How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks

How should environmental policy respond to economic fluctuations caused by persistent productivity shocks? This paper answers that question using a dynamic stochastic general equilibrium real business cycle model that includes a pollution externality. I first estimate the relationship between the cyclical components of carbon dioxide emissions and US GDP and find it to be inelastic. Using this result to calibrate the model, I find that optimal policy allows carbon emissions to be procyclical: increasing during expansions and decreasing during recessions. However, optimal policy dampens the procyclicality of emissions compared to the unregulated case. A price effect from costlier abatement during booms outweighs an income effect of greater demand for clean air. I also model a decentralized economy, where government chooses an emissions tax or quantity restriction and firms and consumers respond. The optimal emissions tax rate and the optimal emissions quota are both procyclical: during recessions, the tax rate and the emissions quota both decrease.     

Evaluating Temporary Certified Emission Reductions in Reforestation and Afforestation Programs

This article investigates the efficiency of the temporary certified emission reductions (tCERs) system that attempts to internalize the carbon sequestration function of the forest under the Clean Development Mechanism of the Kyoto Protocol. We find that the regulations creating tCERs partially internalize the carbon sequestration function of the forest. The amount of carbon re-released into the atmosphere, due to timber harvest, and sequestered, after the project period, is not internalized in the private landowner’s decision, which induces shorter rotation intervals than socially optimal. Furthermore, the carbon sequestered during the project is over-credited because credits are counted based on accumulated carbon instead of marginally sequestered carbon, which induces longer rotations intervals. Simulation results for the Philippines and Tanzania show that the difference in social welfare between the tCERs system and a socially optimal policy is only about 2% because of the countervailing effect of the inefficiencies on rotation interval choices.     

碳限额与交易政策下企业的绿色生产决策

在碳限额与交易政策下,除政府配给外,企业还可通过减少产量、生产绿色产品和购买碳排放权来获得额外的碳排放权。比较了不考虑和考虑固定成本两种情形下碳排放权市场交易价格与企业绿色产品生产成本的关系。结果表明:当企业生产绿色产品不存在固定成本时,随着碳排放权市场交易价格的提高,企业的最优产量逐渐减少,企业利润先降后增,企业由买入碳排放权转为卖出碳排放权;当企业生产绿色产品存在固定成本时,随着碳排放权市场交易价格的提高,企业生产绿色产品的固定成本的取值范围扩大。结论表明,碳限额与交易政策在控制碳排放和促进绿色制造业发展方面发挥着积极作用。     

On the potential economic costs of cutting carbon dioxide emissions in Portugal

The objective of this paper is to estimate the impact of reducing carbon dioxide emissions from fossil fuel combustion activities on economic activity in Portugal. We find that energy consumption has a significant impact on macroeconomic activity. In fact, a 1 ton of oil equivalent permanent reduction in aggregate energy consumption reduces output in the long term by €6,340. More importantly, and since carbon dioxide emissions are linearly related to the amounts of fuel consumed, our results allow us to estimate the costs of reductions in carbon dioxide emissions. We estimate that a uniform standard for reducing carbon dioxide emissions from fossil fuel combustion activities would lead to a marginal abatement cost of €95.74 per ton of carbon dioxide. This is a first rough estimate of the potential economic costs of policies designed to reduce carbon dioxide emissions. At this level one may conclude that uniform, across the board reductions in carbon emissions would have a clear negative effect on economic activity. Hence, at the aggregate level there is clear evidence for a trade-off between economic performance and a reduction in carbon emissions. This opens the door to the investigation of the scope for policy to minimize the costs of environmental policy and regulation.     

Carbon leakage revisited: unilateral climate policy with directed technical change

Using a stylized theoretical model, we argue that current economic analyses of climate policy tend to over-estimate the degree of carbon leakage, as they abstract from the effects of induced technological change. We analyse carbon leakage in a two-country model with directed technical change, where only one of the countries enforces an exogenous cap on emissions. Climate policy induces changes in relative prices, that cause carbon leakage through a terms-of-trade effect. However, these changes in relative prices also affect the incentives to innovate in different sectors. This leads to a counterbalancing induced-technology effect, which always reduces carbon leakage. We therefore conclude that the leakage rates reported in the literature may be too high, as these estimates neglect the effect of price changes on the incentives to innovate.      

Optimal containment and policy differentiation under unilateral climate policy

Abstract Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three‐sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.     

