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The environment as a factor of production

  • Considine, Timothy J.
  • Larson, Donald F.

The authors develop a model of environmental resource use in production with an empirical analysis of how electric power companies consume and bank sulfur dioxide pollution permits. The model considers emissions, fuels, and labor as variable inputs with quasi-fixed inputs of permits and capital. Incorporating information from permit markets allows the authors to distinguish between user costs and asset shadow values. Their findings indicate that firms are holding stocks of pollution permits for reasons other than short-term cost savings. The results also reveal substantial substitution possibilities between emissions, permits stocks, and other factors of production. The authors speculate that anticipated secondary markets for carbon-offset inventories related to the flexibility mechanisms of the Kyoto Protocol will have similar effects for greenhouse-gas emitting firms.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3271.

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Date of creation: 01 Apr 2004
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Handle: RePEc:wbk:wbrwps:3271
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  1. Kling, Catherine L. & Rubin, Jonathan, 1997. "Bankable Permits for the Control of Environmental Pollution," Staff General Research Papers 1479, Iowa State University, Department of Economics.
  2. Carlson, Curtis & Burtraw, Dallas & Cropper, Maureen & Palmer, Karen L., 1998. "Sulfur dioxide control by electric utilities : what are the gains from trade?," Policy Research Working Paper Series 1966, The World Bank.
  3. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
  4. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
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  7. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
  8. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
  9. Rubin, Jonathan D. & Kling, Catherine, 1993. "An Emission Saved is an Emission Earned: An Empirical Study of Emission Banking for Light-Duty Vehicle Manufacturers," University of California Transportation Center, Working Papers qt3rb1472g, University of California Transportation Center.
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  12. Shea, John, 1993. "The Input-Output Approach to Instrument Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 145-55, April.
  13. Burtraw, Dallas & Lile, Ron, 1998. "State-Level Policies and Regulatory Guidance for Compliance in the Early Years of the SO2 Emission Allowance Trading Program," Discussion Papers dp-98-35, Resources For the Future.
  14. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-32, June.
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  17. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-87, May.
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  19. Ayres, Robert U & Kneese, Allen V, 1969. "Production , Consumption, and Externalities," American Economic Review, American Economic Association, vol. 59(3), pages 282-97, June.
  20. Ellerman, A. Denny & Montero, Juan-Pablo, 1998. "The Declining Trend in Sulfur Dioxide Emissions: Implications for Allowance Prices," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 26-45, July.
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  23. Stavins, Robert, 2004. "Environmental Economics," Working Paper Series rwp04-051, Harvard University, John F. Kennedy School of Government.
  24. Anonymous, 1999. "Front Materials," Choices, Agricultural and Applied Economics Association, vol. 14(3).
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  26. Moschini, GianCarlo, 1988. "Model of Production with Supply Management for the Canadian Agricultural Sector, A," Staff General Research Papers 11269, Iowa State University, Department of Economics.
  27. Anonymous, 1999. "End Materials," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 31(02), August.
  28. Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
  29. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June.
  30. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
  31. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September.
  32. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
  33. Arimura, Toshi H., 2002. "An Empirical Study of the SO2 Allowance Market: Effects of PUC Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 271-289, September.
  34. Schennach, Susanne M., 2000. "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 189-210, November.
  35. Mundlak, Yair, 1996. "Production Function Estimation: Reviving the Primal," Econometrica, Econometric Society, vol. 64(2), pages 431-38, March.
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