technology factor proportions and competitiveness the paper reports an attempt to explain changes in the industrial pattern of relative international competitiveness and specialization in the swedish manufacturing industry during the period 1969 84 in particular we evaluate the role of rd this was true for industries intensive in human as well as physical capital the analysis confirmed the technology gap hypothesis in that a high level of rd on the other hand no indication was found of increased international specialization on r d intensive products in swedish industry

carbon prices and fuel switching a quasi experiment in electricity markets within the pennsylvania new jersey maryland electricity market delaware and maryland participate in the regional greenhouse gas initiative rggi but other states do not providing a quasi experimental setting to study the rggi program using a difference in difference framework we find that overall the rggi program led to 6 22 million short tons of co2 reduction per year in delaware and maryland or about 19 10 of the average total potential annual emissions in these two states from 2009 to 2013 counterintuitively however the reduction is mainly achieved through reduction of coal inputs and emission leakage instead of fuel switching from coal to natural gas or from fossil fuel coal and natural gas to non fossil fuel

on the option to invest in pollution control under a regime of tradable emissions allowances optimal decisions of a firm facing the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances are analysed the decision is treated as a real option with the price of pollution permits following a known stochastic process the model is formulated as a set of one dimensional partial differential equations at discrete points in time the firm owner makes optimal decisions about the retrofit including whether to mothball temporarily the model is used to analyse a firm s decision to instal a scrubber as a result of the 1990 u s clean air act jel classification q25 d81 g31 sur la possibilite d investir dans le controle de la pollution dans un regime de permis d emission de pollution echangeables commercialement ce memoire examine les decisions optimales d une entreprise face a la possibilite d adapter ses installations pour reduire la pollution et ce faisant d eliminer le besoin de se procurer des permis d emission de pollution sur le marche le decision est traitee comme une option reelle ou le prix des permis resulte d un processus stochastique connu le modele est formule sous forme d un ensemble d equations differentielles partielles a une dimension a des points discontinus dans le temps le proprietaire de l entreprise prend des decisions optimales de mise a niveau des installations y compris la possibilite de les fermer temporairement le modele est utilise pour analyser une decision d installer un epurateur suite a la mise en place de la loi americaine de 1990 clean air act

attitudes toward risk and compliance in emission permit markets we investigate the effects of uncertainty and concomitant risk aversion as they impact the incentive structure and subsequent operation of an emissions permit market modeled after the u s s02 market our theoretical results suggest that uncertainty dulls incentives to achieve cost savings through permit trading and inhibits efficient allocation of abatement efforts by firms we test hypotheses in an experimental laboratory setting and find that the irreversibility of investment in abatement technology may present countervailing incentives for potential sellers of permits resulting in a wait and see attitude toward adoption of efficient levels of abatement technology

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

a symmetric safety valve abstract how to set policy in the presence of uncertainty has been central in debates over climate policy concern about costs has motivated the proposal for a cap and trade program for carbon dioxide with a safety valve that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level we find two significant problems both stemming from the asymmetry of an instrument that mitigates only against a price increase one is that most important examples of price volatility in cap and trade programs have occurred not when prices spiked but instead when allowance prices collapsed second a single sided safety valve may have unintended consequences for investment we illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one sided approach

market efficiency and the u s market for sulfur dioxide allowances focusing on the u s sulfur dioxide so2 allowance market from its inception in 1994 to 2009 we model allowance prices to determine the influence of market fundamentals on allowance price level and volatility we find evidence that the so2 market operates in ways that are not inconsistent with an efficient market prices that reflect marginal abatement costs after the first few years of the program but before a court decision that introduced significant uncertainty into the market in mid 2008 our empirical analysis finds that the so2 market similar to other emission markets studied in the literature can remain relatively inefficient for several years after launch we also find that market volatility increases in response to all types of communications from the administrator suggesting that the development of a formal communication strategy possibly similar to that used by central banks would reduce price volatility and increase the efficiency of the market

cap and trade a sufficient or necessary condition for emission reduction influenced by the success of emission trading in the us for sulphur dioxide so 2 some economists have argued for an upstream economy wide cap and trade scheme as the primary tool for achieving the required reduction in greenhouse gas ghg emissions this paper addresses that argument and concludes that cap and trade will need to be accompanied by complementary regulatory measures while it is a necessary component in a climate mitigation programme it is unlikely to be sufficient by itself to accomplish the desired emission reductions the paper reviews the evidence on how so 2 emissions were reduced and the extent to which actual emission trading was responsible for the reduction as opposed to other innovations it also identifies differences between the past regulation of so 2 and other air pollutants and the challenges presented by the regulation of ghg emissions what actually happened in the us with so 2 emission trading deviated in several significant respects from what would be predicted based on the conventional theoretical analysis while there was a dramatic reduction in so 2 emissions it occurred because of several factors some of which are unlikely to apply for ghg emissions and others of which argue for an activist regulatory policy by the government as a complement to the functioning of an emissions market for ghgs copyright 2010 oxford university press

determinants of the structure of u s foreign trade 1958 1976 abstract the heckscher ohlin model with three direct factor inputs is borne out for u s net exports of manufactures in annual cross section regressions for 1958 1976 the coefficient on unskilled labor became significantly more negative over the period and there is evidence that the negative sign on physical capital may reflect the inclusion of natural resource industries further analysis based upon 1960 and 1970 census years suggests the importance as well of skill and technological variables calculations of the total factor requirements of u s trade uphold the leontief paradox for 1958 but not for 1972

