how do market reforms affect china s responsiveness to environmental policy a large percentage of total investment in china is allocated by the central government at below market interest rates in pursuit of non economic objectives this has resulted in low rates of return and a high number of non performing loans threatening the future health of the chinese economy as a result reform of capital markets is a high priority of the chinese government at the same time the country is implementing various environmental policies to deal with serious pollution issues in this paper we ask how reforms of the capital market will affect the functioning of a carbon tax this allows us to assess how china s willingness to join global efforts to reduce carbon emissions is influenced by china s current efforts to reduce investment subsidies we compare the costs of a carbon tax in a reformed economy with the costs of a carbon tax in the current subsidized economy we find that in the subsidized economy the tax interaction effect dampens the effect of a carbon tax resulting in smaller reductions in emissions than what would result in a reformed economy importantly we also find that the effect on economic welfare from a carbon tax is lower in the subsidized economy in fact for lower levels of reductions the carbon tax is actually welfare improving these results have important implications for an economy undergoing economic transition the carbon tax rate required to achieve a certain level of emission reductions will be higher in an economy with capital subsidies however the welfare implications of the tax indicate that the current system with capital subsidies is highly distorting implying that there is a high efficiency cost for the non economic objectives the government is pursuing by maintaining this system of subsidies

economic impacts value added and benefits in regional project analysis this paper addresses five issues encountered when estimating secondary benefits in regional project analysis a the correction for opportunity cost of factors used b the treatment of mobile factors c the effect of economies of size d the role of forward linkages and e the role of spatial structure of economic regions the first four are reasons that only a small part if any of regional impacts can be treated as regional net benefits the fifth is a reason that when secondary benefits or damages do exist their correct estimation can depend on the spatial structure of the affected areas

delegating climate policy to a supranational authority a theoretical assessment abstract this paper studies the delegation of climate policy to a supranational environmental authority we develop a simple model of a world consisting of a large number of countries which derive utility from energy consumption countries suffer from global warming and local air pollution both caused by the combustion of fossil fuels and decide individually on investments in clean technologies for energy production a supranational environmental authority decides for each country on the maximally permitted amount of greenhouse gas emissions we demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses but these losses can be kept small if the authority is endowed with an optimally designed mandate the optimal mandate penalizes the cost of local air pollution very heavily relative to the cost of global warming however delegation of climate policy faces a further difficulty as countries have a recurrent incentive to change the authority s mandate over time

credibility versus control agency independence and partisan influence in the regulatory state there is a natural tension between theories of party government and theories of regulatory politics whereas effective party government requires that politicians have firm control over public polic

distortionary taxes and the provision of public goods economists have long been concerned with finding an efficient level of public expenditure the classic statement of the problem was given by paul samuelson 1954 an optimal level of expenditure is where the sum of the marginal rates of substitution between the public good and a reference good equals the marginal rate of transformation between the public good and the reference good mrs mrt however samuelson s formula assumes that all of the revenue needed to finance public goods can be raised with lump sum taxes since this is not generally possible the formula must be modified to account for the distortionary effects of the tax system an appropriate modification is to multiply the cost side of the equation by a term that is commonly called the marginal cost of public funds mcf in the case of samuelson s formula where government is entirely financed with lump sum taxes the mcf would be exactly 1 0 in the traditional view of economists distortionary taxes cause the mcf to be greater than one thus raising the cost of providing public goods in this paper we discuss some cases where the mcf may be less than one we will illustrate this possibility using numerical examples for labor taxes

commuting transport tax reform and the labour market employer paid parking and the relative efficiency of revenue recycling instruments in this paper the welfare effects of a budget neutral increase in taxes on car commuters are studied in a model that takes into account the presence of employer paid parking at the workplace it is found that the presence of employer paid parking substantially increases the welfare effect of such a tax reform independent of the use of the revenues congestion taxes not only correct congestion externalities they also reduce the inefficiency caused by employer paid parking moreover different congestion effects of alternative recycling instruments and the presence of employer paid parking jointly imply that recycling the tax revenues via higher public transport subsidies may yield much more favourable welfare effects than previously believed it can easily outperform recycling the tax revenues via lower labour taxes finally cashing out parking costs to public transport users is found to generate substantial positive welfare effects numerical analysis confirms the theory

