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Prices that Clear the Air: Energy Use and Pollution in Chile and Indonesia

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  • Gunnar S. Eskeland
  • Emmanuel Jimenez
  • Lili Liu

Abstract

Emission reductions could be provided by cleaner technologies as well as substitution towards less polluting inputs and goods. We develop a model to assess the scope for emission reductions by input substitution. We then apply the model to manufacturing in Chile and Indonesia-two developing countries considering air pollution control strategies. We estimate substitutability in input demand in manufacturing--using standard techniques-and combine these with emission factors to assess the potential for emission reductions via demand' changes. For sulphur oxides (SO) and suspended particulates (TSP), emission elasticities with respect to the price of heavy fuels range from -0.4 to -1.2. A price increase of 20 percent would reduce emissions of SOx, and TSP by 8 to 24 percent. While these results indicate how emissions can be reduced by presumptive taxes on fuels-clearing the air as well as the markets for energy-such a strategy preferably should be accompanied by other instruments that stimulate cleaner technologies. Similarly, emission standards should be accompanied by presumptive taxes on goods and inputs. Emission taxes, if feasible, optimally combine inducements along both avenues.

Suggested Citation

  • Gunnar S. Eskeland & Emmanuel Jimenez & Lili Liu, 1998. "Prices that Clear the Air: Energy Use and Pollution in Chile and Indonesia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 85-106.
    • Handle: RePEc:aen:journl:1998v19-03-a05
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    References listed on IDEAS

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    1. Eskeland, Gunnar S. & Feyzioglu, Tarhan N., 1997. "Is demand for polluting goods manageable? An econometric study of car ownership and use in Mexico," Journal of Development Economics, Elsevier, vol. 53(2), pages 423-445, August.
    2. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, December.
    3. Gunter Stephan & Renger Nieuwkoop & Thomas Wiedmer, 1992. "Social incidence and economic costs of carbon limits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(6), pages 569-591, November.
    4. Mark M. Pitt, 1985. "Estimating Industrial Energy Demand with Firm-Level Data: The Case of Indonesia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 25-39.
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    1. Gunnar S. Eskeland & Jian Xie, 1998. "Acting Globally while Thinking Locally: Is the Global Environment Protected by Transport Emission Control Programs?," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 385-411, November.
    2. Eskeland, Gunnar*Chingying Kong, 1998. "Protecting the environment and the poor - a public goods framework applied to Indonesia," Policy Research Working Paper Series 1961, The World Bank.
    3. Eskeland, Gunnar S., 2000. "Environmental protection and optimal taxation," Policy Research Working Paper Series 2510, The World Bank.

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    JEL classification:

    • F0 - International Economics - - General

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