Optimal Environmental Regulation Research Articles

Optimal environmental regulation and firms’ location choice under yield uncertainty

Optimal environmental regulation and firms’ location choice under yield uncertainty

Does Heterogeneous Environmental Regulation Induce Regional Green Economic Growth? Evidence from China

Understanding the differences in the effects of heterogeneous environmental regulation (HER) can help governments select optimal environmental regulation (ER) to promote technological innovation (TI) and green economic growth (GEG). This paper chooses Chinese provincial panel data from 2003 to 2017 to investigate the intrinsic link between HER, TI, and GEG. The results show the following: (i) The effectiveness of different types of ER is different, and market incentive-based ER (MIER) is optimal; (ii) Public participation-based ER (PPER) has played a good role in promoting TI; (iii) The impact of executive order-based ER (EOER) on TI is insignificant; (iv) Only MIER-induced TI can contribute to GEG; (v) The effects of HER vary across different regions.

Optimal environmental and trade policy combination in the presence of transboundary pollution and other market distortions

ABSTRACT Adopting optimal environmental regulation in an open economy characterized by market distortions, policy constraints and transboundary pollution, is challenging. Absent first-best international agreements, coordinated environmental taxes and trade policies are derived in the presence of internal and external market failures. Existing theoretical models are extended by allowing for the possibility of transboundary pollution for small and large nations. For large nations, combining a Pigouvian tax with free trade is not optimal, and in certain circumstances import ‘carbon’ tariffs are recommended. In addition, if constrained from addressing market distortions optimally, available policy instruments should be adjusted to tackle unaddressed market distortions.

The optimal environmental regulation policy combination for high-quality economic development based on spatial Durbin and threshold regression models

The optimal environmental regulation policy combination for high-quality economic development based on spatial Durbin and threshold regression models

The Influence Study on Environmental Regulation and Green Total Factor Productivity of China’s Manufacturing Industry

Green development is the theme of the current era. Environmental regulation is an essential means to achieve environmental benefits and improve the total green factor productivity of manufacturing facing a series of problems brought by the development model of “high investment, high pollution, and high consumption.” Appropriate environmental regulations need to be implemented to achieve economic and environmental harvest. Based on the panel data of 25 manufacturing industries from 2003 to 2016 in China, this thesis constructs a comprehensive indicator of environmental regulation and calculates the green total factor productivity, and its decomposition applied SBM directional distance function and Malmquist–Luenberger productivity index. Besides, this thesis conducts an empirical analysis of environmental regulation’s effect on green productivity in China. The main conclusions showed that the green total factor productivity of China’s manufacturing industry maintains an upward trend on the whole, and the growth of GTFP mainly depends on technological progress rather than the improvement of technical efficiency. The great differences have significant industrial heterogeneity characteristics of GTFP. A single threshold in the whole manufacturing industry, environmental regulation, and GTFP of industries are shown to be “U shape,” and the left of the inflection point is not significant. Environmental regulations and GTFP of moderation and slightly pollution industries are “U shape,” and there is no nonlinear relationship between environmental regulation intensity and GTFP in light pollution industries. Therefore, the government’s optimal environmental regulation intensity should be implemented according to the industry’s heterogeneity to prevent the phenomenon of “ineffective regulation;” it is necessary to pay attention to both technological innovation and technical efficiency.

The Welfare Effects of Opening to Foreign Direct Investment in Polluting Sectors

This article investigates how attracting foreign direct investment (FDI) in a polluting sector affects home-country welfare relative to a closed polluting sector scenario. A welfare-maximizing government sets environmental regulations while accounting for public infrastructure levels, environmental quality, and FDI in a polluting sector. We show that in a closed polluting sector, environmental regulations are increasing over infrastructure. With FDI, a similar relationship holds but the optimal environmental regulation is higher to account for the decrease in domestic producer surplus and increase in pollution damages. A critical infrastructure level exists where welfare under a closed polluting sector and welfare with polluting FDI are equal. Countries with underdeveloped infrastructure below the critical infrastructure level are better off deterring FDI entrance into the polluting sector. As infrastructure quality increases beyond the critical infrastructure level, welfare is higher with FDI than under a closed polluting sector because of an increase in consumer surplus from lower prices.

The effects of environmental regulation on China's total factor productivity: An empirical study of carbon-intensive industries

Abstract In this paper, we first identify China's carbon-intensive industries (CIIs) by constructing a carbon intensive index taking both the scale and intensity of CO2 emission into account. Then the strong version of Porter Hypothesis (PH), i.e., the positive effect of environmental regulation on total factor productivity (TFP) of China's CIIs is tested. In order to overcome the endogenous issue of model specification, two-stage least squares (2SLS) method is employed. The results indicate that there is a significant inverted U-shape relationship between environmental regulation intensity and the TFP of China's CIIs, demonstrating the inexistence of strong PH effect in a long run, and the impact of environmental regulation on CIIs is changing gradually from innovation offsets to compliance costs. In addition, optimal environmental regulation intensities for different CIIs are also studied according to their locations on the inverted U-shaped curve: the Production and Supply of Electric Power and Heat Power Industry has exceeded the optimal environmental regulation intensity, while the remaining CIIs have not reached their inflection points. Therefore, specific policy proposals should be formulated according to the different stages of environmental regulation in various industries.

