Incentives and prices in an emissions trading scheme with updating

Emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. Nevertheless, according to Böhringer and Lange [On the design of optimal grandfathering schemes for emission allowances, Europ. Econ. Rev. 49 (2005) 2041–2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms. In this paper, we show that the cost-effective solution may be infeasible if marginal abatement costs grow too fast. Moreover, if a price cap or banking/borrowing is introduced, the abatement profile is no longer the same as in the case with an auction (or lump-sum allocation). In addition, we show that with allocation based on updated emissions, the quota price will always exceed marginal abatement costs, possibly misguiding policy makers and investors about abatement costs. Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned.     

Environmental policy with upstream pollution abatement technology firms

This paper examines how the existence of an upstream abatement technology sector affects optimal environmental policy. We explore whether the policy should be especially stringent in order to spur a successful export industry based on abatement technology. Furthermore, we investigate if a stringent policy can be used to increase competition in the upstream sector. Our point of departure is a three-stage game between a government in a country with a polluting downstream industry, and a limited number of upstream firms supplying abatement technologies. The government moves first, and may use its environmental policy strategically to influence the behavior of the upstream technology firms. We find that an especially stringent environmental policy towards the polluting downstream sector may be well founded, as it increases competition between the technology suppliers, leading to lower abatement costs. However, to our surprise, an especially stringent environmental policy is not a particularly good industrial policy with respect to developing successful new export sectors based on abatement technology.     

Interactive pollutants and joint abatement costs: Achieving water quality standards with effluent charges

This paper extends earlier work on the standards and prices approach to pollution control by considering simultaneously spatial considerations, interactive pollutants, and joint abatement costs. The form of environmental constraints appropriate to water pollution problems is discussed in detail and the implications for the standards and prices approach to water pollution control are assessed. The presence of interactive pollutants and joint abatement costs is shown to have important implications for both the theoretical properties and the implementation of the standards and prices approach.     

Re-evaluating the role of energy efficiency standards: A behavioral economics approach

The economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities are typically based on the neoclassical model of rational consumer choice. Yet, consumer behavior in markets for energy-using durables is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” This paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self-control, introduced by Gul and Pesendorfer 23 and 24. We find that, in the presence of temptation, (i) Pigovian taxes alone do not yield a first-best outcome, (ii) when viewed as substitutes, energy efficiency standards can dominate Pigovian taxes, and (iii) a policy combining standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone, implying that the two instruments should be viewed as complements rather than substitutes.     

Incentives to diffuse advanced abatement technology under environmental liability law

Polluting firms with advanced abatement technology at their disposal have incentives or disincentives to share this technology with other polluting firms. The ‘direction’ and extent of those incentives depends on the liability rule applicable and the way technical change impacts marginal abatement costs. We establish that incentives for diffusion are socially optimal under strict liability and socially suboptimal under negligence if technical change lowers marginal abatement costs for all levels of abatement. Negligence may, however, induce better diffusion incentives than strict liability if technical change decreases (increases) marginal abatement costs for low (high) levels of abatement.     

International environmental agreements with consistent conjectures

We introduce consistent conjectures into Barrett (1994) canonical model of international environmental agreements. The existing literature assumes inconsistent Nash conjectures, despite the fact that policymakers recognize that abatement levels are strategic substitutes and increases in abatement generate carbon leakage. With consistent conjectures much of the conventional wisdom is reversed. The non-cooperative abatement level is below the Nash equilibrium. The difference between Nash and consistent conjectures is greatest when benefits are large and costs are small. We find that large coalitions cannot form. However, small coalitions can result in substantial increases in abatement relative to the non-cooperative outcome.     

Income inequality and willingness to pay for environmental public goods

We study how the distribution of income among members of society, and income inequality in particular, affects social willingness to pay (WTP) for environmental public goods. We find that social WTP for environmental goods decreases (increases) with income inequality if and only if environmental goods and manufactured goods are substitutes (complements). We derive adjustment factors for benefit transfer to control for differences in income distributions between a study site and a policy site. For illustration, we quantify how social WTP for environmental public goods depends on the respective income distributions for empirical case studies in Sweden and the World at large. We find that the adjustment for income inequality can be substantial.     