soil conservation as an investment in land abstract most studies on the problem of optimal soil conservation have analyzed soil conservation measures as being time limited in their effect this paper extends previous analyses of the soil conservation decision by allowing farmers to make investments in soil conservation structures such as terraces bundles and ditches it shows that the main conclusions arrived at in previous studies remain valid the long term effects of unanticipated permanent changes in prices and discount rates may go either way independent of whether conservation measures are time limited or have lasting effects on the soil base

an economic model of soil conservation by introducing soil depth and soil loss into a simple model of agricultural production this paper seeks to determine when the private path of erosion differs from the socially optimal path considering the depletion of soil only and abstracting from the environmental disruption caused by erosion the paper argues that under most institutional arrangements the social and private rates of erosion are the same the paper concludes that public policy should be directed toward reducing erosion only when it leads to significant pollution externalities

equilibrium price dynamics of emission permits this article presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today s cap and trade systems we characterize emission permits as highly nonlinear contingent claims on economy wide emissions and reveal their hybrid nature between investment and consumption assets our model makes predictions about the dynamics and volatility structure of emission permit prices the forward price curve and the implications for option pricing in this market empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives

environmental policy government and the market environmental policy is made in a context of both market failure and government failure on the one hand leaving environmental protection to the free market relying on notions of corporate social responsibility and altruistic consumer and shareholder preferences will not deliver optimal results on the other hand nationalizing the delivery of environmental protection is likely to fail because nation states rarely have the depth and quality of information required to instruct all the relevant agents to make appropriate decisions thus as for many areas of policy appropriate models of environmental intervention will lie between these two extremes while it is impossible to specify general rules concerning the precise form of intervention in part because the type of intervention depends upon value judgements this paper sets out some of the considerations that are particular to environmental policy and explores several principles for policy design including information coordination and principal agent problems with a particular focus on the international context

emissions trading with profit neutral permit allocations this paper examines the impact of an emissions trading scheme ets on equilibrium emissions output price market concentration and profits in a generalized cournot model we develop formulae for the number of emissions permits that have to be freely allocated to firms to neutralize the profit impact of the ets we show that its profit impact is usually limited in a cournot oligopoly with constant marginal costs total industry profits are preserved so long as freely allocated permits cover a fraction of initial emissions that does not exceed the industry s herfindahl index

cap and trade policy challenges a tale of three markets cap and trade policy instruments have been applied to a number of environmental problems with varying success this article examines cap and trade programs for so2 allowances fishery quotas and water rights design and implementation of cap and trade mechanisms involves challenging policy tradeoffs accommodating equity concerns balancing use levels with resource conditions facilitating transactions accounting for externalities assuring adequate monitoring and documenting welfare gains efficient trading mechanisms are more readily implemented when there is a strong political or legal mandate to cap resource use and trades are perceived as a means to ease adjustment to use limits

environmental externalities in traditional agriculture and the impact of trade liberalization the case of ghana abstract this paper provides a framework for the evaluation of trade policies that explicitly considers the effects of such policies on the environmental resources biomass in doing this we estimate the effects of biomass as a factor of agricultural production and test the hypothesis that farmers efficiently exploit biomass a resource held in common property the main findings are i biomass is an important factor of production in ghanian agriculture ii the biomass resource is exploited beyond the socially optimal level iii a deepening of trade liberalization is likely to induce further losses of biomass and deforestation and iv national income is likely to fall in response to further trade liberalization

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

clearing the air the effects of gasoline content regulation on air quality this paper examines the effects of u s gasoline content regulations on groundlevel ozone pollution these regulations are costly and have been shown to fragment gasoline markets and raise prices paid by consumers we provide the first comprehensive empirical estimates of the regulations air quality benefits we exploit the fact that gasoline regulations vary by time and place of introduction using both difference in difference and regression discontinuity designs we show that federal regulations targeting the emissions of volatile organic compounds vocs one of the two main precursors to ozone do not substantially improve air quality this outcome is driven by the response of refiners to the regulation minimizing the cost of abatement involves removing a type of voc from gasoline that is not an important determinant of ozone pollution in california however we show that precisely targeted regulations requiring the removal of vocs particularly prone to forming ozone caused a significant improvement in air quality

the benefits of spatially differentiated regulation the response to acid rain by u s states prior to the acid rain program location is a crucial driver of both the marginal abatement and damage costs of sulfur dioxide emissions by u s coal fired power plants before the start of the acid rain program in 1995 old boilers were subject to emission rate standards set by individual states we investigate how individual states adjusted their sulfur regulation laws in response to acid rain and whether they accounted for differences in marginal abatement costs vulnerability to agricultural damages special industry interests or inter state externalities the welfare gain compared to a uniform reduction in emission rate standards is estimated to be 21 million in 1995 dollars annually

emissions trading and transaction costs analyzing the flaws in the discussion abstract although emissions trading lowers the costs of climate change mitigation transaction costs e g to find a trading partner may reduce its cost effectiveness some economists claim that transaction costs for joint implementation ji and clean development mechanism cdm projects will be higher than for international emissions trading iet transfers arguing that projects require advance approval whereas permit transfers can be automatically registered and checked annually however this article demonstrates the incompleteness of their views by both analyzing empirical data and discussing the theoretical conditions under which transaction costs decrease for ji and cdm and increase for iet

