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on Energy Economics |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future) |
| Abstract: | We analyze policies to promote renewable sources of electricity. A renewable portfolio standard raises electricity prices and primarily reduces gas-fired generation. A “knee” of the cost curve exists between 15% and 20% goals for 2020 in our central case, and higher natural gas prices lower the cost of greater reliance on renewables. A renewable energy production tax credit lowers electricity price at the expense of taxpayers and thus limits its effectiveness in reducing carbon emissions; it also is less costeffective at increasing renewables than a portfolio standard. Neither policy is as cost-effective as a capand-trade policy for achieving carbon emissions reductions. |
| Keywords: | renewable energy, electricity, renewable portfolio standard, carbon dioxide |
| JEL: | Q42 Q48 Q54 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-01&r=ene |
| By: | Fischer, Carolyn (Resources For the Future); Newell, Richard (Resources For the Future) |
| Abstract: | We assess different policy options for reducing greenhouse gas emissions and promoting the development and diffusion of renewable energy technologies- (1) a carbon emissions price, (2) a generation subsidy for renewable energy, (3) a tax on fossil fuel generated energy, (4) a portfolio (market share) requirement for renewable energy sources, (5) a tradable performance standard for the emissions intensity of all generation, and (6) a subsidy for R&D investment in renewable energy technology. We evaluate the relative performance of the different policies according to different potential goals- emissions reduction, renewable energy production, R&D, and welfare. We also assess how the nature of technological progress—whether it occurs by learning by doing or firm-specific innovation—affects the desirability of different policy measures. |
| Keywords: | technology, policy instruments, climate change, renewable energy |
| JEL: | Q21 Q28 Q48 O38 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-05&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future) |
| Abstract: | In the mid-1990s, when the Federal Energy Regulatory Commission was preparing to release Order 888 requiring open access to the transmission grid, the commission, environmental groups, and the Environmental Protection Agency, among others, raised the question of how open access and greater competition in wholesale electricity markets might affect the environment. If open access worked as expected, underutilized older coal-fired generators in the Midwest and elsewhere might find new markets for their power, leading to associated increases in air pollution emissions. Restructuring also might lead to retirements of inefficient nuclear facilities, whose generation would be replaced by fossil generation, further increasing emissions. On the other hand, some suggested that in the long run, the anticipated increase in investment in new gas-fired generators might accelerate a switch from coal to gas that would decrease emissions. Lastly, if restructuring produced the desired result of lower electricity prices, many observers suggested that an increase in electricity demand would lead to more generation and higher emissions. The counterargument was that restructuring would lead to product differentiation and customer choice, including the opportunity for customers to willingly select “green electricity.” In this paper we review the prospective literature on the possible or anticipated effects of restructuring on the environment and the evidence from changes in the intervening years to utilization of coal facilities, performance of existing nuclear plants, investment in natural gas generation, and electricity prices. We assess how actual experience compares with prior expectations. We discuss other changes in upstream fuel markets, energy policy, and environmental regulations and the role that each of these factors plays in the efforts to evaluate the environmental effects of restructuring. Today the movement toward restructuring has stalled, leaving the country divided into competitive and regulated regions. We discuss the implications of this division for the future of environmental policy and the complicated relationships between policy agendas concerning mitigation of climate change and further restructuring of the electricity industry. |
| Keywords: | electricity, electric utilities, regulation, competition, environment, air pollution, natural gas, coal, nuclear, renewables, customer choice |
| JEL: | L51 L94 L98 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-07&r=ene |
| By: | Newell, Richard (Resources For the Future); Anderson, Soren |
| Abstract: | Carbon capture and storage (CCS) technologies remove carbon dioxide from flue gases for storage in geologic formations or the ocean. We find that CCS is technically feasible and economically attractive within the range of carbon policies discussed domestically and internationally. Current costs are about $200 to $250 per ton of carbon, although costs are sensitive to fuel prices and other assumptions and could be reduced significantly through technical improvements. Near-term prospects favor CCS for certain industrial sources and electric power plants, with storage in depleted oil and gas reservoirs. Deep aquifers may provide an attractive longer-term storage option, whereas ocean storage poses greater technical and environmental uncertainty. Vast quantities of economically recoverable fossil fuels, sizable political obstacles to their abandonment, and inherent delay associated with developing alternative energy sources suggest that CCS should be seriously considered in the portfolio of options for addressing climate change, alongside energy efficiency and carbon-free energy. |
| Keywords: | carbon, capture, storage, sequestration, climate change, technology |
| JEL: | Q30 Q40 O30 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-68&r=ene |
| By: | Macauley, Molly (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future) |
| Abstract: | We develop and estimate an index-based measure of expected consumer welfare under various carbon emissions control policies in the electricity generation sector. This approach estimates welfare effects by a somewhat less data intensive methodology than econometric approaches or more complex modeling. We include anticipated technological change in the production of renewable and nonrenewable power generation during the next two decades. We estimate welfare improvements from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario allowing for continual improvement of nonrenewable generation technology. We formally incorporate uncertainty. We evaluate the model under alternative carbon emissions control policies, including policies that create incentives through price mechanisms and policies that mandate the composition of the generation portfolio. We focus on three countries that differ widely in their power fuel mix- India, Germany, and the United States. |
| Keywords: | carbon emissions control, electricity generation, technological change, consumer welfare |
| JEL: | Q40 Q42 O33 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-14&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future) |
| Keywords: | CAIR, Clean Air Interstate Rule, Clean Air Mercury Rule, CAMR, multipollutant regulation, particulates, multi-pollutant regulation, ozone, air quality regulation, emissions, mercury, sulfur dioxide, nitrogen oxides, SO2, NOx, electricity, air pollution |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-23&r=ene |
| By: | Palmer, Karen (Resources For the Future); Newell, Richard (Resources For the Future); Gillingham, Kenneth |
| Abstract: | Energy efficiency policies are a primary avenue for reducing carbon emissions, with potential additional benefits from improved air quality and energy security. We review literature on a broad range of existing non-transportation energy efficiency policies covering appliance standards, financial incentives, information and voluntary programs, and government energy use (building and professional codes are not included). Estimates indicate these programs are likely to have collectively saved up to 4 quads of energy annually, with appliance standards and utility demand-side management likely making up at least half these savings. Energy Star, Climate Challenge, and 1605b voluntary emissions reductions may also contribute significantly to aggregate energy savings, but how much of these savings would have occurred absent these programs is less clear. Although even more uncertain, reductions in CO2, NOX, SO2, and PM-10 associated with energy savings may contribute about 10% more to the value of energy savings. |
| Keywords: | energy efficiency policy, appliance standards, information, incentives, voluntary programs |
| JEL: | Q48 Q41 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-19&r=ene |
| By: | Pizer, William (Resources For the Future); Newell, Richard (Resources For the Future) |
| Abstract: | We estimate a carbon mitigation cost curve for the U.S. commercial sector based on econometric estimation of the responsiveness of fuel demand and equipment choices to energy price changes. The model econometrically estimates fuel demand conditional on fuel choice, which is characterized by a multinomial logit model. Separate estimation of end uses (e.g., heating, cooking) using the 1995 Commercial Buildings Energy Consumption Survey allows for exceptionally detailed estimation of price responsiveness disaggregated by end use and fuel type. We then construct aggregate long-run elasticities, by fuel type, through a series of simulations; own-price elasticities range from –0.9 for district heat services to –2.9 for fuel oil. The simulations form the basis of a marginal cost curve for carbon mitigation, which suggests that a price of $20 per ton of carbon would result in an 8% reduction in commercial carbon emissions, and a price of $100 per ton would result in a 28% reduction. |
| Keywords: | commercial energy demand, carbon policy, climate change, discrete choice |
| JEL: | Q28 Q48 Q41 C35 C15 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-13&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper quantifies the costs of controlling SO2, carbon, and NOx emissions from power generation, accounting for interactions between environmental policies and the broader fiscal system. We distinguish a dirty technology (coal) that satisfies baseload demand and a clean technology (gas) that is used during peak periods, and we distinguish sectors with and without regulated prices. Estimated emissions control costs are substantially lower than in previous models of fiscal interactions that assume a single, constant returns technology and competitive pricing. The results are reasonably robust to alternative scenarios, such as full price deregulation and market power in the deregulated sector. |
| Keywords: | electricity generation, pollution control, fiscal interactions, price regulation, multiple technology |
| JEL: | Q28 H21 H23 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-27&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Bharvirkar, Ranjit; Bloyd, Cary |
| Abstract: | Planning of the electricity transmission system generally focuses on the pros and cons of providing generation close to the source of the power demand versus remote generation linked via the transmission system. Recent electricity supply problems in the western United States have renewed interest in the role of transmission in assuring the reliability of electricity supply. Recently, the Western Governors’ Association led the development of a planning exercise that examined the tradeoffs over the next 10 years between locating new natural gas powered generation close to the load centers versus new coal, wind, hydro, and geothermal generation in remote areas. Although the analysis concentrated on the direct system costs, the choice of new generation will have both local and global environmental impacts. This paper examines some of the “ancillary” environmental effects of electricity transmission decisions using a suite of models that combine to provide an integrated assessment. |
| Keywords: | electricity, transmission, air pollution, ancillary benefits, nitrogen oxides, sulfur dioxide, carbon dioxide |
| JEL: | L94 Q25 Q41 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-14-&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Kahn, Daniel (Resources For the Future) |
| Abstract: | The Regional Greenhouse Gas Initiative (RGGI) is an effort by nine Northeast and Mid-Atlantic states to develop a regional, mandatory, market-based cap-and-trade program to reduce greenhouse gas (GHG) emissions from the electricity sector. The initiative is expected to lead to an increase in the price of electricity in the RGGI region and beyond. The implications of these changes for the value of electricity-generating assets and the market value of the firms that own them depends on the initial allocation of carbon dioxide allowances, the composition of generating assets owned by the firm, and the locations of those assets. Changes in asset values inside the RGGI region may be positive or negative, whereas changes outside of the RGGI region are almost always positive but nonetheless vary greatly. Viewing changes at the firm level aggregates and moderates both positive and negative effects on market value compared with what would be observed by looking at changes at individual facilities. Nonetheless, a particular firm’s portfolio of assets is unlikely to reflect the overall composition of assets in the industry as a whole, and some firms are likely to do substantially better or worse than the industry average. |
| Keywords: | emissions trading, allowance allocations, electricity, air pollution, auction, grandfathering, generation-performance standard, output-based allocation, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide, asset value |
| JEL: | Q2 Q25 Q4 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-55&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Wilson, Nathan |
| Abstract: | The Regional Greenhouse Gas Initiative is an effort by nine states to constrain carbon dioxide emissions from the electric power sector using a cap-and-trade program. This paper assesses the importance of long-term electricity contracts under the program. We find that 12.2% of generation will be accounted for by long-term contracts in 2010, affecting select nuclear, hydroelectric, and cogeneration units. The contracts will have a negligible effect on the wholesale marginal cost of electricity and a small effect on retail price. States may want to consider contracts on a case-by-case basis when making decisions about the initial distribution of emission allowances, but they should account for effects on the portfolio of plants owned at the firm level, not the effects on individual facilities. Because of their relatively small effect, it seems unnecessary to allow the existence of long-term contracts to dictate the design of the overall program. |
| Keywords: | climate, state policy, Regional Greenhouse Gas Initiative, long-term contracts, electricity |
| JEL: | Q54 Q58 L14 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-37&r=ene |
| By: | Darmstadter, Joel (Resources For the Future) |
| Abstract: | This paper looks at the status and prospects of renewables—with particular emphasis on windpower—in the electric power sector. Although renewables account for a steadily rising share of electricity generation in various countries, their role remains small in absolute terms. In part, this is because of technological progress of and successful competition from fossil-fueled generation—notably, combined cycle gas turbines. While diminishing, subsidies continue to be indispensable to the use of renewables in most places. Viability of renewables-based electricity is undermined by the cost of externalities for which fossil energy combustion is only partially charged. A number of countries (and states in the U.S.) have launched obligatory requirements for renewables-based electricity in the years ahead. This so-called “renewable portfolio standard,” while technology-forcing, offers an opportunity for an economically efficient way of promoting greater market penetration of renewables. |
| Keywords: | Renewable energy, electricity, windpower, externalities |
| JEL: | Q21 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-64&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Banzhaf, H. Spencer (Resources For the Future) |
| Abstract: | This paper provides new estimates of efficient emission fees for sulfur dioxide (SO2) and nitrogen oxides (NOX) emissions in the U.S. electricity sector. The estimates are obtained by coupling a detailed simulation model of the U.S. electricity markets with an integrated assessment model that links changes in emissions with atmospheric transport, environmental endpoints, and valuation of impacts. Efficient fees are found by comparing incremental benefits with emission levels. National quantity caps that are equivalent to these fees also are computed, and found to approximate caps under consideration in the current multi-pollutant debate in the U.S. Congress and the recent proposals from the Bush administration for the electricity industry. We also explore whether regional differentiation of caps on different pollutants is likely to enhance efficiency. |
| Keywords: | emissions trading, emission fees, air pollution, cost-benefit analysis, electricity, particulates, nitrogen oxides, NOx, sulfur dioxide, SO2, health benefits |
| JEL: | Q2 Q4 D61 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-45&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Krupnick, Alan (Resources For the Future); Toman, Michael; Paul, Anthony; Bloyd, Cary |
| Abstract: | This paper considers how moderate actions to slow atmospheric accumulation of greenhouse gases from fossil fuel use also could reduce conventional air pollutants in the United States. The benefits that result would be “ancillary” to greenhouse gas abatement. Moreover, the benefits would tend to accrue locally and in the near term, while benefits from reduced climate change mostly accrue globally and over a time frame of several decades or longer. The previous literature suggests that changes in nitrogen oxides (NOx) would be the most important consequence of moderate carbon policies. We calculate these changes in a detailed electricity model linked to an integrated assessment framework to value changes in human health. A tax of $25 per metric ton of carbon emissions would yield NOx related health benefits of about $8 per metric ton of carbon reduced in the year 2010 (1997 dollars). Additional savings accrue from reduced investment in NOx and SO2 abatement in order to comply with emission caps. These savings sum to $4-$7 per ton of carbon reduced. Total ancillary benefits of a $25 carbon tax are estimated to be $12-$14, which appear to justify the costs of a $25 tax, although marginal benefits are less than marginal costs. At a tax of $75 per ton carbon, greater health benefits and abatement cost savings are achieved but the value of ancillary benefits per ton of carbon reductions remains roughly constant at about $12. |
| Keywords: | climate change, greenhouse gas, ancillary benefits, air pollution, co-control benefits, nitrogen oxides, sulfur dioxide, carbon dioxide, particulates, health |
| JEL: | H23 I18 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-61-&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Pizer, William (Resources For the Future); Harrington, Winston (Resources For the Future); Sanchirico, James (Resources For the Future); Newell, Richard (Resources For the Future) |
| Abstract: | Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economywide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome- inefficiently designed and/or sector-based policies. This paper uses a collection of specialized, sector-based models in conjunction with a computable general equilibrium model of the economy to examine and compare these policies at an aggregate level. We examine the relative cost of different policies designed to achieve the same quantity of emissions reductions. We find that excluding a limited number of sectors from an economywide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using nonmarket policies can raise costs by a factor of 10. These results are driven in part by, and are sensitive to, our modeling of preexisting tax distortions. |
| Keywords: | carbon, carbon dioxide, climate change, climate policy, general equilibrium |
| JEL: | Q25 D58 D61 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-08&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Bharvirkar, Ranjit; Paul, Anthony |
| Abstract: | We investigate the cost-effectiveness and distributional effects of a revenue-raising auction, grandfathering, and a generation performance standard as alternative approaches for distributing carbon emission allowances in the electricity sector. We solve a detailed national electricity market model and find the auction is roughly one-half the societal cost of the other approaches. This result holds under a variety of assumptions about the future state of economic regulation and competition in the electricity sector. The differences in the cost of the approaches flow from the effect of each approach on electricity price. Grandfathering is the best for producers but it imposes a substantial cost on consumers. The generation performance standard yields the lowest electricity price but highest natural gas price. The auction does better than the generation performance standard at protecting households and at preserving asset values for producers. It also yields revenues that can help meet other efficiency and distributional goals. |
| Keywords: | carbon, emission allowance trading, allowance allocations, electricity, restructuring, air pollution, safety valve, auction, grandfathering, generation performance standard, output-based allocation, cost-effectiveness |
| JEL: | Q2 Q25 Q4 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-30-&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Bharvirkar, Ranjit; Paul, Anthony |
| Abstract: | The U.S. electric power sector is in the midst of two major regulatory changes. One is the change from cost-of-service regulation to competition as a means of disciplining electricity prices, often referred to as “electricity restructuring.” The other is the apparently increasing scope and stringency of environmental regulation; proposed tighter restrictions on nitrogen oxide (NOx) emissions from existing generators are one recent example. We look at the effects of restructuring on three issues- (a) economic surplus and environmental quality, (b) the cost of NOx control policies and who bears the costs, and (c) the cost-effectiveness of a seasonal and an annual NOx cap in the SIP Call region. We find that without the NOx cap, nationwide restructuring leads to higher NOx and carbon emissions from the electricity sector. Adding either a seasonal or an annual NOx cap-and-trade regime in the eastern United States mitigates the increase in NOx emissions but has a much smaller effect on carbon emissions. The out-of-pocket compliance cost associated with achieving a seasonal or an annual NOx cap is moderately higher with nationwide restructuring than without, but the changes in economic surplus are significantly higher. For a seasonal policy, most of the costs are borne by electricity consumers. For an annual policy, most of the incremental costs beyond those with seasonal controls are borne by producers. However, the economic benefits of nationwide restructuring more than offset the higher costs of controlling NOx emissions in a more competitive environment. The foregone economic surplus is compared with the benefits resulting from NOx emission reductions using an integrated assessment model of atmospheric transport and valuation of human health effects. We find an annual policy dominates a seasonal policy from a cost effectiveness perspective under limited restructuring, and even more strongly under nationwide restructuring. |
| Keywords: | electricity, restructuring, deregulation, competition, emissions trading, particulates, nitrogen oxides, NO<sub>x</sub>, health benefits, cost effectiveness |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-10-rev&r=ene |
| By: | Parry, Ian (Resources For the Future); Darmstadter, Joel (Resources For the Future) |
| Abstract: | This paper first describes trends and future predictions of factors that determine U.S. dependence on oil and oil imports. We then review evidence on the oil premium, that is, the extent to which the costs to the United States as a whole from extra oil consumption may exceed the private costs to individual oil users. The premium has two main components- one reflects the risk of macroeconomic disruptions from oil price shocks, while the other stems from U.S. market power in the world oil market. Our best assessment of the oil premium is $5/barrel (equivalent to 12 cents per gallon of gasoline), which would warrant a broad, though moderately scaled, tax on all uses of oil. |
| Keywords: | energy security; oil imports; oil premium; macroeconomic disruptions |
| JEL: | Q43 Q41 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-59&r=ene |
| By: | Stavins, Robert; Plantinga, Andrew; Lubowski, Ruben |
| Abstract: | When and if the United States chooses to implement a greenhouse gas reduction program, it will be necessary to decide whether carbon sequestration policies — such as those that promote forestation and discourage deforestation — should be part of the domestic portfolio of compliance activities. We investigate the cost of forest-based carbon sequestration. In contrast with previous approaches, we econometrically examine micro-data on revealed landowner preferences, modeling six major private land uses in a comprehensive analysis of the contiguous United States. The econometric estimates are used to simulate landowner responses to sequestration policies. Key commodity prices are treated as endogenous and a carbon sink model is used to predict changes in carbon storage. Our estimated marginal costs of carbon sequestration are greater than those from previous engineering cost analyses and sectoral optimization models. Our estimated sequestration supply function is similar to the carbon abatement supply function from energy-based analyses, suggesting that forest-based carbon sequestration merits inclusion in a cost-effective portfolio of domestic U.S. climate change strategies. |
| Keywords: | abatement; carbon; climate change; costs; forestry; greenhouse gases; land use; landuse change; sequestration |
| JEL: | Q54 Q23 Q24 Q15 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-04&r=ene |
| By: | Aldy, Joseph (Resources For the Future) |
| Abstract: | Understanding and considering the distribution of per capita carbon dioxide (CO2) emissions is important in designing international climate change proposals and incentives for participation. I evaluate historic international emissions distributions and forecast future distributions to assess whether per capita emissions have been converging or will converge. I find evidence of convergence among 23 member countries of the Organisation for Economic Co-operation and Development (OECD), whereas emissions appear to be diverging for an 88-country global sample over 1960–2000. Forecasts based on a Markov chain transition matrix provide little evidence of future emissions convergence and indicate that emissions may diverge in the near term. I also review the shortcomings of environmental Kuznets curve regressions and structural models in characterizing future emissions distributions. |
| Keywords: | emissions distributions, environmental Kuznets curve, Markov chain transition matrix |
| JEL: | O40 Q54 Q56 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-53&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Bharvirkar, Ranjit; Paul, Anthony |
| Abstract: | Paradoxically, owners of existing generation assets may be better off paying for carbon dioxide emission allowances than having them distributed for free. This analysis shows that it takes just 7.5% of the revenue raised under an auction to preserve the asset values of existing generators. |
| Keywords: | carbon dioxide, emission allowance trading, allocation, electricity, restructuring, air pollution, auction, grandfathering, generation performance standard, outputbased allocation, cost-effectiveness |
| JEL: | Q2 Q25 Q4 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-15-&r=ene |
| By: | Catherine Locatelli (LEPII - Laboratoire d'économie de la production et de l'intégration internationale - http://www.upmf-grenoble.fr/lepii/ - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | L'analyse des conséquences inattendues de la privatisation d'un secteur de rente, l'industrie pétrolière, en Russie. |
| Keywords: | industrie pétrolière;Russie;rente;privatisation |
| Date: | 2006–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007785_v1&r=ene |
| By: | Morgenstern, Richard (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Ho, Mun (Resources For the Future); Zhang, Xuehua |
| Abstract: | Who will pay for new policies to reduce carbon dioxide and other greenhouse gas emissions in the United States? This paper considers a slice of the question by examining the near-term impact on domestic manufacturing industries of both upstream (economy-wide) and downstream (electric power industry only) carbon mitigation policies. Detailed Census data on the electricity use of four-digit manufacturing industries is combined with input-output information on interindustry purchases to paint a detailed picture of carbon use, including effects on final demand. This approach, which freezes capital and other inputs at current levels and assumes that all costs are passed forward, yields upper-bound estimates of total costs. The results are best viewed as descriptive of the relative burdens within the manufacturing sector rather than as a measure of absolute costs. Overall, the principal conclusion is that within the manufacturing sector (which by definition excludes coal production and electricity generation), only a small number of industries would bear a disproportionate short-term burden of a carbon tax or similar policy. Not surprisingly, an electricity-only policy affects very different manufacturing industries than an economy-wide carbon tax. |
| Keywords: | distribution of carbon mitigation costs, industrial impacts of carbon policies |
| JEL: | Q28 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-06-&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Demand-side management programs comprise subsidies from franchised electric utilities for the purchase of high-efficiency appliances, e.g., air conditioners. Competition in power generation threatens the viability of these programs. However, it should also reduce the warrant for them. Under regulation, the justification for such programs depends, somewhat paradoxically, on below marginal-cost pricing. Eliminating regulation should permit pricing flexibility to discourage excessive on-peak energy use. It should also eliminate the assurance of returns that may have encouraged overbuilding of generation capacity. Entrants and incumbent utilities should find it easier to offer "energy services," i.e., to bundle electricity with appliances, if consumers are too myopic to realize the benefits of increasing energy efficiency. Environmental degradation remains a problem, but competition can improve the performance of incentive-based regulations (e.g., permit trades), reducing the value of DSM as a supplemental, second-best alternative. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-02&r=ene |
| By: | Austin, David; Macauley, Molly (Resources For the Future); Darmstadter, Joel (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Aronow, Emily; Bath, Tom |
| Abstract: | In this paper we develop a cost index–based measure of the expected consumer welfare gains from innovation in electricity generation technologies. To illustrate our approach, we estimate how much better off consumers would be from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario that allows for continual improvement of conventional technology. We proceed from the position that the role and prospects of renewable energy are best assessed within a market setting that considers competing energy technologies and sources. We evaluate five renewable energy technologies used to generate electricity- solar photovoltaics, solar thermal, geothermal, wind, and biomass. For each, we assume an accelerated adoption rate due to technological advances, and we evaluate the benefits against a baseline technology, combined-cycle gas turbine, which experts cite as the conventional technology most likely to be installed as incremental capacity over the next decade. We evaluate benefits against both the conventional combined-cycle gas turbine prevalent at this time and a more advanced combined-cycle gas turbine expected to be employed during the coming decade. We estimate the model for two geographic regions of the nation for which renewable energy is, or can be expected to be, a somewhat sizable portion of the electricity market—California and the north central United States. In present-value terms we find that median consumer welfare gains over 20 years vary markedly among the renewable technologies, ranging from large negative values (welfare losses) to large positive values (welfare gains). The effect of uncertainty can lead to estimates that are 20% to 40% larger or smaller than median predicted values. Our results suggest that portfolios that give equal weight to the use of each generation technology are likely to lead to consumer losses in our regions, regardless of the role of the externalities that we consider. However, when the portfolio is more heavily weighted toward certain renewables, consumer gains can be positive. |
| Keywords: | energy economics, technical change |
| JEL: | Q4 O3 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-05-&r=ene |
| By: | Goulder, Lawrence |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-22&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Toman, Michael |
| Abstract: | Policies that reduce emissions of greenhouse gases can simultaneously alter emissions of conventional pollutants that have deleterious effects on human health and the environment. This paper first describes how these "ancillary" benefits—benefits in addition to reduced risks of climate change—can result from greenhouse gas (GHG) mitigation efforts. It then discusses methodologies for assessing ancillary benefits and provides a critical review of estimates associated with reductions of criteria air pollutants. We find that these benefits in the U.S. may be significant, indicating a higher level of "no regrets" greenhouse gas abatement than might be expected based on simple economic calculations of abatement cost. However, the magnitude of ancillary benefits realized by any program of GHG mitigation is highly dependent on the location, pollutant, degree of exposure, and the economic behavior of individuals in response to the program. It is also highly dependent on the interaction of GHG abatement policies with the policies used for regulating conventional pollutants. We identify a rule of thumb to suggest ancillary benefits could be on the order of 30 percent of the incremental cost of GHG mitigation. For modest carbon reduction that do not result in changes in emissions of sulfur dioxide by electric utilities, ancillary benefits may be as high as $7 per ton. Greater benefits could be obtained with larger GHG reductions, although the costs of abatement would also be much greater. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-01-rev&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Heintzelman, Martin |
| Abstract: | The universal theme of deregulation of the electricity industry is the dismantling of the exclusive franchise, opening up some segments of the industry to competition. Technological changes in generation have helped eliminate the perception that generation is a natural monopoly, but this change has not occurred in transmission and distribution services. Marketing functions have also been opened up to competition in many places. This paper includes a brief overview of the different approaches to restructuring that have been adopted in selected countries around the world. It also surveys the existing literature that explores various aspects of how electricity restructuring is likely to affect the environment. The effect of restructuring on the environment consists of four constituent influences- (1) changes in electricity demand and how it substitutes for (and complements) the consumption of other products, (2) the substitution among fuels and other inputs in electricity production, (3) efficiency improvements that stem from the introduction of competition, and (4) the interaction of firm behavior and market structure with existing and new incentive-based approaches to environmental regulation. Notwithstanding the possibility that electricity consumption displaces the use of other fuels in end uses, most studies find some negative environmental effect from increased consumption, especially with respect to carbon emissions. However, the efficiency gains that can be expected in delivering electricity services create the opportunity for additional environmental controls. Regulatory reform has arrived in the electricity sector, and it is expected to offer welfare gains that can be shared between economic and environmental objectives. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-39&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Darmstadter, Joel (Resources For the Future); McVeigh, James |
| Abstract: | This study provides an evaluation of the performance of five renewable energy technologies used to generate electricity- biomass, geothermal, solar photovoltaics, solar thermal, and wind. The authors compared the actual performance of these technologies against stated projections that helped shape public policy goals over the last three decades. Their findings document a significant difference between the success of renewable technologies in penetrating the U.S. electricity generation market and in meeting cost-related goals, when compared with historic projections. In general, renewable technologies have failed to meet expectations with respect to market penetration. They have succeeded, however, in meeting or exceeding expectations with respect to their cost. To a significant degree, the difference in performance in meeting projections of penetration and cost stem from the declining price of conventional generation, which constitutes a moving baseline against which renewable technologies have had to compete. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-28&r=ene |
| By: | Fischer, Carolyn (Resources For the Future); Toman, Michael; Kerr, Suzi |
| Abstract: | In Kyoto in 1997, the US government agreed that between 2008 and 2012 it would limit average annual emissions of greenhouse gases (GHGs) to seven percent below 1990 levels. As participants in the climate policy debate consider various means by which limits on US GHG emissions might be undertaken in the wake of the Kyoto agreement, there is considerable interest but also some confusion about how a GHG trading program could be organized and operated in practice. In this paper we address several aspects of policy design for a US system, such as who and what is covered by regulation, the organization of the trading system, how carbon permits are allocated, and how a system could be initiated and changed over time. The paper synthesizes existing analyses and adds new insights concerning uncertainty, intertemporal consistency, market institutions, and interactions with the tax system. Our fundamental conclusion is that a domestic "cap-and-trade" system with homogeneous permits applied to control flows of fossil fuels "upstream" in the energy system (along with selective inclusion of other gases and CO2 "sinks"), with permits auctioned periodically by the government, has the most appeal of different trading systems on efficiency and distributional grounds, though it may suffer politically because of its close resemblance to a carbon tax. We identify auction mechanisms that appear to be feasible and efficient for carbon permit allocation. We further argue that while the private sector should bear the "external" risk of changes in total permit availability as a consequence of modifications in international agreements, and that an auctioned upstream program provides more protection against the "internal" risk of efficiency-reducing opportunism by government regulators than other trading mechanisms. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-40&r=ene |
| By: | Pizer, William (Resources For the Future) |
