direct and indirect intervention schemas of government in the competition between green and non green supply chains abstract this study investigates equilibrium between green and non green product types under different government intervention schemas to this end we establish production competition models of a set of green and non green supply chains gscs and ngscs respectively gscs and ngscs are two echelon supply chains scs that present green and non green types of a product to a market respectively we consider two schemas of governmental intervention direct tariffs dts and tradable permits tps both with and without baselines this research seeks to evaluate how the gscs and ngscs respond to the dt or tp schemas to establish the best sc response strategies we formulate three level non linear programming problems for four possible governmental intervention scenarios we find that this problem is multidimensional with different system stakeholders including the government scs consumers and the environment in fact different schemas result in different satisfaction levels of stakeholders thus an appropriate schema can be selected by considering corresponding effects on the stakeholders the comprehensive evaluation of a case study on residential building construction scs yields significant managerial insights

planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

should renewable energy policy be renewable political flexibility brings about trade offs for policy makers aiming to support the deployment of renewable energy sources res on the one hand it allows incorporating new information on ex ante uncertain benefits and costs of res policy on the other hand it may deter res investments this paper scrutinizes how these trade offs play out economically and politically when res policy makers choose the degree of flexibility as well as the instruments to implement flexibility the analysis builds on a theoretical framework distinguishing between flexibility by design and by adjustment it is complemented by a discussion of three case studies res support schemes in germany and the united kingdom and the eu emissions trading scheme theoretical as well as empirical results suggest that the politically chosen degree of flexibility by policy design may be sub optimally low in contrast flexibility by policy adjustment is often excessively high

political internalization of economic externalities and environmental policy abstract this paper derives the characteristics of endogenous environmental policy in a common agency model of politics and proceeds to show that competition between lobby groups is an important source of internalization of economic externalities our analysis generalizes bhagwati s principle of targeting to the case of distorted political markets moreover we show that the politically optimal structure of environmental taxes incorporates a pigouvian adjustment however since lobby groups care about the distribution of income as well as about efficiency the equilibrium structure of taxes differs considerably from the pigouvian rule

pricing and congestion economic principles relevant to pricing roads u k expenditures on roads or road costs average l4 34 billion per year from the 24 6 million vehicles registered road taxes of l12 7 billion were collected 2 9 times road costs from 1978 88 the average daily traffic on each km of road rose by 34 percent with a consequent serious increase in congestion road space is a valuable and scarce resource and road users should logically pay the marginal social cost if they are to make efficient transport and location decisions the paper estimates these costs and the appropriate charges for britain and identifies the major policy issues total road charges ignoring hard to quantify accident costs should yield l13 8 billion of which congestion charges would be l12 8 billion though close to road taxes in total amount replacing current taxes by road pricing would reduce congestion improve public transport and avoid perverse consequences from road expansion copyright 1990 by oxford university press

erratum standards versus standards the effects of different pollution restrictions when economists refer to pollution standards they almost universally mean uniform restrictions on pollution emissions e g william j baumol and wallace e oates 1975 ch 13 susan rose ackerman 1973 david besanko 1978 however in practice standards take many forms not only emissions restrictions but restrictions on pollution per unit of output or per unit of an input restrictions on the use of a polluting input or mandated use of a particular pollution control technology these specifications of regulations will have a variety of effects on a firm s resource allocation decisions for instance allowing pollution per unit of output as the standard instead of directly restricting the level of pollution gives the firm some choice in addition to reducing pollution it can increase its output to dilute the pollution this paper examines the effects of five different forms of pollution standards on input decisions the level of production and firm profits the results show that the different standards by providing firms with different incentives change the firm s allocation decisions and affect the relative profitability of the standards section i reviews the existing literature on the incentives of different instruments the following section describes the model to be used five different forms of pollution constraints are individually examined in section iii using a graphical approach their relative effects as well as some special cases are assessed in section iv finally section v raises the case of different standards when firms are not identical

