Policy options for toxics disposal: Laissez-faire,subsidization, and enforcement

This paper evaluates three second-best policies for dealing with the problem of illegal hazardous-waste disposal. The first is a laissez-faire policy; the second is a policy under which legal disposal of hazardous waste is subsidized; the third is a policy that discourages illegal disposal by increasing the expected penalty associated with illegal disposal. Using a simple computational model, I compute the optimum subsidy and the optimum enforcement budget, and determine the conditions under which each policy option is superior to others.     

Double-dipping in environmental markets

There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double-dipping”, because it would make the provision of environmental services more profitable. In practice however, most programs do not allow double-dipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double-dipping can lead to greater social net benefits. We explore conditions under which a single-market policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.     

Optimal policy instruments for externality-producing durable goods under present bias

When consumers exhibit present bias, the standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities for present-biased consumers. Optimal policy includes an instrument to correct the externality and an instrument to correct the present bias. Either instrument can be an incentive-based policy (e.g. a tax on fuel economy) or a command-and-control policy (e.g. a fuel economy mandate). Under consumer heterogeneity, a command-and-control policy may dominate an incentive-based policy. Calibrated to the US automobile market, simulation results suggest that the second-best gasoline tax is 3–30% higher than marginal external damages. The optimal price policy includes a gasoline tax set about equal to marginal external damages and a fuel economy tax that increases the price of an average non-hybrid car by about $550–$2200 relative to the price of an average hybrid car.     

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.     

Ökonomisch-organisatorische Betrachtung der Klärschlammverwertung: Kosten — Nutzen — Ausstiegsszenarien

Goal and Scope

The controversial issue of disposing municipal sewage sludge on arable farmland and growing demand on derived fuels could result in a total or partial abandoning of sludge recycling as fertiliser. Alternative disposal strategies like incineration will cause complex changes. A material flow management framework is used to determine the economic-organisational consequences for public authorities, farmers, rural contractors, disposal firms, and population in Schleswig-Holstein.

Methods and Focus

The study is based upon network analysis, analysis of agricultural and wastewater statistics and interviews. After structuring the disposal process, transaction are used to derive costs of different disposal strategies. The purification technique of sewage plant and application of metal salts for precipitation affect the fertilising quality of sludge. Therefore, all plants are classified into 4 different technical groups with decreasing fertilising effect. Now, the amount of sludge and corresponding fertilising benefit is calculated both state wide and for typical farms. Finally costs of different disposal strategies are derived.

Results

Referring to sewage plants sludge disposal in Schleswig-Holstein is characterised by a local structure since less than 10% of all 841 sewage plants produce almost the entire sludge where as many small plants especially in rural areas produce only little amounts. Usually enriched with lime, dewatered sludge fulfilling legal limits is used as organic fertilizer. The number of transactions indicates the costs.

Discussion

To reduce transaction costs, disposal firms try to offer high quantities of sludge to a limited number of farmers. Due to purification technique, the fertilising effect of half the amount of total sludge is reduced. Compared to the total demand on phosphorous, sludge can only substitute up to 4% of phosphorous. Farmers can substitute up to 50% of mineral fertiliser and increase marginal income per hektare. Although changing disposal strategy to incineration would double economic costs, fee for wastewater would remain almost constant.

Conclusions

Small wastewater plants, farmers and rural contractors would be particularly affected by ceasing sludge disposal. Small wastewater plants would have to invest in dewatering equipment, rural contractors would lose an important market segment and farmers (only a small percentage of all farmers uses sludge) would lose additional income. Changing waste management from sludge disposal with many involved parties to e.g. incineration would considerably reduce transaction costs for authorities. In case of partly changing waste management strategy, whereas sludge of small plants could be recycled, the authorities would still have to plan and control the disposal process even for small quantities of sludge. Transaction costs do not decrease proportionally to the decreasing amount of sewage sludge.

Perspectives

Quality management systems initiated by disposal firms should increase the acceptance and prevent a ban of sludge recycling. Nevertheless, the waste market develops from material to energetic use of waste. Significant resources will be lost without a phosphorous recovering from sludge as well as from other organic waste.     

