Transportation fuel use, technology and standards: The role of credibility and expectations

There is a debate among policy analysts about whether fuel taxes alone are the most effective policy to reduce fuel use by motorists, or whether to also use mandatory standards for fuel efficiency. A problem with a policy mandating fuel economy standards is the"rebound effect,"whereby owners with more efficient vehicles increase vehicle usage. If an important part of negative externalities from transport are associated with vehicle kilometers (accidents, congestion, road wear) rather than fuel consumption, the rebound effect increases negative externalities. Taxes and standards should be mutually supportive because fuel taxes often meet political resistance. Over time, fuel efficiency standards can reduce political resistance to fuel taxes. Thus, by raising fuel efficiency standards now, politicians may be able to pursue higher fuel tax paths in the future. Another argument in support of fuel efficiency standards and similar policies is that standards to a greater extent than taxes can be announced in advance and still be credible and change the behavior of inventors, firms, and other agents in society. A further argument is that standards can be used with greater force and commitment through international coordination.Transport Economics Policy&Planning,Transport and Environment,Environmental Economics&Policies,Energy Production and Transportation,Oil Refining&Gas Industry

Conservation Contracts and Political Regimes

Motivated by tropical deforestation, we analyze (i) a novel theory of resource extraction, (ii) the optimal conservation contract, (iii) when the donor prefers contracting with central rather than local governments, and (iv) how the donor’s presence may induce institutional change. Deforestation can be legal or illegal in the model: each district decides how much to protect and how much to extract for sale on a common market. If districts are strong, in that they find protection inexpensive, extraction is sales-driven and districts bene.t if neighbors conserve. If districts are weak, they lose when neighbors conserve since the smaller supply increases the price and the pressure on the resource, and thus also the cost of protection. Consequently, decentralizing authority increases conservation if and only if districts are weak. Contracting with the central authority is socially optimal, but, on the one hand, the donor benefits from contracting with districts if they are weak; on the other hand, districts prefer to decentralize if they are strong. The presence of the donor may lead to a regime change that increases extraction by more than it is reduced by the contract itself

Pricing for a Cooler Planet: An Empirical Analysis of the Effect of Taxing Carbon

Finland introduced the planet's first carbon tax in 1990 to experiment with, to most economists, the best policy to reverse carbon emissions. I estimate the causal effect of taxing carbon on Finnish emissions using the Synthetic Control Approach (Abadie, 2021). The results suggest that taxing carbon reduces emissions by big margins. Finnish emissions are 16% lower in 1995, 25% lower in 2000, and 30% lower in 2004 than emissions in the counterfactual consistent with carbon taxes whose value increasing by 20 fold in 1990 - 2005. The estimates suggest that the carbon tax's abatement elasticity is about 9%

Pricing Pollution

I examine a policy-making game among countries that must choose both a policy instrument (e.g., a tax or a quota) and its intensity (i.e., the tax rate or the quota level) to price pollution. When countries price pollution non-cooperatively, they not only set the intensity inefficiently, they are also likely to adopt Pigouvian fees, despite quotas being better from a welfare perspective. Adopting a Pigouvian fee to address a multi-country externality generates a risk externality, and non-cooperatively chosen quotas can generate higher social welfare than maximum social welfare Pigouvian fees can deliver

Leadership and Climate Policy

This paper examines leadership in relation to supplying a global public good. Both the Kyoto Protocol and the Paris Agreement encourage the developed countries to take a lead in reducing emissions. Does a country benefit from taking a lead? When does leadership improve global welfare? The answer depends on how transparent the leader’s abatement technology is for the followers. When there is no transparency and the leader has to abate to signal the abatement cost, leadership reduces global welfare unless the crowding-out effect is weak. If there is transparency and the follower can benefit from technology spillover effects, leadership reduces global welfare unless the spillover effect is sufficiently large. I find that transparency reduces global welfare unless the spillover effect is sufficiently large and the difference in abatement cost is small. This theory can rationalize the European Union’s stance on climate policy while also explaining the perceived failure of the Kyoto Protocol

Letter: Why Urgent Emissions Reductions are Needed

Steffen Kallbekken and Torben K. Mideksa explain why economic analysis may demand sharp emissions reductions today rather than the gradual path recommended by Sheila Olmstead and Robert Stavins.

The impact of climate change on the electricity market: A review

Climate change will impact electricity markets through both electricity demand and supply. This paper reviews the research on this topic. Whereas there is much that remains unknown or uncertain, research over the last few years has significantly advanced our knowledge. In general, higher temperatures are expected to raise electricity demand for cooling, decrease demand for heating, and to reduce electricity production from thermal power plants. The effect of climate change on the supply of electricity from non-thermal sources shows great geographical variability due to differences in expected changes to temperature and precipitation. Whereas the research frontier has advanced significantly in the last few years, there still remains a significant need for more research in order to better understand the effects of climate change on the electricity market. Four significant gaps in the current research are regional studies of demand side impacts for Africa, Asia, the Caribbean and Latin America, the effects of extreme weather events on electricity generation, transmission and demand, changes to the adoption rate of air conditioning, and finally, our understanding of the sensitivity of thermal power supply to changes in air and water temperatures.Electricity market Climate change impacts Review

Appeals to social norms as policy instruments to address consumption externalities

We consider appeals to social norms as a policy instrument to address consumption externalities. We explore whether appeals to social norms can be an efficient policy instrument and compare the efficiency of such appeals to the efficiency of taxation in addressing consumption externalities. We find that when the existing norm helps to shift consumption towards the socially optimal level of consumption, taxation welfare dominates appeals to social norms as a policy tool. While previous studies have found that economic instruments are superior to information in other contexts, we arrive at a different conclusion for situations where the norm shifts behavior away from what is socially optimal. In such cases appeals to social norms can be a better policy instrument than taxation.Social norms Policy instruments Externality