We develop a forward-looking version of the recursive dynamic MIT Emissions Prediction and Policy Analysis (EPPA) model, and apply it to examine the economic implications of proposals in the US Congress to limit greenhouse gas (GHG) emissions. We find that shocks in the consumption path are smoothed out in the forward-looking model and that the lifetime welfare cost of GHG policy is lower than in the recursive model, since the forward-looking model can fully optimize over time. The forward-looking model allows us to explore issues for which it is uniquely well suited, including revenue-recycling and early action crediting. We find capital tax recycling to be more welfare-cost reducing than labor tax recycling because of its long-term effect on economic growth. Also, there are substantial incentives for early action credits; however, when spread over the full horizon of the policy they do not have a substantial effect on lifetime welfare costs.

Small landholders’ contribution to Amazon deforestation in Brazil has been persistent even after government actions have allowed a steep reduction in the overall annual deforestation area since 2004. We investigate land clearing and the incentives to comply versus not to comply with environmental legislation, allowing for selection into compliance or noncompliance due to unobserved perceptions of Forest Code enforcement. Our dynamic land clearing model is empirically tested through an endogenous switching regression method applied to data collected from households in the Transamazon-BR163 region between 2003 and 2014, when Forest Code enforcement supposedly increased. We show that smallholder compliance and noncompliance preferences lead to a selection problem that must be addressed in any land clearing behavior examination. We find that greater marginalization, longer land tenure and transitions to cattle grazing, but not agricultural rents, are major contributors to forest clearance and incentives not to comply with the Forest Code.

The Fifth IPCC Assessment Report estimates the world's ‘carbon budget’, which is the cumulative amount of anthropogenic CO2 emissions limiting global warming below 2°C. We model this carbon budget as a resource asset depleted by annual GHG emissions, and estimate the user cost associated with depletion. For constant emissions, social welfare increases US$3.3 trillion (6 per cent of global GDP) over the business as usual scenario of growing emissions, and the carbon budget's lifetime increases from 18 to 21 years. For declining emissions, the gain is US$10.4 trillion (19 per cent of global GDP), and the budget's lifetime is 30 years. Extending indefinitely the lifetime of the carbon budget would require emissions to fall exponentially by 4.8 per cent or more. Although the Paris Agreement abatement pledges will generate social gains of US$2–2.5 trillion (4–5 per cent of world GDP), they are insufficient to prevent depletion of the 2°C global carbon budget by 2030.

How can the malign and growing influence of lobbying on global climate policies be checked? In this short piece I link some wide-ranging suggestions for academic research by environment and development economists that is needed to further this aim, with the key idea in Acemoglu and Robinson's (2012) Why Nations Fail. Their book argues strongly that sustained, very long-term economic growth through national industrial revolutions requires ‘inclusive institutions’ that distribute political power broadly over a nation's economic, class and geographical sectors. This is because long-term growth needs technical innovations, which cause creative destruction (structural adjustment) of existing technologies, which in turn harms the interests of existing elites. If elites are too powerful, they will block new technologies, so as to keep their powers to extract rents from the rest of society, and the nation will then fail (to grow sustainably).

It is now generally agreed that the prediction of long-run development has to include natural resource use. To focus on the long run is, however, not equivalent to the use of balanced growth assumptions. It should be kept in mind that reaching a long-run equilibrium might take considerable time. Transition phases often exhibit characteristics which differ from the long-run state of the economy, but are important for its nature.

We discuss a number of different drivers that govern the transition to the steady state, including the development of stocks, substitution possibilities, savings decisions, and institutions. Based on this theoretical evaluation, we discuss five contributions of the conference on sustainable resource use and economic dynamics (SURED 2006) included in this special issue.

This paper examines ethnic differences in fuelwood consumption in rural households, using an original survey dataset from two western Chinese provinces with large ethnic minority populations. We use a Heckman two-stage selection model to explain the quantity of fuelwood consumed conditional on a decision to use fuelwood. We find that ethnic minority families are more likely than majority Han Chinese families to use fuelwood. We also find that a household's off-farm income has a stronger negative effect on the quantity of fuelwood consumed for the ethnic minority families than for the Han Chinese families. In addition, families owning a larger area of forestland are more likely to use fuelwood. Yet the quantity of fuelwood consumed, especially in ethnic minority families, does not increase with owned forestland. Finally, we find that coal, rather than electricity, is a substitute for fuelwood for residential cooking and heating.

