nep-res New Economics Papers
on Resource Economics
Issue of 2016‒03‒29
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Lessons Learned from Three Decades of Experience with Cap-and-Trade By Richard Schmalensee; Robert N. Stavins
  2. Spatial Heat Transport, Polar Amplification and Climate Change Policy By W. Brock; A. Xepapadeas
  3. Time substitution for environmental performance: The case of Sweden manufacturing By Bostian, Moriah; Färe, Rolf; Grosskopf, Shawna; Lundgren, Tommy; Weber, William L.
  4. Coasean Bargaining to Address Environmental Externalities By Gary D. Libecap
  5. An Illiquid Market in the Desert: The Role of Interest Groups in Shaping Environmental Regulation By Eric C. Edwards; Oscar Cristi; Gonzalo Edwards; Gary D. Libecap

  1. By: Richard Schmalensee (Massachusetts Institute of Technology); Robert N. Stavins (, Harvard Kennedy School, Resources for the Future and National Bureau of Economic Research)
    Abstract: This essay provides an overview of the major emissions trading programs of the past thirty years on which significant documentation exists, and draws a number of important lessons for future applications of this environmental policy instrument. References to a larger number of other emissions trading programs that have been implemented or proposed are included.
    Keywords: Market-based instruments, Cap-and-trade, Leaded Gasoline Phasedown, Clean Air Act Amendments of 1990, Sulfur Dioxide, Acid Rain, Carbon Dioxide, Global Climate Change, European Union Emissions Trading System
    JEL: Q54 Q58 Q40 Q48
    Date: 2015–10
  2. By: W. Brock (Economics Department, University of Wisconsin and University of Missouri); A. Xepapadeas (Athens University of Economics and Business)
    Abstract: This paper is, to our knowledge, the first paper in climate economics to consider the combination of spatial heat transport and polar amplification. We simplified the problem by stratifying the Earth into latitude belts and assuming, as in North et al. (1981), that the two hemispheres were symmetric. Our results suggest that it is possible to build climate economic models that include the very real climatic phenomena of heat transport and polar amplification and still maintain analytical tractability. We derive optimal fossil fuel paths under heat transport with and without polar amplification. We show that the optimal tax function depends not only on the distribution of welfare weights but also on the distribution of population across latitudes, the distribution of marginal damages across latitudes and cross latitude in- teractions of marginal damages, and climate dynamics. We also determine optimal taxes per unit of emission and show that, in contrast to the standard results suggesting spatially uniform emission taxes, poorer latitudes should be taxed less per unit emissions than richer latitudes.
    Keywords: Climate Change, Heat Transport, Polar Amplification, Welfare Maximization, Fossil Fuels, Optimal Taxation
    JEL: Q54 Q58 C61
    Date: 2016–01
  3. By: Bostian, Moriah (Department of Economics, Lewis & Clark College); Färe, Rolf (Department of Economics, Oregon State University); Grosskopf, Shawna (CERE and Department of Economics, Oregon State University); Lundgren, Tommy (CERE); Weber, William L. (Department of Economics and Finance, Southeast Missouri State University)
    Abstract: We apply recent advances in time substitution modeling to examine the environmental performance of firms in Sweden’s pulp and paper industry for the years 2002 - 2008. Our data allow us to estimate the optimal reallocation of environmental investments, expenditures and energy use to simultaneously maximize production output and minimize emissions reductions in the years immediately before and after the implementation of the European Union Emissions Trading Scheme. We find some evidence of overall productivity decline when considering both emissions and output objectives, due primarily to technological decline, and that cumulative dynamic inefficiency outweighs static inefficiency. A comparison of optimal investment time paths to observed investment levels indicates that firms could have improved their performance by reallocating environmental investments to early periods and production-oriented investment to later periods.
    Keywords: Time Substitution; Dynamic Efficiency; Environmental Performance; Environmental Investment; DEA
    JEL: D22 D24 M14 Q40 Q41
    Date: 2016–02–22
  4. By: Gary D. Libecap
    Abstract: I examine Ronald Coase’s criticism of standard regulatory and tax policies to address environmental externalities. I elaborate some of Coase’s key points and discuss opportunities for Coasean exchange as an alternative mitigation approach. Regulation, tax, and Coasean exchange, such as through cap-and-trade regimes, are presented as substitutes, based on the relative transaction costs involved. Transaction costs are those of information, bounding, enforcing, and exchanging property rights. In general, transaction costs are not examined in depth in the environmental economics literature. This is particularly the case for the costs of political bargaining and lobbying that arise from implementing and administering government regulation and tax policies, although these costs have received somewhat more attention with cap and trade regimes. Coasean exchange and important market design issues are illustrated with examples.
    JEL: H23 K32 N5 Q28 Q38 Q58
    Date: 2016–01
  5. By: Eric C. Edwards; Oscar Cristi; Gonzalo Edwards; Gary D. Libecap
    Abstract: We present a lobby model to explain the adoption and persistence of seemingly costly environmental policies relative to the likely benefits generated. The arguments of the model are illustrated by water trade restrictions for mining firms in the Atacama Desert of northern Chile. The area is one of the driest in the world but also the world’s top copper producer. Due to regulation of access to local water in the region, firms have begun using desalinated water at a cost of up to $19,542 per m3/day while agricultural water trades at median price of $343 per m3/day. We explore how governmental maintenance of environmental and indigenous water supplies through restrictions on water trades causes these large price differentials. We provide a simple framework that explains how this type of policy can be supported under reasonable assumptions about lobbying. Interest group lobbying, limited information to unorganized general citizens about policy costs and benefits, and their associated distribution can lead to strong regulation, even when the protected environmental areas and agricultural populations are small and isolated. Difference- in-difference modeling of sector prices indicates that after an abrupt increase in regulatory denials, prices diverged in a manner consistent with the lobbying model. Using market price and desalination cost data, policy costs are estimated at $6.15 billion dollars or approximately $350 per citizen, which may or may not equate to perceived general benefits.
    JEL: N56 N76 Q25 Q28 Q51 Q56
    Date: 2016–01

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