Optimal Environmental Regulation Intensity of Manufacturing Technology Innovation in View of Pollution Heterogeneity

Based on panel data of 28 manufacturing industries sectors in 2005–2015 years, this paper first estimated the level of 28 manufacturing industries sectors technological progress, and then, using panel threshold technology, calculated the impact of three environmental regulation change rates on technological progress change rate to analyze the relationship between environmental regulations and technology innovation. The results show that: (1) The influence of the change rates of waste gas, wastewater and solid waste’s environmental regulation intensity towards the change rate of production technological progress has two thresholds. Only the proper change rate of environmental regulation intensity can lead to a desired change rate of production technological progress. However, there are differences in the thresholds of the change rates of three kinds of environmental regulation intensities, and the optimal change rates of waste gas, wastewater and waste solid are 15.07%–55.31%, 17.06%–38.02% and 33.12%–47.99%, respectively. (2) In the change rates of waste gas, wastewater and waste solid’s environmental regulation intensity, there are 8, 10 and 3 industries at a reasonable level, respectively, while others industries are below or above the reasonable level and unable to stimulate technical and management innovation in enterprises. Hence, to achieve a win-win situation between environmental protection and production technological progress, different environmental regulation intensities should be planned according to different pollutants in various manufacturing industries.

Optimal environmental taxes and standards: Implications of the materials balance

This paper investigates the implications of the materials balance for optimal environmental policy. We find that neglecting the materials–emissions relationship – as is common in models of optimal environmental regulation – implies biases, whose sign depends on the regulatory instrument chosen. When emissions are regulated through an emission tax, the seemingly optimal tax is too high. When regulation proceeds through the use of an emission standard, the seemingly optimal standard is too lax.

The Environment and Directed Technical Change

This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.

Direct versus indirect environmental regulation in a partially privatized mixed duopoly

This article examines the optimal environmental regulation in a mixed duopolistic market wherein environmental damage is associated with production. Specifically, the effects of partial privatization on optimal policy choices, environmental damage, and social welfare are examined under three regimes: no regulation, direct regulation on emission, and the indirect regulation via Pigouvian tax. The common result under the different regimes of regulation is that the optimal level of environmental regulation critically depends on the degree of privatization, and its relationship is not monotonous. Furthermore, results show that while privatization results in different impacts on policy choices, environmental damage, and social welfare under the three different regimes, it is mostly compatible with an improvement in environmental quality.

Optimal environmental regulation of politically influential sectors with asymmetric information

Politically motivated subsidies can have undesired environmental consequences. Asymmetric information regarding firm productivity constrains the government's ability both to redistribute income and control emissions. Taking political and information constraints as given, this article characterizes a social-welfare maximizing policy. The optimal policy uses a single instrument to achieve both goals, making income-support subsidies contingent upon pollution reduction. Price variation allows the government to design contracts with countervailing incentives, potentially eliminating some firms’ information advantage.

Optimal environmental regulation based on more than just emissions

I develop a principal-agent model of environmental regulation in which the regulator can acquire two costly signals of the firm’s abatement effort. Acquisition of the second signal is conditioned on the observed value of the first, emissions signal. The optimal contract takes the form of an emissions standard when only the emissions signal is acquired, and a set of contingent emissions standards when both signals are acquired; the standards are coupled with uniform, maximal penalties for noncompliance. Acquisition of the second signal may be optimal when intermediate values of the first signal are observed but not when extreme values are observed.

Optimal Environmental Regulation in the Presence of Other Taxes: The Role of Non-separable Preferences and Technology

Abstract Recent studies find that environmental taxes typically exacerbate pre-existing tax distortions and, therefore, the optimal pollution tax should lie below the Pigouvian level (social marginal damages). This paper analyzes a general equilibrium model with non-separable preferences and technology, relatively rare assumptions in this literature, and finds that the second-best optimal pollution tax can be above or below the first-best Pigouvian level. Surprisingly, the ordering of the two does not depend on the degree of pre-existing tax distortion. Moreover, it depends not just on the difference between the two goods' cross-price elasticities with leisure, but on that difference compared to the elasticity of demand for the polluting intermediate input. Finally, the paper shows that under plausible parameter conditions, a greater pre-existing tax distortion can increase the optimal level of environmental regulation.

Environmental regulation of a power investment in an international market

We examine the optimal environmental regulation of three Norwegian power projects: energy conservation, a natural gas fired CCGT and a new hydro project. All projects reduce emissions elsewhere in the Nordic region, and the environmental costs of these emissions are not, in general, fully reflected in market prices. We develop a theory of second best optimal regulation for this case. The optimal regulation is found to deviate substantially from a purely domestic regulation. For instance, we find it optimal to grant a substantial credit to energy conservation. The credit is sensitive to the value of reduced CO 2 emissions and whether the current Norwegian end user tax should be interpreted as an environmental or a fiscal tax.

Optimal environmental regulation under asymmetric information

A market model of environmental regulation with interdependent production and pollution abatement costs and heterogeneous firms is developed. Firms have private information about costs which have a quadratic form. Firms pursue Bayes–Nash strategies in communication with the regulator. The full information optimum cannot be attained unless gains from trade in the product market net of external damages exceed the information rents earned by firms. Aggregate output and externality levels are lower at the regulated equilibrium than at the full information social optimum.

The dynamics of optimal environmental regulation

The problem of environmental control by direct regulatory restrictions on firms' maximum discharge levels is examined. The problem can be viewed as one of optimally selecting this upper bound and of selecting a time at which it comes into force (firms are normally given time to adjust to the new regime). The firm chooses a private-cost minimising adjustment path - and the control authority needs to take account of this in setting the regulatory control. The resulting second-best solution is contrasted with the ‘first-best’ environmental adjustment path.