| Abstract: | While the rest of the world has pursued absolute emissions limits for greenhouse gases, the Bush administration has proposed an alternative policy formulation based, among other things, on reducing emissions intensity—that is, emissions per dollar of real gross domestic product. Critics of this formulation have denounced the general idea of an intensity-based emissions target, along with its voluntary nature and weak targets. This raises the question of whether intensity-based emissions limits, distinct from the other features of the Bush initiative, offer a useful alternative to absolute emissions limits. This paper makes the case that they do, based on how emissions targets are framed. The argument draws on four key observations- greenhouse gas emissions will continue to rise over the near term, absolute targets emphasize zero or declining emissions growth while intensity targets do not, developing countries’ economic development is integrally tied to emissions growth for the foreseeable future, and intensity targets need not be any more complicated to administer than absolute targets. |
| Keywords: | carbon, climate, policy, intensity, global warming |
| JEL: | Q54 Q58 Q56 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-02&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Evans, David (Resources For the Future) |
| Abstract: | Emissions of nitrogen oxides (NOx ) contribute to formation of particulate matter and ozone, and also to acidification of the environment. The electricity sector is responsible for about 20% of NOx emissions in the United States, and the sector has been the target of both prescriptive (command-and-control) and flexible (cap-and-trade) approaches to regulation. We summarize the major NOx control policies affecting this sector, and provide some perspectives as to their effectiveness. While both prescriptive and flexible approaches continue to play an important role, significant new proposals have wholly embraced a cap-and-trade approach. |
| Keywords: | emissions trading, cap and trade, air pollution, cost-benefit analysis, electricity, particulates, ozone, nitrogen oxides, acid rain |
| JEL: | Q25 Q4 D62 Q28 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-23&r=ene |
| By: | Blackman, Allen (Resources For the Future); Wu, Xun |
| Abstract: | In the early 1990s, hoping to reduce chronic electricity shortages and enhance the efficiency of Chinese power plants, China opened its doors to foreign direct investment (FDI) in electricity generation. Using data from an original survey of US private investors, official Chinese statistics, and other sources, we assess the volume and characteristics of FDI in China's power sector, its impact on energy efficiency, and the factors that limit this impact. Our five principal findings are as follows. First, the volume FDI in China's power sector will likely fall short of the government's 1995 - 2000 capacity expansion target by a substantial margin, most likely because of persistent institutional barriers to FDI. Second, to avoid the lengthy central government approval process for large plants and to minimize risk, early FDI tended to be in small-scale, gas- and oil-fired plants using imported equipment and located in coastal provinces. However, more recent FDI tends to be in larger coal-fired plants that use more Chinese equipment and tends to be located in the north as well as the east. Third, and perhaps most important, FDI is likely having a significant positive impact on energy efficiency. Almost a third of the 20 FDI plants in our survey sample use advanced efficiency-enhancing generating technologies, and a fifth are cogeneration plants. Fourth, the main factor that has hampered the contribution of FDI to energy efficiency is an institutional bias in favor of small-scale plants which are generally not as energy efficient as the large-scale plants. And finally, the most important barriers to FDI generally are uncertainty associated with the approval process of FDI projects, electricity sector regulation, and the risk of default on power purchase contracts. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-50&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Bharvirkar, Ranjit; Paul, Anthony |
| Abstract: | This paper analyzes the benefits and costs of policies to reduce nitrogen oxides (NOx) emissions from electricity generation in the United States. Because emissions of NOx contribute to the high concentration of atmospheric ozone in the eastern states that is associated with health hazards, the U.S. Environmental Protection Agency (EPA) has called on eastern states to formulate state implementation plans (SIPs) for reducing NOx emissions. Our analysis considers three NOx reduction scenarios- a summer seasonal cap in the eastern states covered by EPA’s NOx SIP Call, an annual cap in the same SIP Call region, and a national annual cap. All scenarios allow for emissions trading. Although EPA’s current policy is to implement a seasonal cap in the SIP Call region, this analysis indicates that an annual cap in the SIP Call region would yield about 400 million dollars more in net benefits (benefits less costs) than would a seasonal policy, based on particulate-related health effects only. An annual cap in the SIP Call region is also the policy that is most likely to achieve benefits in excess of costs. Consideration of omissions from this accounting, including the potential benefits from reductions in ozone concentrations, strengthens the finding that an annual program offers greater net benefits than a seasonal program. |
| Keywords: | emissions trading, electricity, particulates, nitrogen oxides, NO<sub>x</sub>, health benefits |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-55-rev&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Morgenstern, Richard (Resources For the Future); Zhang, Xuehua |
| Abstract: | To reduce carbon emissions worldwide, it makes sense to consider the possibility of developed countries paying for carbon reductions in developing countries. Developing countries may be interested in such activities if the ancillary air pollution benefits are large. This paper reports on an RFF survey of the emissions benefits (and costs) of reducing sulfur dioxide (SO2) emissions from small, coal-burning boilers in Taiyuan, an industrial, northern Chinese city that recently banned uncontrolled coal combustion in certain small boilers in the downtown area. We find significant carbon benefits in percentage terms - on the order of 50% to 95% reduction - associated with this SO2 control policy, with large reduction potential elsewhere in Taiyuan and China. While the cost for boilers that switched out of coal was almost $3,600 per ton of SO2 reduced, these ancillary carbon reductions are truly "free" from a social cost perspective. |
| Keywords: | Carbon, air pollution, informal sector, ancillary benefits, abatement costs, survey |
| JEL: | O12 O2 Q12 Q25 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-54&r=ene |
| By: | Kopp, Raymond (Resources For the Future) |
| Abstract: | At the present time no widely accepted temporal emissions path for greenhouse gases has been developed and adopted at either a country or a global level. What does exist is a set of nearterm, country-level emissions targets associated with the first commitment period of the Kyoto Protocol and a process for the determination of targets for subsequent commitment periods. However, the first commitment period targets specified by the protocol have been heavily criticized on the grounds that they are arbitrary and ad hoc. The purpose of this paper is to examine the conceptual foundations upon which one might base a domestic climate policy for the United States and to attempt to determine whether a near-term emissions target can indeed be derived from structured decisionmaking resting upon these conceptual foundations. |
| Keywords: | U.S. climate policy, greenhouse gas target, cost-effectiveness analysis, costbenefit analysis |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-41&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Reserve requirements in electricity markets may get each producer to internalize the cost of grid-wide blackouts it might cause if unable to meet consumer demand. Markets for how such capacity might be procured have been studied. Less examined is how the costs of reserve capacity are covered. “Who pays” depends on how requirements are designed. If each producer has to provide peak capacity available to a grid operator at a below-spot price, requirements will increase volatility—that is, the gap between baseload and marginal peak prices. Requirements based on energy sales act as a tax on baseload to subsidize peak, reducing volatility. Finally, if requirements are designed to ensure that extreme-peak energy is available without scarcity rents, baseload prices remain unaffected, but (nonextreme) peak prices increase. Although this pattern seems unrelated to any economic or social goal, it replicates what one might see under crude seasonal or time-of-use pricing. |
| Keywords: | capacity requirements, reserve requirements, electricity generation, utility regulation |
| JEL: | L94 L51 H22 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-39&r=ene |
| By: | Pizer, William (Resources For the Future); Kopp, Raymond (Resources For the Future); Morgenstern, Richard (Resources For the Future); Harrington, Winston (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future) |
| Abstract: | Improved technology is often cited as a means to alter the otherwise difficult trade-off between the economic burden of regulation and environmental damage. Focusing on energy-saving technologies that mitigate the threat of climate change, we find that both energy prices and financial health influence technology adoption among a sample of industrial plants in four heavily polluting sectors. Based on a model linking technology adoption to growth in aggregate efficiency, we estimate that a doubling of energy prices, after raising the growth rate to 2.1%, would require slightly more than 50 years to generate a 50% improvement in aggregate efficiency relative to the baseline forecast. |
| Keywords: | energy efficiency, endogenous technological change, technology adoption |
| JEL: | O31 O38 Q43 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-52&r=ene |
| By: | Pizer, William (Resources For the Future) |
| Abstract: | The uncertainty surrounding both costs and benefits associated with global climate change mitigation creates enormous hurdles for scientists, stakeholders, and decisionmakers. A key issue is how policy choices balance uncertainty about costs and benefits. This balance arises in terms of the time path of mitigation efforts as well as whether those efforts, by design, focus on effort or outcome. This paper considers two choices—price versus quantity controls and absolute versus relative/intensity emissions limits—demonstrating that price controls and intensity emissions limits favor certainty about cost over climate benefits and future emissions reductions. The paper then argues that in the near term, this favoritism is desired. |
| Keywords: | carbon, climate, policy, intensity, global warming, uncertainty, price, quantity |
| JEL: | D81 Q54 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-44&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Bharvirkar, Ranjit; McGuinness, Meghan |
| Abstract: | This paper analyzes uncertainties surrounding the benefits and costs of a policy to reduce nitrogen oxides (NOX) emissions from electricity generation in the eastern U.S. Under each of 18 scenarios examined, we find an annual policy would yield net benefits that are at least as great as those expected under the U.S. Environmental Protection Agency’s (EPA) currently planned seasonal policy. Preferred (midpoint) assumptions yield additional benefits of $724 million per year under an annual policy compared to a seasonal one (1997 dollars). The subset of 11 northeastern states benefit the most from an annual policy relative to a seasonal one, but relative net benefits are also positive in the remaining states in the region. An annual policy implemented on a national basis appears to be slightly less cost-effective than the EPA’s policy under midpoint assumptions but it is more cost-effective under half of the scenarios we examine. |
| Keywords: | emissions trading, electricity, particulates, nitrogen oxides, NOX, health benefits, market structure, restructuring, deregulation, value of statistical life, uncertainty |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-01-&r=ene |
| By: | Newell, Richard (Resources For the Future); Anderson, Soren |
| Abstract: | We analyze technology adoption decisions of manufacturers in response to energy audits provided by Department of Energy Industrial Assessment Centers. Using fixed effects logit estimation to control for unobserved plant characteristics, we find that plants respond as expected to financial costs and benefits, though there are unmeasured project-related factors that also influence investment decisions. Revealed behavior of plants suggests that most require a payback of 15 months or less as their investment threshold, corresponding to an 80% or greater hurdle rate. This is consistent with survey results for stated investment thresholds, suggesting that these programs do not lower hurdle rates, as some suggest. Plants reject about half of recommended projects; the primary rationale given is their economic undesirability, as opposed to remaining market or organizational barriers. This raises concerns regarding engineering-economic estimates of the degree to which there are feasible no-net-cost opportunities for reducing energy consumption and carbon emissions. |
| Keywords: | energy efficiency, information, technology adoption, energy audits, Municipal Solid Waste, Recycling, Inventory, Optimization |
| JEL: | Q41 Q48 O33 O38 Q2 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-58&r=ene |
| By: | Fischer, Carolyn (Resources For the Future); Morgenstern, Richard (Resources For the Future) |
| Abstract: | Estimates of marginal abatement costs for reducing carbon emissions derived from major economic-energy models vary widely. Controlling for policy regimes, we use meta-analysis to examine the importance of structural modeling choices in explaining differences in estimates. The analysis indicates that particular assumptions about perfectly foresighted consumers and Armington trade elasticities generate lower estimates of marginal abatement costs. Other choices are associated with higher cost estimates, including perfectly mobile capital, inclusion of a backstop technology, and greater disaggregation among regions and sectors. Some features, such as greater technological detail, seem less significant. Understanding the importance of key modeling assumptions, as well as the way the models are used to estimate abatement costs, can help guide the development of consistent modeling practices for policy evaluation. |
| Keywords: | climate models, carbon tax |
| JEL: | Q4 Q25 D58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-42-rev&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Allegations of market power in wholesale electricity sales are typically tested using price-cost margins. Such tests are inherently suspect in markets - such as electricity - that are subject to capacity constraints. In such markets, prices can vary with demand while quantity, and thus cost measure, remain fixed. Erroneous conclusions are more likely when the proxy for marginal cost is the average operating cost of the marginal plant. Measured this way, Lerner indexes are consistent with competitive behavior. Using this proxy to cap wholesale prices, as the U.S. Federal Energy Regulatory Commission has proposed, would discourage entry by making it impossible for peak power suppliers to recover capital costs. The wholesale electricity sector may be susceptible to market power. But a preferable (if not unproblematic) test for market power would look not at prices but output, i.e., whether individual generators withheld energy that would have been profitable to supply at prevailing prices. |
| Keywords: | market power, electricity, peak load pricing |
| JEL: | D42 L11 L51 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-50&r=ene |
| By: | Kerr, Suzi; Cramton, Peter |
| Abstract: | An auction of carbon permits is the best way to achieve carbon caps set by international negotiation to limit global climate change. To minimize administrative costs, permits would be required at the level of oil refineries, natural gas pipe lines, liquid sellers, and coal processing plants. To maximize liquidity in secondary markets, permits would be fully tradable and bankable. The government would conduct quarterly auctions. A standard ascending-clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery. An auction is preferred to grandfathering (giving polluters permits in proportion to past pollution), because it allows reduced tax distortions, provides more flexibility in distribution of costs, provides greater incentives for innovation, and reduces the need for politically contentious arguments over the allocation of rents. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-34&r=ene |
| By: | Macauley, Molly (Resources For the Future); Darmstadter, Joel (Resources For the Future); Fini, John; Greenberg, Joel; Maulbetsch, John; Schaal, A. Michael; Styles, Geoffrey; Vedda, James |
| Abstract: | Satellite solar power (SSP) has been suggested as an alternative to terrestrial energy resources for electricity generation. In this study, we consider the market for electricity from the present to 2020, roughly the year when many experts expect SSP to be technically achievable. We identify several key challenges for SSP in competing with conventional electricity generation in developed and developing countries, discuss the role of market and economic analysis as technical development of SSP continues during the coming years, and suggest future research directions to improve understanding of the potential economic viability of SSP. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-16&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Krupnick, Alan (Resources For the Future) |
| Abstract: | A number of state public utility commissions are using "social costing" methods to consider externalities in electricity resource planning. The most comprehensive and formal method is the use of monetary place-holders in the financial evaluation of new investments and potentially in system dispatch to reflect quantitative estimates of externality values. This approach necessarily must take existing environmental and social regulation as given. Furthermore, regulated utilities face increasing competition from electricity generators outside their service territory who may not be affected by social costing. The lack of universal and uniform social costing places PUC actions soundly in the realm of "second-best policy" and they may have unintended consequences that should be anticipated by regulators. This paper addresses two prominent possibilities- the potential substitution of unregulated supplies of energy services in place of electricity generated by the regulated utility, and the effect social costing may have on the relationship between the regulated price and marginal cost. These issues are considered within a normative model of social welfare maximization, which is applied to three representative hypothetical utility case studies to calibrate a second-best optimal adder to correct for externalities in electricity planning. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-04&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Project-based mechanisms for emissions reductions credits, like the Clean Development Mechanism, pose important challenges for policy design because of several inherent characteristics. Participation is voluntary, so it will not occur without sufficient credits. Evaluating reductions requires assigning an emissions baseline for a counterfactual that cannot be measured. Some investments have both economic and environmental benefits and might occur anyway. Uncertainty surrounds both emissions and investment returns, and parties to the project are likely to have more information than the certifying authority. The certifying agent is limited in its ability to design a contract that would reveal investment intentions. As a result, rules for benchmarking emissions may be systematically biased to overallocate, and they also risk creating inefficient investment incentives. This paper evaluates, in a situation with asymmetric information, the efficacy of the main baseline rules currently under consideration- historical emissions, an average industry emissions standard, and expected emissions. |
| Keywords: | climate policy, Clean Development Mechanism, baselines, asymmetric information, offsets, emissions reduction, tradable emissions permits |
| JEL: | D8 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-32&r=ene |
| By: | Marc Isabelle (IMRI (Institut pour le Management de la Recherche et de l’Innovation), Université Paris-Dauphine) |
| Abstract: | The upstream oil and gas industry has experienced two different technological regimes since it became international in the 1920s. Whereas its incentives to innovate remained weak during the first fifty years, new technical challenges from the 1970s onward forced the industry into a real technological revolution, further amplified by fierce competitive pressure on hydrocarbon prices since the oil price collapse in 1986. The paper shows that performing this technological acceleration has entailed deep structural changes in the relationships between international oil and gas companies in terms of an increasing propensity to cooperate, more balanced partnerships and a more selective choice of partners. |
| Keywords: | oil & gas industry, industrial organisation, technological innovation, cooperation |
| JEL: | L71 D2 L2 O3 |
| Date: | 2001–04 |
| URL: | http://d.repec.org/n?u=RePEc:imr:wpaper:wp01_02&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper discusses how carbon abatement policies interact with the tax system, and how these interactions affect the overall costs of carbon controls. We provide formulas for adjusting cost estimates of auctioned and grandfathered carbon emissions from partial equilibrium energy models into rough estimates of general equilibrium costs that account for fiscal interactions. In the basic model with a tax on labor income, the general equilibrium costs of (revenue-neutral) auctioned permits are around 25% higher than the partial equilibrium costs; those of grandfathered permits, which do not directly raise revenues for recycling, are typically more than 100% higher. However, when allowance is made for complicating factors, such as the effect of tax subsidies on raising the distortionary costs of the tax system, the efficiency gains from recycling revenues from auctioned permits are larger. Indeed the general equilibrium costs of (revenue-neutral) auctioned permits can be negative for modest abatement levels. |
| Keywords: | carbon permits; tax distortions; revenue recycling; general equilibrium costs |
| JEL: | Q28 H21 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-47&r=ene |
| By: | Burtraw, Dallas (Resources For the Future) |
| Abstract: | The 1990 U.S. Clean Air Act Amendments (CAAA) instituted a national program in tradable sulfur dioxide (SO2) emission permits, referred to as "emission allowances," in the U.S. electricity sector. This paper provides a survey and assessment of the SO2 allowance trading program with a focus on the role of innovation. Over the last decade the cost of compliance has fallen dramatically compared with most expectations, and today the total cost of the program is 40– 140% lower than projections (depending on the timing of those projections and the counter-factual baseline considered). Marginal costs of reductions are less than one-half the cost considered in most analyses at the time the program was introduced. Innovation accounts for a large portion of these cost savings, but not as typically formulated in economic models of research and development (R&D) efforts to obtain patent discoveries. Innovation under the SO2 allowance trading program involves organizational innovation at the firm, market and regulatory level and process innovation by electricity generators and upstream fuel suppliers. An important portion of the cost reductions that are evident was already in the works prior to and independent of the program. Nonetheless, the allowance trading program deserves significant credit for providing the incentive and flexibility to accelerate and to fully realize exogenous technical changes that were occurring in the industry. This marks a significant departure from conventional approaches to environmental regulation, which would not be expected to capture these savings. The ongoing transition to restructuring of electricity markets and expanding competition in electricity generation complements the design of the SO2 allowance trading program by providing firms with full incentives to reduce costs of pollution control. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-38&r=ene |
| By: | Ghersi, Frederic; Hourcade, Jean-Charles |
| Abstract: | This paper examines compromise spaces between competing perspectives on four key climate change issues- costs, level of domestic action, environmental integrity, and developing world involvement. Based on extensive simulations of a model integration tool, SAP12 (Stochastic Assessment of Climate Policies, 12 models), the analysis considers options for fine-tuning the Kyoto Protocol, such as concrete ceilings or levies on carbon imports; restoration payments to be made on excess emissions; credits for sequestration activities in Annex B countries; and others. It shows the critical importance of the baseline against which the performance of each tool has to be assessed in the absence of direct economic penalties for noncompliance. The restoration payment option (also known as a safety valve) emerges as a superior means of addressing the core policy issues, including environmental integrity, and provides a large compromise space between payments of $35 to $100 per ton of carbon. |
| Keywords: | limate negotiations, 2010 carbon markets, uncertainty about abatement costs |
| JEL: | Q25 D74 D78 D80 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-48-&r=ene |
| By: | Toman, Michael |
| Abstract: | Chapter I- Modeling Challenges in Analyzing GHG Trading Frederic Ghersi, former visiting scholar, Resources for the Future and Michael Toman, adjunct professor Johns Hopkins University and University of California-Santa Barbara and former senior fellow, Resources for the Future Chapter II- Experimental Methods for Research into Trading of GHG Emissions R. Andrew Muller, McMaster University Chapter III- Exploring the Behavioral Underpinnings of Carbon Trading Jason Shogren, University of Wyoming Chapter IV- Greenhouse Gas Trading- Design Issues Seeking Research Answers Tom Tietenberg, Colby College |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-33&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Policies to promote energy efficiency in household appliances have different impacts, depending on the structure of market supply. If provision is perfectly competitive, markets will offer the variety of energy efficiency levels that consumers demand. However, if producers can price discriminate, using energy intensity to help segment consumer demand, consumers of low-end appliances are offered too little energy efficiency so that high-end consumers can be charged more for efficient appliances. Minimum energy efficiency standards can then improve welfare. We also consider average intensity standards, energy prices, and innovation and identify important differences in their effects on energy intensity, welfare, and consumers, depending on market structures. To evaluate the role for policy, one must know not only how consumers value energy efficiency in their decisionmaking, but also how producers respond to those values. |
| Keywords: | energy efficiency, appliance, standards, price discrimination |
| JEL: | Q40 Q55 Q58 O3 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-11&r=ene |
| By: | Ronald Steenblik |
| Abstract: | Numerous studies and events over the past several years have stressed the importance of eliminating barriers to trade in renewable forms of energy and the technologies used to exploit them, as part of a broader strategy to reduce dependence on more-polluting and less secure energy sources. This paper examines the implications of liberalising trade in renewable energy, focussing on several representative fuels and technologies (charcoal, solar photovoltaic systems and their complements, and wind turbines and wind pumps). Eliminating tariffs on renewable energy and associated goods — which are 15% or higher on an ad valorem basis in many developing countries — would reduce a burden on consumers of energy, particularly people living in rural areas of developing countries, as it is in such areas that many renewableenergy technologies are making, and are likely to make, their greatest contribution. Manufacturers located in OECD countries would benefit from increased trade in renewable-energy technologies and components, but so would a growing number of companies based in developing countries. The elimination of tariffs would also help to level the playing field between aid-financed goods, which often benefit from tariff waivers, and goods imported through normal market transactions, which often do not. For the maximum benefits of trade liberalisation in renewable-energy technologies to be realised, however, additional reforms may be required in importing countries’ domestic policies, especially those affecting the electricity sector in general, rural electrification in particular, and the environment. |
| Keywords: | trade, developing countries, environmental goods, environmental technologies, renewable energy |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaaa:2005/7-en&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Krupnick, Alan (Resources For the Future) |
| Abstract: | A significant literature has developed to estimate the damages to third parties from new electricity generation technologies. This paper focuses on how such estimates can be profitably used in the present regulatory environment, and in the potential new environment that may result from restructuring in the electricity industry. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-29&r=ene |
| By: | Stavins, Robert |
| Abstract: | The Kyoto Protocol (1997) to the United Nations Framework Convention on Climate Change (1992) may come into force without U.S. participation, but its effects on climate change will be trivial. At the same time, the economic and scientific consensus points to the need for a credible international approach. A reasonable starting point is the Framework Convention on Climate Change (FCCC), which was signed by 161 nations and ratified by 50, including the United States, and entered into force in 1994. In this paper, I remain agnostic on the question of the Kyoto Protocol’s viability. Some analysts see the agreement as deeply flawed, while others see it as an acceptable or even excellent first step. But virtually everyone agrees that the Protocol is not sufficient to the overall challenge, and that further, subsequent steps will be required. This is my starting point for proposing a three-part policy architecture- first, all nations would be involved through the use of economic trigger mechanisms, such as growth targets; second, long-term targets would be required — in the short-term, firm, but moderate targets, and in the long-term, flexible, but much more stringent targets; and third, market-based policy instruments would be part of the package — emissions trading, carbon taxes, or hybrids of the two. This overall approach can be made to be scientifically sound, economically rational, and politically pragmatic. |
| Keywords: | global climate change, global warming, policy architecture, Kyoto Protocol |
| JEL: | Q54 Q58 Q48 Q39 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-28&r=ene |
| By: | GAUDET, Gérard; MOREAUX, Michel; WITHAGEN, Cees |
| Abstract: | The purpose of this paper is to characterize the optimal time paths of production and water usage by an agricultural and an oil sector that have to share a limited water resource. We show that for any given water stock, if the oil stock is sufficiently large, it will become optimal to have a phase during which the agricultural sector is inactive. This may mean having an initial phase during which the two sectors are active, then a phase during which the water is reserved for the oil sector and the agricultural sector is inactive, followed by a phase during which both sectors are active again. The agricultural sector will always be active in the end as the oil stock is depleted and the demand for water from the oil sector decreases. In the case where agriculture is not constrained by the given natural inflow of water once there is no more oil, we show that oil extraction will always end with a phase during which oil production follows a pure Hotelling path, with the implicit price of oil net of extraction cost growing at the rate of interest. If the natural inflow of water does constitute a constraint for agriculture, then oil production never follows a pure Hotelling path, because its full marginal cost must always reflect not only the imputed rent on the finite oil stock, but also the positive opportunity cost of water. |
| Keywords: | nonrenewable natural resources, renewable natural resources, order of use, water resource, oil |
| JEL: | Q1 Q2 Q3 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2005-18&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | Grandfathered emissions permits redistribute income to wealthy households by creating firm rents that ultimately accrue to shareholders. Consequently, they can be highly regressive, even if the poor do not have large budget shares for polluting goods. Using an analytical model, this paper estimates the burden borne by different income groups when emissions permits are used to control power plant emissions of carbon, SO2, and NOx. We also compare the burden borne by poor households under permits with that under emissions taxes, performance standards, technology mandates, and input taxes. And we show how the social costs of policies differ from efficiency costs when society has aversion to inequality. |
| Keywords: | equity effects; pollution controls; emissions permits; social welfare function |
| JEL: | Q28 H22 H23 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-21&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Restructuring the electricity market may secure efficiencies by moving away from cost-of-service regulation, with typically (but not necessarily) time-invariant prices, and allowing prices to reflect how costs change. Charging "real time" prices requires that electricity use be measured according to when one uses it. Arguments that such real-time metering should be a policy objective promoted by subsidizing meters or delaying restructuring until meters are installed, require more than these potential benefits. They require positive externalities to imply that too few meters would be installed through private transactions. Real-time metering presents no systematic externalities when utilities must serve peak period users, and may present negative externalities under some conditions. Positive externalities are likely when electricity is rationed through blackouts. Real-time metering may or may not increase welfare when peak period wholesale markets are not competitive; one might want to prohibit real-time metering in such situations even if metering itself were costless. |
| Keywords: | real-time metering electricity restructuring, deregulation, rationing, externalities |
| JEL: | D45 D62 L11 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-53&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Widespread concern over transmission capacity requires theoretical support to infer inadequacy from observed trends indicating reductions in the ratio of transmission to generation capacity over time. If integrated utilities had been regulated with allowed returns exceeding capital costs, transmission-generation ratios would have been excessive, and observed trends might be a correction. However, numerous commentators claim that post-restructuring transmission rates have been too low, with NIMBY also discouraging investment. We model the possibility that inadequate separation between generation and transmission may result in reduced investment, in order to preserve incumbent market power in generation. However, consideration of transmission price caps and coordinated generation investment support other analyses that conclude that vertical separation itself may be a culprit. |
| Keywords: | electricity transmission, regulation, deregulation, vertical integration |
| JEL: | L94 L51 L22 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-50&r=ene |
| By: | Burtraw, Dallas (Resources For the Future) |
| Abstract: | This paper reports on four areas of research concerning Title IV of the 1990 Clean Air Act Amendments that regulates emissions of SO2 from electricity generation. The first is the costs of the program over the long-run as estimated from the current perspective taking into account recent changes in fuel markets and technology. We compare projected costs with potential cost savings that can be attributable to formal trading of emission allowances. The second area is an evaluation of how well allowance trading has worked to date. The third area is the relationship between compliance costs and economic costs from a general equilibrium perspective. The fourth area is a comparison of benefits and costs for the program. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-28-rev&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Krupnick, Alan (Resources For the Future); Austin, David; Stoessell, Terrell |
| Abstract: | This paper reports the results of policy simulations of environmental and human health externalities arising from the production of electricity. The primary purpose of this paper is to illustrate the Maryland Externalities Screening and Valuation Model, developed for the State of Maryland’s Department of Natural Resources. A secondary purpose is to estimate likely Maryland benefits from Title IV emissions reductions at electric power generation facilities. Sources and scope of benefits, and the potential of policy to achieve specific environmental and human health goals, are suggested by the results. The authors find that expected health benefits from reductions in power plant emissions dominate the estimated benefits of improved recreational visibility and residential visibility. The latter are the only environmental benefits the model is currently equipped to estimate, because of gaps in the science-to-economics literature. The model fully accounts for all significant environmental pathways, so future parameter estimates can be inserted as they are developed. The authors estimate that in 2010 Maryland health benefits will be about $0.7 billion, while recreational visibility benefits (in Shenandoah National Park) will be approximately $21 million (to residents of Virginia and Maryland), and residential visibility benefits, for inhabitants of a city of the size of Washington, DC and similarly affected by reduced urban visibility, will be about $1.2 million. This integrated-assessment model is designed to estimate and report also the tremendous uncertainties in measuring and valuing these effects. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-05&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future) |
| Abstract: | For years economists have urged policymakers to use market-based approaches such as cap-and-trade programs or emission taxes to control pollution. The SO2 allowance market created by Title IV of the 1990 U.S. Clean Air Act Amendments (CAAA) presents the first real test of the wisdom of economists' advice. This paper provides an overview of the origins, design, and performance of the U.S. acid rain program, and an analysis of its specific features and its adaptability as a model for addressing other pollution problems, such as control of NOx or CO2 emissions. The program also has resulted in innovation through changes in organizational technology, in the organization of markets, and through experimentation at individual boilers, much of which arguably would not have occurred under a more prescriptive approach to regulation. There is ample evidence that allowance trading has achieved substantial cost savings, and there are lessons that can guide the design of future policies. |
| Keywords: | emission trading, cap and trade, air pollution, cost-benefit analysis, electricity, particulates, sulfur dioxide, SO2, health benefits, acid rain |
| JEL: | Q25 Q4 D62 Q28 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-15&r=ene |
