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The Next Restructuring: Environmental Regulation

A. Denny Ellerman

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-8
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From oil, to natural gas, and now electricity, the regulation of energy markets has been successively restructured to allow greater scope to market forces. The likely next domain for restructuring, environmental regulation, may seem far fetched now, but it is no more so than the restructuring of electric utility regulation would have seemed to be twenty years ago. The "grand experiment" with emissions trading under the U.S. acid rain program has set a propitious example by showing that markets in environmental goods can be constructed and that the explicit recognition of property rights in the use of the environment is compatible with effective and non-intrusive environmental regulation.

The Determinants of Sulfur Emissions from Oil Consumption in Swedish Manufacturing Industry, 1976-1995

Henrik Hammar and Asa Lofgren

Year: 2001
Volume: Volume22
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No2-5
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Using a structural decomposition analysis, we analyze the causes of a reduction in sulfur emissions originating from oil consumption in the manufacturing industry in Sweden during 1976-1995. The Swedish case is of interest since Sweden has pursued an ambitious policy to combat the precursors of acid rain. Between 1989 and 1995, about 59 percent of the reduction in sulfur emissions from manufacturing can be attributed to the announcement and implementation of a Swedish sulfur tax. Two thirds of the reduction during 1976-1995 is captured by substitution between oil and other energy sources. The price of electricity also has had a significant effect via substitution between oil and electricity. Furthermore, one third of the reduction during 1976-1995 is explained by decreased energy intensity.

The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program

A. Denny Ellerman and Juan-Pablo Montero

Year: 2007
Volume: Volume 28
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-3
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This paper provides an empirical evaluation of the efficiency of allowance banking in the nationwide market for sulfur dioxide (SO2) emission allowances that was created by the U.S. Acid Rain Program. We develop a model of efficient banking, select appropriate parameter values, and evaluate the efficiency of observed temporal pattern of abatement based on aggregate data from the first eight years of the Acid Rain Program. Contrary to the general opinion that banking in this program has been excessive, we find that it has been reasonably efficient. We also identify the erroneous assumptions underlying the earlier view and the conditions required for efficient banking to exist independently of changes in the counterfactual, an attribute we call robustness. These results show that firms use banking provisions in a rational and predictable way and that, at least in the US Acid Rain Program, there is no support for the often expressed concern that banked permits will be used all at once to create emissions spikes.

Counterpart Choice in Emission Markets: Beyond Pollution Abatement Motives

María Eugenia Sanin

Year: 2018
Volume: Volume 39
Number: Special Issue 2
DOI: 10.5547/01956574.39.SI2.msan
View Abstract

This paper examines the determinants of electricity generator's trading strategies in the U.S. Acid Rain Market. Model estimates show that the SO2 allowances market is de facto regionalized due to the regionalization of the electricity market. The national dimension only appears when there are local imbalances in the electricity market that give strong incentives to search for a better deal outside of the generator's regional market. We also identify the importance of counterpart differentiation and the influence on the counterpart choice of the regulatory framework, market evolution and transaction size. These findings are shown to be robust to Enron's abnormal behavior during 2000-2001 and its subsequent bankruptcy. The results suggest that, contrary to received knowledge, abatement costs are not the only consideration when trading pollution allowances: market microstructure can play a crucial role.

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