IDEAS home Printed from https://ideas.repec.org/a/oup/renvpo/v3y2009i2p167-188.html
   My bibliography  Save this article

Greenhouse Gas Auctions and Taxes: Some Political Economy Considerations

Author

Listed:
  • Robert W. Hahn

Abstract

Many economists suggest that a cap-and-trade program and a carbon tax represent promising mechanisms for addressing climate change. A potentially attractive feature of both policies is that they have the potential to recycle revenues in an efficient manner. In the case of cap and trade, this would involve using auction revenues; in the case of a tax, it would involve using tax revenues. This article evaluates various arguments for auctions and taxes in light of political realities and finds that the enthusiasm for auctions and taxes has not been accompanied by sober assessments of whether and how the revenues would actually be used. Most of the evidence suggests that at least some of the revenues would not be spent wisely. Specifically, the article urges the government to compare a realistic set of policy options, while recognizing that the feasibility of different types of mechanisms can change over time. Furthermore, it is suggested that the introduction of political economy considerations may lead to an optimal level of pollution control that is less stringent than conventional economic analysis would suggest. Copyright 2009, Oxford University Press.

Suggested Citation

  • Robert W. Hahn, 2009. "Greenhouse Gas Auctions and Taxes: Some Political Economy Considerations," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(2), pages 167-188, Summer.
  • Handle: RePEc:oup:renvpo:v:3:y:2009:i:2:p:167-188
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/reep/rep003
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ellen Hanak, 2008. "Is Water Policy Limiting Residential Growth? Evidence from California," Land Economics, University of Wisconsin Press, pages 31-50.
    2. Antonio Estache & MartÌn A. Rossi, 2002. "How Different Is the Efficiency of Public and Private Water Companies in Asia?," World Bank Economic Review, World Bank Group, vol. 16(1), pages 139-148, June.
    3. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2005. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 83-120, February.
    4. R. Quentin Grafton & Michael B. Ward, 2008. "Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 57-65, September.
    5. Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
    6. Matthew J. Kotchen & Michael R. Moore & Frank Lupi & Edward S. Rutherford, 2006. "Environmental Constraints on Hydropower: An Ex Post Benefit-Cost Analysis of Dam Relicensing in Michigan," Land Economics, University of Wisconsin Press, vol. 82(3), pages 384-403.
    7. Hugh Sibly, 2006. "Efficient Urban Water Pricing," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 227-237, June.
    8. Howe Charles W. & Smith Mark Griffin & Bennett Lynne & Brendecke Charles M. & Flack J. Ernest & Hamm Robert M. & Mann Roger & Rozaklis Lee & Wunderlich Karl, 1994. "The Value of Water Supply Reliability in Urban Water Systems," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 19-30, January.
    9. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, pages 1276-1289.
    10. Stephen Holland, 2006. "Privatization of Water-Resource Development," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 291-315.
    11. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    12. Holland, Stephen P. & Moore, Michael R., 2003. "Cadillac Desert revisited: property rights, public policy, and water-resource depletion," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 131-155, July.
    13. Marca Weinberg & Catherine L. Kling & James E. Wilen, 1993. "Water Markets and Water Quality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 278-291.
    14. Hearne, Robert R. & William Easter, K., 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics, Blackwell, pages 187-199.
    15. Bark, R.H. & Osgood, D.E. & Colby, B.G. & Katz, G. & Stromberg, J., 2009. "Habitat preservation and restoration: Do homebuyers have preferences for quality habitat?," Ecological Economics, Elsevier, vol. 68(5), pages 1465-1475, March.
