Water pollution abatement by Chinese industry: cost estimates and policy implications

Factory-level data are used to estimate water pollution abatement costs for Chinese industry. Joint abatement cost functions are utilized which relate total costs to treatment volume and the simultaneous effect of reductions in suspended solids, chemical oxygen demand, biological oxygen demand and other pollutants. Tests of alternative functional forms suggest that a very simple (constant elasticity) model fits the data as well as a complex (translog) model, permitting sophisticated policy experiments with relatively simple calculations. From the results, the cost-effectiveness of current pollution control policy in China is analysed. Basic conclusions are (1) The benefits of stricter discharge standards should be weighed carefully against the costs. For the sample of 260 factories, a shift across the existing range of standards entails a present-value difference of US$330 million in abatement costs. (2) Emissions charges as low as US$1.00/ton would be sufficient to induce 80% abatement of suspended solids for cost-minimizing factories. Charges of US$3, US$15 and US$30 per ton would be sufficient to induce 90% abatement of TSS, COD and BOD. (3) The current regulatory system provides an economic incentive to abate by charging a levy on pollution in excess of the standard. However, the results suggest that changing to a full emissions charge system would greatly reduce overall abatement costs. For the 260 factories in the sample, the current overall abatement rate could be attained under a charge system at a reduced annual cost whose present value is US$344 million.     

BOD7 production function of the Finnish pulp and paper industry

Traditional neoclassical production theory analyzes the relationship in a production process between inputs and outputs which have a positive market value for the producer. The externalities of production, which have nonpositive market values, are discarded or included as the cost in a cost function. This paper studies the relationship between biological oxygen demand (BOD) emissions, an output of nonpositive value, and traditional factors of production, that is, investments, labor, output, and raw materials. An emissions production function is theoretically presented and empirically estimated with data from the Finnish pulp and paper industry. The approach is based on the observation that it is the minimization of effluents rather than, or together with, the maximization of yields, that increasingly defines the technological frontier of production processes. The empirical function estimation demonstrates the validity of the proposed novel modeling approach.     

贸易对环境污染的影响——基于GMM方法的实证研究

从全球和长期来看,贸易增加了全球CO2和SO2排放,但减少了BOD排放;贸易在减少发达国家CO2和SO2排放的同时却增加了非发达经济体(尤其是新兴市场经济体)CO2和SO2的排放;贸易减少了发达经济体和其他经济体BOD的排放,但增加了新兴市场经济体BOD的排放。     

Economic growth and greenhouse gas emissions

Recent empirical research has examined the relationship between certain indicators of environmental degradation and income, concluding that in some cases an inverted U-shaped relationship, which has been called an environmental Kuznets curve (EKC), exists between these variables. Unfortunately, this inverted U-shaped relationship does not hold for greenhouse gas emissions. One explanation of the absence of EKC-like behavior in greenhouse gas emissions is that greenhouse gases are special pollutants that create global, not local, disutility. But the international nature of global warming is not the only reason that prevents de-linking greenhouse gas emissions from economic growth. The intergenerational nature of the negative impact of greenhouse gas emissions may have also been an important factor preventing the implementation of greenhouse gas abatement measures in the past. In this paper we explore the effect that the presence of intergenerational spillovers has on the emissions–income relationship. We use a numerically calibrated overlapping generations model of climate–economy interactions. We conclude that: (1) the intertemporal responsibility of the regulatory agency, (2) the institutional capacity to make intergenerational transfers and (3) the presence of intergenerationally lagged impact of emissions constitute important determinants of the relationship between economic growth and greenhouse gas emissions.     

