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Efficiency Costs of Meeting Industry-Distributional Constraints Under Environmental Permits and Taxes

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Author Info
A. Lans Bovenberg () (Tilburg University and CentER)
Lawrence H. Goulder () (Stanford University, NBER, and Resources for the Future)
Derek J. Gurney () (Stanford University)

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Abstract

Many pollution-related industries have political influence sufficient to block policies that would harm their profits. A politically realistic approach to environmental policy seems to require avoiding significant profit-losses to these industries. Using analytically and numerically solved equilibrium models,we examine how the efficiency costs of emissions permits and tax policies change when the policies are designed to insulate profits. The relative increase in efficiency cost associated with protecting profits is highly sensitive to the extent of pollution abatement. Expanded opportunities for end-of-pipe treatment of pollution reduce the absolute efficiency costs of abatement policies, but have little impact on the relative increase in efficiency costs attributable to the constraint on profits. Ordering information: This article can be ordered from https://pubs3.rand.org/cgi-bin/rje/pdf.cgi.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 4 (Winter)
Pages: 950-970
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Handle: RePEc:rje:randje:v:36:y:2005:4:p:950-970

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March. [Downloadable!] (restricted)
  2. Newell, Richard & Anderson, Soren, 2003. "Prospects for Carbon Capture and Storage Technologies," Discussion Papers dp-02-68, Resources For the Future. [Downloadable!]
  3. Fullerton, Don & Metcalf, Gilbert E., 2001. "Environmental controls, scarcity rents, and pre-existing distortions," Journal of Public Economics, Elsevier, vol. 80(2), pages 249-267, May. [Downloadable!] (restricted)
    Other versions:
  4. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November. [Downloadable!] (restricted)
  5. Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002. "That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B3-1, International Conferences on Panel Data. [Downloadable!]
  6. Farrow, Scott, 1999. "The duality of taxes and tradable permits: A survey with applications in Central and Eastern Europe," Environment and Development Economics, Cambridge University Press, vol. 4(04), pages 519-535, October. [Downloadable!]
  7. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," Discussion Papers dp-02-15-, Resources For the Future. [Downloadable!]
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  8. Carlo Carraro & Gilbert E. Metcalf, 2000. "Behavioral and Distributional Effects of Environmental Policy: Introduction," Discussion Papers Series, Department of Economics, Tufts University 0011, Department of Economics, Tufts University. [Downloadable!]
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  9. A. Lans Bovenberg & Lawrence H. Goulder, 2000. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does it Cost?," NBER Working Papers 7654, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Environmental Taxation and Regulation," NBER Working Papers 8458, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June. [Downloadable!] (restricted)
    Other versions:
  12. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August. [Downloadable!] (restricted)
  14. Burtraw, Dallas & Palmer, Karen & Banzhaf, H. Spencer, 2002. "Efficient Emission Fees in the U.S. Electricity Sector," Discussion Papers dp-02-45, Resources For the Future. [Downloadable!]
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  15. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90 National Bureau of Economic Research, Inc. [Downloadable!]
  16. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bovenberg, Lans & Goulder, Lawrence H. & Jacobson, Mark R., 2006. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Discussion Paper 127, Tilburg University, Center for Economic Research. [Downloadable!]
  2. Don Fullerton, 2008. "Distributional Effects of Environmental and Energy Policy: An Introduction," NBER Working Papers 14241, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. A. Lans Bovenberg & Lawrence H. Goulder & Mark R. Jacobsen, 2007. "Industry Compensation and the Costs of Alternative Environmental Policy Instruments," NBER Working Papers 13331, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Susana Ferreira, 2007. "Trade Policy and Natural Resource Use: The Case for a Quantitative Restriction," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(2), pages 361-376, June. [Downloadable!] (restricted)
  5. repec:bep:eapcon:v:5:y:2006:i:1:p:1506-1506 is not listed on IDEAS
    Other versions:
  6. Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005. "Allocation of CO2 Emissions Allowances in the Regional Greenhouse Gas Cap-and-Trade Program," Discussion Papers dp-05-25, Resources For the Future. [Downloadable!]
  7. Isabelle Sin & Emma Brunton & Joanna Hendy & Suzi Kerr, 2005. "The likely regional impacts of an agricultural emissions policy in New Zealand: Preliminary analysis," Others 0509010, EconWPA. [Downloadable!]
    Other versions:
  8. Miguel Rodríguez & Xavier Labandeira, 2007. "Wide and Narrow Approaches in Climate Change Policies: The Case of Spain," Working Papers 2007-39, FEDEA. [Downloadable!]
  9. Cameron Hepburn & John K.-H. Quah & Robert A. Ritz, 2008. "Emissions Trading with Profit-Neutral Permit Allocations," Economics Papers 2008-W12, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  10. Parry, Ian W.H., 2006. "Are the Costs of Reducing Greenhouse Gases from Passenger Vehicles Negative?," Discussion Papers dp-06-14-rev, Resources For the Future. [Downloadable!]
    Other versions:
  11. Parry, Ian W.H. & Goulder, Lawrence H., 2008. "Instrument Choice in Environmental Policy," Discussion Papers dp-08-07, Resources For the Future. [Downloadable!]
    Other versions:
  12. Elizabeth Anne Wilman, 2008. "Regulating Greenhouse Gases: Emissions Intensity Limits, A Hybrid Policy, and Offsets," Working Papers 2008-19, Department of Economics, University of Calgary, revised 13 Jan 2008. [Downloadable!]
  13. Burtraw, Dallas & Evans, David A., 2008. "Tradable Rights to Emit Air Pollution," Discussion Papers dp-08-08, Resources For the Future. [Downloadable!]
  14. Freebairn, John, 2008. "Some Distributional Issues in Greenhouse Gas Policy Design," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6770, Australian Agricultural and Resource Economics Society. [Downloadable!]
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