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Policy instruments


Policy sequencing toward decarbonization

Many economists have long held that carbon pricing—either through a carbon tax or cap-and-trade—is the most cost-effective way to decarbonize energy systems, along with subsidies for basic research and development. Meanwhile, green innovation and industrial policies aimed at fostering low-carbon energy technologies have proliferated widely. Most of these predate direct carbon pricing.


Can Communication Facilitate Cooperation in Reducing Greenhouse Gas Emissions?

International and domestic efforts to reduce greenhouse gas emissions require a coordinated effort from countries and individuals that differ in terms of their level of income, historical responsibility in terms of contributions to the existing stock of emissions, current intensity of energy use and costs of reducing emissions. This brief reports the results of an economic experiment that examines whether groups of individuals – who differ in terms of their individual costs of reducing emissions – can meet a collective emissions reduction target.


Voluntary environmental agreements in developing countries: the Colombian experience

Voluntary agreements (VAs) negotiated between environmental regulators and polluters are increasingly popular in developing countries. According to proponents, they can sidestep weak institutions and other pervasive barriers to conventional mandatory regulation in such countries. Yet little is known about the drivers of their use and their effectiveness in poor countries. The considerable literature on voluntary initiatives in industrialized countries, where both VAs and socioeconomic conditions differ, may not apply.


Using stated preference methods to design cost-effective subsidy programs to induce technology adoption: An application to a stove program in southern Chile

We study the design of an economic incentive based program – a subsidy – to induce adoption of more efficient technology in a pollution reduction program in southern Chile. Stated preferences methods, contingent valuation (CV), and choice experiment (CE) are used to estimate the probability of adoption and the willingness to share the cost of a new technology by a household. The cost-effectiveness property of different subsidy schemes is explored numerically for different regulatory objectives.


Who Should Pay the Administrative Costs of an ITQ Fishery

Implementation and management of an ITQ fishery involves significant and costly administrative activities. These activities include formulating and implementing policy rules, monitoring and enforcement to deter illegal behavior, and economic and marine research. In this article we construct a model of a competitive ITQ system to analyze how the distribution of administrative costs between the public and a fishing industry can affect the equilibrium in the quota market, including equilibrium level of administrative costs, and derive results about the optimal distribution of these costs.


Who Should Bear the Administrative Costs of an Emissions Tax

All environmental policies involve costs of implementation and management that are distinct from pollution sources’ abatement costs. In practice, regulators and sources usually share these administrative costs. We examine theoretically an optimal policy consisting of an emissions tax and the distribution of administrative costs between the government and regulated sources of pollution. Our focus is on the optimal distribution of administrative costs between polluters and the government and the optimal level of the emissions tax in relation to marginal pollution damage.


Subsidios a hogares para inducir adopción de tecnologías de combustión de leña más eficiente y menos contaminantes: Simulación para el caso de Temuco y Padre Las Casas

We study the effect of a household subsidy to induce the adoption of more efficient and less polluting wood combustion technologies. We compare, through numerical simulations, several subsidy designs with respect to the impact on aggregate emissions, costs, and cost-effectiveness indicators. Two variables that turn out to be important for the performance of a subsidy program are the remaining time that an existing equipment can be used and the access of the households to credit to fund the co-payment of the equipment.


Travel Mode Choice and Impact of Fuel Tax in Beijing

As an international metropolitan area undergoing rapid development, Beijing is facing a sharp rise in the volume of motor vehicles and mobility, which has become the major contributor to the air pollution in this city.


    Environmental Regulation and Public Disclosure

    This book is a remarkable case study of an environmental policy initiative for a national environmental regulatory system in the information age. In 1995 the Indonesian Ministry of Environment took the bold step to launch an environmental disclosure initiative called the Program for Pollution Control, Evaluation and Rating (PROPER). Under PROPER, environmental performance of companies is mapped into a five-color grading scale – Gold for excellent, Green for very good, Blue for good, Red for non-compliance, and Black for causing environmental damage. These ratings are then publicly disclosed through a formal press conference and posted on the internet. Not only did this simple rating scheme create a major media buzz and enhanced environmental awareness of the general public, but it also unleashed a wide range of performance incentives that showed how markets with environmental information could function in a developing country setting.


    Climate negotiations under scientific uncertainty

    How does uncertainty about “dangerous” climate change affect the prospects for international cooperation? Climate negotiations usually are depicted as a prisoners’ dilemma game; collectively, countries are better off reducing their emissions, but self-interest impels them to keep on emitting. We provide experimental evidence, grounded in an analytical framework, showing that the fear of crossing a dangerous threshold can turn climate negotiations into a coordination game, making collective action to avoid a dangerous threshold virtually assured.