agricultural development with rainforest conservation methods for seeking best bet alternatives to slash and burn with applications to brazil and indonesia abstract forests continue to fall for agricultural purposes throughout the humid tropics with immediate and potentially large consequences for climate change and biodiversity loss issues of key interest to the international community some of the actors directly responsible for forest conversion fell trees to meet food security needs and alleviate poverty issues of urgent interest to them and also to national policymakers this multiplicity of groups with differing often conflicting interests in the multifarious goods and services produced by tropical forests complicates the search for alternative agricultural activities for forest margins since these alternatives must satisfy such divergent objectives this paper sets out a conceptual framework for comparing the impacts of different land use systems and agricultural practices at the margins of tropical rainforests in terms of the concerns and objectives of two key interest groups small scale farmers seeking livelihoods at the forest margins and the international interests in the global public goods and services supplied by tropical rainforests this framework should be useful to a third key group the national and regional policymakers who must consider these and other policy objectives and then decide on courses of action the paper identifies data needs and analytical methods capable of supplying an empirical base for this conceptual framework based on quantifiable indicators it then presents preliminary results of the application of this conceptual framework in indonesia and brazil in association with a global collaborative multidisciplinary research program even using preliminary order of magnitude estimates to be replaced by more precise measurements as they become available this conceptual framework presents results in ways that allow researchers and policymakers to select clear best bets for development when they exist and to assess tradeoffs and options for complementary policy action and research efforts when they do not

r d intensity firm performance and the identification of the threshold fresh evidence from the panel threshold regression model this article tests whether there is an optimal level of research and development r d intensity at which point a firm is able to maximize its performance an advanced panel threshold regression model is employed to investigate the panel threshold effect of r d intensity on firm performance among publicly traded taiwan information technology and electronic firms the results confirm that a single threshold effect does exist and show an inverted u correlation between r d intensity and firm performance this article demonstrates that it is possible to identify the definitive level beyond which a further increase in r d expenditure does not yield proportional rewards some important policy implications emerge from the findings

a simple auction mechanism for the optimal allocation of the commons efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators e g cost of pollution abatement this paper proposes a simple mechanism that implements the first best for any number of firms a uniform price sealed bid auction of an endogenous number of transferable licenses with a fraction of the auction revenues given back to firms paybacks which rapidly decrease with the number of firms are such that truth telling is a dominant strategy regardless of whether firms behave non cooperatively or collusively the mechanism also provides firms with incentives to invest in socially optimal r d jel d44 d62 d82 q28 regulatory authorities generally find that part of the information they need for implementing an efficient regulation is in the hands of those who are to be regulated regulating externalities such as access to common resources e g clean air water streams fisheries etc is a good example environmental regulators for example know little about firms pollution abatement costs so without communicating with firms they would be unable to establish the efficient level of pollution a number of mechanisms have been proposed for inducing firms to reveal their private information but for different reasons

permit price dynamics in the u s so2 trading program a cointegration approach the aim of this paper is to study empirically the determination and the dynamic behavior of the so2 permit prices previous research focused on ex post market price analysis without taking weather conditions into account therefore this study attempts to fill a gap in the literature by providing new empirical evidence on the so2 price evolution and its interactions with macroeconomic variables microeconomic variables and climate variables using monthly data from january 1995 to december 2006 our estimation results indicate the existence of a long term relationship between so2 permit price scrubbing costs industrial production and weather conditions in the short run so2 permit price is affected by scrubbing costs energy prices and weather conditions policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the so2 market and may plan their strategy

population growth soil fertility and agricultural intensification abstract this paper presents a renewable resource model of soil fertility with a nonconvexity in the net benefit function in this setting recurring cycles of cropping and fallow can be the optimal soil management strategy the model is used to illuminate the boserup discussion of agricultural development in which population growth leads to agricultural intensification defined as an increase in cropping frequency previous formal models of the boserup hypothesis focus on the land labor ratio rather than cropping frequency and have not directly incorporated soil fertility dynamics these models assume a convex production technology and are not optimistic about the prospect for agricultural development without technological progress this paper explicitly models soil fertility dynamics and demonstrates that nonconvexities in the production technology are an important feature of the use of long fallow periods for soil management as population grows and the demand for food increases the importance of the nonconvexity diminishes and more frequent cropping becomes economical given a nonconvexity in the production technology it is possible though not necessary that average labor productivity increases with agricultural intensification thus it is possible to reconcile the greater labor requirement of intensive farming with an increase in average labor productivity in addition boserup argued that a larger and denser population facilitates the development of economic and social infrastructures which improve agricultural productivity

when to pollute when to abate intertemporal permit use in the los angeles nox market we study intertemporal trading of nitrogen oxides permits in southern california s reclaim program we model reclaim s distinct intertemporal features two overlapping permit cycles and two overlapping compliance cycles in the model competitive equilibrium is cost effective and firms have an incentive to delay abatement from 1994 to 2006 reclaim facilities traded intertemporally by using permits of the opposite cycle we test two theoretical propositions delayed abatement and trading across cycles with a difference in differences estimator and show weak though inconclusive support of the theory the theoretical and empirical results are relevant to cap and trade programs with potential for overlapping permit cycles jel q58

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

sulfur allowance trading and the regional clean air incentives market a comparative design analysis of two major cap and trade permit programs this paper investigates in detail the design parameters of the two mostprominent us cap and trade permit program the us epa sulfur allowancetrading program and the south californian regional clean air incentivesmarket reclaim in contrast to expectations the two programs turn out to be rather different in several important design parameter choices common elements emerge primarily in the existence of an ambitious quantifiedenvironmental target mandatory use of stringent emission monitoring methodsand stiff penalties for non compliance coexisting command and controlregulations the creation of a competitive permit market structure andsome distributional concessions in the initial permit allocation generalizing from these common features we find that provisions to assurepolitical acceptance functional interdependencies and overlapping regulation are the most important influences on the design of applied cap and trade permit programs

environmental crime and punishment empirical evidence from the german penal code u s and e u environmental policy employ criminal sanctions to enforce compliance recent moves toward revising their use are based on little empirical evidence as to their effectiveness this paper exploits a unique dataset to study the deterrent effect of criminal enforcement the dynamic panel data analysis leads to three findings first criminal sanctions do provide the intended deterrent effects second standing trial provides one of the most significant deterrents rather than the probability of conviction or the magnitude of fines third public preferences regarding environmental quality and political economy variables affect reported environmental crime

