Costs Of Environmental Policies Research Articles

A paler shade of green: Environmental policy under induced technical change

Conventional wisdom argues that environmental policy is less costly if it induces the development of cleaner technologies. In contrast to this argument, we show that once the second-best nature of actual economies is taken into account, the cost of environmental policy may well be larger with induced technical change (ITC) than without. Thus, ITC may lower both the emissions reductions and the welfare gains associated with environmental policy. In an endogenous policy framework, ITC may reduce the desired stringency of the policy.

ANALISIS PENERAPAN KEBIJAKAN KYOTO PROTOCOL

Increasing competition of good output which interpreted with GDP in developed and developing countries that are members of the G20, have some impact on the degradation of environmental quality. The Production of good output namely GDP cannot be separated from bad output’s production which is CO2. The need for the Kyoto protocol as an environmental policy which has been ratified by the G20 that supposing to control emission levels which can be measured by the measurement of the environmental efficiency of the G20 countries. Apart from the environmental efficiency, efficiency is not the main criterion for making a country to be standard for another country. On the other hand, the performance quality of the environment must also be taken into account. The amount of the cost of environmental policy to maximize environmental efficiency of a country but the environmental performance of the country, state inefficiency in the cost of the policy then the country has not been used in a cost-efficient technology for improving the environmental quality. The approach which has used in this study is a quantitative approach, using Data Envelopment Analysis (DEA). To specify the input and output that is used in determining the environmental efficiency using Malmquist Index. The input and output is processed by looking at differences in productivity and incorporate technological change in its interpretation. It can be concluded that the value of the environmental efficiency of some countries are on the production frontier even if the Kyoto protocol is not implemented, but with the policy of the Kyoto protocol was able to further improve the efficiency of the environment. In some other countries for example Brazil rose from 70.09% to 83.49%, while the Germany states increased by 4.43% in their environmental policy. From some countries evident show that the policy of the Kyoto protocol succeeded in carrying out its role as controlling the growth of emissions in developed and developing countries, especially the G20 members.

The economics of leadership in climate change mitigation

Which kind of reaction can a nation or group of nations expect when leading by example in climate policy? This synthesis article describes possible positive reaction mechanisms from different fields of economics, some of which have scarcely been linked to climate economics previously. One effect may be behavioural, a reaction motivated by fairness, reciprocity, or norms. Second, other nations may interpret the leader's action as a signal on his preference or the value of the objective and adjust their own policy based on the new information. Third, the leader may provide a service to other nations, which decreases their costs and risks. The followers could benefit by learning successful policies, adopting technologies, and obtaining information on the cost of environmental policy. All of these mechanisms have in common that the leader sets an example with the intention of motivating others to contribute to the public good.Policy relevanceA large body of both theoretical and empirical evidence shows that leading by example in climate change mitigation by a small group of nations has important potential for motivating other nations to follow. Modern economics has identified a range of mechanisms to explain why simple free-riding is unlikely to dominate the reaction to leadership. One such mechanism is described by behavioural economics. Humans often behave as conditional cooperators, meaning that they are willing to do their bit once a leader has done his. A second mechanism is the transmission of a credible signal that the leader considers climate change mitigation to be important. Finally, the leader gains knowledge, which spills over to other countries and thus moves their cost–benefit ratio in favour of mitigation. This evidence implies that leadership provides a promising alternative to stimulate the global cooperation that will eventually be needed to stabilize the climate.

Leadership and International Climate Cooperation

Which kind of reaction can a nation or group of nations expect when leading by example in climate policy? This literature survey describes possible positive reaction mechanisms from different fields of economics, some of which have scarcely been linked to climate economics previously. One effect may be behavioral, a reaction motivated by fairness, reciprocity or norms. Second, other nations may interpret the leader's action as a signal on his preference or the value of the objective and adjust their own policy based on the new information. Third, the leader may provide a service to other nations, which decreases their costs and risks. The followers could benefit by learning successful policies, adopting technologies and obtaining information on the cost of environmental policy. In addition to these economic mechanisms, a leading group of nations might initiate a political process of successive enlargements.

The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate

We quantify the effects of the Swedish GCR, a program to reduce oil dependence and greenhouse gas emissions in the automobile industry. We find the GCR to increase the market shares of `green cars' and its cost to be $109/tonCO2 saved, thus 5 times the price of an emission permit. Since the main green cars in Sweden are FFVs (flexible-fuel vehicles), which can switch between petrol (gasoline) and ethanol, we also account for fuel choice, which increases the cost of the program. Finally, we show that consumers would have purchased FFVs regardless of the rebate provided by the GCR.

Theory and Empirical Evidence for Carbon Cost Pass-Through to Energy Prices

Simulation models of emissions trading performance are generally based on the assumption that carbon prices are fully (or almost fully) passed through to energy prices (with pass-through rates equal or very close to one). Unfortunately, empirical analyses of wholesale electricity spot markets do not confirm this simple rule. Pass-through rates can be much lower or much higher than one and can sharply vary over time or across countries and markets. In several cases, such rates are not significantly different from zero and can even be negative. Until now, only a few authors have tried to offer a theoretical justification for the divergence between the assumptions used in simulation models and the results of empirical evidence. The main finding of these theoretical studies is that, when the characteristics of specific energy markets (e.g., organization, vertical and horizontal structure, technology mix, firms’ strategies) are adequately taken into account, the existence and degree of imperfect competition can explain why pass-through rates can vary widely and can even assume negative values. Therefore, if the models carried out to estimate the performance and costs of environmental policies are used to support policy decisions, ignoring the role of imperfect competition and the characteristics of energy markets may induce significant distortions in estimations of the impact of public action and may lead to incorrect policy calibration.