| By: | Blackman, Allen (Resources For the Future) |
| Abstract: | Recent efforts to forge a consensus on the role developing countries should play in reducing global greenhouse gas emissions have focused attention on climate friendly technologies (CFTs), most notably those that enhance energy efficiency. In the medium term, the effectiveness of technology-based climate strategies will depend critically on the rates at which CFTs diffuse in developing countries. This paper reviews some of the key findings of the economics research on technology diffusion and assesses the implications for climate policy. The most obvious lessons from this research are that widespread diffusion of CFTs may take decades, and that diffusion rates in developing and industrialized countries are likely to be quite different. In addition, the literature has implications for a number of strategies for promoting technology diffusion including information dissemination, factor price rationalization, and investment in human capital. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-42&r=ene |
| By: | Parry, Ian (Resources For the Future); Goulder, Lawrence; Williams III, Roberton |
| Abstract: | This paper employs analytical and numerical general equilibrium models to assess the efficiency impacts of two policies to reduce U.S. carbon emissions — a revenue-neutral carbon tax and a non-auctioned carbon quota — taking into account the interactions between these policies and pre-existing tax distortions in factor markets. We show that tax interactions significantly raise the costs of both policies relative to what they would be in a first-best setting. In addition, we show that these interactions put the carbon quota at a significant efficiency disadvantage relative to the carbon tax- for example, the costs of reducing emissions by 10 percent are more than three times as high under the carbon quota as under the carbon tax. This disadvantage reflects the inability of the quota policy to generate revenue that can be used to reduce pre-existing distortionary taxes. Indeed, second-best considerations can limit the potential of a carbon quota to generate overall efficiency gains. Under our central values for parameters, a non-auctioned carbon quota (or set of grandfathered carbon emissions permits) cannot increase efficiency unless the marginal benefits from avoided future climate change are at least $17.8 per ton of carbon abatement. Most estimates of marginal environmental benefits are below this level. Thus, our analysis suggests that any carbon abatement by way of a non-auctioned quota will reduce efficiency. In contrast, our analysis indicates that a revenue-neutral carbon tax can be efficiency-improving so long as marginal environmental benefits are positive. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-18-rev&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Project-based mechanisms for emissions reductions credits, like the Clean Development Mechanism, pose important challenges for policy design because of several inherent characteristics. Participation is voluntary. Evaluating reductions requires assigning a baseline for a counterfactual that cannot be measured. Some investments have both economic and environmental benefits and might occur anyway. Uncertainty surrounds both emissions and investment returns. Parties to the project are likely to have more information than the certifying authority. The certifying agent is limited in its ability to design a contract that would reveal investment intentions. As a result, rules for baseline determination may be systematically biased to overallocate, and they also risk creating inefficient investment incentives. This paper evaluates, in a situation with asymmetric information, the efficacy of the main baseline rules currently under consideration- historical emissions, average industry emissions, and expected emissions. |
| Keywords: | climate policy, Clean Development Mechanism, baseline emissions, asymmetric information |
| JEL: | D8 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-23&r=ene |
| By: | Kruger, Joseph |
| Abstract: | Cap-and-trade programs have become widely accepted for the control of conventional air pollution in the United States. However, there is still no political consensus to use these programs to address greenhouse gases. Meanwhile, in the wake of the success of the U.S. SO2 and NOx trading programs, private companies, state governments, and the European Union are developing new trading programs or other initiatives that may set precedents for a future national U.S. greenhouse gas trading scheme. This paper summarizes the literature on the “lessons learned” from the SO2 trading program for greenhouse gas trading, including lessons about the potential differences in design that may be necessary because of the different sources, science, mitigation options, and economics inherent in greenhouse gases. The paper discusses how the programs and initiatives mentioned above have been shaped by lessons from past trading programs and whether they are making changes to the SO2 model to address greenhouse gases. Finally, the paper concludes with an assessment of the implications of these initiatives for a future U.S. national greenhouse gas trading program. |
| Keywords: | climate change, emissions trading, European Union, U.S. states, corporate environmentalism |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-20&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model. |
| Keywords: | emissions tax, earmarking, tradable performance standards, imperfect competition, Cournot, duopoly, refunding, subsidy |
| JEL: | H21 H23 Q2 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-27&r=ene |
| By: | Stavins, Robert; Newell, Richard (Resources For the Future) |
| Abstract: | The possibility of encouraging the growth of forests as a means of sequestering carbon dioxide has received considerable attention because of concerns about the threat of global climate change due to the greenhouse effect. In fact, this approach is an explicit element of both U.S. and international climate policies, partly because of evidence that growing trees to sequester carbon can be a relatively inexpensive means of combating climate change. But how sensitive are such estimates to specific conditions? We examine the sensitivity of carbon sequestration costs to changes in critical factors, including the nature of the management and deforestation regimes, silvicultural species, agricultural prices, and discount rates. We find, somewhat counter-intuitively, that the costs of carbon sequestration can be greater if trees are periodically harvested, rather than permanently established. In addition, higher discount rates imply higher marginal costs, and they imply non-monotonic changes in the amount of carbon sequestered. Importantly, retarded deforestation can sequester carbon at substantially lower costs than increased forestation. These results depend in part on the time profile of sequestration and the amount of carbon released upon harvest, both of which may vary by species, geographic location, and management regime, and are subject to scientific uncertainty. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-31-rev&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Jurisdictions have overlapping authority regarding electricity restructuring when a national authority and subnational regional governments—for example, states—both have a say. The initial sections of the paper review the division of regulatory authority over electricity markets in the United States, constitutional provisions, recent developments, and how federalist concerns have been manifested in antitrust and telecommunications. Justifications for using private markets rather than central governments suggest an efficiency approach to dividing authority, based on information, cross-border externalities, and agency, that is, the ability of a government to reflect the political preferences of its constituents. The goal is not to impose a “right” policy (e.g., promoting efficiency) through a rhetorical “back door,” but to set up rules that would best reflect constituent views. This analysis suggests that transmission and environmental regulations should be set on a regional or national level. States should retain control over when and how to open local retail markets. Uncertainty regarding the best way to organize electricity markets warrants localized experimentation. The paper concludes with brief discussions of nonefficiency ethical criteria and transnational considerations. |
| Keywords: | electricity restructuring, federalism, regulatory policy |
| JEL: | H11 L94 L51 H77 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-24&r=ene |
| By: | Palmer, Karen (Resources For the Future); Ando, Amy |
| Abstract: | Retail competition in electricity markets is expected to lead to more efficient electricity supply, lower electricity prices, more innovation by suppliers and a greater variety of electric power service packages. However, only a handful of states have currently gone so far as to pass legislation and/or make regulatory decisions to establish retail wheeling. This paper analyzes a variety of factors that may influence the rate at which legislators and regulators move towards establishing retail competition. In general, we find that where one interest group dominates others in the struggle for influence over the decision makers, the net effect seems to push a state forward more quickly when retail wheeling is expected to yield large efficiency gains. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-19-rev&r=ene |
| By: | Toman, Michael; Shogren, Jason |
| Abstract: | Having risen from relative obscurity as few as ten years ago, climate change now looms large among environmental policy issues. Its scope is global; the potential environmental and economic impacts are ubiquitous; the potential restrictions on human choices touch the most basic goals of people in all nations; and the sheer scope of the potential response—a significant shift away from using fossil fuels as the primary energy source in the modern economy—is daunting. In this paper, we explore the economics of climate change policy. We examine the risks that climate change poses for society, the benefits of protection against the effects of climate change, and the costs of alternative protection policies. We organize our discussion around three broad themes- why costs and benefits matter in assessing climate change policies, as does the uncertainty surrounding them; why well-designed, cost-effective climate policies are essential in addressing the threat of climate change; and why a coherent architecture of international agreements is key to successful policy implementation. We conclude the paper with a summary of key policy lessons and gaps in knowledge. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-22&r=ene |
| By: | Sedjo, Roger (Resources For the Future) |
| Abstract: | A major problem being faced by human society is that the global temperature is believed to be rising due to human activity that releases carbon dioxide to the atmosphere, i.e., global warming. The major culprit is thought to be fossil fuel burning, which is releasing increasing amounts of carbon dioxide in the atmosphere. The problem of increasing atmospheric carbon dioxide can be addressed a number of ways. One of these is forestry and forest management. This paper examines a number of current issues related to mitigating the global warming problem through forestry. First, the overall carbon cycle is described, and the potential impact of forests on the buildup of atmospheric carbon is examined. A major focus is the means by which forests and forest management can contribute to the sequestration of carbon. The potential role of forests and forestry in sequestrating carbon to reduce the buildup of greenhouse gases in the atmosphere is now well recognized. A number of alternative approaches to utilizing forestry and forest management for carbon sequestration are examined. These include forest protection; the management of forests for carbon for joint products, i.e., the management of forests to generate both carbon and timber as products; the establishment of plantation forests dedicated to carbon sequestration; and increased production of wood products. Replacing other materials with wood will sequester carbon while reducing energy requirements, thereby reducing carbon emissions. Studies examining the costs of carbon sequestration using forestry are also discussed. The recent Kyoto Protocol (K.P.) explicitly recognizes certain forestry activities as “certifiable” for sequestration credits. But some definitions and aspects of carbon sequestration through forestry were left incomplete or inadequately defined by the Protocol. Furthermore, the KP has changed due to the recent withdrawal of the US for the Protocol (although not from the Kyoto Process). Nevertheless, further clarification is necessary to understand the full potential and set of opportunities from forestry both within the framework of the Protocol and more generally. Alternative types of vehicles for sequestration credits are discussed below,m both within and outside the context of the KP , and their advantages and disadvantages in terms of periods covered and liability are also examined. Finally, some ongoing real-world activities utilizing forestry specifically to sequester carbon are discussed. |
| Keywords: | forests, carbon, sinks, sequestration, forest management, Kyoto Protocol |
| JEL: | Q10 Q15 Q21 Q23 Q24 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-34&r=ene |
| By: | Newell, Richard (Resources For the Future); Wilson, Nathan |
| Abstract: | We analyze whether technology inducement prizes could be a useful complement to standard research grants and contracts in developing climate change mitigation technologies. We find that there are important conceptual advantages to using inducement prizes in certain circumstances. These conceptual inferences are borne out by an examination of the track record of prizes inducing research into public goods, including relevant energy technologies. However, we also find that the prizes’ successes are contingent on their proper design. We analyze how several important design elements could influence the effectiveness of a climate technology prize. |
| Keywords: | inducement prize, research and development, climate change, technology, policy |
| JEL: | Q28 D81 C68 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-33&r=ene |
| By: | Kruger, Joseph |
| Abstract: | Much has been written about the economic and environmental performance of U.S. emissions trading programs for “acid rain” (sulfur dioxide) and nitrogen oxides. Less explored have been the unique roles and interactions of environmental regulators and the companies they regulate. I first examine how these roles change the way that regulators and companies operate within their own organizations and with each other. Next, I use examples from U.S. trading programs to illustrate the design and administrative features that allow program administrators and industry to best fulfill their respective roles. Finally, I examine briefly whether these features are present in the EU Emissions Trading System and determine the implications for its effectiveness. |
| Keywords: | emissions trading, climate change, environmental management, information technology |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-03&r=ene |
| By: | Stavins, Robert; Whitehead, Bradley |
| Abstract: | We examine what will be required if market-based environmental policy instruments are to become a major force in U.S. environmental policy. We define market-based instruments, and specify five categories- pollution charges; tradable permits; deposit refund systems; reducing market barriers; and eliminating government subsidies. We review major U.S. applications, including- EPA's emissions trading program; the leaded gasoline phasedown; water quality permit trading; CFC trading; SO2 allowance trading; and the RECLAIM program. We assess the U.S. experience in terms of the relatively limited use of these instruments and in terms of the mixed record of performance of implemented instruments. We ask how the next generation of market-based instruments can be advanced, focusing on four sets of approaches- improving program design; applying market-based instruments on the state level; implementing new Federal programs; and addressing long-term issues. We conclude with a brief prognosis of the likely future role of market-based instruments in U.S. environmental policy. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-10&r=ene |
| By: | Anderson, John (Resources For the Future) |
| Abstract: | Reducing nitrogen oxide (NOx) emissions in the eastern United States has become the focus of efforts to meet ozone air quality goals and will be useful for reducing particulate matter (PM) concentrations in the future. This paper addresses many aspects of the debate over the appropriate approach for obtaining reductions in NOx emissions from point sources beyond those called for in the Clean Air Act Amendments of 1990. Data on NOx control technologies and their associated costs, spatial models linking NOx emissions and air quality, and benefit estimates of the health effects of changes in ozone and PM concentrations are combined to allow an analysis of alternative policies in thirteen states in the eastern United States. The first part of the study examines the cost and other consequences of a command-and-control approach embodied in the Environmental Protection Agency’s (EPA) NOx SIP call, which envisions large reductions in NOx from electric utilities and other point sources. These results are compared to the alternative policy of ton-for-ton NOx emissions trading, similar to that proposed by the EPA for utilities. We find that emission reduction targets can be met at roughly 50% cost savings under a trading program when there are no transaction costs. The paper examines a number of alternative economic incentive policies that have the potential to improve upon the utility NOx trading plan proposed by EPA, including incorporation of other point sources in the trading program, incorporation of ancillary PM benefits to ozone reductions in the trading program, and trading on the basis of ozone exposures that incorporates the spatial impact of emissions on ozone levels. For the latter analysis, we examine spatially differentiated permit systems for reducing ozone exposures under different and uncertain meteorological conditions, including an empirical analysis of the trade-off between the reliability (or degree of certainty) of meeting ozone exposure reduction targets and the cost of NOx control. Finally, several policies that combine costs and health benefits from both ozone and PM reductions are compared to command-and-control and single-pollutant trading policies. The first of these is a full multipollutant trading system that achieves a health benefit goal, with the interpollutant trading ratios governed by the ratio of unit health benefits of ozone and PM. Then, a model that maximizes aggregate benefits from both ozone and PM exposure reductions net of the costs of NOx controls is estimated. EPA’s program appears to be reasonably cost-effective compared to all of the other more complex trading programs we examined. It may even be considered an optimal policy that maximizes net aggregate benefits if the high estimate of benefits is used in which mortality risk is linked to ozone exposure. Without this controversial assumption, however, we find that EPA’s NOx reduction target is far too large. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-17&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Political pressure often exists to earmark environmental tax revenues or permit rents to the industry affected by the regulation. This paper analyzes schemes that rebate revenues based on output shares- tradable performance standards, an emissions tax with market-share rebates, and tradable permits with output-based allocation. All three policies effectively combine a tax on emissions with a subsidy to output. The result is a shifting of emissions control efforts toward greater emissions rate reduction and less output contraction, with higher marginal costs of control and lower output prices compared to the social optimum, given any targeted level of abatement. These welfare costs depend on the degree of output substitutability and are likely to be much larger in the long run. While some political and market-failure justifications may exist, policy makers should carefully consider industry characteristics before engaging in output-based rebating. |
| Keywords: | emission tax, permit allocation, earmarking, tradable performance standards |
| JEL: | H21 H23 Q2 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-22&r=ene |
| By: | Stavins, Robert; Hahn, Robert |
| Abstract: | This paper investigates a central issue in the climate change debate associated with the Kyoto Protocol- the likely performance of international greenhouse gas trading mechanisms. Virtually all design studies and many projections of the costs of meeting the Kyoto targets have assumed that an international trading program can be established that minimizes the costs of meeting overall goals. This conclusion rests on several simplifying assumptions. In this paper, the authors focus on one important issue that has received little, if any, attention- the interaction between an international trading regime and a heterogeneous set of domestic greenhouse policy instruments. This is an important issue because the Protocol explicitly provides for domestic sovereignty regarding instrument choice, and because it is unlikely that most countries will choose tradable permits as their primary domestic vehicle. It is true that costs can be minimized if all countries use domestic tradable permit systems to meet their national targets (allocate permits to private parties) and allow for international trades. But when some countries use non-trading approaches such as greenhouse-gas taxes or fixed quantity standards which seems likely in the light of previous experience cost minimization is hardly assured. In these cases, achieving the potential cost savings of international trading will require some form of project-by-project credit program, such as joint implementation. But theory and experience with such credit programs suggest that they are much less likely to facilitate major cost savings, because of large transactions costs, likely government participation, and absence of a well functioning market. Thus, individual nations' choices of domestic policy instruments to meet the Kyoto targets can limit substantially the cost-saving potential of an international trading program. There is an important trade-off between the degree of domestic sovereignty and the degree of cost effectiveness. Moreover, there is a need to analyze the likely cost-savings from feasible, as opposed to idealized, international policy approaches to reducing emissions of greenhouse gases. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-30&r=ene |
| By: | Sedjo, Roger (Resources For the Future); Sohngen, Brent |
| Abstract: | Forestry has been considered to have potential in reducing the atmospheric concentration of carbon dioxide by sequestrating carbon in above-ground timber and below-ground roots and soil. This potential has been noted in the Kyoto Protocol, which identified specific forestry activities for which carbon sequestration credits could be obtained. To date, a few forestry efforts have been undertaken for carbon purposes, but most of these efforts have been on a small scale. Proposals have been under discussion, however, that would result in the creation of very large areas of new forest for the purpose of offsetting some of the additional carbon that is being released into the atmosphere. Concerns are expressed, however, that large-scale sequestration operations might have impacts on the world timber market, affecting timber prices and thereby reducing the incentives of traditional suppliers to invest in forest management and new timber production. Such a "crowding out" or "leakage" effect, as it is called in the literature, could negate much or all of the sequestered carbon by the newly created sequestration forests. Accordingly, the purpose of this study is to examine and assess the interactions between carbon sequestration forestry, particularly, newly created carbon forests, and the markets for timber. The approach of this study involves utilizing an existing Dynamic Timber Supply Model (DTSM) to examine the interactions between newly created sequestration forests and the markets for timber. This model has been used to examine global timber supply and, more recently, has been modified to include carbon considerations. This study suggests that even without any specific sequestration efforts, commercial forestry offers the potential to sequester substantial volumes of carbon, approaching ten gigatons (Gt) (or petagrams (Pg)), in vegetation, soils and market products over the next century. At current rates of atmospheric carbon build up this is equal to about three years of net carbon releases into the atmosphere. This volume of carbon sequestration could be increased 50–100% by 50 million hectares (ha) of rapidly growing carbon-sequestering plantation forests, even given the anticipated leakages due to market price effects. Finally, the projections suggest that the amount of crowding out and carbon leakages are likely to be very modest. The 50 million ha of carbon plantations are projected to reduce land areas in industrial plantations, that is, crowd out, only from 0.2 to 7.8 million ha over the 100-year period. The addition of carbon sequestration forests offers the potential to increase the carbon sequestration of the forest system more than 50%, up to 5.7 Gts, above that already captured from market activity. This estimate assumes that crowding out and associated projected leakages will occur. At current rates of atmospheric carbon buildup, about 2.8% of the expected total buildup in atmospheric carbon over the next century could be offset by 50 million ha of carbon plantations. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-35&r=ene |
| By: | Siem Jan Koopman (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam); Marius Ooms (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam); M. Angeles Carnero (Dpt. Fundamentos del Analisis Economico, University of Alicante) |
| Abstract: | Novel periodic extensions of dynamic long memory regression models with autoregressive conditional heteroskedastic errors are considered for the analysis of daily electricity spot prices. The parameters of the model with mean and variance specifications are estimated simultaneously by the method of approximate maximum likelihood. The methods are implemented for time series of 1, 200 to 4, 400 daily price observations. Apart from persistence, heteroskedasticity and extreme observations in prices, a novel empirical finding is the importance of day-of-the-week periodicity in the autocovariance function of electricity spot prices. In particular, daily log prices from the Nord Pool power exchange of Norway are modeled effectively by our framework, which is also extended with explanatory variables. For the daily log prices of three European emerging electricity markets (EEX in Germany, Powernext in France, APX in The Netherlands), which are less persistent, periodicity is also highly significant. |
| Keywords: | Autoregressive fractionally integrated moving average model; Generalised autoregressive conditional heteroskedasticity model; Long memory process; Periodic autoregressive model; Volatility |
| JEL: | C22 C51 G10 |
| Date: | 2005–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20050091&r=ene |
| By: | Bernard, Jean-Thomas; Cote, Bruno |
| Abstract: | Energy intensity is the ratio of energy use to output. Most industries deal with several energy sources and outputs. This leads to the usual difficulties of aggregating heterogeneous inputs and outputs. We apply principal components analysis to assess the information derived from six energy intensity indicators. We use two measures of total energy use (thermal and economic) and three measures of industry output (value added, value of production, and value of shipments). The data comes from manufacturing industries in Québec, Ontario, Alberta, and British Columbia from 1976 to 1996. We find that the variation of the six energy intensity indicators that is accounted for by the first principal component is quite large. However, depending on how variables are measured, there may be significant differences in the assessment of the evolution of energy intensity for some industries. There are no particular patterns in this respect. This makes identifying benchmarks that could be used to assess future performance difficult. |
| Keywords: | Energy intensity; aggregation; principal components analysis |
| JEL: | Q40 C43 L60 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-31&r=ene |
| By: | Toman, Michael; Morgenstern, Richard (Resources For the Future); Anderson, John (Resources For the Future) |
| Abstract: | This paper focuses on the economic desirability of the fixed and relatively short-term greenhouse gas targets and timetables in the Kyoto Protocol. The Protocol provides flexibility in which greenhouse gases to control, where control can be implemented, and what domestic policy measures are used. However, the Protocol does not allow much flexibility in when emission reductions take place in pursuit of longer-term environmental goals. Nor does it allow more flexible shorter-term environmental targets through price-based policy instruments that balance environmental goals and compliance costs. The relative inflexibility of the Protocol with respect to these elements may derive, in part, from a misplaced analogy between the global warming issue and the highly successful effort to phase out CFCs under the Montreal Protocol. The lack of "when" flexibility may be a key barrier to achieving the broader goals of the Kyoto Protocol, particularly if "where" flexibility is constrained in implementing the Protocol. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-38-rev&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Cropper, Maureen; Carlson, Curtis |
| Abstract: | Title IV of the 1990 Clean Air Act Amendments (CAAA) established a market for transferable sulfur dioxide (SO2) emission allowances among electric utilities. This market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit SO2 from firms with lower costs, and is expected to yield cost savings compared to a command and control approach to environmental regulation. This paper uses econometrically estimated marginal abatement cost functions for power plants affected by Title IV of the CAAA to evaluate the performance of the SO2 allowance market. Specifically, we investigate whether the much-heralded fall in the cost of abating SO2, compared to original estimates, can be attributed to allowance trading. We demonstrate that, for plants using low-sulfur coal to reduce SO2 emissions, technical changes and the fall in low-sulfur coal prices have lowered marginal abatement cost curves by over 50% since 1985. The flexibility to take advantage of these changes is the main source of cost reductions, rather than trading per se. In the long run, allowance trading may achieve cost savings of $700-$800 million per year compared to an "enlightened" command and control program characterized by a uniform emission rate standard. The cost savings would be twice as great if the alternative to trading were forced scrubbing. However, a comparison of potential cost savings in 1995 and 1996 with actual emissions costs suggests that most trading gains were unrealized in the first two years of the program. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-44-rev&r=ene |
| By: | Valentina Bosetti (Fondazione Eni Enrico Mattei); Laurent Drouet (LOGILAB-HEC, Université de Genève) |
| Abstract: | The key role of technological change in the decline of energy and carbon intensities of aggregate economic activities is widely recognized. This has focused attention on the issue of developing endogenous models for the evolution of technological change. With a few exceptions this is done using a deterministic framework, even though technological change is a dynamic process which is uncertain by nature. Indeed, the two main vectors through which technological change may be conceptualized, learning through R&D investments and learning-by-doing, both evolve and cumulate in a stochastic manner. How misleading are climate strategies designed without accounting for such uncertainty? The main idea underlying the present piece of research is to assess and discuss the effect of endogenizing this uncertainty on optimal R&D investment trajectories and carbon emission abatement strategies. In order to do so, we use an implicit stochastic programming version of the FEEM-RICE model, first described in Bosetti, Carraro and Galeotti, (2005). The comparative advantage of taking a stochastic programming approach is estimated using as benchmarks the expected-value approach and the worst-case scenario approach. It appears that, accounting for uncertainty and irreversibility would affect both the optimal level of investment in R&D –which should be higher– and emission reductions –which should be contained in the early periods. Indeed, waiting and investing in R&D appears to be the most cost-effective hedging strategy. |
| Keywords: | Stochastic Programming, Uncertainty and Learning, Endogenous Technical Change |
| JEL: | D62 D63 H23 Q29 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2005.147&r=ene |
| By: | Patrick Criqui (LEPII - Laboratoire d'économie de la prospective et de l'intégration internationale - http://www.upmf-grenoble.fr/lepii - CNRS : FR2664 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | L'entrée en vigueur du protocole de Kyoto marque le point de départ de la mise en œuvre d'un véritable régime climatique international, visant à limiter les émissions de gaz à effet de serre. L'article rappelle les objectifs, les moyens et l'architecture du Protocole et s'interroge sur sa viabilité et ses implications économiques. |
| Keywords: | régime climatique;protocole de Kyoto;changement climatique |
| Date: | 2006–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007782_v1&r=ene |
| By: | Goulder, Lawrence; Bovenberg, A. Lans |
| Abstract: | The most cost-effective policies for achieving CO2 abatement (e.g., carbon taxes) are considered politically unacceptable because of distributional consequences. This paper explores policies designed to address distributional concerns. Using an intertemporal, numerical general equilibrium model of the United States, we examine how efficiency costs change when CO2 abatement policies include elements that neutralize adverse impacts on energy industries. We find that desirable distributional outcomes can be achieved at relatively low cost in terms of efficiency. Without substantial added cost to the overall economy, the government can implement carbon abatement policies that protect profits and equity values in fossil-fuel industries. The key to this conclusion is that CO2 abatement policies have the potential to generate rents that are very large in relation to the potential loss of profit. By enabling firms to retain only a very small fraction of these potential rents, the government can protect firms’ profits and equity values. Consequently, the government needs to grandfather only a small percentage of CO2 emissions permits or, similarly, must exempt only a small fraction of emissions from the base of a carbon tax. Each of these government policies involves only a small sacrifice of potential government revenue. Such revenue has an efficiency value because it can be used to finance cuts in pre-existing distortionary taxes. Because these policies give up little of this potential revenue, they involve only a small sacrifice in terms of efficiency. We also find that there is a very large difference between preserving firms’ profits and preserving their tax payments. Allowing firms to enjoy a dollar-for-dollar offset to their payments of carbon taxesfor example, through industry-specific cuts in corporate tax ratessubstantially overcompensates firms, raising profits and equity values significantly relative to the unregulated situation. This reflects the fact that producers can shift onto consumers most of the burden from a carbon tax. The efficiency costs of such policies are far greater than the costs of policies that do not overcompensate firms. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-27&r=ene |
| By: | Catherine Locatelli (LEPII - Laboratoire d'économie de la production et de l'intégration internationale - http://www.upmf-grenoble.fr/lepii/ - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | Depuis le début des années 2000, la Chine a fait une irruption majeure sur les marchés énergétiques internationaux, en particulier sur celui du pétrole. Cette croissance de la dépendance extérieure de la Chine dont la politique énergétique s'est longtemps caractérisée par des stratégies d'autosuffisance est porteur d'enjeux économiques et géopolitiques nouveaux. L'objectif de cet article est en particulier d'analyser les politiques que ce pays tente de mettre en place pour faire face à cette nouvelle donne énergétique. |
| Keywords: | Chine;marché énergétique international;industrie énergétique;géopolitique |
| Date: | 2006–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007783_v1&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | Previous studies suggest that emissions taxes are more efficient at stimulating the development of improved pollution abatement technologies than other policy instruments, such as (non-auctioned) tradable emissions permits. We present results from a competitive model that cast some doubt on the empirical importance of this assertion. For example, we find that efficiency in the market for "environmental R&D" under tradable permits is typically less than 6 percent lower than that under an emissions tax for innovations that reduce pollution abatement costs by 10 percent or less. However the discrepancy is more significant in the case of more major innovations. We also find that the presence of R&D spillovers per se does not necessarily imply large inefficiency in the R&D market. For example, efficiency in the R&D market under a Pigouvian emissions tax is generally more than 90 percent of that in the first best outcome if the private benefit from innovation exceeds 50 percent of the social benefit. Thus the R&D spillover effect must substantially limit the private benefit from R&D in our analysis for there be a potentially "large" efficiency gain from additional policies such as research subsidies to stimulate innovation. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-04&r=ene |
| By: | Toman, Michael; Kolstad, Charles |
| Abstract: | Economics has played an increasingly important role in shaping policy, in the United States and elsewhere. This paper reviews some of the dimensions of the economic approach to analyzing, understanding, and developing solutions to the problem of climate change. We then turn to the issue of designing regulatory instruments to control the problem. The paper concludes with a discussion of the political economy of greenhouse gas control in an international context. |
| Keywords: | climate change, climate policy design, integrated assessment, environmental policy coordination |
| JEL: | Q28 Q48 D61 D62 D63 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-40&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Austin, David; Morton, Brian; McConnell, Virginia (Resources For the Future); Stoessell, Terrell; Cannon, Matthew |