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

the double dividend second best worlds and real world environmental policy abstract the recent series of papers by bovemberg goulder parry and others argue that the double dividend is unlikely to exist because of second best problems they argue that the imposition of environmental tax in an economy already distorted by income taxes will further distort the economy by reducing incentives to supply labor our paper argues that this is not likely to be the case because of the restrictive assumptions made by these models and because of the role of the environment as a factor of production

regulating technological change the strategic reactions of utility companies towards subsidy policies in the german spanish and uk electricity markets abstract this paper focuses on how incumbent electric utilities strategically react to subsidy schemes supporting renewable energy technologies in the uk germany and spain firms coordinate the development of their technological capabilities and their political activities to shape their regulatory environment analysing the diffusion of wind power in these countries we show that the different ways in which firms coordinate their technological and political strategies lead to very different market outcomes both for the firms market share and the size of the overall market although incumbents are usually seen as being resistant to change in energy systems we show that spanish utilities proactively drive the diffusion of wind power we speculate about the relation between the ownership structure of the energy system and its inertia with respect to the integration of new technologies we derive novel policy implications that explicitly take into account the strategic actions of incumbent firms shaping the technological and regulatory system

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

addressing climate change with a comprehensive us cap and trade system there is growing impetus for a domestic us climate policy that can provide meaningful reductions in emissions of carbon dioxide co2 and other greenhouse gases i describe and analyse an up stream economy wide co2 cap and trade system which implements a gradual trajectory of emissions reductions with inclusion over time of non co2 greenhouse gases and includes mechanisms to reduce cost uncertainty initially half of the allowances are allocated through auction and half through free distribution with the share being auctioned gradually increasing to 100 per cent over 25 years the system provides for linkage with emission reduction credit projects in other countries harmonization over time with effective cap and trade systems in other countries and regions and appropriate linkage with actions taken in other countries in order to establish a level playing field among domestically produced and imported products

how robust is the uniform emissions pricing rule to social equity concerns abstract this paper examines pollution tax differentiation across industries in light of social equity concerns using theoretical and numerical general equilibrium analyses in an optimal tax framework we characterize the drivers for non uniform optimal taxes stemming from the interaction of household heterogeneity with social preferences quantitatively assessing the case of price based co2 emissions control in the u s economy we find that uniform emissions pricing is approximately optimal when social concerns are defined over inequity induced by the environmental tax the deviation from uniform emissions pricing however becomes non negligible when pollution tax rebates deviate much from optimal transfer schemes or when social concerns are defined over both policy induced impacts and inequity unrelated to environmental policy our results are robust to a number of model extensions including the stringency of the environmental target downstream vs upstream taxation pre existing distortionary taxes and parametric uncertainty in firms and households equilibrium tax responses

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

prices versus quantities in a second best setting the choice between taxes and tradable permits has been independently analysed by two distinct research traditions the first proceeds from weitzman s partial equilibrium sto chastic model and concludes that a tax should be preferred if the marginal abatement cost curve is steeper than the marginal environmental benefit curve the second utilises deter ministic general equilibrium models with pre existing distortionary taxes it concludes that non revenue raising instruments e g grandfathered tradable permits are costlier than rev enue raising ones e g a tax on every unit of pollution or auctioned permits to build a bridge between these two traditions we introduce in weitzman s model a positive cost of public funds due to pre existing distortionary taxes the tax admits a greater comparative advantage over the permits as compared to weitzman s classical result then we assume that the regulated industry blocks any proposal that poses it too high an expected burden this may require a transfer to firms in the form of freely allocated permits or lump sum tax rebate it turns out that if this acceptability constraint is binding then the comparative advantage of taxes over permits is still reinforced quantitatively even if the marginal benefit function is 50 more steeply sloped than the marginal cost function the price instrument should be preferred we also compare the expected net benefit of these two instruments to a contingent instrument which leads to the ex post optimum the superiority of the contingent instrument over the quantity one is higher than in first best

economic impacts value added and benefits in regional project analysis comment in a recent article appearing in this journal hamilton whittlesey robison and ellis hwre address five issues that can arise from the estimation of secondary benefits in regional project analysis in examining these issues hwre argue that at most only a small part of secondary benefits resulting from any regional project can be treated as regional net benefits the argument is well articulated and represents the latest of a long line of articles dealing with the problem of using estimates of regional economic impact usually estimated with a regional input output model as a measure of project benefits or costs cooke stabler et al hamilton and gardner young and gray the principal concern in hwre is to ensure that changes in regional value added or income due to a project are not mistaken for project benefits in benefit cost calculations we are reminded that the as

