An Experimental Analysis of the Effects of Imperfect Compliance on Technology Adoption

We present the results of an experimental investigation on incentives to adopt cleaner abatement technologies in the presence of imperfect compliance. We consider two emission control instruments—emission taxes and tradable permits—as well as different combinations of the inspection probability and fine for non-compliance, which can result in full or weak enforcement scenarios. We review and qualify existing theoretical predictions in several ways and find the main result is that allowing for weak enforcement causes tax evasion, reductions in permit prices and lower adoption rates of cleaner abatement technologies. As a result, there are increases in aggregate emissions. Finally, treatments with tradable permits under weak enforcement encounter insufficient trading.

Market Power, Intertemporal Permits Trading, and Economic Efficiency

The banking and borrowing (BB) system has been developed gradually in the tradable permits market to perform a role as an environmental management tool. One question naturally arises as to how it will impact the behaviors of firms and the efficiency in presence of market power in the permits market. This paper considers market power in two cases: with and without the BB system. The equilibrium behaviors of the firms are identified in two cases. The findings show that the producing and discharging behaviors of firms depend on the permits price elasticity of output price without BB system, while they only depend on the growth rate of the output price in the BB system. Although both cases fail to obtain efficient solutions, the market with a BB system is capable of alleviating the inefficiency arising from market power compared with that without a BB system. The path of permits price satisfies the Hotelling rule in the case of the BB system, while it is closely related to the path of output price and output price elasticity of permits price in the case without the BB system.

Szennyezési jogok hatása a vállalati termelési stratégiára = Effect of pollution rights on production strategy of firm

A cikk a szennyezési jogok bevezetését vizsgálja a mikroökonómia standard vállalatára. A komparatív statika módszerével vizsgáljuk a termelő vállalat lehetséges reakcióit a szennyezési jog bevezetésére. A vállalatok stratégiája a szennyezési jog bevezetésére a technológia változatlanul hagyása, vagy megváltoztatása lehet. Az egyes esetekben arra keresünk választ, hogy hogyan változik a vállalat nyeresége a bevezetés előtti állapothoz képest, és ez milyen szennyezési stratégiával jár. Szennyezési jogot elad-e, vagy vesz a vállalat a szennyezési jogok piacán? = The paper deals with the effect of an introduction of tradable permits on the production strategy of a firm. It is assumed that the firm will maximize its profit. After introducing the emission trading the profit function will contain the linear emission procurement/selling costs. We will compare the optimal production strategy before tradable permits and after that. The mathematical investigation is based on the nonlinear mathematical programming.

Strategic environmental policy and international market share rivalry under differentiated Bertrand oligopoly

We analyse strategic environmental policies under international Bertrand oligopoly when firms in different industries, located in different countries, produce differentiated products. Under cooperation, emission prices always exceed the joint marginal damage from pollution. Under non-cooperation, internationally nontradable and tradable emission permit prices are always higher than the domestic marginal damage from emissions (the Pigovian tax); emission taxes can also exceed the Pigovian tax. The non-cooperative emission prices under all instruments can exceed the joint pollution damage. Internationally tradable permits generate outcomes closest to cooperation — they result in the lowest pollution and the highest welfare among all instruments under non-cooperation. Pollution is the highest and welfare the lowest with taxes. Our results provide support for allowing international trade in emission permits even when governments choose their permit levels non-cooperatively.

Managing conflicting objectives in hydro-economic models: A viability approach

<p>In aquifers managed with quotas, water agencies are facing conflicting objectives between ensuring minimum environmental flows for the preservation of groundwater-dependent ecosystems and satisfying the water claims of the farmers to irrigate their crops. Handling the potential conflict between economic and environmental objectives is a major concern to achieve sustainability. This paper analyses the existing trade-off between these objectives as a problem of constraints fulfillment and uses the viability method to adress this conflict.</p><p>Hydroeconomic models are generally developed as constraint optimization problems with environmental constraints represented by minimum flow requirements. At each period, the dynamics of an aquifer depend on the balance between the natural recharge, the natural discharge and the amount of extracted water. The natural discharge consists in water flows which sustain groundwater dependent-ecosystems. This natural discharge is assumed to be an affine function of the water table. It allows to defined a critical boundary value of the water table for which the natural discharge is nil. A first requirement of a sustainable management is then to keep the water table above this critical value.</p><p>The allocation of water quotas to farmers is also a problem of constraint. The use of market-based instruments such as tradable permits has been proposed as a promising way to replenish an aquifer or to efficiently manage groundwater aquifers for irrigated agriculture. Tradable permits ensure that water will be used by farmers with maximum efficiency. However like all "cap and trade" systems, the way the "cap" which consists in the available amount of water for users is set, remains a difficult issue. A second requirement of a sustainable management is then to implement relevant strategies in the allocation of water quotas for every farmer by a regulating agency.</p><p>To deal with these two requirements which take the form of constraints, the use of the viability approach has shown to be well-adapted. This paper developped a dynamic hydro-economic model in discrete-time using the viability approach. The viability kernel that defines the states of the resource yielding intertemporal feasible paths able to satisfy the set of constraints over time is analytically identified. The associated set of viable quota policies and the trade-off between food production and ecosystem conservation objectives are characterized.</p><p>The theoretical results of the paper are illustrated with numerical simulations based on the Western La Mancha aquifer in Spain.</p>

A Market-Based Economic Instrument to Better Use Water in Agriculture

The paper presents a market-oriented system of returnable guarantees that can be combined with tradable permits to encourage farmers to use alternative sources of water instead of the regular watering network, or to steer the farming system toward environmentally-friendly systems like low tillage and/or organic farming. Factual data from real farming were bootstrapped to test whether or not a set of farms could save water and reduce chemical input due to the higher cost of maintaining the status quo. Based on interactions between water, pesticides, fertilizers, and crops, the system of returnable guarantee determines the farmers to reduce the amount of water harvested from aquifers, generates benefits for the most environmentally-friendly farmers, and stimulate conversion to organic farming.

Tradable permits in logging operations

The paper presents a new system of tradable permits combined with ecological bonds that is able to promote environment-friendly logging technologies, supposed to be less harmful to the forest ecosystem. All loggers deposit in advance ecological bonds on to-be-harvested volume basis and a certain number of permits to damage is freely given per each cubic meter, by the public authority. After surveying the damage caused throughout all harvested tracts, the number of permits on the volume basis is recomputed for each logger according to the magnitude and importance of damage caused. The logging company that caused smallest damage and saved most permits is allowed to sell to another competitor the number of permits which makes the difference between the two companies. The main section of the paper presents five simulations based on reliable scenarios that have been developed on some effective data referring to two types of damage produced by seven Romanian logging companies in 1999, in Suceava state county forest. Firstly, the deterministic scenario shows that environment-friendly companies become more competitive due to the new system because they have an additional income from sold permits. Conversely, companies unable to protect the environment are to pay more for being in business and thus their capacity to buy more timber is diminished. Assuming that companies able to get money due to this kind of trade are also able to improve their technology and can afford to buy more timber, it was demonstrated that the technological transfer is encouraged by the new system that might be combined with a regular compensation paid to the landowner as well. The greater the bond, the more advantageous the system for fewer and fewer companies. The lower the bond, the more companies can take advantage of the system but less money is collected from a given market.