In this paper, we estimate the individual effects of natural openness and trade policy on air pollution. Natural openness is the component of the trade share (imports and exports as a percentage of GDP) attributable to population, geography and factor endowment differences. We find that natural openness reduces air pollution, while trade policy has a limited impact. The implication is that ‘natural’ geographic and endowment differences play a more important role than deliberate trade policy decisions in explaining the trade and environment link.

This study investigates the optimal use of ‘dirty’ technologies for economic development and when to stop polluting (either temporarily or forever). This question is addressed within a real option framework where three different kinds of options arise: for stopping pollution temporarily or forever and for re-starting. The possibility to shelve a polluting technology temporarily allows for a more conservationist policy. Costs associated with the option of a re-start lead to hystereses effects that complicate empirical cross-country comparisons of environmental policies.

Free trade may not improve welfare when environmental distortions exist. We study the coordination of trade and environmental policies when the distortion is loose property rights governing resources. Using the dual approach of Dixit and Norman (1980), we trade out ‘iso-welfare’ curves in the space of the degree of environment distortion and the level of the import tariff. We use these curves to find necessary and sufficient conditions for disproportionate reforms, piecemeal or discrete, to be welfare improving. We also find that the needed reduction in the distortion to make trade welfare improving increases as the environmental stock increases, the productivity of the environmentally intensive good increases, or when the country is a large exporter of the environmentally intensive good.

Hurricanes act as large external shocks potentially causing considerable damage to agriculture in the Caribbean. While a number of studies have estimated their historic economic impact, arguably the wider community and policy makers are more concerned about their future risk and potential losses, since this type of information is useful for disaster preparedness and mitigation strategy and policy. This paper implements a new approach to undertaking a quantitative wind risk and loss assessment of agriculture in Caribbean island economies. The authors construct an expected loss function that uses synthetically generated, and historical, hurricane tracks within a wind field model that takes cropland exposure derived from satellite data into consideration. The results indicate that expected wind losses are potentially large but vary considerably across the region, where the smaller islands are considerably more likely to be negatively impacted. Moreover, we find that the structure of the agricultural sector can be important in terms of vulnerability.

Enhancing carbon sequestration is crucial to mitigate rising global levels of greenhouse gases, and for developing countries, carbon sequestration may also provide economic benefits via international carbon trading schemes. This study aimed to determine the optimal management strategy for tropical planted forests when timber and carbon sequestration are valued. The survey data were collected from 291 household foresters, who were growing Eucalyptus urophylla and Acacia mangium in Yen Bai Province, Vietnam. The regression exercise suggests that financial status was negatively correlated with forest management practices, and ethnicity and financial status were correlated with carbon sequestration management. The survey results suggest that the mean rotation age employed by household foresters is five years. However, the optimization modelling suggests that the optimal rotation age for maximizing net present value is greater than nine years. The differences between current practices and optimal practices therefore favour a role for government policy interventions.

After reviewing the Kyoto Protocol rules for carbon sequestration accounting and the different carbon accounting methods proposed in the literature for forest management, for reforestation and, more recently, for avoided deforestation or degradation, we discuss possible carbon accounting rules for a post-Kyoto world. We then apply the results of this discussion to micro-applications in an Annex I country (Spain) and in a non-Annex I country (Tunisia), comparing avoided degradation with reforestation alternatives. In both areas we focus on Mediterranean forest, one of the world's hotspots of biodiversity. We calculate CO2 break-even prices, including in the analysis not only commercial values, but also, where these are relevant, existing subsidies. We also investigate social preferences for avoided degradation and reforestation using stated preference methods. Our results support the convenience of a change in focus for European Union subsidies from reforestation to avoided degradation.

Pollution-reducing infrastructure is introduced in a general spatial equilibrium model of a monocentric city as a public good which serves to abate polluting emissions from households' consumption. This is an innovative extension to an urban economics model and motivated by stylized facts observed for the case of Bombay. It allows us to develop and analyse improved policy instruments to solve urban environmental problems.