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

u s agriculture in a general equilibrium framework analysis with a social accounting matrix traditionally the analysis of u s agricultural policy has been carried out in a partial equilibrium framework it has thus ignored the linkages of the agricultural sector with the rest of the economy it is only recently that the importance of various economic linkages has started being recognized in work on u s agriculture the importance to the agricultural sector of exchange rates and other instruments of monetary and fiscal policies was first emphasized by schuh his seminal work sparked other studies of the interaction between agricultural production and incomes and traditional instruments of macroeconomic policy see also shei chambers and just freebairn rausser and de gorter the partial equilibrium analysis of u s agriculture stands in sharp contrast to traditional approaches to the formulation of agricultural policy in developing countries development economists have long been sensitive to the importance of leakages from policies aimed at the agricultural sector to the rest of the economy and vice versa in this paper we discuss how multisectoral models of the sort often used in developing countries can be used to analyze such issues in the united states we construct a u s social accounting matrix sam for 1982 and use a variety of multiplier models to analyze the impact of different exogenous shocks on agriculture focusing on the links between the agricultural and nonagricultural sectors a longer version of this article is provided by adelman and robinson soci accounting matrices

carbon taxation when climate affects productivity optimal carbon taxation is evaluated in a model where climate change affects productivity with a numerical us economy model with preexisting taxes the optimal carbon tax is found to exceed marginal social damage by 53 percent and marginal private damage the sum of households marginal willingness to pay by 73 percent the welfare gain from optimal carbon taxation is estimated at 3 58 billion per year when marginal damages are 40 ton employment also increases setting the carbon tax at the pigouvian rate raises welfare by only 3 17 billion the contrasting results in the tax interaction literature are due to the use of marginal private damage when applied to amenity externalities

all or nothing climate policy when assets can become stranded abstract this paper develops a new perspective on stranded assets in climate policy using a partial equilibrium model of the energy sector political economy related aspects are considered in the government s objective function lobbying power of firms or fiscal considerations by the government lead to time inconsistency the government will deviate from a previously announced carbon tax which creates stranded assets under rational expectations we show that a time consistent policy outcome exists with either a zero carbon tax or a prohibitive carbon tax that leads to zero fossil investments an all or nothing policy although stranded assets are crucial to such a bipolar outcome they disappear again under time consistent policy which of the two outcomes all or nothing prevails depends on the lobbying power of owners of fixed factors land and fossil resources but not on fiscal revenue considerations or on the lobbying power of renewable or fossil energy firms

reflections on the stern review 2 a growing international opportunity to move strongly on climate change this paper highlights the basic economic principles behind the policy recommendations in the stern review and takes forward the analysis and proposals of the review it is written in the light of developments since the review was published reflecting on interaction with policy makers and analysts around the world and other commentators on the review its authors argue that across the world progress of understanding and developing the necessary policy response to climate change has been especially rapid in the last few months building on these developments and the review team s initial analysis they outline a policy programme going forward for international collective action to tackle climate change

optimal transition from coal to gas and renewable power under capacity constraints and adjustment costs this paper studies the optimal transition from existing coal power plants to gas and renewable power under a carbon budget it solves a model of polluting exhaustible resources with capacity constraints and adjustment costs to build coal gas and renewable power plants it finds that optimal investment in renewable energy may start before coal power has been phased out and even before investment in gas has started because doing so allows for smoothing investment over time and reduces adjustment costs gas plants may be used to reduce short term investment in renewable power and associated costs but must eventually be phased out to allow room for carbon free power one risk for myopic agents comparing gas and renewable investment is thus to overestimate the lifetime of gas plants e g when computing the levelized cost of electricity and be biased against renewable power these analytical results are quantified with numerical simulations of the european commission s 2050 energy roadmap

a review of the role and remit of the committee on climate change domestic action on climate change requires a combination of solutions in terms of institutions and policy instruments one way of achieving government carbon policy goals may be the creation of an independent body to advise on or set monitor policy this paper critically assesses the committee on climate change ccc which was created in 2008 as an independent body to help move the uk towards a low carbon economy we look at the motivation for its creation in particular we consider its ability to overcome a time inconsistency problem by comparing it to another independent body the monetary policy committee of the bank of england in practice the ccc appears to be the inverse of the monetary policy committee in that it advises on what the policy goal should be rather than being held responsible for achieving it the ccc incorporates both advisory and monitoring functions to inform government and achieve a credible carbon policy over a long time frame this is a similar framework to that adopted by stern 2006 but the ccc operates on a continuing basis and also incorporates a unique climate change monitoring function

