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Nobel Prize-Winning Economists Urge President Obama to Address Carbon Emissions from Aviation

Washington, DC – A group of 32 leading economists, including 8 Nobel Prize winners and World Wildlife Fund (WWF) board member Dr. Robert Litterman, is urging President Barack Obama to adopt a global market-based measure to reduce carbon emissions from the aviation sector.

Unregulated carbon emissions from the aviation sector currently are a large and growing source of the greenhouse gas emissions that are contributing to global climate change.

The open letter states that: “Pricing carbon in the aviation sector will incentivize appropriate investments and changes in operations that would reduce future greenhouse gas emissions. If climate change is to be slowed appreciably at tolerable cost, it is wise to use the market to provide incentives for individuals and firms to reduce greenhouse gas pollution.”

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Full Text of the Letter:

March 14, 2013

President Obama White House
1600 Pennsylvania Ave, NW
Washington, DC

Dear President Obama,

One year ago we wrote to you to implore you to support, or at least to stop opposing, the European Union's innovative efforts to place a price on carbon from aviation through the emissions trading system (EU ETS). Since that time, Europe has suspended enforcement of its law for one year, and you have signed Public Law 112-200 into law, which directs appropriate officials of the U.S. government to use their authority "to conduct international negotiations to pursue a worldwide approach to address aircraft emissions, including the environmental impact of aircraft emissions."

Over the next eight months, your Administration may play a strong and constructive role in designing an effective mechanism to reduce aviation emissions and in finalizing an agreement within International Civil Aviation Organization (ICAO) on such a mechanism in time for the General Assembly in September 2013. The next High Level Group meeting of ICAO will take place later this month, on March 25-27. Representatives of the State Department and the Department of Transportation can use this opportunity to negotiate and support a global agreement that uses market-based measures to reduce greenhouse gas emissions from aviation effectively and efficiently. This agreement should take the form of a global market-based measure that promises to reduce emissions at the least cost to industry.

Good economic policy forces those who pollute to pay for the damage they do. Pricing carbon in the aviation sector will incentivize appropriate investments and changes in operations that would reduce future greenhouse gas emissions. If climate change is to be slowed appreciably at tolerable cost, it is wise to use the market to provide incentives for individuals and firms to reduce greenhouse gas pollution. In economic terms, the emission of these pollutants meets the classic definition of an externality-the price that individuals and firms face for emitting these pollutants is substantially lower than the social cost imposed by the pollution. Because emissions are not priced, the world is wastefully using up a scarce resource, the earth's ability to safely absorb greenhouse gas emissions. Our selfish inaction pushes increased costs onto future generations, and dangerously increases the probability of extreme events with major impacts on their welfare.

While we recognize the barriers to a uniform global price on all carbon emissions, pricing emissions in the aviation sector via ICAO would be a good start. Absent such an agreement in ICAO this year, U.S. airlines will face a growing patchwork of international regulations and compliance costs, while aviation emissions will continue to rise and contribute to dangerous climate change. Action this year is highly desirable. The ICAO Assembly only meets every three years, the EU ETS is only suspended for one year, and the unpriced flow of carbon emission into the atmosphere is increasing the risks to society every day.

By proposing a global market based measure, the Administration will be implementing Public Law 112-200, resolving tensions with some of our closest allies, and appropriately using market forces to efficiently address the threat of climate change. We urge you to immediately advance a US proposal for a global market based measure for aviation. In the long run it will be in aviation's interest, as well as that of all society, to use the price mechanism to efficiently allocate over time the uncertain remaining capacity of the atmosphere to safely absorb emissions.

Sincerely,

Kenneth Arrow, Ph.D.
1972 Nobel Memorial Prize in Economic Sciences
Joan Kenney Professor of Economics, Emeritus,
Stanford University

Joseph Stiglitz, Ph.D.
2001 Nobel Memorial Prize in Economic Sciences
Professor of Economics, Columbia University

Eric Maskin, Ph.D.
2007 Nobel Memorial Prize in Economic Sciences
Professor of Economics,
Harvard University

Roger Myerson, Ph.D.
2007 Nobel Memorial Prize in Economic Sciences
Glen A. Lloyd Distinguished Service Professor of Economics,
University of Chicago

Al Roth, Ph.D.
2012 Nobel Memorial Prize in Economic Sciences
Craig and Susan McCaw Professor of Economics,
Stanford University

Thomas Sargent, Ph.D.
2011 Nobel Memorial Prize in Economic Sciences
William R. Berkley Professor of Economics and Business,
New York University

William F. Sharpe, Ph.D.
1990 Nobel Memorial Prize in Economic Sciences
STANCO 25 Professor of Finance, Emeritus,
Stanford University

Christopher Sims, Ph.D.
2011 Nobel Memorial Prize in Economic Sciences
John F. Sherrerd ’52 University Professor of Economics,
Princeton University

Frank Ackerman, Ph.D.
Senior Economist
Synapse Energy Economics
Cambridge, MA

Patrick Bolton, Ph.D.
David Zalaznick Professor of Business
Columbia Business School,
Columbia University

Mark Carhart, Ph.D.
CIO and Partner,
Kepos Capital, LP

Varadarajan V. Chari, Ph.D.
Professor of Economics
Heller-Hurwicz Economics Institute,
University of Minnesota

Lawrence J. Christiano, Ph.D.
Alfred W. Chase Professor of Economics
Northwestern University

John Cochrane, Ph.D.
AQR Capital Management Distinguished Service Professor of Finance,
University of Chicago

Pierre Collin-Dufresne, Ph.D.
Caron Family Professor of Business, Finance and Economics,
Columbia Business School,
Columbia University

Kent Daniel, Ph.D.
Professor of Finance
Columbia Business School,
Columbia University

Darrell Duffie, Ph.D.
Dean Witter Distinguished Professor of Finance,
Stanford University

Martin Eichenbaum, Ph.D.
Ethel and John Lindgren Professor of Economics
Northwestern University

Christian Gollier, Ph.D.
Director, Toulouse School of Economics
Program Director, Center for the Economic Analysis of Risk (CEAR) at Georgia State University.

Lawrence Goulder, Ph.D.
Shuzo Nishihara Professor of Environmental and Resource Economics
Stanford University

Pierre-Olivier Gourinchas, Ph.D.
Professor of Economics
University of California, Berkeley

Michael Hannemann, Ph.D.
Julie A. Wrigley Chair in Sustainability, School of Sustainability and Department of Economics, W.P. Carey School of Business
Arizona State University

Lars Peter Hansen, Ph.D.
David Rockefeller Distinguished Service Professor
University of Chicago

Dale Jorgenson, Ph.D.
Samuel W. Morris University Professor
Harvard University

Patrick Kehoe, Ph.D.
Frenzel Professor of International Economics
University of Minnesota

Robert Litterman, Ph.D.
Partner, Kepos Capital LP
Former Head of Risk Management, Goldman Sachs

Deborah Lucas, Ph.D.
Sloan Distinguished Professor of Finance
Massachusetts Institute of Technology (MIT)

Scott Richard, Ph.D.
Practice Professor of Finance
The Wharton School,
University of Pennsylvania

Jose Scheinkman, Ph.D.
Theodore A Wells ‘29 Professor of Economics
Princeton University

Richard Schmalensee, Ph.D.
Howard W. Johnson Professor of Management
Director of the MIT Center for Energy and Environmental Policy Research
Massachusetts Institute of Technology

George Tauchen, Ph.D.
W. H. Glasson Professor of Economics and Finance,
Duke University

Jean Tirole, Ph.D.
Visiting Professor
Massachusetts Institute of Technology (MIT)

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