US SO2 Research Articles

Exogeneity in Climate Econometrics

Human activity affects the Earth's climate while itself being affected by climate change - from rising sea levels to productivity effects of temperatures, natural disasters and climate-driven conflict. To empirically estimate the impact of humanity onto climate and vice versa, climate econometrics has emerged as a field split into two strands: one side focusing on conditional models of the economy taking climate as given, the other side modelling and predicting climate taking economic activity as given. However, economic and environmental systems are determined with feedbacks in both directions. Conditional modelling of one side can be informative about the underlying parameters of interest (e.g. climate impacts onto the economy, or climate sensitivity) if conditions on weak, strong, and super exogeneity are met. Here I attempt to reconcile the two strands of the climate-econometric literature by considering a full (albeit simple) empirical climate-economic system and the conditions under which the system can be studied by only looking at the conditional economic or the climate side. Weak exogeneity is required for valid conditioning, strong exogeneity - required for conditional forecasting - lends itself to the concept of climate-takers and climate-setters (countries measurably affecting climate), while super-exogeneity can be interpreted as policy invariance for the economic impact side, and as a `no-tipping point' condition on the physical side. An application to a simple bivariate climate-economic system using US SO2 emissions and temperatures highlights how these concepts can be applied in practice. A system analysis in climate econometrics allows us to move towards fully-coupled empirical climate-economic models consistent with the underlying physics and fully accounting for the necessary feedbacks, to obtain estimated impacts in both directions. While far from trivial in large systems, this is necessary to obtain rigorous empirical estimates of the impact of climate on humanity and vice versa.

The ‘advancedness’ of knowledge in pollution-saving technological change with a qualitative application to SO2 cap and trade

This paper investigates the extent to which ‘advanced’ knowledge and technology played a role in the SO2 compliance process in electric power plants under the US SO2 cap and trade program. It investigates the hypothesis that advanced knowledge and technology dedicated to pollution abatement played a minor role in that process while relatively unadvanced forms of knowledge and technology played the main role. New qualitative evidence in this somewhat well-known case is considered: interviews with electric power plant R&D managers, plant-level compliance data, and the changes undergone by boiler manufacturer, coal mining and railroad companies in the supply chain. Advanced knowledge dedicated to pollution abatement like the type now being emphasised for carbon capture and storage (CCS) played a minor role, while unadvanced knowledge and technology played the main role. While there are clearly limits to how far this unadvanced knowledge and technology finding can be generalised to GHG emission control, the specific aspects of the SO2 case that might be broadly informative of the response to GHG emissions are elaborated. In any case, the paper shows how ‘innovation’ in pollution control can be inexpensive and effective without involving very much advanced knowledge and technology for pollution control.

Climatic effects of 1950–2050 changes in US anthropogenic aerosols – Part 1: Aerosol trends and radiative forcing

Abstract. We calculate decadal aerosol direct and indirect (warm cloud) radiative forcings from US anthropogenic sources over the 1950–2050 period. Past and future aerosol distributions are constructed using GEOS-Chem and historical emission inventories and future projections from the IPCC A1B scenario. Aerosol simulations are evaluated with observed spatial distributions and 1980–2010 trends of aerosol concentrations and wet deposition in the contiguous US. Direct and indirect radiative forcing is calculated using the GISS general circulation model and monthly mean aerosol distributions from GEOS-Chem. The radiative forcing from US anthropogenic aerosols is strongly localized over the eastern US. We find that its magnitude peaked in 1970–1990, with values over the eastern US (east of 100° W) of −2.0 W m−2 for direct forcing including contributions from sulfate (−2.0 W m−2), nitrate (−0.2 W m−2), organic carbon (−0.2 W m−2), and black carbon (+0.4 W m−2). The uncertainties in radiative forcing due to aerosol radiative properties are estimated to be about 50%. The aerosol indirect effect is estimated to be of comparable magnitude to the direct forcing. We find that the magnitude of the forcing declined sharply from 1990 to 2010 (by 0.8 W m−2 direct and 1.0 W m−2 indirect), mainly reflecting decreases in SO2 emissions, and project that it will continue declining post-2010 but at a much slower rate since US SO2 emissions have already declined by almost 60% from their peak. This suggests that much of the warming effect of reducing US anthropogenic aerosol sources has already been realized. The small positive radiative forcing from US BC emissions (+0.3 W m−2 over the eastern US in 2010; 5% of the global forcing from anthropogenic BC emissions worldwide) suggests that a US emission control strategy focused on BC would have only limited climate benefit.

Investment and Environmental Regulation: Evidence on the Role of Cash Flow

We exploit the heterogeneity in pollution permits allocation and the variation in the permits price to identify a new channel by which cap-and-trade programs can affect firm decisions: they may affect investment through the impact of free pollution permits on the firms cash flow. A firm with a permit allocation higher than its emissions will have a higher cash inflow if the price of permits increases, whereas a firm whose emissions are higher than its permit allocation will have a higher cash outflow if the price of permits increases. In the margin they are both paying the same for pollution but the cash flow consequences of the change in permit prices differ. Using data from investor-owned utilities participating in the US SO2 program, we find that for smaller firms the permit cash flow is positively related to capital expenditures. Small firms with a high permit cash flow invest more than small firms with a lower permit cash flow. This effect is consistent with smaller firms in this industry facing financial constraints.

