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on Environmental Economics |
| By: | Aldy, Joseph Edgar; Stavins, Robert Norman |
| Abstract: | Emissions of greenhouse gases linked with global climate change are affected by diverse aspects of economic activity, including individual consumption, business investment, and government spending. An effective climate policy will have to modify the decision calculus for these activities in the direction of more efficient generation and use of energy, lower carbon-intensity of energy, and – more broadly – a more carbon-lean economy. The only approach to doing this on a meaningful scale that would be technically feasible and cost-effective is carbon pricing, that is, market-based climate policies that place a shadow-price on carbon dioxide emissions. We examine alternative designs of three such instruments – carbon taxes, cap-and-trade, and clean energy standards. We note that the U.S. political response to possible market-based approaches to climate policy has been and will continue to be largely a function of issues and structural factors that transcend the scope of environmental and climate policy. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5241378&r=env |
| By: | Stavins, Robert Norman; Aldy, Joseph Edgar |
| Abstract: | Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5347069&r=env |
| By: | Alessio D'Amato (Faculty of Economics, University of Rome "Tor Vergata"); Amanda Spisto (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | We model an environmental policy problem with two representative firms in two countries (one for each country). Firms are subject to environmental taxation, aimed at reducing CO2 emissions, and a unilateral technological spillover takes place: one of the two countries (innovating country) is responsible for generating the technological spillover while the other country is the one benefiting from the spillover e¤ect. Two different scenarios are analysed: one where countries do not cooperate and one where a single supranational authority is in charge of setting environmental policy. At first, both countries feature emissions taxation aimed at reducing CO2 emissions. In such a case, we show that the standard international externality applies, i.e. a suboptimal emission tax rate is set, leading to larger than efficient pollution. However, the tax rate is larger than marginal national damages in the innovating country due to the need to provide incentives towards technical change. Then we present a setting where the two countries are both subject to a national tax on emissions but the innovating country introduces a tax credit which is directly proportional to the innovative effort. In such a setting, we obtain counterintuitive results: interestingly, for a sufficiently large spillover, the tax rate in the non cooperative setting might exceed the one arising under cooperation. |
| Keywords: | tax credit policy, transboundary pollution, international technological spillover, cooperative vs non-cooperative behaviour |
| JEL: | Q58 H23 |
| Date: | 2012–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:237&r=env |
| By: | Hanna, Rema N.; Greenstone, Michael |
| Abstract: | Using the most comprehensive data file ever compiled on air pollution, water pollution, environmental regulations, and infant mortality from a developing country, the paper examines the effectiveness of India’s environmental regulations. The air pollution regulations were effective at reducing ambient concentrations of particulate matter, sulfur dioxide, and nitrogen dioxide. The most successful air pollution regulation is associated with a modest and statistically insignificant decline in infant mortality. However, the water pollution regulations had no observable effect. Overall, these results contradict the conventional wisdom that environmental quality is a deterministic function of income and underscore the role of institutions and politics. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5131505&r=env |
| By: | Aldy, Joseph Edgar; Pizer, William |
| Abstract: | The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse “competitiveness†impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity – and emissions – to unregulated economies. We construct a precise definition of competitiveness impacts appropriate for climate change regulation that can be estimated exclusively with domestic production and net import data. We use this definition and a 20+ year panel of 400+ U.S. manufacturing industries to estimate the effects of energy prices, which is in turn used to simulate the impacts of carbon pricing policy. We find that a U.S.-only $15 per ton CO2 price will cause competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among the most energy-intensive manufacturing industries. This amounts to roughly one-third of the total impact of a carbon pricing policy on these firms’ economic output. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5688779&r=env |
| By: | Stowe, Robert C; Stavins, Robert Norman; Chan, Gabriel Angelo; Sweeney, Richard Leonard |