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

politics matters regulatory events as catalysts for price formation under cap and trade this paper investigates how the political process of making cap adjustments has shaped market outcomes in the world s largest cap and trade system the eu ets capitalizing on an event study method that incorporates an econometric technique designed to handle parameter instability and model uncertainty we assess the news implied price response to 29 hand collected announcements about the eu ets supply schedule our findings document a high market responsiveness to political events and reveal how market participants view the evolution of cap stringency in the light of a particular announcement we provide evidence that a sequence of strong event induced price drops evolve in the backloading decision process which is consistent with the interpretation that market participant s confidence in the political support for reform and probably the eu ets in general has been unsettled we also document positive price reactions to the 2020 and 2030 policy packages but not the 2050 roadmaps

commitment versus discretion in climate and energy policy to decarbonize the power sector policy makers need to commit to long term credible rules for climate and energy policy otherwise risk of opportunistic policy making will impair investments into low carbon technologies however the future benefits and costs of decarbonization are subject to substantial uncertainties thus there may also be societal gains from allowing policy makers the discretion to adjust the policies as new information becomes available we examine how this trade off between policy commitment either unconditional or state contingent and discretion affects the optimal intertemporal design of market based instruments in the power sector using a dynamic partial equilibrium model we show that commitment to a state contingent level of ambition for the market based instrument leads to higher welfare than both unconditional commitment and discretion with benefit uncertainty the choice between the practically more feasible approaches of unconditional commitment and discretion is analytically ambiguous a basic numerical illustration suggests that policy discretion may outperform unconditional commitment in terms of welfare however this result is reversed when only a limited fraction of benefit uncertainty resolves in reasonable time when future policy makers have own agendas or when investors are risk averse with cost uncertainty policy discretion is welfare superior if the government can commit to a technology deployment target

the age of electricity the age of electricity is coming driven by rapid technological change on the demand side the digitalization of many processes is leading to technologies that require electricity rather than liquid or solid fuels on the supply side renewable energy technologies provide electricity directly at falling cost electrification directly and indirectly e g using electricity to produce hydrogen fuel can aid the decarbonization of the economy strong climate policy would accelerate electrification the big question is when not if and the transition is not occurring anywhere near fast enough to meet the paris climate goals the immediate impact of the coming age of electricity is the transformation of electricity markets which need to adapt to near zero marginal costs and intermittency in the longer term the impact on fossil fuels will be radical fossil fuel prices will fall with demand and the oil and gas majors will either completely transform themselves or will harvest profits and exit

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

optimal climate change policies when governments cannot commit this paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future the conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment however this argument requires governments to be able to commit to these future taxes and it is far from clear that governments have this degree of commitment we assume instead that governments cannot commit and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different relative weights to the environment we show that this lack of commitment has a significant asymmetric effect compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken but reduces the incentive of the private sector to invest consequently governments may need to use additional policy instruments such as r d subsidies to stimulate the required investment

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

transaction costs and partnerships the case of rock bands abstract this paper applies transaction cost economics to rock bands it develops the importance of asset specificity a number of phenomena in the field are shown to be explicable in terms of transactions costs

an institutional analysis of payments for environmental services abstract in this paper the characteristics and functioning of pes is analyzed from an institutional perspective while in theory pes is seen as a market solution to environmental problems as an alternative to state hierarchical and community governance a review of a large amount of case studies shows that pes in practice depends rather fundamentally on state and or community engagement hence pes are foremost a reconfiguration of the roles of public bodies and communities becoming core intermediaries or buyers first to establish pes rights to the land that delivers the environmental service must be clarified this demands public action second transacting over environmental amenities is very costly creating markets for environmental services depends therefore crucially on state and community facilitation hence buyers are often public agencies high transaction costs also influence price setting payments do not follow the market format as intermediaries frequently are setting the price with users often being unaware even of the fact that they pay finally the distinction between payments as incentives and as fair compensations is emphasized while payments may strengthen community relations and simplify action for environmental care they may also introduce a purely instrumental logic and in some cases worsen the environmental status by crowding out environmental virtues for the future greater awareness of these dynamics is warranted

