Emissions standards and ambient environmental quality standards with stochastic environmental services

Many important environmental policies involve some combination of emission controls and ambient environmental quality standards, for instance SO₂ emissions are capped under Title IV of the U.S. Clean Air Act Amendments while ambient SO₂ concentrations are limited under National Ambient Air Quality Standards (NAAQS). This paper examines the relative performance of emissions standards and ambient standards when the natural environment provides stochastic environmental services for assimilating pollution. For receiving media characterized by greater dispersion in the distribution of environmental services, the optimal emissions policy becomes more stringent, whereas the optimal ambient policy generally becomes more lax. In terms of economic performance, emissions policies are superior to ambient policies for relatively non-toxic pollutants, whereas ambient standards welfare dominate emissions standards for sufficiently toxic pollutants. In the case of combined policies that jointly implement emissions standards and ambient standards, we show that the optimal level of each standard relaxes relative to its counterpart in a unilateral policy, allowing for greater emissions levels and higher pollution concentrations in the environmental medium.     

Emissions standards and ambient environmental quality standards with stochastic environmental services

Many important environmental policies involve some combination of emission controls and ambient environmental quality standards, for instance SO₂ emissions are capped under Title IV of the U.S. Clean Air Act Amendments while ambient SO₂ concentrations are limited under National Ambient Air Quality Standards (NAAQS). This paper examines the relative performance of emissions standards and ambient standards when the natural environment provides stochastic environmental services for assimilating pollution. For receiving media characterized by greater dispersion in the distribution of environmental services, the optimal emissions policy becomes more stringent, whereas the optimal ambient policy generally becomes more lax. In terms of economic performance, emissions policies are superior to ambient policies for relatively non-toxic pollutants, whereas ambient standards welfare dominate emissions standards for sufficiently toxic pollutants. In the case of combined policies that jointly implement emissions standards and ambient standards, we show that the optimal level of each standard relaxes relative to its counterpart in a unilateral policy, allowing for greater emissions levels and higher pollution concentrations in the environmental medium.     

An Empirical Analysis of Exposure-Based Regulation to Abate Toxic Air Pollution

Title III of the 1990 Clean Air Act Amendments requires the Environmental Protection Agency to regulate 189 air toxics, including emissions from by-product coke ovens. Economists criticize the inefficiency of uniform standards, but Title III makes no provision for flexible regulatory instruments. Environmental health scientists suggest that population exposure, not necessarily ambient air quality, should motivate environmental air pollution policies. Using an engineering-economic model of the United States steel industry, we estimate that an exposure-based policy can achieve the same level of public health as coke oven emissions standards and can reduce compliance costs by up to 60.0%.     

Tell the truth or not? The montero mechanism for emissions control at work

We experimentally test the truth-telling mechanism proposed by Montero (2008) for eliciting firms' abatement costs. We compare this mechanism with two well-known alternative allocation mechanisms, free and costly allocation of permits at the Pigouvian price. Controlling for the number of firms and the firms' maximal emissions, we find that, in line with the theoretical predictions, firms over-report their maximal emissions under free allocation of permits and under-report these under costly allocation of permits. Under Montero's mechanism, by contrast, firms almost always report their maximal emissions truthfully. However, in terms of efficiency, the difference between Montero's mechanism and costly allocation disappears with industries including more than one firm.     

Estimation of the cost of air pollution control regulation

Estimates of hydrocarbon pollution control costs under the alternative regulatory approaches of individual source or process standards, plant standards, and regionally marketable permits are presented. The estimates are obtained from data supplied by the DuPont Company based on a 1976 in-house engineering study. The estimation procedure is unique in that the data are based on uniform percentage control across sources while the estimated cost equations allow variable control at each source. The cost simulations show that considerable cost savings are available from allowing firms more flexibility in meeting a given environmental standard. The effect of plant relocation and monopoly in the pollution permit market are also investigated.     

