This article in Law and Contemporary Problems explores the contrast between the movement toward environmental markets, characterized by the emergence of new carbon markets across the globe, and the renewed opposition to markets manifested in the pope’s encyclical and the views of some environmental advocates. It considers the arguments raised by these latter critics, explores alternative views of their concerns, and examines how market-based climate policies could be designed to alleviate these concerns. Others have examined the moral and ethical dimensions of market-based climate policies, but this article contributes to the literature by providing a contemporary examination of the papal encyclical’s prominent questioning of the use of markets to address climate change. 

Economists have long embraced the idea that services provided by nature have inherent economic value. Ecologists, other scientists, and many in the environmental advocacy community have more recently come to focus on the connection between natural systems and economic value. The broadening interest in the economic value of nature over the last two decades led to the emergence of the interrelated and now commonly used terms ecosystem services and natural capital. To inform Canadian policy, this article in a special issue of the journal Canadian Public Policy discusses some of the efforts that have been enacted elsewhere, with particular emphasis on those in the United States, and why some have been more successful than others.

The Paris Agreement sets forth an innovative and potentially effective policy architecture, a great deal remains to be done to formulate required rules and guidelines and to specify more precise means of implementation. Governments, other stakeholders, and researchers also need to think about constraints on the effectiveness of the agreement—and identify organizations and processes that could complement it and the United Nations Framework Convention on Climate Change process more broadly. In July 2016, the Harvard Project on Climate Agreements hosted a research workshop at the Harvard Kennedy School, the purpose of which was to identify options for elaborating and implementing the Paris Agreement—and to identify policies and institutions that might complement or supplement the Paris-Agreement regime. Participants, which included Nicholas Institute researchers Brian Murray and Billy Pizer, subsequently prepared the briefs that are included in this volume, based largely on their presentations at the workshop, addressing opportunities for—and challenges to—elaborating, implementing, and complementing the Paris Agreement. 

Canada, the United States, and Mexico have begun to recognize opportunities for harmonization on climate change policy as a way to decrease costs and increase the efficiency of actions to address climate change and to help all three countries achieve their greenhouse gas (GHG) emissions reduction goals pledged under the 2015 Paris Agreement. Some work is needed to understand how increased coordination on climate change policies in North America could address concerns such as competitiveness, emissions leakage, and policy consistency in the region. To begin the conversation on the potential for and impacts of climate policy harmonization in North America, The University of Ottawa’s Sustainable Prosperity (now Smart Prosperity Institute) and Duke University organized the first annual North American Climate Policy Forum, June 23-24, 2016. Using insights from the forum, this report describes how existing regulatory approaches to climate change as well as recently announced joint emissions reduction targets lay the groundwork for climate policy harmonization. It also describes four issue areas that present potential opportunities and challenges for climate policy harmonization and concludes with opportunities for future research.

In Nevada’s Diamond Valley, unsustainable groundwater pumping has decreased the aquifer’s water level, raising irrigators’ pumping costs and threatening the viability of existing wells and springs. Continued extraction in excess of natural recharge will trigger a legally required curtailment of water rights in the valley, which was recently declared a critical management area (CMA). The extent of rights curtailment is not mandated, but it could be as high as 64%, the amount required to reach the estimated natural recharge rate. The default policy for curtailment of water rights will occur according to the principle of prior appropriation, whereby rights are revoked in reverse order of their date of issuance. Rights granted most recently will be canceled first, and the revocation will proceed in order of increasing seniority until the government’s desired level of total water extraction is reached. Nevada law requires this intervention to occur within 10 years of the CMA declaration. This report analyzes the economic outcomes of sudden and alternative curtailment policies, using a hydro-economic model tailored to conditions in the region.

To reduce greenhouse gas emissions, some groups have proposed that the United States consider use of a carbon tax. But whether the nation will achieve a specific emissions goal is uncertain because the economy’s response to such a tax is uncertain. Ultimately, there is an underlying tradeoff between certainty about emissions and certainty about prices and costs. To reduce uncertainty about whether a tax will achieve specific emissions goals, additional mitigation measures could be called on if emissions exceed those goals by a given amount. However, such additional measures introduce uncertainty about costs. At the extreme, a commitment to achieve emissions targets at all costs would imply that costs could be quite high. Discussions of policy mechanisms to increase price and cost certainty under several current cap-and-trade programs confronted this same dilemma: how much uncertainty about emissions outcomes is acceptable given reciprocal uncertainty about costs? Viewed through a slightly different lens, mechanisms that balance emissions and cost uncertainty can be viewed as a way to structure a more careful compromise between economic and environmental interests. This policy brief discusses mechanisms that could increase emissions certainty under a carbon tax.

