Further Results on Permit Markets with Market Power and Cheating

This paper examines a market for pollution permits in which one firm has market power and one or more firms is noncompliant. I show that the firm with market power may choose to hold more permits than it needs, effectively retiring permits from the market. I also show that some noncompliance may be socially desirable because it can mitigate the distortion caused by market power. Similarly, some degree of market power may be socially desirable because it can, in turn, mitigate the distortion caused by noncompliance.     

Voluntary corporate environmental initiatives and shareholder wealth

Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA's Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.     

Voluntary corporate environmental initiatives and shareholder wealth

Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA's Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.     

Self-Reporting and the Design of Policies for Regulating Stochastic Pollution

Existing environmental regulations frequently require firms to self-report their compliance status to regulatory agencies. Using a principal-agent framework, I derive and compare incentive-compatible regulatory policies with and without self-reporting. I find the firm needs to be audited less often when self-reporting is required, but punished more often. The sign and magnitude of the gains from self-reporting depend on the relative size of audit and sanction costs, the accuracy of the regulator′s monitoring technology, and the desired level of abatement effort.     

On optimal audit mechanisms for environmental taxes

We consider the auditing problem of an environmental enforcement agency with fixed audit resources: How to decide which firms to audit after having observed the firms' taxable emissions reports. The goal of the agency is to implement the socially efficient emissions level. The audit mechanism is the agency's sole choice variable, while other variables such as the tax rate on emissions and the fine for non-compliance are determined by other governmental actors. The fines and budget of the agency are constrained in such a way that the common random audit mechanism fails to implement socially efficient emissions. Assuming perfect information among the firms, we derive an optimal audit mechanism capable of implementing the socially efficient emissions level. The optimal audit mechanism creates a contest exploiting the strategic interdependencies between the firms, where the probability of winning (not being audited) for each firm depends on costly efforts (their taxable emissions reports).     

Willingness to pay to improve domestic water supply in rural areas of Central Tanzania: Implications for policy

This analysis estimates willingness to pay to improve community-based rural water utilities in the Dodoma and Singida Regions of Central Tanzania, using Multinomial Logit functions. An estimate of willingness to pay provides an indication of the demand for improved services and potential for them being sustainable. Surveys were conducted in a total of 30 villages in the two regions. In the Dodoma Region, about 14% of respondents indicated that they were satisfied with the status quo, 64% suggested increasing water discharge and watering points, and 22% proposed other improvements relating to water quality. In the Singida Region, 31% of the respondents were satisfied with the status quo, 59% wanted deeper boreholes and watering points, and 10% indicated other types of improvement relating to water quality. The Multinomial Logit functions indicated that the interaction between the water quality variable and proposed bids were important in making choices with reference to the type of improvement desired. Respondents who wanted to increase water supply in Dodoma Region were willing to pay 32 Tsh above the existing tariff of 20 Tsh/bucket. In the Singida Region, the analogous amount was 91 Tsh per household per year above the existing user fee of 508 Tsh per household per year. If the tariff or user fees have to be increased, the estimated average potential revenue for the surveyed villages was 252 million Tsh/year (US$265 263) in the Dodoma Region, and 5.2 million Tsh/year (US$5474) in the Singida Region. In the future, strategic planning is needed to ensure that improvements proposed potentially improve cost recovery initiatives and increase the level of consumer satisfaction. Also, care will be needed to ensure that more disadvantaged community members do not suffer unduly from increases in tariff or user fees.     

漓江上游纳污最适总量及水质变化规律研究

为确保 2 0 0 0 - 2 0 10年桂林漓江上游进入城区水质能保持国家II类水质标准进行纳污总量控制及其水质变化规律研究。采用系数法对 2 0 0 0 - 2 0 10年陆源排污总量进行科学预测 ,按河流功能区划要求 ,首次利用动态数学模型计算河流在不同流量、不同纳污总量条件下保持II类水质的最适纳污值 ,探讨了漓江水质变化规律。为环境管理打下基础     

Good news for environmental self-regulation? Finding the right link

We investigate the stock market response to firm disclosure of positive environmental information and the link from that information to environmental outcomes. We classify environmental media releases by informational content and value relevance, and assess the abnormal stock returns of each type of event. While announcements of future environmental activities lead to the largest favorable stock market reactions, there is no guaranteed link from this type of information to environmental outcomes. Further analysis of the abnormal returns shows that the magnitude of the stock market reaction depends on firm financial characteristics across all event types rather than on firm environmental performance. Our results indicate that the ability for voluntary environmental information disclosure to induce environmental self-regulation is limited to the extent that firms are able to follow through with their announcements of planned environmental activities.     

