Article

Policy spillovers in the regulation of multiple pollutants

Stefan Ambec, and Jessica Coria

Abstract

We analyze the interplay between policies aimed to control transboundary and local pollu- tants such as greenhouse gases and particulate matter. The two types of pollution interact in the abatement cost function of the polluting firms through economies or diseconomies of scope. They are regulated by distinct entities, potentially with different instruments that are designed according to some specific agenda. We show that the choice of regulatory instrument and the timing of the regulations matter for efficiency. Emissions of the local pollutant are distorted if the regulators anticipate that transboundary pollution will later be regulated through emission caps. The regulation is too stringent with diseconomies of scope, and not enough with economies of scope. In contrast, we obtain efficiency if the transboundary pollutant is regulated by tax provided that the revenues from taxing emissions are redistributed to the local communities in a lump-sum way.

Keywords

environmental regulation; transboundary pollution; multiple-pollutants; policy spillovers; emission tax; emission standard; emissions trading;

JEL codes

  • D62: Externalities
  • H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
  • Q50: General
  • Q53: Air Pollution • Water Pollution • Noise • Hazardous Waste • Solid Waste • Recycling
  • Q54: Climate • Natural Disasters • Global Warming
  • Q58: Government Policy

Replaces

Stefan Ambec, and Jessica Coria, Policy spillovers in the regulation of multiple pollutants, TSE Working Paper, n. 15-602, September 21, 2015, revised January 2017.

Reference

Stefan Ambec, and Jessica Coria, Policy spillovers in the regulation of multiple pollutants, Journal of Environmental Economics and Management, 2018, forthcoming.

Published in

Journal of Environmental Economics and Management, 2018, forthcoming