Robert E. Kohn

The US market for SO2 permits: Policy implications of the low price and trading volume

Abstract The price of SO2 permits and the volume of trading under the US Acid Rain Program have been lower than expected. This can be explained by the creation and distribution of more permits than were initially authorized, by the sale of permits by high cost abaters who are subject to more stringent local emission constraints or who have irreversibly invested in high cost abatement technologies and by the deregulation of the natural gas and railroad industries which, in combination with incentives for cost-cutting under the new market approach to SO2 control, has lowered marginal costs of abatement curves and made them more uniform across powerplants. The low price of permits and low trading volume are evidence that market approaches to pollution control can be more cost-effective than command and control regulations. The effect of public policies and technological changes on the allowance market are usefully examined in the context of an ideal market, in which the equilibrium price of allowances equals the marginal cost of abatement of individual powerplants. Using recent data from Coggins and Swinton (1996), we are able to explain the current price of permits with some accuracy.

Transactions costs and the optimal instrument and intensity of air pollution control

ConclusionsTo what extent do the transactions costs of implementing alternative instruments for pollution control affect the choice of the optimal instrument and the efficient intensity of control under that instrument? In a comparison of Least-Cost Regulatory Standards and Revenue-Neutral Pigouvian Taxes, it is the higher transactions costs of implementing the taxes that make Pigouvian Taxes the more costly of the two instruments. However, a more practical comparison of instruments is between Politically Feasible Standards, Marketable Discharge Permits, and Revenue-Raising Pigouvian Taxes. Here, the relationship between the transactions costs of implementation and total pollution costs are in an almost linear inverse relationship. The lower the pollution costs associated with a particular instrument, and therefore the more desirable the instrument, the higher the transactions costs of implementation. Other factors such as political distortion and welfare gains prove to be more important than the transactions costs of implementation.Assuming that variable transactions costs decrease with the optimal level of pollution for regulatory standards but increase with the optimal level for market oriented instruments, an accounting of transactions costs results in less stringent control in the case of regulatory standards and more stringent control in the case of market oriented instruments. However, the percentage effect is very small. Moreover, it is smaller in both cases if marginal pollution damage rises with the level of pollution, as it is usually presumed to do, rather than remain constant as assumed in this paper for purposes of aggregation. A major conclusion of this paper is that Pigouvian Taxes are the superior instrument for pollution control when the raising of public revenues is a desired objective. However, the various conclusions of this paper should be viewed as tentative because the data on which they are based are no longer current. Moreover, the critical estimates of transactions costs are somewhat dubious. It is hoped that new data will be collected for answering the questions raised in this paper. When this is done, a more powerful approach, one that obviates the need for the artificial, one-dollar-damaging, aggregate pollutant, would be an expanded linear programming model in which the transactions costs are treated as separate coefficients of the individual pollution control methods. Separate sets of such coefficients, each corresponding to a different policy instrument such as Least-Cost Regulatory Standards, Revenue-Neutral Pigouvian Taxes, etc., would enable the investigator to directly derive solutions that specify the optimal policy instrument as well as the optimal set of pollution control method activity levels.

A Pilot Study Of the St.Louis Airshed

A linear programming model for air pollution control, adapted to the St. Louis airshed for the year 1975, is described in this paper. It is assumed that air quality goals can be achieved by reducing total emissions of each pollutant to given allowable levels. The pollutants considered are carbon monoxide, hydrocarbons, nitrogen oxides, sulfur dioxide, and particulates. With the exception of carbon monoxide, the allowable levels are related to air quality goals adopted by the Missouri Air Conservation Commission. The computer solution indicates the set of control methods which achieves the required pollutant reductions at the least total cost. The minimal cost of reducing the five pollutants to permissible levels in 1975 is

ISRAEL'S NEED TO IMPORT FRESHWATER

35 million a year. Of this cost,

Risk-Neutrality versus Risk A version in a Model of Production Efficiency under Uncertainty

15 million is for the control of coal burning sources. The use of low sulfur coal proved to be less important than processes for removing sulfur dioxide from the flue gas of power plants and the substitution of natural gas for coal. The solution indica...

An additive tax and subsidy for controlling automobile pollution

Although Israel plans to remain self-sufficient in freshwater, that goal comes at a high cost. Both Israel and its neighbors would be better off if countries with an abundance of freshwater exported some of that resource to Israel, which would in turn share it with Palestine and Jordan. A simple 2×2×1 variant of the Heckscher-Ohlin-Samuelson model, incorporating costs of transport, illustrates the advantages of international trade in freshwater. Not only does trade foster an efficient allocation of a scarce resource across countries, but also, by establishing a highly visible market price for importing water, promotes its efficient allocation among competing uses within countries. The classic marginal conditions for efficient allocation of water across and within countries, that the present model derives, are applied to empirical data that illustrate how much more efficiently water can be utilized in the Middle East. Given the long and tragic background of strife and distrust in that part of the world, it is a hopeful development that Turkey is now shipping freshwater to Cyprus and is in talks with Israel to extend this trade to that country. There is also the potential for Egypt and Lebanon to profitably export water to Israel. Such trade will not only promote prosperity but, conceivably, can also reduce conflict and deter war in the region.

The effect of emission taxes and abatement subsidies on market structure: Comment

In an economy in which pollution from one sector is multiplicatively and stochastically damaging to another sector, there is efficiency when the expected ratio of the marginal rate of substitution to the marginal rate of transformation equals unity. When this ratio of variables is decomposed, the expected marginal rate of substitution approximately equals the expected marginal rate of transformation minus a correction based on covariance and a second correction based on variance. Under one definition of risk-neutrality both corrections vanish, whereas under another definition, it is only the correction based on covariance that vanishes. [Q25]

A Cost-Effectiveness Model for Air Pollution Control with a Single Stochastic Variable

It is well known that a unit tax on the emissions of polluting firms and an equal unit subsidy for emissions abated are not symmetrical instruments. However, when no entry-exit conditions are at stake, as in the case of polluting households, the tax and subsidy are equivalent. Moreover, any combination of the two, summing to marginal pollution damage, is also efficient. This strong result is applied to the case of an economy in which each household owns an automobile. It also extends to the case in which some households rely on mass-transit or car-pooling, provided that such households also receive the subsidy.

Convex combinations of recycling incentives

Abstract Conrad and Wang (1993, International Journal of Industrial Organization, 11, 499–518) determine that a tax on emissions decreases the total output of a polluting industry, but if demand is sufficiently inelastic, can increase the number of firms in that industry. This follows from their proposition that the tax reduces the scale of the polluting firm. In contrast, the scale of the polluting firm in the present model increases when there are increasing returns to scale in abatement. Whereas Conrad and Wang extend their results to cases of monopolistic competition, the present paper is confined to perfect competition but extends the analysis to the pollution-damaged industry.

Environmental Barriers to Trade: The Case of Endangered Sea Turtles

Abstract A cost-effectiveness model for air pollution control is constructed in which the total cost of abatement is minimized for a given set of air quality goals and for varying degrees of confidence that the goals will be achieved. The probabilistic element is confined to a single stochastic variable, annual average wind velocity. While this is a simplified model, the results indicate that the cost of increased certainty rises rapidly. This suggests that air quality goals should be expressed not only in terms of maximum pollutant concentrations but also the minimum probabilities that these maximums will not be exceeded.