“十一五”期间中国化学需氧量减排与水环境质量变化关联分析

化学需氧量是中国主要污染物总量控制指标之一。分析化学需氧量排放变化及减排形势对今后化学需氧量及其他污染物减排具有借鉴意义。在分析＂十一五＂期间中国化学需氧量减排趋势和水环境质量变化趋势的基础上,定量和定性地考察两者之间的关系。结果表明：＂十一五＂期间化学需氧量排放量呈下降趋势,但生活化学需氧量排放量比重有所上升,中西部地区排放量下降趋势比东部地区要小;化学需氧量减排目标顺利实现,其中,工业源是减排主体,东部地区对减排贡献最大;中国地表水环境质量逐步改善,高锰酸盐指数质量浓度累计下降31.9%,Ⅰ～Ⅲ类水质断面比例累计提高14.4个百分点。无论是全国尺度还是流域尺度,随着化学需氧量排放量的减少,地表水水质均出现不同程度的改善,两者表现出一定程度的正相关关系,但是部分流域存在污染物排放总量与环境质量变化不完全协同的现象。     

Geologic processes influence the effects of mining on aquatic ecosystems

Geologic processes strongly influence water and sediment quality in aquatic ecosystems but rarely are geologic principles incorporated into routine biomonitoring studies. We test if elevated concentrations of metals in water and sediment are restricted to streams downstream of mines or areas that may discharge mine wastes. We surveyed 198 catchments classified as "historically mined" or "unmined," and based on mineral-deposit criteria, to determine whether water and sediment quality were influenced by naturally occurring mineralized rock, by historical mining, or by a combination of both. By accounting for different geologic sources of metals to the environment, we were able to distinguish aquatic ecosystems limited by metals derived from natural processes from those due to mining. Elevated concentrations of metals in water and sediment were not restricted to mined catchments; depauperate aquatic communities were found in unmined catchments. The type and intensity of hydrothermal alteration and the mineral deposit type were important determinants of water and sediment quality as well as the aquatic community in both mined and unmined catchments. This study distinguished the effects of different rock types and geologic sources of metals on ecosystems by incorporating basic geologic processes into reference and baseline site selection, resulting in a refined assessment. Our results indicate that biomonitoring studies should account for natural sources of metals in some geologic environments as contributors to the effect of mines on aquatic ecosystems, recognizing that in mining-impacted drainages there may have been high pre-mining background metal concentrations.     

Eutrophication status and control strategy of Taihu Lake

The water quality and eutrophication status of Taihu Lake in recent years are presented and the pollution trends are analyzed. It is shown that because of unreasonable industrial structures, pollution discharge per GDP is high within the Taihu basin, and the pollution discharge from point and non-point sources exceed the basin’s environmental carrying capacity. Especially, excessive pollutants containing nitrogen and phosphorus are being discharged. Moreover, eutrophication may also result from internal pollution sources such as the release of nutrient elements from sediment. All these factors have resulted in the water quality deterioration of Taihu Lake. To solve this environmental problem, possible control strategies are summarized, including the control of internal pollution sources and inflow-river pollution, ecological restoration and reconstruction of the degraded lakeside zone ecosystem, clean water diversion, dredging, and manual algae removal.     

Stochastic Pollution, Permits, and Merger Incentives

Pollution permit regulations introduce nonlinearities into the objective function of a polluting firm. We develop a microeconomic model to show the effects these nonlinearities might have upon firm decisions when emissions are stochastic. Under perfect competition the fraction of planned pollution covered by permits is shown to be separable from planned production. We also demonstrate that permit management incentives may motivate a merger of otherwise independent firms. Incentives to petition for “bubble” coverage are also considered. The model is studied under risk neutrality and risk aversion. Imperfectly competitive situations in the output and permit markets are also analyzed.     

Heterogeneous firms and the environment: a cap-and-trade program

Currently, cap-and-trade programs are a cornerstone of many countries' climate change policies and proposals. This paper investigates the economic and environmental effects of different climate change policy designs in a general equilibrium setting with heterogeneous firms and monopolistic competition. The analysis predicts that the cap on emissions perfectly defines the environmental quality but has no effect on firms' profits, or decisions to enter or exit the market. In contrast, increasing the share of free allocations of emission allowances, as opposed to auctions, has no effect on environmental quality but reallocates resources among firms toward the most productive ones which has an impact on firms' entry and exit decisions, the mass of firms, and the composition of the market. Firm heterogeneity magnifies these economic effects of changes in the initial allocation of allowances. The paper provides a decomposition of the change in aggregate emissions which takes account of the changes at sector level, across the firms within a sector, and at the firm level.     

