Journal of the Association of Environmental and Resource Economists

In this paper, we analyze the effects of a unilateral change in an emissions tax in a model of international trade with heterogeneous firms. We find a positive effect of tighter environmental policy on average productivity in the reforming country through reallocation of labor toward exporting firms. Domestic aggregate emissions fall, due to both a scale and a technique effect, but we show that the reduction in emissions following the tax increase is smaller than in autarky. Moreover, general equilibrium effects through changes in the foreign wage rate lead to a reduction in foreign emissions and, hence, to negative emissions leakage. In case of transboundary pollution this exerts in turn a positive feedback effect on the domestic environment.

Weitzman’s “relative slope rule” (RSR) is a rule of thumb for determining the relative efficiency of quantity versus price instruments to regulate firms under asymmetric information. This rule identifies the more efficient instrument based on the relative slopes of the marginal benefit and cost functions. The RSR relies on three key assumptions: the unknown cost and benefit functions are well represented by second-order approximations, the regulator’s uncertainty is confined to the intercepts of the linearized marginal functions, and these intercepts are not correlated. Subsequent work has adopted these assumptions as the default case and found the RSR to be robust, although Malcomson showed the RSR may break down when the marginal cost function’s intercept and slope are both uncertain and correlated. We provide theoretical support for the presence of this correlated uncertainty and, using numerical examples, show the relative slope rule may be in error in this setting.

Adapting methods from the income distribution literature, we use a normatively significant metric to rank emissions distributions from alternative policies in a manner consistent with an explicit well-behaved preference structure. The approach allows one to determine which policy has the most desirable outcome for a given demographic group as well as which groups benefit most from a given policy. Applying these methods to Southern California’s NO_x pollution-trading program and a counterfactual command-and-control policy suggests that in this case trading benefited all demographic groups and generated a more equitable overall distribution of emissions, even after considering the lower aggregate emissions. We find that Blacks experienced the largest gains from RECLAIM relative to the counterfactual, while Hispanics benefited least.

Policies supporting investment in renewable electricity have been a cornerstone of climate policy in many parts of the world. While previous empirical work explores the economic and environmental impacts of renewable production, the focus has been on the short-run impacts of expanding renewable supply. In this paper, we shed light on the potential longer-run impacts of renewable expansions. Focusing on California’s electricity market, we estimate how wholesale electricity prices have responded to a dramatic increase in utility-scale solar capacity. While an overall decline in daily average prices can be attributed to the solar expansion, this reduction in the average price masks a substantial decrease in midday prices combined with an increase in shoulder hour prices. These results imply that short-term power markets are responding to the renewable expansion in a fashion that could sustain more flexible conventional generation, while undermining the economic viability of traditional baseload generation technologies.

This paper provides a quantitative assessment of carbon pricing and other mitigation policies for G20 countries in 2030. Emissions prices implicit in countries’ Paris Agreement pledges vary from above $70 per ton of CO₂ in eight countries to less than $35 in seven countries. A $70 carbon price raises revenues of 1.5% of GDP or more for most countries. The efficiency costs of a $70 carbon price are typically well below 1% of GDP while domestic environmental cobenefits (e.g., reductions in air pollution deaths) typically offset, or greatly exceed, efficiency costs. The emissions and fiscal benefits of other policies (e.g., partial pricing, taxes on individual fuels) are generally well below those of comprehensive pricing, although coal taxes are relatively effective in some cases. A combination of measures to improve energy efficiency and lower power generation emission rates has an effectiveness of around 60%–75% relative to comprehensive carbon pricing.

Intertemporal choices depend on the time preference for discounting future costs and benefits. Allowing complex heterogeneity in time preferences can alter present value estimation of willingness to pay. Using data from a choice experiment about groundwater management, we estimate random discount rates and groundwater service values with flexible taste distributions allowing multimodal preferences. Flexible mixing distributions enable hyperbolic and quasi-hyperbolic discounting models to represent discounting heterogeneity so that some individuals can take on values approximating exponential discounting. Discounting most closely exhibits a quasi-hyperbolic form. Time preferences and groundwater service values are not normally distributed but, instead, multimodal. One group of individuals takes on discount rates approaching zero, another takes on rates around 40%, and a third group has rates larger than 80%. Accounting for attribute ignoring behavior leads to a smaller exponential discount rate but no difference in present bias. Accounting for perceived inconsequentiality does not lead to significantly different time preferences.