Tying enforcement to prices in emissions markets: An experimental evaluation

We present results from laboratory emissions permit markets designed to investigate the transmission of abatement cost risk to firms' compliance behavior and regulatory enforcement strategies. With a fixed expected marginal penalty, abatement cost shocks produced significant violations and emissions volatility as predicted. Tying the monitoring probability to average permit prices effectively eliminated noncompliance, but transmitted abatement cost risk to monitoring effort. Tying the penalty to average prices reduced violations, but did not eliminate them. Some individuals in these treatments sold permits at low prices, presumably in an attempt to weaken enforcement. While tying sanctions directly to prevailing permit prices has theoretical and practical advantages over tying monitoring to prices, our results suggest that tying sanctions to prices may not be as effective as predicted without additional modifications.     

Property prices and the value of amenities

Implicit hedonic prices of amenities are estimated by means of a study of the variation in house prices in Sydney. The results include estimated hedonic prices for aircraft noise, road traffic, road widening, good views, spacious streets, good access to shops, and high quality neighborhoods. Since hedonic prices are the response of the market at the margin to supply as well as demand forces, they do not necessarily reflect average household willingness to pay prices. However, the paper concludes that they provide a basis from which the values of amenities to be used in benefit cost studies can be estimated.     

Achieving air pollutant emission reduction targets with minimum abatement costs: An enterprise-level allocation method with constraints of fairness and feasibility

• Quantification of efficiency and fairness of abatement allocation are optimized. • Allocation results are refined to the different abatement measures of enterprises. • Optimized allocation results reduce abatement costs and tap the abatement space. • Abatement suggestions are given to enterprises with different abatement quotas. For achieving air pollutant emission reduction targets, total pollutant amount control is being continuously promoted in China. However, the traditional pattern of pollutant emission reduction allocation regardless of economic cost often results in unreasonable emission reduction pathways, and industrial enterprises as the main implementers have to pay excessively high costs. Therefore, this study adopted economic efficiency as its main consideration, used specific emission reduction measures (ERMs) of industrial enterprises as minimum allocation units, and constructed an enterprise-level pollutant emission reduction allocation (EPERA) model with minimization of the total abatement cost (TAC) as the objective function, and fairness and feasibility as constraints for emission reduction allocation. Taking City M in China as an example, the EPERA model was used to construct a Pareto optimal frontier and obtain the optimal trade-off result. Results showed that under basic and strict emission reduction regulations, the TAC of the optimal trade-off point was reduced by 46.40% and 45.77%, respectively, in comparison with that achieved when only considering fairness, and the Gini coefficient was 0.26 and 0.31, respectively. The abatement target was attained with controllable cost and relatively fair and reasonable allocation. In addition, enterprises allocated different emission reduction quotas under different ERMs had specific characteristics that required targeted optimization of technology and equipment to enable them to achieve optimal emission reduction effects for the same abatement cost.     

Airport noise, location rent, and the market for residential amenities

The present study reports on the influence of aircraft noise on housing prices in the vicinity of six major U.S. airports, including San Francisco, St. Louis, Cleveland, New Orleans, San Diego, and Buffalo. The sampling procedures attempt to control for the effect of accessibility on location rent, and hence, housing prices. Regression results are reported for the individual samples and for a pooled sample consisting of 845 observations. The regression coefficients for aircraft noise are stable about their weighted mean and are comparable to coefficient estimates from the pooled sample. Dummy variables and partitioned regressions are used to test for remaining accessibility effects.     

Fuel prices and new vehicle fuel economy—Comparing the United States and Western Europe

Several recent papers have documented an effect of fuel prices on new vehicle fuel economy in the United States. This paper estimates the effect of fuel prices on average new vehicle fuel economy for the eight largest European markets. The analysis spans the years 2002–2007 and uses detailed vehicle registration and specification data to control for policies, consumer preferences, and other potentially confounding factors. We find fuel prices to have a statistically significant effect on average new vehicle fuel economy in Europe. The effect estimated for Europe is much smaller than comparable estimates for the United States.     

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.     

Market design in cap and trade programs: Permit validity and compliance timing

Cap and trade programs have considerable heterogeneity in permit validity and compliance timing. For example, permits have different validities 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 discuss 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 the delayed compliance, (iii) equilibrium prices may not be unique, and (iv) the delayed compliance equilibrium may rely on “degenerate” prices not determined by marginal abatement costs. We demonstrate the model's broad applicability by illustrating different types of temporal permit validity.     

Robust technology policy against emission leakage: The case of upstream subsidies

Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage, which hampers countries’ welfare. In order to limit leakage, governments consider supporting domestic trade-exposed firms by subsidizing their investments in abatement technology. The suppliers of such technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced technologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage.     

The effects on electricity prices in england and wales of notional sulphur dioxide emission standards for power stations

Reducing emissions of sulphur dioxide from the electricity industry in England and Wales would require application of abatement technology and raise electricity prices through increases in marginal supply costs. Capital and operating costs of alternative abatement techniques and their application under possible long-term investment and retirement plans for the industry are discussed. An approximate halving of projected emissions is found to have an effect of the order of 5% on prices under the existing tariff structure. Reductions of up to one-fifth are found to have an effect of under 1% on electricity prices.     

