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Alternate Stationary Source Air Pollution Control Policies: a Welfare Analysis

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  • Thomas J. Lareau

    (George Mason University)

Abstract

The welfare cost of reducing sulfur dioxide emissions from electric power plants is computed for four policies: an emissions tax, fuel quality standards, required abatement capital use, and an abatement subsidy. The model, developed using the Harberger tax incidence methodology, includes a demand function, a production function with capital, clean fuel and dirty fuel inputs, and an emissions function with dirty fuel and abatement arguments. For the tax policy, factor demands derived from a profit function close the model, while for regulatory cases, constraints are used. The relative changes in the endogenous variables are determined as a function of the percentage emissions reduction, from which an income equivalent of the welfare change is measured using estimates of system elasticities. The welfare cost differences between the efficient and regulatory policies are high, so that greater reliance on decen tralized programs is recommended.

Suggested Citation

  • Thomas J. Lareau, 1981. "Alternate Stationary Source Air Pollution Control Policies: a Welfare Analysis," Public Finance Review, , vol. 9(3), pages 281-307, July.
    • Handle: RePEc:sae:pubfin:v:9:y:1981:i:3:p:281-307
    DOI: 10.1177/109114218100900303
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    References listed on IDEAS

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    1. James M. Griffin, 1974. "The Effects of Higher Prices on Electricity Consumption," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 515-539, Autumn.
    2. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
    3. Kochanowski, Paul & Witte, James G & Henneberry, Barbara, 1976. "Partial Equilibrium Bias in the Economics of Pollution Abatement and a Method for Quantitative Estimation," Public Finance = Finances publiques, , vol. 31(2), pages 235-264.
    4. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    5. Frank M. Gollop & Stephen H. Karlson, 1980. "The Electric Power Industry: An Econometric Model of Intertemporal Behavior," Land Economics, University of Wisconsin Press, vol. 56(3), pages 299-314.
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