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Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form


  • Ross McKitrick


It is well-known that economic instruments like taxes and tradable permits can improve the efficiency of attaining a target expressed in terms of a single variable, but many energy and environmental regulations are expressed as a ratio of two variables, for instance, as emissions intensity (tons per unit output) or as a renewables requirement (percentage from wind, biomass, etc.). It has been shown previously that conventional formulas for cost-efficiency do not work in this case. This paper shows that even if conventional permit trading is used, the cost-effective implementation is unlikely to be achieved. Alternative rules are presented that permit decentralized market-based implementation of ratio standards to achieve a cost-effective implementation of a ratio standard.

Suggested Citation

  • Ross McKitrick, 2005. "Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 43-52.
  • Handle: RePEc:aen:journl:2005v26-04-a03

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    Cited by:

    1. Rudik, Ivan, 2018. "Tradable credit markets for intensity standards," Economic Modelling, Elsevier, vol. 72(C), pages 202-215.
    2. Tombe, Trevor & Winter, Jennifer, 2015. "Environmental policy and misallocation: The productivity effect of intensity standards," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 137-163.

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    JEL classification:

    • F0 - International Economics - - General


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