| Abstract: | The introduction of the U.S. SO2 allowance-trading program to address the threat of acid rain as part of the Clean Air Act Amendments of 1990 is a landmark event in the history of environmental regulation. The program was a great success by almost all measures. This paper, which draws upon a re¬search workshop and a policy roundtable held at Harvard in May 2011, investigates critically the design, enactment, implementation, performance, and implications of this path-breaking application of economic thinking to environmental regulation. Ironically, cap and trade seems especially well suited to addressing the problem of climate change, in that emitted greenhouse gases are evenly distributed throughout the world’s atmosphere. Recent hostility toward cap and trade in debates about U.S. climate legislation may reflect the broader political environment of the climate debate more than the substantive merits of market-based regulation. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:8160721&r=env |
| By: | Emilio Calvo (ERI-CES); Santiago J. Rubio (ERI-CES) |
| Abstract: | This article provides a survey of dynamic models of international environmental agreements (IEAs). The focus is on environmental problems that are caused by a stock pollutant as are the cases of the acid rain and climate change. For this reason, the survey only reviews the literature that utilizes dynamic state-space games to analyze the formation of international agreements to control pollution. The survey considers both the cooperative approach and the noncooperative approach. In the case of the latter, the survey distinguishes between the models that assume binding agreements and those that assume the contrary. An evaluation of the state of the art is presented in the conclusions along with suggestions for future research. |
| Keywords: | Externalities; public goods; pollution; international environmental agreements; state-space dynamic games; differential games; cooperative and noncooperative games; trigger strategies |
| JEL: | C73 D62 H41 Q50 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0112&r=env |
| By: | Karp, Larry (University of California, Berkeley. Dept of agricultural and resource economics); Simon, Leo (University of California, Berkeley. Dept of agricultural and resource economics) |
| Abstract: | We examine the size of stable coalitions in a participation game that has been used to model international environmental agreements, cartel formation, R&D spillovers, and monetary policy. The literature to date has relied on parametric examples; based on these examples, a consensus has emerged that in this kind of game, the equilibrium coalition size is small, except possibly when the potential benefits of cooperation are also small. In this paper, we develop a non-parametric approach to the problem, and demonstrate that the conventional wisdom is not robust. In a general setting, we identify conditions under which the equilibrium coalition size can be large even when potential gains are large. Contrary to previously examined leading special cases, we show that reductions in marginal abatement costs in an international environmental game can increase equilibrium membership, and we provide a measure of the smallest reduction in costs needed to support a coalition of arbi- trary size. |
| Keywords: | stable coalitions, participation games, international environmental agreement, climate agreement, trans-boundary pollution, investment spellovers |
| JEL: | C72 H4 Q54 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1127&r=env |
| By: | Alberto Gago (Rede (Universidade de Vigo) and Economics for Energy); Michael Hanemann (Arizona State University and University of California at Berkeley); Xavier Labandeira (Rede (Universidade de Vigo) and Economics for Energy); Ana Ramos (Rede (Universidade de Vigo) and Economics for Energy) |
| Abstract: | Buildings are crucial to control present and future energy demand and, therefore, greenhouse gas concentrations in the atmosphere. In this chapter we suggest that, due to a number of general and specific barriers to the implementation of energy efficiency in buildings, energy prices and conventional energy and environmental policy instruments may not achieve the desired outcomes. Instead, we suggest a novel package of complementary measures that can simultaneously tackle the problems of imperfect information, split incentives among agents, uncertainty about cost and limited access to capital. The proposed policy package is defined around energy certification of buildings, uses flexible building codes, smart metering and employs a new tax on energy inefficiency to foster continuous incentives towards energy efficiency improvements and to provide revenues for an energy efficiency fund that provides capital to firms and poor households. |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:efe:wpaper:fa04-2012&r=env |
| By: | Bosetti, Valentina; Frankel, Jeffrey A. |
