Analyzing Interplant Marginal Abatement Cost Differences: A Directional Output Distance Function Approach

The purpose of this paper is to compute and evaluate producers’ marginal abatement costs (MACs). These costs are obtained by calculating shadow prices of bad outputs from the production technology, which is represented by the estimated directional output distance function. To be more specific, this paper considers the Swedish pulp industry when the regulatory authority has granted each producing plant a maximally allowed emission level. In each case, area residents and other parties concerned have been allowed to express their views, which possibly prepared the way for other factors than prescribed by environmental law, to influence the stringency of the finally allowed emission levels and, therefore, the MACs. The main focus is on whether the calculated MACs reveal that differences between counties in, e.g., economical characteristics, were influential when the authority, during 1983-1990, restricted 12 geographically scattered pulp plants regarding emissions. The result indicates that the MACs vary between many of the plants and that county differences were taken into account when imposing environmental restrictions on the plants.bad output; environmental regulation; marginal abatement cost; shadow price; parametric directional output distance function

Environmental Regulation and Firm Efficiency: Studying the Porter Hypothesis using a Directional Output Distance Function

The purpose of this paper is to suggest a procedure to empirically test the Porter hypothesis. This hypothesis argues that environmental regulation not only increases environmental quality, but also brings the polluting producers information that makes them more resource efficient, as well as able to develop new technologies. Specifically, the hypothesis tested is whether there is a positive significant correlation between producers’ technical output efficiency and environmental regulation. Efficiency is first estimated using a methodology where the production technology is represented by a directional output distance function, which credits a simultaneous expansion of market goods and contraction of emissions. Then, by regressing the obtained efficiency scores on an index that approximates environmental regulatory intensity, the Porter hypothesis is explicitly tested. The test procedure is applied on 12 Swedish pulp plants during 1983-1990. The result shows no support for the Porter hypothesis.Porter hypothesis; environmental regulation; technical efficiency; parametric directional output distance function

Environmental targets and shadow prices of bad outputs in organic and conventional farming

The shadow prices can be used as indicators of the costs of environmental regulation imposed as reflected in alternative farming technologies adopted. We illustrate our analytical findings with implications of the Finnish water protection policy measures on conventional and organic livestock farms over the period 1994-2002. Generally, the representative organic farm is found to be more technically efficient relative to its own technology than is the conventional representative farm. However, there is no statistical indication of a difference between these two particular representative farms in valuing the costs of undesirable output (manure) at the margin

Incorporating environmental impacts into value added from organic and conventional farming

We aim to improve the policy relevance of the aggregate welfare indicators regarding the economic and environmental features of farming practices. First, an analytical framework for measurement of environmentally adjusted net national product for agricultural sector is provided. Second, shadow pricing of direct disutility of environmental deterioration is illustrated with implications of the Finnish water protection policy measures restricting the use of manure on conventional and organic livestock farms during the period 1994-2002. Our simulated shadow prices per cubic meter manure are quite considerable reflecting the potentially high opportunity costs in terms of value added forgone if the only option to comply with regulation is to cut output. In practice, the organic farms seem to comply well with current regulation, and the environmentally harmful contibution of conventional farms to welfare is relatively small

What is Driving the EU Burden-Sharing Agreement: Efficiency or Equity?

Under the Kyoto Protocol the European Union (EU) agreed to reduce the emissions of greenhouse gases by 8 percent in comparison with the level in 1990. The Burden-Sharing Agreement (BSA) further redistributes the overall 8 percent reduction target among the EU Member States. The purpose of this paper is to evaluate the BSA from both an economical and a political perspective, which means performing hypothesis tests of whether cost-efficiency and equity respectively, were considered in the BSA settlement. Variables used to perform the equity tests are chosen on the basis of the Triptych study. However, the cost-efficiency test is made possible by first calculating marginal abatement costs from the directional output distance function, which is estimated on country production data for 1990-2000. The function is estimated using both corrected ordinary least squares and linear programming techniques. The main conclusion drawn from this study is that both efficiency and equity were considered important to the BSA.burden-sharing; cost-efficiency; parametric directional output distance function; equity; greenhouse gas emission control

Incorporating environmental impacts into value added from organic and conventional farming

Replaced with revised version of paper 07/16/05.national income accounting, environmental performance, technology choices, Environmental Economics and Policy, H23, O47, Q18, Q25,

Climate Policy and Profit Efficiency

As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.CO2 tax; efficiency; stochastic frontier analysis; Swedish industry

Assessing the welfare effects of promoting biomass growth and the use of bioenergy – A simple back-of-an-envelope calculation

Using a growth model that accounts for environmental and climate externalities, we take a closer look at the welfare e¤ects of promoting biomass growth and the use of bioenergy. As an illustration, a forest hypothetical intensive forest cultivation project is simulated. Costs and benefi…ts of the project show that we need not only determine the postive effects of promoting biomass growth and the use of bioenergy, such as substitution away from fossil fuels and carbon sequestration. But more importantly, to achieve a balanced measure of the e¤ects on the climate, we must also incorporate all carbon emissions that is associated with bioenergy. Not doing so will overestimate the positive climate e¤ects of increasing the use of bioenergy.Bioenergy

Climate Policy and Profit Efficiency

As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.CO2 tax; efficiency; stochastic frontier analysis; Swedish industry

Environmental Targets and Shadow Prices of Bad Outputs in Organic and Conventional Farming

We present a framework for deriving shadow prices for negative environmental impacts regulated in agriculture. The shadow prices can be used as indicators of the costs of environmental regulation imposed as reflected in alternative farming technologies adopted. We illustrate our analytical findings with implications of the Finnish water protection policy measures on conventional and organic livestock farms over the period 1994-2002. Generally, the representative organic farm is found to be more technically efficient relative to its own technology than is the conventional representative farm. However, there is no statistical indication of a difference between these two particular representative farms in valuing the costs of undesirable output (manure) at the margin.environmental performance, technology choices, nutrient surplus, Environmental Economics and Policy, H23, C21, Q12, Q21,