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Economic Ideas for a Complex Climate Policy Regime


  • Burtraw, Dallas

    () (Resources for the Future)

  • Woerman, Matt

    () (Resources for the Future)


The parsimony of economic theory provides general insights into an otherwise complex world. However, the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy, with a US focus: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.

Suggested Citation

  • Burtraw, Dallas & Woerman, Matt, 2013. "Economic Ideas for a Complex Climate Policy Regime," Discussion Papers dp-13-03-rev, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-13-03-rev

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    References listed on IDEAS

    1. repec:wsi:ccexxx:v:03:y:2012:i:04:n:s2010007812500182 is not listed on IDEAS
    2. Pablo Río & Xavier Labandeira, 2009. "Barriers to the introduction of market-based instruments in climate policies: an integrated theoretical framework," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 10(1), pages 41-68, March.
    3. Jonathan Levine & Aseem Inam, 2004. "The Market for Transportation-Land Use Integration: Do Developers Want Smarter Growth than Regulations Allow?," Transportation, Springer, vol. 31(4), pages 409-427, November.
    4. Suzi Kerr & Richard G. Newell, 2003. "Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 317-343, September.
    5. Burtraw, Dallas & Palmer, Karen & Kahn, Danny, 2010. "A symmetric safety valve," Energy Policy, Elsevier, vol. 38(9), pages 4921-4932, September.
    6. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-373, May.
    7. Cameron Hepburn, 2010. "Environmental policy, government, and the market," Oxford Review of Economic Policy, Oxford University Press, vol. 26(4), pages 734-734, Winter.
    8. Williams, Roberton C., 2012. "Growing state–federal conflicts in environmental policy: The role of market-based regulation," Journal of Public Economics, Elsevier, vol. 96(11), pages 1092-1099.
    9. William M. Shobe & Dallas Burtraw, 2012. "Rethinking Environmental Federalism In A Warming World," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-33.
    10. Burtraw, Dallas & Woerman, Matt & Paul, Anthony, 2012. "Retail electricity price savings from compliance flexibility in GHG standards for stationary sources," Energy Policy, Elsevier, vol. 42(C), pages 67-77.
    11. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-648, August.
    12. Dallas Burtraw & Art Fraas & Nathan Richardson, 2011. "Policy Monitor--Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 293-313, Summer.
    13. Burtraw, Dallas & Fraas, Arthur G. & Richardson, Nathan, 2011. "Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," Discussion Papers dp-11-08, Resources For the Future.
    14. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
    15. Dallas Burtraw & William Shobe, 2008. "State and Local Climate Policy under a National Emissions Floor," Working Papers 2008-05, Center for Economic and Policy Studies.
    16. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, March.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, March.
    17. Maloney, Michael T & Brady, Gordon L, 1988. "Capital Turnover and Marketable Pollution Rights," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 203-226, April.
    18. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
    19. Pearce, David, 2006. "The political economy of an energy tax: The United Kingdom's Climate Change Levy," Energy Economics, Elsevier, vol. 28(2), pages 149-158, March.
    20. Nicholas Z. Muller & Robert Mendelsohn, 2009. "Efficient Pollution Regulation: Getting the Prices Right," American Economic Review, American Economic Association, vol. 99(5), pages 1714-1739, December.
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    Cited by:

    1. Michel Damian, 2014. "La politique climatique change enfin de paradigme," Post-Print halshs-00969308, HAL.
    2. repec:tpr:glenvp:v:17:y:2017:i:2:p:45-64 is not listed on IDEAS
    3. Paul, Anthony & Palmer, Karen & Woerman, Matt, 2014. "Designing by Degrees: Flexibility and Cost-Effectiveness in Climate PolicyAbstract: Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of t," Discussion Papers dp-14-05, Resources For the Future.
    4. Burtraw, Dallas & Linn, Joshua & Palmer, Karen & Paul, Anthony, 2014. "The Costs and Consequences of Clean Air Act Regulation of CO2 from Power Plants," Discussion Papers dp-14-01, Resources For the Future.
    5. Dallas Burtraw & Matt Woerman & Alan Krupnick, 2016. "Flexibility and Stringency in Greenhouse Gas Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 225-248, February.

    More about this item


    institutions; federalism; subsidiarity; shadow prices; incentives; regulation;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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