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.     

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.     

Tax evasion and optimal environmental taxes

This paper introduces a new argument to the debate about the role of environmental taxes in modern tax systems. Some environmental taxes, particularly taxes on gasoline or electricity, are more difficult to evade than taxes on labor or income. When the tax base is shifted in a revenue-neutral manner toward these environmental taxes, the result is a net reduction in the amount of tax evasion. Using a carbon tax as a motivating example, the “tax evasion effect” is shown to sharply reduce the welfare cost of controlling emissions. A simple computable general equilibrium model suggests that the impact of considering tax evasion can be large: costs are lowered by 28% in the United States, by 89% in China, and by 97% in India. In countries with high levels of pre-existing tax evasion, a carbon tax will pay for itself through improvements in the efficiency of the tax system.     

Emissions cap or emissions tax? A multi-sector business cycle analysis

We develop a multi-sector business cycle model to analyze stochastic implications of reducing CO₂ emissions with carbon permits or with carbon taxes in the presence of multiple sources of macroeconomic uncertainty. The model is calibrated to reflect the U.S. experience. As in previous studies, using a single-sector version of our model, we find that the cap regime generates lower volatility of real variables than the tax regime, but the latter may be preferable from the welfare perspective. Still, our multi-sector analysis points to the importance of the origin of the shocks in the ranking of the two instruments and to the desirability of going beyond a single-sector analysis in evaluating their merits. We find no significant difference between the cap and the tax regimes when shocks come from non-energy sectors. In contrast, the cap has lower volatility but higher welfare costs than the tax for the shocks to energy production.     

Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation

Earlier papers have recognized that nonenvironmental benefits will be realized if pollution taxes are substituted for other taxes which impose efficiency losses on society. The purpose of this paper is to investigate the importance of these nonenvironmental benefits for the design of an efficient pollution tax. It is found that the efficient tax may be higher or lower than that conventionally defined as optimal, and that the net benefit from unrestrained pollution can have important implications for the size of the tax.     

A Note on Environmental Federalism: Interpreting Some Contradictory Results

This paper reconciles some conflicting interpretations of recent literature on interjurisdictional environmental regulatory competition.[6], [7]present a model in which competition to attract investment by lowering environmental standards leads to a Pareto-optimal equilibrium. [3]; and [4]describe a model in which such competition can result in a suboptimal Nash equilibrium. While it would be possible to draw opposite policy implications from the two models regarding the appropriate degree of environmental federalism, such a conclusion would be incorrect. This paper reconciles the different results by showing that they depend in large part on monopoly profits and tax exporting, not the nature of the pollution externality or environmental federalism.     

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.     

Optimal quasi-market choice in the presence of pollution externalities

When the relationship between emissions and ambient pollution is known, it is possible to implement a program to achieve economically efficient pollution levels, even when the control agency knows nothing about the victim's valuation of pollution damages or about emission abatement costs. Unlike a Pigouvian tax, the program provides the correct incentives for entry and exit whether or not marginal damages from a firm's emissions vary over the range of these emissions. Through the provision of “missing” markets, sizable revenues are raised while allocative distortions are corrected.     

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.     

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.     

The efficiency value of effluent tax revenues

The concept of the efficiency value of effluent tax revenues is developed. It is defined as the reduction in excess burden resulting from the substitution of these revenues for current or future resource distorting tax revenues, such as those raised from federal corporate and personal income taxes. The annual efficiency value of revenues raised by national effluent taxes on two major air pollutants is estimated to range from $0.63 to $3.05 billion, if substituted for federal personal income tax revenue, and from $1 to $4.87 billion, if substituted for corporate income tax revenue, expressed in 1982 dollars. Thus previous estimates of the efficiency gain from substitution of an effluent tax scheme for current pollution regulation policy have been too low, because the efficiency value of the tax revenues has been excluded.     

Announcing climate policy: Can a green paradox arise without scarcity?

Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced.     