Transferable discharge permits and economic efficiency: The fox river

Recent emphasis on reforms of environmental regulation has led to suggestions for strategies which maintain environmental standards but allow the needed flexibility and cost effectiveness. The transferable discharge permit (TDP) is one such strategy for water pollution control recently adopted in Wisconsin. In this article, the potential for substantial cost savings from trading TDPs is demonstrated using data on the Fox River in Wisconsin. A simulation model of water quality (Qual-III) and a linear programming model of abatement costs determine the optimum pattern of discharge. Reaching that optimum from proposed pollution abatement orders is shown to be feasible. Varying conditions of flow and temperature can be accommodated using trade coefficients which can be accurately estimated through interpolation. The calculations demonstrate the value and feasibility of flexible regulations governing water pollution abatement.     

Firms' and states’ responses to laxer environmental standards

On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms’ incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.     

Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System

The literature on noncompliant firms in transferable emissions permit systems offers little guidance to policymakers that must determine how to commit resources to monitor firms and punish violations in such systems. We consider how a budget-constrained enforcement authority that seeks to minimize aggregate noncompliance in a transferable emissions permit system should allocate its monitoring and enforcement efforts among heterogeneous firms. With a conventional model of firm behavior in a transferable permit system, we find that differences in the allocation of monitoring and enforcement effort between any two types of firms should be independent of differences in their exogenous characteristics.     

Do plants’ emissions respond to ambient environmental quality? Evidence from the clean water act

In this paper we show that plants respond to downstream ambient water quality after controlling for permitted levels of pollution. We find if past water quality declines by one percent, plants reduce current pollution by 0.35 percent. The magnitude of this coefficient is comparable to the coefficient on permitted discharge levels i.e. regulatory stringency itself. Results are consistent with two mechanisms. First, a decline in water quality may lead to more stringent permits that would raise the cost of abatement of a plant significantly. Second, the plant is likely to be subject to increased public pressure in response to poor water quality. Indeed, as expected, the impact of water quality becomes stronger in locations with higher median household income, higher percent carpooling to work, or lower percent of manufacturing employment but surprisingly with lower median age of residents, lower percent with bachelor׳s degree or higher percent of families with children.     

Temporal dimension and water quality control in an emission trading scheme based on water environmental functional zone

Emission trading is one of the most effective alternatives to controlling water pollution. Water environmental functional zone (WEFZ) is used to determine the water quality standard and identify the zone boundary for each river or reach. In this study, a new emission trading scheme was addressed based on WEFZ, accounting for both the temporal dimension and water quality control. A temporal factor of emission trading was proposed based on variations in the environmental capacity within a year by dividing the year into three periods, including high, normal, and low periods of environmental capacity. During each period, emission trading was implemented exclusively. A water quality-control scheme was suggested based on the water quality requirement in the water functional zone, in which the water quality at the downstream boundary of the zone was required to meet the water standard following auto-purification in the stream. Two methods of calculating water quality control are addressed for point-source pollution and non-point-source pollution. The calculated temporal dimension and water quality control were located in Dongxi River of the Daning Watershed in the Three Gorges Watershed. The high period was during June, July, and August, the normal period was during April, May, September, and October, and the low period was during January, February, March, November, and December. The results from the water quality calculation demonstrated that the discharge of point-source and non-point-source pollutions led to an excess of common contaminants at the downstream boundary of WEFZ. The temporal and spatial factors above should be incorporated into the emission trading scheme based on WEFZ.     

A political economy model of implementing pollution laws

A model of the implementation process as applied in pollution control is developed. It differs from previous bureaucracy models in that it subjects the control agency to pressures from both firms and procontrol citizen groups. Each of these three actors maximizes utility over environmental quality and some other variable. Environmental quality may be in the actor's preference function or it may represent derived demand. Working through the agency budget and other policy variables, each actor constrains another actor's attempts to move policy in preferred directions. This results in movement toward a concensus environmental quality, not necessarily the efficient quality. Several institutional changes are analyzed to demonstrate the workings of the model.     

长江镇江段COD排放量控制的环境效益分析

在镇江金东造纸工程环境影响评价中，提出了长江镇江段全江段ＣＯＤ排放量控制方案，通过模式进行分段定量计算，分析了工程实施所造成的环境损失和实施区域排放量控制所产生的环境效益。结果表明，拟用控制方案环境效益显著，其实施将明显改善内江江段和畅洲江段南汊的水环境质量；金东造纸工程选址合理，充分利用了大港江段水环境容量大的优势，其实施所造成的环境损失较小。考虑到污染负荷削减的环境效益，对我国实施污染物排放总量控制提出了４条建议。