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

market design in cap and trade programs permit validity and compliance timing abstract cap and trade programs have considerable heterogeneity in permit validity and compliance timing for example permits have different validities across time e g banking borrowing and seasons and space e g zonal restrictions and compliance timing can be annual in overlapping cycles or in multi year periods we discuss nine prominent cap and trade programs along these dimensions and construct a general model of permit validity and compliance timing we derive sufficient conditions under which abatement is invariant to compliance timing i e compliance timing cannot smooth abatement cost shocks under these conditions i expected compliance costs are invariant ii the variance of compliance costs increases with the delayed compliance iii equilibrium prices may not be unique and iv the delayed compliance equilibrium may rely on degenerate prices not determined by marginal abatement costs we demonstrate the model s broad applicability by illustrating different types of temporal permit validity

agricultural expansion and deforestation modelling the impact of population market forces and property rights abstract this paper compares four different modelling approaches to agricultural expansion and deforestation and explores the implications of assumptions about the household objectives the labour market and the property rights regime a major distinction is made between population and market based explanations many of the popular policy prescriptions are based on the population approach assuming subsistence behaviour and limited market integration within a more realistic particularly for the long term effects market approach well intentioned policies such as agricultural intensification programmes may boost deforestation many forest frontier contexts are also characterized by forest clearing giving farmers land rights deforestation becomes an investment to the farmer and a title establishment strategy land titling and credit programmes may therefore increase deforestation

environmental degradation in developing countries households and the reverse environmental kuznets curve abstract we propose an alternative explanation for the inverted u shape relationship between income and environmental degradation in developing countries production and consumption patterns of rural households are the main cause of environmental damage with a conventional household model we demonstrate that the so called environmental kuznets curve may arise when the restrictive assumption of a set of perfect markets for factors and commodities is relaxed depending on the criterion or indicator that is used to represent environmental pressure however we demonstrate that the reverse may also hold this finding highlights the importance of selecting the appropriate dependent variable in regression analyses

comparative advantage in a multi factor world this paper examines the question is there any reason to expect that a country s trade pattern can be accurately predicted on the basis of relative industry labor productivity differentials across countries i e comparative advantage in its classical or ricardian sense given that we inhabit a multi factor world the answer to this question is of some interest since early attempts to test comparative advantage appeared to be quite successful 2 or at least as successful as tests of other theories based on more plausible assumptions although there is some dispute over the validity of these tests 3 and later efforts have not been as successful 4 there still appears to be a fairly widespread belief that comparative advantage retains some explanatory power 5 this paper examines the extent to which such a belief can be justified theoretically given that the actual trade pattern is determined in a quite different manner e g on the basis of factor endowment differences than the classical theory described we are therefore not attempting to refute or verify the validity of the ricardian model but only to determine the extent to which its predictions of the trade pattern can also be expected to hold in more general models 6 our general conclusion will be that while comparative advantage is unlikely to prove a wholly accurate predictor of the trade flow in each individual instance on average it can be expected to perform

evolution of land tenure institutions and development of agroforestry evidence from customary land areas of sumatra it is widely believed that land tenure insecurity under a customary tenure system leads to a socially inefficient resource allocation this article demonstrates that the practice of granting secure individual ownership to tree planters spurs earlier tree planting which is inefficient from the private point of view but could be efficient from the viewpoint of the global environment regression analysis based on primary data collected in sumatra indicates that an expected increase in tenure security in fact led to early tree planting it is also found that customary land tenure institutions have been evolving towards greater tenure security responding to increasing scarcity of land

seller incentive properties of epa s emission trading auction abstract the new clean air act amendments instruct the environmental protection agency epa to conduct annual sealed bid offer auctions of emission allowances the auction pricing rules are discriminative and sellers with the lowest asking prices receive the highest bids this paper assesses the seller incentives of this auction and demonstrates that the auction rules cause sellers to choose asking prices that under reveal their cost of emission control furthermore increasing the number of sellers intensifies this misrepresentation if the number of buyers remains fixed the epa s rules can therefore generate significantly biased price signals and reduce the efficiency of the allowance trading market

almost efficient information transmission in elections abstract we study a model in which two parties compete by announcing their policies after receiving conditionally independent private signals about the true state of the world parties are both office and policy motivated our model can explain radically different policy positions even when parties receive identical signals and have unbiased preferences this holds in an asymmetric equilibrium in which both parties reveal their private information to the voters and the implemented policy is almost first best for all possible realizations of parties signals in this equilibrium one party adopts extreme and the other one moderate policy positions

the effect of transport policies on car use evidence from latin american cities abstract in an effort to reduce air pollution and congestion latin american cities have experimented with different policies to persuade drivers to give up their cars in favor of public transport this paper looks at two of such policies the driving restriction program introduced in mexico city in november of 1989 hoy no circula hnc and the public transport reform carried out in santiago in february of 2007 transantiago ts based on hourly concentration records of carbon monoxide which comes primarily from vehicles exhaust we find that household responses to both hnc and ts have been not only ultimately unfortunate more cars on the road and higher pollution levels but also remarkably similar in two important aspects on how policy responses vary widely among income groups and on how fast households adjust their stock of vehicles when they do