Analysis of the current situation of environmental policy of China and establishment of distributed environmental policy framework

In this study, China’s current macro-environmental policies as well as their implementation and management tools are analyzed. By using the basic economic methodology, detailed studies are conducted focusing on the implementation effect of contemporary China’s typical environmental policy of the total pollutant discharge quantity control type, and also the two types of environmental management tools are compared from the perspective of implementation costs and policy uncertainty. By introduction of distributed management tools into the implementation of environmental policies, market-oriented means and the methods of economic analysis are introduced into environmental policy decision-making mechanisms, which could afford a new method for changing the current relatively low efficiency of environmental policy, solving the problem of “government failure” in environmental policy implementation, and providing a new way to make environmental policy system more flexible and more efficient. It is of great practical significance to solve China's current structural, complex and accumulative environmental problems.     

The policy implications of non-convex environmental damages: A smog control case study

Nitrogen oxides and hydrocarbons react to form atmospheric ozone, but, for given concentrations of either one, increasing amounts of the other give rise to declining increments of ozone. Thus, the damage functions from hydrocarbon and nitrogen oxide emissions are non-convex. A case study of control strategies in the New York metropolitan regions show that, because control costs rise so steeply for both pollutants, a cost-effective approach is to control emissions of both, despite the non-convexities. However, the loss function, for deviations from the least-cost strategy, lies well within the range of scientific uncertainty regarding precursor-ozone relationships, and the least-cost strategy choice is highly sensitive to small changes in the relative control costs. Therefore, decisions regarding controls on these emissions, especially nitrogen oxide emissions, should be based also on other considerations, such as the reduction in acid deposition.     

A synthesis of current knowledge on forests and carbon storage in the United States

Using forests to mitigate climate change has gained much interest in science and policy discussions. We examine the evidence for carbon benefits, environmental and monetary costs, risks and trade-offs for a variety of activities in three general strategies: (1) land use change to increase forest area (afforestation) and avoid deforestation; (2) carbon management in existing forests; and (3) the use of wood as biomass energy, in place of other building materials, or in wood products for carbon storage. We found that many strategies can increase forest sector carbon mitigation above the current 162-256 Tg C/yr, and that many strategies have co-benefits such as biodiversity, water, and economic opportunities. Each strategy also has trade-offs, risks, and uncertainties including possible leakage, permanence, disturbances, and climate change effects. Because approximately 60% of the carbon lost through deforestation and harvesting from 1700 to 1935 has not yet been recovered and because some strategies store carbon in forest products or use biomass energy, the biological potential for forest sector carbon mitigation is large. Several studies suggest that using these strategies could offset as much as 10-20% of current U.S. fossil fuel emissions. To obtain such large offsets in the United States would require a combination of afforesting up to one-third of cropland or pastureland, using the equivalent of about one-half of the gross annual forest growth for biomass energy, or implementing more intensive management to increase forest growth on one-third of forestland. Such large offsets would require substantial trade-offs, such as lower agricultural production and non-carbon ecosystem services from forests. The effectiveness of activities could be diluted by negative leakage effects and increasing disturbance regimes. Because forest carbon loss contributes to increasing climate risk and because climate change may impede regeneration following disturbance, avoiding deforestation and promoting regeneration after disturbance should receive high priority as policy considerations. Policies to encourage programs or projects that influence forest carbon sequestration and offset fossil fuel emissions should also consider major items such as leakage, the cyclical nature of forest growth and regrowth, and the extensive demand for and movement of forest products globally, and other greenhouse gas effects, such as methane and nitrous oxide emissions, and recognize other environmental benefits of forests, such as biodiversity, nutrient management, and watershed protection. Activities that contribute to helping forests adapt to the effects of climate change, and which also complement forest carbon storage strategies, would be prudent.     

Cointegration and causality: considering Iberian economic activity sectors to test the environmental Kuznets curve hypothesis

Few studies have attempted to study the environmental Kuznets curve (EKC) hypothesis at the individual sector level using more than one sector at once. This paper investigates the existence of the EKC hypothesis in the Iberian countries (Portugal and Spain) using thirteen economic activity sectors for each, analyzing each individual sector’s cointegration and causality relationships considering carbon dioxide (CO2) emissions, sector gross value added and energy consumption. The findings of this paper using the autoregressive distributed lag (ARDL) approach only validate cointegration in six Portuguese sectors and in five of the Spanish sectors. Results confirm both short- and long-run bi-directional and unidirectional causality between economic growth, energy consumption and CO2 emissions, using the error correction model (ECM) and Toda and Yamamoto’s causality approaches. Moreover, results for Portuguese and Spanish sectors indicate an inverted U-shaped relationship only for one sector each. In some sectors there was evidence of a U-shaped relationship and in others the EKC hypothesis could be verified but no statistical significance was obtained. The study has significant contributions for sector policy, including implications to curtail energy pollutants by implementing environmental friendly regulations to sustain economic development at the sector level in the Iberian market. It also allows inferences to be made about the existence of different behaviors in comparative terms for the same economic activity sectors of the individual countries.     

