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Market-Based Emissions Regulation and Industry Dynamics

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  • Meredith Fowlie
  • Mar Reguant
  • Stephen P. Ryan

Abstract

We assess the static and dynamic implications of alternative market-based policies limiting greenhouse gas emissions in the US cement industry. Our results highlight two countervailing market distortions. First, emissions regulation exacerbates distortions associated with the exercise of market power in the domestic cement market. Second, emissions "leakage" in trade-exposed markets offsets domestic emissions reductions. Taken together, these forces can result in social welfare losses under policy regimes that fully internalize the emissions externality. Market-based policies that incorporate design features to mitigate the exercise of market power and emissions leakage deliver welfare gains when damages from carbon emissions are high.

Suggested Citation

  • Meredith Fowlie & Mar Reguant & Stephen P. Ryan, 2016. "Market-Based Emissions Regulation and Industry Dynamics," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 249-302.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/684484
    DOI: 10.1086/684484
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    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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