optimal soil conservation and the reform of agricultural pricing policies abstract soil degradation is often blamed for the poor performance of agriculture in developing economies so too are policies which keep the prices of both outputs and inputs artificially low some economists have argued that pricing reforms will encourage soil depletion others say that such reforms will encourage soil conservation to evaluate these claims this paper develops models of the optimal control of soil erosion and soil fertility it is shown that the effect could go either way but that there are strong reasons for suspecting that pricing reforms will not affect soil conservation dramatically

income distributional effects of using market based instruments for managing common property resources in this article the authors show the trade offs between efficiency and equity that arise from the application of market based instruments to a heterogenous population of agents drawing from a natural resource pool using the example of groundwater they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations and that the distribution of gains or losses to management becomes skewed asymmetrically across agents these results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications

the revealed preferences of state epas stringency enforcement and substitution abstract the epa suggests states inspect polluters at least once a year and use sampling and nonsampling inspections equally states face two separate pressures in their attempts to comply with these mandates political and budgetary budgetary considerations arise because inspections are costly while political pressures arise because the stringency of enforcement in part determines the cost abatement this study estimates the relative importance of political and budgetary pressures in the stringency with which the clean water act is enforced the results suggest that inspections determined by budgetary concerns and the stringency of inspections is determined in part by political factors

the political economy of market based environmental policy the u s acid rain program the u s acid rain program enacted in 1990 gave valuable tradable sulfur dioxide emissions permits called allowances to electric utilities we examine the political economy of this allocation though no senate or house votes were ever taken hypothetical votes suggest that the actual allocation would have beaten plausible alternatives while rent seeking behavior is apparent statistical analysis of differences between actual and benchmark allocations indicates that the legislative process was more complex than simple models suggest the coalition of states that produced and burned high sulfur coal both failed to block acid rain legislation in 1990 and received fewer allowances than in plausible benchmark allocations some of these states may have received additional allowances to cover 1995 99 emissions by giving up allowances in later years and some major coal producing states seem to have focused on benefits for miners and on sustaining demand for high sulfur coal

the economics of tropical forest land use options tropical deforestation is generally characterized as conversion of forest land to alternative uses notably agriculture this would suggest the need for rational decision making concerning the optimal allocation of tropical forest land between competing uses the following paper explores this problem by devising rules for determining optimal land use allocation between timber and agriculture at the stand and forest levels a complementary intertemporal model for optimal allocation of forest land to agricultural conversion at the forest level is also developed and used to derive a demand relationship for agricultural conversion which is then approximated through empirical estimation

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

emissions trading electricity restructuring and investment in pollution abatement this paper analyzes an emissions trading program that was introduced to reduce smog causing pollution from large stationary sources using variation in state level electricity industry restructuring activity i identify the effect of economic regulation on pollution permit market outcomes there are two main findings first deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants second as a consequence of heterogeneity in electricity market regulations a larger share of the permitted pollution is being emitted in states where air quality problems tend to be more severe jel l51 l94 l98 q53 q58 when the us federal government first began regulating major sources of air pollution in the 1960s the conventional approach to meeting air quality standards involved establishing maxi mum emissions rates or technology based standards for regulated stationary sources however economists have long maintained that an emissions permit market could more efficiently coor dinate pollution abatement activities provided a series of assumptions are met over the past few decades market based cap and trade cat approaches to regulating emissions from industrial point sources have become a centerpiece of environmental regulation in the united states in the theoretical first best permit market equilibrium the total social cost of meeting an emis sions cap is minimized each firm chooses a level of pollution abatement such that its marginal cost of reducing pollution is set equal to the social marginal benefit from emissions reduction in practice preexisting distortions in product markets that are subject to cat regulation may interfere with the emissions permit market s ability to operate efficiently this paper studies the effects of electricity market regulation on permit market outcomes in the context of a major us emissions trading program the nox budget program the recent wave of electricity industry restructuring in the united states has resulted in significant interstate variation in economic regulation consequently facilities in the same cat program face very different economic regu lation and investment incentives in their respective electricity markets whereas rate base regu lated plants are guaranteed to earn a rate of return on prudent investments in pollution abatement equipment deregulated plants operating in restructured electricity markets are offered no such

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

tradeable carbon permit auctions how and why to auction not grandfather abstract an auction of carbon permits is the best way to achieve domestic carbon caps designed to limit global climate change to minimize administrative costs permits would be required at the level of oil refineries natural gas pipe lines natural gas liquid sellers and coal processing plants to maximize liquidity in secondary markets permits would be fully tradable and bankable the government would conduct quarterly auctions a standard ascending clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery an auction is preferred to grandfathering giving companies permits based on historical output or emissions because it allows reduced tax distortions provides more flexibility in distribution of costs provides greater incentives for innovation and reduces the need for politically contentious arguments over the allocation of rents

technical differences and inter industry trade in the nordic countries inter industry specialization in intra nordic trade is studied in the context of a simple model where technical differences and capital labour ratios interact in determining net export the empirical test largely concurs with the theory countries are net exporters in industries where their relative labour productivity is high and where they have high r d expenditures in addition countries are net exporters in industries thta make intensive use of their abundant factor

