Green Payments and Dual Policy Goals

We use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms. Each farm is characterized by two dimensions of attributes: farms size and conservation efficiency. The policymaker may not be able to use the attributes as an explicit criterion for payments. We characterize optimal policy when conservation efficiency is unobservable to policy-makers, and when farm size is also unobservable. An income support goal is shown to reduce the conservation distortion caused by asymmetric information. The cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency.

The Dynamics of Carbon Sequestration and Measures of Cost-Effectiveness

The cost-effectiveness of carbon sequestration alternatives has often been discussed in the economics literature on sequestration. Average or marginal costs and annual carbon supply curves are often used as measures of cost-effectiveness. Sequestration is inherently a temporal process and how time is accounted for in the various measures of cost-effectiveness is critical for appropriate cross-study comparisons. I examine three factors that affect the magnitude of measured cost-effectiveness: the study period, the sequestration path, and the discount rate if discounting is used. The extent to which these factors affect the consistency of cross-study comparisons is empirically illustrated

Green Payments and Dual Policy Goals

We use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms. Each farm is characterized by two dimensions of attributes: farm size and conservation efficiency. Policymakers may not be able to use the attributes as an explicit criterion for payments. We characterize optimal policy when conservation efficiency is unobservable to policymakers, and when farm size is also unobservable. An income support goal is shown to reduce the conservation distortion caused by asymmetric information. The cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency

The Dynamics of Carbon Sequestration and Alternative Carbon Accounting, with an Application to the Upper Mississippi River Basin

Carbon sequestration is a temporal process in which carbon is continuously being stored/released over time. Different methods of carbon accounting can be used to account for this temporal nature, including annual average carbon, annualized carbon, and ton-year carbon. In this paper, starting by exposing the underlying connections among these methods, we examine how the comparisons of sequestration projects are affected by these methods and the major factors affecting them. We explore the empirical implications for carbon sequestration policies by applying these accounting methods to the Upper Mississippi River Basin, a large and important agriculture area in the United States. We find that the differences are significant in terms of the location of land that might be chosen and the distribution of carbon sequestration over the area, although the total amount of carbon sequestered does not differ considerably across programs that use different accounting methods or different values of the major factors

Three essays on environmental incentives: dynamics, asymmetric information, and dual policy goals

This dissertation has three essays. In the first essay, we develop a dynamic model to investigate the optimal time paths of carbon emissions, sequestration and the carbon stock. We show that carbon sinks should be utilized as early as possible, and carbon flow into sinks should last until the atmospheric carbon concentration is stabilized. We rule out any cyclical patterns of carbon sequestration and release. We propose and assess three mechanisms to efficiently introduce sequestration into a carbon permit trading market: a pay-as-you-go system, a variable-length-contract system and a carbon annuity account system. Although the three mechanisms may not be equally feasible to implement, they are all efficient.;In the second essay, it is shown that when there are a large number of firms, permit trading within one period tends to absorb firm-specific shocks in that period. In the presence of industry-wide shocks, however, allowing trade across time can attain a higher welfare level than a no-banking system. Bankable permit regimes with a 1-to-1 or non-unitary intertemporal trading ratios (ITRs) are examined. When banking is welfare improving, the optimal ITR is always less than 1+r, the ITR for monetary values. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient a bankable permit regime. Bankable permits with ITR=1 or ITR=1+r can both do better than a no banking regime. However, which one is better depends on the covariance structure of the shocks and the benefit and damage functions.;In the third essay, the efficient design of green payments is analyzed. Green payments may generate environmental benefits and support the income of small farmers. If the government intends to achieve both of these two goals, then the decoupling of green payments and farm size is not optimal when information is limited. Moreover, the effectiveness of green payments critically depends on the correlation between conservation efficiency and farm size

Factors influencing CDM locations in China

Environmental Economics and Policy,

Consequences of Co-Benefits for the Efficient Design of Carbon Sequestration Programs, The

In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant cobenefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its cobenefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated cobenefits illustrate the magnitude and complexity of these issues in real world policy design.

When Should Uncertain Nonpoint Emissions be Penalized in a Trading Program?

When nonpoint source pollution is stochastic and the damage function is convex, intuition might suggest it is more important to control a nonpoint pollution source than a point source. Earlier research has provided sufficient conditions such that the permit price for a unit of ex-ante expected emissions should be higher than the permit price for a unit of certain emissions. Herein we provide a set of necessary and sufficient conditions such that this is the case. An approach to testing for the validity of the condition set is available, and has been applied to a related problem.agricultural pollution, multiple inputs, permit trading, social optimality, trading ratio, water quality, Environmental Economics and Policy, Q1, Q2, D2, D8,

Alternative Intertemporal Permit Trading Regimes with Stochastic Abatement Costs

We examine the social efficiency of alternative intertemporal permit trading regimes. Banking with a 1-to-1 ratio and with a non-unitary intertemporal trading ratio (ITR) are compared with each other and with the no-banking permit trading regime. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient is a bankable permit regime. When the slope of the benefit function is greater than the slope of the damage function, banking with ITR=1+r is more efficient than a no-banking regime. Banking with ITR=1 can be more efficient than a no-banking regime. However, whether ITR=1 or ITR=1+r is better depends on the covariance structure of the shocks and the benefit and damage functions

Carbon Sequestration in Agriculture: an Offset Program versus Other Conservation Programs

In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant co-benefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its co-benefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated co-benefits illustrate the magnitude and complexity of these issues in real world policy design.Environmental Economics and Policy,