IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/16116.html
   My bibliography  Save this paper

Upstream versus Downstream Implementation of Climate Policy

Author

Listed:
  • Erin T. Mansur

Abstract

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.

Suggested Citation

  • Erin T. Mansur, 2010. "Upstream versus Downstream Implementation of Climate Policy," NBER Working Papers 16116, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16116
    Note: EEE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w16116.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dennis W. Carlton & Glenn C. Loury, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(3), pages 559-566.
    2. Hobbs, Benjamin F. & Bushnell, James & Wolak, Frank A., 2010. "Upstream vs. downstream CO2 trading: A comparison for the electricity context," Energy Policy, Elsevier, vol. 38(7), pages 3632-3643, July.
    3. Fischer, Carolyn & Fox, Alan K., 2009. "Comparing Policies to Combat Emissions Leakage: Border Tax Adjustments versus Rebates," RFF Working Paper Series dp-09-02, Resources for the Future.
    4. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    5. Burrows, Paul, 1977. "Pollution control with variable production processes," Journal of Public Economics, Elsevier, vol. 8(3), pages 357-367, December.
    6. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    7. 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.
    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. Bushnell, James & Chen, Yihsu, 2009. "Regulation, Allocation and Leakage in Cap-And-Trade Markets for CO2," Staff General Research Papers Archive 13131, Iowa State University, Department of Economics.
    10. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University.
    11. 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.
    12. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    13. Schmalensee, Richard, 1976. "Another Look at the Social Valuation of Input Price Changes," American Economic Review, American Economic Association, vol. 66(1), pages 239-243, March.
    14. 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.
    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. Buscemi, Antonino & Yallwe, Alem Hagos, 2011. "It is time to re-think on environment, energy and economics (E3)," MPRA Paper 30998, University Library of Munich, Germany.
    2. Ren, Jie & Chen, Xi & Hu, Jian, 2020. "The effect of production- versus consumption-based emission tax under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 219(C), pages 82-98.
    3. Viola Becattini & Paolo Gabrielli & Linda Frattini & David Weisbach & Marco Mazzotti, 2022. "A two-step carbon pricing scheme enabling a net-zero and net-negative CO $$_2$$ 2 -emissions world," Climatic Change, Springer, vol. 171(1), pages 1-22, March.
    4. Feijoo, Felipe & Das, Tapas K., 2014. "Design of Pareto optimal CO2 cap-and-trade policies for deregulated electricity networks," Applied Energy, Elsevier, vol. 119(C), pages 371-383.
    5. Coria, Jessica & Jaraite, Jurate, 2015. "Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes," Working Papers in Economics 609, University of Gothenburg, Department of Economics.
    6. James B. Bushnell & Erin T. Mansur, 2011. "Vertical Targeting and Leakage in Carbon Policy," American Economic Review, American Economic Association, vol. 101(3), pages 263-267, May.
    7. Christensen, Adam & Siddiqui, Sauleh, 2015. "Fuel price impacts and compliance costs associated with the Renewable Fuel Standard (RFS)," Energy Policy, Elsevier, vol. 86(C), pages 614-624.
    8. Jared Cory & Michael Lerner & Iain Osgood, 2021. "Supply Chain Linkages and the Extended Carbon Coalition," American Journal of Political Science, John Wiley & Sons, vol. 65(1), pages 69-87, January.
    9. Fan, Jin & He, Haonan & Wu, Yanrui, 2016. "Personal carbon trading and subsidies for hybrid electric vehicles," Economic Modelling, Elsevier, vol. 59(C), pages 164-173.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Holland, Stephen P., 2012. "Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 375-387.
    2. James B. Bushnell & Erin T. Mansur, 2011. "Vertical Targeting and Leakage in Carbon Policy," American Economic Review, American Economic Association, vol. 101(3), pages 263-267, May.
    3. Lade, Gabriel E. & Lin Lawell, C.-Y. Cynthia, 2015. "The design and economics of low carbon fuel standards," Research in Transportation Economics, Elsevier, vol. 52(C), pages 91-99.
    4. 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.
    5. Dieter Schmidtchen & Jenny Helstroffer & Christian Koboldt, 2021. "Regulatory failure and the polluter pays principle: why regulatory impact assessment dominates the polluter pays principle," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(1), pages 109-144, January.
    6. Heider, Florian & Inderst, Roman, 2021. "A Corporate Finance Perspective on Environmental Policy," EconStor Preprints 253669, ZBW - Leibniz Information Centre for Economics.
    7. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2018. "Embodied Carbon Tariffs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 183-210, January.
    8. Vetter Henrik, 2005. "Pollution Taxes for Monopolistically Competitive Firms," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-25, May.
    9. Eugenio J. Miravete & Katja Seim & Jeff Thurk, 2018. "Market Power and the Laffer Curve," Econometrica, Econometric Society, vol. 86(5), pages 1651-1687, September.
    10. Ko, Il-Dong, 1988. "Issues in the control of stock externality problems with inflexible policy measures," ISU General Staff Papers 198801010800009859, Iowa State University, Department of Economics.
    11. Makoto Tanaka and Yihsu Chen, 2012. "Emissions Trading in Forward and Spot Markets for Electricity," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    12. Thomas Eichner, 2005. "Imperfect Competition In The Recycling Industry," Metroeconomica, Wiley Blackwell, vol. 56(1), pages 1-24, February.
    13. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
    14. Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
    15. Vetter Henrik, 2009. "Product Variety, Scale Economies, and Environmental Taxes," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-18, May.
    16. Taylor, Rebecca L.C., 2019. "Bag leakage: The effect of disposable carryout bag regulations on unregulated bags," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 254-271.
    17. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    18. Rajeev Goel & Edward Hsieh, 1997. "Market structure, pigouvian taxation, and welfare," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 25(2), pages 128-138, June.
    19. repec:old:wpaper:340 is not listed on IDEAS
    20. Cohen, Alex & Keiser, David A., 2017. "The effectiveness of incomplete and overlapping pollution regulation: Evidence from bans on phosphate in automatic dishwasher detergent," Journal of Public Economics, Elsevier, vol. 150(C), pages 53-74.
    21. Goel, Rajeev K. & Hsieh, Edward W.T., 2006. "On coordinating environmental policy and technology policy," Journal of Policy Modeling, Elsevier, vol. 28(8), pages 897-908, November.

    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:16116. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.