emissions trading ercs or allowances emissions trading takes place from two alternative baselines 1 emission reduction credits ercs in which the baseline is existing regulations which are often activity based or 2 cap and trade which specifies the total allowable emissions this paper examines the effects of these two tradable permit systems on marginal and average costs for the firm using electricity generation as an example the erc system subsidizes the activity level to which it is tied and fails to incorporate the full cost of external harm into the product price if the permit limit is chosen ef ficiently the cap and trade system is more effi cient

cost minimizing regulation of sulfur emissions regional gains in electric power environmental regulations set maximum allowable rates for sulfur dioxide emissions from electric utilities by ignoring firm differences in marginal abatement costs and preventing emissions trading these standards do not minimize the cost of reducing einissions this paper estimates marginal abatement cost functions for 56 utilities for 1973 79 marginal costs vary substantially across firms due to differences in the price of low and high sulfur fuels and the intensity of regulation the potential savings from a cost minimizing reallocation of abatement resources are estimated for five regions current expenditures are found to be 47 higher than cost minimizing levels i mplementation of the 1970 clean air act amendments relies extensively on technology based emission standards economists long have recognized that these standards can result in an inefficient allocation of pollution control resources engineering based restrictions ignore or oversimplify differences in abatement costs among polluters limited empirical research suggests that current standards result in substantially higher costs as much as ten times higher than a cost minimizing regulatory scheme 2 these studies however are based on engineering estimates of marginal abatement costs the models often assume that all polluters adopt control technologies that are required only for new plants and that have been largely unadopted by polluting firms 3 the impact of changing factor prices on marginal abatement costs typically is ignored the difficulty is that the resulting estimates of the cost of regulation neither adequately reflect the range of control options available to polluters nor take into account how polluters actually have responded to environmen

population policy through tradable procreation entitlements one of the first tradable rights proposal is boulding s the meaning of the twentieth century london george allen and unwin ltd 1964 dealing with overpopulation we discuss both tradable procreation allowances and exemptions domestically and globally to address underpopulation as well we focus on three effects notably the rights tradability entails that whereas exemptions or expensive enough allowances benefit the poor cheap allowances benefit the rich a natalist policy also worsens the average education level of the next generation whereas population control enhances it also if procreation rights are grandfathered to countries the scheme redistributes further our analysis suggests that procreation entitlements may be efficient in controlling population without being necessarily anti redistributive

quality ladders and product cycles we develop a two country model of endogenous innovation and imitation in order to study the interactions between these two processes firms in the north race to bring out the next generation of a set of technology intensive products each product potentially can be improved a countably infinite number of times but quality improvements require the investment of resources and entail uncertain prospects of success in the south entrepreneurs invest resources in order to learn the production processes that have been developed in the north all r d investment decisions are made by forward looking profit maximizing entrepreneurs the steady state equilibrium is characterized by constant aggregate rates of innovation and imitation we study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning

entitling the pollutee liability versus standard under private information this paper considers and compares two different legal means full liability and standard to reduce and to regulate pollution at a local level accounting for private information about benefits and costs the familiar polluter pays principle makes the polluter liable for any damage since the courts lack information about the true damage the pollutee can and presumably will overstate this damage nevertheless voluntary arrangements bypassing the courts exist e g for coasean reasons however such out of court arrangements fail to improve in many cases the inefficient allocation of pollution due to agency costs given these unsatisfactory consequences of the polluter pays principle even after allowing for contracts around the law we propose a modification of standards the pollutee is entitled that a certain standard is satisfied yet can trade this right for financial compensations contracts induced by this legal rule are countervailing the optimal mechanism switches between subsidies and payments and first best efficiency holds at both ends and this characteristic allows such a privatized standard to track the first best quite well and often better than the polluter pays principle this relative ranking under private information is the opposite of the one that holds under uncertainty here liability dominates the standard

economic parameters of deforestation recent debate about how timber prices affect deforestation has focused mainly on how log export bans imposed in many developing countries to protect domestic timber processing affect deforestation one side argues that the lower domestic timber prices that result from banning log exports increase deforestation by making forestry less profitable than competing land uses such as agriculture the other argues that lower timber prices reduce profits from logging so they slow down deforestation caused by logging the author argues that the conflicting views result from simplistic analysis that ignores differences between types of forest the two positions are reconciled by distinguishing between unmanaged forests for example biologically mature previously unlogged primary forests and managed forests such as forest plantations cultivated for periodic harvest this distinction allows the derivation of unambiguous comparative static results and is useful because many nontimber benefits from forests such as biodiversity conservation are associated mainly with unmanaged forests the distinction between managed and unmanaged forests leads to both unconventional and conventional results all things being equal a lower timber price results in larger areas of unmanaged forests and smaller areas of managed forests that is measures that reduce the producer price for timber for example import restrictions in timber consuming countries and export restrictions in timber producing countries are suitable as a second best policy to reduce the pressure on unmanaged forest frontiers most logging in tropical forests occurs in unmanaged forests so the claim that trade restrictions such as log export bans increase deforestation is inconsistent with profit maximizing land use a fee on land used for logging is preferable to a tax on timber output which is far more common but encourages logging waste technological interventions that increase the intensity of forestry or alternative land uses are an ambiguous instrument for the conservation of unmanaged forests if demand elasticity for outputs is high an intervention that increases the intensity of agriculture logging or other land uses increases incentive for conversion of unmanaged forests the building of roads is particularly harmful to the conservation of unmanaged forests as it increases incentives for logging and subsequent alternative land uses proper pricing of forest lands would increase land prices and lead to market driven intensification accompanied by forest protection such pricing policies would be preferable to a technological intervention that increases land use intensity with ambiguous outcomes for forest protection if unmanaged forest is converted to agriculture the effect of lowering the decisionmaker s discount rate depends on the size of timber rents from logging unmanaged forests if the standing timber has high commercial value a lower discount rate would slow conversion of unmanaged forests if the standing timber has no commercial value logging is an investment for obtaining future benefits of alternate land use a lower discount rate would stimulate this investment and increase the conversion of unmanaged forests also if unmanaged forests are converted to managed forests a lower discount rate can increase conversion since profits from managed forestry are higher with a lower discount rate

