Social and Behavioral Sciences Commons^™

Multiple Pollutants, Co-Benefits, And Suboptimal Environmental Policies, Don Fullerton, Daniel Karney

Don Fullerton

Negative Leakage, Kathy Baylis, Don Fullerton, Daniel Karney

Don Fullerton

Our analytical general equilibrium model solves for effects of a small increase in carbon tax on leakage – the increase in emissions elsewhere. Identical consumers buy two goods using income from endowments that are mobile between sectors. Usually an increase in one sector’s tax raises output price, so consumption shifts to the other good, causing positive leakage. Here, we find a new negative effect not recognized in existing literature: the taxed sector substitutes away from carbon into clean inputs, so it may absorb resources, shrink the other sector, and reduce their emissions. This “abatement resource effect” can offset most or …

Can A Unilateral Carbon Tax Reduce Emissions Elsewhere?, Joshua Elliott, Don Fullerton

Don Fullerton

One country or sector that tries to reduce greenhouse gas emissions may fear that other countries or sectors will get a competitive advantage and increase emissions. Computable general equilibrium (CGE) models such as Elliott et al (2010a,b) indicate that 15% to 25% of abatement might be offset by this “leakage.” Yet the Fullerton et al (2012) simple two-sector analytical general equilibrium model shows an offsetting term with negative leakage. In this paper, we use a full CGE model with many countries and many goods to measure effects in a way that allows for this negative leakage term. We vary elasticities …

Social, Economic, And Ethical Concepts And Methods, Charles Kolstad, Kevin Urama, Don Fullerton, Et Al

Don Fullerton

This framing chapter describes the strengths and limitations of the most widely used concepts and methods in economics, ethics, and other social sciences that are relevant to climate change. It also provides a reference resource for the other chapters in the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5), as well as for decision makers.

Vehicle Choices, Miles Driven, And Pollution Policies, Ye Feng, Don Fullerton, Li Gan

Don Fullerton

Mobile sources contribute large percentages of each pollutant, but technology is not yet available to measure and tax emissions from each vehicle. We build a behavioral model of household choices about vehicles and miles traveled. The ideal-but-unavailable emissions tax would encourage drivers to abate emissions through many behaviors, some of which involve market transactions that can be observed for feasible market incentives (such as a gas tax, subsidy to new cars, or tax by vehicle type). Our model can calculate behavioral effects of each such price and thus calculate car choices, miles, and emissions. A nested logit structure is used …

Leakage, Welfare, And Cost-Effectiveness Of Carbon Policy, Kathy Baylis, Don Fullerton, Daniel H. Karney

Don Fullerton

We extend the model of Fullerton et al (2012) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions and focus on the welfare cost of the emissions tax or permit scheme. Whereas that prior paper solves for changes in emissions quantities and finds that leakage maybe negative, we show here that all cases with negative leakage in that model are cases where a unilateral carbon tax results in a welfare loss. With positive leakage, however, a unilateral policy can improve welfare.

Can Pollution Tax Rebates Protect Low-Wage Earners?, Don Fullerton, Holly Monti

Don Fullerton

Pollution taxes are believed to burden low-income households that spend a greater than average share of income on pollution-intensive goods. Some proposals offset that effect by returning revenue to low-income workers via reduced labor tax. We build analytical general equilibrium models with both high-skilled and low-skilled labor, and we solve for the change in real net wage of each group. A decomposition shows the separate effects of the tax rebate, higher product prices, and the changes in relative wage rates. We also include numerical examples. Even though the pollution tax injures both types of labor, in most cases we find …

Introduction, Don Fullerton, Mark Cohen, Robert Topel

Don Fullerton

We introduce and summarize the ten chapters of the 2013 book we edited called "Distributional Aspects of Energy and Climate Policies". In particular, the chapters examine policies that would “price” carbon emissions or otherwise seek to mitigate anthropogenic climate change. We interpret “distributional” fairly broadly, to include impacts of pending or possible legislation on the living standards of households across the U.S. income distribution and across geographic areas, as well as international differences in the costs and benefits of climate policies that would affect countries’ willingness to participate in harmonized international agreements.