Directing technical change from fossil-fuel to renewable energy innovation: An application using firm-level patent data

In this paper we provide an analysis of directed technical change in the sector of electricity generation. We rely on patent data in fossil-fuel (FF) and renewable energy (REN) technologies for 5471 European firms over the 1978–2006 period. The novelty of our approach is in the focus on firm׳s heterogeneity in driving technological change. We make a distinction between small specialized firms, which innovate in only one type of technology, and large mixed firms, which innovate in both technologies, to analyse how REN patents can replace FF ones at the sector level both through a shift in innovation activities within existing firms and through firms׳ entry and exit. We use zero-inflated count data estimation techniques to identify the factors that affect specialized versus mixed firms׳ patenting behaviour both at the intensive (i.e., levels of innovation) and extensive (i.e., technological entry) margins. We further investigate the implications of our firm-level estimations for reducing the gap between REN and FF innovation at the aggregate level. We establish two key findings: (1) a decrease in the FF-REN technology gap mainly comes about through technological entry of specialized REN firms following an increase in REN market size; (2) increases in FF prices, FF market size, and FF knowledge stocks all increase the technology gap by increasing mixed firms FF innovation rates. An important implication of our results is that policies aimed at increasing REN innovation should focus on helping small firms to start and sustain innovation in the long-run.     

Prevention and cleanup of dynamic harm under environmental liability

This paper explores incentives for accident prevention and cleanup when firms are subject to environmental liability. In our two-period setup, the level of environmental harm in the second period depends on first-period harm when cleanup was incomplete. Under strict liability, in the first period, firms with a positive probability of going out of business before the second period have inadequate prevention and cleanup incentives. The fundamental disconnect between private incentives and social optimality cannot be remedied by using a multiple of harm as the level of compensation. Under negligence with a causation requirement, incentive problems remain; however, under negligence without such a requirement, first-best incentives may emerge, and using a multiple of harm as the level of compensation can ensure the efficient solution.     

Environmental policy with collective waste disposal

Centralized collection and disposal is an integral component of waste management strategies for many solid and liquid wastes, and carbon capture and storage is currently being considered for gaseous waste. In this paper we show how collective waste disposal systems introduce essential changes in the design of optimal environmental policy. Absent collective disposal, an optimal environmental policy imposes relatively stringent regulations on polluters in regions where local environmental damage functions are “high”; however, under collective waste disposal, the optimal environmental policy level increases monotonically over distance from the disposal site, and this is true irrespective of the degree of spatial heterogeneity in local environmental damage functions. We characterize the optimal spatial pattern of environmental policy levels under collective waste disposal and identify optimal membership size for waste disposal networks comprised of homogeneous producers.     

Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax

This paper extends the Mirrlees (1971) model of optimal income redistribution with optimal corrective taxes to internalize consumption externalities. Using general utility structures and exploring both linear and non-linear taxes, it is demonstrated that the optimal second-best tax on an externality-generating good should not be corrected for the marginal cost of public funds, since it equals one in the optimal tax system. In the optimum, distortions of income taxes are equal to marginal redistributional gains. If the government does not have access to a non-distortionary marginal source of finance, the marginal cost of public funds can be either larger or smaller than one depending on subjective preferences for income redistribution. The optimal second-best corrective tax is then either higher or lower than the Pigouvian level. The findings in this paper generalize and amend prior results based on representative-agent models, shedding new light on the weak double-dividend hypothesis, and on the welfare gains of recycling revenue from environmental taxes.     

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.     

Implikationen der landwirtschaftlichen Klärschlammverwertung Status quo und Perspektiven

Goal and Scope

At all times animal as well as human excrements have been used as organic fertilizers. Disposing of municipal sewage sludge on arable farmland means saving mineral fertilizer to conserve the exhaustible resource phosphorus; one can consider this kind of recycling management as a contribution to a sustainable regional development. However, the use of sludge implies a significant release of pollutants. Hence, in Germany as well as internationally, this is a controversial issue and therefore it needs to be re-evaluated under consideration of regional circumstances.

Methods

A material flow management framework is used to first analyse toxic, fertilizing and legal aspects of the ‘sludge metabolism’ in Schleswig-Holstein, including involved participants. Then, the treatment of waste water as well as potential and actual recycling of domestic sewage sludge are regionally compared. The study is based on a survey of the municipal waste water treatment plants which serve more than 10.000 people including population equivalence; these plants cover about 94% of the sewage sludge in Schleswig-Holstein.

Results and Conclusions

After taking the phosphorus of manure into account, the modelled potentials of recycling on the scale of districts do not correspond with the actual use of sludge in agriculture. The disposal firms recycle the sludge where they can get the highest profit. By minimizing transaction costs, lager recycling distances can be compensated. The potential of phosphorus recycling is limited. The calculated state-wide amount is not more than 10% of the total phosphorus demand of the arable land, so the benefit is less important for the national economy. On the other hand, there is a significant discharge of pollutants mainly into the soil, where apart from copper and cadmium, the charge through sewage sludge is higher than through mineral fertilizer and manure. In addition, the risk of pollutants with endocrine disrupters is difficult to estimate.