    16. S. Gaudin, 2006. "Effect of price information on residential water demand," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 383-393.
    17. Strand, Jon & Walker, Ian, 2005. "Water markets and demand in Central American cities," Environment and Development Economics, Cambridge University Press, vol. 10(03), pages 313-335, June.
    18. Holmes, Thomas P. & Bergstrom, John C. & Huszar, Eric & Kask, Susan B. & Orr, Fritz III, 2004. "Contingent valuation, net marginal benefits, and the scale of riparian ecosystem restoration," Ecological Economics, Elsevier, vol. 49(1), pages 19-30, May.
    19. MICHAEL Nieswiadomy & STEVEN L. Cobb, 1993. "Impact Of Pricing Structure Selectivity On Urban Water Demand," Contemporary Economic Policy, Western Economic Association International, vol. 11(3), pages 101-113, July.
    20. Thomas Perreault, 2005. "State restructuring and the scale politics of rural water governance in Bolivia," Environment and Planning A, Pion Ltd, London, vol. 37(2), pages 263-284, February.
    21. Ojeda, Monica Ilija & Mayer, Alex S. & Solomon, Barry D., 2008. "Economic valuation of environmental services sustained by water flows in the Yaqui River Delta," Ecological Economics, Elsevier, vol. 65(1), pages 155-166, March.
    22. Donna Brennan & Sorada Tapsuwan & Gordon Ingram, 2007. "The welfare costs of urban outdoor water restrictions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 243-261, September.
    23. Joan Pujol & Meri Raggi & Davide Viaggi, 2006. "The potential impact of markets for irrigation water in Italy and Spain: a comparison of two study areas ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, pages 361-380.
    24. Diao, Xinshen & Roe, Terry, 2003. "Can a water market avert the "double-whammy" of trade reform and lead to a "win-win" outcome?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 708-723, May.
    25. Chong Eshien & Freddy Huet, 2006. "Public-private partnerships and prices : evidence from water distribution in France," Post-Print halshs-00479490, HAL.
    26. Dadaser-Celik, Filiz & Coggins, Jay S. & Brezonik, Patrick L. & Stefan, Heinz G., 2009. "The projected costs and benefits of water diversion from and to the Sultan Marshes (Turkey)," Ecological Economics, Elsevier, vol. 68(5), pages 1496-1506, March.
    27. Pattanayak, Subhrendu K. & Kramer, Randall A., 2001. "Worth of watersheds: a producer surplus approach for valuing drought mitigation in Eastern Indonesia," Environment and Development Economics, Cambridge University Press, pages 123-146.
    28. Whittington, Dale & Lauria, Donald T. & Mu, Xinming, 1991. "A study of water vending and willingness to pay for water in Onitsha, Nigeria," World Development, Elsevier, vol. 19(2-3), pages 179-198.
    29. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
    30. Mansur, Erin T. & Olmstead, Sheila M., 2012. "The value of scarce water: Measuring the inefficiency of municipal regulations," Journal of Urban Economics, Elsevier, vol. 71(3), pages 332-346.
    31. Robert A. Collinge, 1994. "Transferable Rate Entitlements: the Overlooked Opportunity in Municipal Water Pricing," Public Finance Review, , vol. 22(1), pages 46-64, January.
    32. Hansen, LeRoy T. & Hallam, Arne, 1991. "National estimates of the recreational value of streamflow," ISU General Staff Papers 199102010800001541, Iowa State University, Department of Economics.
    33. Renwick, Mary E. & Green, Richard D., 2000. "Do Residential Water Demand Side Management Policies Measure Up? An Analysis of Eight California Water Agencies," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 37-55, July.
    34. Jedidiah Brewer & Robert Glennon & Alan Ker & Gary D. Libecap, 2007. "Water Markets in the West: Prices, Trading, and Contractual Forms," NBER Working Papers 13002, National Bureau of Economic Research, Inc.
    35. Dinar, Ariel & Letey, J., 1991. "Agricultural water marketing, allocative efficiency, and drainage reduction," Journal of Environmental Economics and Management, Elsevier, vol. 20(3), pages 210-223, May.
    36. James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