Information Difficulties: The Individual Firm and the Costs of Environmental Policies

Information Difficulties: The Individual Firm and the Costs of Environmental Policies

The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling

We explore two methods of incorporating bottom-up abatement cost estimates into top-down modeling: an economy-wide method and a sector-specific method. Carbon emissions generally depend on technology and scale. Given the technology options, abatement is possible without a substantial reduction in scale. Otherwise the change must come purely through a reduction in demand. Our analysis shows that the cost of environmental policy is considerably overestimated by top-down models if a bottom-up abatement cost curve is not included. Using the data for the Swiss economy, we demonstrate two techniques of representing an abatement function explicitly in a computable general equilibrium model: a traditional and a hybrid (discrete technology modeling) approach. The results suggest that the current climate policy in Switzerland will not be able to move the economy towards the required 10% CO2 reduction. Both approaches provide virtually the same results when the calibration process is precisely executed, which contradicts the results of previous studies.

Environmental policy, first nature advantage and the emergence of economic clusters

We explain the spatial concentration of economic activity when the cost of environmental policy – which is increasing in the concentration of pollution – acts as a centrifugal force, while positive knowledge spillovers and a site with natural cost advantage act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces which eventually determine the distribution of economic activity across space. The equilibrium solution with spatially myopic environmental policy results either in a monocentric or in a polycentric city with the major cluster at the natural advantage site. The regulator's optimum results in a bicentric city, which suggests that when environmental policy is spatially optimal, the natural advantage sites do not act as attractors of economic activity. In general, our results suggest that sites with inherent advantages can lose their comparative advantage when social costs at these spatial points are taken into account.

The Cost of Environmental Policy Under Induced Technical Change

Conventional wisdom argues that environmental policy is less costly if environmental policy induces the development of cleaner technologies. In contrast to this argument, we show that the cost of environmental policy (a reduction in emissions) may be larger with induced technical change than without. To explain this apparent paradox, we analyze three main issues. The first key issue is whether the new technology increases or reduces the marginal cost of abatement. While most analyses in environmental economics consider it natural that marginal abatement costs fall as new technology is developed, we argue that technological change may instead increase the productivity of polluting inputs, and thus marginal abatement costs. The second issue is whether environmental policy increases or decreases total investment and innovation. Even when stricter environmental policy induces some pollution-saving technological change, it may do so at the cost of a reduced overall rate of innovation, which crowds out production and consumption, and thus makes environmental policy more costly. Finally, the presence of additional distortions drive wedges between the social and private valuation of investment and pollution that may provide incentives for induced technological change with welfare-deteriorating effects.

Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

We explain the spatial concentration of economic activity, in a model of economic geography, when the cost of environmental policy - which is increasing in the concentration of emissions - and an immobile production factor act as centrifugal forces, while positive knowledge spillovers and iceberg transportation costs act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces. The above effects govern firms’ location decisions and as a result, they define the distribution of economic activity across space. We derive the rational expectations equilibrium and the social optimum, compare the outcomes and characterize the optimal spatial policies.

Does Commuting Change the Ranking of Environmental Instruments?

This paper studies the income effects of environmental policy in jurisdictions with a common labor market and a heterogeneous population (workers and polluters). A jurisdiction unilaterally improves its local environmental quality, using a subsidy, an environmental tax or command-and-control. In a closed economy, workers and polluters have some kind of a natural ranking of instruments for a given environmental objective. We find that commuting across jurisdictions may upset this natural ranking of environmental instruments. Further, we see that this inter-jurisdictional commuting exports pollution and the costs of environmental policy, possibly causing strategic behavior.

Technological change, energy consumption, and the costs of environmental policy in energy?economy?environment modelling

An increasing number of empirical models analyse the economic and environmental impacts of policies that aim at reducing global climate change. Assumptions about technology are found to play a crucial role. Applied energy-economy-environment models propose different approaches to deal with technological change. Bottom-up models take into account many alternative technologies for future energy production and learning by doing of specific technologies. Top-down models consider autonomous energy efficiency improvements, backstop technologies, technology learning, and investment in research and development in response to market conditions. This paper discusses the different treatments of technological change and their impacts on energy consumption, the costs of environment policy and the timing of abatement measures.

New Instruments for Environmental Policy: A Perspective

In the post‐war years of fast economic growth extensive government regulations to curb growing environmental problems were developed in most Western countries. This regulative activity was directed primarily at larger fixed industrial installations with locally identifiable environmental effects. Since then, however, smaller and mobile sources, which are more difficult to regulate effectively, have increased their share in pollution. Now the scale of environmental problems has also changed from being mainly a local one to being a regional, a national, an international and even a global one. Examples of this are the diffusion of durable toxic substances, eutrophication, acid rain, depletion of the higher ozone layers, and the rising temperature of the atmosphere. Moreover, perceived social costs of environmental policy and other types of regulation have risen, inspiring a worldwide movement towards deregulation and privatisation. So there is ample reason to reconsider the instruments of environmental policy used so far and to look for ways to amend environmental effectiveness and social costs. In section I some of the directions which the search for improved instruments might take are identified and in the subsequent sections certain financial, social and product‐oriented instruments are analysed in more detail.