| Abstract: | A new climate change treaty must plug three gaps: the absence of emission targets extending far into the future, the absence of participation by the United States, China, and other developing countries, and the absence of reason to expect compliance. To be politically acceptable, it must obey certain constraints regarding country-by-country economic costs. We offer a framework to assign quantitative emission allocations, across countries, one budget period at a time. The two-part plan: (i) China and other developing countries accept targets at BAU in the coming budget period, the same period in which the US first agrees to cuts below BAU; (ii) all countries are asked in the future to make further cuts in accordance with a formula which sums a Progressive Reductions Factor, Latecomer Catch-up Factor, and Gradual Equalization Factor. An earlier proposal for specific parameter values in the formulas achieved the environmental goal that CO2 concentrations plateau at 500 ppm by 2100. It obeyed our political constraints: keeping the economic cost for every country below thresholds of Y=1% of income in Present Discounted Value, and X=5% of income in the worst period. In this paper we attain a concentration goal of 460 ppm CO2, but only by loosening political constraints. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:4735391&r=env |
| By: | Aldy, Joseph Edgar |
| Abstract: | Despite bipartisan interest in advancing American energy policy, comprehensive energy and climate legislation fell short in the Senate last year after passing in the House of Representatives in 2009. The difficulty of coming to broad agreement highlights the need for a more targeted and incremental approach. One promising intermediate step would be a technology-neutral national clean energy standard that applies to the U.S. power sector. This paper proposes a standard that would lower carbon dioxide emissions by as much as 60 percent relative to 2005 levels over twenty years, streamline the fragmented regulatory system that is currently in place, generate fiscal benefits, and help fund energy innovation. Through a simple design and transparent implementation, the National Clean Energy Standard would provide certainty about the economic returns to clean energy that would facilitate investment in new energy projects and lower the emission intensity of the power sector. It would also serve as an ambitious bridge to economy-wide energy and climate policy. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:4901643&r=env |
| By: | Sunghoon Chung (Southern Methodist University) |
| Abstract: | This paper studies how environmental regulation plays a role in shaping the pattern of outward foreign direct investment, and thereby assesses the pollution haven hypothesis. Empirical evidence for the pollution haven hypothesis has been inconsistent in the literature, possibly due to data aggregation across industries, clean technology innovation in advanced countries, factor endowment effects, unobserved heterogeneity, or endogeneity of environmental policies. To circumvent these problems, we exploit highly disaggregated industry-level panel data from South Korea along with an identification and estimation strategy that has been rarely used in prior studies. After dealing with such issues, we find strong evidence that polluting industries tend to invest more in countries with laxer environmental regulations. As a complementary evidence, we also find that environmentally lax countries tend to specialize in polluting industries when the same strategy is applied to South Korean import data covering the same sample countries, industries, and time periods. Theoretically, our findings are in line with a chain proposition of comparative advantage, also called the Quasi-Heckscher-Ohlin prediction. |
| Keywords: | pollution haven hypothesis, environmental regulation, comparative advantage, foreign direct investment, South Korea. |
| JEL: | F18 F23 Q56 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:1203&r=env |
| By: | Thureson, Disa (VTI – The Swedish National Road and Transport Research Institute) |
| Abstract: | In some cost benefit analysis (CBA) applications, as for example valuation of climate change damages, distributional weights are used to account for diminishing utility of marginal income. This is usually done by intratemporal distributional weights, which are combined with discounting to account for intertemporal equity and efficiency. Here, I show that this approach may introduce some inconsistencies in terms of path dependence. In short, this inconsistency means that regional economic growth is double counted. This is because income weighting is performed both through the discount rate and through the distributional weights, so that growth shows up twice in the weighting process. Using the PAGE2002 model it is found that the inconsistency problem in the original model erases the influence of distributional weights on the social cost of carbon dioxide (SCCO2), compared to a standard CBA approach. The proposed alternative approaches yield about 2040% higher values of SCCO2 than the old approach. |
