Economics of the Environment from The Economists’ Voice

We continue to reap benefits from our subscription to The Economists’ Voice. The site provides short, readable pieces on economics and public policy topics of the day, typically from some of the top scholars in the field.

For those of you interested in environmental issues (or simply a preview to Econ 225), the latest edition has several articles on incentive systems for reducing carbon emissions. For those of you not up to speed on the lingo, the basic mechanisms are “command-and-control,” where the regulator typically specifies some cleaner technology; a per-unit tax on emissions; and a “cap-and-trade” system, where the regulator picks a maximum quantity of emissions (the cap) and uses a market that allows firms to sort out which has the lowest cost of reducing emissions (trade). A basic result is that under the right conditions, the pollution tax and the cap-and-trade systems give equivalent outcomes. However, in practice, the cap-and-trade seems to be the route that is taken.

Don Fullerton and Daniel Karney start out The Economists’ Voice articles by looking at issues associated with the allocation of pollution permits within the US. Should they be handed out for free or auctioned off to the highest bidder? What are the distributional impacts? That is, are poor people hardest hit because increased firm costs are passed on in the form of higher energy prices.

Next, Ozge Islegen and Stefan J. Reichelstein look at the economics of carbon capture This is an interesting technology that involves capturing carbon before it goes into the atmosphere, compressing it into a supercritical state, and then “sequestering” it underground or under the sea for time eternal. The pro side of this is that we can still burn fossil fuels without having increased atmospheric carbon concentrations.

Lee Friedman and Jeff Deason discuss whether regulators are markets are better fit to determine when carbon emissions are reduce. And, finally, Éloi Laurent looks at France’s pending carbon tax. Ah, the French.

While we’re playing the blame game, we might as well ask whether we should blame the Copenhagen debacle on China or on the economists?

Don’t look at me.