Does The Indexing Of Government Transfers Make Carbon Pricing Progressive?, Don Fullerton, Garth Heutel, Gilbert Metcalf

Don Fullerton

We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual …

The Design And Implementation Of U.S. Climate Policy, Don Fullerton, Catherine Wolfram

Don Fullerton

No abstract provided.

Introduction And Summary, Don Fullerton, Catherine Wolfram

Don Fullerton

While economic models have already proven useful to analyze big picture questions about climate policy such as the choice between a carbon tax or cap-and-trade permit system, the 19 chapters in this book show how economic models also are useful to address the many remaining smaller questions that arise as policy is implemented. For example, chapters consider: the tradeoffs policymakers confront in deciding whether to implement the policy upstream on energy producers or downstream on energy users; how to monitor and enforce climate policy; how Federal actions might interact with climate policies at other levels of government or with other …

Six Distributional Effects Of Environmental Policy, Don Fullerton

Don Fullerton

While prior literature has identified various effects of environmental policy, this note uses the example of a proposed carbon permit system to illustrate and discuss six different types of distributional effects: (1) higher prices of carbon-intensive products, (2) changes in relative returns to factors like labor, capital, and resources, (3) allocation of scarcity rents from a restricted number of permits, (4) distribution of the benefits from improvements in environmental quality, (5) temporary effects during the transition, and (6) capitalization of all those effects into prices of land, corporate stock, or house values. The note also discusses whether all six effects …

Optimal Taxation Of Externalities Interacting Through Markets: A Theoretical General Equilibrium Analysis, Xiaolin Ren, Don Fullerton, John Braden

Don Fullerton

This study develops a theoretical general equilibrium model to examine optimal externality tax policy in the presence of externalities linked to one another through markets rather than technical production relationships. Analytical results reveal that the second-best externality tax rate may be greater or less than the first-best rate, depending largely on the elasticity of substitution between the two externality-generating products. These results are explored empirically for the case of greenhouse gas from fossil fuel and nitrogen emissions associated with biofuels.

The General Equilibrium Incidence Of Environmental Mandates, Don Fullerton, Garth Heutel

Don Fullerton

Pollution regulations affect factor demands, relative returns, production, and output prices. In our model, one sector includes pollution as an input that can be a complement or substitute for labor or capital. For each type of mandate, we find conditions where more burden is on labor or on capital. Stricter regulation does not always place less burden on the better substitute for pollution. Also, restrictions on pollution per unit output create an “output-subsidy effect” on factor prices that can reverse the usual output and substitution effects. We find analogous effects for a restriction on pollution per unit capital.

The Allocation Of Permits In U.S. Climate Change Legislation, Don Fullerton, Daniel Karney

Don Fullerton

Don Fullerton and Daniel Karney of the University of Illinois take a hard look at the allocation of CO2 emissions permits under the Waxman-Markey bill and give it minimally passing marks.

Distributional Effects Of Environmental And Energy Policy: An Introduction, Don Fullerton

Don Fullerton

This chapter reviews literature on the distributional effects of environmental and energy policy. In particular, many effects of such policy are likely regressive. First, it raises the price of fossil-fuel-intensive products, expenditures on which are a high fraction of low-income budgets. Second, if abatement technologies are capital-intensive, then any mandate to abate pollution may induce firms to use more capital. If demand for capital is raised relative to labor, then a lower relative wage may also hurt low-income households. Third, pollution permits handed out to firms bestow scarcity rents on well-off individuals who own those firms. Fourth, low-income individuals may …

Can Taxes On Cars And On Gasoline Mimic An Unavailable Tax On Emissions, Don Fullerton, Sarah E. West

Don Fullerton

An emissions tax is efficient, but measurement of every car’s emissions would be inaccurate and expensive. With identical consumers, we demonstrate the same efficiency for: an emissions tax; a gas tax that depends on fuel type, engine size, and pollution control equipment (PCE); a vehicle tax that depends on mileage; or a combination of uniform tax rates on gasoline and engine size with a subsidy to PCE. With heterogeneous consumers, efficiency can be obtained by a vehicle-specific gas tax or mileage-specific vehicle tax, but not by flat rates. We characterize second-best uniform tax rates on gasoline and on car characteristics.