| Abstract: | Nitrogen oxide emissions not only affect air quality but have recently been found to be an important source of nitrate pollution in the Chesapeake Bay. This analysis examines the costs, emissions, source-specific and location-specific allocations of NOX emissions reductions and the ancillary ozone related health benefits under a range of policy scenarios. The paper includes analysis of three separate policies. The first is a detailed analysis of the effect on nitrate loadings to the Bay of command and control policies specified in the Clean Air Act and as part of the OTAG process. The second is a comparison of alternative scenarios for reducing NOX emissions that meet nitrate loading goals, with or without concern for reducing ozone concentrations and the health effects they cause. The third is a comparison of alternative approaches to allocate NOX emissions to meet NOX reduction and ozone exposure goals while capturing the ancillary effect on nitrate loadings. This last analysis focuses on the stake the Bay jurisdictions have in the outcome of negotiations over NOX trading programs being developed by EPA for reducing ozone in the Eastern U.S. With the primary focus on the Chesapeake Bay jurisdiction, all three analyses integrate the ancillary ozone benefits of policies to reduce nitrate pollution, including examination of how these ancillary benefits change under alternative meteorological episodes, and explore lower cost alternatives to current regulatory programs in both qualitative and quantitative terms. We find that the Chesapeake Bay benefits from efforts to reduce NOX emissions to meet the ambient air quality standard for ozone. Airborne NOX emission reductions slated to occur under the Clean Air Act in the Bay airshed will reduce nitrate loadings to the Bay by about 27 percent of the baseline airborne levels. The additional controls of NOX contemplated in what we term the OTAG scenario is estimated to result in an additional 20 percent reduction from this baseline. However, the paper's analysis of possible least cost options shows that the costs of obtaining such reductions can be significantly reduced by rearranging the allocation of emissions reductions to take advantage of source-type and locational considerations. In addition, we find that adding consideration of ancillary ozone-related health benefits to the picture does not alter any qualitative conclusions. Quantitatively, unless a link between ozone and mortality risk is assumed, the benefits are too small to affect the cost-saving allocations of NOX reductions. If the case for such a link can be made, the results change dramatically, with large overall increases in NOX reductions and a relative shift in controls to non-Bay states and utility sources. These specific effects are sensitive to the source-receptor coefficients linking NOX to ozone, however. Our analyses also suggest that the Bay jurisdictions have a stake in the outcome of the NOX trading debate -- that some trading designs can lead to better outcomes for these jurisdictions than others. Nevertheless, a common feature of cost-savings policies is that they both rearrange emissions reductions and, in the aggregate, reduce emissions less than a command and control system. Thus, some trading regimes result in significantly smaller loadings reductions (up to 25 percent smaller) than the command and control approach. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-46&r=ene |
| By: | Sedjo, Roger (Resources For the Future); Sohngen, Brent; Mendelsohn, Robert |
| Abstract: | This study develops cumulative carbon “supply curves” for global forests utilizing an dynamic timber supply model for sequestration of forest carbon. Because the period of concern is the next century, and particular time points within that century, the curves are not traditional Marshallian supply curves or steady-state supply curves. Rather, the focus is on cumulative carbon cost curves (quasi-supply curves) at various points in time over the next 100 years. The research estimates a number of long-term, cumulative, carbon quasi-supply curves under different price scenarios and for different time periods. The curves trace out the relationship between an intertemporal price path for carbon, as given by carbon shadow prices, and the cumulative carbon sequestered from the initiation of the shadow prices, set at 2000, to a selected future year (2010, 2050, 2100). The timber supply model demonstrates that cumulative carbon quasi-supply curves that can be generated through forestry significantly depend on initial carbon prices and expectations regarding the time profile of future carbon prices. Furthermore, long-run quasi-supply curves generated from a constant price will have somewhat different characteristics from quasi-supply curves generated with an expectation of rising carbon prices through time. The “least-cost” curves vary the time periods under consideration and the time profile of carbon prices. The quasi-supply curves suggest that a policy of gradually increasing carbon prices will generate the least costly supply curves in the shorter periods of a decade or so. Over longer periods of time, however, such as 50 or 100 years, these advantages appear to dissipate. |
| Keywords: | carbon supply curves, sequestration, timber, forests, model, global warming, prices, markets |
| JEL: | Q10 Q15 Q21 Q23 Q24 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-19&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Mansur, Erin |
| Abstract: | The 1990 Clean Air Act Amendments initiated a dramatic reduction in emissions of sulfur dioxide and nitrogen oxides by electric power plants. This paper provides an evaluation of the environmental and public health consequences of the trading and banking provisions of Title IV. A sizable shift in the geographic location of emissions under Title IV (in some states of over 20 percent of emissions after Title IV is implemented) is attributable to trading and/or to banking. There has been considerable concern that this shift in emissions would cause harm to downwind areas due to long-range transport of pollution. The authors find the resulting change in atmospheric concentrations and deposition of pollutants, and the change in monetized health benefits, are most unfavorable in the regions where emissions increase. In the East and Northeast including New York State, an area of particular concern, health benefits increase and deposition of sulfur decreases slightly as a result of trading. In the aggregate, trading results in health related benefits nationally of nearly $570 million in 1995 and about $125 million in 2005. The reason is that the geographic shift in emissions away from more populated areas leads to a decrease in exposure to harmful particulates. Meanwhile, cost savings from trading represent about 13 percent of compliance costs in the No Trading scenario in 1995, and about 37 percent in 2005. Banking has the anticipated effect of changing the timing of emissions. Banking causes a reduction of up to 20 percent in 1995 in some states and a commensurate increase in 2005. The geographic pattern of emission changes as a consequence is varied; some states reduce emissions in 2005 as a result of banking. These changes are small compared to the overall reduction in emissions, sulfur deposition, and human health benefits expected to result from the program. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-25&r=ene |
| By: | Pizer, William (Resources For the Future); Tamura, Kentaro |
| Abstract: | Resources for the Future and the Institute for Global Environmental Strategies convened a one and one-half day workshop on domestic and international climate policy May 11–12, 2005, in Tokyo, Japan. The first day included 49 participants hearing presentations from 13 speakers and discussing domestic activities, economics, and politics. The second day included a smaller group of participants listening to a panel of four experts and discussing opportunities for future international climate regimes. Participants included government officials from the Japanese Ministry of the Environment; the Japanese Ministry of Economy, Trade and Industry; the U.S. Environmental Protection Agency; the U.S. Department of State; and the Massachussetts Department of Commonwealth Development; representatives from business and environmental groups; and academic experts. Over the course of both days, it was clear that great opportunities exist for regularly informing experts from both countries on recent policy developments, economic analyses, and political nuances in the other country. For example, U.S. participants had an opportunity to learn the process through which Japanese technology standards are set and implemented, the subtle evolution of mandatory policy discussions, and details of current policies on voluntary trading and an emission registry. Japanese participants benefited from a frank discussion with U.S. experts of how and why it would be difficult to link different domestic emissions trading markets, the current process to establish a regional emissions trading program, and the evolving dynamics in the U.S. Senate. Looking forward, important lessons may be taken from past negotiating experiences. A small group of national leaders, including large emitters of greenhouse gases and major economies, addressing not only climate change but also developmental issues, could be a useful vehicle for meaningful international efforts. Such a small-group process should be carried out in parallel with the multilateral United Nations Framework Convention on Climate Change process. In addition, policies in both the United States and Japan reflect a strong emphasis on technology development and commercialization; this may be an area where bilateral cooperation could be particularly beneficial. |
| Keywords: | climate change, global warming, United States, Japan, Kyoto |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-28&r=ene |
| By: | Probst, Katherine (Resources For the Future); Davies, J. Clarence (Resources For the Future) |
| Abstract: | Federal, state, and local governments are major polluters of the environment. They account for more than 7% of SO2 air pollution emissions and more than 5% of all NO2 air emissions in the United States. Public entities are more likely than private ones to be in violation of the Clean Water Act, and they account for two-thirds of all major facilities in significant noncompliance with the act. Department of Energy nuclear sites are the worst hazardous waste problems in the nation. A lack of adequate data makes it difficult to fully characterize the extent of pollution caused by government agencies and to compare the performance of the public and private sectors. There are many reasons why government pollution is difficult to regulate. The paper discusses political dimensions, legal problems, resource constraints, psychological dimensions, and public opinion. Further research is urgently needed, and the paper delineates areas that require more investigation. |
| Keywords: | pollution control, federal facilities, regulation, intergovernmental relations |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-29&r=ene |
| By: | Ian Parry (Resources for the Future); Hilary Sigman (Rutgers University and NBER); Margaret Walls (Resources for the Future); Roberton Williams (University of Texas at Austin and NBER) |
| Abstract: | This paper explores the distribution of costs and benefits of pollution control policies across income groups. It begins by providing a conceptual framework for understanding and measuring the burden on different income groups from the costs of alternative emissions control instruments. It then summarizes various empirical studies on how the costs of emissions taxes, emissions permits, and command and control policies are distributed across households. Turning to benefits, it discusses literature on the distribution of existing pollution costs and the implications of these results for the distribution of benefits from environmental policies. Finally, it considers three ways in which distributional considerations might be integrated into traditional cost/benefit analyses of environmental policies. |
| Keywords: | Environment; Distributional effects; |
| JEL: | Q5 |
| Date: | 2005–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:200504&r=ene |
| By: | Parry, Ian (Resources For the Future); Fischer, Carolyn (Resources For the Future); Harrington, Winston (Resources For the Future) |
| Abstract: | This paper develops analytical models to estimate the welfare effects of higher Corporate Average Fuel Economy (CAFE) standards on new passenger vehicles. The analysis incorporates a broad range of fuel- and driving-related externalities, fuel taxes, different assumptions concerning consumers' valuation of fuel saving technologies and their alternative value in enhancing other vehicle attributes, and endogenous vehicle fleet composition. To implement the analysis, we develop estimates of CAFE's impact on local pollution, nationwide congestion, and traffic accidents. We find that higher fuel economy standards can produce anything from moderate welfare gains, to very little or no effect, to substantial welfare losses, depending on how consumers value fuel economy technologies and their opportunity costs. |
| Keywords: | fuel economy standards, oil dependency, carbon emissions, rebound effect, gasoline tax |
| JEL: | R48 Q48 H23 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-53&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Kruger, Joseph; Zetterberg, Lars; Åhman, Markus |
| Abstract: | In its guidance on National Allocation Plans (NAPs), the European Commission has discouraged Member States from adopting allocation methodologies that would provide incentives to firms affecting their compliance behavior. The purpose is to promote economic efficiency and to prevent strategic behavior that deviates from individual and collective cost-minimization. For example, some methodologies would reward one type of compliance investment over another. To discourage such actions, the EU Emission Trading System guidelines prohibit ex post redistribution of emission allowances within an allocation period based on behavior in that period. Similarly, the Commission has indicated that decisions about the initial distribution of allowances in the second phase (2008-2012) must depend on measures prior to 2005 so as not to give companies an incentive to adjust their behavior to receive a larger allowance allocation. However, two other aspects of the NAPs—the treatment of closures and new entrants—may also affect firm behavior. An undercurrent in these guidelines is the question of whether Member States should allow incumbent emitters to hold infinitely lived, once-and-for-all property rights to a share of the emission allowances in the future. This paper develops an approach for balancing efficiency considerations with perceived issues of fairness. We propose a ten-year rule to guide policy regarding closure of existing sources and the status of new sources and to guide the initial distribution of emission allowances in general. A ten-year rule would address issues of fairness and capture an important part of the potential gains that could be achieved through an efficient initial distribution of allowances. |
| Keywords: | emission trading, allowance allocations, closures, new entrants, tradable permits, air pollution, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide |
| JEL: | Q2 Q25 Q4 L94 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-30&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Many studies have shown that the activities of multinational corporations are quite sensitive to differences in income tax rates across countries. In this paper, I explore the interaction between multinational taxation and abatement activities under an international emissions permit trading scheme. Four types of plans are considered- (1) a single domestic permit system with international offsets; (2) separate national permit systems without trade; (3) separate national permit systems with limited offsets; and (4) an international permit trading system. For each plan, I model the incentives for the multinational firm to choose abatement activities at home and abroad and to transfer emissions credits between parent and subsidiary. Limits on trading across countries restrict efficiency gains from abatement, as is well known. But I show furthermore that if available offset opportunities are limited to actual abatement activities, those activities are more susceptible to distortions from incentives to shift taxable income. Transfer pricing rules can limit but not always eliminate these distortions. In a system of unlimited international trading, abatement is efficiently allocated across countries, but tax shifting can still be achieved through intra-firm transfer pricing. From the basis of efficiency for both environmental and tax policies, the best design is an international permit trading system with transparent, enforceable transfer pricing rules. |
| Keywords: | emission permits, transfer pricing, taxation, multinational corporations |
| JEL: | H2 F2 Q2 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-18&r=ene |
| By: | Brennan, Timothy (Resources For the Future); Boyd, James (Resources For the Future) |
| Abstract: | This paper explores ways in which economic analysis can help resolve the stranded cost controversy that has arisen in debates over electricity market deregulation. "Stranded costs" are costs electric utilities will not recover as power markets move from protected monopolies to an open, competitive environment. The paper begins with a description of the stranded cost problem, its magnitude, and the prominent arguments for and against recovery. We then turn to an analysis of contracts in order to understand whether there is, or should be, a legal duty to compensate utility shareholders for unrecovered costs. The paper also argues that efficient approaches to electricity deregulation will rely on more than an analysis of contracts. In particular, the politics of deregulation should be viewed as an independent constraint that affects the desirability of alternative approaches to stranded costs. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-02&r=ene |
| By: | Pizer, William (Resources For the Future) |
| Abstract: | Most studies that compare price and quantity controls for greenhouse gas emissions under uncertainty find that price mechanisms perform substantially better. In these studies, the benefits from reducing emissions are proportional to the level of reductions, and such linear benefits strongly favor price policies (Weitzman 1974). Catastrophic damages, however, challenge that intuition as consequences become highly nonlinear. Catastrophe avoidance offers huge benefits, and incremental adjustments on either side of the associated threshold are relatively unimportant, suggesting a strong preference for quantity controls. This paper shows that with catastrophic damages, both price and quantity mechanisms offer large gains over the business-as-usual alternative, and the difference between policies is never more than 10%. Catastrophe avoidance is much more important than efficient catastrophe avoidance. Although previous studies favoring price policies in the presence of uncertainty have worried that catastrophes would reverse their results, this analysis indicates that such concerns are not borne out. |
| Keywords: | climate change, global warming, prices versus quantities, stock externalities, integrated assessment, uncertainty |
| JEL: | Q28 D81 C68 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-31&r=ene |
| By: | Pedroso-Galinato, Suzette; Markandya, Anil |
| Abstract: | One of the recurring themes in the sustainability literature has been the legitimacy of using an economic framework to account for natural resources. This paper examines the potential for substituting between different inputs in the generation of income, where the inputs include natural resources such as land and energy resources. A nested constant elasticity of substitution (CES) production function is used to allow flexibility in the estimated elasticities of substitution. Also, with this specification, natural resources and other inputs are combined in different levels of the function, thus allowing for different levels of substitutability. Institutional and economic indicators are also incorporated in the production function estimated. Results show that the elasticities derived from functions involving land resources were generally around one or greater, implying a fairly high degree of substitutability. Furthermore, changes in trade openness and private sector investment have a statistically significant and direct relationship with income generation. No statistically significant relationship between income and any of the institutional indicators was found. |
| Keywords: | Economic Theory & Research,Inequality,Economic Growth,Banks & Banking Reform,Climate Change |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3803&r=ene |
| By: | Boyd, James (Resources For the Future) |
| Abstract: | Via technology and operations standards, U.S. regulation exerts an important influence over worldwide marine safety standards. But in addition, several other aspects of U.S. law deserve wider international consideration and adoption. First, the Oil Pollution Act’s natural resource damage provisions are an innovative and effective way to deter marine pollution and provide for the restoration of injured ecological resources. Second, the relatively strict financial requirements imposed on marine transporters help ensure that polluters, rather than the public, pay if damage is caused. Liability and financial responsibility rules are not unknown in other countries. But the United States has a longer history with implementation and applies its rules more expansively. As both environmental concerns and global marine trade flows increase, U.S. experience with these rules will be instructive to other nations contemplating oil pollution reforms. |
| Keywords: | Oil Pollution Act, Natural Resource Damages, Environmental Liability, Financial Assurance, Financial Responsibility, Valuation |
| JEL: | K13 K32 Q38 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-36&r=ene |
| By: | Krupnick, Alan (Resources For the Future); McConnell, Virginia (Resources For the Future); Stoessell, Terrell; Cannon, Matthew; Batz, Michael (Resources For the Future) |
| Abstract: | Reducing nitrogen oxide (NOx) emissions in the eastern United States has become the focus of efforts to meet ozone air quality goals and will be useful for reducing particulate matter (PM) concentrations in the future. This paper addresses many aspects of the debate over the appropriate approach for obtaining reductions in NOx emissions from point sources beyond those called for in the Clean Air Act Amendments of 1990. Data on NOx control technologies and their associated costs, spatial models linking NOx emissions and air quality, and benefit estimates of the health effects of changes in ozone and PM concentrations are combined to allow an analysis of alternative policies in thirteen states in the eastern United States. The first part of the study examines the cost and other consequences of a command-and-control approach embodied in the Environmental Protection Agency’s (EPA) NOx SIP call, which envisions large reductions in NOx from electric utilities and other point sources. These results are compared to the alternative policy of ton-for-ton NOx emissions trading, similar to that proposed by the EPA for utilities. We find that emission reduction targets can be met at roughly 50% cost savings under a trading program when there are no transaction costs. The paper examines a number of alternative economic incentive policies that have the potential to improve upon the utility NOx trading plan proposed by EPA, including incorporation of other point sources in the trading program, incorporation of ancillary PM benefits to ozone reductions in the trading program, and trading on the basis of ozone exposures that incorporates the spatial impact of emissions on ozone levels. For the latter analysis, we examine spatially differentiated permit systems for reducing ozone exposures under different and uncertain meteorological conditions, including an empirical analysis of the trade-off between the reliability (or degree of certainty) of meeting ozone exposure reduction targets and the cost of NOx control. Finally, several policies that combine costs and health benefits from both ozone and PM reductions are compared to command-and-control and single-pollutant trading policies. The first of these is a full multipollutant trading system that achieves a health benefit goal, with the interpollutant trading ratios governed by the ratio of unit health benefits of ozone and PM. Then, a model that maximizes aggregate benefits from both ozone and PM exposure reductions net of the costs of NOx controls is estimated. EPA’s program appears to be reasonably cost-effective compared to all of the other more complex trading programs we examined. It may even be considered an optimal policy that maximizes net aggregate benefits if the high estimate of benefits is used in which mortality risk is linked to ozone exposure. Without this controversial assumption, however, we find that EPA’s NOx reduction target is far too large. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-18&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper discusses the appropriate balance between traditional gasoline taxes and charging by the mile, focusing mainly on economic efficiency considerations. We begin with a brief discussion of the five major passenger vehicle externalities of concern - local pollution, greenhouse warming, oil dependency, traffic congestion, and traffic accidents - summarizing evidence on the dollar value of the externalities for passenger vehicles in the United States. We then discuss how much fuel taxation might be justified to account for these externalities, as well as how much taxation might be appropriate on fiscal grounds, assuming per-mile charges are unavailable. Finally, we discuss to what extent fuel taxation should be replaced with per-mile charges. |
| Keywords: | gasoline tax, mileage tax, motor vehicle externalities, fiscal interactions |
| JEL: | H21 H23 R48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-36&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Krupnick, Alan (Resources For the Future); Evans, David (Resources For the Future); Toth, Russell |
| Abstract: | For years economists have urged policymakers to use market-based approaches such as cap-and-trade programs or emission taxes to control pollution. The SO2 allowance market created by Title IV of the 1990 U.S. Clean Air Act Amendments represents the first real test of the wisdom of economists’ advice. Subsequent urban and regional applications of NOx emission allowance trading took shape in the 1990s in the United States, culminating in a second large experiment in emission trading in the eastern United States that began in 2003. This paper provides an overview of the economic rationale for emission trading and a description of the major U.S. programs for sulfur dioxide (SO2) and nitrogen oxides (NOx). We evaluate these programs along measures of performance including cost savings, environmental integrity, and incentives for technological innovation. We offer lessons for the design of future programs including, most importantly, those reducing carbon dioxide. |
| Keywords: | sulfur dioxide, nitrogen oxides, emission trading, power plants, air pollution |
| JEL: | H23 Q25 Q28 D78 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-05&r=ene |
| By: | Stavins, Robert; Jaffe, Adam; Newell, Richard (Resources For the Future) |
| Abstract: | We develop a methodology for testing Hick’s induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, augmenting the hypothesis to allow for the influence of government regulations. For the products we explored, the evidence suggests- (i) the rate of overall innovation was independent of energy prices and regulations, (ii) the direction of innovation was responsive to energy price changes for some products but not for others, (iii) energy price changes induced changes in the subset of technically feasible models that were offered for sale, (iv) this responsiveness increased substantially during the period after energy-efficiency product labeling was required, and (v) nonetheless, a sizeable portion of efficiency improvements were autonomous. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-12-rev&r=ene |
| By: | Paolo, COLLA; Marc, GERMAIN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Vincent, VAN STEENBERGHE |
| Abstract: | Tradable emission permits share many characteristics with financial assets. As on financial markets, speculators are likely to be active on large markets for emission permits such as those developing under the Kyoto Protocol. We show how the presence of speculators on a market for emission permits affects the price of these permits when firms face risk aversion. The agency in charge of the optimal environmental policy should account for the presence of speculators when determining the total amount of permits to issue. |
| Date: | 2005–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005049&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | In a second-best world of below-optimal pollution pricing, the public return to R&D may be greater than under Pigouvian pricing, due to excess benefits of increasing abatement, or it may be lower, since private actors lack the incentives to take full advantage of the new, cleaner technologies. This paper uses a simple model to demonstrate the interaction between environmental policies, R&D externalities, and the social return to innovation. The results indicate that strong public support for innovation is only justified if at least a moderate emissions policy is in place and spillover effects are significant. Furthermore, in most cases, policy constraints that limit regulatory burdens tend to further limit the scope for public support, even when cost reductions allow for more stringent abatement targets. An exception is when knowledge of the policy adjustment process further reduces private innovation incentives. |
| Keywords: | emissions price, technological innovation, spillovers, R&D policy |
| JEL: | Q28 O38 H23 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-02&r=ene |
| By: | Lawrence H. Goulder; William A. Pizer |
| Abstract: | Global climate change poses a threat to the well-being of humans and other living things through impacts on ecosystem functioning, biodiversity, capital productivity, and human health. This paper briefly surveys recent research on the economics of climate change, including theoretical insights and empirical findings that offer guidance to policy makers. Section 1 frames the climate change problem and indicates the ways that economic research can address it. Section 2 describes approaches to measuring the benefits and costs associated with reducing greenhouse gas emissions. In Section 3 we discuss the implications of uncertainty for the timing and stringency of policies to address possible climate change. We then present issues related to policy design, including instrument choice (Section 4), flexibility (Section 5), and international coordination (Section 6). The final section offers general conclusions. |
| JEL: | D62 H23 N50 Q20 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11923&r=ene |
| By: | Sedjo, Roger (Resources For the Future); Amano, Masahiro |
| Abstract: | This report compares the approaches of the governments of Japan, Canada, and the European Union member countries toward using carbon sinks to meet their respective Kyoto Protocol carbon reduction targets. Various policies have been proposed by which governments can sequester carbon by promoting afforestation and reforestation, slowing deforestation, and undertaking forest management activities under Articles 3.3 and 3.4. At this time, carbon emissions reduction programs are still under development, both within individual countries and within the context of the protocol. Although some of the details have been worked out, concrete definitions are often still lacking, especially as regards impermanence of forests, additionality, leakage, and socioeconomic and environmental impacts. Japan appears most likely to rely most heavily on forest and biological sinks to meet its Kyoto targets. For Canada, sinks are likely to play a rather modest role. For the EU, the role of sinks is likely to be even smaller, with sinks playing no role for some EU countries (including Sweden, our case study country). However, the final decisions have not yet been made for any of these countries, and the actual role of sinks remains to be determined. |
| Keywords: | Climate, Sinks, Kyoto Protocol, Forestry. Canada, Japan, European Union |
| JEL: | F01 Q23 Q28 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-41&r=ene |
| By: | Fischer, Carolyn (Resources For the Future) |
| Abstract: | Rate-based emissions policies (like tradable performance standards) fix average emissions intensity, while cap-and-trade policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider a range of policy options to offset the expansion, including unilateral ones when jurisdictional differences require. The cap-and-trade jurisdiction could impose an "exchange rate" to adjust for relative permit values, but marginal abatement cost equalization is sacrificed. Still, that jurisdiction may prefer adjusted trade over tightening their own cap, which transfers away rents. Although the rate-based sector would have to implement the switch to output-based allocation of a cap, its surplus would be higher than with adjusted trade, which is also preferred to no trade. The cap-and-trade sector would also be better off. Thus, a range of combinations of tighter allocations could improve situations in both sectors with trade, while holding emissions constant. |
| Keywords: | emissions trading, permit allocation, tradable performance standards, climate, greenhouse gases |
| JEL: | H23 H3 Q2 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-32&r=ene |
| By: | Toman, Michael; Jemelkova, Barbora |
| Abstract: | Energy development is an integral part of enhanced economic development. The fact that expanded provision and use of energy services is strongly associated with economic development leaves open how important energy is as a causal factor in economic development, however; and energy development competes with other opportunities for scarce capital and opportunities for policy and institutional reform. In this paper we first give a brief conceptual discussion that seeks to identify the channels through which increased availability of energy services might be a key to stimulating economic development along different stages of the development process. We then examine some empirical work to see what evidence it might provide regarding possible channels of influence. The evidence underscores the importance of energy development in concert with other forms of development. More work is needed to better understand the magnitude of energy’s importance for economic development. |
| Keywords: | energy, economic development, productivity, poverty alleviation |
| JEL: | Q41 Q43 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-13&r=ene |
| By: | Pizer, William (Resources For the Future); Kruger, Joseph |
| Abstract: | The European Union is on the verge of establishing an emissions trading program ten times the size of the Acid Rain trading program in the United States. Its design takes advantage of many lessons from existing experience with trading programs, as well as economic theory, and innovates in important ways. While we view this as an impressive development, concerns about equity, enforcement, and efficiency remain. Specifically, a lack of data and weaker environmental institutions in some EU Member States raises questions about both allowance allocations and compliance and enforcement. Although much attention has focused on whether prices will be “too low” in the first phase of the program, a greater risk is that uncertainty about program elements, technology and behavioral response, and external events could create volatile markets and costly compliance in the second phase. Regardless of outcome, the EU trading system will be influential in future international efforts to reduce greenhouse gases. |
| Keywords: | European Union, climate change, emissions trading |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-24&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Fischer, Carolyn (Resources For the Future); Morgenstern, Richard (Resources For the Future); Logarta, Jose; Rufo, Bing |
| Abstract: | The Asian Development Bank has sponsored research on market-based instruments for managing pollution in Metro Manila, Philippines, where air quality is seriously degraded. This report offers three policy options for reducing particulate emissions and their precursors. For stationary sources, we recommend an emissions fee that creates efficient financial incentives to reduce emissions while raising revenues for monitoring and enforcement activities. For mobile sources, we propose a pilot diesel retrofit program using a low-cost technology that is effective at existing 2,000 ppm sulfur content. Second, we recommmend a charge on the sulfur content of diesel fuel to encourage meeting and surpassing the 500 ppm standard to allow for more advanced particulate trap technologies. Although better data are needed—both for designing controls and for evaluating their efficacy—much can be learned just by implementing these programs, so we make recommendations for starting points. |
| Keywords: | air pollution, emissions tax, Philippines, particulates |
| JEL: | Q25 Q01 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-30&r=ene |
| By: | Stavins, Robert; Barrett, Scott; Aldy, Joseph (Resources For the Future) |
| Abstract: | We critically review the Kyoto Protocol and thirteen alternative policy architectures for addressing the threat of global climate change. We employ six criteria to evaluate the policy proposals- environmental outcome, dynamic efficiency, cost effectiveness, equity, flexibility in the presence of new information, and incentives for participation and compliance. The Kyoto Protocol does not fare well on a number of criteria, but none of the alternative proposals fare well along all six dimensions. We identify several major themes among the alternative proposals- Kyoto is “too little, too fast”; developing countries should play a more substantial role and receive incentives to participate; implementation should focus on market-based approaches, especially those with price mechanisms; and participation and compliance incentives are inadequately addressed by most proposals. Our investigation reveals tensions among several of the evaluative criteria, such as between environmental outcome and efficiency, and between cost-effectiveness and incentives for participation and compliance. |
| Keywords: | policy architecture, Kyoto Protocol, efficiency, cost effectiveness, equity,participation, compliance |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-26&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Krupnick, Alan (Resources For the Future) |
| Abstract: | Several recent studies have mounted major efforts to estimate the social cost of electricity generation. This paper provides an overview of this literature and a focused qualitative and quantitative comparison of the most comprehensive and rigorous of these studies. The paper also provides a synthesis that can help reduce the cost of future applications of these methods. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-30&r=ene |
| By: | Toman, Michael; Powell, Mark; Lile, Ron |
| Abstract: | The "Clean Development Mechanism" (CDM) contained in the December 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change provides, for the first time, the capacity for industrialized countries to claim credits for greenhouse gas (GHG) emissions reductions or offsets undertaken in cooperation with host developing countries. However, the Protocol provides no guidance on how these cooperative activities for GHG reduction and sustainable development would be undertaken in practice, including the particularly important issue of the relationship of the private sector vis-à-vis government institutions in designing, financing, and securing approval for jointly implemented GHG abatement projects. The pilot program for "Activities Implemented Jointly" under the Framework Convention provides an opportunity to better understand the practical constraints and opportunities for successful private sector participation in the CDM. This paper highlights some of the lessons for establishing a successful CDM by examining a small number of cases from the United States Initiative on Joint Implementation (USIJI). The authors first review the objectives, proposal review and evaluation criteria of this program, and provide some overall information on project proposals by project type and stage of development. They then develop case studies of two energy-related USIJI projects from the earlier phase of the program. These cases illustrate several potential problems that can arise in establishing CDM transactions. Further investigation of more recent cases sheds some light on the extent to which these problems change over time. To be successful, the CDM must be based on a solid institutional footing, with clear incentives for all parties involved. The cases examined here illustrate how transactions can become entangled in the same kinds of problems that bedevil other transactions in developing and transitional economies. In both early cases, "transaction costs" were substantial. The latter projects indicated that while the nature of transactions costs changed over time, they still remained somewhat substantial. Project proponents regarded gaining USIJI acceptance as one of the principal impediments to JI project development. The cases also illustrate the need for clear and widely understood goals and procedures for investor country approval. In addition, the analysis underscores how attitudes of different project proponents regarding the value of GHG credits can affect their perspective on the transaction. Finally, the study underscores that financing remains the ultimate hurdle to project implementation, and that the expectation of a clear financial return on investment is a prerequisite to a successful project. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-08&r=ene |
