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Prices that Clear the Air: Energy Use and Pollution in Chile and Indonesia

Gunnar S. Eskeland, Emmanuel Jimenez and Lili Liu

Year: 1998
Volume: Volume19
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No3-5
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Abstract:
Emission reductions could be provided by cleaner technologies as well as substitution towards less polluting inputs and goods. We develop a model to assess the scope for emission reductions by input substitution. We then apply the model to manufacturing in Chile and Indonesia-two developing countries considering air pollution control strategies. We estimate substitutability in input demand in manufacturing--using standard techniques-and combine these with emission factors to assess the potential for emission reductions via demand' changes. For sulphur oxides (SO) and suspended particulates (TSP), emission elasticities with respect to the price of heavy fuels range from -0.4 to -1.2. A price increase of 20 percent would reduce emissions of SOx, and TSP by 8 to 24 percent. While these results indicate how emissions can be reduced by presumptive taxes on fuels-clearing the air as well as the markets for energy-such a strategy preferably should be accompanied by other instruments that stimulate cleaner technologies. Similarly, emission standards should be accompanied by presumptive taxes on goods and inputs. Emission taxes, if feasible, optimally combine inducements along both avenues.



At What Cost do We Reduce Pollution? Shadow Prices of SO2 Emissions

John R. Swinton

Year: 1998
Volume: Volume19
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-3
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Abstract:
The U. S. EPA's infant market for SO2 emissions has the potential for improving the cost effectiveness of reducing acid rain pollutants. If the market works as planned, over time one should see the cost of reducing additional amounts of sulfur dioxide converge across plants. The results of the study described here demonstrate that before the market opened marginal abatement costs varied wildly across plants. This work provides estimates of the shadow price of SO2 abatement using the output distance function approach for Illinois, Minnesota and Wisconsin coal-burning electric plants. The results demonstrate that the coal-burning electric plants with the highest emissions rates are also the plants with the lowest marginal abatement costs, a fact that may explain lower-than-expected prices in the new market for allowances. The data include information about plants with installed scrubber capital allowing for an investigation of the effect of scrubber capital on marginal abatement costs.



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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Abstract:
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.





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