| Keywords: | Distributional weights; Equity weights; Discounting; Cost benefit analysis; Marginal utility; Integrated assessment model; PAGE2002; Social cost of carbon; Climate change |
| JEL: | C69 H23 H43 Q54 |
| Date: | 2012–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2012_008&r=env |
| By: | Karp, Larry (University of California, Berkeley. Dept of agricultural and resource economics); Stevenson, Megan (University of California, Berkeley. Dept of agricultural and resource economics) |
| Abstract: | This paper studies the reality and the potential for green industrial policy. We provide a summary of the green industrial policies, broadly understood, for five countries. We then consider the relation between green industrial policies and trade disputes, emphasizing theBrazil-US dispute involving ethanol and the broader US-China dispute. The theory of public policy provides many lessons for green industrial policy. We select four of these lessons, involving the Green Paradox, the choice of quantities versus prices with endogenous investment, the coordination issues arising from emissions control, and theability of green industrial policies to promote cooperation in reducing a global public bad like carbon emissions. |
| Keywords: | green industrial policy, trade conflicts, green paradox, asymmetric information, coordination games, participation games |
| JEL: | F13 F18 H21 H23 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1126&r=env |
| By: | Geir H. Bjertnæs, Marina Tsygankova and ThomasMartinsen (Statistics Norway) |
| Abstract: | This study tests whether the strong double dividend hypothesis holds within a setting where a uniform tax on green house gas emissions is raised above the international quota price within the Norwegian economy. The hypothesis does not hold within a framework where detailed technology choices contribute to lower the revenue recycled back to households. The hypothesis, however, holds when local external effects connected to cuing and accidents etc. within the transport sector are taken into consideration. The hypothesis also holds when the international quota price is increased, and oil prices drop in the long run |
| Keywords: | Doublel dividend; emissions |
| JEL: | F41 H21 Q43 Q48 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:691&r=env |
| By: | Garth Heutel (University of North Carolina Greensboro) |
| Abstract: | Technical appendix for the Review of Economic Dynamics article |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:10-62&r=env |
| By: | Bell, William; Foster, John |
| Abstract: | The International Energy Association has observed that nearly all countries now offer or are planning feed-in tariffs (FiTs) for solar PV but debate has shifted from ‘if or how to implement a FiT’ to ‘how to move to a self-sustaining market post FiT’. The aim of this paper is to explain how a sustainable FiT can be designed for residential solar PV installations, focusing on the case of ‘solar rich’ Australia. Solar PV is approaching price parity at the retail level where the electricity price charged includes both transmission and distribution costs, in addition to the wholesale price. So the economic rationale for paying a FiT premium above market rates to achieve dynamic efficiency is no longer warranted. Socially, FiTs can be a problem because they tend to exacerbate social inequality by providing a transfer of wealth from poorer to richer households. Environmentally, FiTs can also fall short of their full potential to cut emissions if they lack ‘time of day’ price signals that reflect movements in the wholesale price. In this paper, we provide a framework in which a sustainable FiT can be designed that positively addresses all three areas of concern: social, environmental and economic. This framework identifies the market failures that exist in the residential solar PV electricity market, which include exacerbating inequity, poorly targeting myopic investment behaviour, inadequate transmission and distribution investment deferment price signals and inappropriate infant industry assistance. We argue that these market failures require addressing before the market can operate in an allocatively efficient manner. The sustainable FiT that we propose would lead to improvements in environmental, social and economic factors. The resultant transmission and distribution investment deferment would meet both environmental and economic objectives. Directly providing finance for solar PV installations would address both social equity and investment myopia. We argue that introducing appropriate pricing signals for solar PV installations via would be in the ongoing interest of all stakeholders. It is time to progress from FiTs focused on dynamics efficiency to a sustainable FiT that emphasises allocative efficiency as an explicit goal. |
| Keywords: | Feed-in tariffs; FiT; solar PV; residential solar PV; reverse auction FiT; parity; Levelised cost of energy; LCOE; Diffusion of innovations; dynamic efficiency; allocative efficiency; Sustainable; Social progress; Environmental protection; Social inequity; DUOS; TUOS; smart meters |
