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Upstream versus Downstream Implementation of Climate Policy

In: The Design and Implementation of U.S. Climate Policy

  • Erin T. Mansur

This chapter examines the tradeoffs of regulating upstream (e.g., coal, natural gas, and refined petroleum product producers) versus regulating downstream (e.g., direct sources of greenhouse gases (GHG)). In general, regulating at the source provides polluters with incentives to choose among more opportunities to abate pollution. This chapter develops a simple theoretical model that shows why this added flexibility achieves the lowest overall costs. I broaden the theory to incorporate several reasons why these potential gains from trade may not be realized--transactions costs, leakage, and offsets--in the context of selecting the vertical segment of regulation.

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This chapter was published in:
  • Don Fullerton & Catherine Wolfram, 2012. "The Design and Implementation of U.S. Climate Policy," NBER Books, National Bureau of Economic Research, Inc, number full10-1, August.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12146.
    Handle: RePEc:nbr:nberch:12146
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Hobbs, B.F. & Bushnell, J. & Wolak, F.A., 2010. "Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context," Cambridge Working Papers in Economics 1018, Faculty of Economics, University of Cambridge.
    2. James B. Bushnell & Yihsu Chen, 2009. "Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2," NBER Working Papers 15495, National Bureau of Economic Research, Inc.
    3. Looney, Adam & Kroft, Kory & Chetty, Raj, 2009. "Salience and Taxation: Theory and Evidence," Scholarly Articles 9748525, Harvard University Department of Economics.
    4. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October.
    5. Chiu, Stephen & Mansley, Edward C. & Morgan, John, 1998. "Choosing the right battlefield for the war on drugs: an irrelevance result," Economics Letters, Elsevier, vol. 59(1), pages 107-111, April.
    6. James Bushnell & Carla Peterman & Catherine Wolfram, 2008. "Local Solutions to Global Problems: Climate Change Policies and Regulatory Jurisdiction," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 175-193, Summer.
    7. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0728, Department of Economics, Tufts University.
    8. Ann Wolverton & Don Fullerton, 2000. "Two Generalizations of a Deposit-Refund Systems," American Economic Review, American Economic Association, vol. 90(2), pages 238-242, May.
    9. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," Discussion Papers dp-09-02, Resources For the Future.
    10. Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 559-66, November.
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