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Fiscal Interactions and the Costs of Controlling Pollution from Electricity

Author

Listed:
  • Ian W.H. Parry

    (Resources for the Future)

Abstract

I quantify the costs of controlling SO 2 , carbon, and NOx emissions from power generation, accounting for interactions between environmental policies and the broader fiscal system. I distinguish a dirty technology (coal) that satisfies baseload demand and a clean technology (gas) that is used at peak period, and I distinguish sectors with and without regulated prices. Estimated emissions control costs are substantially lower than in previous models of fiscal interactions that assume a single, constant-returns technology and competitive pricing. The results are reasonably robust to alternative scenarios, such as full price deregulation, and market power in the deregulated sector.

Suggested Citation

  • Ian W.H. Parry, 2005. "Fiscal Interactions and the Costs of Controlling Pollution from Electricity," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 849-869, Winter.
    • Handle: RePEc:rje:randje:v:36:y:2005:4:p:849-869
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    Citations

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    Cited by:

    1. James Alm & H. Spencer Banzhaf, 2012. "Designing Economic Instruments For The Environment In A Decentralized Fiscal System," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 177-202, April.
    2. Paul, Anthony & Burtraw, Dallas & Palmer, Karen, 2008. "Compensation for Electricity Consumers Under a U.S. CO2 Emissions Cap," RFF Working Paper Series dp-08-25, Resources for the Future.
    3. Karen Palmer & Dallas Burtraw & Danny Kahn, 2006. "Simple rules for targeting CO 2 allowance allocations to compensate firms," Climate Policy, Taylor & Francis Journals, vol. 6(4), pages 477-493, July.
    4. Banzhaf, H. Spencer & Chupp, B. Andrew, 2012. "Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution," Journal of Public Economics, Elsevier, vol. 96(5), pages 449-464.
    5. Kim, Wook & Chattopadhyay, Deb & Park, Jong-bae, 2010. "Impact of carbon cost on wholesale electricity price: A note on price pass-through issues," Energy, Elsevier, vol. 35(8), pages 3441-3448.
    6. Burtraw, Dallas & Evans, David A., 2009. "Tradable rights to emit air pollution," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(01), pages 1-26.
    7. Dallas Burtraw & Karen Palmer, 2008. "Compensation rules for climate policy in the electricity sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(4), pages 819-847.
    8. Parry, Ian W.H. & Williams, Roberton C. III, 2010. "What Are the Costs of Meeting Distributional Objectives in Designing Domestic Climate Policy?," RFF Working Paper Series dp-10-51, Resources for the Future.
    9. Parry, Ian W.H., 2007. "Are the costs of reducing greenhouse gases from passenger vehicles negative?," Journal of Urban Economics, Elsevier, vol. 62(2), pages 273-293, September.
    10. Burtraw, Dallas & Palmer, Karen & Paul, Anthony & Picciano, Paul, 2019. "State Policy Options to Price Carbon from Electricity," RFF Reports 19-04, Resources for the Future.
    11. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010. "Designing Climate Mitigation Policy," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 903-934, December.
    12. Parry Ian W. H. & Williams Roberton C., 2010. "What are the Costs of Meeting Distributional Objectives for Climate Policy?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    13. Parry, Ian W.H. & Sigman, Hilary & Walls, Margaret & Williams, Roberton C., III, 2005. "The Incidence of Pollution Control Policies," Discussion Papers 10651, Resources for the Future.
    14. Fan, Lin & Hobbs, Benjamin F. & Norman, Catherine S., 2010. "Risk aversion and CO2 regulatory uncertainty in power generation investment: Policy and modeling implications," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 193-208, November.
    15. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2007. "A Ten-Year Rule to guide the allocation of EU emission allowances," Energy Policy, Elsevier, vol. 35(3), pages 1718-1730, March.

    More about this item

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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