应用CGE模型量化分析中国实施能源环境税政策的可行性

应用一个可计算一般均衡(CGE)模型对中国若干工业行业按照差别税率对所投入的煤炭和油气产品征收从价能源环境税的情况进行了量化模拟,预测了该项政策在中国实施的可行性;并在量化模拟和分析之后得出如下结论:即征收能源环境税有助于促进工业部门,尤其是能源密集型行业,节能、降耗、改善能源消费结构和削减SO2 和CO2 污染排放,但该项政策的实施并不能够从根本上促进能源利用效率的提高,反而易对宏观经济造成负面影响,因此在中国目前现阶段不宜作为主要能源环境政策备选方案     

浏阳河长沙段污染控制分解协调

本文采用非线性分解协调方法,建立了具有区域环境管理机构一污水集中处理厂一污染源三级结构的水污染控制决策模型,将排污费、限期治理方案与规划方案、规划目标紧密结合,从而为当地的环境管理提供了科学依据.     

Estimates from a consumer demand system: implications for the incidence of environmental taxes

Most studies suggest that environmental taxes are regressive, making them less attractive policy options. We consider the distributional effects of a gasoline tax increase using four incidence measures and under three scenarios for gas tax revenue use. To incorporate behavioral responses we use Consumer Expenditure Survey data to estimate a consumer demand system that includes gasoline, other goods, and leisure. Our estimates confirm that when revenues are not recycled, a gasoline tax is regressive. Use of incidence measures that ignore demand responses, however, will substantially overstate this regressivity. In contrast, the differences between the equivalent variation and easier-to-implement consumer surplus measures are relatively small. In addition, our results suggest that using the additional gas tax revenue to fund labor tax cuts makes the policy substantially less regressive while using the revenue to fund lump-sum transfers actually makes it progressive.     

Prices vs quantities with multiple pollutants

We examine the choice of policy instruments (price, quantity or a mix of the two) when two pollutants are regulated and firms' abatement costs are private information. Whether abatement efforts are complements or substitutes is key determining the choice of policies. When pollutants are complements, a mixed policy instrument with a tax on one pollutant and a quota on another is sometimes preferable even if the pollutants are identical in terms of benefits and costs of abatement. Yet, if they are substitutes, the mixed policy is dominated by taxes or quotas.     

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.     

Environmental policy and human capital inequality: A matter of life and death

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.     

Cost-sharing approach for air quality control implementation A case study

The objective of the study was to investigate and develop new alternative approaches to effectively meeting the federal SOx and particulate ambient air quality standards at cost savings. Since air pollution control costs would very likely be passed along to the consumer, it is in the best interests of the consumer and industry to find the least-cost alternative policies. Cost-sharing possesses advantages not shared by other control schemes, such as emissions taxes, auctioning of “pollution certificates,” or other methods. The results of this paper indicate that the cost-sharing approach is useful for particulates control in order to minimize the burden of plants already performing substantial control who may require significant added capital investment beyond their initial amount. For SO_ξ emissions control the cost-sharing analysis calculations show significant savings in nearly all situations, whether or not stack gas treatment methods were assumed available. Furthermore, the cost-sharing approach may allow further savings when the particular cost requirements of an individual firm differ substantially from the average engineering cost estimates. A cost-sharing option should thus be included in implementation plans as an option to be used by industries at their own initiative. The spatial characteristics of emissions resulting from a particular application of the cost-sharing approach are considered. A spatial airshed emissions allocation model is discussed as a useful method of evaluating cost sharing.     

Emissions trading of global and local pollutants, pollution havens and free riding

In the presence of local (sulfur) and global (carbon) pollutants, we examine the pollution haven hypothesis and free riding behavior. Under domestic emissions trading, poorer Southern countries become pollution havens when free trade opens up whenever sulfur damage functions are linear or when sulfur levels in equilibrium are not higher in the South. With global trading of carbon permits, the pollution haven effect emerges in equilibrium whenever the convex sulfur damage functions are nonlinear. Countries that do not participate in a Global Protocol designed to reduce carbon emissions enjoy double benefits, stemming from free riding and cleaner local environments.