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.     

Pollution-Controlling Innovation in Oligopolistic Industries: Some Comparisons between Patent Races and Research Joint Ventures

Much of the literature on pollution-control innovation has focused on normative comparisons of exogenous regulatory policies in light of the incentives they induce on firms′ R&D efforts. In contrast, in the positive analysis below, both R&D incentives and regulatory policy arise endogenously as functions of market structure and external cost differentials. Incentives for pollution-controlling innovation are found to arise from within the industry in a patent race setting when innovation gives the race winner(s) a cost advantage over the other industry members. This cost advantage is shown to come about when innovating firms successfully use their influence to raise their rivals′ costs by bringing about a policy change forcing industry members to internalize pollution externalities. In contrast, an industry-wide research joint venture (RJV) has incentive to collusively prevent development of innovation unless environmental activists are sufficiently strong. This latter result is illustrated by the case U.S. vs Automobile Manufacturers Association, where the Justice Department found evidence that the "big three" used an RJV to slow the introduction of pollution-control innovation.     

The Weitzman price corner

The standard theoretical approach to comparing price and quantity policies is strictly interior. We extend the comparison to account for the possibility of corner outcomes, where a polluting industry responds to a tax by abating either completely or not at all. We show that, when the uncertainty in marginal costs is high, the inclusion of corner outcomes confers an extra and unnoticed advantage upon an emissions tax. In situations where the standard approach would recommend a quantity policy, the possibility of corners can reverse that recommendation.     

Derived decision rules for pollution control in a general equilibrium space economy

This paper attempts to narrow the gap between economic theory and policy inthe field of environmental pollution control by expanding the traditional general equilibrium model to include the kind of spatial detail that is important for describing pollution. This model is then used to derive theorems which provide the basis for the development of spatially differentiated, tax-based decision rules. In spite of the fact that these rules require no information on either damage costs or control costs, they maintain many of the desirable properties of the more conventional informationally intensive tax policies.     

Flattening the carbon extraction path in unilateral cost-effective action

Internalizing the global negative externality of carbon emissions requires the flattening of the extraction path of world fossil energy resources (=world carbon emissions). We consider governments with sign-unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term. Such a ceiling policy can be carried out either in full cooperation or by a sub-global climate coalition. Unilateral action has to cope with carbon leakage and high costs, which makes a strong case for choosing a policy that implements the ceiling in a cost-effective way. In a two-country, two-period general equilibrium model with a non-renewable fossil-energy resource, we characterize the unilateral cost-effective ceiling policy and compare it with its fully cooperative counterpart. We show that with full cooperation there exists a cost-effective ceiling policy in which only first-period emissions are taxed at a rate that is uniform across countries. In contrast, the cost-effective ceiling policy of a sub-global climate coalition is characterized by emission regulation in both periods. The share of the total stock of energy resources owned by the sub-global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost-effective taxes.     

Two-goal regional environmental policy: The case of the Santa Ana river basin

In determining public policy measures, the value of information about the functional relationships between targets and instruments can hardly be understated. In the present paper these macrorelations are obtained for a competitive industry by way of aggregation over many individual firms following simple behavioristic patterns. With the exact knowledge of the macrorelations, obtaining the numerical values of the instruments becomes a simple mathematical programming problem. These principles are applied in examination of the water pollution problems generated by the dairy industry in the Santa Ana River Basin where local governments face the problem of controlling environmental quality with minimum opportunity costs in terms of output.     

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.     

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.     

试论我国工业污染防治的政策取向

为解决工业污染问题,我国早有“把污染消除在生产过程之中”的提法,在有关法规中也已有明文,但是防止污染的思想并没有成为有组织的社会行动,污染处理(控制)的管理思想仍然占据着环境管理的主导地位.由此而引发的把末端处理处置作为追求目标的控制污染的社会行为不能不引起忧虑.本文从对我国现行污染控制政策评述出发,剖析了环境管理实践中现行污染控制政策遇到的障碍,提出了我国工业污染防治政策的调整方向和行动计划的建议.     

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.     

