Introduction: Trudy Ann Cameron (AERE President, 2007-2008)

The purpose of the Petry Prize is to encourage and recognize international research on the economic consequences of increased atmospheric concentrations of greenhouse gases. It is made possible by the generous support of Dr. Glenn Petry of Bend, Oregon. Dr. Petry is Professor Emeritus of Finance at Washington State University. He has had a lifelong interest in the outdoors and environmental causes, though his professional research has been in the areas of acquisition and mergers, valuation, and financial education, and he has also worked as a real estate developer.

Through Dr. Petry's generosity, a prize of $7500 is awarded for a scholarly paper published within the previous three calendar years on the economics of climate change. The paper may be theoretical or empirical but should have clear policy implications.

The selection committee for the Petry Research Prize was chaired by Charlie Kolstad of UC Santa Barbara, and included Carlo Carraro (University of Venice and FEEM), and Richard Somerville (a climate expert at the Scripps Intitute of Oceanography). Ten very worthy papers were nominated. After careful consideration of the merits of each paper the committee made its choice:

Richard Newell and William Pizer for their paper "Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?" published in the Journal of Environmental Economics and Management in July 2003.

Dr. Petry cannot be here today to present the award in person, but he has sent along some comments, which I will read verbatim as our two winners make their way up to the front:

Glenn Petry: "The number one problem facing the United States, and the world, is the threat of global warming. The economic, social, environmental and political consequences are enormous. As the biggest economy, the wealthiest nation, and the number one polluter, the U.S. must be a leader in reducing carbon emissions. The Bush administration has virtually ignored the problem for six years and left most actions up to the states, other organizations and local communities. We have heard much from the environmental community...and now it is important to focus also on the economics of the problem which brings an additional constituency to raise its concerns. I believe there may very well be a "global warming tipping point"--so we need to act sooner, rather than later. Good luck to the authors and hopefully this recognition will spur others to work on economic issues related to climate change."

Comments on the winning paper by Charlie Kolstad, Chair, Selection Committee:

The authors note that the rate at which the future impacts of climate change are discounted in benefit-cost analysis has a very large influence on the present value of mitigation efforts. The study asserts that acknowledging uncertainty about future interest rates leads to a higher valuation of the future benefits of reducing greenhouse gas emissions today--regardless of the initial rate one chooses. By ignoring this uncertainty, they conclude, current approaches used in economic modeling may consistently undervalue the future benefits of current climate change mitigation efforts. However, including the effect of interest rate uncertainty in climate models almost doubles the value of mitigation efforts relative to conventional discounting at a constant rate.

The selection committee notes that the Newell and Pizer paper provides a clearly superior alternative to conventional economic approaches, and that Newell and Pizer demonstrate that, while the conventional approach works reasonably well over medium time horizons, it breaks down over very long time scales. The judges believe that Newell and Pizer's work will be especially useful for policymakers as they seek to balance near-term mitigation costs with long-term economic and environmental benefits.

Cameron: AERE expresses its gratitude to Dr. Glenn Petry for funding this Prize. Please join me in recognition of his generosity—and in applauding our two winners.