GHG Emissions, Lobbying, Free-Riding, and Technological Change

Dynamic Modeling and Econometrics in Economics and Finance, 2009

I examine the implementation of emission policy in a union of countries. Production in any country incurs emissions that pollute all over the union, but efficiency in production can be improved by research and development (R&D). I compare four cases: laissez-faire, Pareto optimal policy, lobbying with centrally-determined emission quotas and lobbying with emission trade. The main findings are as follows. With emission quotas, the growth rate is socially optimal, but welfare sub-optimal. Emission trade speeds up growth from the initial position of laissez-faire, but slows down from the initial position of centrally-determined emission quotas.

2014

The theoretical justi…cation for a greenhouse gas (GHG) cap and trade system is that participants will trade emission permits until their marginal cost of abatement equals the equilibrium price of emission permits. However, for …scally constrained governments this logic does not apply, as they have a …scal incentive to let welfare concerns, rather than industrial cost e¢ ciency, guide their abatement policy. Then, global cost e¢ ciency will fail even if just a (small) subset of governments are …scally constrained. Finally, we argue that any institutional change which breaks the connection between a government's abatement policy and its budget will increase welfare.

Ecological Economics, 2005

This paper considers the coordination of domestic markets for tradable emission permits where countries determine their own emission reduction targets, using a two-country model. Linking such schemes is beneficial to both countries but may cause the exporting country to decrease its emission reduction target and export more permits. This in turn would not only reduce the costs for both countries as less emissions have to be reduced, but it also lowers the environmental benefits of the importing country.

2015

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[as amended, Oct. 2017] Greenhouse gas abatement has proved to be among the most difficult environmental issues on which to negotiate global agreement... This [1993 Yale Law Journal] Note proposes that the international [agreements have to date] failed . . . because some nations have more to lose than to gain from an international abatement regime, though the benefit to the world from their participation in such a regime may exceed the costs. . . . [F]rom this premise, the Note advocates an efficiency-maximizing international tradeable emissions permit (ITEP) system that would distribute the costs and benefits of GHG abatement in order to motivate every nation to participate in an abatement agreement. Part I surveys the scientific and economic analyses of global warming's impact on the international community in order to establish that GHG abatement action is warranted. Economists and lawmakers disagree among themselves because of uncertain scientific data and differing assumptions built into the economic models. However, GHG emissions require an international policy response both because global warming could cause irreversible and catastrophic harm to humans and other species and because an international agreement could lower total abatement costs by increasing the marginal efficiency of abatement investment. Part II uses game theory to argue that GHG emissions reduction presents a unique problem for international negotiation. Certain nations, [hypothetically] including the U.S. and less developed countries (LDC's), may suffer a loss from cooperating in a GHG abatement regime, although the benefits to the world of their cooperation may exceed their costs. This problem is neither a Prisoner's Dilemma (in which the benefits of total cooperation outweigh the benefits of total noncooperation for each player) nor a Deadlock (in which the benefits of total noncooperation outweigh the benefits of total cooperation for each player), but what this Note dubs a "Cooperator's Loss" (in which the total benefits of cooperation outweigh the total benefits of noncooperation, but for one of the two players, total noncooperation nevertheless remains a more attractive alternative than total cooperation). Part Ill proposes that an international tradeable emissions permit (ITEP) system could allow transfers that would resolve the Cooperator's Loss, benefiting both developing and developed nations and maximizing the efficiency of international GHG emissions reduction. Industries in developed nations such as the U.S. could then purchase or lease permits at competitive international market rates or receive permits in exchange for relatively low-cost technology transfer. Developing nations would benefit from an infusion of technology and revenue from the sale, lease, or exchange of such permits. Finally, an analysis of the steepness of the marginal cost and marginal benefit curves in the GHG abatement context demonstrates that an ITEP system would be more efficient than a tax system in reducing GHG emissions.

Structural Change and Economic Dynamics

We study the size of viable emission abatement coalitions. A coalition is viable if all of its members are net gainers. To be viable, a coalition has to be of at least a certain size, the minimum critical size. We also show that if there are fixed costs associated with abatement programs then, under certain conditions, coalitions in excess of the minimum critical size are not vulnerable to 'free riding' or to prisoners' dilemma problems. 1. BACKGROUND '

This paper deals with the issue of whether the power of allocating tradeable emission permits within a federal system (or an economic union) should be centralized or delegated to the single states/nations. To this end, we develop a simple two stage game played by two governments and their respective industries producing a homogeneous output that is sold in a third country. We show that when emission permits are traded competitively at a federal (or economic union) level, a decentralized emission trading system (DETS) would result in a lower than optimal price of permits, as well as in an aggregate emission target which is larger than the socially optimal target that would arise under a centralized system (CETS). This result partly hinges on standard international externality considerations; on the other hand, we find a new "channel" through which decentralized permits distribution could lead to distortions: under a DETS, national governments play a Cournot game, and choose the amount of allowances to be distributed to domestic firms without accounting for the spillover such distribution generates on the other country via the price of allowances.

Environmental Economics and Policy Studies, 2019

I examine the welfare effects of emission permit trading in an economy where the use of energy in production generates welfare-harming emissions, there is a regulator that sets industry-specific emission permits and the industries influence the regulator by paying political contributions. I show that policy with nontraded emission permits establishes aggregate production efficiency. Emission permit trading hampers efficiency and welfare by increasing the use of emitting inputs in dirty and decreasing that in clean industries.

Energy & Environment, 2004

The EU Commission has recently proposed a new directive establishing a framework for greenhouse gas (GHG) emissions trading within the European Union. The idea is to devalue the emission quotas in circulation by the year 2012 at latest, so that the EU will meet its Kyoto target level of an 8% GHG reduction. Our main question is whether the final choice of allocation rule can be explained by potential industrial net winners involved in the policy making process. We answer this question by using rent-seeking theory and by analysing the Green Paper hearing replies from the main industrial groups. In other words, we want to explain and observe how rent-seeking (or lobbyism) affects the design of environmental regulation and energy policy in favour of well-organized industrial interest groups. We argue that some firms are likely to reap a net gain from being regulated by a grandfathered emission trading system. This is so because total costs of emission reduction and lobbyism are likely to be smaller than the total rents from having this type of regulation.