Costs of alternative environmental policy instruments in the presence of industry compensation requirements (original) (raw)
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This paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution-related industries be compensated for potential losses of profit from the pollution regulation. Using analytically and numerically solved equilibrium models, we compare the incidence and economy-wide costs of emissions taxes, fuel (intermediate input) taxes, performance standards and
Connecting Pollution Abatement Costs to the Dynamics of Economic Instruments for Pollution Control
2012
The paper focuses on identifying relevant connexions between the most popular economic instruments for pollution control (environmental taxes, compliance fees, subsidies, deposit-refund schemes and tradable permits) and the main components of the aggregate pollution abatement curve (the cost of direct damage curve, the cost of avoiding damage curve, the cost of compliance curve and the cost of pollution control curve). Also, the paper emphasizes which are the main constraints in using effective economic instruments aimed to ensure both the decrease of the aggregate pollution abatement costs, as well as the reduction of the maximum allowable pollution level.
Journal of Applied Economics, 2009
We analyze the cost of enforcing a system of firm specific emissions standards vis a vis a transferable emissions permit system in the context of complete and incomplete information. We also examine the optimality of a transferable emissions permit system when abatement costs and enforcement costs are considered. We show that under incomplete information, regulation based on each firm-specific emissions standards cannot be less costly than a transferable emissions permit system. In addition, we find that the distribution of emissions that minimize aggregate program costs differ from the distribution of emissions generated by a competitive transferable emissions permit system. JEL classification codes: L51, Q28, K32, K42
The optimal pricing of pollution when enforcement is costly
Journal of Environmental Economics and Management, 2009
We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms' abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms' abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic that is known to be jointly distributed with either the firms' abatement costs or their monitoring costs. In many pollution control settings, especially those that have been subject to various forms of environmental regulation in the past, regulators are not likely to be so ill-informed about individual firms. In these settings, policies that set or generate a uniform pollution price like conventional designs involving uniform taxes and competitive emission trading with freely-allocated or auctioned permits will not be efficient.
1998
This paper employs analytical and numerical general equilibrium models to examine the costs of achieving pollution reductions under a range of environmental policy instruments in a second-best setting with pre-existing factor taxes. We compare the costs and overall efficiency impacts of emissions taxes, emissions quotas, fuels taxes, performance standards, and mandated technologies, and explore how costs change with the magnitude of pre-existing taxes and the extent of pollution abatement.
Emission Taxes And The Design Of Refunding Schemes
We examine how emission taxes should be refunded to firms in order to create optimal incentives to invest in cleaner technologies. Since refunds cannot be made dependent on investments, an alternative way is to give back taxes to firms according to market shares. We show that universally applicable refunding schemes must be linear in market shares. Moreover, a socially optimal tax/tax refunding scheme exists if pollution is proportional to output and firms compete à la Cournot. If short-term abatement technologies exist, tax/tax refunding schemes can still provide second-best allocations. If firms are price takers, however, refunding taxes according to market shares is harmful. Since imperfect competition is a prominent phenomenon in many polluting industries, the design of socially optimal refunding schemes is an essential part of environmental regulation.
Rand Journal of Economics, 1997
This paper examines the choice between revenue-raising and non-revenue-raising instruments for environmental protection in a second-best setting with pre-existing factor taxes. We find that interactions with pre-existing taxes fundamentally influence the costs of regulation and seriously militate against pollution abatement policies that do not raise revenue. Indeed, if the marginal environmental benefits from pollution reductions are below a certain threshold value, then any amount of pollution abatement through non-revenue-raising (NRR) policies like emissions quotas is efficiency-reducing.
Pollution taxes and standards: A continuum of quasi-optimal solutions
Journal of Environmental Economics and Management, 1983
A generalized second-best problem, involving a perfectly competitive industry which produces a pollution type of externality, is examined. The pollution tax is allowed to assume an arbitrary value (possibly zero), while a pollution standard, set as a ratio of pollution to output, is determined by a first-order optimizing condition. The general condition for a set of quasi-optimal solutions includes the Paretooptimal solution as a special case. It is also found that when the pollution tax is below the optimal level, the usual implication is that the standard should be set so that the marginal cost of pollution reduction exceeds the marginal external damage.
The Cost of Meeting Emission Reduction Targets: Pollution Permits
ZEW Economic Studies, 1999
A market for pollution permits is created when a limited amount of "property rights" on emissions are distributed to economic agents. These represent a "right to pollute", proportional to the amount of property rights owned by the agent. These rights can be traded between economic agents (and between ED countries). 24 The rights are distributed according to a grandfathering principle. An economic agent then has to compare the cost of reducing emissions below its endowment, to the benefit from selling his permits to the market. At the equilibrium point, the permit price will be equal to the marginal cost of abatement. The pollution permits case (PP) does not assume any accompanying macroeconomic policy that would aim at removing some other distortion and at obtaining additional gains from that removal. Five different scenarios aiming at emission reduction of CO 2 ranging from 5%-25% have been constructed given the names PP5-PP25. A coordinated policy has been assumed, where the permits are traded between all European sectors and households in order to realise the percentage reduction of total CO 2 emissions. 24 A theoretical description of pollution pennits is provided in a previous chapter.