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Absolute abundance and relative scarcity: Environmental policy with implementation lags

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  • Di Maria, Corrado
  • Smulders, Sjak
  • van der Werf, Edwin

Abstract

We study the effectiveness of environmental policy in a model with nonrenewable resources and an unavoidable implementation lag. We find that a time lag between the announcement and the implementation of an emissions quota induces an increase in emissions in the period between the policy's announcement and implementation. Since a binding constraint on emissions restricts energy use during the implementation phase, more of the resources must be extracted outside of it. We call this the abundance effect. In the case of multiple resources that differ in their pollution intensity, a second channel emerges: since cleaner sources are relatively more valuable when the policy is implemented, it is optimal to conserve them before the cap is enforced. This ordering effect tends to induce a switch to dirtier resources before the policy is implemented, compounding the increase in emissions via the abundance channel. Using the announcement lag in Title IV of the 1990 CAAA as a case study we are able to empirically show that the abundance effect and ordering effect are both statistically and economically significant. We discuss a number of alternative policy options to deal with these undesirable side effects of policy announcements.

Suggested Citation

  • Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2012. "Absolute abundance and relative scarcity: Environmental policy with implementation lags," Ecological Economics, Elsevier, vol. 74(C), pages 104-119.
  • Handle: RePEc:eee:ecolec:v:74:y:2012:i:c:p:104-119
    DOI: 10.1016/j.ecolecon.2011.12.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Di Maria, Corrado & Lange, Ian & van der Werf, Edwin, 2014. "Should we be worried about the green paradox? Announcement effects of the Acid Rain Program," European Economic Review, Elsevier, vol. 69(C), pages 143-162.
    2. de Frutos Cachorro, Julia & Erdlenbruch, Katrin & Tidball, Mabel, 2014. "Optimal adaptation strategies to face shocks on groundwater resources," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 134-153.
    3. Hans Gersbach & Marie-Catherine Riekhof, 2017. "Technology Treaties and Climate Change," CER-ETH Economics working paper series 17/268, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Hoel, Michael & Jensen, Svenn, 2012. "Cutting costs of catching carbon—Intertemporal effects under imperfect climate policy," Resource and Energy Economics, Elsevier, vol. 34(4), pages 680-695.
    5. Jus Darko & Meier Volker, 2015. "Announcing is Bad, Delaying is Worse: Another Pitfall in Well-intended Climate Policy," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 286-297, June.
    6. Julia Blasch & Nina Boogen & Nilkanth Kumar & Massimo Filippini, 2017. "The role of energy and investment literacy for residential electricity demand and end-use efficiency," CER-ETH Economics working paper series 17/269, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    8. Corrado Di Maria & Sjak Smulders & Edwin Werf, 2017. "Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 537-551, March.
    9. Zhang, Kun & Zhang, Zong-Yong & Liang, Qiao-Mei, 2017. "An empirical analysis of the green paradox in China: From the perspective of fiscal decentralization," Energy Policy, Elsevier, vol. 103(C), pages 203-211.
    10. repec:wsi:ccexxx:v:08:y:2017:i:02:n:s2010007817500075 is not listed on IDEAS

    More about this item

    Keywords

    Non-renewable resources; Implementation lags; Announcement effects; Scarcity; Order of extraction; Climate policy; Clean Air Act; Green Paradox;

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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