Carbon leakage: Grandfathering as an incentive device to avert firm relocation

Emission allowances are sometimes distributed for free in an early phase of a cap-and-trade scheme to reduce adverse effects on the profitability of firms. This paper investigates whether grandfathering can also be used to avert the relocation of firms to countries with lower carbon prices. We show that under certain conditions, relocation can be averted in the long run, even if the grandfathering scheme is phased out over time and immediate relocation is profitable in its absence. This requires that the permit price triggers sufficient investments into low-carbon technologies or abatement capital that create a lock-in effect which makes relocation unprofitable.     

Alternative transportation fuel standards: Welfare effects and climate benefits

This paper develops an integrated model of the fuel and agricultural sectors to analyze the welfare and greenhouse gas emission (GHG) effects of the existing Renewable Fuel Standard (RFS), a Low Carbon Fuel Standard (LCFS) and a carbon price policy. The conceptual framework shows that these policies differ in the incentives they create for the consumption and mix of different types of biofuels and in their effects on food and fuel prices and GHG emissions. We also simulate the welfare and GHG effects of these three policies which are normalized to achieve the same level of US GHG emissions. By promoting greater production of food-crop based biofuels, the RFS is found to lead to a larger reduction in fossil fuel use but also a larger increase in food prices and a smaller reduction in global GHG emissions compared to the LCFS and carbon tax. All three policies increase US social welfare compared to a no-biofuel baseline scenario due to improved terms-of-trade, even when environmental benefits are excluded; global social welfare increases with a carbon tax but decreases with the RFS and LCFS due to the efficiency costs imposed by these policies, even after including the benefits of mitigating GHG emissions.     

Carbon abatement in the fuel market with biofuels: Implications for second best policies

A carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels. Since biofuel production competes for land with agricultural production, a carbon tax could increase land rents and raise food prices. This paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax, with and without a biofuel subsidy. The market impacts of a carbon tax are also compared with that of a subsidy. Findings show that if a carbon tax increases biofuel demand, the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base. Thus, the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix, especially if biofuel is subsidized.     

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.     

Emission standards and price distortion

A simple model is presented which demonstrates that emission standards can either reduce or increase the distortions inherent in preregulatory relative prices. This model is used in conjunction with data for controlling air pollution in the St. Louis airshed under a least-cost set of emission standards. By applying a heuristic formula, it is concluded that this set of standards is distortion neutral. Although there is reason to believe that conventional emission standards are distortion reducing, it is clear that Pigouvian fees achieve technical efficiency in abatement as well as the elimination of price distortion.     

29 % N2O emission reduction from a modelled low-greenhouse gas cropping system during 2009–2011

Atmospheric concentration of nitrous oxide (N₂O), a greenhouse gas (GHG), is rising largely due to agriculture. At the plot scale, N₂O emissions from crops are known to be controlled by local agricultural practices such as fertilisation, tillage and residue management. However, knowledge of greenhouse gas emissions at the scale of the cropping system is scarce, notably because N₂O monitoring is time consuming. Strategies to reduce impact of farming on climate should therefore be sought at the cropping system level. Agro-ecosystem models are simple alternative means to estimate N₂O emissions. Here, we combined ecosystem modelling and field measurements to assess the effect of agronomic management on N₂O emissions. The model was tested with series of daily to monthly N₂O emission data. It was then used to evaluate the N₂O abatement potential of a low-emission system designed to halve greenhouse gas emissions in comparison with a system with high productivity and environmental performance. We found a 29 % N₂O abatement potential for the low-emission system compared with the high-productivity system. Among N₂O abatement options, reduction in mineral fertiliser inputs was the most effective.     

Carbon trading across sources and periods constrained by the Marrakesh Accords

We examine the potential effects on permit prices and abatement costs of four compliance rules governing emissions trade across sources and periods in the Kyoto Protocol: The banking rule that allows excess permits to be used later; the restoration rate rule that penalizes borrowing; the commitment period reserve rule that limits sales; and finally, the suspension rule that restricts borrowing and sales. Our framework is a two-period model where parties may be out of compliance in the Kyoto period, but are assumed to comply at a later time. Under varying assumptions about market power and US participation, we find that the rules may have pronounced effects on individual costs, but overall efficiency is not severely affected.     

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.     

Nash Implementation of a Proportional Solution to International Pollution Control Problems

For a very general class of pollution control models involving strictly quasi-concave utility functions over consumption and environmental quality and strictly convex emission abatement cost functions, a proportional cost sharing mechanism is presented inspired by the ratio equilibrium introduced by7. It is shown that the proportional solution yields a cost efficient allocation of abatement efforts and that the resulting utility imputation always lies in the stand alone core of the cost sharing game. In order to decentralize the proportional cost sharing equilibrium, a financial compensation mechanism implementing the proportional solution in complete information Nash equilibrium is presented.     

Cost-effective unilateral climate policy design: Size matters

Given the bleak prospects for a global agreement on mitigating climate change, pressure for unilateral abatement is increasing. A major challenge is emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess antileakage measures as a function of abatement coalition size. We first develop a partial equilibrium analytical framework to see how these instruments affect emissions within and outside the coalition. We then employ a computable general equilibrium model of international trade and energy use to assess the strategies as the coalition grows. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and output-based rebates. The differences across measures and their overall appeal decline as the abatement coalition grows. In terms of cost, the coalition countries prefer border carbon adjustments; countries outside the coalition prefer output-based rebates.