Environmental efficiency and regulatory standards: the case of CO2 emissions from OECD industries

It is generally accepted that production processes should take into account environmental sustainability principles. Hence, any attempt to measure the performance of these processes should highlight, as a reference standard, those processes that combine greater amounts of desirable production with lower levels of undesirable outputs, e.g. waste generation or emissions of greenhouse gases. Using this concept of environmental performance, it is possible to establish efficiency scores within a Data Envelopment Analysis (DEA) framework, and to calculate desirable output losses when specific environmental standards on undesirable production are set by the authority, i.e. legislative opportunity costs. This can be achieved by solving programming models that call for a reduction of undesirable outputs and that stress the weak disposability of such outputs. Once a standard is set, it congests or binds the technology if the reductions in undesirable production required to meet it imply lower desirable output levels, i.e. the regulation is costly. DEA enables us to simulate, for each producer, the effect of any regulatory standard on production, and the limits beyond which production is impossible — lower limits, or superfluous — upper limits, because the chosen standard does not bind production. The empirical implications of the DEA process are analyzed considering different regulatory scenarios on CO₂ emissions for the Organization for Economic Cooperation and Development (OECD)'s manufacturing industries.     

Sustainability-oriented tax-based own resources for the European Union: a European carbon-based flight ticket tax

The failed attempts of several European countries to introduce a flight ticket tax and the pressure on those European Union Member States still levying such a tax clearly demonstrate the limits of national aviation taxation. Assigning a carbon-based flight ticket tax to the EU level would reduce the tax enforcement problems inherent to mobile tax bases and put a stop to harmful tax competition between EU Member States. By replacing a part of national contributions to the EU budget a flight ticket tax can strengthen sustainability-orientation of the EU system of own resources. Using a new data set, which assigns to approximately 75 to 90% of the respective intra and extra EU routes flown in the year 2014 the corresponding carbon emissions per passenger, the paper estimates the expected revenue from implementing a carbon-based flight ticket tax at the EU level for carbon tax levels between 25 and 35€ per ton of carbon emissions.     

Analysis of the effectiveness of the first European Pollutant Emission Register (EPER)

The aim of this paper is to examine the effectiveness of the first European Pollution Emissions Register (EPER), a regulatory instrument based on the publication of the environmental performance of firms exceeding specified pollution limits. The Multivariate Regression Model (MVRM) is applied to capture the disciplinary effect of the EPER. So, we first perform an analysis to determine whether the publication of the EPER has a negative effect on the market value of the listed firms. Secondly, we consider the possibility of the publication of the EPER affecting the market value of firms which could be included in the EPER but are not because their emissions do not exceed the specified pollution limits. Finally, we prepare an index to compare the environmental results of the firms and analyse whether the consequences of publishing the EPER are worse for firms with high relative pollution records.     

媒体压力、融资约束与工业企业碳排放——绿色发明专利的调节作用

以2011-2017年沪深上市工业企业为样本,利用固定效应模型,分析媒体压力与融资约束对企业碳排放的影响,探讨绿色发明专利的调节作用,结果发现,媒体压力显著抑制企业碳排放,且缓解融资约束可以促进企业碳减排。回归结果还表明,绿色发明专利会削弱媒体压力的碳减排效应,增强融资约束对碳减排的抑制作用,而媒体压力与融资约束对企业碳排放的影响并不存在相互促进或抑制作用。最后,对结论进行内生性与稳健性检验,并提出相应政策建议。     

Hot air for sale: a quantitative assessment of Russia’s near-term climate policy options

Since January 2005 the European Union has launched an EU-internal emissions trading scheme (EU ETS) for emission-intensive installations as the central pillar to comply with the Kyoto Protocol. The EU ETS will be linked to a Kyoto emissions market where greenhouse gas emission allowances of signatory Kyoto countries can be traded. In this paper we investigate the implications of Russian market power for environmental effectiveness and regional compliance costs to the Kyoto Protocol taking into account potential linkages between the Kyoto emissions market and the EU ETS. We find that Russia may have incentives to join the EU ETS as long as the latter remains relatively separated from the Kyoto international emissions market. In this case, Russia can exert monopolistic price discrimination between two separated markets thereby maximizing revenues from hot air sales. The EU will be able to substantially reduce compliance costs if it does not restrain itself to EU-internal emission regulation schemes. However, part of the gains from extra-EU emissions trading will come at the expense of environmental effectiveness as (more) hot air will be drawn in.      