    Lessons learned from investing in marine and coastal management initiatives in the East Asian Seas

    The concept that underlies the interventions of the Global Environment Facility (GEF) International Waters Program is adaptive management at the Large Marine Ecosystem (LME) scale across the sequence of interventions from assessment and analysis to development of regional strategic action programs and national implementation of action plans to address transboundary environmental concerns. The GEF has provided grants to recipient countries in the East Asian Seas region covering five LMEs since the early 1990s and amounting to about US$200 million. This paper analyses GEF support to the Seas of the East Asian Region to draw lessons for future investments in LME management.


    Measuring risk aversion among the urban poor in Kolkata, India

    We examine risk preferences in an urban setting in a low-income developing country with nonstudent subjects by adapting the experimental approach of Holt and Laury (HL; 2002). We conducted 22 group experiments with 404 participants and used in-kind payoffs. The average respondent was ‘riskaverse’ (the midpoint of Constant Relative Risk Aversion (CRRA) intervals among participants was 0.53, roughly in line with most similar studies in poor countries).


    Policy Instruments for Sustainable Development at Rio +20

    Twenty years ago, governments gathered for the United Nations Conference on Environment and Development in Rio de Janeiro. The “Rio Declaration” laid out several principles of sustainable development, including the central role of policy instruments. In this article, we take stock of where we stand today in implementing sound and effective environmental policy instruments throughout the world, particularly in developing and transitional economies.


    Behavioral Economics and Environmental Policy

    This article provides an interpretive survey on implications of insights from behavioral economics for environmental policy. In particular, it discusses whether, and if so how, policy implications based on conventional economic theory have to be modified when insights from behavioral economics are considered.


      Setting Priorities, Targeting Subsidies among Water, Sanitation, and Preventive Health Interventions in Developing Countries

      This paper challenges the conventional wisdom that water and sanitation improvements and other preventive health interventions are always a wise economic investment. Costs and benefits are presented for six water, sanitation, and health programs—handwashing, sanitation, point-of-use filtration and chlorination, insecticide-treated bed nets, and cholera vaccination. Model parameters are specified for a range of conditions that are plausible for locations in developing countries. We find that the parameter values needed for such cost–benefit calculations are not available for setting global priorities. We reflect on the implications of our findings for more “evidence-based” planning of public health and development interventions.


      Climate Policy, Uncertainty, and the Role of Technological Innovation

      We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects marginal benefits.


      How Should Support for Climate-Friendly Technologies Be Designed?

      Stabilizing global greenhouse gas concentrations at levels to avoid significant climate risks will require massive ‘‘decarbonization’’ of all the major economies over the next few decades, in addition to the reduced emissions from other GHGs and carbon sequestration. Achieving the necessary scale of emissions reductions will require a multifaceted policy effort to support a broad array of technological and behavioral changes. Change on this scale will require sound, well-thought-out strategies.


      Estándares vs. Sistemas de Permisos Transables con Costos de Fiscalización: Una aplicación al caso de fuentes fijas en Bogotá, Colombia

      We study the cost effectiveness property of different control strategies for improving environmental quality. Our prospective analysis considers the application of Transferable Emissions Permit System (TEPS), Transferable Ambient Permit System (TAPS) and Standards (STD) applied on fix sources in Bogota-Colombia. A numerical simulation model allowed us to obtain costs of each regulatory system, which were compared with associated urban environmental quality. The results show that the most cost effective regulation for any environmental quality goal is TEPS, followed by TAPS and finally STD.


      Controlling Local Environmental Performance: an analysis of three national environmental management programs in the context of regional disparities in China

      Whether government has the political will and capacity to control pollution is crucial for environmental outcomes. A vast country such as China, with centralized policymaking but idiosyncratic local implementation of environmental regulations and drastic regional disparities in wealth, raises the question how does the central government stimulate local environmental commitment to accommodate such diversity?


      Formal microlending and adverse (or non-existent) selection: A case study of shrimp farmers in Bangladesh

      Microcredit schemes have become a popular means of improving smallholders’ access to credit and making long term investment possible. However, it remains to be explored whether the current microcredit schemes are more successful than earlier formal small scale lending in identifying successful borrowers. We studied shrimp farming in a rural region in Bangladesh where formal microlending is well established, but where more expensive informal microlending coexists with the formal schemes.


      Distributional effects of taxing transport fuel

      This paper takes as its starting point the observation that fuel prices – and thus taxes – are important for good management of climate change and other environmental problems. To economists this should be no surprise yet it seems that the role of fuel taxation as an instrument of climate policy has not been fully appreciated. It is however one of the few policy instruments that, since several decades, has actually reduced fuel consumption appreciably.