| By: | Nelson, Per-Kristian (Resources For the Future) |
| Abstract: | The 1999 National Telecommuting and Air Quality Act created pilot programs in five metropolitan areas in the United States to examine whether a particular type of economic incentive, tradable emissions credits created from telecommuting, represents a viable strategy for reducing vehicle miles traveled and improving air quality (H.R. 2094, 2000). Under the ecommute program, companies could generate emissions credits by reducing the vehicle miles traveled (VMT) of their workforce through telework programs. They would then be able to sell the credits to firms that needed the reductions to comply with air quality regulations. This paper provides some context for evaluating whether such a trading scheme represents a feasible approach to reducing mobile source emissions and promoting telecommuting and reviews the limited experience with mobile source emission trading programs. From a regulatory perspective, the most substantial drawback to such a program is its questionable environmental integrity, which is a result of difficulties in establishing sufficiently rigorous quantification protocols to measure accurately the emission reductions from telecommuting. Perhaps more importantly, such a program is not likely to be cost-effective; the emissions reductions from a single telecommuter are extremely small, meaning that any trading program will have relatively high transaction costs to environmental benefits. A comparison of estimated emission reductions from the five pilot cities with historical and projected emission credit and allowance prices indicates that the yearly revenue per participant is likely to be well under $100, substantially below what firms participating in the program said would be an adequate incentive to induce a substantial increase in telecommuting. This discussion paper is the final paper in a series of four on telecommuting published in by RFF in December 2004. In discussion paper 04-42, Walls and Nelson analyze data from five pilot cities enrolled in the “ecommute” program. In 04-43 Safirova and Walls examine the 2002 Telework survey conducted in California and, in 04-44, these authors review the empirical literature on telecommuting with a focus on trip reduction impacts. The studies by RFF are part of a larger report on the ecommute program completed by the Global Environment and Technology Foundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website- http-//www.ecommute.net/program/. |
| Keywords: | telecommuting, emissions trading |
| JEL: | R4 Q53 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-45&r=ene |
| By: | Parry, Ian (Resources For the Future); Portney, Paul; Harrington, Winston (Resources For the Future); Gruenspecht, Howard |
| Abstract: | This paper discusses several rationales for the Corporate Average Fuel Economy (CAFE) program, including reduced oil dependence, reduced greenhouse gas emissions, and the possibility that fuel saving benefits from higher standards might exceed added vehicle costs. We then summarize what can be said about the welfare effects of tightening standards, accounting for prior fuel taxes, and perverse effects on congestion and traffic accidents through the impact of improved fuel economy on the incentive to drive. Implications of CAFE on local air pollution, and the controversy over CAFE, vehicle weight, and road safety, are also discussed. Finally, we describe ways in which the existing CAFE program could be substantially improved and identify a variety of alternative, and much superior, policy approaches. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-44&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | Residential consumers remain reluctant to choose new electricity suppliers. Even the most successful jurisdictions, four U.S. states and other countries, have had to adopt extensive consumer education procedures that serve largely to confirm that choosing electricity suppliers is daunting. Electricity is not unique in this respect; numerous studies find that consumers are generally reluctant to switch brands, even when they are well-informed about product characteristics. If consumers prefer not to choose, opening regulated markets can reduce welfare, even for some consumers who do switch, as the incumbent can exploit this preference by raising price above the formerly regulated level. Policies to open markets might be successful even if limited to industrial and commercial customers, with residential prices based on those in nominally competitive wholesale markets. |
| Keywords: | electricity markets, deregulation, consumer choice, residential markets |
| JEL: | L94 L51 D11 B40 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-51&r=ene |
| By: | Bohi, Douglas |
| Abstract: | This study analyzes sources of productivity change in petroleum exploration and development in the United States over the last ten years. There have been several major developments in the industry over the last decade that have led to dramatic reductions in the cost of finding and developing oil and natural gas resources. While some of the cost savings are organizational and institutional in nature, the most important changes are in the application of new technologies used to find and produce oil and gas- 3D seismology, horizontal drilling, and deepwater drilling. Not all the innovation is endogenous to the industry; some rests on outside advances (such as advances in high-speed computing that enabled 3D seismology), as well as learning-by-doing. The increased productivity of mature petroleum provinces like the U.S. helps to maintain competition in the world oil market as well as enhance domestic industry returns. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-38&r=ene |
| By: | Gruenspecht, Howard |
| Abstract: | Although real-world energy supply systems are subject to stochastic failures, the impacts of proposed regulations affecting these systems have typically been evaluated using non-stochastic models. This paper develops an energy market model that explicitly allows for stochastic failures and demonstrates they play an important, or even dominant, role in determining the market impacts of environmental regulations that tailor product specifications to address local or regional conditions, such as fuel-formulation requirements specific to certain regional markets within the United States. While traditional non-stochastic analyses view the tailoring of regulatory requirements by location as an efficiency-enhancing alternative to a "one size fits all" regulatory approach, they fail to consider the adverse impact on reliability in all market segments resulting from the loss of product fungibility due to tailoring. We show that regulatory impact estimates developed without explicit consideration of reliability considerations may be highly inaccurate. |
| Keywords: | reliability, boutique fuels, gasoline price spikes, stochastic failures, environmental regulation, tailored regulation |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-37&r=ene |
| By: | Walls, Margaret (Resources For the Future); Nelson, Per-Kristian (Resources For the Future) |
| Abstract: | In 1999 Congress passed the National Air Quality and Telecommuting Act. This Act established pilot telecommuting programs in five major U.S. metropolitan areas with the express purpose of studying the feasibility of addressing air quality concerns through telecommuting. This study provides the first analysis of data from the “ecommute” program. Using two-and-one-half years of data, we look at telecommuting frequency, mode choice, and emissions reductions. We also look at reporting behavior, dropout rates, and other information to assess the program’s performance. We analyze results by city - Denver, Washington, D.C., Houston, Los Angeles, and Philadelphia are the five pilot cities. And finally, we use the program’s emissions reduction findings to calculate how much telecommuting would be needed to reach an annual volatile organic compounds emission reduction target in each city. This discussion paper is one in a series of four RFF papers on telecommuting published in December 2004. In addition to analysis of the ecommute data described in this paper, Safirova and Walls (discussion paper 04-43) similarly analyze data from a 2002 survey conducted by the Southern California Association of Governments (SCAG) of telecommuters and nontelecommuters. These same authors put these findings into context by providing a review of the empirical literature on telecommuting (discussion paper 04-44). Finally, Nelson presents an assessment of institutional and regulatory barriers to using telecommuting in a mobile source emissions trading program (04-45). The studies by RFF are part of a larger report on the ecommute program completed by the Global Environment and Technology Foundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website- http-//www.ecommute.net/program/. |
| Keywords: | telecommuting, mode choice, air quality, emissions |
| JEL: | R4 Q53 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-42&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with preexisting tax distortions in the labor market. Both policies reduce labor supply as they increase product prices and reduce real household wages; the resulting efficiency losses in the labor market can be substantial relative to partial equilibrium abatement costs. However, much of this added cost can be offset—and perhaps more than offset when additional distortions from the tax system are considered—if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes. Consequently, there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits. |
| Keywords: | carbon taxes, carbon permits; fiscal interactions; revenue recycling |
| JEL: | Q28 H21 H23 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-46&r=ene |
| By: | Xavier Labandeira (rede and Department of Applied Economics (Universidade de Vigo)); José M. Labeaga (FEDEA and Department of Economic Analysis II (UNED)); Miguel Rodríguez (rede and Department of Applied Economics (Universidade de Vigo)) |
| Abstract: | Most public policies have not only efficiency but also distributional effects. However, there is a kind of trade-off between modeling approaches suitable for calculating each one of these impacts on the economy. For the former, most of the studies have been conducted with general equilibrium models, whereas partial equilibrium models represent the main approach for distributional analysis. This paper proposes a methodology which enables us to carry out an analysis of the distributional and efficiency consequences of public policies. In order to do so, we have integrated a microeconomic household demand model and a computable general equilibrium model for the Spanish economy. We illustrate the advantages of this approach by simulating a revenue-neutral reform in Spanish indirect taxation, with a reduction of VAT and a simultaneous increase of energy taxes. The results show that the reform brings about significant efficiency and distributional effects, in some cases counterintuitive, and demonstrate the academic and social utility of this approximation. |
| Keywords: | Taxes, general equilibrium, micro modeling, efficiency, distribution |
| JEL: | C33 D58 H30 Q21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2006-22&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Austin, David; McConnell, Virginia (Resources For the Future) |
| Abstract: | This paper examines implications for cost-effective allocation of pollution controls when preferences of coalitions organized along regional lines, or according to preferences for air vs. water quality improvements, are accounted for. Results are compared to a base case in which NOx emissions reductions must satisfy only a water quality standard, and total costs are minimized over emissions sources. Relative to base-case result that marginal control costs must be equal across sources, stronger relative preferences for air imply shifting of control toward sources that produce greater ancillary benefits to air quality. Regional differences may require side payments to induce cooperation where benefits are low, but this will not affect how controls themselves should be allocated. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-34&r=ene |
| By: | Ezzati, Majid; Kammen, Daniel |
| Abstract: | Globally, almost three billion people rely on biomass (wood, charcoal, crop residues, and dung) and coal as their primary source of domestic energy. Exposure to indoor air pollution from the combustion of solid fuels has been implicated, with varying degrees of evidence, as a causal agent of of disease and mortality in developing countries. We review the current knowledge on the relationship between indoor air pollution and disease, and on the assessment of interventions for reducing exposure and disease. Our review takes an environmental health perspective and considers the details of both exposure and health effects that are needed for successful intervention strategies. We also identify knowledge gaps and detailed research questions that are essential for successful design and dissemination of preventive measures and policies. In addition to specific research recommendations, we conclude that given the central role of housing, household energy, and day-to-day household activities in determining exposure to indoor smoke, research and development of effective interventions can benefit tremendously from integration of methods and analysis tools from a range of disciplines—from quantitative environmental science and engineering, to toxicology and epidemiology, to the social sciences. |
| Keywords: | Household Energy, Developing Countries, Exposure Assessment, Exposure-Response Relationship, Indoor Air Pollution, Intervention, Public Health. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-24&r=ene |
| By: | Sterner, Thomas; Hoglund, Lena |
| Abstract: | In this paper, we discuss the effect of refunding environmental charges. Taxes often are resisted by polluters because they imply both abatement and tax costs. We show that when charges are refunded, the incentives for abatement are essentially the same as for a tax, but the output reduction that often accompanies a tax scheme is forgone. We describe and examine the refund emissions payment (REP) scheme as a policy instrument for emissions abatement and compare it with taxes and permits with regard to allocative properties, distribution of costs, property rights, and, consequently, the politics of implementation. As an empirical example, the Swedish charge on nitrogen oxides is analyzed. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-29&r=ene |
| By: | Patrick Criqui (LEPII - Laboratoire d'économie de la prospective et de l'intégration internationale - http://www.upmf-grenoble.fr/lepii - CNRS : FR2664 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | L'article présente tour à tour les scénarios élaborés dans le cadre du GIEC/IPCC (Groupe d'Experts Intergouvernemental sur l'Evolution du Climat) pour décrire le champ des possibles des scénarios " sans politique ", puis les grandes lignes de " scénarios-objectif " permettant de sauvegarder le climat global, enfin les politiques susceptibles d'enclencher la combinaison des changements de comportements et des innovations technologiques qui seront indispensables pour atteindre un développement énergétique durable. |
| Keywords: | changement climatique;gaz à effet de serre;scenario;IPCC; facteur 4 |
| Date: | 2006–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007694_v1&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Krupnick, Alan (Resources For the Future); Austin, David; Farrell, Deirdre; Mansur, Erin |
| Abstract: | Title IV of the 1990 Clean Air Act Amendments initiated a dramatic reduction in emissions of sulfur dioxide and nitrogen oxides by electric power plants. This paper presents the results of an integrated assessment of the benefits and costs of the program, using the Tracking and Analysis Framework (TAF) developed for the National Acid Precipitation Assessment Program (NAPAP). Although dramatic uncertainties characterize our estimates especially with respect to the benefits of the program, many of which we have modeled explicitly, we find that the benefits can be expected to substantially outweigh the costs of the emission reductions. The lion’s share of benefits result from reduced risk of premature mortality, especially through reduced exposure to sulfates, and these expected benefits measure several times the expected costs of the program. Significant benefits are also estimated for improvements in health morbidity, recreational visibility and residential visibility, each of which measures approximately equal to costs. In contrast, areas that were the focus of attention in the 1980s including effects to soils, forests and aquatic systems still have not been modeled comprehensively, but evidence suggests benefits in these areas to be relatively small, at least with respect to "use values" for the environmental assets that are affected. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-31-rev&r=ene |
| By: | Kerr, Suzi; Newell, Richard (Resources For the Future) |
| Abstract: | The theory of environmental regulation suggests that economic instruments, such as taxes and tradable permits, create more effective technology adoption incentives than conventional regulatory standards. We explore this issue for an important industry undergoing technological responses to a dramatic decrease in allowed pollution levels—the petroleum industry’s phasedown of lead in gasoline. Using a panel of refineries from 1971 to 1995, we provide some of the first direct evidence that alternative policies affect the pattern of adoption in expected ways. Importantly, we find that the tradable permit system used during the lead phasedown provided incentives for more efficient technology adoption decisions. Where environmentally appropriate, this suggests that flexible market-based regulation can achieve environmental goals while providing better incentives for technology diffusion. |
| Keywords: | technology, adoption, diffusion, environment, regulation, lead, gasoline, tradable permit, incentive-based policy |
| JEL: | C41 L71 O31 O33 Q28 Q48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-14&r=ene |
| By: | Kilian, Lutz |
| Abstract: | Using state-of-the-art methods, this study estimates and compares the effects of exogenous shocks to global oil production on seven major industrialized economies. The main findings are: (1) There is a fair degree of similarity in the real growth responses. An exogenous oil supply disruption typically causes a temporary reduction in real GDP growth that is concentrated in the second year after the shock. (2) Inflation responses are more varied. The median CPI inflation response peaks after three to four quarters. There is clear evidence that exogenous oil supply disruptions need not generate sustained consumer price inflation. Evidence of sustained inflation (as in the case of Germany) therefore must reflect a favorable institutional environment. (3) The evidence of stagflationary responses is strongest for Germany, Japan and Canada, whereas for the US, the UK and Italy there is little or no evidence of stagflationary responses to oil supply shocks. (4) As measured by cumulative inflation and real growth responses, some countries such as Italy, France and Japan have fared well when faced with exogenous oil supply disruptions, whereas others such as Germany have not. (5) A counterfactual historical exercise suggests that the evolution of CPI inflation in the G7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production, consistent with a monetary explanation of inflation. There is no evidence that the 1973/74 and 2002/03 oil supply shocks had a substantial impact on real growth in any G7 country, but for some G7 countries the 1978/79, 1980, and 1990/91 shocks had some impact. |
| Keywords: | counterfactual; dynamic effects; exogeneity; inflation; oil supply; real GDP growth and stagflation |
| JEL: | E31 E32 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5404&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Bohi, Douglas |
| Abstract: | The SO2 trading program has achieved reductions in emissions ahead of schedule, with allowance prices below the marginal costs that were anticipated for the program. This paper explores the experience with the program and proposes a taxonomy of reasons why allowance prices are low. The overarching reason is that the most costly investments to accommodate full emission reductions have been successfully delayed. Application of a discount rate to these long run marginal costs yields an estimate of allowance price close to that observed today. Several factors have contributed to the delay in bearing these costs, and helped to reduce their magnitude. One group of factors stems from market fundamentals, especially the cost of rail transport of low sulfur coal. A second group includes the influences of state and federal regulators. A third group includes distinctions from the "imagined" program compared to that which was actually been enacted. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-24&r=ene |
| By: | Macauley, Molly (Resources For the Future); Vukovich, Fred |
| Abstract: | This paper traces the evolution of space-derived remote sensing data and data products from their initial dissemination to their impact on public policy related to climate change. We focus on the examples of renewable energy, public health, and ecosystem assessment. Our approach differs from previous studies that have characterized the value of data in terms of the fundamental scientific phenomena they describe. In our research we have sought to identify contributions of space-derived earth science in “making a difference” beyond scientific understanding, thereby providing at least a partial answer to questions about the utility of research posed by Congress, the Office of Management and Budget, managers at the National Aeronautics and Space Administration, and other decisionmakers. |
| Keywords: | Natural resources, climate change, space, data |
| JEL: | Q2 O38 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-35&r=ene |
| By: | Pizer, William (Resources For the Future) |
| Abstract: | Uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently. Price controls in the form of taxes fix the marginal cost of compliance and lead to uncertain levels of compliance. Meanwhile quantity controls in the form of tradable permits or quotas fix the level of compliance but result in uncertain marginal costs. This fundamental difference in the face of cost uncertainty leads to different welfare outcomes for the two policy instruments. Seminal work by Weitzman (1974) clarified this point and derived theoretical conditions under which one policy is preferred to the other. This paper applies this principal to the issue of worldwide greenhouse gas (GHG) control, using a global integrated climate economy model to simulate the consequences of uncertainty and to compare the efficiency of taxes and permits empirically. The results indicate that an optimal tax policy generates gains which are five times higher than the optimal permit policy a $337 billion dollar gain versus $69 billion at the global level. This result follows from Weitzman’s original intuition that relatively flat marginal benefits/damages favor taxes, a feature that drops out of standard assumptions about the nature of climate damages. A hybrid policy, suggested by Roberts and Spence (1976), is also explored. Such a policy uses an initial distribution of tradeable permits to set a target emission level, but then allows additional permits to be purchased at a fixed "trigger" price. The optimal hybrid policy leads to welfare benefits only slightly higher than the optimal tax policy. Relative to the tax policy, however, the hybrid preserves the ability to flexibly distribute the rents associated with the right to emit. Perhaps more importantly for policy discussions, a sub-optimal hybrid policy, based on a stringent target and high trigger price (e.g., 1990 emissions and a $100/tC trigger), generates much better welfare outcomes than a straight permit system with the same target. Both of these features suggest that a hybrid policy is a more attractive alternative to either a straight tax or permit system. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-02&r=ene |
| By: | Austin, David; Alberini, Anna |
| Abstract: | Proponents of environmental policies based on liability assert that strict liability imposed on the polluter will induce firms to handle hazardous wastes properly and to avoid disposing them into the environment. Economic theory and a few well-publicized cases, however, suggest that a number of factors may dilute the incentives posed by strict liability. In this paper, the authors run regressions relating unintended releases of pollution into the environment (aggregated at the state level, and followed over nine years from 1987 to 1995) to the imposition of strict liability on the polluter, exploiting variation across states in the liability provisions of their mini-Superfund laws, and in the years these were adopted. The authors experiment with instrumental variable estimation, fixed effects, and endogenous switching, and find that only after they explicitly model the endogeneity of states' liability laws is strict liability seen as reducing the seriousness of spills and releases. They also find evidence consistent with the notion that under strict liability, firms may spin off into, or delegate riskier production processes to, smaller firms, which are partially sheltered from liability. This tendency appears to be widespread. |
| Keywords: | strict liability, negligence, hazardous waste, state environmental policy, endogenous policy adoption |
| JEL: | Q28 D72 K13 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-29&r=ene |
| By: | Wernstedt, Kris (Resources For the Future); Hersh, Robert |
| Abstract: | Water utilities that rely on surface water may be vulnerable to future droughts and floods, a vulnerability that may be magnified by climate perturbations as well as shorter-term and, in some cases, ongoing changes in the political and regulatory environment in which utilities operate.. Unfortunately, day-to-day responsibilities currently occupy most utility operators, leaving little time to plan for inherently uncertain effects. The record of actual responses to past droughts and floods can be illuminating, however, particularly when placed in the context of plausible hydrologic and institutional disruptions. This paper draws on interviews of water utility operators in the northwestern U.S. to highlight opportunities and constraints that water utilities may face vis-à-vis such disruptions. Key considerations affecting vulnerabilities include water rights, institutional barriers to efficient utility operations, hazards management policy, and the fiscal status of utilities. |
| Keywords: | Key Words: water utilities, extreme events, environmental planning, climate variability, climate change, adaptation |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-33&r=ene |
| By: | Blackman, Allen (Resources For the Future); Harrington, Winston (Resources For the Future) |
| Abstract: | To what extent should developing countries eschew conventional command and control environmental regulation that is increasingly seen as inefficient and rely instead on economic incentives? This paper addresses this question as it pertains to industrial air pollution. The paper discusses the advantages and disadvantages of various economic incentive instruments, presents in-depth case studies of their application in Sweden, the United States, China, and Poland, and proposes a number of policy guidelines. The authors argue that both design deficiencies and pervasive constraints on monitoring and enforcement impede the effectiveness of economic instruments in developing countries. The latter are difficult to rectify, at least in the medium term. As a result, tradable permits are generally not practical. Suitably modified however, emissions fee policies probably are appropriate. They can provide a foundation for a transition to an effective economic incentive system, and can raise much needed revenue for environmental projects and programs. In addition, if political opposition can be overcome, environmental taxes constitute a second-best but potentially effective pollution control instrument. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-39&r=ene |
| By: | Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - http://www.centre-cired.fr - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées) |
| Abstract: | En parcourant les étapes principales de la « négociation climat », on fait apparaître le jeu de miroirs qui se déroule entre Europe et États-Unis, dans un contexte historique caractérisé par les débats sur la mondialisation, la volonté de leadership de l'Union européenne sur ce thème, la montée aux États-Unis d'inquiétudes sur le maintien de leur suprématie.On montre aussi pourquoi ce jeu, après avoir masqué des possibilités réelles de compromis, a débouché en 2000 sur l'échec de La Haye – qui facilitera le rejet du Protocole de Kyoto par le président Bush – puis sur l'adoption à Marrakech, en novembre 2001, d'un schéma d'application de ce Protocole par les autres nations, qui constitue une défaite diplomatique pour les États-Unis et une demi-défaite pour l'environnement. |
| Keywords: | changement climatique; negociation internationale |
| Date: | 2006–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007691_v1&r=ene |
| By: | Blackman, Allen (Resources For the Future); Batz, Michael (Resources For the Future); Evans, David |
| Abstract: | Ciudad Juárez, Chihuahua, is home to the U.S.–Mexico border’s largest maquiladora labor force, and also its worst air pollution. We marshal two types of evidence to examine the link between maquiladoras and air pollution in Ciudad Juárez, and in its sister city, El Paso, Texas. First, we use a publicly available sector-level emissions inventory for Ciudad Juárez to determine the importance of all industrial facilities (including maquiladoras) as a source of air pollution. Second, we use original plantlevel data from two sample maquiladoras to better understand the impacts of maquiladora air pollution on human health. We use a series of computational models to estimate health damages attributable to air pollution from these plants, we compare these damages to estimates of damages from non-maquiladora industrial polluters, and we use regression analysis to determine whether the poor suffer disproportionately from maquiladora air pollution. We find that air pollution from maquiladoras has serious consequences for human health, including respiratory disease and premature mortality. However, maquiladoras are clearly not the leading cause of air pollution in Ciudad Juárez and El Paso. Moreover, most maquiladoras are probably less important sources of dangerous air pollution than at least one notoriously polluting Mexican-owned industry. Finally, we find no evidence to suggest that maquiladora air pollution affects the poor disproportionately. |
| Keywords: | maquiladora, air pollution, human health, environmental justice, U.S.-Mexico border, Ciudad Juárez, El Paso |
| JEL: | Q01 Q25 O13 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-18&r=ene |
| By: | Sedjo, Roger (Resources For the Future) |
| Abstract: | With the advent of the Kyoto Protocol and its recognition of the use of forestry activities and carbon sinks as acceptable tools for addressing the issue of the build-up of atmospheric carbon, the potential role of planted forests as a vehicle for carbon sequestration has taken on a new significance. Additionally, the emergence of tradable emission permits and now tradable carbon offsets provides a vehicle for financially capturing the benefits of carbon emission reductions and carbon offsetting activities. In a world where carbon sequestration has monetary value, investments in planted forests can be made with an eye to revenues to (at least two) joint outputs- timber and the carbon sequestration services. The first section of this paper examines the Patagonia region of Argentina, as an example of an area where carbon sequestration values combined with timber values create financial incentives for creating planted forests, which could not be justified on the bases of timber values alone. The paper uses a present value approach to evaluate the costs and benefits of plantation forestry in a "representative" site in Patagonia. A basic timber harvest scenario is developed and then a number of alternative scenarios are examined. These introduce carbon as an additional product to be produced "jointly" with timber. The scenarios include alternative rotation periods, alternative prices for carbon offsets, and a brief examination of the effect of undertaking a specific silvicultural activity. In the second section of the paper the results of this analysis are considered in the context of a discussion of the various types of institutional arrangements that might be required to provide a market for the carbon sequestration services provided by the planted forests. The paper identifies, examines and discusses a number of potential institutional arrangements that exist or are under discussion for marketing carbon sequestration services. A number of problems that may arise with offset credits and some of the innovative institutions that may be created are identified and discussed. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-27&r=ene |
| By: | Fischer, Carolyn (Resources For the Future); Laxminarayan, Ramanan (Resources For the Future) |
| Abstract: | Although much has been written about the implications of monopoly power for the rate of extraction of natural resources, the specific case in which the resource can be sold in two markets with different elasticities of demand has escaped notice. We find that a monopolist facing two markets with differing iso-elastic demand schedules extracts more rapidly than the social planner, whether or not arbitrage prevents price discrimination between markets. This analysis is relevant in the case of many resources — such as natural gas used for power generation and household heating, or petroleum used for making plastics and as fuel. |
| Keywords: | exhaustible resources, monopoly, markets, price discrimination |
| JEL: | D42 Q3 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-08&r=ene |
| By: | Julien Allaire (LEPII - Laboratoire d'économie de la production et de l'intégration internationale - http://www.upmf-grenoble.fr/lepii/ - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | La Chine a connu récemment une hausse de son intensité énergétique après 20 ans de baisse constante. Nous revenons sur les causes de cette évolution en nous intéressant principalement à deux périodes récentes : la période de croissance lente entre 1997 et 2001 qui a connu une baisse de la consommation primaire d'énergie et la période de croissance rapide en cours depuis 2002 qui a conduit à une hausse de l'intensité énergétique. Nous nous intéressons à l'industrie lourde qui explique la majeure partie de cette inversion de tendance et au développement des nouvelles capacités de production dans les secteurs les plus consommateurs d'énergie pour répondre à l'industrialisation et l'urbanisation du pays. On attire ici le lecteur sur le lien entre « localisme » et intensité énergétique. |
| Keywords: | Chine;intensité énergétique;croissance économique;développement industriel |
| Date: | 2006–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007931_v1&r=ene |
| By: | Burtraw, Dallas (Resources For the Future) |
| Abstract: | Title IV of the 1990 amendments to the Clean Air Act initiated a historic experiment in incentive-based environmental regulation through the use of tradable allowances for emission of sulfur dioxide by electric generating facilities. To date, relatively little allowance trading has taken place; however, the costs of compliance have been much less than anticipated. The purpose of this paper is to address the apparent paradox that the allowance trading program may not require (very much) trading to be successful. Title IV represented two great steps forward in environmental regulation- first a move toward performance standards and second formal allowance trading. The first step has been sufficient to date for improving dynamic efficiency and achieving relative cost-effectiveness. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-95-30-rev&r=ene |
| By: | Dowlatabadi, Hadi; Boyd, David; MacDonald, Jamie |
| Abstract: | How much a policy is expected to cost and who bears the brunt of that cost play a significant role in the debates that shape regulations. We do not have a good track record of predicting costs and their ultimate distribution, but systematic reviews of past assessments have identified some of the factors that lead to errors. A wide range of expected costs of climate policy have been hotly debated, but all are likely to be wrong. This does not mean that we should continue a debate using ill-informed analyses. On the contrary, we need early small experiments to shed light on key unknowns. Environmental stewardship is a long-term challenge and an adaptive regulatory approach promises to inform policy targets and improve controls through sequential regulatory phases that promote- innovation, flexibility and diffusion of best technologies. |
| Keywords: | cost estimation, climate policy, modeling, adaptive management |
| JEL: | D21 D82 D83 F13 O31 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-17&r=ene |
| By: | Stavins, Robert; Jaffe, Adam; Newell, Richard (Resources For the Future) |
| Abstract: | Market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economicincentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success. |
| Keywords: | technology, research and development, environment, externality, policy |
| JEL: | O38 Q28 H23 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-38&r=ene |
| By: | Harrington, Winston (Resources For the Future); McConnell, Virginia (Resources For the Future); Alberini, Anna |
| Abstract: | This paper incorporates owners' decisions to keep, repair or scrap their old vehicles into a simulation model of fleet emissions. This decision depends critically on the owner's perceived value of the vehicle, so we examine the factors affecting owners' valuations of their old vehicles using a unique longitudinal dataset. Willingness to accept for the vehicle is well predicted by mileage and condition of the car, and declines systematically with its age. Our estimated model of vehicle value is used as an input into a simulation model of a 1,000-car fleet representative of California's fleet. Other inputs into the simulation models are the estimated distributions of emissions in the fleet, and two equations that link emissions reductions to the cost of repairs. The simulation model is used to examine the role of scrap policies alone and combined with other policies for reducing emissions, such as current I/M programs and proposed emissions fees, and the welfare implications of combining such programs. The model incorporates both technical and behavioral relationships, and assumes that of all possible options (repairing the car, scrapping the vehicle, or paying the emissions fee without repairing the vehicle) the owner chooses the one with the least cost. We find that old car scrap programs may increase net welfare under a regulatory program like I/M in practice today, but that a stand alone scrap program is unlikely to provide very much in the way of emission reductions. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-23&r=ene |
| By: | Toman, Michael; Withagen, Cees |