Corruption and air pollution in Europe

This paper examines how the effectiveness of regulatory framework influences levels of sulphur emissions in a scenario where, to reduce its (emission-) tax payments, a polluting firm may under-report emissions level at the risk of being audited and fined. First, a model to explain how changes in regulatory framework (e.g., audit effectiveness) and transboundary spillovers affect both actual and reported emissions is developed. Then the theoretical predictions using data for 39 European countries from 1999 to 2003 are tested and inferences about true emission levels are made. The empirical analysis supports the theoretical predictions with significant implications for the interpretation of pollution data reported to international monitoring agencies. Countries with effective regulation are likely to have relatively high reported emissions of sulphur. But this should not automatically be interpreted as weak environmental performance, because their actual pollution levels are likely to be lower than in nations with less effective regulation.     

Command-and-control revisited: Environmental compliance and technological change in Swedish industry 1970–1990

This paper addresses the issue of environmental policy instrument choice for achieving deep emission reductions in the industrial sector. Specifically, it provides: (a) a theoretical and empirical review of the conditions under which performance standards can provide efficient incentives for deep emission reductions and technology adoption; and (b) an analysis of the design and the outcomes of the standards-based regulation of industrial pollutants in Sweden during the period 1970–1990. Our empirical findings suggest that the Swedish regulatory approach comprised many key elements of an efficient policy-induced transition towards radically lower emissions in the metal smelting and pulp and paper industries. The regulation relied solely on performance standards, thus granting flexibility to firms in terms of selecting the appropriate compliance measures. These standards were implemented in combination with extended compliance periods. R&D projects and the new knowledge that was advanced incrementally in interaction between the company, the environmental authorities and research institutions provided a direct catalyst to the regulatory process. In these ways the Swedish regulatory approach provided scope for creative solutions, environmental innovation, and permitted the affected companies to coordinate pollution abatement measures with productive investments.     

REGULATORY DEALING: TECHNOLOGY ADOPTION VERSUS ENFORCEMENT STRINGENCY OF EMISSION TAXES

We analyze the role of targeted enforcement of emissions taxes when the regulator wants to minimize aggregate emissions via the adoption of new more environmentally friendly technology. The regulator wants to speed up the path of technology adoption generated by a policy of uniform enforcement (that monitors adopters and nonadopters with the same probability) by engaging in a regulatory deal where a reduced monitoring probability is granted in “exchange” for adoption of the new technology. We set up a theoretical model, characterize the circumstances in which such dealing minimizes aggregate emissions, and test our hypothesis using economic laboratory experiments. Our analytical and experimental results suggest that even though such a deal might imply an increased level of violation by adopters, such tolerance is rather an integral part of an overall enforcement strategy that minimizes aggregate emissions when the rate of adoption is endogenous. (JEL L51, Q53, Q55, Q58)     

The stock market and NO2 emissions effects of COVID-19 around the world

In this paper, we study the impact of the coronavirus disease 2019 pandemic in estimated panel vector autoregression models for 92 countries. The large cross-section of countries allows us to shed light on the heterogeneity of the responses of stock markets and nitrogen dioxide emissions as high-frequency measures of economic activity. We quantify the effect of the number of infections and four dimensions of policy measures: (1) containment and closure, (2) movement restrictions, (3) economic support, and (4) adjustments of health systems. Our main findings show that a surprise increase in the number of infections triggers a drop in our two measures of economic activity. Propping up economic support measures, in contrast, raises stock returns and emissions and, thus, contributes to the economic recovery. We also document vast differences in the responses across subsets of countries and between the first and the second wave of infections.     

Prices Versus Quantities: Technology Choice,Uncertainty and Welfare

Technological improvements have proven essential in mitigating environmental problems such as climate change, depletion of the ozone layer and acid rain. While it is well-known that price- and quantity-based regulatory instruments provide different investment levels, the effects on the choice between different technologies have received scant attention. This paper expands on the prices versus quantities literature by investigating firms’ technology choice in the face of demand and supply side uncertainty. I show that the regulator can not design tradable emissions permits and an emissions tax such that the two regimes are equivalent, even in terms of expected values. Moreover, a tax encourages the most flexible abatement technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance, compared with the variance in consumer demand for the good produced. Finally, the firms’ technology choices are socially optimal under tradable emissions permits, but not under an emissions tax.     

