Pollution control under emission constraints: Switching between regimes

Abstract

In this paper we develop a model of pollution control. The aim of the society is to maximize the net social benefits which are negatively affected by the emission of pollutants. We show that the presence of an upper constraint on pollution growth rate affects the actual trajectory of emissions even when emissions are far below the level where the constraint binds. We get three main results. First, we find that for a society it is optimal to take into account the impact of the latent constraint at the outset of the planning horizon and to modify the emission flows even when the constraint is still slack. Second, we analyze how the constraint works effectively in the intermediate phases before the constraint binds. One crucial result is that the constraint on pollution growth may generate the unexpected result of increasing, instead of reducing, the emissions at the beginning and in the intermediate phases before the constraint binds. Finally, we state the boundary conditions to compute the optimal trajectory of emissions switching between regimes.