| Abstract: | Environmental policymakers must address the adverse effects of a number of pollutants that accumulate in the environment. Goals for the regulation of these damages often involve holding long-term emissions below a level deemed to be "dangerous,'' or outright banning of offending products or processes along with subsidization of more "green" alternatives. This paper builds upon previous studies by Keeler, Spence, and Zeckhauser (1971) and Tahvonen and Withagen (1996) in addressing the optimal long-term management of an accumulative but assimilatable pollutant through policies that restrict more damaging production processes and thereby induce more benign alternatives. Using a simple general equilibrium approach, we consider the possibility that the assimilative capacity of the environment is diminished and eventually exhausted by pollution accumulation. In this case there is a nonconvexity in the problem that gives rise to multiple potential optima, complicating the characterization of the optimal path and the determination of decentralized policies that can support an optimal outcome. In particular, environmental quality may be preserved or completely degraded in the long term. This makes the question of whether polluting processes or products should be banned more complicated and more interesting. We characterize the circumstances under which a banning policy is consistent with an intertemporally optimizing path, we investigate the sensitivity of optimal solutions to the cost of a clean backstop technology, and we discuss more generally the design of price-based and quantity-based policies for supporting an optimal solution. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-43&r=ene |
| By: | Krautkraemer, Jeffrey |
| Abstract: | Whether economic growth can be sustained in a finite natural world is one of the earliest and most enduring questions in economic literature. Even with unprecedented growth in human population and resource consumption, humans have been quite adept at finding solutions to the problem of scarce natural resources, particularly in response to signals of increased scarcity. Because environmental resources generally are not generally traded on markets, however, scarcity signals for these resources may be inadequate, and appropriate policy responses are difficult to implement and manage. In the debate over the economic scarcity of natural resources, one significant change in recent years has been a greater focus on the ecosystem services and the resource amenities yielded by natural environments. The general conclusion of this paper is that technological progress has ameliorated the scarcity of natural resource commodities; but resource amenities have become more scarce, and it is unlikely that technology alone can remedy that. |
| Keywords: | natural resource scarcity. environmental amenities. resource substitution. |
| JEL: | Q01 Q10 Q20 Q30 Q40 Q50 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-14&r=ene |
| By: | Brennan, Timothy (Resources For the Future) |
| Abstract: | We examine the suggestion that if consumers in sufficient numbers are willing to pay the premium to have power generated using low-emission technologies, tax or permit policies become less necessary or stringent. While there are implementation difficulties with this proposal, our purpose is more fundamental- can economics make sense of using preferences as a regulatory instrument? If “green” preferences are exogenously given, to what extent can or should they be regarded as a substitute for other policies? Even with green preferences, production and consumption of polluting goods continues to impose social costs not borne in the market. Moreover, if green preferences are regarded as a policy instrument, the “no policy” baseline would require a problematic specification of counterfactual “non-green” preferences. Viewing green preferences as a regulatory policy instrument is conceptually sensible if the benchmark for optimal emissions is based on value judgments apart from preferences consumers happen to have. If so, optimal environmental protection would be defined by reference to ethical theory or, even less favorably, by prescriptions from policy advocates who give their own preferences great weight while giving those of the public at large (and the costs they bear) very little consideration. |
| Keywords: | Environmental regulation, preference change |
| JEL: | Q2 B4 D6 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-01&r=ene |
| By: | Morgenstern, Richard (Resources For the Future) |
| Abstract: | Both theory and recent trends suggest some optimism for the future of environment-related taxes. While new research emphasizes the potentially significant distortions created by environmental taxes and appears to undermine the so-called "double dividend" theory, it also suggests that virtually any environmental policy, including regulations, taxes, and tradable permits, can compound existing distortions in the tax system. Currently, direct environmental taxes, such as per-unit charges on emissions, are only in limited use; however, indirect environmental levies, including taxes on fuels, vehicles, beverage containers, and fertilizers, are growing in importance across the OECD nations. Over the period 1990-1993, environmental taxes as a share of total revenue increased while taxes on personal and corporate income declined slightly, indicating a modest tax shift. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-03&r=ene |
| By: | Müller-Fürstenberger, Georg (Department of Economics, University of Bern); Wagner, Martin (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria) |
| Abstract: | Focussing on the prime example of CO2 emissions, we discuss several important theoretical and econometric problems that arise when studying environmental Kuznets curves (EKCs). The dominant theoretical approach is given by integrated assessment modelling, which consists of economic models that are combined with environmental impact models. We critically evaluate the aggregation, model dynamics and calibration aspects and their implications for the validity of the results. We then turn to a discussion of several important econometric problems that go almost unnoticed in the literature. The most fundamental problems relate to nonlinear transformations of nonstationary regressors and, in a nonstationary panel context, to neglected cross–sectional dependence. We discuss the implications of these two major and some minor problems that arise in the econometric analysis of Kuznets curves. Our discussion shows that EKC modelling as performed to date is subject to major drawbacks at both the theoretical and the econometric level. |
| Keywords: | Carbon Kuznets curve, Integrated assessment models, Regressions with integrated variables, Nonstationary panels |
| JEL: | Q20 C12 C13 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:183&r=ene |
| By: | Boyd, James (Resources For the Future) |
| Abstract: | Financial responsibility rules are an increasingly common form of environmental regulation. Currently, the operators of landfills, underground petroleum storage tanks, offshore rigs, and oil tankers must demonstrate the existence of adequate levels of capital as a precondition to the legal operation of their businesses. Environmental financial responsibility ensures that firms possess the resources to compensate society for pollution costs created in the course of business operations. In addition to providing a source of funds for victim compensation and pollution remediation, financial responsibility is thought to motivate better decision-making, particularly regarding the management of long-term risks. This article describes both the promise of financial responsibility as a complement to conventional environmental regulation and a set of weaknesses associated with its current implementation under U.S. environmental statutes. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-26&r=ene |
| By: | Boyd, James (Resources For the Future) |
| Abstract: | The study explores challenges associated with, and the feasibility of, financial assurance requirements for liabilities arising under U.S. environmental statutes, with a particular emphasis on liabilities associated with natural resource damages (NRDs). The overlap between federal NRD liability and financial assurance arises in the context of two financial assurance rules- one for waterborne vessels that carry oil or hazardous substances, and one for offshore facilities used for oil exploration, drilling, production, or transport. The report addresses the rules’ history, their role as a complement to other forms of environmental regulation, and their impact on the regulated community and providers of coverage. Despite numerous difficulties and over objections from the regulated community, the rules have been implemented with success and without significant shortfalls in coverage availability. |
| Keywords: | financial assurance, financial responsibility, natural resource damages, liability |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-11&r=ene |
| By: | Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - http://www.centre-cired.fr - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées) |
| Abstract: | Traiter aujourd'hui de l'économie des régimes climatiques peut être vu comme un exercice d'économie virtuelle tant la gestion de ce dossier sera affectée par l'évolution du contexte géopolitique et par ses conséquences en termes de sécurité énergétique (J.R. Schlesinger, 1989) ou de place du multilatéralisme et du système Onusien dans la gestion des affaires du monde. Faut-il viser, dans la lignée de Kyoto, un régime intégré sous l'égide de la Convention Climat (Rio de Janeiro 1992) ? Peut-on faire vivre, sous cette même Convention, des ‘régimes fragmentés (H.D. Jacoby et al., 1998)? Faut-il revenir à des initiatives unilatérales de pays leaders se coordonnant progressivement puis élargissant le cercle d'une coalition pro-active (C. Carraro and D. Siniscalco, 1992). Tout ceci peut paraître, après la crise Irakienne affaire de politique plus que d'économie. |
| Keywords: | negociation internationale;regime climatique;equite |
| Date: | 2006–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007775_v1&r=ene |
| By: | Walls, Margaret (Resources For the Future); Safirova, Elena (Resources For the Future) |
| Abstract: | In this paper, we review 20 relatively recent empirical studies of telecommuting, all of which focus on the trip reduction perspective. The studies include earlier ones with smaller datasets, such as some pilot studies of individual employers, and more recent studies based on broader surveys of both telecommuters and nontelecommuters. We focus on the results of the studies with respect to participation and frequency of telecommuting, the effects on vehicle-miles-traveled (VMT) and trips, and in some cases, the impacts on emissions and air quality. Although there does not seem to be a consensus, there is a predominant view that certain factors increase both the likelihood of telecommuting and the frequency of telecommuting. These factors are having children in the household, being female, having more education, having a longer commute trip, having worked longer for one’s current employer and/or in one’s current position, and having a job that does not require face-to-face contact with coworkers or clients. Most studies of VMT and trip reductions from telecommuting show that telecommuters significantly reduce both daily trips and VMT. Not only does commute VMT fall, but noncommute VMT appears to fall in some cases as well. The studies of VMT, however, tend to focus on the reductions for individual employees who choose to telecommute. Although an individual telecommuter may experience a sharp reduction in VMT, total benefits depend on how many people are telecommuting, how often they are doing so, and the duration of telecommuting. More research is needed with larger and more broadly based datasets across employers that include both individual employee characteristics and employer and job characteristics. This would allow a better analysis of telecommuting choice and frequency as well as more reliable estimates of VMT and emissions impacts. This discussion paper is one in a series of four RFF papers on telecommuting published in December 2004. Discussion papers 04-42 and 04-43 present analyses of two recent datasets on telecommuters. In 04-42, Nelson and Walls analyze data from five pilot cities enrolled in the "ecommute" program. In 04-43, Safirova and Walls analyze data from a broad survey conducted by the Southern California Association of Governments (SCAG) of telecommuters and nontelecommuters. Finally, in 04-45 Nelson presents an assessment of institutional and regulatory barriers to using telecommuting in a mobile source emissions trading program. The studies by RFF are part of a larger report on the ecommute program completed by the Global Environment and Technology Foundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website- http-//www.ecommute.net/program/. |
| Keywords: | telecommuting, mode choice, air quality, emissions |
| JEL: | R4 Q53 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-44&r=ene |
| By: | Toman, Michael; Krautkraemer, Jeffrey |
| Abstract: | In this paper, we first present and discuss the basic logic underlying all neoclassical economic theories of “optimal” energy supply- maximization of the present value of some stream of economic returns. We then discuss how the economic theory of optimal resource depletion has evolved since Hotelling’s classic 1931 article. We also consider the power of the theory to support improved empirical understanding of actual behavior. Our discussion of empirical literature indicates that this work has so far provided only limited empirical understanding. |
| Keywords: | depletable resources, energy, intertemporal optimization |
| JEL: | Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-01&r=ene |
| By: | Harrington, Winston (Resources For the Future); Walls, Margaret (Resources For the Future); McConnell, Virginia (Resources For the Future) |
| Abstract: | Regulation of mobile source emissions in the US has evolved as a complex combination of central government and decentralized authority. The central government required uniform new car emissions standards in the 1970 Clean Air Act, but gave states the power to meet ambient air quality standards however they saw fit, including various regulations on mobile sources. The 1990 Amendments to the Act strengthened the Federal role in some ways, by requiring tighter new car standards and more specific requirements for fuels and for vehicle emissions inspection and maintenance, but at the same time left states with a great deal of latitude to meet ambient standards and took greater recognition of regional variation in environmental problems. We examine the role of various levels of government in attempts to control vehicle emissions in the US, focusing primarily on regulations affecting ambient ozone pollution. Current regulations coming out of the 1990 Amendments are still the subject of much controversy. Several regulations are examined here from the federalist perspective, including the California new car standards and the current debate over "enhanced" inspection and maintenance. We discuss the theoretical basis for national uniform regulations, including production scale economies for new cars, pollution spillovers from one jurisdiction to another, and prevention of state non-compliance with ambient air quality goals. For the analysis of economies of scale in production, we model the trade-offs between gains from scale economies in polluted regions and losses from excess controls in cleaner regions, and illustrate the role of interregional transfers or side-payments. These trade-offs and transfers are particularly important as decisions are being made about whether the "California cars" will be sold only in California or whether they will be sold in the Northeast states and elsewhere. We then look at the debate over enhanced I&M. Finally, we draw some tentative conclusions about the future role of the states versus the central government in US ozone policy. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-34&r=ene |
| By: | Pizer, William (Resources For the Future); Tamura, Kentaro |
| Abstract: | Resources for the Future and the Institute for Global Environmental Strategies (Japan) convened a one-and-one-half day workshop on domestic and international climate policy on February 12–13, 2004 in Washington, D.C. On the first day, 55 participants heard presentations from 14 speakers and discussed domestic activities, economics, and politics. The second day featured a smaller group of 27 participants hearing six informal sets of comments and discussing opportunities for international collaboration. Participants included government officials from the Japanese Ministry of the Environment, the U.S. Environmental Protection Agency, and other U.S. administration and congressional staff; representatives from business and environmental groups; and academic experts. Over the course of both days, it was clear that great opportunities exist for informing participants from both countries on recent developments, economic analyses, and political nuances in the other country. For example, American participants were unaware of the Keidanren’s success at exceeding required efficiency standards. Japanese participants were unaware of U.S. treaty tradition, by which ratification cannot occur until implementing legislation is in place—a fact that makes the Kyoto Protocol virtually unratifiable. Participants on both sides benefited from a frank discussion of how and why it may be unwise for the international community to attempt to re-engage the United States in international climate policy until the United States settles on its own course of meaningful domestic action. Looking forward, an important lesson may be taken from U.S. experience with early environmental regulation, where state action provided experience and impetus for federal action. As an alternative to the Kyoto model, distinct national actions may provide experience and impetus for international action. In addition, policies in both the United States and Japan reflect a strong emphasis on technology development and commercialization; this may be an area where bilateral cooperation could be particularly beneficial. |
| Keywords: | climate change, global warming, United States, Japan, Kyoto |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-22&r=ene |
| By: | Parry, Ian (Resources For the Future); Walls, Margaret (Resources For the Future); Sigman, Hilary; Williams III, Roberton |
| Abstract: | This paper reviews theoretical and empirical literature on the household distribution of the costs and benefits of pollution control policies, and ways of integrating distributional issues into environmental cost–benefit analysis. Most studies find that policy costs fall disproportionately on poorer groups, though this is less pronounced when lifetime income is used, and policies affect prices of inputs used pervasively across the economy. The policy instrument itself is also critical; freely allocated emission permits may hurt the poor the most, as they transfer income to shareholders via scarcity rents created by higher prices, while emissions taxes offer opportunities for progressive revenue recycling. And although low-income households appear to bear a disproportionate share of environmental risks, policies that reduce risks are not always progressive, for example, they may alter property values in ways that benefit the wealthy. The review concludes by noting a number of areas where future research is badly needed. |
| Keywords: | distributional incidence; emissions taxes; tradable permits; environmental benefits; distributional weights |
| JEL: | Q52 Q58 H22 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-24&r=ene |
| By: | Stavins, Robert; Keohane, Nathaniel; Revesz, Richard |
| Abstract: | In the realm of environmental policy instrument choice, there is great divergence between the recommendations of normative economic theory and positive political reality. Four gaps stand out. First, despite the advantages of market-based policy instruments, they have been used to a minor degree, compared with conventional, command-and-control instruments. Second, pollution-control standards have typically been much more stringent for new than for existing sources, despite the inefficiency of this approach. Third, in the few instances in which market-based instruments have been adopted, they have nearly always taken the form of grandfathered tradeable permits, rather than auctioned permits or pollution taxes, despite the advantages in some situations of these other instruments. Fourth, the political attention given to market-based environmental policy instruments has increased dramatically in recent years. We search for explanations for these four apparent anomalies by drawing upon intellectual traditions from economics, political science, and law. We find that all fit quite well within an equilibrium framework, based upon the metaphor of a political market. In general, explanations from economics tend to refer to the demand for environmental policy instruments, while explanations from political science refer to the supply side. Overall, we find that there are compelling theoretical explanations for the four apparent anomalies, although these theories have yet to be empirically verified. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-25&r=ene |
| By: | Frederick, Kenneth; Schwarz, Gregory |
| Abstract: | The socioeconomic costs of floods, droughts, and water scarcity in the years 2030 and 2095 are examined under three climate scenarios- continuation of the current climate and two climate-change scenarios based on projections from the respective results of the Canadian and Hadley general circulation models. Measures of the adequacy of water supplies to meet both withdrawal and instream uses under current and future conditions are developed for the 18 major water resources regions and 99 assessment subregions in the conterminous United States. Past and likely future changes in the infrastructure available to control and distribute water, the costs of nontraditional sources of supply, water management practices, conservation opportunities, the nature of the economy, slack in the water supply system, and institutions influencing water use are examined and provide the basis for evaluating the impacts of changes in both climate and non-climate factors on U.S. water resources. The impacts of the climate changes are calculated as the changes in the costs of maintaining the projected no-climate change, non-irrigation off-stream water uses with the climate-altered supplies. The costs and benefits are estimated under three alternative management strategies that differ in the protection provided for stream-flows and irrigation. The results support several general conclusions. First, a greenhouse warming could have major impacts on the future costs of floods, droughts, and balancing water demands and supplies. Second, the contrasting hydrologic implications of the Canadian and Hadley climate models indicate that the magnitude as well as the direction of these impacts are uncertain and likely to vary significantly among water resources regions. Third, there are many oppor-tunities to adapt to changing hydrological conditions, and the net costs are particularly sensitive to the institutions that determine how the resource is managed and allocated among users. This report was prepared as part of the Water Assessment Sector Team’s contribution to the U.S. National Assessment of the Potential Consequences of Climate Variability and Change for the Nation being conducted under the auspices of the U.S. Global Change Research Program. The climate-change scenarios used in this report were developed for use in the National Assessment. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-21&r=ene |
| By: | Blackman, Allen (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Cook, Joseph; Newbold, Stephen |
| Abstract: | In developing countries, urban clusters of manufacturers which are "informal"—small-scale, unlicensed and virtually unregulated—can have severe environmental impacts. Yet pollution control efforts have traditionally focused on large industrial sources, in part because the problem is not well-understood. This paper presents a benefit-cost analysis of four practical strategies for reducing emissions from traditional brick kilns in Ciudad Juárez, Mexico. To our knowledge, it is the first such analysis of informal sources. We find very significant net benefits for three of the four control strategies. These results suggest that informal polluters should be a high priority for environmental regulators. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-46&r=ene |
| By: | Macauley, Molly (Resources For the Future); Davis, James |
| Abstract: | We develop a conceptual model of the economic value of space solar power (SSP) as a source of power to in-space activities, such as spacecraft and space stations. We offer several estimates of the value based on interviews and published data, discuss technological innovations that may compete with or be complementary to SSP, and consider alternative institutional arrangements for government and the private sector to provide SSP. |
| Keywords: | innovation, government policy |
| JEL: | O33 O32 L98 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-46&r=ene |
| By: | Boyd, James (Resources For the Future) |
| Abstract: | Progress toward electricity market deregulation has brought controversy over whether or not utilities are entitled to compensation for "stranded costs," i.e., costs utilities will not be able to recover due to the advent of competition in their markets. This paper uses a legal and economic analysis of contracts to address the desirability of utility cost recovery. First, underlying principles of law are reviewed to determine whether or not there is a legal presumption of recovery. Then, the analysis considers whether or not an implicit "regulatory compact" between utilities and regulators follows from principles in the economic analysis of law, particularly theories of efficient breach and implicit contracts. The paper concludes that recovery should occur in only a proscribed set of circumstances and that, when called for, compensation should be partial, rather than full. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-01&r=ene |
| By: | Lee, Huey-Lin; Thomas Hertel; Brent Sohngen; Navin Ramankutty |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:gta:techpp:1900&r=ene |
| By: | Alexander F. Wagner (Swiss Banking Institute, University of Zurich and University of Linz); Friedrich Schneider (University of Linz and IZA Bonn) |
| Abstract: | We construct a panel of satisfaction with democracy (SWD) and economic, institutional, and environmental variables for 1990-2001 for fifteen European countries. In this sample, controlling for a number of factors, we find that average SWD is higher where (1) there exists an energy / CO2 tax, where (2) government expenditures on the environment are higher, where (3) certain environmental regulations like packaging rules are in place, and (4) where the government puts in place environmental offices or other official bodies charged with addressing environmental concerns. We also find that, on the environmental quality side, (5) more cars on the roads, (6) less unleaded fuel, and (7) higher pesticide use intensity all decrease SWD. |
| Keywords: | satisfaction with democracy, environment |
| JEL: | K32 P16 Q21 Q28 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1929&r=ene |
| By: | Parry, Ian (Resources For the Future); Bento, Antonio |
| Abstract: | A number of recent studies have shown that the general equilibrium welfare effects of externality-correcting policies depend importantly on pre-existing taxes in the economy, particularly those that distort the labor market. This paper extends the prior literature by allowing for consumption goods that are deductible from labor taxes. These "goods" represent medical insurance, other less tangible fringe benefits, mortgage interest, and so on. The initial tax system effectively subsidizes tax-favored consumption relative to other consumption, in addition to distorting the labor market. The authors find that incorporating tax-favored consumption may overturn key results from earlier studies. In particular, a revenue-neutral pollution tax (or auctioned pollution permits) can produce a substantial "double dividend" by reducing both pollution and the costs of the tax system. The second dividend arises because the welfare gain from using environmental tax revenues to cut labor taxes is much larger when labor taxes also distort the choice among consumption goods. Indeed (ignoring environmental benefits) the overall costs of a revenue-neutral pollution tax are negative in their benchmark simulations, at least for pollution reductions up to 17 percent, and possibly up to 42 percent. In addition, the authors show that the presence of tax-favored consumption may dramatically increase the efficiency gain from using (revenue-neutral) emissions taxes (or auctioned emissions permits) over grandfathered emissions permits. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-24&r=ene |
| By: | Harrington, Winston (Resources For the Future); McConnell, Virginia (Resources For the Future) |
| Abstract: | This paper examines the current assignment of liability for in-use vehicle emissions and suggests some alternative policies that may reduce the cost and increase the effectiveness. The authors first discuss the cost, performance and incentives under current Inspection and Maintenance (I/M) programs, using the recently implemented Arizona "Enhanced I/M" program as an example. These programs were designed to identify and repair vehicles with malfunctioning emission control systems. Since their inception, however, I/M programs have been plagued by transaction costs that have drastically raised the cost of I/M as well as limited its effectiveness. These transaction costs fall into three categories- emission monitoring, repair avoidance, and non-transferability of emission reductions. The authors argue that most of these transaction costs can be attributed to the current assignment of liability for I/M to motorists, and they examine the potential for other liability assignments to reduce transaction costs and improve program efficiency. Among the alternative institutional arrangements discussed are greater imposition of liability on manufacturers, emission repair subsidies, repair liability auctions, and vehicle leasing. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-22&r=ene |
| By: | Bell, Ruth (Resources For the Future); Narain, Urvashi (Resources For the Future) |
| Abstract: | Although there is general public approval of the improvements in Delhi’s air quality in the recent years, the process by which this change was brought about has been criticized. A common perception is that air quality policies were prescribed by the Supreme Court, and not by an institution with the mandate for making environmental policy. A careful review of the policy process in Delhi suggests otherwise. We find that the government was intimately involved in policymaking and that the main role of the Supreme Court was to force the government to implement previously announced policies. A good understanding of what happened is essential, as the Delhi experience for instituting change has become a model for other Indian cities as well as neighboring countries. |
| Keywords: | air quality, Supreme Court, compressed natural gas, Delhi |
| JEL: | Q42 Q53 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-48&r=ene |
| By: | Walls, Margaret (Resources For the Future); Hanson, Jean |
| Abstract: | One of the most common criticisms of pollution taxes is that they are often believed to be inequitable — i.e., low income households are thought to be disproportionately harmed. In this paper, we assess the distributional impacts of three taxes aimed at reducing emissions from motor vehicles- (i) a tax on total annual emissions, (ii) a tax on emissions rates (in grams per mile), and (iii) a tax on annual miles traveled. We use two alternative measures of economic well-being, annual household income and a constructed measure of lifetime income. We find that all three fees look regressive, both on the basis of annual and lifetime income — though much less so on a lifetime income basis. However, if one of these fees is used to substitute for existing vehicle registration fees, the differential impacts over existing fees are quite small- on a lifetime income basis, the mileage-based fee looks almost identical to the current system, while the total emissions fee is a little more regressive and the emissions rate-based fee slightly more regressive still than the current system. These results highlight the importance of tax shifting to help the environment. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-11&r=ene |
| By: | Blackman, Allen (Resources For the Future) |
| Abstract: | In developing countries, urban clusters of informal firms such as brick kilns and leather tanneries can create severe pollution problems. However, these firms are quite difficult to regulate for a variety of technical and political reasons. Drawing on the literature, this paper first develops a list of feasible environmental management policies. It then examines how these policies have fared in four independent efforts to control emissions from informal brick kilns in northern Mexico. The case studies suggest that- (i) conventional command and control process standards are generally only enforceable when buttressed by peer monitoring, (ii) surprisingly, clean technologies can be successfully diffused even when they raise variable costs, in part because early adopters have an economic incentive to promote further adoption, (iii) boycotts of "dirty" goods sold in informal markets are unenforceable, (iv) well-organized informal firms can block implementation of costly abatement strategies such as relocation, and (v) private-sector-led initiatives may be best suited for informal sector pollution control. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-02-rev&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Lile, Ron |
| Abstract: | The Clean Air Act Amendments (CAAA) of 1990 instituted a historic experiment in emission allowance trading for sulfur dioxide (SO2). A necessary requirement for evaluating this experiment is an understanding of how the cost recovery rules and other guidance given to firms by state-level public utility commissions (PUCs) and elected bodies has affected compliance behavior. From the onset of the CAAA, there has been varied response by state policy-makers toward SO2 compliance. This paper presents a compilation of these actions as they took shape in states that were affected by the SO2 program. Our primary interest is on the proposals that emerged during the embryonic years of the allowance program, from 1990 to 1993, when investment plans for utilities affected by the first phase of the program beginning in 1995 were taking shape. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-35&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Bell, Ruth (Resources For the Future); Morgenstern, Richard (Resources For the Future); Anderson, Robert; Abegunawardena, Piya; Schreifels, Jeremy; Dong, Cao; Jinan, Wang; Jitian, Wang; Larsen, Steiner |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-16&r=ene |
| By: | Stavins, Robert |
| Abstract: | This paper reviews lessons that can be learned from U.S. experiences with market-based environmental policies and from related research. Highlights of U.S. experience are summarized with four categories of policy instruments- pollution charges; tradable permits; market friction reductions; and government subsidy reductions. Normative lessons are considered in three areas- design and implementation; analysis of prospective and adopted systems; and identification of new applications. Positive political economy lessons are also reviewed. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-43&r=ene |
| By: | Toman, Michael |
| Abstract: | Academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields. In this article I briefly discuss eight overlapping areas of current research in which further effort particularly is warranted. These areas include decision criteria for policy; risk assessment and adaptation; uncertainty and learning; abatement cost and the innovation and diffusion of technology; and the credibility of policies and international agreements. Further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-32&r=ene |
| By: | Ando, Amy; Harrington, Winston (Resources For the Future); McConnell, Virginia (Resources For the Future) |
| Abstract: | The expense and inconvenience of enhanced vehicle emissions testing using the full 240-second dynamometer test has led states to search for ways to shorten the test process. In fact, all states that currently use the IM240 allow some type of fast-pass, usually as early in the test as second 31, and Arizona allows vehicles to fast-fail after second 93. While these shorter tests save states millions of dollars in inspection lanes and driver costs, there is a loss in information since test results are no longer comparable across vehicles. This paper presents a methodology for estimating full 240 second results from partial-test results for three pollutants- HC, CO and NOx. Using random sample of vehicles in Arizona which received full 240 second tests, we use regression analysis to estimate the relationship between emissions at second 240 and emissions at earlier seconds in the test. We examine the influence of other variables such as age, model-year group, and the pollution level itself on this relationship. We then use the estimated coefficients in several applications. First, we attempt to shed light on the frequent assertion that the results of the dynamometer test provide guidance for vehicle repair of failing vehicles. Using a probit analysis, we find that the probability that a failing vehicle will passing the test on the first retest is greater the longer the test has progressed. Second, we test the accuracy of our estimates for forecasting fleet emissions from partial test emissions results in Arizona. We find that forecast fleet average emissions are very close to the actual fleet averages. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-24&r=ene |
| By: | Wernstedt, Kris (Resources For the Future) |
| Abstract: | In common with other areas throughout the Russian Federation, western Siberia faces formidable environmental pollution, a problem that in part is the legacy of the highly centralized Soviet era when meeting production quotas was the raison d'être for many managers of economic enterprises. In this region, over the last thirty years the near singular focus on short term oil production has led to severe contamination of the area's surface and groundwater supplies, threatening both human and ecological health. At the same time, revenues from continued oil extraction may provide the means to address some of the environmental problems. In light of the struggling economy and potential political instability, however, it is particularly critical that authorities prioritize environmental investments, as well as cultivate public support for such investments. This paper reports on a recent investigation of this problem by a team of American and Russian scientists, under the sponsorship of the U.S. National Research Council, U.S. National Academy of Sciences, and the Russian Academy of Sciences. The chief recommendation from that investigation is that the region develop an environmental program based on human health risk assessment and management. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-14&r=ene |
| By: | Boyd, James (Resources For the Future); Kunreuther, Howard |
| Abstract: | The optimal design of environmental liability policy focuses on two primary policy issues- the cleanup of existing sources of pollution and the definition and enforcement of policies to promote prospectively efficient environmental risk reduction. Through the analysis of a policy toward a pervasive environmental risk--leaking underground storage tanks--we analyze the effectiveness of an existing policy governing retroactive and prospective liability issues and suggest ways in which that policy can be improved. While we find some theoretical support for the public financing of UST cleanups, we also find the current system to be flawed in its implementation. In general, the paper argues that public financing of past pollution cleanup costs can lead to greater future risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, if it is practically or politically impossible to limit public financing to retroactive liabilities alone, the deterrent effect of such a system is vastly reduced. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-02&r=ene |
| By: | Wernstedt, Kris (Resources For the Future); Hersh, Robert |
| Abstract: | We examine the use of El Niño-Southern Oscillation (ENSO) forecasts for flood planning in the Pacific Northwest. Using theories of resource mobilization as a conceptual foundation, the paper relies on- 1) case studies of three communities vulnerable to flooding that have had access to long-term forecasts of ENSO conditions; and 2) analysis of data collected from a survey of nearly 60 local emergency managers, planners, and public works staff. We find that understanding the regulatory machinery and other institutions involved in using climate forecasts is critical to more effective use of these forecasts. Forecast use could be promoted by- 1) an extension service to broker climate information; 2) the identification or creation of federal authorities to fund activities to mitigate ENSO impacts; and 3) the proactive use of ENSO signals to identify areas most likely to be influenced by climate anomalies. |