We demonstrate how the optimal density of people, goods consumption, and pollution-reducing infrastructure are interrelated and spatially distributed. The public-good character of infrastructure is shown to favour an increased infrastructural density all over the city in response to increased population size. In two settings of public and private infrastructural supply, we derive three interrelated and spatially differentiated policy instruments, by which the optimal allocation is implemented as a spatial market equilibrium.

Background to structural adjustment The oil price increases of the 1970s, the worldwide recession, and developing country debt crisis of the 1980s, led to the adoption of so-called structural adjustment policies (SAPs). These economic reform packages which included stringent monetary and fiscal measures, sought to restore conditions for growth and development by a combination of short-term ‘stabilization’ and more medium-term ‘adjustment’ policies for the macro-economy. SAPs have not always achieved their economic goals, for a variety of reasons. Of greater relevance is the fact that even where economic gains have been realized through structural adjustment, both environmental and social problems have persisted in several countries. The growing sustainable development literature is seeking to identify and remedy development strategies that lead to the unsustainable use of natural resources and the environment. One key question is whether the very economic policies being prescribed to alleviate economic problems are perhaps undermining the environmental resources and social fabric on which the long-term development of nations will ultimately depend.

We have drawn two propositions, critical from a developing country viewpoint, from the trade and environment literature and assessed them for cloth and leather production in Pakistan. The first is that trade liberalization will result in export by developing countries of their environmental capital. The second is that the costs of mitigating these damaging environmental effects in the South are very high. We find that, given the state of implementation of environmental laws in Pakistan, exports induced by trade liberalization can indeed have major negative environmental impacts. However, we do not find support for the proposition that the costs of mitigation are very high. We also find that the social benefits far exceed the costs of mitigation.

People in poor countries are for the most part agrarian and pastoral. In 1988 rural people accounted for about 65 per cent of the population of what the World Bank classifies as low-income countries. The proportion of the total labour force in agriculture was a bit in excess of this. The share of agriculture in gross domestic product in these countries was 30 per cent. These figures should be contrasted with those from industrial market economies, which are 6 per cent and 2 per cent for the latter two ratios, respectively.

This paper addresses a serious environmental concern in Chile: PM2.5 concentration, a health threat especially affecting the population living in the central and southern communes of Chile. Using housing data for 312 spatial units, along with interpolation techniques to predict air pollution for communes with missing information, we find that, on average, 1 μg/m3 increase in PM2.5 produces a decrease of 4.1 per cent in housing rental prices. These estimates also show an important upward bias in the estimated coefficient when the endogeneity of air pollution is not addressed. An average Chilean household would be willing to pay US$12.31 per month for a one-unit reduction in PM2.5 concentration. Similar monetary values have been found in previous studies for both México and Chile. As with PM2.5 concentration, the average marginal willingness to pay exhibits marked differences across communes. From these results, the study addresses some policy implications and proposes avenues for future research.

Advocated across the international community for more than 15 years, the Extractive Industries Transparency Initiative (EITI) is now widely recognised as a hallmark anti-corruption scheme in the extractive sector. This study presents an assessment of the relationship between EITI membership and countries’ progress in tackling corruption. It provides the first study that looks at this issue using a ‘state-of-the-art’ indicator called the Bayesian Corruption Indicator. It also introduces an innovative estimation strategy combining entropy balancing with a difference-in-difference framework to address the baseline inequalities that exist between member and non-member countries. Contrary to the findings of many leading studies, this analysis finds corruption scores have improved significantly among EITI member countries. In particular, the evidence is strongest when we examine a sub-group of EITI members designated fully compliant with the initiative's transparency standards.

This paper analyzes overlapping-generations models where natural capital is owned by selfish agents. Transfers in favor of young agents reduce the rate of depletion and increase output growth. It is shown that intergenerational transfers may be preferred to laissez-faire by an indefinite sequence of generations: if the resource share in production is sufficiently high, the welfare gain induced by preservation compensates for the loss due to taxation. This conclusion is reinforced when other assets are available, e.g. man-made capital, claims on monopoly rents, and R&D investment. Transfers raise the welfare of all generations, except that of the first resource owner: if resource endowments are taxed at time zero, all successive generations support resource-saving policies for purely selfish reasons.