DESIGNING POLLUTION MARKET INSTRUMENTS: CASES OF UNCERTAINTY

Autor: Dale Carlson, Anne Sholtz
Rok vydání: 1994
Předmět:
Zdroj: Contemporary Economic Policy. 12:114-125
ISSN: 1465-7287
1074-3529
DOI: 10.1111/j.1465-7287.1994.tb00450.x
Popis: I. INTRODUCTION The economics and regulatory policy literature is replete with theoretical proposals for establishing market based approaches to environmental regulation. After nearly 30 years of offering proposals for marketable permit systems, academicians and others at last are beginning to see their ideas put into practice. Crocker (1966), Dales (1968), Montgomery (1972), Baumol and Oates (1975), and Tietenburg (1980) show that theoretical market-based systems, as compared with theoretical command-and-control programs, can produce straightforward efficiency gains. McDonald and Mohammadioun (1992) compare inefficiencies resulting from tax distortion between these programs and emission taxes. Indeed, implementing both bubble and offset programs (specialized market incentives programs that allow intra-facility and highly restricted inter-facility emissions trades, respectively) produces dramatic cost savings. Palmer et al. (1980), Blackman and Baumol (1980), Hahn (1989), and Hahn and Hester (1989) provide estimates of the associated savings for air pollutants. (Such assessments for water pollution appear much earlier. EPA [1974] provides a quality example.) They also show to a large extent that many inefficiencies remain due to a host of operational problems and requirements for environmental markets. The theoretical and applied literatures have not fully addressed many of these inefficiencies. A joint Caltech and Pacific Stock Exchange team identified a number of these shortcomings and proposed specific remedies, assisting the South Coast Air Quality Management District (SCAQMD) to develop the Regional Clean Air Incentives Market (RECLAIM)--a market for oxides of nitrogen (NOx), oxides of sulfur (SOx), and scheduled to expand to include some ozone-forming reactive organics (ROCs)--for the Los Angeles Basin. Carlson et al. (1993) is the original report submitted to the SCAQMD and is authored by the full team. The instrument design in the analysis here was first outlined in that report. This paper expands on the team's findings and analysis. Two major categories of uncertainty create shortcomings with the standard theoretical models of trading programs. First, the models generally implicitly assume either that participants have perfect knowledge about their past, present, and future emissions or that unused credits never expire. Built upon these models, the standard policy design literature, including Bohm and Russell (1985), Hahn (1989b), OECD (1989), OECD (1991), and Hahn (1993), makes no mention of the effects of emissions uncertainty on the various market and instrument designs. In practice, however, emissions uncertainty is endemic for the types of sources regulated by a marketable permits program. Facilities' knowledge of their own future emissions is more likely a prediction or expectation: information on present emissions often arrives with a lag. And, with the possibility of inaccurate emissions monitoring techniques and devices, past emissions are not always certain. The second type of uncertainty arises because of the necessity of placing "pseudo" property rights into a regulatory scheme where those rights can easily or frequently be altered, thus affecting their value. Most of the literature assumes that the regulatory process is fixed once the policy is enacted, but regulatory programs often are updated or refocussed. Hahn and Noll (1983) and Blackman and Baumol (1980) recognize that this regulatory uncertainty exists and examine the problems with changing regulatory goals throughout a trading program. However, each suggests a solution where regulators simply create a complex, fully revealing plan for such alterations. The mere creation of the plan does give regulated facilities a better, but not optimal, ability to discount more accurately the value of the emissions credits, but the plan's creation does not necessarily lead to an efficient handling of the neceswary program changes. …
Databáze: OpenAIRE
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