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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. 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.
    2. 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.
    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. Joshua Elliott & Don Fullerton, 2013. "Can a Unilateral Carbon Tax Reduce Emissions Elsewhere?," CESifo Working Paper Series 4113, CESifo Group Munich.
    5. 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.
    6. 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," CER-ETH Economics working paper series 13/174, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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