Essays on Environmental Regulatory Policy

Two common desires for individuals are to live in a society with a healthy and sustainable environment, and a growing and productive economy. Through environmental regulatory policy, governments pursue these objectives on behalf of their electorate. It can often be a difficult balancing act, however, as these objectives do not always fit well together. Industrial activities that drive and stimulate the economy often have negative and lasting impacts on the environment. In this dissertation, I look at the modeling of this tradeoff in both a static and dynamic setting, and in relation to two significant environmental concerns: climate change and aquatic ecosystem acidification./nIn the first essay, co-authored with Peter Berck, we consider the impact of an increase in regulated abatement standards on static measures of economic welfare. By limiting emissions, these standards effectively decrease a key factor of production. Using a theoretical general equilibrium model, we show that all else equal, an increase in regulated abatement will therefore decrease utility and make individuals in the economy worse off. While we generally expect utility to be concave in abatement, when accounting for changes in the household's consumption and input supply decisions, and the corresponding impacts on income, we find this will not always be the case. Using a CGE model of the California economy, we then consider the impact of both carbon reduction measures, and a rising carbon price, on indicators of economic welfare in California. We find that environmental and economic objectives do not always have to be at odds, and that under certain conditions, both the carbon reduction measures and the rising carbon price can lead to increases in indicators of economic welfare. We also find that although conditions for non-concavity of the welfare function exist in California, our primary indicator of economic welfare, real State Personal Income, is concave in the carbon price./nIn the second essay, I look at the application of optimal regulatory policy to achieve the recovery of a group of freshwater lakes from acidification. Assuming a social planner is able to perfectly regulate the emissions of local firms, I develop a dynamic programming model where the planner's objective is to minimize a social disutility function, consisting of the damages from acidified lakes and the cost of emissions abatement, subject to state equations that describe the impact of emissions reductions on lake water quality. To parameterize the state equations, I use a panel data set that monitors the recovery of 32 acidified lakes located in the region surrounding Sudbury, Ontario, Canada over a 24-year period. I then use numerical methods to solve the control problem for the optimal path of emissions reductions, and the expected rate of lake recovery. My results show that optimal emissions reductions rely heavily on the assumed level of damages, and the current state of the lakes. If lakes are already in a recovery state, then at most reasonable estimates of environmental damages, further optimal abatement is zero. I also find that as the level of damages increases, the optimal abatement policy "jumps" to full abatement of emissions, and there is only a narrow region of lake quality where partial abatement is optimal. Due to the slow recovery process, however, it is possible for lakes to remain in this narrow interim region for extended periods of time, and for partial abatement to be optimal over this entire period.

Advisor: Berck, Peter
Karp, Larry