      Policy Instruments for Environmental and Natural Resource Management

      This book by Thomas Sterner and Jessica Coria is an attempt to encourage more widespread and careful use of economic policy instruments. The book compares the accumulated experiences of the use of economic policy instruments in the U.S. and Europe, as well as in rich and poor countries in Asia, Africa, and Latin America. Ambitious in scope, it discusses the design of instruments that can be employed in any country in a wide range of contexts, including transportation, industrial pollution, water pricing, waste, fisheries, forests, and agriculture.


      The Cost-Effective Choice of Policy Instruments to Cap Aggregate Emissions with Costly Enforcement

      We study the cost-effectiveness of inducing compliance in a program that caps aggregate emissions of a given pollutant from a set of heterogeneous firms based on emissions standards and the relative cost-effectiveness of such a program with respect to an optimally designed program based on tradable discharge permits. Our analysis considers abatement, monitoring and sanctioning costs, as well as perfect and imperfect information on the part of the regulator with regard to the polluters’ abatement costs.


      Fuel Taxes and the Poor

      Fuel Taxes and the Poor,The Distributional Effects of Gasoline Taxation and Their Implications for Climate Policy, challenges the conventional wisdom that gasoline taxation, an important and much-debated instrument of climate policy, has a disproportionately detrimental effect on poor people.


      On the Looting of Nations

      We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the development of are source rich country. Resource wealth serves as collateral and facilitates the acquisition of loans.


      What Drives Voluntary Eco-Certification in Mexico?

      Advocates claim that voluntary programs can help shore up poorly performing command-and-control environmental regulation in developing countries. Although literature on this issue is quite thin, research on voluntary environmental programs in industrialized countries suggests that they are sometimes ineffective because they mainly attract relatively clean plants free-riding on prior pollution control investments.


      Measuring the Effectiveness of Protected Area Networks in Reducing Deforestation: A Rigorous Impact Evaluation Approach

      Global efforts to reduce tropical deforestation rely heavily on the establishment of protected areas. Measuring the effectiveness of these areas is difficult because the amount of deforestation that would have occurred in the absence of legal protection cannot be directly observed. Conventional methods of evaluating the effectiveness of protected areas can be biased because protection is not randomly assigned and because protection can induce deforestation spillovers (displacement) to neighboring forests. We demonstrate that estimates of effectiveness can be substantially improved by controlling for biases along dimensions that are observable, measuring spatial spillovers, and testing the sensitivity of estimates to potential hidden biases.


      Park Location Affects Forest Protection: Land Characteristics Cause Differences in Park Impacts across Costa Rica

      To support conservation planning, we ask whether a park's impact on deforestation rates varies with observable land characteristics that planners could use to prioritize sites. Using matching methods to address bias from non-random location, we find deforestation impacts vary greatly due to park lands' characteristics. Avoided deforestation is greater if parks are closer to the capital city, in sites closer to national roads, and on lower slopes. In allocating scarce conservation resources, policy makers may consider many factors such as the ecosystem services provided by a site and the costs of acquiring the site. Pfaff and Sanchez 2004 claim impact can rise with a focus upon threatened land, all else equal. We provide empirical support in the context of Costa Rica's renowned park system. This insight, alongside information on eco-services and land costs, should guide investments.


      Land and water institutions in the Blue Nile Basin: Setups and gaps for improved land and water management

      This study undertook an assessment and gap analysis of the institutional arrangements for improved land and water management in the Tana and Beles Sub-basins highlands of the Blue Nile Basin. We explored the mandates and design features of the major land- and water-related institutional arrangements. Focus group discussions, key informant interviews, and a literature review were used in the analysis.


      Controlling Local Environmental Performance: an analysis of three national environmental management programs in the context of regional disparities in China

      Whether government has the political will and capacity to control pollution is crucial for environmental outcomes. A vast country such as China, with centralized policymaking but idiosyncratic local implementation of environmental regulations and drastic regional disparities in wealth, raises the question how does the central government stimulate local environmental commitment to accommodate such diversity?


      Controlling Urban Air Pollution Caused by Households: Uncertainty, Prices, and Income

      We examine the control of air pollution caused by households burning wood for heating and cooking in the developing world. Since the problem is one of controlling emissions from nonpoint sources, regulations are likely to be directed at household choices of wood consumption and combustion technologies. Moreover, these choices are subtractions from, or contributions to, the pure public good of air quality. Consequently, the efficient policy design is not independent of the distribution of household income.