The electricity industry is evolving as changes in natural gas and coal prices, along with environmental regulations, dramatically shift the generation mix. Future trends in gas prices and costs of renewables are likely to continue moving the industry away from coal-fired generation and into lower-emitting sources such as natural gas and renewables. The U.S. Environmental Protection Agency’s Clean Power Plan (CPP) is likely to amplify these trends. The CPP rule regulates emissions from existing fossil generators and allows states to choose among an array of rate-based and mass-based goals. The analysis in this paper uses the electricity-dispatch component of the Nicholas Institute for Environmental Policy Solutions’ Dynamic Integrated Economy/Energy/Emissions Model to evaluate electricity industry trends and CPP impacts on the U.S. generation mix, emissions, and industry costs. Several coordinated approaches to the Clean Power Plan are considered, along with a range of uncoordinated “patchwork” choices by states. The model results indicate future industry trends are likely to make compliance with the Clean Power Plan relatively inexpensive; cost increases are likely to be on the order of 0.1% to 1.0%. Some external market conditions such as high gas prices could increase these costs, whereas low gas or renewables prices can achieve many of CPP goals without additional adjustments by the industry. However, policy costs can vary substantially across states, and may lead some of them to adopt a patchwork of policies that, although in their own best interests, could impose additional costs on neighboring states.

Many states are considering mass-based allowance trading programs to meet federal Clean Power Plan (CPP) requirements. Under a mass-based trading approach, states work with a certain number of allowances, or an allowance “budget,” that matches the total emissions limit for each year of the program. States have many options for distributing the allowances that power plants will need to cover their carbon dioxide emissions. They can directly give the allowances to specific parties, set them aside for a specific purpose, auction them, or use some combination of these options. Allowance distribution, more commonly known as “allocation,” may be the single-most important decision states will make when implementing mass-based trading programs. In making that decision, each state will want to carefully consider its goals, especially given that the total value of all allowances in its allowance budget is likely to dwarf the actual resource expenditures needed to bring its power plants into compliance. Allowance allocation determines how that value and CPP costs are distributed among electricity producers, consumers, and other stakeholders. States and the EPA have considerable experience with various allocation mechanisms. Consequently, the implications of different choices, which depend on a state’s economic regulatory context, are known. This paper describes the choices and their effects as well as explores potential goals and the allowance allocation methods best suited to achieve them.

Anaerobic digesters (ADs) can reduce waste volumes and capture methane emissions from concentrated animal feeding operations (CAFOs), but their adoption rate is low because their cost is high relative to other forms of waste management. Farmers who use ADs can attempt to sell carbon credits and nutrient credits as well as renewable electricity certificates (RECs) generated by on-site electricity production from captured methane. These credits and RECs can be used as marketable “offsets” that buyers can use to help meet their greenhouse gas and nutrient pollution reduction goals. One issue that arises is whether a single operation can sell into multiple credit markets by “stacking” credits—that is, receiving multiple environmental payments to finance the conversion to AD technology. This practice introduces the possibility that some credits might be “non-additional”—i.e., produce no incremental pollution reductions—and thus be suspect pollution offsets. Non-additionality in environmental credit stacking occurs when multiple payment streams do not produce incremental pollution reductions, thus allowing the credit buyer to pollute more than is being offset by the AD project. A possible solution to the stacking problem may be to allow stacking of all credits available at the time of AD installation, but to prohibit any further stacking if new credit streams become available after installation. This is a revised paper that was originally published in 2015.

In 2008, British Columbia implemented the first comprehensive and substantial carbon tax in North America. By 2012, the tax had reached a level of C$30/t CO₂, and it covered about three-quarters of all greenhouse gas emissions in the province. This article reviews existing evidence on the effect of the tax on greenhouse emissions, the economy, and the distribution of income, and it provides new evidence on public perceptions of the tax. Empirical and simulation models suggest that the tax has reduced emissions in the province by between 5 percent and 15 percent since being implemented. At the same time, models show that the tax has had negligible effects on the aggregate economy, despite some evidence that certain emissions-intensive sectors face challenges. Studies differ on the effects of the policy on the distribution of income; however, all studies agree that the effects are relatively small in this dimension. Finally, polling data show that the tax was initially opposed by the majority of the public but that three years post-implementation, the public generally supported the carbon tax.