Differences In Abatement Costs Research Articles

Convergence in global environmental performance: assessing heterogeneity

This paper examines convergence in environmental/carbon performance by constructing a measure based on production theory, where production processes explicitly result in the production of two outputs; a good output (GDP) and a bad output (CO2). We use the derived measure to test the β-convergence hypothesis for a panel of 94 countries. The results reveal evidence in support of β-convergence in environmental, or carbon performance for the entire (global) sample and each of the sub-samples. The evidence points to a slower convergence rate for the high-income countries relative to low-income countries. Moreover, the rate of convergence does not vary with capital in the global sample, but does vary in the high-income sample, possibly reflecting differences in abatement cost induced by differences in the stringency of environmental regulation and enforcement. Additionally, we find evidence of a negative relation between environmental performance and fossil fuel share, both at the global level as well as at the middle and high sub-samples, which tend to vary with capital intensity. As such, the results conform to the results from studies on the dynamics of per capita emissions.

Energy Efficient R&D Investment and Aggregate Energy Demand: Evidence from OECD Countries

This paper present a different perspective in the debate on energy efficiency and energy demand by classifying the impact of efficiency measures into direct and indirect effect (rebound effect). It examines the direct effect of energy efficient R&D capital on energy demand. Using a sample of OECD countries, we find evidence of negative own-R&D capital elasticity with respect to energy demand. Moreover, we find evidence of heterogeneity in the predicted impact of energy efficient R&D capital, with the USA having the largest accumulated reduction in energy demand and Portugal with the smallest. Overall, our empirical results suggest a reasonable reduction in energy demand and the associated CO2 emissions from an increase in energy efficient R&D investment based on the direct effect, which differ between the countries, suggesting possible differences in abatement cost and the level of implementation of energy efficient R&D activities.

An integrated model for simulating nitrogen trading in an agricultural catchment with complex hydrogeology

Nitrogen loads to several New Zealand lakes are dominated by nonpoint runoff from pastoral farmland which adversely affects lake water quality. A ‘cap and trade’ scheme is being considered to help meet targets set for nitrogen loads to Lake Rotorua, and a numerical model, NTRADER, has been developed to simulate and compare alternative schemes. NTRADER models both the geophysics of nitrogen generation and transport, including groundwater lag times, and the economics of ‘cap and trade’ schemes. It integrates the output from several existing models, including a farm-scale nitrogen leaching and abatement model, a farm-scale management economic model, and a catchment-scale nitrogen transport model. This paper details modeling methods and compares possible trading program design features for the Lake Rotorua catchment.Model simulations demonstrate how a cap and trade program could be used to effectively achieve challenging environmental goals in the targeted catchment. However, results also show that, due to complex hydrogeology, satisfactory environmental outcomes may be not achieved unless groundwater lag times are incorporated into the regulatory scheme. One way to do this, as demonstrated here, would be to explicitly include lag times in the cap and trade program. The utility of the model is further demonstrated by quantifying relative differences in abatement costs across potential regulatory schemes.

Optimal Border Policies for Invasive Species Under Asymmetric Information

This paper analyzes the problem faced by a border protection agency if endogenous exporter abatement activities affect invasive species risk, allowing for unobservable differences in abatement cost. We show how the optimal inspection/penalty regime differs from the symmetric information case. Departing from previous literature, we allow for technical assistance, a policy instrument specifically permitted and commonly employed under Article 9 of the World Trade Organization Sanitary and Phytosanitary Agreement. We find the information asymmetry can make it optimal for the importing country to provide technical assistance grants for exporter risk abatement, even if it would otherwise be inefficient. Further, we show that fungibility of technical assistance with inputs in other sectors of the exporting economy affects the qualitative nature of optimal policy. If technical assistance has no outside value in the exporter’s country, optimal policy is characterized by a menu of contracts balancing higher tariffs with lower penalties for being caught with an invasive. If technical assistance can be used in other sectors of the exporter’s economy, it can introduce countervailing incentives making a uniform tariff/penalty combination optimal.

Evaluation of agri-environmental policies for reducing nitrate pollution from New Zealand dairy farms accounting for firm heterogeneity

Policy makers worldwide are interested in the identification of cost-effective policy instruments to reduce diffuse pollution. A large economic model representing heterogeneous farms is used to evaluate a broad set of policies for reducing nitrate regulation within a large catchment dominated by dairy production. A policy instrument that allows the level of abatement to vary among producers according to differences in abatement cost is most cost-effective. The primary goal of 26kgNha−1 can be achieved at a cost of $15ha−1 under this cap and trade policy, while a uniform cap on emissions for all farmers would be more than three times as expensive ($49ha−1). In contrast, requiring uniform reductions in stocking rate, banning the application of nitrogen fertiliser, and land retirement perform poorly. These instruments are at least three times more costly than a cap and trade policy over all simulated reductions. Moreover, the differentiated policy does not greatly alter the distribution of farm profit, relative to what exists without regulation. The use of a large, complex economic model incorporating disaggregated farms provides unique insight into the economic benefits accruing to a differentiated policy.