a two level dynamic game of carbon emission trading between russia china and annex b countries this paper proposes a computable dynamic game model of the strategic competition between russia and developing countries dcs mainly represented by china on the international market of emission permits created by the kyoto protocol the model uses a formulation of i a demand function for permits from annex b countries and ii marginal abatement costs mac in russia and china provided by two detailed models gemini e3 is a computable general equilibrium model that provides the data to estimate annex b demand for permits and macs in russia poles is a partial equilibrium model that is used to obtain mac curves for china the competitive scenario is compared with a monopoly situation where only russia is allowed to play strategically the impact of allowing dcs to intervene on the international emission trading market is thus assessed

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

poverty alleviation and tropical forests what scope for synergies abstract this paper explores the state of the art of the two way causal links between poverty alleviation and natural tropical forests microimpacts of rising poverty can increase or slow forest loss at the macrolevel poverty also has an ambiguous effect but it is probable that higher income stimulates forest loss by raising demand for agricultural land the second question is what potential forest led development has to alleviate a country s poverty in terms of producer benefits consumer benefits and economy wide employment natural forests widely serve as safety nets for the rural poor but it proves difficult to raise producer benefits significantly urban consumer benefits from forest an important target for pro poor agricultural innovation are limited and seldom favor the poor absorption of poor unskilled labor is low in forestry which tends to be capital intensive natural forests may thus lack comparative advantage for poverty alleviation there are few win win synergies between natural forests and national poverty reduction which may help to explain why the loss of tropical forests is ongoing this may have important implications for our understanding of sustainable forest development and for the design of both conservation and poverty alleviation strategies

hedging in coal contracts under the acid rain program tradable permit schemes introduce uncertainty into the cost of regulatory compliance due to the permits uncertain price regulated firms can hedge this uncertainty through their contracts for fuel procurement data on coal contracts are used to estimate how the option not to be delivered higher sulfur coal is priced results show that under a tradable permit scheme coal prices are reduced for an increase in the sulfur bound controlling for reductions in price due to higher delivered sulfur content jel q48 q53

do transaction costs influence firm trading behaviour in the european emissions trading system this study is one of the first to empirically investigate firm trading behaviour and the importance of permit trading transaction costs such as information costs and search costs in the first phase of the european union s emissions trading system eu ets the signs and significance of our constructed transaction costs proxy variables indicate for a presence of these costs in the initial years of the eu ets in particular this paper shows that ets firms with the smaller number of installations and with less trading experience were less likely to participate in the european emissions trading market and traded the lower quantities of permits furthermore these firms chose to trade permits indirectly via third parties this study also supports the concerns that transaction costs could be excessive for smaller participants and firms operating in the new eu member states

the importance of the logistics performance index in international trade logistics and transport increasingly play a pivotal role in international trade relations the logistics performance index lpi analyses differences between countries in terms of customs procedures logistics costs and the quality of the infrastructure for overland and maritime transport the aim of this article is to analyse the impact that each of these components has on trade in emerging economies using a gravity model furthermore the study also attempts to detect possible advances in logistics in developing countries which are grouped into five regions africa south america far east middle east and eastern europe by comparing the first lpi data published in 2007 with the most recent data released in 2012 the results obtained reveal that improvements in any of the components of the lpi can lead to significant growth in a country s trade flows specifically lpi components are becoming increasingly important for international trade in many countries in africa south america and eastern europe

the determinants of trade performance influence of r d on export flows a theoretical model is presented in which supply side differences between countries determine international trade flows this model is empirically tested at a sectoral level for a group of eu countries within a framework that focuses on changes through time and differences between countries the results show that the validity of the theoretical model is limited at sectoral level however as expected we find that the variable representing technological differences is significant and correctly signed for high technology sectors the evidence points to the existence of different production functions across countries and to the importance of supply side factors in determining the direction and the terms of trade

governance of the commons a role for the state the paper examines property regimes and common pool resources using examples and case studies the relative merits of private community and state based rights are detailed the insights from the case studies and an analysis of institution costs provide a tentative framework for understanding the role of the state in the governance of the commons

heterogeneity irreversible production choices and efficiency in emission permit markets abstract this paper investigates a class of market mechanisms for environmental regulation based on the clean air act tradable discharge permit program laboratory market experiments capture some of the more salient institutional features and focus on issues of firm technological heterogeneity and irreversible investment regarding the operation of the permit market experimental results suggest that higher degrees of abatement cost heterogeneity may lead to reduced trade volume while the implications of increased cost heterogeneity regarding price volatility are mixed finally increased cost heterogeneity appears to result in decreased laboratory efficiency

paying for permanence an economic analysis of epa s cleanup decisions at superfund sites we analyze epa s cleanup decisions at over 100 superfund sites and examine whether and how epa trades off the cost against the permanence of cleanup epa s decisions reveal both a preference for permanent solutions and an aversion to cost for example epa prefers incinerating soils to isolating and containing them in place but not at any price at larger sites epa appears willing to accept additional costs of as much as 40 million to incinerate with regard to environmental equity we find little evidence that epa s cost permanence tradeoff is affected by socioeconomic characteristics in the communities surrounding the sites