    37. Zhongmin, Xu & Guodong, Cheng & Zhiqiang, Zhang & Zhiyong, Su & Loomis, John, 2003. "Applying contingent valuation in China to measure the total economic value of restoring ecosystem services in Ejina region," Ecological Economics, Elsevier, vol. 44(2-3), pages 345-358, March.
    38. Carey, Janis & Sunding, David L. & Zilberman, David, 2002. "Transaction costs and trading behavior in an immature water market," Environment and Development Economics, Cambridge University Press, vol. 7(04), pages 733-750, October.
    39. Ellen M. Pint, 1999. "Household Responses to Increased Water Rates during the California Drought," Land Economics, University of Wisconsin Press, vol. 75(2), pages 246-266.
    40. Ellen Hanak, 2005. "Stopping the Drain: Third-party Responses to California's Water Market," Contemporary Economic Policy, Western Economic Association International, vol. 23(1), pages 59-77, January.
    41. Sheila M. Olmstead, 2010. "The Economics of Water Quality," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, pages 44-62.
    42. Provencher Bill & Burt Oscar, 1993. "The Externalities Associated with the Common Property Exploitation of Groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 139-158, March.
    43. Michael L. Nieswiadomy & David J. Molina, 1989. "Comparing Residential Water Demand Estimates under Decreasing and Increasing Block Rates Using Household Data," Land Economics, University of Wisconsin Press, vol. 65(3), pages 280-289.
    44. A. Greening, Lorna & Greene, David L. & Difiglio, Carmen, 2000. "Energy efficiency and consumption -- the rebound effect -- a survey," Energy Policy, Elsevier, vol. 28(6-7), pages 389-401, June.
    45. Steven Renzetti, 1992. "Estimating the Structure of Industrial Water Demands: The Case of Canadian Manufacturing," Land Economics, University of Wisconsin Press, vol. 68(4), pages 396-404.
    46. Anwandter, Lars & Ozuna, Teofilo Jr., 2002. "Can public sector reforms improve the efficiency of public water utilities?," Environment and Development Economics, Cambridge University Press, vol. 7(04), pages 687-700, October.
    47. George R.G. Clarke & Katrina Kosec & Scott Wallsten, 2009. "Has private participation in water and sewerage improved coverage? Empirical evidence from Latin America," Journal of International Development, John Wiley & Sons, Ltd., pages 327-361.
    48. Eshien Chong & Freddy Huet & Stéphane Saussier & Faye Steiner, 2006. "Public-Private Partnerships and Prices: Evidence from Water Distribution in France," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 149-169, September.
    49. Ronald C. Griffin & Shih-Hsun Hsu, 1993. "The Potential for Water Market Efficiency When Instream Flows Have Value," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 292-303.
    50. Olmstead, Sheila M. & Michael Hanemann, W. & Stavins, Robert N., 2007. "Water demand under alternative price structures," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 181-198, September.
    51. Bhattacharyya, Arunava & Harris, Thomas R. & Narayanan, Rangesan & Raffiee, Kambiz, 1995. "Specification and estimation of the effect of ownership on the economic efficiency of the water utilities," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 759-784, December.
    52. Hanan G. Jacoby & Rinku Murgai & Saeed Ur Rehman, 2004. "Monopoly Power and Distribution in Fragmented Markets: The Case of Groundwater," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 783-808.
    53. Sheila M. Olmstead, 2004. "Thirsty Colonias: Rate Regulation and the Provision of Water Service," Land Economics, University of Wisconsin Press, vol. 80(1), pages 136-150.
    54. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, pages 321-389.
    55. Lucas W. Davis, 2008. "Durable goods and residential demand for energy and water: evidence from a field trial," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 530-546.
    56. Bjornlund, Henning & McKay, Jennifer, 2002. "Aspects of water markets for developing countries: experiences from Australia, Chile, and the US," Environment and Development Economics, Cambridge University Press, vol. 7(04), pages 769-795, October.