Outlook

In respect of the net ecological effects, thermal utilization of sewage sludge, e.g. in clinker works, coal-fired power stations or waste incineration plants, combined with previous or additional phosphorus recovery from cinder, meets the criteria of sustainable material flows more than its use on arable land. Even though these disposal options are still more expensive, law induced adjustment of the waste market and more strict land application regulations will reduce their price differences. This will make a middle-term change from the agricultural use to a thermal recycling of sewage sludge possible to avoid soil impacts and fulfil the requirements of a sustainable development.     

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.     

The effects of pricing waste generation: A synthetic control approach

To internalize pollution externalities into household waste generation, Unit Pricing Systems (UPS) have been adopted worldwide. This paper evaluates the causal effects of a UPS on the disposal of municipal solid waste in Trento, Italy. Using a unique panel dataset of monthly waste generation in Italian municipalities, we employ the synthetic control method, which allows us to account for possible time-varying effects of unobservables. Our results show that the policy was effective, with a significant decrease of the priced waste stream, unsorted waste, by 37.5%. This effect seems to be largely driven by behavioral changes towards waste avoidance (−8.6%) and possibly by a smaller increase in recycling (+6.1%). By comparing these results to those obtained by a difference-in-differences approach, we show that failing to account for time-varying effects of unobservables may lead to a mismeasurement of policy effects.     

Environmental policy and misallocation: The productivity effect of intensity standards

Firm-level idiosyncratic policy distortions misallocate resources between firms, lowering aggregate productivity. Many environmental policies create such distortions; in particular, output-based intensity standards (which limit firms energy use or emissions per unit of output) are easier for high-productivity firms to achieve. We investigate the productivity effect of intensity standards using a tractable general-equilibrium model featuring multiple sectors and firm-level heterogeneity. Qualitatively, we demonstrate that intensity standards are always inferior to uniform taxes, as they misallocate both dirty and clean inputs across firms and sectors, which lowers productivity. Quantitatively, we calibrate the model to US data and show that these productivity losses can be large.     

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.     

Is Chinese trade policy motivated by environmental concerns?

This paper analyses whether China's export VAT rebates and export taxes are driven by environmental concerns. Since China struggles to enforce environmental regulation, trade policy can be used as a second-best environmental policy. In a general equilibrium model it is possible to show that the second-best export tax increases in a product's pollution intensity. The empirical analysis investigates whether the export tax equivalent of partial VAT rebates and export taxes are higher for products which are more pollution intensive along several dimensions. The results indicate that the VAT rebate rates are set in a way that discourages exports of water pollution intensive, SO₂ intensive and energy intensive products from 2007 on. Moreover, the conservation of natural resources such as minerals, metals, wood products and precious stones seems to be a key determinant of China's export VAT rebate rates. There is little evidence that export taxes are motivated by environmental concerns.     

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.     

Damos: Twenty Years of Dredged Material Disposal Site Monitoring. Isn'st That Enough?

Since 1977, the US Army Corps of Engineers Disposal Area Monitoring System (DAMOS) has monitored New England's offshore dredged material disposal sites. DAMOS has shown that by using monitoring information to make management decisions, open water disposal of dredged sediments is possible with minimal environmental impact. Over the past two decades, DAMOS has answered many of the key questions about dredged material impacts. Yet the need for such a programme remains strong from both the technical and public interest perspectives. the programme continues to monitor projects that are extending our knowledge in the areas of deeper water capping, geotechnical behaviour of capping and capped materials, and biological response to contaminants. These investigations, along with the need for specific disposal site surveys, will continue to provide valuable technical information needed by the public, policy makers, and regulators to make critical decisions on dredged sediment management.     

Two-goal environmental policy: An integration of micro and micro ad hoc decision rules

A method of predicting and comparing the immediate impact of different environmental policies and of selecting the optimal policy is suggested in this paper. The degradation of water quality by a polluting industry is used to demonstrate this approach. Aggregation over this industry consists of firms with “putty clay” properties in production, and credit constraints in the capital market generate the macrorelations. The macrorelations which depend on the level of the policy variables are expressed in terms of probabilities and moments of the distribution of the microrelations and are used for different planning purposes.