Tom Tietenberg

Emissions trading : principles and practice

Figures and Tables Preface Abbreviations Introduction Describing the Evolution The Evolution of Emissions Trading The Evolution of Design Features An Overview of the Book The Conceptual Framework The Regulatory Dilemma The Cost-Effectiveness Framework Cost-Effective Permit Markets The Role of Transactions Costs The Role of Administrative Costs The Role of Technical Change Summary The Consequences of Emissions Trading The Nature of the Evidence Ex Ante Evaluations: The Evidence Ex Post Evaluations: The Evidence Summary The Spatial Dimension Difficulties in Implementing an Ambient Permit System Possible Alternatives Summary The Temporal Dimension Borrowing, Banking, and the Nature of the Environmental Target Linking Emissions and Pollutant Concentrations The Role of Banking and Borrowing Strategies for Controlling Seasonal or Episodic Peaks Summary The Initial Allocation Initial Allocation Approaches Comparing the Allocation Approaches Cost-Effectiveness Implications of the Initial Allocation Summary Market Power Permit Price Manipulation: Conceptual Models Leveraging Power Between Output and Permit Markets Ex Ante Simulations Results from Experimental Studies Mechanisms for Controlling Market Power Programmatic Design Features That Affect Market Power Summary Monitoring and Enforcement The Nature of the Domestic Enforcement Process The Nature of the International Enforcement Process The Economics of Enforcement Current Enforcement Practice Summary Lessons Lessons About Program Effectiveness Lessons About Instrument Choice and Program Design Concluding Comments References Index

Disclosure Strategies for Pollution Control

Disclosure strategies, which involve public and/or private attempts to increase the availability of information on pollution, form the basis for what some have called the third wave in pollution control policy (after legal regulation – the first wave – and market-based instruments – the second wave). While these strategies have become common in natural resource settings (forest certification and organic farming, for example), they are less familiar in a pollution control context. Yet the number of applications in that context is now growing in both OECD and developing countries. This survey will review what we know and don’t know about the use of disclosure strategies to control pollution and conclude with the authors sense of where further research would be particularly helpful.

The Status and Prospects of the Economics Major

The objects, methods of instruction, content, and accomplishments of the undergraduate major in economics at institutions of higher education within the United States are discussed. Recommendations are provided for teaching students to “think like economists.”

Transferable discharge permits and the control of stationary source air pollution : a survey and synthesis

The appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal. When competition is not a foregone conclusion, the question naturally arises as to how a ...

Market Failure in Incentive-Based Regulation: The Case of Emissions Trading*

Abstract Among the existing evaluations of the US EPAs emissions trading program, a consensus has emerged. While the program has resulted in significant cost savings, it has not even approximately achieved a cost-effective allocation of the control responsibility. The cost savings have been smaller and the trades fewer than might have been expected at the outset of the program. In this article we explore one hypothesis which purports to explain the divergence between the cost-minimizing and the observed pattern of trades for nonuniformly mixed pollutants. The “trading process hypothesis” attributes some significant proportion of this divergence to the nature of the process by which emission reduction credits are traded under the bubble policy. An examination of actual bubble trades reveals that the actual trading process is sequential and bilateral and, hence, differs considerably from the implicit process modeled in the existing empirical studies. Simulations of this more realistic trading process suggest that the resulting equilibria deviate considerably from cost-effective allocations of the control responsibility.

The Tradable Permits Approach to Protecting the Commons: What Have We Learned?

This essay reviews the implementation experience with three main applications of tradable permit systems: air pollution control, water supply and fisheries management. Opening with a brief summary of the theory behind these programs and both the economic and environmental consequences anticipated by this theory, it proceeds with a description of the common elements these programs share and the design questions posed by the approach. These include the setting of the limit on access, the initial allocation of rights, transferability rules (both among participants and across time) as well as procedures for monitoring and enforcement. It continues by examining how these design questions have been answered by these three applications and how the answers have been influenced by changing technology, increased familiarity with the system and a desire to respond to some of the controversies surrounding the use of these approaches. The hard evidence on the economic and environmental consequences of adopting these approaches is juxtaposed with the expectations created by the economic theory of tradable permits. The final section draws together some tentative lessons that can be drawn from this experience.

Tradeable permits for pollution control when emission location matters: What have we learned?

Our knowledge about tradeable permit approaches to pollution control has grown rapidly in the two decades in which they have received serious analytical attention. Not only have the theoretical models become more focused and the empirical work more detailed, but we have now had over a decade of experience with them in the U.S. This article draws upon economic theory, empirical studies, and actual experience with implementation to summarize what we have learned about applying tradeable permits to air pollution control in the special circumstance where the spatial aspects of the problem are a prime consideration.

The empirical properties of two classes of designs for transferable discharge permit markets

Abstract Previous work by Atkinson and Lewis ( J. Environ. Econ. Manag. 1 , 237–250 (1974)) and Anderson et al. (“An Analysis of Alternative Policies for Attaining and Maintaining a Short-Term NO 2 Standard,” MATHTECH, Inc., Princeton, N.J., 1979) has indicated the tremendous cost advantages to be achieved by moving from a policy based on emission standards to one based on marketable emission permits. As Tietenberg ( Land Econ. 56 , 391–416 (1980)) points out, however, neither of the major permit designs treated in the literature are optimal from all points of view. This has triggered a search for alternative permit designs, which, while they may not minimize compliance costs, have sufficient other virtues as to make them attractive on other grounds. The purpose of this paper is to examine, within the context of an empirical mathematical programming model, the air quality, emission, and cost consequences of two classes of the permit designs which can be implemented in the absence of information on control costs. This case study involves particulate control in St. Louis.

The structure of penalties in environmental enforcement: An economic analysis

The enforcement of environmental laws has undergone some rather dramatic changes over the last decade. Civil and criminal monetary penalties have been imposed more frequently on violators and the size of the penalties has increased.’ Individuals, both corporate employees and officers, have become more common targets for penalties.2 Finally, incarceration has not only become a more commonly imposed sanction,3 but the resulting jail sentences are longer.4 Despite this trend toward increased use of individual sanctions in the form of fines or incarceration, the efficiency implications of this trend have received little attention. The related work that has been published falls into two categories. The first considers the relative impacts or merits of holding firms liable for the actions of their employees, a principle known as “vicarious liability” [31, 32, 11, 29, 151. Arguments in favor of vicarious liability presume that the firm can sanction employee malfeasance internally through compensation schemes that are tied to

Derived decision rules for pollution control in a general equilibrium space economy

Abstract This paper attempts to narrow the gap between economic theory and policy inthe field of environmental pollution control by expanding the traditional general equilibrium model to include the kind of spatial detail that is important for describing pollution. This model is then used to derive theorems which provide the basis for the development of spatially differentiated, tax-based decision rules. In spite of the fact that these rules require no information on either damage costs or control costs, they maintain many of the desirable properties of the more conventional informationally intensive tax policies.