biofuel subsidies versus the gas tax the carrot or the stick abstract this paper provides an analytical framework to examine the relative efficiencies of a revenue neutral biofuel subsidy and a gas tax in the presence of pre existing distortions and growing substitutability between fuels both policies are set to achieve a targeted reduction in gasoline use at the state level the model is then calibrated for a small open economy such as illinois which is one of the largest producers of biofuels such as ethanol in the u s the main result of the paper shows that raising the biofuel subsidy use reduces overall welfare by more than a higher gas tax both aimed to achieve a targeted reduction in pure gasoline the relative efficiency of the higher gas tax is primarily due to it exacerbating the pre existing distortion in the biofuel market by less than the subsidy moreover for current parameter estimates welfare improving policy combinations for achieving a targeted amount of energy security are higher gas taxes combined with lower biofuel subsidies and a lower tax on income however the preference for a gasoline labor tax swap shrinks as the elasticity of substitution between the two fuels rises

the assessment the new energy paradigm during the 1980s and 1990s energy policy concentrated on privatization liberalization and competition in response to the underlying conditions of excess supply and low fossil fuels these conditions changed around 2000 in response to the coincidence of a structural upward shift in oil prices the aging of the assets network failures and greater import dependency the focus moved from asset sweating towards investment and has been accompanied by a paradigm shift in the objectives of energy policy towards security of supply and climate change this article sets out the implications for the choice of instruments and institutions in the context of liberalized markets in respect of security of supply and climate change market based instruments are advanced in the former capacity markets and in the latter carbon taxes and permits finally consideration is given to the case for a single integrated energy agency both to enhance credibility and to ensure consistency copyright 2005 oxford university press

brown backstops versus the green paradox abstract anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally the green paradox this mechanism relies crucially on the exhaustibility of fossil fuels we analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels one scarce and dirty e g oil the other abundant and dirtier e g coal we derive conditions for a green orthodox anticipated climate policies may reduce current emissions the model can also be used to analyze spatial carbon leakage calibrations suggest that intertemporal carbon leakage from 0 to 8 is a relatively minor concern

energy taxation and the double dividend effect in taiwan s energy conservation policy an empirical study using a computable general equilibrium model abstract faced with pressure from greenhouse gas reductions and energy price hikes the taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption as well as mitigate co2 emissions through an adequate pricing system this study utilizes a cge model to simulate and analyze the economic impacts of the draft energy tax bill and its complementary fiscal measures under the assumption of tax revenue neutrality the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment and consequently mitigate the negative impacts of the distortionary tax regime the double dividend effect is less significant however when the supplementary measures being used are for government expenditure nevertheless all supplementary measures have effectively reduced energy consumption which means they have delivered at least the first dividend in the sense of co2 emissions control it has been verified in this study that having adequate public finance policy measures is the key to realizing the double dividend effect

a cap and trade commitment policy with allowance banking we examine the planner s dynamic regulation problem in an emission trading system ets with allowance banking the planner sets the emissions cap for the next period after the current period allowance market has cleared but before knowing the next period s abatement cost realization this creates a time consistency problem when banking is possible we examine two policies to overcome the consistency problem a commitment solution and the markov perfect solution we show that the endogenous price floor generated by the banking demand becomes an integral feature of the two policies hence they can be best described as hybrid policies that combine elements from emissions taxes and tradable allowances this reveals new welfare implications that have an influence on instrument choice in the traditional prices versus quantities setup we compare the expected welfare outcomes of four different policy instruments the commitment policy the markov policy a pigouvian tax and a no banking ets we show that allowing banking can yield welfare gains compared to tax and quantity regulation with or without commitment

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

do policy mix characteristics matter for low carbon innovation a survey based exploration of renewable power generation technologies in germany abstract policy mixes may play a crucial role in redirecting and accelerating innovation towards low carbon solutions thus addressing a key societal challenge towards this end some argue that the characteristics of such policy mixes matter greatly yet with little empirical evidence backing up such claims in this paper we explore this link between policy mix characteristics and low carbon innovation using the research case of the transition of the german electricity system towards renewable energy our empirical insights are based on an innovation survey administered to german manufacturers of renewable power generation technologies which builds on the community innovation survey for our purposes we adjusted the survey to better capture companies perceptions of policy mixes employing a bivariate tobit model we find evidence that companies perceptions regarding the consistency and credibility of the policy mix are positively associated with their innovation expenditures for renewable energies and this positive link intensifies when considering the mutual interdependence of these policy mix characteristics in contrast neither the comprehensiveness of the instrument mix nor the coherence of policy processes were found to be related to innovation expenditures overall these findings suggest that future research on low carbon and eco innovation should pay greater attention to the characteristics of policy mixes rather than focusing on policy instruments only finally our findings indicate a need to consider how policy may be measured in innovation surveys to generate better informed policy advice regarding the greening of innovation

the role and operations of the bank of england monetary policy committee this paper describes the way in which the monetary policy committee mpc of the bank of england seeks to meet the tasks it has been given under the new arrangements for the conduct of monetary policy it starts with the definition of the tasks then describes the activities that lead up to the mpc s decisions and the publication of its inflation report