“More is less”: the tax effects of ignoring flow externalities

Using a model of non-linear, non-monotone decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay in emissions) and higher output at the steady state than a corrective tax that ignores the flow externality. This “more is less” result emphasizes that setting a corrective tax that ignores the flow externality, or imposing a corrective tax at too low a level where there exists only a stock externality, may affect both transitory and steady-state output, tax payments and cumulative emissions. The result has important policy implications for decision makers setting optimal corrective taxes and targeted emission limits whenever stock externalities exist.     

In or out: efficient inclusion of installations in an emissions trading scheme?

Regulators around the world are currently considering national emissions trading schemes (ETS) as cost-effective instruments to reduce greenhouse gas emissions. In the process, they are confronted with numerous design issues. The coverage of installations in an ETS is one such issue. While “blanket coverage” that includes all industrial emitters of greenhouse gases in an economy has some intuitive appeal, and seems equitable, it does not take into full account all the costs related to the extent of coverage. This paper shows that an alternative approach of “partial coverage” based on benefit–cost analysis can achieve the same emission reduction outcome at lower social cost. The approach is based on maximizing the benefits from inclusion of installations in an ETS at the same time as taking all relevant transaction costs into account. A broad definition of transaction costs is used, which covers the regulatory costs to the government as well as regulatory costs imposed on covered installations. We find that particularly for relatively modest emissions reduction targets the cost savings of a “partial coverage” compared to “blanket coverage” are significant.     

Environmental regulation of technically inefficient firms

This paper presents a model in which a technically inefficient firm is responsible for the emissions of pollutants. We derive second-best regulatory schemes (tax and quota) assuming that the firm’s technical efficiency is unknown to the regulator.     

Economic criteria for using wetlands as nitrogen sinks under uncertainty

If the environmental damages that are caused by excessive nitrogen load to the sea depend on the timing of emissions, then monitoring the stochastic variation of emissions is crucial for controlling eutrophication damages. A significant problem of nonpoint source (NPS) nitrogen pollution is that emissions are stochastic and difficult to control. The main purpose of this paper is to examine under what criteria wetlands are economically rational to use for controlling stochastic NPS pollution. Three criteria are identified using a simplified stochastic watershed model. It is suggested that wetlands are economically rational to use, especially when monitoring the uncertainty of emissions is a part of the decision problem. The theoretical findings are illustrated with an example from southwestern Sweden.     

Performance versus design standards in the regulation of pollution

This paper presents a model of pollution regulation in an oligopolistic market. Two forms of regulation are considered: performance standards which regulate pollution directly by an upper limit on emissions, and design standards which regulate pollution indirectly by a minimum usage requirement of an enissions control input. Equilibria under each regulatory regime are characterized. A welfare analysis reveals that performance standards are preferred to design standards if the objective is minimization of emissions plus pollution damage costs. However, the comparison is indeterminate if the regulator's objective is total surplus less pollution damage. An equivalence between emissions taxes and performance standards is established, so the above welfare comparisons also apply to emissions taxes versus design standards.     

The Climate Policy Hold‐Up: Green Technologies,Intellectual Property Rights,and the Abatement Incentives of International Agreements

The success of global climate policies over the coming decades depends on the diffusion of “green” technologies. Using a simple model, we highlight a conflict between international environmental agreements (IEAs) on emissions reductions and international systems of intellectual property rights (IPRs) on abatement technologies. When IPRs are strong and global, IEA signatories anticipate rent extraction by innovators. This hold‐up effect reduces abatement, potentially to levels below those of non‐signatories, and it reduces the number of signatories to self‐enforcing IEAs. We explore policy options that respect existing property rights, but avoid the strategic interaction between signatories to an IEA and innovators.