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- How Do Carbon Taxes Affect Emissions' Plant-Level Evidence from
Manufacturing-
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Abstract: Abstract This paper investigates how carbon taxes affect emissions by examining British Columbia’s revenue-neutral carbon tax in the manufacturing sector. We theoretically demonstrate that carbon taxes can achieve emission reductions while increasing production. Recycling carbon tax revenues to lower corporate income tax rates encourages investments, allowing plants to emit less per unit of output. Using detailed confidential plant-level data, we evaluate this theoretical prediction by exploiting the treatment intensity through plants’ emission intensity. We find that the carbon tax lowers emissions by 4 percent. Furthermore, we find that the policy had a positive output effect and negative emission intensity effect, suggesting that the carbon tax encouraged plants to produce more with less energy. We provide initial evidence showing how a revenue-neutral carbon tax may achieve emission reductions while stimulating the economy.
PubDate: 2022-06-01
- The Effect of Rebate and Loan Incentives on Residential Heat Pump
Adoption: Evidence from North Carolina-
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Abstract: Abstract Electrification can promote deep decarbonization to tackle climate change with a cleaner power grid. Electric heat pumps provide a feasible and energy-efficient way to replace fossil-fuel furnaces for space heating. Rebate and loan programs are the two most widely used incentives for residential heat pump installations in the U.S. This study compares the impacts of rebate and loan incentives on residential air-source heat pump adoption in North Carolina. First, our results show that the rebate program ($300–$450 per system) increases the adoption density by 13% in a year. Second, we find that the rebate program is more effective in promoting heat pump adoption for average consumers than two loan programs (annual loan interest rate: 9%, 3.9%). Third, we find the rebate program is less effective for low-income households than high-income households. Lastly, we compare the rebate with the loan programs in terms of cost-effectiveness and we find the rebate program is more cost-effective under certain circumstances.
PubDate: 2022-05-20
- Regulation of Location-Specific Externalities from Small-Scale Polluters
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Abstract: Abstract Emission damages caused by small-scale polluters such as farms, vehicles, homes and small businesses are often location-specific and such polluters are often regulated through a combination of location-differentiated cleaner technology standards and uniform, ʻdirtyʼ input regulation. We investigate how such regulations should be designed and combined under realistic assumptions. We find that if the available cleaner technologies are ‘emission capturing’ (e.g., end-of-pipe filters), they should be encouraged in both high and low damage areas, while if they are ‘input displacing’ (i.e., facilitating replacement of dirty input by cleaner input), they should be encouraged in high damage areas, but discouraged in low damage areas. Dirty input use should always be discouraged and the optimal regulation intensity may be substantial, particularly if the available cleaner technologies are input displacing.
PubDate: 2022-05-16
- Payments from Households to Distant Polluting Firms
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Abstract: Abstract We investigate a novel way to encourage separation between firms, causing local pollution, and their victims (households): payments from households to distant polluting firms. These payments do not require monitoring of firms’ emissions or their abatement costs. In our model, households and firms can choose from two locations (A and B, with A larger than B). Households incur environmental damage from firms in the same location. Under laissez faire, payments from households in one location (say A) to firms in the other location (say B) will prompt firms to move from A to B and to stay there, thus reducing damage to households in A. The maximum that households are willing to pay temporarily is the amount that currently makes them indifferent between A and B. The payments make A less attractive to firms as well as to households. The unique positive-payment equilibrium implements the global welfare optimum where laissez faire does not. We examine from which starting points this payment equilibrium can be reached.
PubDate: 2022-05-10
- On Simple Rules for the Social Cost of Carbon
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Abstract: Abstract The objective of this paper is to assess the use of simple rules for the social cost of carbon. It is shown that several interrelated objections may apply. The main issues are the following. First, the underlying theoretical models typically assume that the economy finds itself on a balanced growth path, implying that addressing the issue of designing policies for the short run, which play a role in the actual policy debate, are neglected. Second, for some cases the assumptions made regarding the marginal damages of high temperature or of arge atmospheric \(CO_{2}\) stocks are shown to be incompatible with other assumptions made. Third, typically the rules follow from an optimal growth model and associate the social cost for a particular year with GDP for that year, but it is not always acknowledged that it should be optimal rather than actual GDP for that year. I also go into the performance of simple rules as compared to first-best.
PubDate: 2022-05-09
- A Model of Quota Prices in a Multispecies Fishery with “Choke”
Species and Discarding-
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Abstract: Abstract Using a two-stage optimisation model, we simulate the determination of market-clearing quota lease prices in a multispecies fishery. Assuming fixed proportions technologies, we find that equilibrium quota prices are jointly determined. Price equilibria are sensitive to both the number of quota species and the heterogeneity of the fleet, with corner prices observed where there are a relatively large number of species. Where the fleet is very heterogeneous, quota prices fail to capture all rent as resource rent and inframarginal rents are earned by some vessels. If there is excess demand for quota (for example, as a result of the exhaustion of the quota for a “choke” species) bidding up of the quota price causes all other quota prices to fall. This can result in some vessels starting to earn inframarginal rents even though they are discarding part of the catch. We also use the model to examine the impact of a “deemed value” charge for over-quota landings.