The optimal pricing of pollution when enforcement is costly

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms’ abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators’ actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms’ abatement costs or monitoring costs.     

Pesticide resistance externalities and optimal mosquito management

A simultaneous equation model of the behavior of a mosquito abatement district based on biological and economic data is presented. Results indicate high long term costs if heavy reliance on chemical pesticide control methods continue, due to a pesticide resistance buildup in the mosquito populations. Physical source reduction methods were shown to be more efficient both in the short and long run. A linear programming model is presented which optimizes the inix of chemical and physical control methods. Results indicate increasing costs of mosquito abatement as pesticide effectiveness declines.     

Incomplete Information and Incentives to Free Ride on International Environmental Resources

This paper studies free-riding incentives on common environmental resources in an incomplete information repeated game where abatements are perishable and perfect substitutes. Two contrasting types of perfect Bayesian equilibria emerge: For high discount factors, or low discount factors but “pessimistic” prior beliefs, the inclusion of incomplete information has no impact on the pattern of abatements. Otherwise the countries attempt to use their private information strategically and the game becomes a war of attrition. This generates an outcome where the “pessimistic” country unilaterally abates forever, and another which involves delay until the first abatement if both countries are “optimistic”.     

Environmental policy choice with an uncertain chance of irreversibility

An uncertain chance of irreversibility leads to lower levels of investment than in the reversible case if there is downward irreversibility, higher levels of investment if there is upward irreversibility, and a possible effect in either direction in the case of complete irreversibility. In all of these situations there will be an effect on initial policy investments whenever there is a nonzero probability that the irreversibility constraint is binding. The policy design is based on equating initial marginal costs to conditional marginal benefits over the states in which the initial policy scale decision will be the policy choice. The maximum attainable policy value is convex with respect to the probability of irreversibility.     

Plant vintage, technology, and environmental regulation

We use data on productivity and pollution abatement costs at individual pulp and paper mills to test whether the impact of environmental regulation on productivity differs by plant vintage and technology. Plants with higher pollution abatement costs have significantly lower productivity levels. This relationship differs greatly based on a plant's technology, with productivity at integrated mills being greatly affected by abatement costs, while the impact at non-integrated mills is negligible. Plant vintage does not seem to matter, with older and newer plants showing similar impacts. Reported abatement costs appear to substantially understate the true costs of abatement. Accounting for the impact of technology differences makes some difference in the estimated overall impact of environmental regulation.     

Complementarity,impatience, and the resilience of natural-resource-dependent economies

We study how society's preferences affect the resilience of economies that depend on more than one type of natural resource. In particular, we analyze whether the degree of complementarity of natural resources in consumer preferences may give rise to multiple steady states and path dependence even when resources are managed optimally. We find that, for a given social discount rate, society tends to be less willing to buffer exogenous shocks if resource good are complements in consumption than if they are substitutes. The stronger the complementarity between the various types of natural resources, the less resilient the economy is, and even more so the higher is the social discount rate.     

Enforcement and price controls in emissions trading

This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome.     

Instrument Choice When Regulators and Firms Bargain

We compare outcomes with an emissions tax and an emissions standard when a firm and regulator engage in cooperative bargaining over the stringency of the regulation. Bargaining is motivated by giving the firm a choice of abatement technologies. If the firm's preferred technology differs from the regulator's, the first-best outcome is not an equilibrium of the traditional noncooperative game in which the regulator is a Stackelberg leader. The regulator may therefore choose to offer the firm a more lenient regulation if it agrees to switch technologies. We find that the resulting bargaining outcomes differ for a tax and a standard even though information is symmetric, and we identify conditions under which each instrument yields lower social costs.     

