (3), 377-392.Abstract

This article develops the first measures of age–industry job risks to examine the age variations in the value of statistical life. Because of the greater risk vulnerability of older workers, they face flatter wage-risk gradients than younger workers, which we show to be the case empirically. Accounting for this heterogeneity in hedonic market equilibria leads to estimates of the value of statistical life–age relationship that follows an inverted U shape. The estimates of the value of statistical life range from $6.4 million for younger workers to a peak of $9.0 million for those aged 35–44, and then a decline to $3.8 million for those aged 55–62. The decline of the estimated value of statistical life with age is consistent with there being some senior discount in the Clear Skies Initiative analysis.

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Aldy, J. E. (2007). Divergence in State-Level Per Capita Carbon Dioxide Emissions. Land Economics , 83 (3), 353-369.Abstract

Decisionmakers considering policies to mitigate climate change will benefit from information about current and future distributions of carbon dioxide (CO2) emissions. Examining the emissions dynamics of advanced economies that have experienced income convergence could provide insights about how distributions of country-level emissions may evolve over time if country-level incomes eventually undergo some convergence. This paper addresses the question of whether income convergence is sufficient for per capita CO2 emissions convergence by focusing on a set of advanced economies, the U.S. states. I undertake a variety of cross-sectional and stochastic convergence tests with two novel measures of 1960–1999 state-level CO2 emissions per capita—production (pre-electricity trade) CO2 and consumption (post-electricity trade) CO2—and with income per capita. Although incomes continue to converge, I find stark divergence in production CO2 per capita and no evidence of convergence for consumption CO2 per capita. Forecasts of future distributions show little convergence in emissions.

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Aldy, J. E. (2007). Energy and Carbon Dynamics at Advanced Stages of Development: An Analysis of the U.S. States, 1960–1999. The Energy Journal , 28 (1), 91-111.Abstract

This paper explores the relationships among economic development, energy consumption, and carbon dioxide (CO2) emissions by focusing on a set of advanced economies, the U.S. states. Energy consumption and emissions grew 50–60 percent on average over the 1960–1999 period. The states’ per capita energy consumption and emissions have grown on average 2 percent annually as income and population growth have outpaced improvements in energy intensity of output and carbon intensity of energy. The energy consumption income elasticity is positive but decreasing in income, although energy production takes an inverted-U shape, reflecting the electricity imports among high income states. The standard CO2 measure, corresponding to energy production, is characterized by an inverted-U environmental Kuznets curve. Adjusting emissions for interstate electricity trade yields an emissions– income relationship that peaks and plateaus. The carbon intensity of energy declines in income for total energy consumption and the industrial, residential, and commercial sectors.

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Aldy, J. E. (2006). Per Capita Carbon Dioxide Emissions: Convergence or Divergence? Environmental and Resource Economics , 33 (4), 533-555.Abstract

Understanding and considering the distribution of per capita carbon dioxide (CO2) emissions is important in designing international climate change proposals and incentives for participation. I evaluate historic international emissions distributions and forecast future distributions to assess whether per capita emissions have been converging or will converge. I find evidence of convergence among 23 member countries of the Organisation for Economic Co-operation and Development (OECD), whereas emissions appear to be diverging for an 88-country global sample over 1960–2000. Forecasts based on a Markov chain transition matrix provide little evidence of future emissions convergence and indicate that emissions may diverge in the near term. I also review the shortcomings of environmental Kuznets curve regressions and structural models in characterizing future emissions distributions.

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Aldy, J. E., Barrett, S., & Stavins, R. N. (2003). 13+1: A Comparison of Global Climate Change Policy Architectures. Climate Policy , 3 (4), 373-397.Abstract

We critically review the Kyoto Protocol and thirteen alternative policy architectures for addressing the threat of global climate change. We employ six criteria to evaluate the policy proposals: environmental outcome, dynamic efficiency, cost-effectiveness, equity, flexibility in the presence of new information, and incentives for participation and compliance. The Kyoto Protocol does not fare well on a number of criteria, but none of the alternative proposals fare well along all six dimensions. We identify several major themes among the alternative proposals: Kyoto is “too little, too fast”; developing countries (DCs) should play a more substantial role and receive incentives to participate; implementation should focus on market-based approaches, especially those with price mechanisms; and participation and compliance incentives are inadequately addressed by most proposals. Our investigation reveals tensions among several of the evaluative criteria, such as between environmental outcome and efficiency, and between cost-effectiveness and incentives for participation and compliance.

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Aldy, J. E., & Viscusi, W. K. (2003). The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World. Journal of Risk and Uncertainty , 27 (1), 5-76.Abstract

A substantial literature over the past thirty years has evaluated tradeoffs between money and fatality risks. These values in turn serve as estimates of the value of a statistical life. This article reviews more than 60 studies of mortality risk premiums from ten countries and approximately 40 studies that present estimates of injury risk premiums. This critical review examines a variety of econometric issues, the role of unionization in risk premiums, and the effects of age on the value of a statistical life. Our meta-analysis indicates an income elasticity of the value of a statistical life from about 0.5 to 0.6. The paper also presents a detailed discussion of policy applications of these value of a statistical life estimates and related issues, including risk-risk analysis.

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