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Economic Ideas for a Complex Climate Policy Regime

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  • Burtraw, Dallas

    (Resources for the Future)

  • Woerman, Matt

    (Resources for the Future)

Abstract

The parsimony of economic theory provides general insights into an otherwise complex world. However, the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy, with a US focus: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.

Suggested Citation

  • Burtraw, Dallas & Woerman, Matt, 2013. "Economic Ideas for a Complex Climate Policy Regime," RFF Working Paper Series dp-13-03-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-13-03-rev
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-13-03-REV.pdf
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    References listed on IDEAS

    as
    1. William M. Shobe & Dallas Burtraw, 2012. "Rethinking Environmental Federalism In A Warming World," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-33.
    2. Pablo Río & Xavier Labandeira, 2009. "Barriers to the introduction of market-based instruments in climate policies: an integrated theoretical framework," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 10(1), pages 41-68, March.
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    6. Dallas Burtraw & Alan Krupnick & Erin Mansur & David Austin & Deirdre Farrell, 1998. "Costs And Benefits Of Reducing Air Pollutants Related To Acid Rain," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 379-400, October.
    7. Lawrence H. Goulder & Robert N. Stavins, 2011. "Challenges from State-Federal Interactions in US Climate Change Policy," American Economic Review, American Economic Association, vol. 101(3), pages 253-257, May.
    8. Burtraw, Dallas & Palmer, Karen & Kahn, Danny, 2010. "A symmetric safety valve," Energy Policy, Elsevier, vol. 38(9), pages 4921-4932, September.
    9. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-373, May.
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    11. Richard Schmalensee & Robert N. Stavins, 2013. "The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 103-122, Winter.
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    13. Williams, Roberton C., 2012. "Growing state–federal conflicts in environmental policy: The role of market-based regulation," Journal of Public Economics, Elsevier, vol. 96(11), pages 1092-1099.
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    15. Elinor Ostrom, 2014. "A Polycentric Approach For Coping With Climate Change," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 97-134, May.
    16. Dallas Burtraw & Art Fraas & Nathan Richardson, 2011. "Policy Monitor--Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 293-313, Summer.
    17. Portney, Paul R, 1990. "Economics and the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 173-181, Fall.
    18. Burtraw, Dallas & Fraas, Arthur G. & Richardson, Nathan, 2011. "Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists," RFF Working Paper Series dp-11-08, Resources for the Future.
    19. David A. Evans & Richard T. Woodward, 2013. "What Can We Learn from the End of the Grand Policy Experiment? The Collapse of the National SO 2 Trading Program and Implications for Tradable Permits as a Policy Instrument," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 325-348, June.
    20. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
    21. Dalia Patino-Echeverri & Dallas Burtraw & Karen Palmer, 2013. "Flexible mandates for investment in new technology," Journal of Regulatory Economics, Springer, vol. 44(2), pages 121-155, October.
    22. Dallas Burtraw & William Shobe, 2008. "State and Local Climate Policy under a National Emissions Floor," Working Papers 2008-05, Center for Economic and Policy Studies.
    23. Burtraw, Dallas & Woerman, Matt, 2012. "US Status on Climate Change Mitigation," RFF Working Paper Series dp-12-48, Resources for the Future.
    24. Burtraw, Dallas & Palmer, Karen & Paul, Anthony & Beasley, Blair & Woerman, Matt, 2013. "Reliability in the U.S. electricity industry under new environmental regulations," Energy Policy, Elsevier, vol. 62(C), pages 1078-1091.
    25. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, September.
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    26. Richardson, Nathan & Fraas, Arthur G., 2013. "Comparing the Clean Air Act and a Carbon Price," RFF Working Paper Series dp-13-13, Resources for the Future.
    27. Maloney, Michael T & Brady, Gordon L, 1988. "Capital Turnover and Marketable Pollution Rights," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 203-226, April.
    28. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
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    32. Pablo Río & Xavier Labandeira, 2009. "Barriers to the introduction of market-based instruments in climate policies: an integrated theoretical framework," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 10(1), pages 41-68, March.
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    Cited by:

    1. Dallas Burtraw & Josh Linn & Karen Palmer & Anthony Paul, 2014. "The Costs and Consequences of Clean Air Act Regulation of CO2 from Power Plants," American Economic Review, American Economic Association, vol. 104(5), pages 557-562, May.
    2. John A. “Skip” Laitner, 2015. "Linking energy efficiency to economic productivity: recommendations for improving the robustness of the U.S. economy," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 4(3), pages 235-252, May.
    3. Michel Damian, 2014. "La politique climatique change enfin de paradigme," Post-Print halshs-00969308, HAL.
    4. Marcel J. Dorsch & Christian Flachsland, 2017. "A Polycentric Approach to Global Climate Governance," Global Environmental Politics, MIT Press, vol. 17(2), pages 45-64, May.
    5. Paul, Anthony & Palmer, Karen & Woerman, Matt, 2014. "Designing by Degrees: Flexibility and Cost-Effectiveness in Climate PolicyAbstract: Substantially reducing carbon dioxide (CO2) emissions from electricity production will require a transformation of t," RFF Working Paper Series dp-14-05, Resources for the Future.
    6. Dallas Burtraw & Matt Woerman & Alan Krupnick, 2016. "Flexibility and Stringency in Greenhouse Gas Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 225-248, February.

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    More about this item

    Keywords

    institutions; federalism; subsidiarity; shadow prices; incentives; regulation;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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