| Keywords: | flooding, ENSO, La Niña, climate variability, climate forecast, natural hazards, water policy |
| JEL: | Q2 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-27&r=ene |
| By: | Nabil Jedlane (LEO - Laboratoire d'économie d'Orleans - http://www.univ-orleans.fr/DEG/LEO - CNRS : FRE2783 - Université d'Orléans) |
| Abstract: | L'achèvement du processus d'intégration régionale initié en 1989 par la création de l'Union du Maghreb Arabe (UMA) et l'instauration de l'union monétaire maghrébin auraient des effets positifs sur la croissance économique et la stabilité politique dans le Maghreb. Dans ce sens, la mise en place simultanée de caisses d'émission dans les pays du Maghreb contribuerait à la fois à leur intégration économique et monétaire mutuelle et à leur intégration à l'économie mondiale. Cependant, les conditions d'adoption de ce régime ne sont pas encore remplies par ces pays, mais indiquent les réformes institutionnelles prioritaires à mettre en oeuvre. |
| Keywords: | Régime de change ; caisse d'émission ; Maghreb |
| Date: | 2006–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007699_v2&r=ene |
| By: | Blackman, Allen (Resources For the Future); Palma, Alejandra |
| Abstract: | According to conventional wisdom, rapidly growing stocks of scrap tires on the U.S.–Mexico border pose a variety of health and environmental risks. This article assesses these risks in Paso del Norte, the border’s second-largest metropolis comprised principally of Ciudad Juárez, Chihuahua, and El Paso, Texas. We find that air pollution from tire pile fires poses the greatest threat. Scrap tires in Paso del Norte do not contribute significantly to the propagation of mosquito-borne diseases or to shortages of space in solid waste disposal sites. The burning of scrap tires at industrial facilities is minimal and might not have significant adverse environmental impacts even if it were more common. |
| Keywords: | Scrap tires, U.S.–Mexico border, environment, health, risk assessment |
| JEL: | Q2 O54 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-46&r=ene |
| By: | Yusuke Sakata (Departmen of Economics, Kinki University); Junyi Shen (Osaka School of Interna ional Public Policy, Osaka University); Yoshizo Hashimoto (Osaka School of Interna ional Public Policy, Osaka University) |
| Abstract: | Transport modal choice is considered to be influenced by natural environmental change and transport network improvement. This paper reveals how these impacts affect individualsf decisions on selecting transport mode under an extension plan of Osaka Monorail Loop-line. To estimate these impacts, a Stated Choice (SC) experiment is carried out for collecting the neighborhood data around the monorailfs extended area. Our model is estimated by the Heteroscedastic Extreme Value (HEV) specification in order to avoid Independence from Irrelevant Alternatives (IIA) assumption in the Multinomial Logit (MNL) model. Both the results of full-sample and sub-sample data imply that residents prefer public transport modes (monorail or bus) to private car when either natural environment becomes worse or transport network is improved. |
| Keywords: | Environmental Deterioration; Network improvement; Network externality; Choice Model (CM); Heteroscedastic Extreme Value (HEV) Model |
| JEL: | C35 D12 Q51 R41 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0604&r=ene |
| By: | Pizer, William (Resources For the Future); Newell, Richard (Resources For the Future); Zhang, Jiangfeng |
| Abstract: | The political economy of environmental policy favors the use of quantity-based instruments over price-based instruments (e.g., tradable permits over green taxes), at least in the United States. With cost uncertainty, however, there are clear efficiency advantages to prices in many cases, especially for stock pollutants such as greenhouse gases. The question arises, therefore, of whether one can design flexible quantity policies that mimic the behavior of price policies, namely stable permit prices and abatement costs. We explore a number of “quantity-plus” policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs. They do so without necessitating any monetary exchanges between the government and the regulated firms, which can be a significant political barrier to the use of price instruments. |
| Keywords: | permit market, prices, quantities, banking, borrowing, uncertainty |
| JEL: | Q28 Q48 D8 L51 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-34&r=ene |
| By: | Stavins, Robert; Jaffe, Adam; Newell, Richard (Resources For the Future) |
| Abstract: | Environmental policy discussions increasingly focus on issues related to technological change. This is partly because the environmental consequences of social activity are frequently affected by the rate and direction of technological change, and partly because environmental policy interventions can themselves create constraints and incentives that have significant effects on the path of technological progress. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics (North-Holland/Elsevier Science), summarizes for environmental economists current thinking on technological change in the broader economics literature, surveys the growing economic literature on the interaction between technology and the environment, and explores the normative implications of these analyses. We begin with a brief overview of the economics of technological change, and then examine three important areas where technology and the environment intersect- the theory and empirical evidence of induced innovation and the related literature on the effects of environmental policy on the creation of new, environmentally friendly technology; the theory and empirics of environmental issues related to technology diffusion; and analyses of the comparative technological impacts of alternative environmental policy instruments. We conclude with suggestions for further research on technological change and the environment. |
| Keywords: | technological change, induced innovation, environment, policy |
| JEL: | O30 Q00 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-47&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Bergin, S.; Russell, Armistead |
| Abstract: | A key question in developing effective mitigation strategies for ozone and particulate matter is identifying which source regions contribute to concentrations in receptor regions. Using a direct approach with a regional, multiscale three-dimensional model, we derive multiple source-receptor matrices (S-Rs) to show inter- and intrastate impacts of emissions on both ozone and PM2.5 over the eastern United States. Our results show that local (in-state) emissions generally account for about 23% of both local ozone concentrations and PM2.5 concentrations, while neighboring states contribute much of the rest. The relative impact of each state on others varies dramatically between episodes. In reducing fine particulate concentrations, we find that reducing SO2 emissions can be 10 times as effective as reducing NOx emissions. SO2 reductions can lead to some increase in nitrates, but this is relatively small. NOx reductions, however, lead to both ozone reductions and some reduction in nitrate and sulfate particulate matter. |
| Keywords: | source-receptor, ozone, particulate matter, sensitivity analysis, air quality simulation, National Ambient Air Quality Standards |
| JEL: | Q2 Q25 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-25&r=ene |
| By: | Parry, Ian (Resources For the Future); Small, Kenneth |
| Abstract: | This paper develops an analytical framework for assessing the second-best optimal level of gasoline taxation, taking into account unpriced pollution, congestion, and accident externalities and interactions with the broader fiscal system. We provide calculations of the optimal taxes for the United States and the United Kingdom under a wide variety of parameter scenarios, with the gasoline tax substituting for a distorting tax on labor income. Under our central parameter values, the second-best optimal gasoline tax is $1.01 per gallon for the United States and $1.34 per gallon for the United Kingdom. These values are moderately sensitive to alternative parameter assumptions. The congestion externality is the largest component in both nations, and the higher optimal tax for the United Kingdom is due mainly to a higher assumed value for marginal congestion cost. Revenue-raising needs, incorporated in a “Ramsey” component, also play a significant role, as do accident externalities and local air pollution. The current gasoline tax in the United Kingdom ($2.80 per gallon) is more than twice this estimated optimal level. Potential welfare gains from reducing it are estimated at nearly one-fourth the production cost of gasoline used in the United Kingdom. Even larger gains in the United Kingdom can be achieved by switching to a tax on vehicle miles with equal revenue yield. For the United States, the welfare gains from optimizing the gasoline tax are smaller, but those from switching to an optimal tax on vehicle miles are very large. |
| Keywords: | gasoline tax, pollution, congestion, accidents, fiscal interactions |
| JEL: | H21 H23 R48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-12-&r=ene |
| By: | Newell, Richard (Resources For the Future); Rogers, Kristian |
| Abstract: | The U.S. lead phasedown was effective in meeting its environmental objectives, and did so more quickly with the allowance of permit banking. The marketable lead permit system was highly costeffective, saving hundreds of millions of dollars relative to comparable policies not allowing trading or banking. Estimates suggest that transaction costs brought about only a modest reduction in program efficiency. The market-based nature of the program also provided incentives for more efficient adoption of new lead-removing technology, relative to a uniform standard. Distributionally, it is likely that the program was actually more responsive to the cost concerns of small refiners than a similar uniform standard would have been. The flexibility of the program likely increased the amount of violations, however, and added an unexpected monitoring and enforcement burden. On the other hand, one of the efficiency advantages of the incentive-based program is that it provided opportunities for unanticipated means of cost-effective compliance. |
| Keywords: | lead phasedown, gasoline, tradable permit, market-based policy, technology adoption |
| JEL: | Q25 Q28 Q21 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-37&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper draws on a number of recent studies to shed light on several policy issues raised by the impact of environmental policies on technological innovation. First, to what extent does induced innovation raise the overall net benefits to society from environmental policies? Second, how does induced innovation affect the appropriate choice among alternative environmental policy instruments? Third, how does it affect the optimal stringency of environmental regulations? Fourth, should environmental policies be supplemented with additional policies to promote innovation, such as research contracts or prizes for new technologies? |
| Keywords: | environment, technological innovation, pollution control, instrument choice |
| JEL: | Q28 O38 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-44&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Harrington, Winston (Resources For the Future); Alberini, Anna |
| Abstract: | In this paper we report on the results of a telephone survey conducted in Southern California during August and September 1996. The purpose of the survey was to inform respondents about a set of rather complex pricing policies designed to reduce motor vehicle emissions and to estimate respondent support for those policies. After receiving extensive information about these policies, respondents were polled on whether they would support, i.e., vote for, any or all of these options. The pollution fee survey elicited support for a plan that levied a fee on vehicles in the region, depending on the vehicle's emissions per mile and on the miles driven. The sample was then split in two, with half the respondents being told that a portion of the revenues would be returned to the public in the form of reductions in motor vehicle fees or sales tax reductions, and half told that these returns would be made in the form of coupons. Nearly 40 percent of respondents agreed to support the base plan (42 percent of those expressing an opinion). More than 50 percent supported the fees with rebates, including support of 54 percent when all the available revenues are returned to the public (57 percent of the sample expressing an opinion). Support for the coupon policy was intermediate between the base and rebate policies, attracting 42 percent of the sample (45 percent of those expressing an opinion). Statistical analyses were performed on the data to explain the voting patterns observed. Generally, the levels of support were significantly affected by the design features of the plans, such as the size of the fee paid and the rebate, as well as by a host of socio-demographic and perceptual variables, such as ethnicity, age, political affiliation, expected efficacy of the policy, and the degree to which air pollution affects the respondent or his or her family. Examination of these statistical results may be useful in the development of pollution fee programs to present to the public, as well as in the design of public information campaigns and the allocation of marketing resources to win support for these programs. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-13&r=ene |
| By: | Pizer, William (Resources For the Future); Newell, Richard (Resources For the Future) |
| Abstract: | Using a simple analytical model incorporating costs and benefits, stock decay, time discounting, and uncertainty, we uncover several important principles governing the choice of price-based policies (e.g., taxes) relative to quantity-based policies (e.g., tradeable permits) for controlling stock externalities. As in Weitzman (1974), the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities, with flatter marginal benefits and steeper marginal costs favoring prices. But we can say more. The relative slopes also help determine the optimal control path, with convergence to a steady state proceeding slowly as long as marginal benefits are relatively flat. On this basis we conclude that the conditions typically characterizing long-lived stock externalities—in particular, that the optimal control path involves long-term changes in the stock level—tend to favor price-based policies. While this result holds over a wide range of conditions, it depends on several key variables. Positive correlation of cost shocks across time, in particular, as well as low rates of time discounting and stock decay, will tilt the balance back toward quantity controls. These results are potentially applicable to a wide range of market failures involving stock externalities. In addition to the obvious application to stock pollutants, one can view species preservation, land-use policy, education, and research as areas where policymakers wish to regulate a stock-like externality. This analysis provides a useful framework for comparing alternative policy instruments for regulating such problems. Regarding climate change, for example, these results suggest that the use of tradeable emission permits rather than emission fees to slow growth in the stock of greenhouse gases is probably inefficient. Optimal policy would involve either tradeable permits that quickly stabilize the stock, or emission fees that gradually slow its growth. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-10-rev&r=ene |
| By: | Blackman, Allen (Resources For the Future); Harrington, Winston (Resources For the Future) |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-21&r=ene |
| By: | Toman, Michael |
| Abstract: | Economic analysts within government agencies as well as outside government has played a noticeable and increasing role in formulating U.S. climate policy. However, that role has remained limited; in particular, economic analysis has largely been ignored and occasionally even derided in the context of setting targets for GHG control. This paper explores this uneasy relationship between analysis and policy during several U.S. administrations. Some of these problems stem from the incompleteness of the economic analyses themselves, and economic analysts sometimes have not been the most effective advocates for their own findings. However, I think one of the biggest obstacles to more effective use of economic analysis in climate policymaking has been a basic lack of desire among many policymakers for the fruits of the analyses. This reluctance has been especially marked when the economic analysis clashes with strongly held preconceptions – from either side – about what climate policy ought to be. |
| Keywords: | climate change, Kyoto Protocol, Council of Economic Advisers |
| JEL: | Q2 Q4 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-59&r=ene |
| By: | Toman, Michael; Simpson, R. David; Ayres, Robert |
| Abstract: | In their 1963 classic Scarcity and Growth Howard Barnett and Chandler Morse argued that resource scarcity did not threaten economic growth. A second investigation in the late 1970s, Scarcity and Growth Reconsidered, reached largely the same conclusion. The 25 years since that work was published have witnessed many developments. The message of Scarcity and Growth that depletion of market resources was not a problem has given way to a concern that “new scarcities” of environmental quality, global climate, and biological diversity are emerging. Resources for the Future recently assembled a distinguished group of international scholars to again address scarcity and growth. This paper describes their charge and summarizes their findings. Technological progress may hold the key to overcoming the scarcity of environmental resources. Market forces may not be enough to motivate the required innovations, which must instead be social and institutional as well as technical and will be constrained by interlinking complexities. |
| Keywords: | history of economic thought, technological change, renewable resources and economy |
| JEL: | B12 B20 N50 O13 O14 O33 O47 Q20 Q32 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-01&r=ene |
| By: | Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Tim Krieger (Nordakademie, University of Applied Sciences Elmshorn,) |
| Abstract: | The paper presents univariate and panel unit root tests for gasoline and oil price convergence over the last decade. We test for the absolute versus relative version of the law of one price (LOOP) and estimate the speed of convergence as well as its development over time. Our results show that the absolute version of the LOOP cannot be supported. Constant price differences between countries remain, caused mainly by existing tax differences. The relative version of the LOOP is strongly supported by the data. The speed of convergence increased over time, but differs for gross and net-of-tax prices. We can show that national tax policy by EU member states is not (yet) threatened by arbitrage due to cross-border shopping. |
| Keywords: | price convergence, law of one price, gasoline, international taxation, European integration, panel unit roots |
| JEL: | H7 F15 Q48 C2 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:05-114&r=ene |
| By: | Stavins, Robert |
| Abstract: | Environmental policies typically combine the identification of a goal with some means to achieve that goal. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics, focuses exclusively on the second component, the means—the Ainstruments—of environmental policy, and considers, in particular, experience around the world with the relatively new breed of economic-incentive or market-based policy instruments. I define these instruments broadly, and consider them within four categories- pollution charges; tradable permits; market barrier reductions; and government subsidy reductions. By defining market-based instruments broadly, I cast a large net for this review of applications. As a consequence, the review is extensive. But this should not leave the impression that market-based instruments have replaced, or have come anywhere close to replacing, the conventional, command-and-control approach to environmental protection. Further, even when and where these approaches have been used in their purest form and with some success, such as in the case of tradeable-permit systems in the United States, they have not always performed as anticipated. In the final part of the paper, I ask what lessons can be learned from our experiences. In particular, I consider normative lessons for- design and implementation; analysis of prospective and adopted systems; and identification of new applications. |
| Keywords: | market-based policy, economic incentives, tradable permits, emission taxes |
| JEL: | Q28 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-58&r=ene |
| By: | Burtraw, Dallas (Resources For the Future); Lile, Ron; Bohi, Douglas |
| Abstract: | On November 8, 1996, various U.S. Environmental Protection Agency (EPA) officials, scholars and industry representatives gathered at Resources for the Future (RFF) to examine the EPA's method for classifying private SO2 allowance transactions by the Allowance Tracking System (ATS). The one-day workshop at RFF was designed to evaluate how well the EPA's classification scheme within the ATS currently meets the needs of constituencies with a vested interest in the allowance trading system, and to determine if other classifications would be more beneficial. The EPA has limited its collection of information to that which is necessary to ensure compliance with environmental goals. In particular, the EPA has interpreted its mission to be one of minimal interference in guiding the development of the allowance market and that its primary purpose is emission compliance and not the monitoring of transactions. Therefore, the goal of the ATS is to provide a central registry of recorded allowance transfers for the purpose of emission compliance. As a result, the ATS is unusual as a mechanism for monitoring market activity because it provides information about the buyer and seller of an allowance but does not provide price information. Furthermore, the EPA has limited its role so as not to exercise approval of individual allowance trades, and has excluded from consideration options for expanding the EPA's data collection effort. However, the EPA recognizes that the interests of Congress and the public extend beyond compliance with the environmental goals to include the development of allowance trading to help achieve these goals at the lowest possible cost. In addition, there is widespread interest in the development of SO2 emission allowance trading as a prototype for other potential trading programs, and the ATS provides a potential template for the oversight role of the environmental regulator in programs such as these. Therefore, another goal of the workshop at RFF was to assess how well the ATS performs in promoting the development of allowance trading in general, and with respect to the interests and needs of each of the constituencies interested in the SO2 allowance trading program. This discussion paper incorporates observations, suggestions and concerns expressed during this workshop. Furthermore, this discussion paper concludes with recommendations regarding the EPA's current classification methodology. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-21&r=ene |
| By: | Smith, V. Kerry; Banzhaf, H. Spencer (Resources For the Future) |
| Abstract: | We document the sensitivity of welfare estimates derived from discrete choice models to assumptions about the choice set. Such assumptions can affect welfare estimates through both the estimated parameters of the model and, conditional on the parameters, the substitution among alternatives. Our analysis involves estimates of the benefits of air quality improvements in Los Angeles based on discrete choices of neighborhood and housing. We further illustrate the use of meta analysis to document and summarize voluminous information derived from repeated sensitivity analyses. |
| Keywords: | Meta analysis, random utility model, choice set, air quality, housing |
| JEL: | C15 Q25 R21 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-61&r=ene |
| By: | Stavins, Robert; Hahn, Robert; Cavanagh, Sheila |
| Abstract: | We review major developments in national environmental policy during the Clinton Administration, defining environmental policy to include not only the statutes, regulations, and policies associated with reducing pollution, but also major issues of public lands management and species preservation. We adopt economic criteria for policy assessment — principally efficiency, cost-effectiveness, and distributional equity. While the paper is primarily descriptive, we highlight a set of five themes that emerge in the economics of national environmental policy over the past decade. First, over the course of the decade, national environmental targets were made more stringent, and environmental quality improved. Most important among the new targets were the National Ambient Air Quality Standards (NAAQS) for ambient ozone and particulate matter, issued by EPA in July 1997, which could turn out to be one of the Clinton Administration’s most enduring environmental legacies. Also, natural resource policy during the Clinton years was heavily weighted toward environmental protection. Environmental quality improved overall during the decade, continuing a trend that began in the 1970s, although improvements were much less than during the previous two decades. Second, the use of benefit-cost analysis for assessing environmental regulation was controversial in the Clinton Administration, while economic efficiency emerged as a central goal of the regulatory reform movement in the Congress during the 1990s. When attention was given to increased efficiency, the locus of that attention during the Clinton years was the Congress in the case of environmental policies and the Administration in the case of natural resource policies. Ironically, the increased attention given to benefit-cost analysis may not have had a marked effect on the economic efficiency of environmental regulations. Third, cost-effectiveness achieved a much more prominent position in public discourse regarding environmental policy during the 1990s. From the Bush Administration through the Clinton Administration, interest and activity regarding market-based instruments for environmental protection — particularly tradeable permit systems — continued to increase. Fourth, the Clinton Administration put much greater emphasis than previous administrations on expanding the role of environmental information disclosure and voluntary programs. While such programs can provide cost-effective ways of reaching environmental policy goals, little is known about their actual costs or effectiveness. Fifth and finally, the Environmental Protection Agency placed much less emphasis on economic analysis during the 1990s. EPA leadership was more hostile to economic analysis than it had been under the prior Bush Administration, and it made organizational changes to reflect this change in priorities. |
| Keywords: | air quality standards, benefit-cost analysis, voluntary programs |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-38&r=ene |
| By: | Stefan Behringer (Economics Department, Frankfurt University) |
| Abstract: | This paper investigates the effect of spillovers in a model of endogenous technical change resulting from learning or network effects on the existence of a lower bound to market concentration. |
| Keywords: | Market Structure, spillovers, endogenous technical change |
| JEL: | L10 D43 D21 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:jep:wpaper:05006&r=ene |
| By: | Sedjo, Roger (Resources For the Future); Jagger, Pamela; White, William |
| Abstract: | Extreme weather events such as the ice storm that affected eastern Canada and the Northeastern US in January of 1998 have significant impacts on both human populations and forests. One of the questions currently facing climate scientists is whether or not better forecasting of such events would lessen the economic impacts borne by households, industry, agricultural producers and the public sector when such weather events occur. This case study examines the economic impacts of the ice storm on the residential market for fuelwood. It is hypothesized that demand for fuelwood will increase due to the failure of non-wood heating sources during the ice storm. In addition, damage to trees in the region should increase the supply of fuelwood; the net effect of these outward shifts of supply and demand on price is not known. A household level survey administered to over one thousand households indicates that less than half of the households in the affected region currently rely on wood burning technologies as a source of heat for their homes. However, those households with wood burning technologies were better able to manage during the ice storm. The main policy implication of better forecasting of extreme weather events is the ability of households to alter or substitute home heating strategies and technologies in addition to other mitigative strategies such as storing food etc. In addition, forest managers or forest product producers who have information regarding extreme weather events have the option to undertake various management strategies to lessen the economic and biophysical impacts of ice storms on forests. Forest managers and woodlot owners may also enter or expand into the market for residential fuelwood when the production of other forest produce such as maple syrup and veneer are hindered by ice storm damage. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-44&r=ene |
| By: | Powell, Mark |
| Abstract: | This study analyzes the local regulatory and non-regulatory determinants of ambient air quality in Allegheny, Baltimore, and Cuyahoga Counties over the period 1972-1992. Mandated pollution control investments appear to have often had a statistically significant effect in reducing maximum concentrations of suspended particulates and tropospheric ozone in these areas. The effects of regulatory air quality controls, however, generally have been overshadowed by the impacts of non-regulatory factors. In general, local regulatory and non-regulatory factors failed to account for a majority of the variation in local air quality. This underscores the importance of regional or national factors in determining local air quality. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-29&r=ene |
| By: | Ando, Amy; Harrington, Winston (Resources For the Future); McConnell, Virginia (Resources For the Future) |
| Abstract: | The Arizona I/M program provides one of the first opportunities to examine the costs and effectiveness of vehicle emission repair. This paper examines various aspects of emission reductions, fuel economy improvements, and costs of repair, drawing data from over 80,000 vehicles failing the I/M test in Arizona between 1995 and the first half of 1996. We summarize the wealth of repair data from the Arizona program and highlight its limitations. Because missing or incomplete cost information has been a serious shortcoming for evaluation of I/M programs, we develop a method for estimating the costs of repair when those costs are not reported. We find surprising evidence that almost one quarter of all vehicles that take the I/M test are never observed to pass the test. Using a statistical analysis, we provide some information about the differences between the vehicles that pass and those that do not. Older, more polluting vehicles are much more likely to never pass the I/M test, and their expected costs of repair are much higher than those of new cars. The paper summarizes the evidence on cost and emission reduction in the Arizona program, comparing costs and emission reductions for both cars and trucks. Finally, we examine the potential for more cost-effective repair, first through an analysis of tightening I/M cutpoints, and then by calculating the cost savings of achieving different emission reduction goals when the most cost effective repairs are made first. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-23-rev&r=ene |
| By: | Morgenstern, Richard (Resources For the Future); Harrington, Winston (Resources For the Future); Nelson, Per-Kristian (Resources For the Future) |
| Abstract: | This study compares ex ante estimates of the direct costs of individual regulations to ex post assessments of the same regulations. A review of more than two dozen environmental and occupational safety regulations indicates that ex ante estimates of total (direct) costs have tended to exceed actuals. The authors find this to be true of 12 of the 25 rules in their data set, while for only 6 were the ex ante estimates too low. The overestimation of total costs is often due to errors in the quantity of emission reductions achieved by the rule which, in turn, suggest that the rule's benefits may also be overestimated. The quantity errors are driven by both baseline and compliance issues. At least for EPA and OSHA rules, overestimation of per-unit abatement costs occurs about as often as underestimation. In contrast, for those rules that use economic incentives, per-unit costs are consistently overestimated. Much of the overestimation can be attributed to technical innovations unanticipated at the time the rule is issued, and to quantity errors. In addition, several methodological and procedural explanations also apply- changes in the regulation after the cost estimate is prepared, use of maximum cost estimates, and asymmetric error correction. Since a number of environmental laws encourage the development of cost estimates that reflect a maximum rather than a mean, regulatory agencies could issue a "best estimate" along with the statutorily preferred cost estimate. Likewise, they could ensure that rule changes made in the course of the regulatory development process are manifest in revised cost estimates. Indeed, discovering how and when to adjust ex ante estimates provides the strongest possible justification for more credible ex post studiesa research activity that merits greater emphasis. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-18&r=ene |
| By: | Bohn, Henning; Deacon, Robert |
| Abstract: | The effect of insecure ownership on ordinary investment and on the exploitation of natural resources is examined. Insecure ownership is characterized as a positive probability that a typical asset or its future return will be confiscated. For empirical analysis, the probability of confiscation is modeled as a function of observable political attributes of countries, principally the type of government regime in power (democratic versus non-democratic) and the prevalence of political violence or instability. A general index of ownership security is estimated from the political determinants of economy wide investment rates, and then introduced into models of petroleum and forest use. Ownership risk is found to have a significant, and quantitatively important effect. Empirically, increases in ownership risk are associated with reductions in forest cover and with slower rates of petroleum exploration. Contrary to conventional wisdom, greater ownership risk tends to slow rates of petroleum extraction, apparently because the extraction process is capital intensive. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-20&r=ene |
| By: | Toman, Michael; Pezzey, John C. |
| Abstract: | Concern about sustainability helped to launch a new agenda for development and environmental economics and challenged many of the fundamental goals and assumptions of the conventional, neoclassical economics of growth and development. We review 25 years’ of refereed journal articles on the economics of sustainability, with emphasis on analyses that involve concern for intergenerational equity in the long-term decisionmaking of a society; recognition of the role of finite environmental resources in long-term decisionmaking; and recognizable, if perhaps unconventional, use of economic concepts, such as instantaneous utility, cost, or intertemporal welfare. Taken as a whole, the articles reviewed here indicate that several areas must be addressed in future investigation- improving the clarity of sustainability criteria, maintaining distinctions between economic efficiency and equity, more thoroughly investigating many common assumptions in the literature about prospects for resource substitution and resource-enhancing technical change, and encouraging the empirical investigation of sustainability issues. |
| Keywords: | economic efficiency, intergenerational equity, social optimality, sustainable development |
| JEL: | Q20 D60 D90 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-03&r=ene |
| By: | Sedjo, Roger (Resources For the Future); Sohngen, Brent; Mendelsohn, Robert; Lyon, Kenneth |
| Abstract: | In this paper, we show how ecological and economic models can be linked to determine the economic impact of climate change on global timber markets. We begin by discussing some of the important issues relevant to global impact analyses such as this. We then outline our general modeling framework and discuss the particular models that will be used. Finally, we discuss some of the important issues involved with linking the two types of models. The authors would like to acknowledge the help of Ron Neilson, who provided us with information, data, and output from the ecological model, MAPSS (Mapped Atmosphere-Plant-Soil System). |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-08&r=ene |
| By: | Stavins, Robert |
| Abstract: | Vintage-differentiated regulation (VDR) is a common feature of many environmental and other regulatory policies in the United States. Under VDR, standards for regulated units are fixed in terms of the units’ respective dates of entry, or “vintage,” with later entrants facing more stringent regulation. In the most common application, often referred to as “grandfathering,” units produced prior to a specific date are exempted from new regulation or face less stringent requirements. The vintage-differentiated approach has long appealed to many participants in the policy community, for reasons associated with efficiency, equity, and simple politics. First, it is frequently more cost-effective—in the short-term—to introduce new pollutionabatement technologies at the time that new plants are constructed than to retrofit older facilities with such technologies. Second, it seems more fair to avoid changing the rules of the game in mid-stream, and hence to apply new standards only to new plants. Third, political pressures tend to favor easily-identified existing facilities rather than undefined potential facilities. On the other hand, VDRs can be expected—on the basis of standard investment theory—to retard turnover in the capital stock (of durable plants and equipment), and thereby to reduce the cost-effectiveness of regulation in the long-term, compared with equivalent undifferentiated regulations.1 A further irony is that, when this slower turnover results in delayed adoption of new, cleaner technology, VDR can result in higher levels of pollutant emissions than would occur in the absence of regulation. In this Article, I survey previous applications and synthesize current thinking regarding VDRs in the environmental realm, and develop lessons for public policy and for future research. In Part 2, I describe the ubiquitous nature of VDRs in U.S. regulatory policy, and examine the reasons why VDRs are so common. In Part 3, I establish a theoretical framework for analysis of the cost-effectiveness of alternative types of environmental policy instruments to provide a context for the analysis of VDRs. In Part 4, I focus on the effects of VDRs, and describe a general theory of the impacts of these instruments in terms of their effects on technology adoption, capital turnover, pollution abatement costs, and environmental performance. In Parts 5 and 6, I examine empirical analyses of the impacts of VDRs in two significant sectors- Part 5 focuses on the effects of VDRs in the U.S. auto industry, and Part 6 on the effects of new source review, which is a form of VDR, in power generation and other sectors. In Part 7, I examine implications for policy and research, and recommend avenues for improvements in both. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-59&r=ene |
| By: | Powell, Mark; Wilson, James |