Does Divergence of Nutrient Load Measurements Matter for Successful Mitigation of Marine Eutrophication?

Successful implementation of an international nutrient abatement agreement, such as the Baltic Sea Action Plan (BSAP), requires consistent understanding of the baseline nutrient loads, and a perception of acceptable costs and fairness in targeted reductions of these base line loads. This article presents a general framework for identifying the implications of divergence between different nutrient load quantification approaches, with regard to both cost and fairness criteria outcomes, for the international agreement to decrease nutrient loads into the Baltic Sea as presented in the BSAP. The results indicate that even relatively small divergence in the nutrient load quantification translates into relatively large differences in abatement cost for different Baltic Sea countries. A robust result, irrespective of differences in nutrient load assessments, is a conflict between abatement cost effectiveness and fairness, with relatively poor countries facing heavy abatement cost burdens for cost-effective international load abatement.

Comparing Environmental Policy Instruments in the Presence of Imperfect Compliance – A Case Study

In this paper, we aim to include rule making, implementation, monitoring and enforcement costs into the cost comparison of policy instruments. We use a simple partial equilibrium model and apply it to the textile industry. The model includes discrete abatement functions and costly monitoring and enforcement. The case study uses individual firm data to simulate the differences in abatement costs and compliance decisions between firms. We compare combinations of regulatory instruments (emission taxes, emission standards and technology standards) and enforcement instruments (criminal fines, civil fines and transaction offers). We show that the inclusion of information, monitoring and enforcement costs indeed alters the relative cost efficiency of the different instruments.

Voluntary agreements with emission trading options in climate policy

AbstractRecent political and corporate initiatives indicate that voluntary agreements and emission trading will play a crucial role in climate policy. We show that when emission trading is integrated as an option in voluntary agreement contracts, the overall efficiency of the use of flexible climate policy instruments is strongly increased. The emission trading option, formalized as a CO2 allowance call option contract that can be traded, provides clear incentives to overcomply with the target of the voluntary agreement. The option mechanism also delivers a market price for eventual non‐compliance, based on differences in abatement costs. With an example, we illustrate that the option mechanism can result in stimulating financial benefits for the firms that are most successful in reducing emissions. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment

Least cost emission reductions in transboundary river basins: The case of diffuse emissions of nutrients in the Rhine river basin

Excessive nutrient loads to rivers and receiving water bodies cause water quality problems and a cascade of negative impacts on ecosystems and human activities. Emission reduction policies can help to reverse this situation. As is often shown in economic literature, a flat rate emissions reduction objective applied to all sources may not be cost-effective. When differences in abatement costs between sectors are taken into account, as well as differences in the relative impacts of emission reductions by various upstream regions on downstream water quality levels, the same objectives may be achieved at lower costs. A methodology to explore these cost-effective allocations for nutrient emission reduction strategies is presented for the Rhine river basin. Results indicate that emission reduction policies should well account for differences between agricultural activities and their locations when water quality targets are to be met at least costs.

A Finnish - Soviet Acid Rain Game: Noncooperative Equilibria, Cost Efficiency, and Sulfur Agreements

This study analyzes cost effectiveness in environmental cooperation between Finland and the Soviet Union. It is assumed that the aim of both countries is to attain a given target deposition level at minimum possible sulfur abatement costs. Cost-effective cooperation is compared to noncooperative equilibrium and to the agreement on sulfur emissions between these two countries. It is shown that the agreement is not cost-effective, implies higher abatement costs than under noncooperation, and is strategically unstable. However, the cost differences and the incentives to cheat are small. The computations reveal that the main source of potential cooperation benefits is not asymmetrical emission transportation or differences in abatement costs but rather different target deposition levels for Finland and the Soviet Union.

Cost-Minimizing Regulation of Sulfur Emissions: Regional Gains in Electric Power

Environmental regulations set maximum allowable rates for sulfur dioxide emissions from electric utilities. By ignoring firm differences in marginal abatement costs and preventing emissions trading, these standards do not minimize the cost of reducing einissions. This paper estimates marginal abatement cost functions for 56 utilities for 1973-79. Marginal costs vary substantially across firms due to differences in the price of low and high sulfur fuels and the intensity of regulation. The potential savings from a cost minimizing reallocation of abatement resources are estimated for five regions. Current expenditures are found to be 47% higher than cost minimizing levels. I MPLEMENTATION of the 1970 Clean Air Act Amendments relies extensively on technology-based emission standards. Economists long have recognized that these standards can result in an inefficient allocation of pollution control resources.' Engineering-based restrictions ignore or oversimplify differences in abatement costs among polluters. Limited empirical research suggests that current standards result in substantially higher costs, as much as ten times higher, than a cost-minimizing regulatory scheme.2 These studies, however, are based on engineering estimates of marginal abatement costs. The models often assume that all polluters adopt control technologies that are required only for new plants and that have been largely unadopted by polluting firms.3 The impact of changing factor prices on marginal abatement costs typically is ignored. The difficulty is that the resulting estimates of the cost of regulation neither adequately reflect the range of control options available to polluters nor take into account how polluters actually have responded to environmen-