    57. Plantinga, Andrew J. & Lubowski, Ruben N. & Stavins, Robert N., 2002. "The effects of potential land development on agricultural land prices," Journal of Urban Economics, Elsevier, pages 561-581.
    58. Loomis, John & Kent, Paula & Strange, Liz & Fausch, Kurt & Covich, Alan, 2000. "Measuring the total economic value of restoring ecosystem services in an impaired river basin: results from a contingent valuation survey," Ecological Economics, Elsevier, vol. 33(1), pages 103-117, April.
    59. George R.G. Clarke & Katrina Kosec & Scott Wallsten, 2009. "Has private participation in water and sewerage improved coverage? Empirical evidence from Latin America," Journal of International Development, John Wiley & Sons, Ltd., pages 327-361.
    60. Krause, Kate & Chermak, Janie M & Brookshire, David S, 2003. "The Demand for Water: Consumer Response to Scarcity," Journal of Regulatory Economics, Springer, vol. 23(2), pages 167-191, March.
    61. W. Bowman Cutter, 2007. "Valuing Groundwater Recharge in an Urban Context," Land Economics, University of Wisconsin Press, vol. 83(2), pages 234-252.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Regina Betz & Stefan Seifert & Peter Cramton & Suzi Kerr, 2010. "Auctioning greenhouse gas emissions permits in Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, pages 219-238.
    2. Andrea Baranzini & Stefano Carattini, 2017. "Effectiveness, earmarking and labeling: testing the acceptability of carbon taxes with survey data," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(1), pages 197-227, January.
    3. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, pages 424-479.
    4. Chih Chang, Ching & Chia Lai, Tin, 2013. "Carbon allowance allocation in the transportation industry," Energy Policy, Elsevier, vol. 63(C), pages 1091-1097.
    5. Antony Millner & Hélène Ollivier, 2016. "Beliefs, Politics, and Environmental Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(2), pages 226-244.
    6. Spash, Clive L. & Lo, Alex Y., 2011. "Australia's Carbon Tax: A Sheep in Wolf's Clothing?," MPRA Paper 33997, University Library of Munich, Germany.
    7. Chen, Jiandong & Cheng, Shulei & Song, Malin & Wu, Yinyin, 2016. "A carbon emissions reduction index: Integrating the volume and allocation of regional emissions," Applied Energy, Elsevier, pages 1154-1164.
    8. repec:eee:enepol:v:106:y:2017:i:c:p:298-309 is not listed on IDEAS
    9. Ian A. Lange & Sarah Polborn, 2012. "Can Lobbying Encourage Abatement? Designing a New Policy Instrument," CESifo Working Paper Series 3760, CESifo Group Munich.
    10. Gary D. Libecap, 2013. "Addressing Global Environmental Externalities: Transaction Costs Considerations," NBER Working Papers 19501, National Bureau of Economic Research, Inc.
    11. Xu, Jiuping & Yang, Xin & Tao, Zhimiao, 2015. "A tripartite equilibrium for carbon emission allowance allocation in the power-supply industry," Energy Policy, Elsevier, vol. 82(C), pages 62-80.
    12. Wang, Tao & Foliente, Greg & Song, Xinyi & Xue, Jiawei & Fang, Dongping, 2014. "Implications and future direction of greenhouse gas emission mitigation policies in the building sector of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 31(C), pages 520-530.
    13. Caffera, Marcelo, 2011. "The use of economic instruments for pollution control in Latin America: lessons for future policy design," Environment and Development Economics, Cambridge University Press, vol. 16(03), pages 247-273, June.
    14. Alexeev, Alexander & Good, David H. & Krutilla, Kerry, 2016. "Environmental taxation and the double dividend in decentralized jurisdictions," Ecological Economics, Elsevier, vol. 122(C), pages 90-100.
    15. David Anthoff & Robert Hahn, 2010. "Government failure and market failure: on the inefficiency of environmental and energy policy," Oxford Review of Economic Policy, Oxford University Press, vol. 26(2), pages 197-224, Summer.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:renvpo:v:3:y:2009:i:2:p:167-188. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/aereeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.