| Abstract: | This paper reviews the risk assessments prepared by the U.S. Department of Agriculture (USDA) in support of regulations implementing the Conservation Reserve Program (CRP) and Environmental Quality Incentives Program (EQIP). These two natural resource conservation programs were authorized as part of the 1996 Farm Bill. The risk assessments were required under the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994. The framework used for the assessments was appropriate, but the assessments could be improved in the areas of assessments endpoint selection, definition, and estimation. Many of the assessment endpoints were too diffuse or ill-defined to provide an adequate characterization of the program benefits. Two reasons for this lack of clarity were apparent- 1) the large, unprioritized set of natural resource conservation objectives for the two programs and 2) there is little agreement about what changes in environmental attributes caused by agriculture should be considered adverse and which may be considered negligible. There is also some "double counting" of program benefits. Although the CRP and EQIP are, in part, intended to assist agricultural producers with regulatory compliance, the resultant environmental benefits would occur absent the programs. The paper concludes with a set of recommendations for continuing efforts to conduct regulatory analyses of these major conservation programs. The central recommendation is that future risk assessments go beyond efforts to identify the natural resources at greatest risk due to agricultural production activities and instead provide scientific input for analyses of the cost-effectiveness of the conservation programs. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-49&r=ene |
| By: | Harrington, Winston (Resources For the Future); McConnell, Virginia (Resources For the Future); Cannon, Matthew |
| Abstract: | This paper examines the behavioral and stochastic aspects of modeling emission reductions from vehicle Inspection and Maintenance (I/M) programs. Forecasts of the potential emission reductions from such programs have been modeled by the use of the Environmental Protection Agency's MOBILE Model, EPA's computer model for estimating emission factors for mobile sources. We examine the structure of this Model and review the way behavior of drivers, mechanics and state regulatory authorities is incorporated in the current generation of the Model. We focus particularly on assumptions about vehicle repair under I/M, compliance with I/M requirements, and the impact of test measurement error on predicted I/M effectiveness. We also include some preliminary comparisons of the Model's outcomes to results of the I/M program in place in Arizona. Finally, we perform some sensitivity analyses to determine the most influential underlying parameters of the Model. We find that many of the assumptions of the I/M component of the Model are based on relatively small data sets on vehicle done in a laboratory setting, and that the output of the Model makes it difficult to compare the results against real world data from on-going state programs. In addition, the Model assumes that vehicles will either be repaired or receive a waiver. In the Arizona program there appears to be a third category of vehicles those which fail the test and do not receive passes. This share may be as high as a third of all failing vehicles. Vehicles which do not eventually pass the test would be treated in the Model as non-compliant. However, in current programs, states do not seem to be measuring and entering the compliance rate correctly. The paper also examines the evidence about whether emissions deteriorate over the life of vehicle in a grams per mile basis (as assumed by the Model) or a grams per gallon basis. It finds support for the argument that emissions deteriorate on a grams per gallon basis. We find through sensitivity analysis that the repair effectiveness assumed by the Model to occur in an IM240 test are much greater than for the idle test, and that identification rates and repair effectiveness vary a great deal according to the cutpoint. These results are based on small numbers of vehicle tests in a laboratory setting and could be compared to real world evidence. Examining costs and cost-effectiveness of variations in I/M programs is important for determining improvements in I/M programs. States may not have incentives to develop cost-effective programs based on current Model that forecast emission reduction "credits" that are overly optimistic. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-47&r=ene |
| By: | Parry, Ian (Resources For the Future); Pizer, William (Resources For the Future); Fischer, Carolyn (Resources For the Future) |
| Abstract: | This paper presents an analytical and numerical comparison of the welfare impacts of alternative instruments for environmental protection in the presence of endogenous technological innovation. We analyze emissions taxes and both auctioned and free (grandfathered) emissions permits. We find that under different sets of circumstances each of the three policies may induce a significantly higher welfare gain than the other two policies. In particular, the relative ranking of policy instruments can crucially depend on the ability of adopting firms to imitate the innovation, the costs of innovation, the slope and level of the marginal environmental benefit function, and the number of firms producing emissions. Moreover, although in theory the welfare impacts of policies differ in the presence of innovation, sometimes these differences are relatively small. In fact, when firms anticipate that policies will be adjusted over time in response to innovation, certain policies can become equivalent. Our analysis is simplified in a number of respects; for example, we assume homogeneous and competitive firms. Nonetheless, our preliminary results suggest there is no clear-cut case for preferring any one policy instrument on the grounds of dynamic efficiency. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-99-04&r=ene |
| By: | Afsah, Shakeb; Sterner, Thomas; López, Jorge |
| Abstract: | This paper evaluates the effectiveness of the Program for Pollution Control Evaluation and Rating (PROPER) in Indonesia. PROPER, the first major public disclosure program in the developing world, was launched in June 1995; though it collapsed in 1998 with the Asian financial crisis, it is currently being revived. There have been claims of success for this pioneering scheme, yet little formal analysis has been undertaken. We analyze changes in emissions concentrations (mg/L) using panel data techniques with plant-level data for participating firms and a control group. The results show that there was indeed a positive response to PROPER, especially among firms with poor environmental compliance records. The response was immediate, and firms pursued further emissions reductions in the following months. The total estimated reductions in biochemical oxygen demand (BOD) and chemical oxygen demand (COD) were approximately 32%. |
| Keywords: | environmental policy, pollution control, public disclosure, Asia, Indonesia |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-34&r=ene |
| By: | Hersh, Robert |
| Abstract: | This report describes the reasons why integrated pollution control (IPC) became accepted as a necessary part of the environmental regulatory systems of the Netherlands, the United Kingdom, and Sweden and examines the experience these countries have had with unified environmental statutes, alternative compliance approaches, cross-media permitting, and other aspects of IPC that are under consideration in this country. The report is organized into five chapters. In the first chapter we provide a brief overview of the intellectual pedigree of integrated pollution control and discuss arguments that have been put forward by advocates of IPC as well as the counter-arguments of those who have taken a more skeptical view of the technical and political feasibility of implementing IPC measures. Chapter two details how the United Kingdom, long considered the dirty man of Europe, is developing an integrated system of industrial pollution control based on its 1990 Environmental Protection Act. The Act introduced new controls to limit and prevent pollution from a wide range of industries and has created a unified pollution inspectorate to ensure that the best practical environmental option (BPEO) for all media is achieved. We consider both the progress the UK Environmental Agency has made in IPC as well as the barriers it has encountered. In chapter three, we examine how the Dutch Environmental Ministry (VROM) was able to forge a consensus among diverse groups for the need to embrace innovative, integrated policies and then examine in detail the Dutch experience with alternative compliance efforts, notably their covenant system. The long-standing success of Sweden’s industrial permitting system is analyzed in chapter 4 and in the fifth and final chapter we consider the development and implications of the European Union’s recently adopted Directive on Integrated Pollution Prevention and Control, a document which is likely to have a profound influence on environmental management in Europe and elsewhere. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-15&r=ene |
| By: | Smith, V. Kerry; Espinosa, Andres |
| Abstract: | This paper describes the results of using a new computable general equilibrium model for the European Union that incorporates local and transboundary externalities to evaluate the effects of trade policy reform. In contrast to all past theoretical and empirical research, this model includes the morbidity effects of three criteria air pollutants as nonseparable arguments of household preferences. The model is based on the Harrison-Rutherford Wooton model that identifies 11 regions, six aggregate commodities and three factor inputs. Three modifications were made to the model- (a) Stone Geary utility functions were used to characterize preferences for each consumer; (b) nine morbidity effects due to the three air pollutants were introduced as translating effects; and (c) pollution generation and dispersion models were introduced and calibrated to the model's base solution. General equilibrium welfare effects are evaluated with a balance of trade function. Overall, the evaluations of policy suggest that incorporating environmental effects as non-separable influences on preferences can have a marked impact on the evaluation of trade policy reforms. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-18&r=ene |
| By: | Parry, Ian (Resources For the Future); Pizer, William (Resources For the Future); Fischer, Carolyn (Resources For the Future) |
| Abstract: | This paper examines whether the welfare gains from technological innovation that reduces future abatement costs are larger or smaller than the “Pigouvian” welfare gains from optimal pollution control. The relative welfare gains from innovation depend on three key factors- the initially optimal level of abatement, the speed at which innovation reduces future abatement costs, and the discount rate. We calculate the welfare gains from innovation under a variety of different scenarios. Mostly they are less than the Pigouvian welfare gains. To be greater, innovation must reduce abatement costs substantially and quickly and the initially optimal abatement level must be fairly modest. |
| Keywords: | innovation, welfare, regulation, endogenous, technological, change, R&D |
| JEL: | Q16 Q28 O32 O33 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-15-rev&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Harrington, Winston (Resources For the Future); Farrell, Deirdre |
| Abstract: | The Congestion Mitigation/Air Quality Program (CMAQ), established in 1991 by the Intermodal Surface Transportation Efficiency Act (ISTEA) to provide about $1 billion per year to fund transportation projects that improve air quality, is intended both to support traditional transportation control measures and to encourage innovation in developing new strategies and technologies for controlling emissions from transportation sources. While the program has indeed encouraged some innovative approaches to local transportation and air quality problems, critics see it as a diversion of funds that could more usefully be devoted to conventional highway improvement projects. The current debate in Congress over the reauthorization of ISTEA and, specifically, the CMAQ provisions, is hampered by the lack of detailed information about the achievements of previous CMAQ projects and a plan for evaluating future projects. Resolution of this debate could be aided by emphasizing the role of CMAQ projects as natural experiments and developing a plan to conduct them. The purpose of this paper is to outline a strategy of analysis and data collection that will facilitate evaluation of CMAQ projects. This paper argues that the lack of emphasis (in all but the largest projects) on project evaluation can be explained by the public goods nature of information. Because local implementing agencies bear the costs of evaluation, while the benefits are enjoyed primarily by other jurisdictions in planning their transportation and environment projects, too little evaluation is conducted. At present, much of the potential usefulness of CMAQ projects to planners is dissipated because there is little systematic learning. Indeed, a project could succeed as an experiment if learning took place, even if it failed to improve air quality. This paper examines the kinds of data collected now in CMAQ programs in comparison with the kinds of data that would permit more effective program evaluation, particularly ex post evaluation, i.e., analysis of what actually resulted from the implementation of the individual project. In many cases, data-gathering should concentrate on observable outcomes that can clearly be attributed to the project and yet bear some relationship to air quality or congestion, either established by previous empirical study or by model results. A method is proposed for collecting the requisite data for each of several important types of CMAQ projects. To assure that the data are collected and evaluated will also require changes in the way in which CMAQ is administered, including the dedication of some portion of CMAQ funds for evaluating completed projects. The biggest change may be the need to develop measures of "success" and identify "control cases" against which to judge the success of the experiment. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-18&r=ene |
| By: | Palmer, Karen (Resources For the Future); Walls, Margaret (Resources For the Future) |
| Abstract: | Many environmentalists and policymakers are shifting their focus from media-specific pollution problems to product-specific, life-cycle environmental problems. In this paper, we develop a model of production and consumption that incorporates life-cycle environmental externalities—specifically, an upstream manufacturing byproduct, air or water pollution from manufacturing, and downstream solid waste disposal. We then use the model to derive optimal government policies to address all three externalities. We assume throughout that a Pigovian tax on waste disposal is precluded because of the potential for illegal dumping. We then examine four cases- one in which Pigovian taxes on the upstream externalities are feasible, one in which such taxes are infeasible, and two final cases in which the upstream pollutant is subject to one of two different types of regulatory standards. In general, we find that no single instrument can solve multiple problems, contrary to what some observers have suggested. However, we find that there are alternative ways of reaching the social optimum. We also discover that a so-called "integrated" approach to policy appears to be important, no matter what policy options are adopted. And finally, we find that there is only a limited role for product "life-cycle assessments"—enumerations of all of the resources used and pollutants emitted throughout an entire product life-cycle. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-51-rev&r=ene |
| By: | Bakytzhanova Zhuldyz |
| Abstract: | Empirical studies (Bacon, 1991; Peltzman, 2000) show that output prices tend to respond faster to input price increases than to decreases. This paper finds out such asymmetry in the fuel market of Moscow and analyzes the influence of companies' and market characteristics on asymmetric response. The conclusion is that different mechanisms of the phenomenon, including tacit collusion and consumer search, probably coexist in the Moscow retail gasoline market. |
| Keywords: | Russia, Kazakhstan, market concentration, gasoline, asymmetric response |
| JEL: | C23 L11 L13 L81 |
| Date: | 2005–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:eer:wpalle:05-18e&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | This paper examines multi-factor productivity trends in the U.S. petroleum, coal, copper and logging industries since 1970. Measures of multi-factor productivity growth are negative for all four industries during the 1970s. At the time this led to fears that stocks of natural resources were being exhausted, and this might hinder future economic growth. However in retrospect the 1970s look like an exceptional period, rather than marking a change in long run productivity trends. The decline in measured multi-factor productivity in that decade appear to be explained by a number of special factors that generally have a transitory rather than a permanent effect on productivity growth. For example, the rise in natural resource prices encouraged the entry of relatively inefficient producers. New environmental and health & safety regulations were phased in during the period that also reduce measured multi-factor productivity. Over the last 15 years however, productivity measures have improved significantly in all the industries. For example, we estimate that the level of productivity in 1992 was around 75 percent higher in the petroleum industry than at the trough of the productivity slowdown, and around 60 percent higher in coal and copper. To some extent these improvements represent restructuring and consolidation in response to falling output prices. However, technological developments have also played an important role in all four industries. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-39&r=ene |
| By: | Kopp, Raymond (Resources For the Future); Portney, Paul |
| Abstract: | Traditional applications of benefit-cost analysis make use of what we refer to as the "damage function and discounting" (or DFD) approach. This approach is well suited to the analysis of projects for which the principal benefits and costs occur within the next thirty to forty years, say. However, for projects with significant intergenerational consequences--i.e., impacts that do not arise for hundreds of years or more--the DFD approach becomes almost intractable. We propose an alternative conception of benefit-cost analysis for intergenerational decision-making--the mock referendum--that is- (i) arguably more consistent with the tenets of modern welfare economics; (ii) more amenable to the analysis of long-term projects or policies; and (iii) consistent with political decision(s) that must be made if climate mitigation (or other long-term environmental protection) measures are to be taken. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-97-48&r=ene |
| By: | Toman, Michael; Kerr, Suzi; Sedjo, Roger (Resources For the Future); Birdsey, Richard; Kauppi, Pekka; Noble, Ian; Brown, Sandra; Krankina, Olga; Moura-Costa, Pedro |
| Abstract: | An RFF Workshop brought together experts from around the world to assess the feasibility of using biological sinks to sequester carbon as part of a global atmospheric mitigation effort. The chapters of this proceeding are a result of that effort. Although the intent of the workshop was not to generate a consensus, a number of studies suggest that sinks could be a relatively inexpensive and effective carbon management tool. The chapters cover a variety of aspects and topics related to the monitoring and measurement of carbon in biological systems. They tend to support the view the carbon sequestration using biological systems is technically feasible with relatively good precision and at relatively low cost. Thus carbon sinks can be operational. |
| Keywords: | carbon, sinks, global warming, sequestration, forests |
| JEL: | Q10 Q15 Q21 Q23 Q24 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-26&r=ene |
| By: | Blackman, Allen (Resources For the Future); Bannister, Geoffrey |
| Abstract: | Low-technology unlicensed micro-enterprises known as "informal" firms are a significant source of pollution in developing countries that are virtually impossible to regulate in the conventional manner. This paper describes an example of an innovative and promising approach to the problem- the Ciudad Juárez Brickmakers' Project, a private-sector-led initiative aimed at abating highly polluting emissions from Ciudad Juárez, Mexico's approximately 300 informal brick kilns. We draw four lessons from the Project's history. First, private-sector-led initiatives can work -- indeed they may be more effective than public sector initiatives -- but they require strong public sector support. Second, necessary conditions for effective environmental management in the informal sector include enlisting the cooperation of local organizations, relying upon peer monitoring, and offsetting compliance costs. Ineffective strategies include promoting too-advanced technologies and intervening in informal markets. Third, pollution control strategies that provide the greatest environmental benefits may be less appropriate than low-cost intermediate strategies. Finally, in volatile developing economies, market-based environmental initiatives in the informal sector are bound to be fragile. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-15&r=ene |
| By: | Stavins, Robert |
| Abstract: | Some eighty years ago, economists first proposed the use of corrective taxes to internalize environmental and other externalities. Fifty years later, the portfolio of potential economic-incentive instruments was expanded to include quantity-based mechanisms--tradable permits. Thus, economic-incentive approaches to environmental protection are clearly not a new policy idea, and over the past two decades, they have held varying degrees of prominence in environmental policy discussions. This paper summarizes U.S. experiences with such market-based policy instruments, including- pollution charges; deposit-refund systems; tradable permits; market barrier reductions; and government subsidy reductions. No particular form of government intervention, no individual policy instrument--whether market-based or conventional--is appropriate for all environmental problems. Which instrument is best in any given situation depends upon a variety of characteristics of the environmental problem, and the social, political, and economic context in which it is being regulated. There is no policy panacea. Indeed, the real challenge for bureaucrats, elected officials, and other participants in the environmental policy process comes in analyzing and then selecting the best instrument for each situation that arises. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-26&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Bergin, S.; Russell, Armistead |
| Abstract: | In this paper, we develop an integrated cost-benefit analysis framework for ozone and fine particulate control, accounting for variability and uncertainty. The framework includes air quality simulation, sensitivity analysis, stochastic multi-objective air quality management, and stochastic cost-benefit analysis. This paper has two major contributions. The first is the development of stochastic source-receptor (S-R) coefficient matrices for ozone and fine particulate matter using an advanced air quality simulation model (URM-1ATM) and an efficient sensitivity algorithm (DDM-3D). The second is a demonstration of this framework for alternative ozone and PM2.5 reduction policies. Alternative objectives of the stochastic air quality management model include optimization of the net social benefits and maximization of the reliability of satisfying certain air quality goals. We also examine the effect of accounting for distributional concerns. |
| Keywords: | ambient air, ozone, particulate matter, risk management, public policy, cost-benefit analysis, variability and uncertainty, stochastic simulation, stochastic multi-objective programming, decisionmaking, National Ambient Air Quality Standards |
| JEL: | C6 Q2 Q25 Q28 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-03-55&r=ene |
| By: | Blackman, Allen (Resources For the Future) |
| Abstract: | Colombia’s discharge fee system for water effluents is often held up as a model of a well-functioning, economic-incentive pollution control program in a developing country. Yet few objective, up-to-date evaluations of the program have appeared. Based on a variety of primary and secondary evaluative data, this paper finds that that the program has been beset by a number of serious problems including limited implementation in many regions, widespread noncompliance by municipal sewage authorities, and a confused relationship between discharge fees and discharge standards. Nevertheless, in several watersheds, pollution loads dropped significantly after the program was introduced. While proponents claim the incentives that discharge fees created for polluters to cut emissions in a cost-effective manner were responsible for this success, this paper argues that the incentives they created for regulatory authorities to improve permitting, monitoring, and enforcement were at least as important. |
| Keywords: | environment, economic incentive, market based instrument, discharge fees, water pollution, Latin America, Colombia |
| JEL: | Q53 Q56 Q58 O13 O54 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-31&r=ene |
| By: | Parry, Ian (Resources For the Future) |
| Abstract: | Gasoline taxes are widely perceived as the most efficient instrument for reducing gasoline consumption because they exploit all behavioral responses for reducing fuel use, including reduced driving and improved fuel economy. At present, however, higher fuel taxes are viewed as a political nonstarter. Pay-as-you-drive (PAYD) auto insurance, which involves replacing existing lump-sum premiums with premiums that vary in proportion to miles driven, should be more practical, since they do not raise driving costs for the average motorist. We show that when impacts on a broad range of motor vehicle externalities are considered, PAYD also induces significantly higher welfare gains than comparable gasoline tax increases, for fuel reductions below 9%. The reason is that under PAYD, all of the reduction in fuel use, rather than just a fraction, comes from reduced driving; this produces a substantial additional efficiency gain because mileage-related external costs (especially congestion and accidents) are relatively large in magnitude. |
| Keywords: | gasoline tax; pay-as-you-drive insurance; mileage tax; welfare effects; motor vehicle externality |
| JEL: | H21 H23 R48 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-05-15&r=ene |
| By: | Pizer, William (Resources For the Future); Morgenstern, Richard (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future) |
| Abstract: | Expenditures for environmental protection in the U.S. are estimated to exceed $150 billion annually or about 2% of GDP. This estimate, based on largely self-reported information, is often cited as an assessment of the burden of current regulatory efforts and a standard against which the associated benefits are measured. Little is known, however, about how well reported expenditures relate to true costs. The potential for both incidental savings and uncounted burdens means that actual costs could be either higher or lower than reported expenditures. A significant literature supports the notion that increases in reported environmental expenditures probably understate actual economic costs. Estimates of the true cost of a dollar increase in reported environmental spending range from $1.50 to $12. This paper explores the relationship between reported expenditures and economic cost in the manufacturing sector in the context of a large plant-level data set at the four-digit SIC level. We use a cost function modeling approach which treats both environmental and non-environmental production activities as distinct, unrelated cost minimization problems for each plant. We then explore the possibility that these activities are, in fact, related by including reported regulatory expenditures in the cost function for non-environmental output. Under the null hypothesis that reported regulatory expenditures accurately measure the cost of regulation, the coefficient on this term should be zero. In ten of eleven industries studied, including all of the heavily regulated industries, this null hypothesis is accepted using our preferred fixed-effects model. Our best estimate, based on an expenditure weighted average of the four most heavily regulated industries, indicates that an incremental dollar of reported environmental expenditure reduces non-environmental production costs by eighteen cents with a standard error of forty-two cents. This is equivalent to saying that total costs rise by eighty-two cents for every dollar increase in reported environmental expenditures. Using an alternative pooled model we find uniformly higher estimates. Although consistent with previous results, we believe these higher estimates are biased by omitted variables characterizing differences among plants. Summarizing, our results enable us to reject claims that environmental spending imposes large hidden costs on manufacturing plants. In fact, our best estimate indicates a modest though statistically insignificant overstatement of regulatory costs. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-36&r=ene |
| By: | M. Soledad Arellano; Pablo Serra |
| Abstract: | This note shows how the transmission system can enhance competition in price-regulated power industries, thus extending earlier findings reported in the literature for deregulated industries. In the context of a two-technology, price-regulated power industry, we show that the interconnection of two markets initially supplied by a different monopoly reduces market power and raises welfare. We also show that the capacity of the transmission line plays a key role in determining whether market equilibrium lies closer to competition or monopoly. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:214&r=ene |
| By: | Stavins, Robert; Newell, Richard (Resources For the Future) |
| Abstract: | Policy makers and policy analysts are frequently faced with situations where it is unclear whether market-based instruments hold real promise of reducing costs, relative to conventional command-and-control approaches. We develop rules-of-thumb that can be employed with minimal amounts of information to estimate the potential cost savings associated with market-based policies, with an application to the environmental policy realm. Our hope is that these simple formulae can aid policy analysts and policy makers in the early stages of exploring alternative policy instruments by helping them identify approaches that merit greater attention and more detailed analysis. We illustrate the use of the rules-of-thumb with an application to nitrogen oxides control in the eastern United States. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-10-rev&r=ene |
| By: | Bernard, Jean-Thomas; Guertin, Chantal |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-02-34&r=ene |
| By: | Krupnick, Alan (Resources For the Future); Farrell, Deirdre |
| Abstract: | EPA appears likely to tighten the ambient ozone standard, even as many areas of the country are having great difficulties meeting the current standard. This paper offers an analysis of potential regulatory, administrative, and legislative initiatives for reducing the costs of meeting ozone standards. The detailed analysis of these initiatives is organized into six steps- (i) acknowledge mistakes and adapt to new knowledge; (ii) rehabilitate EPA's Title I Program; (iii) build on the best ideas; (iv) clarify and change the Clean Air Act; (v) educate the public; and (vi) fund research. EPA can go a long way to make its programs more efficient and effective without changes in the Clean Air Act; indeed, a number of its current initiatives show promise. But it must do more. Congress can help, too, by giving EPA the statutory guidance and freedom it needs to improve the program. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-13&r=ene |
| By: | Fullerton, Don; Stavins, Robert |
| Abstract: | On a topic like the environment, communication among scholars from different disciplines in the natural and social sciences is both important and difficult, but such communication has been far from perfect. Economists themselves may have contributed to some rather fundamental misunderstandings about how economists think about the environment, perhaps through our enthusiasm for market solutions, perhaps by neglecting to make explicit all of the necessary qualifications, and perhaps simply by the use of jargon that has specific meaning only to other economists. In this brief essay, we seek to clarify some of these misunderstandings and thus to improve future interdisciplinary communication. We hope that natural scientists and other non-economists will take economic analysis and prescriptions more seriously when they see tempered enthusiasm, explicit qualifications, and better definitions. Our method is to posit a series of prevalent "myths" regarding how economists think about the natural environment. We then explain how each myth might have originated from statements by economists that were meant to summarize a more qualified analysis. In this way, we hope to explain how economists really do think about the natural environment. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-98-29&r=ene |
| By: | Portney, Paul; Oates, Wallace (Resources For the Future) |
| Abstract: | This paper provides a review and assessment of the extensive literature on the political determination of environmental regulation. A promising theoretical literature has emerged relatively recently that provides models of the political interaction of government with various interest groups in the setting of environmental standards and the choice of regulatory instruments. A large empirical literature supports such models, finding evidence of the influence of interest groups but also evidence that net social benefits are often an important determinant of environmental policy choices. We then take up the issue of environmental federalism and the large and growing theoretical literature that addresses the competitive “race to the bottom.” The paper concludes with a brief look at the evolution of environmental policy and finds that economics has come to play a growing role both in the setting of standards for environmental quality and in the design of regulatory measures. |
| Keywords: | environmental regulation, environmental management, environmental policy |
| JEL: | Q2 H1 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-01-55&r=ene |
| By: | John A., List; Daniel, Sturm |
| Abstract: | This paper explores to what extent secondary policy issues are infuenced by electoral incentives. We develop a two dimensional political agency model in which a politician decides on both a frontline policy issue and a secondary policy issue. The model predicts when the incumbent should manipulate the secondary policy to attract voters. We test our model by using panel data on environmental policy choices in the U.S. states. In contrast to the popular view that secondary policies are largely determined by lobbying, we find strong effects of electoral incentives. |
| JEL: | Q58 H72 D72 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:768&r=ene |
| By: | Stavins, Robert |
| Abstract: | This paper introduces a volume of collected papers on the political economy of environmental regulation- economic analyses of the processes through which political decisions regarding environmental regulation are made, principally in the institutional context found in the United States. Despite this geographic focus, many of the papers contain analytical models that are methodologically of interest and/or have lessons that are relevant in other parts of the world. In the environmental realm, questions of political economy emerge along three fundamental dimensions, which are closely interrelated but conceptually distinct- (1) the degree of government activity; (2) the form of government activity; and (3) the level of government that has responsibility. The first three parts of the book deal respectively with these three fundamental dimensions of inquiry. Part I features a set of six articles that examine how the targets and goals of individual environmental policies are established. Part II brings together nine articles that employ the analytical apparatus of positive political economy to address questions related to the choice of policy instruments for environmental regulation. Part III features four articles that examine — both positively and normatively — the level of government that is delegated responsibility for environmental protection. Finally, in Part IV, three articles are featured that assess the use of economic analysis in contemporary environmental policy. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-04-12&r=ene |
| By: | Blackman, Allen (Resources For the Future); Bannister, Geoffrey |
| Abstract: | The considerable difficulties associated with cross-border environmental management are compounded when polluters are unlicensed micro-enterprises such as auto repair shops and traditional brick kilns; such "informal sector" firms are virtually impossible to regulate in the conventional manner. This paper describes an example of an innovative and promising approach to the problem- the Ciudad Juárez Brickmakers' Project, a private-sector-led, binational initiative aimed at abating highly polluting emissions from Ciudad Juárez's approximately 350 informal brick kilns. We draw three lessons from the Project's history. First, private-sector-led cross-border initiatives can work indeed they may be more effective than public sector initiatives but they require strong public sector support. Second, necessary conditions for effective environmental management in the informal sector include enlisting the cooperation of local unions and political organizations, relying upon peer monitoring among informal firms, and providing inducements to offset compliance costs. Ineffective strategies include promoting too-advanced and therefore inappropriate technologies and intervening in informal markets. And finally, the history of the Brickmakers' Project suggests that, in volatile developing economies, even well designed voluntary market-based environmental initiatives in the informal sector are bound to be fragile. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-96-22&r=ene |
| By: | Pizer, William (Resources For the Future); Newell, Richard (Resources For the Future) |
| Abstract: | Costs and benefits in the distant future—such as those associated with global warming, long-lived infrastructure, hazardous and radioactive waste, and biodiversity—often have little value today when measured with conventional discount rates. We demonstrate that when the future path of this conventional rate is uncertain and persistent (i.e., highly correlated over time), the distant future should be discounted at lower rates than suggested by the current rate. We then use two centuries of data on U.S. interest rates to quantify this effect. Using both random walk and mean-reverting models (which are indistinguishable based on historical data), we compute the certainty-equivalent rate—that is, the single discount rate that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future. Using the random walk model, which we consider more compelling, we find that the certainty-equivalent rate falls from 3% now to 2% after 100 years, to 1% after 200 years, and down to 0.5% after 300 years. The mean-reverting model leads to a certainty-equivalent rate that remains above 3% for the next 200 years, then falls to 2% after 300 years and to 1% after 400 years. If we use these rates to value consequences at horizons of 400 years, the discounted value increases by a factor of 7,000 based on the random walk model and by a factor of 30 based on the mean-reverting model — both relative to conventional discounting. These results are relevant for a wide range of policy questions involving the distant future. Applying the random walk model to the consequences of climate change, for example, we find that inclusion of discount rate uncertainty doubles the expected present value of mitigation benefits. Other applications and alternative beliefs about the random walk–mean-reverting distinction are easily explored with our table of discount factors over time. |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-00-45&r=ene |