中国碳交易政策的减排效应及其机制研究

全球气候变暖对环境和经济发展影响巨大,碳排放是气候变暖的主要原因,碳交易政策是基于市场机制控制碳排放及推动绿色低碳发展的一项核心政策工具。采用2004—2019年中国30个省的面板数据（因数据缺失,未包含西藏地区和港澳台地区数据）,基于双重差分和中介效应模型对碳交易政策的减排效应及其作用机制进行了实证研究。研究结果表明,不论从总体看还是分区域看,碳交易政策均具有显著的减排效应,但效应的大小存在区域差异,碳交易政策在东部地区的减排效应比中西部地区更大。机制分析发现,碳交易政策可通过减少能源消耗规模、促进技术创新、促进产业结构升级、增加外商直接投资等渠道实现减排,能源规模、技术创新、产业结构、外商投资等在碳交易政策传导中具有显著的中介效应,但这种传导机制存在区域差异。     

An integrated tax-subsidy policy for carbon emission reduction

A carbon tax is often cited by economists as an effective instrument to mitigate greenhouse gas emissions, but there is little political interest in the United States. In light of this political unpopularity, we develop and examine a net-revenue constrained carbon tax and subsidy program. The optimal revenue constrained tax and subsidy schedule based on our utility maximization model taxes energy sources with high emissions to energy price ratio, and subsidizes sources with low emissions to energy price ratios. This approach may be more palatable than a traditional carbon tax because it can change the relative price of low and high emissions energy sources while providing a mechanism to limit net tax increases and energy price increases. We find that a constrained tax/subsidy program provides welfare gains relative to a no-tax scenario. Welfare gains are estimated to be 1% and 36% of the welfare gains from a Pigouvian tax for the motor fuels industry and electric power industry, respectively. In contrast, subsidies for low-emitting energy sources funded from general tax funds rather than from high-emission energy tax revenues lead to welfare decreases substantially below our proposed tax/subsidy policy approach.     

Green Technology and Optimal Emissions Taxation

Unless an active environmental policy exists, firms have no incentive to engage in abatement or environmental R&D so policy design is of paramount importance. This design heavily depends on the way R&D spillovers operate. There are two distinct types of R&D spillover: output spillover and input spillover. An input spillover operates on the expenditure toward pollution reduction, whereas an output spillover manifests as the achieved abatement. Under optimal emissions taxation, significant differences arise due to this distinction, in particular, when the spillover operates on R&D inputs. In an oligopolistic setting, the result is higher R&D expenditure, but also higher aggregate emissions and, consequently, higher emissions taxes. By contrast, when spillovers occur in R&D output, there is a U‐shaped relationship between the optimal tax and the spillover, showing a trade‐off between the optimal tax rate and spillovers when these are low. In terms of the relative effectiveness of different R&D organization setups, combining emissions taxes with R&D cooperation, this paper shows that under low levels of R&D spillover R&D cooperation gives higher emissions reductions, whereas when spillovers are high this is not the case.     

Climate change mitigation options and directed technical change: A decentralized equilibrium analysis

The paper considers an endogenous growth model with climate change as well as three R&D sectors dedicated to energy, CCS (Carbon Capture and Storage) and backstop efficiency. First, we characterize the set of decentralized equilibria: a particular equilibrium is associated with any vector of policy instruments including a carbon tax and a subsidy to each R&D sector. Second, we show that it is possible to express any equilibrium as the solution of a maximization program. Third, we solve the first-best optimum problem and thereby deriving the optimal instruments. Finally, we illustrate the theoretical model using calibrated functional specifications. In particular, we investigate the effects of various combinations of policy instruments (including the optimal ones) by determining the deviation of each corresponding equilibrium from the “laisser-faire” benchmark. We find notably that introducing an R&D subsidy hardly affects emissions when a carbon tax is already implemented, thus revealing a complementary effect between these two policy instruments.     

Can Trade Be Good for the Environment?

We analyze the impact of trade in a differentiated good on environmental policy when there is local and transboundary pollution. In autarky, the (equivalent) pollution tax is set equal to the marginal damage from own emissions. If the strategic policy instrument is a tax, leakage occurs under trade and tends to lower the tax. The net terms of trade effect, due to the exportable and importable varieties of the differentiated good, tends to increase the tax. We derive conditions under which pollution taxes under trade are higher than the marginal damage from own emissions, i.e., higher than the Pigouvian tax and than that under autarky. Then, pollution falls under trade relative to autarky. When countries use quotas/permits to regulate pollution, there is no leakage, while the net terms of trade effect tends to make pollution policy stricter. The equivalent tax is always higher than the marginal damage from own emissions, i.e., always higher than the Pigouvian tax and than that under autarky; hence, pollution always falls under trade. Our analysis provides some insight into the findings in the empirical literature that trade might be good for the environment.     

