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Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage

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  • Meredith L. Fowlie
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    Abstract

    Environmental regulation of industrial pollution is often incomplete; regulations apply to only a subset of facilities contributing to a pollution problem. Policymakers are increasingly concerned about the emissions leakage that may occur if unregulated production can be easily substituted for regulated production. This paper analyzes emissions leakage in an incompletely regulated and imperfectly competitive industry. The analytical model is used to simulate outcomes under incomplete, market-based regulation of carbon dioxide emissions in California's electricity sector. Regulation that exempts out-of-state producers achieves approximately one-third of the total emissions reductions achieved under complete regulation at more than twice the cost per ton. (JEL L94, Q53, Q58)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.1.2.72
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

    Volume (Year): 1 (2009)
    Issue (Month): 2 (August)
    Pages: 72-112

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    Handle: RePEc:aea:aejpol:v:1:y:2009:i:2:p:72-112

    Note: DOI: 10.1257/pol.1.2.72
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    Cited by:
    1. Bruno Lanz & Thomas F. Rutherford & John E. Tilton, 2013. "Subglobal Climate Agreements and Energy-intensive Activities: An Evaluation of Carbon Leakage in the Copper Industry," The World Economy, Wiley Blackwell, vol. 36(3), pages 254-279, 03.
    2. Bushnell, James & Chen, Yihsu & Zaragoza-Watkins, Matthew, 2014. "Downstream regulation of CO2 emissions in California's electricity sector," Energy Policy, Elsevier, vol. 64(C), pages 313-323.
    3. Amit K. Biswas & Mohammad Reza Farzanegan & Marcel Thum, 2011. "Pollution, Shadow Economy and Corruption: Theory and Evidence," CESifo Working Paper Series 3630, CESifo Group Munich.
    4. Michael Greenstone & B. Kelsey Jack, 2013. "Envirodevonomics: A Research Agenda for a Young Field," NBER Working Papers 19426, National Bureau of Economic Research, Inc.
    5. Elliott, Joshua & Fullerton, Don, 2014. "Can a unilateral carbon tax reduce emissions elsewhere?," Resource and Energy Economics, Elsevier, vol. 36(1), pages 6-21.
    6. John Feddersen, 2012. "Why we can't confirm the pollution haven hypothesis: A model of carbon leakage with agglomeration," Economics Series Working Papers 613, University of Oxford, Department of Economics.
    7. Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
    8. David F. Drake, 2011. "Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions," Harvard Business School Working Papers 12-029, Harvard Business School.
    9. James B. Bushnell & Erin T. Mansur, 2011. "Vertical Targeting and Leakage in Carbon Policy," American Economic Review, American Economic Association, vol. 101(3), pages 263-67, May.
    10. Johnson, Erik Paul, 2014. "The cost of carbon dioxide abatement from state renewable portfolio standards," Resource and Energy Economics, Elsevier, vol. 36(2), pages 332-350.
    11. Yoshifumi Konishi & Nori Tarui, 2013. "Intra-Industry Reallocations and Long-run Impacts of Environmental Regulations," Working Papers 201307, University of Hawaii at Manoa, Department of Economics.
    12. Robert A. Ritz, 2009. "Carbon leakage under incomplete environmental regulation: An industry-level approach," Economics Series Working Papers 461, University of Oxford, Department of Economics.
    13. Joseph, Siny & Lavoie, Nathalie & Caswell, Julie A., 2014. "Implementing COOL: Comparative welfare effects of different labeling schemes," Food Policy, Elsevier, vol. 44(C), pages 14-25.
    14. Morihiro Yomogida & Nori Tarui, 2013. "Emission Taxes and Border Tax Adjustments for Oligopolistic Industries," Working Papers 201317, University of Hawaii at Manoa, Department of Economics.
    15. Khanna, Neha, 2013. "Output, emissions, and technology: Some thoughts," Economics Letters, Elsevier, vol. 118(2), pages 284-286.

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