Grantee Research Project Results
Dynamic Adjustment to Incentive-Based Environmental Policy to Improve Efficiency and Performance
EPA Grant Number: R830990Title: Dynamic Adjustment to Incentive-Based Environmental Policy to Improve Efficiency and Performance
Investigators: Burtraw, Dallas , Palmer, Karen
Institution: Resources for the Future
EPA Project Officer: Hahn, Intaek
Project Period: June 1, 2003 through May 31, 2005
Project Amount: $173,684
RFA: Market Mechanisms and Incentives for Environmental Management (2002) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
Important environmental policies such as amendments to the Clean Air Act, Clean Water Act, or environmental regulations targeted at other media are made at discrete points in time – typically less often than once per decade – and usually these policies have a limited capability to incorporate new scientific or economic information. Achieving consensus on new scientific information is necessarily slow and may occur on a time line that is roughly synchronized with regulatory or legislative processes. However, the expanded use of market based environmental policies (such as cap and trade programs) integrates an instantaneous means of revealing new economic information through the allowance price signal that reflects the marginal cost of compliance. Currently, cap and trade programs fail to take advantage of this information and, as a result, these policies are not as efficient as they could be.
This research will investigate institutional designs reflected in several current policy proposals and measure the potential gains in economic efficiency and environmental performance from incorporating a decision rule for adjusting the pace of emission reductions when the costs of compliance differ from expectations. Often there is significant uncertainty about costs, as in the case of potential policies to reduce greenhouse gases and, to a lesser extent, the dramatic reductions in SO2, NOx and mercury that may be required in the electricity sector. In these cases a dynamic adjustment to the emission caps provides insurance that such policies will not impose extraordinary harm to the economy. On the other hand if technological change and organizational innovation reduce costs below expected levels, as many environmental advocates claim will occur, then dynamic adjustment can allow for an acceleration in the pace of emission reductions.
Approach:
This investigation will use algebraic methods to develop a taxonomy of possible designs for incentive-based environmental policies that incorporate dynamic adjustment and to shed light on the incentive properties of these mechanisms. We will use computer simulations to estimate their potential economic and environmental benefits.
Expected Results:
The results will provide information of scholarly stature and immediate policy relevance to applications of market mechanisms for environmental protection. Based on the results of this research, policymakers will be able to capture even more of the potential efficiency advantages of market-based policies.
Publications and Presentations:
Publications have been submitted on this project: View all 8 publications for this projectJournal Articles:
Journal Articles have been submitted on this project: View all 1 journal articles for this projectSupplemental Keywords:
air, global climate, integrated assessment, particulates, public policy., RFA, Scientific Discipline, Air, ENVIRONMENTAL PROTECTION AGENCY, Economic, Social, & Behavioral Science Research Program, Economics & Decision Making, Economics, decision-making, Market mechanisms, Social Science, Reinvention, climate change, allowance market performance, emissions trading, market incentives, compliance costs, effects of policy instruments, environmental monitoring, environmental decision making, incentives, compliance behavior, environmental impact fees, emission fees, environmental economics, decision analysis, incentive based environmental policy, allowance allocation, cap and trade systems, decision makingProgress and Final Reports:
The perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.