A note on permits, standards, and technological innovation

Montero (J. Environ. Econom. Manage. 44 (2002) 23) contrasts the incentives to invest in new abatement technologies under different regulatory instruments and argues that one needs to consider the induced output effects that derive from lower abatement costs. Montero shows that, once one takes into account these effects on output, command-and-control instruments can generate stronger incentives to innovate than market-based instruments. This result rests on strategic output effects under command-and-control. However, he maintains that, under perfectly competitive conditions, market-based instruments will continue to weakly dominate command-and-control regulation. This note clarifies two issues raised by Montero. First, I use Montero's approach to show that in fact performance (concentration) standards will generate greater incentives to innovate than market-based instruments in perfectly competitive markets. One does not require strategic effects to get this result. Second, Montero abstracts from production costs and concentrates solely on abatement costs. He implicitly assumes that marginal production costs are constant. I show that some of Montero's results change once increasing marginal production costs are considered. When marginal costs are increasing, the benefit of additional output is tempered and market-based instruments again look more favorable.     

The feasibility of processing lead-based paint abatement wastes through primary and secondary lead smelters

This study was undertaken to determine the feasibility of processing soil and lead-based paint (LBP) abatement waste through primary and secondary lead smelting facilities. The main objectives were to determine the compatibility of soil and LBP abatement waste with lead smelting circuits; the costs associated with transporting and processing the abatement waste through a smelter; and a review of major environmental laws or regulations which may impact the lead smelting industry's ability to carry out this process. While not all categories of LBP wastes are suited for reclamation through lead smelters, sufficient classes are to make the effort worthwhile. Specifically, lead paint chips, dusts, heatgun sludge, soils and certain blasting abrasives appear metallurgically compatible with the lead smelting circuits. Additionally, there do not appear to be any current regulatory statutes that forbid the process from being carried out, so long as certain permit modifications are obtained. Finally, the estimated smelting costs seem to compare favourably with current treatment and disposal fees at approved landfills. However, despite the promise of these initial findings, a great deal of work remains to be done if the concept of processing lead paint wastes through lead smelters for reclamation is to become a reality.     

The abatement of major pollutants in air and water by environmental catalysis

This review reports the research progress in the abatement of major pollutants in air and water by environmental catalysis. For air pollution control, the selective catalytic reduction of NO _x (SCR) by ammonia and hydrocarbons on metal oxide and zeolite catalysts are reviewed and discussed, as is the removal of Hg from flue gas by catalysis. The oxidation of Volatile organic compounds (VOCs) by photo- and thermal-catalysis for indoor air quality improvement is reviewed. For wastewater treatment, the catalytic elimination of inorganic and organic pollutants in wastewater is presented. In addition, the mechanism for the procedure of abatement of air and water pollutants by catalysis is discussed in this review. Finally, a research orientation on environment catalysis for the treatment of air pollutants and wastewater is proposed.     

Negotiating a voluntary agreement when firms self-regulate

Does self-regulation improve social welfare? We develop a policy game featuring a regulator and a firm that can unilaterally commit to better environmental or social behavior in order to preempt future public policy efforts. We show that the answer depends on the set of policy instruments available to the regulator. Self-regulation improves welfare if the regulator can only use mandatory regulation, but it reduces welfare when the regulator opts for a voluntary agreement. This suggests that self-regulation and voluntary agreements are not good complements from a welfare point of view. We derive policy implications, and extend the basic model in several dimensions.     

珠三角地区POPs农药的污染现状及控制对策

概述了中国及国际社会对持久性有机污染物（Persistent Organic Pollutants,POPs）的关注情况。并通过对POPs农药在珠江三角洲地区（Pearl River Delta Area,PRD）使用情况的调查，以及对珠江三角洲地区POPs农药在各环境介质中的污染现状的文献综述，结合环境污染数据以及POPs农药污染调查工作中得到的数据和信息，对该地区POPs污染的可能原因和环境中可能存在的新近污染源进行了初步探讨。同时也指出了当前珠江三角洲地区在POPs农药削减与淘汰工作中所遭遇到的缺乏完善的管理体系等困难，并针对问题提出了包括加大科研投入，加强基础研究，掌握污染物来源和去向，加强替代药物的研究，建立和实施更严格的环境法规以及标准，加强环境监测能力建设，建立POPs农药污染的信息公开机制等一系列的控制对策。