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

designing carbon markets part ii carbon markets in space this paper analyses the design of carbon markets in time i e intertemporally it is part of a twin set of papers that ask starting from first principles what an optimal global carbon market would look like by around 2030 our focus is on firm level cap and trade systems although much of what we say would also apply to government level trading and carbon offset schemes we examine the first principles of temporal design that would help to maximise flexibility and to minimise costs including banking and borrowing and other mechanisms to provide greater carbon price predictability and credibility over time

rents in the european power sector due to carbon trading abstract the european union emissions trading scheme eu ets has imposed a price on the allowances for co2 emissions of electricity companies integrating this allowance price into the price of electricity earns a rent for companies who have received these allowances for free during phase i 2005 2007 rents corresponding to the aggregate value of allocated allowances amounted to roughly 13 billion per year however due to the specific price setting mechanism in electricity markets true rents were considerably higher this is due to the fact that companies also that have not received any allowances gain additional infra marginal rents to the extent that their variable costs are below the new market price after inclusion of the allowance price producers with low carbon emissions and low marginal costs thus also benefit substantially from carbon pricing this paper develops a methodology to determine the specific interaction of the imposition of such a co2 constraint and the price setting mechanism in the electricity sector under the assumption of marginal cost pricing in a liberalized european electricity market the article thus provides an empirical estimate of the true total rents of power producers during phase i of the eu ets 2005 2007 the eu ets generated in phase i additional rents in excess of 19 billion per year for electricity producers these transfers are distributed very unevenly between different electricity producers in a second step the paper assesses the impact of switching from free allocation to an auctioning of allowances in 2013 we show that such a switch to auctioning will continue to create additional infra marginal rents for certain producers and will leave the electricity sector as a whole better off than before the introduction of the eu ets

transaction costs markets and hierarchies 1 transaction costs markets and hierarchies christos pitelis university of cambridge 2 the nature and role of markets malcolm sawyer university of leeds 3 in the beginning there were markets frederick fourie university of the dfs south africa 4 control markets and firms keith cowling and robert sugden university of birmingham 5 transaction costs and the evolution of the firm geoffrey hodgson newcastle polytechnic 6 the appropriability critique of transaction cost economics gregory dow university of alberta canada 7 power and efficiency in the firm paul marginson university of warwick 8 transaction costs and revenues michael dietrich newcastle polytechnic 9 transaction cost economics and the state william dugger depaul university chicago 10 markets hierarchies and markets again steve thompson and mike wright university of manchester and university of nottingham 11 markets false hierarchies and the role of asset specificity neil kay university of strathclyde 12 on transactions costs and markets and as hierarchies christos pitelis university of cambridge

second best renewable subsidies to de carbonize the economy commitment and the green paradox climate change must deal with two market failures global warming and learning by doing in renewable energy production the first best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax given that global carbon taxes remain elusive policy makers might have to rely on a second best subsidy only with credible commitment the second best subsidy is higher than the social benefit of learning to cut the transition time and peak warming close to first best levels at the cost of higher fossil fuel use in the short run weak green paradox without commitment the second best subsidy is set to the social benefit of learning it generates smaller weak green paradox effects but the transition to the carbon free takes longer and cumulative carbon emissions are higher under first best and second best with pre commitment peak warming is 2 1 2 3 circ c under second best without commitment 3 5 circ c and without any policy 5 1 circ c above pre industrial levels not being able to commit yields a welfare loss of 95 of initial gdp compared to first best being able to commit brings this figure down to 7

robust incentives and the design of a climate change governance regime in building a governance regime to address climate change should we prioritize the development of global institutions or national ones this paper focuses on two neglected characteristics to inform the governance problem the incentives for investment in low carbon energy technology and the influence of historical policy volatility examining a case study of an important low carbon energy technology wind power this study finds 1 policy volatility has been substantial 2 policy changes were uncorrelated across jurisdictions suggesting that 3 investors could have substantially reduced their exposure to the risk of policy volatility by operating globally while it also has downsides a poorly coordinated international policy regime has the advantage of reducing the risk associated with a global policy failure beyond this case study the importance of this positive effect depends on the probability of policy failures in each country the correlations among them and the probability of a global policy failure