PubDate: 2022-05-09
- Pollutant Trading with Transport Time Lags
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Abstract: Abstract Nutrient pollution represents one of the costliest and most challenging threats to water quality in the United States and is a major problem elsewhere in the world. Water quality trading is drawing significant interest from policy makers as a mechanism to manage nutrient loads cost-effectively. Overlooked in nutrient markets developed to date and in standard guidance for market design are the fundamental dynamics of nutrient pollution delivery processes. This paper develops rules to efficiently manage pollution trading between sources that differ in terms of how fast their pollution arrives at degraded waters. We develop a system of optimal time-varying discharge permits and lag trade ratios, as well as a simpler, second-best system of time-invariant permits and trade ratios that achieve optimal pollution loads in the long run steady state. Our second-best system accounts for lags in a way that is both pragmatic and grounded in economic theory. Results from a numerical simulation indicate that the total costs of the second-best system are within 0.2% of the first-best optimum, suggesting that the efficiency loss associated with the second-best design may therefore be of little practical concern.
PubDate: 2022-05-06
- Climate Change and the Cost-Effective Governance Mode for Biodiversity
Conservation-
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Abstract: Abstract Climate change poses a key challenge for biodiversity conservation. Conservation agencies, in particular, have to decide where to carry out conservation measures in a landscape to enable species to move with climate change. Moreover, they can choose two main governance modes: (1) buy land to implement conservation measures themselves on that land, or (2) compensate landowners for voluntarily carrying out conservation measures on their land. We develop a dynamic, conceptual ecological-economic model to investigate the influence of changes in climatic parameters on the cost-effectiveness of these governance modes and specific patch selection strategies (price prioritisation, species abundance prioritisation, climate suitability prioritisation, climate change direction prioritisation). We identify five effects that explain the cost-effectiveness performance of the combinations of governance mode and patch selection strategy and find that their cost-effectiveness depends on climate parameters and is thus case-specific.
PubDate: 2022-05-06
- Overcapacity in Gulf of Mexico reef fish IFQ fisheries: 12 years after the
adoption of IFQs-
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Abstract: Abstract We study the impacts of individual fishing quota programs on overcapacity and the technical efficiency of the Gulf of Mexico red snapper and grouper-tilefish fisheries. We deploy generalized panel data stochastic frontier methods, which allow us to decompose time invariant heterogeneity into both vessel specific heterogeneity and persistent inefficiency. This type of decomposition has recently seen interest in a variety of applied production settings but marks the first use in fishery studies. Our main findings show that roughly 20% of red snapper fleet size could have harvested the entire red snapper quota and that the time-varying technical efficiency of the red snapper fleet grew by 6% post-IFQ. We also find that 57% of the Gulf reef fish IFQ fishery (red snapper combined with grouper-tilefish), had it operated at full efficiency, could have harvested the quota in the early stages of the IFQ program (2011–2016), and that the time-varying technical efficiency of the fleet rose by 5% post-IFQ. “The views and opinions provided or implied in this manuscript are those of the authors and do not necessarily reflect the positions or policies of NOAA”. “The views and opinions provided or implied in this manuscript are those of the authors and do not necessarily reflect the positions or policies of NOAA”.
PubDate: 2022-05-02
- When is Environmentalism Good for the Environment'
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Abstract: Abstract We study how the supply of environmentalism, which is defined by psychic benefits (costs) associated with the purchase of high-environmental (low-environmental) qualities, affects the way firms choose their prices and products and the ensuing consequences for the global level of pollution. Contrary to general belief, a high supply of environmentalism does not necessarily give rise to a better environmental outcome because it endows the green firms with more market power which they use to charge higher prices. Nonetheless, environmentalism can be used to effectively complement more traditional policy instruments such as a minimum environmental standard.
PubDate: 2022-05-01
- Understanding the Heterogeneity in the Effect of Driving Restriction
Policies on Air Quality: Evidence from Chinese Cities-
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Abstract: Abstract Many cities around the world have adopted driving restriction policies to reduce vehicle emissions. However, evidence on the effectiveness of these policies is mixed. I exploit detailed and comprehensive data on Chinese cities to conduct a large-scale study of the effectiveness of a variety of driving restriction policies in a variety of locations. I estimate the monitor-specific short-run treatment effects of each driving restriction policy using a regression discontinuity in time approach, and the average treatment effect using a panel fixed-effect approach. The regression discontinuity in time estimation results show strong heterogeneity. Among the eight measures of air quality used, CO, \(NO_2\) , PM2.5, PM10, and AQI respond most to driving restriction policies. The average reduction of CO and \(NO_2\) are consistent with back-of-the-envelope calculations for policies that effectively limit vehicle use. Using detailed information on the design of each policy, I show that policy details and pollution concentration are the major factors that affect the actual and estimated effects of driving restriction policies, and also a potential explanation for earlier studies that showed driving restriction policies had little effect.