| JEL: | R22 O13 Q3 Q01 Q2 Q4 Q5 L94 R38 |
| Date: | 2012–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38861&r=env |
| By: | Libelula |
| Abstract: | El escaneo climático o climate screening es una herramienta que sirve para evaluar una política, programa o proyecto de desarrollo, a la luz de los impactos del cambio climático (actuales o potenciales). Su objetivo es identificar la vulnerabilidad de determinada(s) política(s), proyecto(s), programa(s) o iniciativa(s) ante los riesgos climáticos, y sugerir medidas de adaptación que permitan reducir el riesgo y aprovechar las oportunidades del cambio climático. |
| Keywords: | Medio ambiente y recursos naturales :: Cambio climático |
| JEL: | F0 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:66718&r=env |
| By: | Kip, Viscusi, W.; Zeckhauser, Richard Jay |
| Abstract: | The BP Deepwater Horizon oil spill highlighted the glaring weakness in the current liability and regulatory regime for oil spills and for environmental catastrophes more broadly. This article proposes a new liability structure for deep sea oil drilling and for catastrophic risks generally. It delineates a two-tier system of liability. The first tier would impose strict liability up to the firm’s financial resources plus insurance coverage. The second tier would be an annual tax equal to the expected costs in the coming year beyond this damages amount. A single firm will be identified as responsible for generating the risk. It would be required to demonstrate substantial ability to pay in the first tier before being permitted to engage in the risky activity. This structure provides for efficient deterrence for environmental catastrophes, since the responsible party is bearing in expectation the risks it is imposing. It also addresses the challenges posed by the fat-tailed distributions of catastrophic environmental risks and provides for more assured and adequate compensation of potential losses than current liability and regulatory arrangements. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5027954&r=env |
| By: | Czajkowski, Mikolaj; Hanley, Nicholas |
| Abstract: | For many years, stated preference researchers have been interested in the effects of information onwillingness to pay for environmental goods. Within the random utility model, information about anenvironmental good might impact on preferences and on scale (error variance), both between andwithin samples of choices. In this paper, we extend the G‐MNL model to investigate the effects ofdifferent information sets on choices over the management of biodiversity in the UK, looking specificallyat moorlands managed for red grouse shooting. Specifically, we make the individual scale parameter afunction of observable (dataset‐specific) characteristics. Our results show that changing information setsresults in significant differences in the mean scale between datasets, and in the variance of scale.Respondents are more deterministic in their choices and show lower within‐sample scale heterogeneityin the alternative information treatment. Changes in information provision also effect willingness to payestimates, reducing the value people place on the conservation of two iconic birds of prey. The methodsused will also be of interest to researchers who need to combine choice experiment data |
| Keywords: | choice modelling; information effects; scale; scale heterogeneity; G‐M; heather moorland management; raptor conservation; combined SP‐ |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2012-06&r=env |
| By: | Aldy, Joseph Edgar |
| Abstract: | The American Recovery and Reinvestment Act included more than $90 billion in strategic clean energy investments intended to promote job creation and promote deployment of low-carbon technologies. In terms of spending, the clean energy package has been described as the nation’s “biggest energy bill in history.†To provide a preliminary assessment of the Recovery Act’s clean energy package, this paper reviews the rationale, design, and implementation of the act. The paper surveys the policy principles for clean energy stimulus and describes the process of crafting the clean energy package during the 2008-2009 Presidential Transition. Then, the paper reviews the initial employment, economic activity, and energy outcomes associated with these energy investments and provides a more detailed case study on the Recovery Act’s support for renewable power through grants and loan guarantees. The paper concludes with lessons learned. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5688917&r=env |
| By: | Lee, Audrey; Bunn, Matthew G.; Catenacci, Michela; Anadon, Laura Diaz; Bosetti, Valentina |