cheaper oil a turning point in paris climate talk abstract the 2015 paris climate conference is designed to achieve a legally binding agreement on climate change for the first time in over 20 years however the participants face a much tougher task in striking a new deal after the disappointing preparatory climate change talks in lima however falling oil prices have created more room to maneuver for the forthcoming global climate talks than previously thought average global oil prices have plunged from usd 110 per barrel in june 2014 to approximately usd 60 per barrel in may 2015 with the sharply falling oil prices and the downward pressure on gas and coal prices both the removal of fossil fuel subsidies ffs and the implementation of a carbon tax could be conducted without raising energy costs a growing body of research suggests that removing ffs and implementing a carbon tax could significantly reduce carbon emissions thus the approximately 50 drop in oil prices has provided a window of opportunity to reduce carbon emissions by removing ffs and internalizing climatic externalities worldwide as this window will not last forever both these measures should be implemented quickly and be considered central to the paris climate change conference compared with the lack of success in the previous two decades of climate diplomacy these two measures constitute technical and economic factors that will make a difference in the 2015 un climate change conference

the role of markets and policies in delivering innovation for climate change mitigation this paper identifies market incentives and international and domestic policies that could technologically alter energy systems to achieve greenhouse gas stabilization targets while also meeting other societal goals i consider the conceptual basis and empirical evidence on the effectiveness and efficiency of climate technology policies the paper reviews the literature on trends and prospects for innovation in climate change mitigation and examines the evidence on induced innovation and the implications for the choice of technology policy i then consider the impact of technological advances on the environment the role of direct government support for r d and the complementarities between policies internalizing

coasean bargaining in the presence of pigouvian taxation coasean arguments against the pigouvian perspective are well established a central tenet in this criticism argues that a pigouvian tax may be a source of inefficiency if parties were to bargain in the presence of a pigouvian tax allocative inefficiencies would occur the so called buchanan stubblebine turvey theorem by analyzing a coasean environment where the appropriation of property rights is costly we show coasean bargaining in the presence of a pre existing pigouvian tax may be superior this has implications for policy where dual regulatory environments exist such as regulation at the state and federal level as well as environmental liability and litigation

policy interactions risk and price formation in carbon markets carbon pricing is an important mechanism for providing companies with incentives to invest in carbon abatement price formation in carbon markets involves a complex interplay between policy targets dynamic technology costs and market rules carbon pricing may under deliver investment due to r d externalities requiring additional policies which themselves affect market prices also abatement costs depend on the extent of technology deployment due to learning by doing this paper introduces an analytical framework based on marginal abatement cost mac curves with the aim of providing an intuitive understanding of the key dynamics and risk factors in carbon markets the framework extends the usual static mac representation of the market to incorporate policy interactions and some technology cost dynamics the analysis indicates that supporting large scale deployment of mature abatement technologies suppresses the marginal cost of abatement sometimes to zero whilst increasing total abatement costs however support for early stage r d may reduce both total abatement cost and carbon price risk an important aspect of the analysis is in elevating risk management considerations into energy policy formation as the results of the stochastic modelling indicate wide distributions for the emergence of carbon prices and public costs around the policy expectations

sectoral effects of a green tax reform in portugal abstract economic downturn coupled with serious and persisting environmental problems require a new regulation system to tackle these problems the portuguese government created the commission for the green tax reform in 2014 following the guidelines of the european union in the sense that fiscal policy should contribute to public budget consolidation and sustainable growth the commission was commissioned to propose a simplification of taxation in order to promote economic competitiveness environmental sustainability and the efficient use of resources the aim of this paper is to present the results from one of the teams that have contributed to the commission for the green tax reform we have followed the european commission guidelines in order to simulate a green tax reform with a static general equilibrium model and aligned to the political context we found that i it is possible to enjoy a positive double dividend ii to achieve improvements in the energy trade balance and energy independence and iii to reduce the energy intensity of the portuguese economy

economic instruments for environmental regulation our knowledge about economic incentive approaches to pollution control has grown rapidly in the two decades in which they have received serious analytical attention not only have the theoretical models become more focused and the empirical work more detailed but we have now had over a decade of experience with emissions trading in the u s and emission charges in europe as the world community becomes increasingly conscious of both the need to tighten environmental controls and the local economic perils associated with tighter controls in a highly competitive global marketplace it seems a propitious time to stand back and to organize what we have learned about this practical and promising approach to pollution control that may be especially relevant to current circumstances this paper draws upon economic theory empirical studies and actual experience with implementation to provide a brief overview of some of the major lessons we have learned about two economic incentive approaches emissions tradi copyright 1990 by oxford university press

