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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)

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.

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Bibliographic 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

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  1. Burtraw, Dallas & Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Discussion Papers dp-98-22, Resources For the Future.
  2. 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.
  3. Newell, Richard & Anderson, Soren, 2003. "Prospects for Carbon Capture and Storage Technologies," Discussion Papers dp-02-68, Resources For the Future.
  4. 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.
  5. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  6. 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.
  7. 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.
  8. Ian W.H. Parry & Wallace E. Oates, 2000. "Policy analysis in the presence of distorting taxes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(4), pages 603-613.
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