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Too rapidly rising carbon taxes or the introduction of subsidies for renewable energies induce owners of fossil fuel reserves to increase their extraction rates for fear of their reserves becoming worthless. Fossil fuel use is thus brought forward. The resulting acceleration of global warming and counter-productivity of well-intended climate policy has been coined the Green Paradox by Hans-Werner Sinn and is the intertemporal analogue of the often discussed problem of carbon leakage in the global economy. How robust are these insights? The answer is it depends. These policies typically induce fossil fuel owners to also leave more reserves unexploited in the crust of the earth, which limits the total stock of carbon in the atmosphere and thus curbs global warming ultimately. This volume presents a range of studies which extends the basic analysis to allow for clean energy alternatives such as solar and wind power, dirty energy alternative such as coal and the tar sands, the different elasticities of substitution between all these energy sources, and the intricate strategic issues between different countries on the globe. This offers deeper and more nuanced insights into the Green Paradox with some refreshing policy perspectives.

Energy utilization, especially from fossil fuels, creates hidden costs in the form of pollution and environmental damages. The costs are well-documented but are hidden in the sense that they occur outside the market, are not reflected in market prices, and are not taken into account by energy users. Double Dividend presents a novel method for designing environmental taxes that correct market prices so that they reflect the true cost of energy. The resulting revenue can be used in reducing the burden of the overall tax system and improving the performance of the economy, creating the double dividend of the title. The authors simulate the impact of environmental taxes on the U.S. economy using their Intertemporal General Equilibrium Model (IGEM). This highly innovative model incorporates expectations about future prices and policies. The model is estimated econometrically from an extensive 50-year dataset to incorporate the heterogeneity of producers and consumers. This approach generates confidence intervals for the outcomes of changes in economic policies, a new feature for models used in analyzing energy and environmental policies. These outcomes include the welfare impacts on individual households, distinguished by demographic characteristics, and for society as a whole, decomposed between efficiency and equity.

This book is the result of a workshop about emission permit markets in Venice, organized by the editors in collaboration with CESifo. The individual contributions were written independently of each other and differ in topic and methodology, yet they share the underlying theme of theoretical and empirical research in emission permit markets. The chapters are grouped into four thematic sections: A discussion of the development of the EU ETS since its beginning to the present; political economy considerations; interactions with parallel instruments for climate policy; and firm behavior in this new market. Although all contributions are economic in nature, they depart from rigorous assumptions often encountered in economics research, or examine to what extent market participants’ action can in fact be explained by neoclassical theory. The overall findings are that the market appears to work in the sense that there is a single price for allowances, and that emissions have been kept below the cap. However, several chapters show that the market is not fully efficient due to reasons such as rent seeking, transactions costs, limited information, regulatory uncertainty, over-allocation and interactions with other climate instruments. Some of these problems have been addressed by the European Commission in the context of rule changes for Phase 3, whereas others have been mitigated by learning on behalf of market participants. Overall, we view the EU ETS as a successful implementation of market-based environmental policy. However, in order to improve the ecological efficiency of the scheme, the future emissions cap should be decreased.

Among the questions tackled by Evan Hillebrand and Stacy Closson in this book are the following: Will there be more wars or peace? What country or countries will dominate, and which ones will fade in geopolitical significance? Will the unprecedented sixty year surge in world economic growth continue or come to an end? And will shortages of energy or other resources constrain the global future? This book offers a new approach to creating outlooks that consider the interconnectedness of three key drivers—economic growth, energy abundance, and geopolitics. Using the quantitative assist of the International Futures Model results in eight quite different scenarios to 2050. In each, a change in any one driver affects the outcome of the other two, and combinations of the three drivers interact to create varying outcomes. The book offers scholars the chance to create their own futures using the model. It offers policy makers probabilities of which combination of variables is more likely to result in a favorable outcome. In the end, strong economic growth in both China and the United States leads to the most harmonious global future. However, policy mistakes or exogenous shocks that leads to sharply lower growth in either point the globe in a less benign direction. Even with good economic growth, however, divergent trends in energy security in the United States and China could make the world more unsafe.

This book analyzes the power of environmentalism to advance global sustainability. On some measures progress would seem strong. Wildlife sanctuaries are multiplying. Eco-certification is strengthening. Energy efficiency is rising. And recycling is increasing by the day. Yet the earth continues to spiral into a worsening sustainability crisis. Why? Is the world community perhaps on the verge of turning the tables on this crisis? Partly, a global political economy of ever more – of more growth, sales, and consumption – is swamping environmental gains. At the same time powerful political and corporate forces are dividing, suppressing, and capturing environmentalism. Environmentalists have much to be proud of, and many caring people have sacrificed their lives to defend nature. As this book reveals, however, the comforts and concerns of those with money, status, and power are increasingly coming to dominate the demands and outcomes of environmentalism. Manifestations of “environmentalism of the rich” – such as sustainable development policies, corporate responsibility initiatives, nongovernmental partnerships with business, and eco-consumerism – are doing some good. But as this book shows environmentalism of the rich is not aggregating into global progress, doing little to alter the violent, inequitable, and unjust sources of wealth, and failing completely to curb the accelerating globalization of unsustainability. Progress will require the environmental movement to confront these failures head on, especially the consequences of rising rates of unequal and unsustainable consumption.

This book advances the simple argument that long-run economic growth is overwhelmingly a function of the cognitive skills of the population, or the “knowledge capital” of a nation. This hypothesis about the relationship between cognitive skills (as consistently measured by international student assessments) and economic growth is subjected to a series of tests including alternate specifications, different subsets of countries, and econometric analysis of causal interpretations. The main results are remarkably robust, and equally applicable to developing and developed countries. For example, two largely unsolved historical mysteries – the “Latin American growth puzzle” and the “East Asian miracle” – are completely explained by consideration of knowledge capital. The central importance of cognitive skills allows one to calculate the economic benefits of improved skills, and by implication of improved schools. The historical consequences of increased knowledge capital prove to be huge – multiples of GDP for achievable improvements in schools. Turning to the policy implications, existing research evidence suggests the value of an education system that develops effective accountability, promotes choice and competition, and provides direct rewards for good performance. While many school reforms are politically difficult, this analysis underscores the substantial costs of the status quo.