environmental policy public finance and the labour market in a second best world abstract environmental and tax policies and the optimal provision of clean and dirty public goods are analysed within the context of a second best framework of optimal taxation households consume both clean and dirty commodities degradation of the natural environment occurs due to the consumption of dirty private and public goods but can be offset when the government engages in abatement activities increased environmental concern implies a higher dirt tax a lower tax on labour less employment more public abatement and a cleaner environment if the elasticity of substitution between private consumption commodities and leisure is large and that between clean and dirty goods is small public consumption may expand while private consumption contracts otherwise public consumption falls

price caps and output floors a comparison of simple regulatory rules we study in this paper a simple alternative to price cap regulation the mechanism which we label output floor regulation requires the regulated firm to supply a given level of output this rule is as simple as price cap regulation and performs identically when the regulated firm is a natural monopoly however we show that in the presence of a competitive fringe output floor regulation yields lower prices and stronger incentives for cost reduction its introduction however is likely to be resisted by the industry since it lowers managerial utility and shareholders profits

market discipline financial crisis and regulatory changes evidence from indonesian banks abstract following the 1997 1998 financial crisis indonesian banks experienced major regulatory changes including the adoption of the blanket guarantee scheme bgs in 1998 a limited guarantee lg in 2005 and changes in capital regulation in 1998 and 2001 we examine the impact of these regulatory changes on market discipline during the period 1995 2009 the price of deposits is used to measure market discipline in a dynamic panel data methodology on a sample of 104 commercial banks we find a weakening of market discipline following the introduction of the bgs the result is consistent with the deposit insurance scheme being credible in the lower capital requirement environment the adoption of lg in a recovering economy also mitigates the role of market discipline however market discipline is more pronounced in listed banks than unlisted banks and in foreign banks than domestic banks these results have important implications for banking regulation and supervision particularly during a crisis period

dynamic environmental policy with strategic firms prices versus quantities abstract environmental regulators often have imperfect information about regulated firms abatement costs in this paper we compare taxes and emissions permits in a dynamic setting in which firms behave strategically the regulator updates policy over time based upon previous aggregate industry performance assuming that firms are not strategic we find that strategic firms facing an emissions tax have an incentive to overabate in order to obtain a lower tax in the future firms that trade emissions permits have a strategic incentive to reveal an artificially high permit price to obtain more permits in the future whether permits or taxes are preferred from a welfare standpoint depends upon how permit prices are determined taxes generate higher welfare when the low cost firm sets the permit price but permits generate higher welfare when the high cost firm sets the permit price

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

the value of transport safety recent years have witnessed an increasing tendency for public sector and related agencies to reject the traditional but poorly founded lost output approach to the valuation of transport safety in favor of the altogether more defensible willingness to pay approach the purpose of this paper is to examine some of the more significant implications of this revolution in the way in which transport safety is evaluated in particular the paper outlines the case in favor of the willingness to pay approach summarizes the results of empirical work in this area and examines the allocative implications of adopting the kind of values that emerge from such empirical work the paper then considers the extent to which road risks can be regarded as externalities assesses the implications of asymmetries in the treatment of safety on various different transport modes in the u k and finally proposes an agenda for future research in the economics of transport safety copyright 1990 by oxford university press

efficiency costs of meeting industry distributional constraints under environmental permits and taxes many pollution related industries wield strong political influence and can e ectively veto policy initiatives that would harm their profits a politically realistic approach to environmental policy therefore seems to require the alleviation of significant profitlosses to these industries the regulatory authority can do this by freely allocating some emissions permits or by exempting some inframarginal emissions from a pollution tax however such policies compel the government to forego an e cient potential revenue source and to rely more heavily on ordinary distortionary taxes as a result achieving distributional objectives comes at a cost in terms of e ciency using analytically and numerically solved equilibrium models we analyze the e ciency costs implied by the distributional constraint that adverse impacts on profits in particular industries must be avoided both models indicate that the e ciency cost implied by this constraint dwarfs the other e ciency costs when the required amount of abatement is very small when the abatement requirement becomes more extensive however the cost of this constraint diminishes relative to the other e ciency costs of pollution control we also calculate the compensation ratio the share of potential policy revenue that the government must forego to protect the industries in question we show how this ratio is a ected by the extent of abatement supply and demand elasticities and the potential for end of pipe treatment one definition of this ratio corresponds to the share of pollution permits that must be freely allocated to prevent profit losses in the targeted industries numerical simulations of sulfur dioxide pollution control suggest that the bush administration s clear skies initiative would exceed this ratio freely allocating more permits than necessary to preserve profits our models also highlight significant di erences between gross and net policy revenues when abatement is extensive a large fraction of the revenue collected from emissions permits or taxes is o set by the revenue loss from erosion of the base of existing factor taxes