Absentee Ownership of Immobile Factors and Environmental Policies in a Federation

This paper studies the effects of absentee ownership of immobile factors on environmental policy of a jurisdiction in a federation. An increase in emissions in a jurisdiction increases factor incomes, but part of the increased factor incomes goes to absentee owners while only the residents of the jurisdiction bear the full disutility. In addition, the increase in emissions in a jurisdiction attracts capital and decreases capital in other jurisdictions, reducing the incomes that the residents of the jurisdiction earn from owning immobile factors in other jurisdictions. Absentee ownership thus reduces the marginal benefit of an increase in emissions while it leaves the marginal cost unaffected from the jurisdiction’s perspective. As a consequence, absentee ownership makes environmental policy of a jurisdiction too stringent relative to the efficient level. The paper also considers the effects of absentee ownership on environmental policy when goods trade is allowed.     

Climate Policy with Multiple Sources and Sinks of Greenhouse Gases

This paper studies how inclusion of many sources, sinks and reservoirs -- a comprehensive approach -- affects climate policy, compared with a control merely of CO₂. Two questions of particular importance arise in such an analysis. One is how to aggregate the emissions of different climate gases, and the other is how to include all relevant measures in the analysis. To aggregate gases properly, an intertemporal analysis should be carried out. To assure that all relevant measures are included, we suggest that certain measures to reduce emissions of greenhouse gases are specified explicitly and evaluated together with indirect measures, such as carbon charges. A numerical analysis based on an optimal control model indicates that direct measures may play an important role in the design of climate policy, especially for the control of the emissions of greenhouse gases other than CO₂. Similar to other studies of the time-path for abatement efforts, the bulk of abatement should be taken by the end of the planning period. This result is significantly strengthened if gases with short life-times in the atmosphere, such as methane, are subject to control.     

The optimal initial allocation of pollution permits: a relative performance approach

The initial allocation of pollution permits is an important aspect of emissions trading schemes. We generalize the analysis of Böhringer and Lange (2005, Eur Econ Rev 49(8): 2041–2055) to initial allocation mechanisms that are based on inter-firm relative performance comparisons (including grandfathering and auctions, as well as novel mechanisms). We show that using firms’ historical output for allocating permits is never optimal in a dynamic permit market setting, while using firms’ historical emissions is optimal only in closed trading systems and only for a narrow class of allocation mechanisms. Instead, it is possible to achieve social optimality by allocating permits based only on an external factor, which is independent of output and emissions. We then outline sufficient conditions for a socially optimal relative performance mechanism.     

Examining the influencing factors of CO2 emissions at city level via panel quantile regression: evidence from 102 Chinese cities

Ascertaining the influencing factors of carbon dioxide emissions in Chinese cities is an important issue for policy-makers. This paper investigates the effect of several determinants on carbon emissions per capita in Chinese cities. Non-normally distributed and heterogeneous features of carbon emissions per capita in Chinese cities are considerably important. The empirical results demonstrate that GDP per capita has an increasingly positive impact on carbon emissions per capita due to the growth in household consumption. Urbanization has a slightly decreasing positive effect on carbon emissions per capita with a quantile increase resulting from continuous highway construction. Industrialization has a decreasing positive effect with carbon emission per capita quantile increases because of increasing energy efficiency and lower costs related to carbon reductions. The population has a decreasing negative effect on carbon emissions because of people’s increasing demand for environmental safety. The distributions of emissions per capita conditional on the 10th and 90th quantiles of independent variables also vary considerably. Specific policy implications are provided based on these results.     

Liability Structure and Carbon Emissions Abatement: Evidence from Chinese Manufacturing Enterprises

As it is known that the linkage between financial performance and environmental performance of enterprises has not obtained conclusive results, and the role of liability and its structure have not been considered yet. In view of these gaps, this paper employed the data of Chinese manufacturing firms from 2008 to 2011, to examine the impact of liability structure on enterprises’ carbon emissions abatement. The results manifest that both the relative and absolute proportions of long-term liabilities have a significant negative effect on the level value and growth rate of enterprise carbon emissions in China. Heterogeneity analysis demonstrates that enterprises in high energy consumption group have higher total carbon emissions and growth rate compared with enterprises in low and middle energy consumption groups. For enterprises of different ownership, the level of private-owned enterprises is higher and the growth rate is lower. The findings imply that policy makers should not adopt a one-size-fits-all policies to reduce firm carbon emissions.