do credible domestic institutions promote credible international agreements we examine the relationship between international policy coordination and domestic policy reputation when both are self sustaining we show that domestic policy commitment does not necessarily facilitate international cooperation rather efficient policies may be most easily sustained when governments are unable to pre commit to policy domestically moreover the lack of domestic commitment is more likely to facilitate international cooperation the larger the international spillovers of domestic policies are

how disagreement about social costs leads to inefficient energy productivity investment public energy productivity investment influences the amount of future energy consumption if a present government expects its successor to value the social costs of fuel usage differently this adds a strategic component to its investment considerations we analyze this governmental time inconsistency situation as a sequential game in particular we show how the expectation of a more conservative party taking over makes a green government choose an investment level that is inefficient in that neither of the parties would prefer it to the investment level of a permanent green government under some circumstances the opposition would even prefer the government definitely to stay in power the gain from avoiding a strategic investment then outweighs the loss of not being able to regulate energy consumption we also analyze the welfare gains from binding agreements

the role of political parties an analysis based on transaction costs this paper explores the proposition that political parties reduce the transaction costs of electoral participation political parties provide a low cost signal of a candidate s policies and personal characteristics and in this way reduce voters information costs with reference to transaction cost economics political parties offer an implicit contract between voters and politicians and thereby reduce the scope for opportunism by politicians this impact on transaction costs is important in any evaluation of public policy towards political parties

revisiting the cost of protectionism abstract most studies of the welfare impacts of trade policy have ignored interactions between these policies and pre existing distortions from the income tax this paper demonstrates that when these interactions are taken into account the potential gains or losses from tariffs import quotas or voluntary export restrictions are significantly magnified however as long as the trade barrier doesn t generate rents for domestic households the optimal level of the trade barrier is unchanged from the first best case trade policies which do increase domestic rents either in the form of quota rents or rents to fixed factors in production suffer an additional efficiency cost and the optimal policy in this case is less strict than in the first best case

measuring the environmental cost of hypocrisy this paper provides an example of how to estimate the marginal environmental cost of hypocrisy using revealed behavior and self identification survey responses from coffee drinkers regarding their use of cardboard and plastic i e non reusable cups coffee shops provide a convenient microcosm for assessing the impact of hypocritical behavior because of 1 readily available cheap substitutes i e reusable coffee cups 2 a relatively accurate estimate of the environmental in particular carbon cost associated with using non reusable cups and 3 the ability to delineate hypocritical behavior by observing a choice with relatively few potential confounding factors hypocritical behavior is measured as a geometric mean of how often an individual takes coffee in a non reusable cup and the degree to which the individual self identifies as being concerned about his environmental footprint all else equal the more often a person takes his coffee in a non reusable cup and the greater the degree to which he self identifies as being concerned about his footprint the greater the individual s hypocrisy score controlling for other attitudinal and demographic characteristics including self identified awareness of environmental issues and willingness to pay for the convenience of using a non reusable cup we are able to determine the marginal effect of an individual s hypocrisy score on the environmental cost associated with the use of non reusable coffee cups

impact of climate policy uncertainty on the adoption of electricity generating technologies this paper presents a real options model where multiple options are evaluated simultaneously so that the effect of the individual options on each other is accounted for we apply this model to the electricity sector where we analyze three typical technologies based on fossil fuel fossil fuel with carbon capture and renewable energy respectively in this way we can analyze the transition from co2 intensive to co2 neutral electricity production in the face of rising and uncertain co2 prices in addition such a modelling approach enables us to estimate precisely the expected value of perfect information i e the willingness of investors and producers to pay for information about the correct co2 price path as can be expected the expected value of information rises with increasing co2 price uncertainty in addition the larger the price uncertainty the larger are the cumulative co2 emissions over the coming century the reason for this is that the transition to less co2 intensive technologies is increasingly postponed with rising co2 price uncertainty by testing different price processes geometric brownian motion versus jump processes with different jump frequencies we can also make useful recommendations concerning the importance of policy predictability we find that it is better to have climate change policies that are stable over a certain length of time and change abruptly than less abrupt but more frequently changing policies less frequent fluctuations reduce the expected value of information and result in smaller cumulative co2 emissions