PubDate: 2022-05-01
- Does Decentralized and Voluntary Commitment Reduce Deforestation' The
Effects of Programa Municípios Verdes-
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Abstract: Abstract One-third of total CO2 emissions from deforestation in the 2000s took place in the Amazon region, in Brazil. This paper examines the effectiveness of a locally-led policy—the Green Municipalities Programme—in curbing illegal deforestation in the Pará state, part of the legal Amazon. We combine a regression discontinuity (RD) design and a 10-year high-resolution spatial dataset (1,781,122 pixels covering 162,242 km2) to evaluate the programme’s impact. Evidence suggests that municipalities reduced deforestation only 4 years after joining the programme at about 0.01 km2 within the optional bandwidth (10 km). The effect comes mainly from municipalities traditionally with lower deforestation rates. This effect represents avoidance of 0.02 MtCO2/year released to the atmosphere, or USD 1.7 million per year of avoided damage. Since Brazil has committed through its NDC to eliminate deforestation in the Amazon by 2030, decentralized programmes focusing on indirect benefits appear to be effective only in the long run, serving as a “bonus” to support regions with relatively higher levels of forest cover.
PubDate: 2022-05-01
- Permit Markets with Political and Market Distortions
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Abstract: Abstract This article investigates cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the equilibrium and show the interaction of these two distortions has consequences for the resulting marginal inefficiency—the extent to which a re-allocation of permits between firms can reduce equilibrium abatement costs. We find that if the regulator is not very responsive to rent seeking then marginal inefficiency reduces relative to the case without rent seeking. When the regulator is very responsive to rent seeking, if dominant rent-seeking firms are all permit buyers (sellers) then marginal inefficiency reduces (increases) relative to the case without rent seeking.
PubDate: 2022-05-01
- Tradeable Nitrogen Abatement Practices for Diffuse Agricultural Emissions:
A ‘Smart Market’ Approach-
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Abstract: Abstract Markets in pollution permits for managing environmental quality have been advocated by economists since early 1970s as a mechanism that can deliver pollution reduction targets at lower cost to regulated entities than traditional uniform command-and control approaches. This study explores whether a ‘smart market’ cap-and-trade scheme between non-point sources can offer meaningful, robust and policy amenable, advantages over alternative approaches for nitrogen management in a realistic setting: 6504 individual farms in Limfjorden catchment, Denmark. The scheme involves multilateral trading of nitrogen emission rights among farms via changes in agricultural land management practices under a catchment-level cap on total nitrogen load. In this, the first exploration of non-point to non-point smart market nitrogen trading in a real setting, we estimate efficiency gains compared to uniform command-and-control regulation, explore the robustness of these gains in the face of non-participation, and reflect on farmers’ potential acceptance of the trading market in comparison with its command-and-control analog: spatially-targeted regulation, implemented via location-specific limits on nitrogen leaching. Results indicate that the smart market has the potential to substantially reduce the cost of meeting the catchment’s nitrogen reduction target. For a 21.5% reduction from baseline nitrogen load, the market delivers cost savings of 56% (DKK273 million, €36.6 million) compared to uniform regulation, with participating farms realising a mean net benefit of DKK 723/ha (€ 97/ha). Market performance is relatively robust against transaction cost; when delivering a 21.5% reduction in nitrogen load to Limfjorden, approximately 70% of the overall efficiency gain could be retained if only 24% of farms engaged with the market.
PubDate: 2022-05-01
- On the Cost-Effective Temporal Allocation of Credits in Conservation
Offsets when Habitat Restoration Takes Time and is Uncertain-
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Abstract: Abstract Tradable permits, or offsetting schemes, are increasingly used as an instrument for the conservation of biodiversity on private lands. Since the restoration of degraded land often involves uncertainties and time lags, conservation biologists have strongly recommended that credits in conservation offset schemes should be awarded only with the completion of the restoration process. Otherwise, the instrument is claimed to fail on the objective of no net loss in species habitat and biodiversity. What is ignored in these arguments, however, is that such a scheme design may incur higher economic costs than a design in which credits are already awarded at the initiation of the restoration process. In the present paper a generic agent-based ecological-economic simulation model is developed to explore different pros and cons of the two scheme designs, in particular their cost-effectiveness. The model considers spatially heterogeneous and dynamic conservation costs, risk aversion and time preferences in the landowners, as well as uncertainty in the duration and the success of the restoration process. It turns out that, especially under fast change of the conservation costs, awarding credits at the initiation of restoration can be more cost-effective than awarding them with completion of restoration.
