Publications

2009
Aldy, J. E., & Stavins, R. N. (2009). Towards a Post-Kyoto International Climate Policy Regime. In J. Delgado & S. Gardner (Ed.), Beyond Copenhagen: A Climate Policymaker’s Handbook (pp. 53-59) . Bruegel Books.
2008
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.

Full Paper.pdf
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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2007
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.

Full Paper.pdf
Aldy, J. E., & Stavins, R. N. (2007). Architectures for an International Global Climate Change Agreement: Lessons for the Policy Community. In J. E. Aldy & R. N. Stavins (Ed.), Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (pp. 350-367) . Cambridge University Press.
Aldy, J. E. (2007). Assessing the Costs of Regulatory Proposals for Reducing U.S. Greenhouse Gas Emissions. In R. J. Kopp & W. A. Pizer (Ed.), Assessing U.S. Climate Policy Options (pp. 53-68) . Resources For The Future.
Aldy, J. E., Morgenstern, R., Herrnstadt, E. M., Ho, M., & Pizer, W. A. (2007). Competitiveness Impacts of Carbon Dioxide Pricing Policies on Manufacturing. In R. J. Kopp & W. A. Pizer (Ed.), Assessing U.S. Climate Policy Options (pp. 95-105) . Resources For The Future.
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.

Full Paper.pdf
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., & Stavins, R. N. (2007). Introduction: International Policy Architecture for Global Climate Change. In J. E. Aldy & R. N. Stavins (Ed.), Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (pp. 1-27) . Cambridge University Press.
2006
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.

Full Paper.pdf
2004
Aldy, J. E. (2004). Saving the Planet Cost-Effectively: The Role of Economic Analysis in Climate Change Mitigation Policy. In R. Lutter & J. F. Shogren (Ed.), Painting the White House Green: Rationalizing Environmental Policy Inside the Executive Office of the President (pp. 89-118) . Resources For The Future.
2003
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., Baron, R., & Tubiana, L. (2003). Addressing Cost: The Political Economy of Climate Change. In Beyond Kyoto: Advancing the International Effort Against Climate Change (pp. 85-110) . Pew Center on Global Climate Change. Full Text.pdf
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.

Full Paper.pdf
2000
Aldy, J. E. (2000). Can Annex I Countries Meet Their Emissions Targets at Modest Costs? In C. E. Walker, M. A. Bloomfield, & M. Thorning (Ed.), The Kyoto Commitments: Can Nations Meet Them with the Help of Technology? (pp. 67-73) . Washington, DC, American Council for Capital Formation.

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