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Exploring the General Equilibrium Costs of Sector-Specific Environmental Regulations

Author

Listed:
  • Alex L. Marten
  • Richard Garbaccio
  • Ann Wolverton

Abstract

The requisite scope of analysis to adequately estimate the social cost of environmental regulations has been subject to much discussion. The literature has demonstrated that engineering or partial equilibrium cost estimates likely underestimate the social cost of large-scale environmental regulations and environmental taxes. However, the conditions under which general equilibrium (GE) analysis adds value to welfare analysis for single-sector technology or performance standards, the predominant policy intervention in practice, remains an open question. Using a numerical computable general equilibrium (CGE) model, we investigate the GE effects of regulations across different sectors, abatement technologies, and regulatory designs. Our results show that even for small regulations GE effects are significant, and engineering estimates of compliance costs can substantially underestimate the social cost of single-sector environmental regulations. We find that the downward bias from using engineering costs to approximate social costs depends on the input composition of abatement technologies and the regulated sector.

Suggested Citation

  • Alex L. Marten & Richard Garbaccio & Ann Wolverton, 2019. "Exploring the General Equilibrium Costs of Sector-Specific Environmental Regulations," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1065-1104.
  • Handle: RePEc:ucp:jaerec:doi:10.1086/705593
    DOI: 10.1086/705593
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    Cited by:

    1. Cloé Garnache & Pierre Mérel, 2020. "Environmental Policy in General Equilibrium: New Insights from a Canonical Model," CESifo Working Paper Series 8354, CESifo.
    2. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.
    3. Lemoine, Derek, 2020. "General equilibrium rebound from energy efficiency innovation," European Economic Review, Elsevier, vol. 125(C).
    4. Blackburn, Christopher J. & Moreno-Cruz, Juan, 2021. "Energy efficiency in general equilibrium with input–output linkages," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    5. Li, Mengjie & Du, Weijian, 2022. "Opening the black box of capacity governance: Environmental regulation and capacity utilization of microcosmic firms in China," Economic Modelling, Elsevier, vol. 108(C).

    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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