Emissions targets and the real business cycle: Intensity targets versus caps or taxes

For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.     

Emissions targets and the real business cycle: Intensity targets versus caps or taxes

For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.     

Environmental policy for spatial and persistent pollutants

Traditional economic models of alternative pollution policies notwithstanding, all discharges are persistent to some degree (assimilation is not instantaneous), and their distributions vary spatially. Utilizing an optimal control framework to capture the dynamics of persistence, the efficiency of economic incentives and regulations are juxtaposed when the goal is to obtain arbitrary environmental standards at least social cost. For generality, the considered pollutant is regarded as spatially variant, and standards are allowed to differ among regions. Theoretically optimal policy parameters are derived. As in the case of spatial, nonpersistent discharges, the property of persistance alone is demonstrated to invalidate the typically maintained economic advantage of price-guided policies over regulatory policies.     

Uniformity versus differentiation in regulating externalities

In the regulation of pollutant emissions, a regulator may treat different sources (with different costs and environmental damage) as though they were the same—for institutional, informational, or transaction cost reasons. This may occur despite the efficiency gains from regulatory differentiation of sources. This issue has been a source of much controversy in the environmental economics literature and is examined here from a theoretical perspective. Using a two pollutant economy, emissions and net social benefits are compared for the case of efficient, differentiated regulation and the case of uniform, undifferentiated regulation of the aggregate of the two pollutants. We show when aggregate emissions will be greater than, equal to, or less than efficient emissions and we derive conditions for each of these three possibilities. Further, we show that when marginal costs and benefits become more steeply sloped, the inefficiency associated with undifferentiated regulation increases.     

Analysis of the trade-off between economic growth and the reduction of nitrogen and phosphorus emissions in the Poyang Lake Watershed, China

Lake eutrophication leading to water pollution is a major global concern. In recent years, rapid economic growth and the increase in the intensity of resource exploitation in China have caused the influx of nitrogen and phosphorus into lakes. This in turn has led to more severe lake eutrophication, more frequent outbreaks of algal blooms, and the degradation of lake ecosystems. An effective plan balancing economic growth with the reduction of nitrogen and phosphorus emissions is greatly needed. The design and implementation of such a plan requires the collection and analysis of pertinent data. In this paper, we use the environmental computable general equilibrium (ECGE) model to identify the most effective way to balance economic growth with the reduction of nitrogen and phosphorus emissions. For the multiregional analysis, we use social accounting matrices (SAMs) and a provincial trade matrix based on the assumptions of the gravity model. We consider the Poyang Lake Watershed as a case study to illustrate the utility of the model. Based on present conditions in the Poyang Lake Watershed, restricting nitrogen and phosphorus emissions from sectors with the highest emissions is more effective for balancing economic growth and the reduction of nitrogen and phosphorus emissions than restricting nitrogen and phosphorus emissions from all sectors.     

Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion

We develop a framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology. "Market-based" and "command-and-control" approaches can he quantitatively compared by estimating the economic penalty that firms, through their actions, reveal to be associated with violation of standards. In the context of concerns about global climate change, we empirically examine the likely effects of Pigouvian taxes, technology adoption subsidies, and technology standards. We employ state-level data on the diffusion of thermal insulation in new home construction, comparing the effects of energy prices, insulation cost, and building codes.     

Die externen Kosten der Stromerzeugung aus erneuerbaren Energien im Vergleich zur fossilen Stromerzeugung

Aim and Background

The supply and use of energy is related to environmental impacts, which cause significant economic damage. As these costs are not reflected in the price of energy, there is little incentive for the polluter to reduce the pressure on the environment. From an economic point of view, environmental resources and services are used beyond the optimal level. The quantification of external costs has been an area of intensive research, in particular within the series of ExternE projects funded by the European Commission. Although external cost estimates have been successfully used to support European environmental legislation, the assessment of external costs is still a matter of significant uncertainties — in particular in areas were potential large environmental impacts are expected. In spite of uncertainty and limited knowledge, policy needs to require guidelines for the evaluation of energy and environmental policy measures.