regulation by prices quantities or both a review of instrument choice choosing appropriate policy instruments is an important part of successful regulation once objectives are agreed and suitable targets adopted policy makers can employ command and control regulation and or economic instruments and choose between fixing a price or a quantity this paper examines the relative advantages of price quantity and hybrid instruments according to their efficiency under uncertainty the trade off between credible commitment and flexibility implementation international considerations and political economy various illustrations of the theory are provided with two detailed applications to climate change and transport policy specifically congestion and safety pricing

regulatory reform capture and the regulatory burden this paper provides a critique of broad aggregate proposals to reduce the regulatory burden it argues that the public debate about regulatory reform and red tape is loose and general with little regard for the complex ways in which regulation imposes costs and benefits on the economy although there are theoretical reasons to expect regulation to be in excess supply there is little empirical analysis to link aggregate regulation with productivity and economic growth regulation is itself a public good and many aspects of economic efficiency require regulation to address market failures the main efficiency issues are better addressed through a disaggregated approach focusing on when where and how to regulate rather than on crude aggregate estimates of the total burden the design of regulation needs to take account of regulatory capture and it is argued that market based instruments and independent regulatory bodies tend to reduce the scope for capture the incentives and employment rules governing regulatory institutions are also discussed in ignoring these disaggregated regulatory design problems crude aggregate targets for the reduction of regulation and rules such as one in one out may be counter productive copyright 2006 oxford university press

climate policies for road transport revisited ii closing the policy gap with cap and trade current policies in the road transport sector fail to deliver consistent and efficient incentives for greenhouse gas abatement see companion article by creutzig et al in press market based instruments such as cap and trade systems close this policy gap and complement traditional policies that are required where specific market failures arise even in presence of strong existing non market policies cap and trade delivers additional abatement and efficiency by incentivizing demand side abatement options this paper analyzes generic design options and economic impacts of including the european road transport sector into the eu ets suitable points of regulation are up and midstream in the fuel chain to ensure effectiveness cover all emissions and avoid double counting efficiency incentivize all abatement options and low transaction costs based on year 2020 marginal abatement cost curves from different models and current eu climate policy objectives we show that in contrast to conventional wisdom road transport inclusion would not change the eu ets allowance price hence industrial carbon leakage induced by adding road transport to the eu ets may be less important than previously estimated

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

towards a better climate treaty the kyoto protocol is an example of how not to construct a treaty negotiators began by focusing on the short term agreeing that the industrialized countries should cut their emissions of greenhouse gases by about 5 relative to 1990 by 2008 2012 then they agreed that these cuts should be achieved cost effectively incorporating flexible mechanisms only later did they worry about whether the treaty created incentives for broad participation and full compliance negotiators should have approached things the other way around they should have begun by thinking of how they could achieve both broad participation and full compliance and of how they could reduce emissions in the long term had they done so a better more effective treaty would have been negotiated in this essay the author explains why kyoto is unlikely to succeed in mitigating climate change he also proposes an alternative treaty design that is likely to work better

laboratory subjects as multiproduct monopoly firms an experimental investigation abstract previous experimental research demonstrates that market responses of laboratory subjects as monopoly firms converge to theoretic predictions this research increases the complexity of market decisions facing such subjects each subject is established as a multiproduct monopoly firm capable of producing two distinct goods in this environment the seller must select a selling strategy from limited alternatives and offer prices results show that market responses of subjects are more likely to converge to multiproduct monopoly model predictions when strategy options are relatively simple or when greater rewards are present results are consistent with profit maximizing behavior

credible carbon policy the paper sets out the credibility problem in carbon policy provides a number of examples of non credibility in recent energy policy and identifies the costs of failing to address it the time inconsistency of carbon policy arising because of multiple objectives the irreversibility of energy investments and the scope for ex post reneging on ex ante commitments to set policy instruments such as carbon taxes or emission permits at appropriate levels is set in a conceptual framework analogies with monetary policy are drawn and a solution to the time inconsistency problem is proposed through the establishment of an energy carbon agency