Achievements,challenges and global implications of China’s carbon neutral pledge

China has been committed to achieving carbon neutrality by 2060. China’s pledge of carbon neutrality will play an essential role in galvanising global climate action, which has been largely deferred by the Covid-19 pandemic. China’s carbon neutrality could reduce global warming by approximately 0.2–0.3 °C and save around 1.8 million people from premature death due to air pollution. Along with domestic benefits, China’s pledge of carbon neutrality is a “game-changer” for global climate action and can inspire other large carbon emitters to contribute actively to mitigate carbon emissions, particularly countries along the Belt and Road Initiative (BRI) routes. In order to achieve carbon neutrality by 2060, it is necessary to decarbonise all sectors in China, including energy, industry, transportation, construction, and agriculture. However, this transition will be very challenging, because major technological breakthroughs and large-scale investments are required. Strong policies and implementation plans are essential, including sustainable demand, decarbonizing electricity, electrification, fuel switching, and negative emissions. In particular, if China can peak carbon emissions earlier, it can lower the costs of the carbon neutral transition and make it easier to do so over a longer time horizon. China’s pledge of carbon neutrality by 2060 and recent pledges at the 26^th UN Climate Change Conference of the Parties (COP26) are significant contributions and critical steps for global climate action. However, countries worldwide need to achieve carbon neutrality to keep the global temperature from growing beyond the level that will cause catastrophic damages globally.     

Environmentally Sensitive Productivity Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach

This study employs a parametric input distance function that incorporates both desirable and undesirable outputs to provide a more complete representation of the production technology from which environmentally sensitive productivity and efficiency measures can be generated. This framework also generates pollution abatement cost estimates that are useful for policy making. An input-based Malmquist index of productivity growth that appropriately credits the producer not only for increases in marketable or desirable outputs but also for the production of improved environmental quality through pollution abatement activities is derived from the input distance function. The method was applied to time series data from the Canadian pulp and paper industry. Our shadow price estimates indicate that the marginal cost to producers of pollution control has been rising. The main conclusion of this study is that productivity improvement, from the social viewpoint, has been stronger than conventional measures would suggest.     

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.     

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%.     

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.     

Growth, environment and innovation—a model with production vintages and environmentally oriented research

I develop an innovative environmental new growth model driven by researchers striving for monopoly profits. Skilled labour is allocated between production vintages and two forms of research, ordinary and environmentally oriented. The intermediate sector includes fixed costs and decreasing returns, limiting the number of vintages used. I solve for planner's, laissez-faire, and regulator's solutions, and examine welfare implications and the various distortions in the model (monopoly power, knowledge spillovers, business stealing, environmental externalities). A regulator may wish: (i) to encourage environmentally oriented research; (ii) to concentrate production labour on recent (cleaner) vintages; (iii) to switch labour from production to research. An environmental sales tax may under some circumstances achieve all three—such taxes not only give incentives to reduce pollution, but also shift profits from old vintages to new, thus raising incentives to come up with newer (cleaner) vintages. An environmental tax may even lead to an increase in the rate of production growth.     

Pollution taxes and standards: A continuum of quasi-optimal solutions

A generalized second-best problem, involving a perfectly competitive industry which produces a pollution type of externality, is examined. The pollution tax is allowed to assume an arbitrary value (possibly zero), while a pollution standard, set as a ratio of pollution to output, is determined by a first-order optimizing condition. The general condition for a set of quasi-optimal solutions includes the Pareto-optimal solution as a special case. It is also found that when the pollution tax is below the optimal level, the usual implication is that the standard should be set so that the marginal cost of pollution reduction exceeds the marginal external damage.     

Enforcement costs and the incentive to evade controls on production

Economists have long favored emission taxes as a method of controlling pollution. One reason for the widespread support of emission taxes has been the assumption that emission taxes would be easier to enforce than other policies. However, recent developments in the discussion of pollution control allow more specific comparisons of enforcement costs and yield the conclusion that there may exist at least one alternate regulatory scheme that would be easier to enforce than emission taxes.     

Set-up costs and the existence of competitive equilibrium when extraction capacity is limited

Although set-up costs are prevalent and substantial in natural resource extraction, it is known that a Walrasian competitive equilibrium cannot exist in simple extraction models with set-up costs. This paper demonstrates that this result is sensitive to the assumption of unlimited extraction capacity and derives sufficient conditions for existence. An equilibrium exists if extraction is limited such that each firm earns sufficient surplus to cover its set-up costs or if firms choose extraction capacity subject to non-increasing returns. The resulting competitive equilibrium price either grows at the rate of interest when total extraction is below industry capacity or is constant when industry capacity is fully utilized. In the equilibrium, identical deposits are opened simultaneously, and set-up costs for new deposits are incurred when the industry has excess capacity rather than when capacity is fully utilized.