Main Features

Based on a critical review of the current literature, recommendations for the quantification of external costs from renewable electricity generation in comparison to fossil nuclear technologies are derived.

Results and Discussion

Current electricity market prices do not reflect the total costs of electricity generation. Quantifiable external costs from fossil electricity generation are in the same order as private generation costs. The internalisation of external costs will improve the competitiveness of renewable energy technologies. To avoid market distortion, policy shall implement framing conditions supporting the further internalisation of external costs.

Conclusions

Costs for supporting renewable energy via the German feed-in tariffs are compensated for by external costs avoided.

Perspectives

Fossil and nuclear energies are more expensive than is teflected by economical quantification. In contrast, the costs for renewable energies tell the truth even today. The sooner the external costs are integrated in the pricing, the sooner the relaunch of energy supply will attract interest, also from the economic point of view.     

Evaluating the Potential for Conservation Development: Biophysical, Economic, and Institutional Perspectives

Abstract:  The widespread conversion of rural land to low-density residential development poses an immediate threat to biodiversity and to the provision of ecosystem services. Given that development will continue and environmental stakes are high, analyzing alternative growth strategies is critical. Conservation development is one such strategy that has the potential to benefit ecosystems and diverse stakeholders including developers, homebuyers, governments, and society as a whole. Conservation development clusters homes on one part of a property to manage the most ecologically important land for the conservation of biodiversity and ecosystem services. We draw on lessons learned from landscape ecology, open-space development, and regional planning to weigh the biophysical, economic, and institutional evidence for and against conservation development. Conservation development offers many potential environmental and economic advantages: relatively high home values and appreciation rates, lower development costs, and social and ecological benefits to society including landscape connectivity, protection and active stewardship of important ecological assets, and the maintenance of ecosystem services. But this approach also has shortcomings: it may require enlightened institutional regulations and regional planning (and/or ecologically aware developers), it is not always more profitable than conventional development and thus may require subsidies or incentives, and additional research is required to fully understand its benefits and drawbacks. With more information on the effects of clustering, the development of flexible zoning laws, and effective regional planning, conservation development could be a viable strategy for sustaining biodiversity and ecosystem services in changing landscapes.     

Pollution incidence and political jurisdiction: evidence from the TRI

Few issues are more contentious for local communities than industrial pollution. When local industries pollute, lawmakers and regulators must balance two primary concerns: economic prosperity and the environment. The role of political pressure is well documented in environmental policy. What is less clear is the role jurisdictional or boundary considerations play in determining the implementation of environmental laws. Anecdotal evidence suggests that local regulators are more lenient in their treatment of polluters when the incidence of pollution falls partially on those outside the state. One explanation for such behavior is that regulators take actions to maximize political support. This paper tests this jurisdictional model using toxics release inventory (TRI) data from 1987 to 1996. We find that facilities’ emissions into the air and water are systematically higher in counties that border other states. These results are consistent with the hypothesis that jurisdictional considerations are an important determinant of pollution incidence.     

Statistical hypothesis testing formulations for U.S. environmental regulatory standards for ozone

Environmental regulatory standards are intended to protect human health and environmental welfare. Current standards are based on scientific and policy considerations but appear to lack rigorous statistical foundations and may have unintended regulatory consequences. We examine current and proposed U.S. environmental regulatory standards for ozone from the standpoint of their formulation and performance within a statistical hypothesis testing framework. We illustrate that the standards can be regarded as representing constraints on a percentile of the ozone distribution, where the percentile involved depends on the defined length of ozone season and the constraint is stricter in regions with greater variability. A hypothesis testing framework allows consideration of error rates (probability of false declaration of violation and compliance) and we show that the existing statistics on which the standards are based can be improved upon in terms of bias and variance. Our analyses also raise issues relating to network design and the possibilities of defining a regionally based standard that acknowledges and accounts for spatial and temporal variability in the ozone distribution.