price volatility and risk exposure on market based environmental policy instruments abstract we explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse we demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade the government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro actively in the quota market

pollution taxes and revenue recycling abstract discussions of environmental policy and the tax system have emphasized the value of pollution tax revenues which can be used to reduce other tax distortions in the economy however by raising private marginal production costs environmental taxes also tend to reduce gdp and exacerbate the welfare costs of conventional taxes for environmental taxes in consumption goods industries the net welfare change from these two effects is negative unless this good is a relatively weak substitute for leisure an estimate for the optimal pollution tax with full revenue recycling is 63 to 78 of marginal environmental damages

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

estimating the welfare effect of congestion taxes the critical importance of other distortions within the transport system abstract this paper extends the first best analysis of peak period congestion pricing to account for interactions with other distortions within the transport system including congestion on unpriced routes accident and pollution externalities suboptimal transit pricing and gasoline taxes we illustrate how the presence of each of these distortions changes the welfare effect of a congestion tax over a wide range of parameter scenarios in all cases the welfare changes are potentially significant implying that these distortions are important to consider in an economic evaluation of congestion taxes

speeding coordination and the 55 mph limit do laws coordinate or restrain a number of recent papers discuss the optimality of the 55 mph national maximum speed limit nmsl and evaluate the tradeoff of timelost vs lives saved resulting from the lowered speed james jondrow et al 1983 dana kamerud 1983 thomas forester et al 1984 these papers all implicitly accept the conventional wisdom speed kills slower is safer this conventional wisdom leads to laws designed as limits on behavior whereas the crucial element is often coordination people need to do the right things at the right time in relation to what others are doing thomas schelling 1978 p 121 there are indeed some traffic laws that establish conventions of expected conduct we ask that motorists drive to the right not because driving on the left is evil but because it is important that the direction of flow be commonly agreed upon likewise traffic lights are best viewed as a coordinating device allowing free flow to alternating lanes of traffic to reduce the confusion and loss of time in unsignalized intersections for peculiar historical reasons speed laws evolved as limits on driver behavior rather than as signaling devices meant to coordinate it guided by the limit rationale police concentrate on those drivers who exceed the legal speed and tend to ignore those drivers who disrupt coordination by traveling much slower than the norm this paper tests these differing views of the law by examining the current effects of the 55 mph nmsl should it be viewed as a coordinating mechanism or a limiting mechanism i measure the effects of limit defying behavior speeding and absence of coordination speed variance on the fatality rate based on analysis of 1981 and 1982 state cross section data i find that there is no statistically discernable relationship between the fatality rate and average speed though there is a strong relationship to speed variance when most cars are traveling at about the same speed whether it is a high speed or a low one the fatality rate will be low presumably because the probability of collision will be low variance kills not speed

hybrid carbon incentive mechanisms and political acceptability this paper analyses how hybrid systems of carbon taxes and tradeable permits optimize some conflicting dimensions of political acceptability related to the design of these instruments pure systems like taxes without exemptions or auctioned tradeable permits cause problems for political acceptability in open economies due to high overall costs abatement cost plus payments on the tax or auctions for current polluters unfortunately pure systems based on grandfathering of emission rights across the board do not provide a feasible alternative because of monitoring and enforcement problems in contrast consciously designed hybrid systems employ grandfathering of emission rights together with either carbon taxes or auctioned carbon permits in order to overcome acceptability problems of pure systems while leaving incentives to reduce emissions at the margin untouched moreover monitoring and enforcement costs of the hybrid systems are less due to the lower number of participating agents compared with the pure systems while opportunities for cost or burden sharing exist as well

making things stick enforcement and compliance environmental rules and regulations are only useful insofar as firms can be persuaded to comply with them in full or in part we survey the rapidly growing literature on the enforcement aspects of environmental policy the difficulties facing any regulatory agency are likely to be exacerbated by information problems penalty constraints and the evasion efforts of firms and we emphasize the role that recent innovative approaches to implementation can play in bolstering more traditional enforcement instruments copyright 1998 by oxford university press