| Abstract: | Dramatic growth in nuclear energy would be required for nuclear power to provide a significant part of the carbon-free energy the world is likely to need in the 21st century, or a major part in meeting other energy challenges. This would require increased support from governments, utilities, and publics around the world. Achieving that support is likely to require improved economics and major progress toward resolving issues of nuclear safety, proliferation-resistance, and nuclear waste management. This is likely to require both research, development, and demonstration (RD&D) of improved technologies and new policy approaches. To gather information on the RD&D needs for the future of nuclear energy, the future cost and performance of nuclear technologies, and on the major barriers to large-scale deployment of nuclear energy, a team of researchers at Harvard University and the Fondazione Eni Enrico Mattei (FEEM) conducted two coordinated surveys of nuclear experts. The surveys asked experts how much they would recommend that their governments spend on nuclear energy RD&D; what progress in cost and performance might be expected by 2030 if those recommendations were followed; and what other factors might constrain or promote future nuclear energy growth. Leading experts from the United States (U.S.) and the European Union (E.U.) participated in this expert elicitation surveys during the summer and fall of 2010. In April 2011, the FEEM and Harvard teams held a workshop in Venice, Italy with a subset of the participating E.U. and U.S. experts to present and discuss the results of the elicitations, in an effort to understand where there is consensus and where the most important disputes and uncertainties lie. Given the Fukushima nuclear accident in Japan, the meeting opened with a discussion of the significance of that event for the future of nuclear power, and of the main lessons learned. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:8160715&r=env |
| By: | Chandra, Amitabh; Wolfe, Barbara Elizabeth; Pollak, Seth D.; Hanson, Jamie L. |
| Abstract: | Facets of the post-natal environment including the type and complexity of environmental stimuli, the quality of parenting behaviors, and the amount and type of stress experienced by a child affects brain and behavioral functioning. Poverty is a type of pervasive experience that is likely to influence biobehavioral processes because children developing in such environments often encounter high levels of stress and reduced environmental stimulation. This study explores the association between socioeconomic status and the hippocampus, a brain region involved in learning and memory that is known to be affected by stress. We employ a voxel-based morphometry analytic framework with region of interest drawing for structural brain images acquired from participants across the socioeconomic spectrum (n = 317). Children from lower income backgrounds had lower hippocampal gray matter density, a measure of volume. This finding is discussed in terms of disparities in education and health that are observed across the socioeconomic spectrum. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5341872&r=env |
| By: | Kerr, Suzi (Motu Economic and Public Policy Research); Olssen, Alex (Motu Economic and Public Policy Research) |
| Abstract: | Rural land use is important for New Zealand’s economic and environmental outcomes. Using a dynamic econometric model and recent New Zealand data, we estimate the response of land use to changing economic returns as proxied by relevant commodity prices. Because New Zealand is small, export prices are credibly exogenous. We show that land use responses can be slow. Our result implies that policy-induced land-use change is likely to be slow or costly. |
| Keywords: | Land use, New Zealand, time series |
| JEL: | Q15 Q24 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:12_06&r=env |
| By: | Stephen P. Holland; Michael R. Moore |
| Abstract: | Cap and trade programs have considerable heterogeneity in permit validity and compliance timing. For example, permits have different validity across time (e.g., banking, borrowing, and seasons) and space (e.g., zonal restrictions), and compliance timing can be annual, in overlapping cycles, or in multi-year periods. We compare and contrast nine prominent cap and trade programs along these dimensions and construct a general model of permit validity and compliance timing. We derive sufficient conditions under which abatement is invariant to compliance timing, i.e., compliance timing cannot smooth abatement cost shocks. Under these conditions, i) expected compliance costs are invariant, ii) the variance of compliance costs increases with delayed compliance, iii) equilibrium prices may not be unique, and iv) the delayed compliance equilibrium may rely upon non-unique, “degenerate” prices not determined by marginal abatement costs. Degenerate prices are unlikely to be discovered by market forces. We then present two examples which are not invariant to compliance timing. If permit allocation is delayed or if a price cap is implemented with a reserve fund, abatement may depend on compliance timing. We demonstrate the model’s broad applicability by illustrating different types of temporal and spatial permit validity. |
| JEL: | H4 Q4 Q5 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18098&r=env |