PubDate: 2022-04-29
- Air Pollution and Housing Values in Korea: A Hedonic Analysis with
Long-range Transboundary Pollution as an Instrument-
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Abstract: Abstract We estimate the degree and scope of PM2.5-induced negative price shock in Korea’s local housing markets, taking a two-stage hedonic approach. For the analysis, Korea’s local PM2.5 levels are treated as endogenous and are instrumented with regional air pollutants from China. We find that a unit µg/m3 PM2.5 level increase in a Korean city is associated with a 3.7% decline in local residential property value. Long-range transboundary pollution has significant effects on Korea’s local PM2.5 levels with an elasticity of 0.05. These results enrich the sparse hedonic literature on local air-quality valuation in connection to long-range transboundary pollution in East Asia. The advanced methodological features presented in our two-staged identification strategy with a novel instrument is another contribution of this paper.
PubDate: 2022-04-26
- When it Rains, it Pours: Estimating the Spatial Spillover Effect of
Rainfall-
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Abstract: Abstract A large fraction of the world’s poor rely on rain-fed agriculture, which makes them vulnerable to changes in rainfall patterns. In this paper, we examine whether spatial correlation in rainfall results in these households also being vulnerable to an adverse spatial-spillover effect. In particular, we use household-level panel data from India along with high-resolution meteorological data to show how rural household consumption varies with own-region rainfall as well as rainfall in neighboring areas. We find that while greater own rainfall has a positive effect on rural household consumption, greater rainfall in neighboring regions has an adverse spatial-spillover effect. Our results suggest that when this spillover effect is taken into account, the positive impact of own-region rainfall on household consumption falls by 38 percent.
PubDate: 2022-04-16
- The Resilience of FDI to Natural Disasters Through Industrial Linkages
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Abstract: Abstract When do multinationals show resilience during natural disasters' To answer this, we develop a simple model in which foreign multinationals and local firms in the host country are interacted through input-output linkages. When natural disasters seriously hit local firms and thus increase the cost of sourcing local intermediate inputs, most multinationals may leave the host country. However, they are likely to stay if they are tightly linked with local suppliers and face low trade costs of importing foreign intermediates. We further provide a number of extensions of the basic model to incorporate, for example, multinationals with heterogeneous productivity and disaster reconstruction.
PubDate: 2022-04-08
- The Role of Search Frictions and Trading Ratios in Tradable Permit Markets
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Abstract: Abstract Search frictions, defined as the costs of finding trading partners, are a common feature of most permit markets. In these markets prices are not publicly available, buyers and sellers need to find their trading partners, trades often take place bilaterally, and there is often no central market-clearing mechanism. In this paper, we study the search and trading decisions of participants in a permit market with search frictions. We build an analytical model of the trading decision in a market with search frictions and show that individuals set a reservation price and an optimal search effort. The model shows that in the presence of search frictions, those who intend to trade (buy or sell) greater quantities search more. This trading behavior is not expected in a market without search frictions. Furthermore, we show that trading ratios affect the probability of trades taking place. We test the predictions of the model using a unique dataset of trades from a groundwater market with trading ratios that was designed to reduce a spatially explicit externality. We find that search frictions are significant so that buyers or sellers who trade greater quantities search more. Furthermore, we show that while the trading ratio system provides incentives to participants to reduce the spatial externality, search frictions reduces the effectiveness of the market by affecting the pool of potential trading partners for participants in the market.
PubDate: 2022-04-05
- Information, Consequentiality and Credibility in Stated Preference
Surveys: A Choice Experiment on Climate Adaptation-
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Abstract: Abstract Information provided in valuation surveys has been shown to affect stated preferences, which in turn may matter for the validity and reliability of survey-based value estimates. Although information effects are widely documented in stated preference studies, the reasons underlying the effects are less established. We focus on information about the policy context of the valuation scenario and examine two pathways which may help explain how including such information in a survey affects stated preferences. We hypothesize and empirically analyze whether the information effects on stated preferences can emerge as a result of changed perceptions about (1) the survey consequentiality and (2) the credibility of the valuation scenario upon facing the additional information. Our results confirm that the frequently found information effects can be present in the context of urban green and climate adaptation. The role of the additional information appears to be negligible for consequentiality perceptions. In contrast, the additional information strengthens the perceived credibility, and this may partially explain the information effects on stated preferences. We conclude that stated preference research may benefit from an increased attention to perceived credibility of the valuation scenario.
PubDate: 2022-04-02
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