the economic analysis of biodiversity an assessment biodiversity is complex difficult to define difficult to measure and often involves international and intergenerational considerations biodiversity loss presents significant economic challenges a great deal of economics is required to understand the issues but a simple and important observation is that most species and ecosystems are not traded in markets so prices are often absent and biodiversity is under provided despite the formidable obstacles to high quality economic analysis economics has plenty to offer to biodiversity policy first economic valuation techniques can be employed to roughly estimate the value of the benefits provided by biodiversity and ecosystems second assessing the optimum amount of biodiversity involves recognizing that the conversion of natural capital into manufactured and human capital has so far generated vast amounts of wealth while there may have been too much biodiversity in the past economic analysis suggests that this is a difficult position to hold now third econometric techniques and carefully designed policy studies can assist in determining what policies are most suited to different contexts to cost effectively reduce biodiversity loss fourth political economy is helpful because international coordination is often required ecosystems do not respect national borders and many biodiverse ecosystems are in poorer countries this paper synthesizes the issues and proposes a research agenda which includes improving the measurement and accounting of natural capital improving valuation techniques and theory to provide greater guidance as to the optimum biodiversity and developing our understanding of the merits of different alternatives for government intervention to reduce biodiversity loss

tradable quota taxation and market power abstract we investigate how corrective taxation can improve the efficiency properties of tradable quota systems affected by market power indeed we show that when there is a dominant firm in the tradable quota market the regulator can set an ad hoc taxation on firms traded quotas that restores cost effectiveness without driving the dominant firm s net demand to zero achieving cost effectiveness with market power and quota taxation implies some costs in terms of tax revenue that however can be justified by the corresponding reduction of compliance costs moreover we see that there may be cases where all firms result to be better off after the implementation of corrective taxation

when can carbon abatement policies increase welfare the fundamental role of distorted factor markets abstract this paper employs analytical and numerical models to assess the welfare effects of a revenue neutral carbon tax and nonauctioned carbon emissions permits taking into account preexisting tax distortions in factor markets the presence of preexisting taxes significantly raises the general equilibrium costs of both policies this cost increase is much greater under emissions permits since this policy does not generate revenues to reduce distortionary taxes under our central estimates emissions permits cannot increase welfare unless environmental damages exceed about 18 per ton of carbon in contrast an appropriately scaled carbon tax is welfare improving so long as environmental damages are positive

cross border electricity market effects due to price caps in an emission trading system an agent based approach the recent low co2 prices in the european union emission trading scheme eu ets have triggered a discussion whether the eu ets needs to be adjusted we study the effects of co2 price floors and a price ceiling on the dynamic investment pathway of two interlinked electricity markets loosely based on great britain which already has introduced a price floor and on central western europe using an agent based electricity market simulation with endogenous investment and a co2 market including banking we analyse the cross border effects of national policies as well as system wide policy options a common moderate co2 auction reserve price results in a more continuous decarbonisation pathway this reduces co2 price volatility and the occurrence of carbon shortage price periods as well as the average cost to consumers a price ceiling can shield consumers from extreme price shocks these price restrictions do not cause a large risk of an overall emissions overshoot in the long run a national price floor lowers the cost to consumers in the other zone the larger the zone with the price floor the stronger the effect price floors that are too high lead to inefficiencies in investment choices and to higher consumer costs

estimates of the costs of kyoto marrakesh versus the mckibbin wilcoxen blueprint in this paper we update our earlier estimates of the cost of the kyoto protocol using the g cubed model taking into account the new sink allowances from recent negotiations as well as allowing for multiple gases and new land clearing estimates we then compare the protocol to an alternative policy outlined in mckibbin et al brookings policy brief no 17 june the brookings institution washington 1997 climate change policy after kyoto a blueprint for a realistic approach the brookings institution washington 2002a j econom perspect 16 2 2002b 107 that does not impose rigid emissions targets we focus particular attention on the sensitivity of compliance costs under each policy to unexpected changes in future economic conditions to illustrate the issue we evaluate the policies under two plausible alternative assumptions about a single aspect of the future world economy the rate of productivity growth in russia we find that moderate growth in russia would raise the cost of the kyoto protocol by as much as 50 percent but would have little effect on the cost of the alternative policy we conclude that the kyoto protocol is inherently unstable because unexpected future events could raise compliance costs substantially and place enormous pressure on governments to abrogate the agreement the alternative policy would be far more stable because it does not subject future governments to adverse shocks in compliance costs

