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The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-best Setting (1999)
| Venue: | Journal of Public Economics |
| Citations: | 238 - 66 self |
BibTeX
@ARTICLE{Goulder99thecost-effectiveness,
author = {Lawrence H. Goulder and Ian W. H. Parry and Roberton C. Williams Iii and Dallas Burtraw},
title = {The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-best Setting},
journal = {Journal of Public Economics},
year = {1999}
}
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Abstract
This paper employs analytical and numerical general equilibrium models to examine the costs of achieving pollution reductions under a range of environmental policy instruments in a second-best setting with pre-existing factor taxes. We compare the costs and overall efficiency impacts of emissions taxes, emissions quotas, fuels taxes, performance standards, and mandated technologies, and explore how costs change with the magnitude of pre-existing taxes and the extent of pollution abatement. We find that the presence of distortionary taxes raises the costs of pollution abatement under each instrument relative to its costs in a first-best world. This extra cost is an increasing function of the magnitude of pre-existing tax rates. For plausible values of pre-existing tax rates and other parameters, the cost increase for all policies is substantial (35 percent or more). The impact of pre-existing taxes is particularly large for non-auctioned emissions quotas: here the cost increase can be several hundred percent. Earlier work on instrument choice has emphasized the potential reduction in compliance cost achievable by converting fixed emissions quotas into tradeable emissions permits. Our results indicate that the regulatorÕs decision whether to auction or grandfather emissions rights
Keyphrases
second-best setting alternative instrument environmental protection pre-existing tax pre-existing tax rate cost increase pollution abatement emission quota non-auctioned emission quota emission right pollution reduction fuel tax earlier work environmental policy instrument instrument relative distortionary tax overall efficiency impact performance standard extra cost instrument choice plausible value regulator decision potential reduction compliance cost emission tax pre-existing factor tax tradeable emission permit numerical general equilibrium model first-best world