Investment and Environmental Regulation: Evidence on the Role of Cash Flow

We exploit the heterogeneity in pollution permits allocation and the variation in the permits price to identify a new channel by which cap-and-trade programs can affect firm decisions: they may affect investment through the impact of free pollution permits on the firms cash flow. A firm with a permit allocation higher than its emissions will have a higher cash inflow if the price of permits increases, whereas a firm whose emissions are higher than its permit allocation will have a higher cash outflow if the price of permits increases. In the margin they are both paying the same for pollution but the cash flow consequences of the change in permit prices differ. Using data from investor-owned utilities participating in the US SO2 program, we find that for smaller firms the permit cash flow is positively related to capital expenditures. Small firms with a high permit cash flow invest more tan small firms with a lower permit cash flow. This effect is consistent with smaller firms in this industry facing financial constraints.

The Impact of Informational Costs in Quantity Regulation of Pollutants: The Case of the European Emissions Trading Scheme

There is extreme heterogeneity of firms regulated under the European Emissions Trading Scheme (EU ETS) in terms of emissions levels and employed technology. We present a model that shows that behavior of firms under quantity regulation can differ strongly, dependent on the characteristics of the firms when the assumption of full information is relaxed. If there are informational costs with regard to abatement options and costs, relatively small emitters and emitters with relatively complex technology will face a threshold for evaluating abatement options and costs. We compare the EU ETS to the US SO2 trading scheme and show that adjoining markets to quantity regulation, supplying goods (i.e. abatement technology) or services (i.e. assistance in permit trading), play a crucial role to reduce transactions costs. Given high complexity of technology and/or strongly limited demand for certain technologies, markets will fail to provide appropriate assistance, generating efficiency losses. The presence of technological complexity and heterogeneous firms can have major consequences for the design of environmental regulation, when considering transaction costs.

Emission trading: Participation enforcement determines the need for compliance enforcement

We identify and explain significant differences between the compliance enforcement systems of three cap-and-trade programmes: the European Union’s Emission Trading Scheme (EU-ETS), the US SO2emission trading programme and the Kyoto Protocol. Because EU-ETS’s compliance enforcement system is somewhat less potent than that of US SO2, but vastly more potent than Kyoto’s, it might be tempting to predict that EU-ETS will (1) not quite achieve the SO2programme’s near-perfect compliance rates, yet (2) achieve significantly better compliance rates than Kyoto. However, we offer a novel theoretical framework suggesting that how compliance enforcement affects compliance will depend on how the emission trading programme addresses participation. We conclude that while (1) will likely prove correct, (2) will not; Kyoto may even outperform EU-ETS compliance-wise because whereas EU-ETS (and US SO2) specify mandatory participation, most Kyoto member countries participate voluntarily.

U.S. Sulfur Dioxide Emissions Trading Program: Results and Further Applications

The use of emissions trading (cap and trade) is gaining worldwide recognition as an extremely effective policy tool. More than 4 million tons of SO2 have been reduced annually from sources participating in the US SO2 emissions trading program. Ambient SO2 levels and sulfate deposition have decreased by over 25 percent in the most sensitive ecosystems. By harnessing market forces, the program has led to significant cost savings. This paper discusses the results of the US SO2 emissions trading program and emerging efforts in the US and around the world to use emissions trading.

00/00865 The US SO2 auction: analysis and generalization

00/00865 The US SO2 auction: analysis and generalization

The effect of SO2 emission controls on critical load exceedances for lakes in Southeastern Canada

The UN ECE definition of critical load (CL) involving protection of aquatic ecosystem structure and function was adopted by using pH 6.0 as a damage threshold. Critical loads were determined for 4 lake clusters in SE Canada. An Integrated Assessment Model (IAM) was used to estimate steady-state lake pH distributions for each cluster for steps of wet sulphate (SO42−) deposition in the range 6 to 30 kg.ha−1.yr−1. The CLs were interpolated from the damage vs deposition relationships and are, if anything, over-estimated for a number of reasons. Critical load values were <6, 6.9, 8.0 and 13.2 kg wet SO42−.ha−1.yr−1 for the Kejimkujik (Nova Scotia), Montmorency (Québec), Algoma (Ontario), and Sudbury (Ontario) clusters, respectively. Wet SO2−4 deposition presently exceeds the CLs for all Canadian clusters by ∼7 to 12 kg.ha−1.yr−1. Moreover, it is also expected to exceed them by ∼6 to 10 kg wet SO2−4.ha−1.yr−1 even after all SO2 emission controls required by the Canada/US Air Quality Agreement are finally implemented. Further control of both Canadian and US SO2 emissions to achieve lower SO42− deposition will be needed to reduce the magnitude of the CL exceedances.

The effect of SO2 emission controls on critical load exceedances for lakes in Southeastern Canada

The UN ECE definition of critical load (CL) involving protection of aquatic ecosystem structure and function was adopted by using pH 6.0 as a damage threshold. Critical loads were determined for 4 lake clusters in SE Canada. An Integrated Assessment Model (IAM) was used to estimate steady-state lake pH distributions for each cluster for steps of wet sulphate (SO42−) deposition in the range 6 to 30 kg.ha−1.yr−1. The CLs were interpolated from the damage vs deposition relationships and are, if anything, over-estimated for a number of reasons. Critical load values were <6, 6.9, 8.0 and 13.2 kg wet SO42−.ha−1.yr−1 for the Kejimkujik (Nova Scotia), Montmorency (Québec), Algoma (Ontario), and Sudbury (Ontario) clusters, respectively. Wet SO2− deposition presently exceeds the CLs for all Canadian clusters by ∼7 to 12 kg.ha−1.yr−1. Moreover, it is also expected to exceed them by ∼6 to 10 kg wet SO2−.ha−1.yr−1 even after all SO2 emission controls required by the Canada/US Air Quality Agreement are finally implemented. Further control of both Canadian and US SO2 emissions to achieve lower SO42− deposition will be needed to reduce the magnihide of the CL exceedances.