     

Methane and Nitrous Oxide Emissions from Agriculture in the EU: A Spatial Assessment of Sources and Abatement Costs

Agriculture significantly contributes to emissions of greenhouse gases in the EU. By using a farm-type, supply-side oriented, linear-programming model of the European agriculture, the baseline levels of methane and nitrous oxide emissions are assessed at the regional level in the EU-15. For a range of CO₂-equivalent prices, we assess the potential abatement, as well as the resulting optimal mix of emission sources in the total abatement. Furthermore, we show that the spatial variability of the abatement achieved at a given carbon price is large, indicating that abatement cost heterogeneity is a fundamental feature in the design of a mitigation policy. The cost savings permitted by market-based instruments relative to uniform standard are shown to be large.     

Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?

This paper evaluates the consequences of renewable energy policies on welfare and energy prices in a world where carbon pricing is imperfect and the regulator seeks to limit emissions to a (cumulative) target. The imperfectness of the carbon price is motivated by political concerns regarding distributional effects of increased energy prices. Hence, carbon prices are considered to be temporarily or permanently absent or endogenously constrained by their effect on energy prices. We use a global general equilibrium model with an intertemporal fossil resource sector and calculate intertemporally optimal policies from a broad set of policy instruments including carbon taxes, renewable energy subsidies and feed-in-tariffs, among others. If carbon pricing is permanently missing, mitigation costs increase by a multiple (compared to the optimal carbon pricing policy) for a wide range of parameters describing extraction costs, renewable energy costs, substitution possibilities and normative attitudes. Furthermore, we show that small deviations from the second-best subsidy can lead to strong increases in emissions and consumption losses. This confirms the rising concerns about the occurrence of unintended side effects of climate policy – a new version of the green paradox. Smart combinations of carbon prices and renewable energy subsidies, however, can achieve ambitious mitigation targets at moderate additional costs without leading to high energy price increases.     

人工智能技术对碳排放的影响

随着新一轮科技革命和产业变革的深入推进,人工智能技术在应对气候变化方面扮演重要角色,并赋能“碳达峰、碳中和”目标的实现。利用2006—2019年中国内地省级面板数据,考察人工智能技术对碳排放的影响。研究发现：人工智能技术与碳排放之间呈倒U型关系,即当人工智能技术达到一定阈值后,其碳减排效应逐渐凸显;人工智能技术主要通过提高能源利用效率实现碳减排;在东部和西部地区,人工智能技术与碳排放之间存在显著倒U型关系,而在中部地区,人工智能技术对碳排放发挥持续促进作用。因此,在推进“双碳”目标过程中,需要以绿色低碳发展为目标开发人工智能技术,正确引导人工智能在碳减排领域的研发应用,针对不同区域实际制定差异化发展政策。     

AGE analysis of the impact of a carbon energy tax on the Irish economy

A computable general equilibrium model with specific detail in taxation and energy use is developed in this paper to quantify the impact of the implementation of energy taxation to reduce carbon dioxide emissions in Ireland. Benchmark data combining physical energy and emissions data and economic data in the form of a Social Accounting Matrix (SAM) had to be compiled from various data sources, because energy and pollution accounts from the SEEA are not available for Ireland. We find that the reduction target for energy related CO₂ emissions in Ireland of 25.8% compared to 1998 levels can be achieved with a carbon energy tax of 10-15 euros per tonne of CO₂. Though fuel switching is important in meeting the target, this result is more sensitive to the possibilities for producers to substitute away from energy use. Welfare would fall but only by small percentages. Production and consumption patterns would change more significantly, with a shift in demand from fuels with a high emission factor to energy sources with a lower carbon-intensity and from energy to other commodities. This paper confirms that a carbon energy tax leads to greater emission reductions than an equivalent uniform energy tax. The latter has a stronger negative impact on the less polluting energy sectors whereas the carbon tax greatly stimulates the use of renewable energy and reduces the use of peat and coal. The new SAM, the model and the application to energy taxes contribute to a better informed debate on environmental policy in Ireland.