1 / 12

Do Markets Provide Better Environmental Performance than Conventional Regulation?

A. Denny Ellerman Center for Energy and Environmental Policy Research Massachusetts Institute of Technology http://web.mit.edu/ceepr/www/ SEI Board Meeting Dublin, Ireland May 20, 2003. Massachusetts Institute of Technology Center for Energy and Environmental Policy Research.

temima
Download Presentation

Do Markets Provide Better Environmental Performance than Conventional Regulation?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. A. Denny Ellerman Center for Energy and Environmental Policy Research Massachusetts Institute of Technology http://web.mit.edu/ceepr/www/ SEI Board Meeting Dublin, Ireland May 20, 2003 Massachusetts Institute of Technology Center for Energy and Environmental Policy Research Do Markets Provide Better Environmental Performance than Conventional Regulation?

  2. The Conventional Argument Emissions trading reduces economic cost for achieving any given environmental goal What has been learned Costs are less (50% less in Acid Rain Program) Environmental performance has been better than the conventional regulatory alternative How could this be so? The Surprise Lesson from U.S. Emissions Trading Programs

  3. 100% (real) compliance High cost units provided cheaper means of compliance than regulatory relaxation Big, dirty units reduce the most Grounded in economics of deep abatement technology 1st Year Effect, especially with banking in phased-in programs Three Reasons for Better Environmental Performance

  4. First Year Effect in “Big Dirties”

  5. Deep abatement technology is capital intensive Economics depends on how many units of output the (large) fixed costs can be spread over Cap & Trade Programs pay per unit of abatement, while conventional regulatory programs do not Why Did the “Big, Dirties” Reduce the Most?

  6. Cost heterogeneity implies C & C rule will not fit all…imposes unique hardship on some Leads to administrative appeal and equitable exception that relaxes or delays requirement One-sided process…those facing less cost than others never offer to do more Fine line between equity and special pleading Why 100% Compliance?Exception and Equity

  7. Cheaper to buy an offset than seek exception Trading provides for automatic off-setting Also, harder to claim unique hardship in a market with many buyers… highest cost is price of an allowance Easier to enforce allowance-emissions matching than prescriptive rules Flexibility, simplicity & strict accountability Special Pleading Has Been Made Uneconomic

  8. How has Renewable Energy Procurement Fared?

  9. NFFO and RO Capacity(England & Wales)

  10. Emissions Trading Acid Rain Program was “de novo” RECLAIM and NOx programs superseded conventional programs with ample authority Too complicated to implement by regulation ROCs: Doubling of UK capacity with 3% target From feudal fiat to fee simple: Unbundling allows decentralization & specialization Avoiding pitfalls of informational asymmetries and the political uses of administrative discretion Are Markets Supplanting Conventional Regulation?

  11. Technological Trends Information revolution has greatly reduced cost of monitoring, reporting and processing Societal Trends Greater willingness to rely on “markets” and less faith in “government” and “experts” Environmental Problems are Different Blunt tools work only on big obvious problems Why Markets Now?

  12. A Concluding Thought “If it is feasible to establish a market to implement a policy, no policy-maker can afford to do without one.” Pollution, Property and Prices J. H. Dales (1968)

More Related