the potential for cost savings in the sulfur dioxide allowance market empirical evidence from florida since the passage of the 1990 clean air act amendments researchers have hastened to appraise the new market for sulfur dioxide so2 emission allowances as the epa s program moves into its second phase some analysts question whether large enough savings are available to induce widespread market participation this study calculates the shadow prices of emission reductions for power plants that serve florida and compares the actions of utility owners to the actions predicted by the shadow prices the evidence suggests that plant owners have not taken full advantage of the opportunities the allowance market has provided to date

forest resource depletion soil dynamics and agricultural productivity in the tropics abstract a two sector dynamic model for agriculture and forestry is proposed agricultural yields are a function of the rate of deforestation the forest stock and purchased inputs we examine the impact of changes in the social discount rate net returns to agriculture and direct marginal benefits of the forest stock benefits on the optimal deforestation path under the assumption of a quadratic agricultural yield function finally steady state comparative static analysis is conducted

a note on soil depth failing markets and agricultural pricing abstract due to implementation of structural adjustment programs prices of agricultural products have increased in many developing countries from an environmental point of view it is an open question whether these price increases stimulate sustainable agriculture in the context of a simple model that includes labour intensive investments in soil conservation it is demonstrated that rising prices for agricultural outputs unambiguously increase soil conservation in the steady state with imperfect labour markets the reverse effect may occur giving rise to a conflict between agricultural reform programs and soil conservation

testing theories of agency behavior evidence from hydropower project relicensing decisions of the federal energy regulatory commission theories of agency behavior are examined via an application to hydropower project relicensing by the federal energy regulatory commission ferc in the relicensing of each project fish and wildlife agencies submit recommendations to ferc ferc then enters a twostage deliberation process for each recommendation econometric analysis of these decisions covers 933 recommendations made for 72 projects relicensed during 1980 96 a new law the electric consumers protection act substantially altered ferc s decisions while a new administration the clinton administration exerted a mixed effect both events influenced the number of recommendations per project made by the fish and wildlife agencies

a model of shifting cultivation can soil conservation reduce deforestation shifting cultivators manage soil not only by adjusting soil use on already cleared lands as in continuous cultivation but also by clearing forests to obtain new fertile soils this study examines the crucial link between on farm soil conservation and deforestation in shifting cultivation by modeling forest clearing as an investment in soil for a private farmer more generally by doing so the study attempts to integrate deforestation and soil conservation models which have been separately developed in the literature our policy goal is to arrest tropical deforestation as destruction of global commons caused by land degradation in shifting cultivation while improving the well being of poor shifting cultivators our integrated approach enables joint policy analyses of deforestation and land degradation three welfare enhancing policies are considered the first is agricultural and nonagricultural subsidies affecting farm and nonfarm income opportunities the second is fiscal and tenure policies affecting discount rates our question is whether the link between forest clearing and soil fertility alters the outcomes of these two standard macroeconomic policies commonly found in the literature the third policy or program is various soil conservation measures affecting soil regeneration and erosivity on already cleared lands this article examines a very important question which has received little attention in previous theoretical works can soil conservation reduce deforestation this study confirms anti deforestation effects of the promotion of nonfarming activities a common and often emphasized finding in previous works among shifting cultivators more importantly it also demonstrates that improving various soil conservation measures not only discourages forest clearing among shifting cultivators but also tends to have greater effects on forest protection than promoting nonfarming activities contrarily agricultural price subsidy or technological progress gives rise to the opposite outcome and lowering the farmer s discount rate or improving tenure security encourages him her to clear more forests just to accumulate soil

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

ex post evaluation of an earmarked tax on air pollution in this paper we do an ex post evaluation of the french tax on air pollution the revenues of this tax were redistributed to polluters in the form of subsidies to abatement technologies and the policy is a typical example of an earmarked tax we use a two stage estimation procedure on an unbalanced panel data set of 226 plants from three industrial sectors that are some of the main contributors to nitrogen oxide and sulfur dioxide emissions the results indicate that the overall environmental effectiveness of this particular tax subsidy scheme can be questioned

u s equity markets and environmental policy the case of electric utility investor behavior during the passage of the clean air act amendments of 1990 we examine electric utilityinvestor reaction surrounding twenty twomilestones associated with the passage of theclean air act amendments of 1990 resultssuggest that investors did not react sharply tothe passage of the amendments to the extentthat statistically significant effects wereobserved we interpret the results as moreindicative of investor concern over resolutionof uncertainty surrounding the politicalprocess and resulting provisions than ofconcern over the expected costs of compliancefollowing passage of the amendments weobserved little if any difference betweenutilities subject to phase i restrictions andthose not subject to phase i finally changesin monthly excess returns appear to haveresulted from changes in u s interest ratesand investor concern over power industryderegulation we view our results as importantbecause any wealth effects due to environmentalregulations represent a real economic costassociated with their implementation in thissense we view the results as good news foru s environmental policy makers

prices vs quantities technology choice uncertainty and welfare technological improvements have proven essential in mitigating environmental problems such as climate change depletion of the ozone layer and acid rain while it is well known that price and quantity based regulatory instruments provide different investment levels the effects on the choice between different technologies have received scant attention this paper expands on the prices versus quantities literature by investigating firms technology choice in the face of demand and supply side uncertainty i show that the regulator can not design tradable emissions permits and an emissions tax such that the two regimes are equivalent even in terms of expected values moreover a tax encourages the most flexible abatement technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in consumer demand for the good produced finally the firms technology choices are socially optimal under tradable emissions permits but not under an emissions tax