Jason C. Wong is Assistant Professor of Economics at Babson College, specializing in applied microeconomics with a focus on connectivity and sustainable development. His research has been published in World Development, Energy Economics, and Energy Policy, among others. A Visiting Fellow at the London School of Economics, Wong has won numerous teaching awards, including the Presidential Award for Outstanding Teaching at Columbia University. He also served as an International Parliamentary Fellow at the German Bundestag.

Stephen Polasky is Regents Professor and Fesler-Lampert Professor of Ecological/Environmental Economics at the University of Minnesota. His research bridges ecology and economics, exploring ecosystem services, biodiversity, sustainability, and renewable energy. Polasky's work has been featured in Environmental Science & Technology, Proceedings of the National Academy of Sciences, and Nature Sustainability. A sought-after expert on environmental policy, he has recently collaborated with the Central Bank of Chile and the National Academy of Sciences.

1 Four Economic Questions About Climate Change 1

1.1 Introduction 1

1.2 Four Questions 2

1.3 How Much Pollution Is Too Much? 5

1.4 Is Government Up to the Job? 9

1.5 How Can We Do Better? 9

1.6 Can We Resolve Global Issues? 12

1.7 Summary 13

Part I How Much Pollution Is Too Much?

2 Ethics and Economics 19

2.1 Introduction 19

2.2 Utility and Utilitarianism 20

2.3 Social Welfare 22

2.4 Summary 24

3 Pollution and Resource Degradation as Externalities 27

3.1 Introduction 27

3.2 The Open- Access Problem 29

3.3 The Public Goods Problem 32

3.4 Is Sustainable Business a Solution? 35

3.5 Summary 36

4 The Efficiency Standard 40

4.1 Introduction 40

4.2 Efficiency Defined 40

4.3 Efficient Pollution Levels 43

4.4 Marginals and Totals 46

4.5 The Coase Theorem Introduced 47

4.6 Air Pollution Control in Baltimore: Calculating the Efficient Standard 48

4.7 The Ethical Basis of the Efficiency Standard 50

4.8 Real- World Benefit-Cost Analysis 51

4.9 Summary 54

5 Measuring the Benefits of Environmental Protection 63

5.1 Introduction 63

5.2 Use, Option, and Existence Value: Types of Nonmarket Benefits 64

5.3 Consumer Surplus, WTP, and WTA: Measuring Benefits 65

5.4 Risk and the Value of Statistical Life 67

5.5 Revealed Preference I: Hedonic Regression 72

5.6 Revealed Preference II: Travel Cost 73

5.7 Revealed Preference III: Defensive Expenditures 75

5.8 Stated Preference: Contingent Valuation 76

5.9 Summary 81

Appendix 5A: WTA and WTP Redux 86

5A.1 An Indifference Curve Analysis 86

5A.2 The Endowment Effect or Substitutability? 88

6 Measuring the Costs of Environmental Protection 90

6.1 Introduction 90

6.2 Direct Costs of Environmental Regulation 91

6.3 Opportunity Costs of Environmental Regulation: Productivity 93

6.4 Opportunity Costs of Environmental Regulation: Employment 95

6.5 General Equilibrium Effects and the Double Dividend 101

6.6 A Final Look at Benefit-Cost Analysis 102

6.7 Summary 105

7 The Safety Standard 109

7.1 Introduction 109

7.2 Defining the Right to Safety 110

7.3 The Safety Standard: Inefficient 112

7.4 The Safety Standard: Not Cost- Effective 113

7.5 The Safety Standard: Environmental Justice or Regressive Impact? 114

7.6 Siting Hazardous Waste Facilities: Safety versus Efficiency 116

7.7 Summary 119

8 The Sustainability Standard 123

8.1 Introduction 123

8.2 Sustainability: Neoclassical and Ecological Approaches 124

8.3 Future Benefits, Costs, and Discounting 127

8.4 An Example of Discounting: Light Bulbs 129

8.5 Savings, Investment, and Market Interest Rates 130

8.6 The Social Discount Rate and Dynamic Efficiency 131

8.7 Discounting Climate Change 134

8.8 Ecological Economics, Strong Sustainability, and the Precautionary Principle 136

8.9 Strong Sustainability in Practice: Endangered Species, EIS, and Reach 137

8.10 Summary 139

9 Measuring Sustainability 143

9.1 Introduction 143

9.2 Malthus and Ecological Economics 144

9.3 Modern Debates: Limits to Growth and Planetary Boundaries 146

9.4 Measuring Strong Sustainability: Impacts and Footprints 148

9.5 Measuring Weak Sustainability: Net National Welfare and Inclusive Wealth 152

9.6 Natural Capital Depreciation 156

9.7 Are We Achieving Sustainability? 158

9.8 Discounting, Sustainability, and Investing for the Future 162

9.9 The Ecological-Neoclassical Debate in Context 164

9.10 Summary 165

10 Natural Resources and Ecosystem Se