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Factors that determine the cost-effectiveness ranking of second-best instruments for environmental regulation

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  • Raúl O’Ryan

Abstract

This paper develops a conceptual model to analyze how specific factors affect the compliance costs of three suboptimal policy instruments, when compared to the optimal ambient permit system (APS) benchmark. The model considers a non-uniformly mixed pollutant and explicitly incorporates the following factors: number of polluting sources; size, in terms of emissions, of each process; marginal abatement costs for each process; effluent concentrations; the transfer coefficient that relates emissions to environmental quality at the receptor; and the desired environmental quality target. APS is compared to a suboptimal emission permit system (EPS), and two Command and Control (CAC) policies—equal percentage reduction (PER) and a uniform effluent concentration standard (STD). The results show the importance of the different factors and their interactions in determining each policy instrument’s cost-effectiveness ranking. Surprisingly, EPS performs well within the usual values of these factors and in specific cases STD and PER also perform similarly to APS. Copyright Springer Science+Business Media, LLC 2006

Suggested Citation

  • Raúl O’Ryan, 2006. "Factors that determine the cost-effectiveness ranking of second-best instruments for environmental regulation," Journal of Regulatory Economics, Springer, vol. 30(2), pages 179-198, August.
    • Handle: RePEc:kap:regeco:v:30:y:2006:i:2:p:179-198
    DOI: 10.1007/s11149-006-0014-5
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    References listed on IDEAS

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    1. O'Ryan, Raúl & Miller, Sebastian & de Miguel, Carlos J., 2003. "A CGE framework to evaluate policy options for reducing air pollution emissions in Chile," Environment and Development Economics, Cambridge University Press, vol. 8(2), pages 285-309, May.
    2. Bohm, Peter & Russell, Clifford S., 1985. "Comparative analysis of alternative policy instruments," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 1, chapter 10, pages 395-460, Elsevier.
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    1. Mardones, Cristian & Saavedra, Andrés, 2016. "Comparison of economic instruments to reduce PM2.5 from industrial and residential sources," Energy Policy, Elsevier, vol. 98(C), pages 443-452.
    2. François Destandau & Youssef Zaiter, 2022. "Cost-benefit analysis of nitrate abatement in the Souffel catchment (France): Sensitivity study of the damage and spatialization of the abatement effort," Post-Print hal-03658461, HAL.

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    More about this item

    Keywords

    Environmental regulation; Policy instrument choice; Cost-effectiveness; Environmental economics; Tradable permits; Command and control; Q58; Q50;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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