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

taxes and quotas for a stock pollutant with multiplicative uncertainty we compare taxes and quotas when firms and the regulator have asymmetric information about the slope of firms abatement costs damages are caused by a stock pollutant we calibrate the model using cost and damage estimates of greenhouse gasses taxes dominate quotas as with additive uncertainty this model with multiplicative uncertainty allows us to compare expected stock levels under the two policies and to investigate the importance of stock size and the magnitude of uncertainty on the policy ranking

the role of economics in climate change policy many policy problems have frustratingly long histories of inefficient regulation that can be difficult or impossible to reverse even where large efficiency gains might be had from doing so climate change is an exception however because little real action has been undertaken to date it presents an unusual opportunity for an efficient economic policy to be employed right from the beginning however the opportunity could easily be lost ongoing negotiations conducted under the auspices of the united nations framework convention on climate change have so far produced the kyoto protocol a deeply flawed agreement that manages to be both economically inefficient and politically impractical in this article we examine the key economic characteristics of climate change and argue that economic theory provides good guidance on the design of an efficient and politically realistic policy because climate change involves vast uncertainties and has potentially enormous distributional effects neither of the standard market based environmental policy instruments is a viable approach a tradable permit system would be inefficient and an emissions tax would be politically unrealistic however a hybrid policy combining the best features of the two would be an efficient and practical approach we then compare our hybrid proposal to the kyoto protocol and argue that it overcomes the protocol s shortcomings

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

transitional politics emerging incentive based instruments in environmental regulation abstract this paper proposes a positive theory of environmental instrument choice we study a democratic society that seeks to lower the level of pollution from industrial sources to a pre specified target the target can be implemented by one of three instruments s uniform emission standards p tradeable permits and t emission taxes the conflict of interest between special interests representing polluters and the electorate is resolved by an elected politician we characterize when each of the three policy instruments is chosen in political equilibrium and show that the transition observed in many countries from s to either p or t can be understood as a natural consequence of increasingly ambitious environmental targets

managing permit markets to stabilize prices the political economy of environmental policy favors the use of quantity based instruments over price based instruments e g tradable permits over green taxes at least in the united states with cost uncertainty however there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat such as with greenhouse gases the question arises therefore of whether one can design flexible quantity policies that mimic the behavior of price policies namely stable permit prices and abatement costs we explore a number of quantity plus policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs they do so without necessitating any monetary exchanges between the government and the regulated firms which can be a significant political barrier to the use of price instruments

revenue raising vs other approaches to environmental protection the critical significance of pre existing tax distortions using analytical and numerical general equilibrium models we show that preexisting factor taxes produce a tax interaction effect that increases the costs of pollution taxes and quotas under policies that raise revenue and recycle it through cuts in marginal factor tax rates this effect is partially offset by a revenue recycling effect grandfathered pollution quotas such as those used under the 1990 clean air act amendments to regulate electric utilities so2 emissions do not benefit from this offset preexisting taxes raise this regulation s cost by over 70 more than half of this additional cost could be avoided by auctioning quotas and exploiting the revenue recycling effect

environmental regulation with technology adoption learning and strategic behavior we analyze a model of environmental regulation with learning about environmental damages and endogenous choice of emissions abatement technology by a polluting firm we compare environmental policy under discretion in which policy is updated upon learning new information versus under rules in which policy is not updated when investment in abatement technology is made prior to the resolution of uncertainty neither discretion nor rules with either taxes or standards achieve an efficient solution except in special cases when there is little uncertainty rules are superior to discretion because discretionary policy gives the firm an incentive to distort investment in order to influence future regulation however when uncertainty is large discretion is superior to rules because it allows regulation to incorporate new information taxes are superior to standards under discretion regardless of the relative slopes of marginal costs and marginal damages for the case of quadratic abatement costs and damages