Environmental Economics: A Survey

Using relatively simple and widely used models, we illustrate how carbon emission concerns could be integrated into operational decision-making with regard to procurement, production, and inventory management. We show how, by associating carbon emission parameters with various decision variables, traditional models can be modified to support decision-making that accounts for both cost and carbon footprint. We examine how the values of these parameters as well as the parameters of regulatory emission control policies affect cost and emissions. We use the models to study the extent to which carbon reduction requirements can be addressed by operational adjustments, as an alternative (or a supplement) to costly investments in carbon-reducing technologies. We also use the models to investigate the impact of collaboration among firms within the same supply chain on their costs and carbon emissions and study the incentives firms might have in seeking such cooperation. We provide a series of insights that highlight the impact of operational decisions on carbon emissions and the importance of operational models in evaluating the impact of different regulatory policies and in assessing the benefits of investments in more carbon efficient technologies. Note to Practitioners-Firms worldwide, responding to the threat of government legislation or to concerns raised by their own consumers or shareholders, are undertaking initiatives to reduce their carbon footprint. It is the conventional thinking that such initiatives will require either capital investments or a switch to more expensive sources of energy or input material. In this paper, we show that firms could effectively reduce their carbon emissions without significantly increasing their costs by making only operational adjustments and by collaborating with other members of their supply chain. We describe optimization models that can be used by firms to support operational decision making and supply chain collaboration, while taking into account carbon emissions. We analyze the effect of different emission regulations, including strict emission caps, taxes on emissions, cap-and-offset, and cap-and-trade, on supply chain management decisions. In particular, we show that the presence of emission regulation can significantly increase the value of supply chain collaboration.

https://www.sutd.edu.sg/cmsresource/idc/papers/2013_Carbon_Footprint_and_the_Management_of_Supply_Chains_Insights_From_Simple_Models.pdf

Carbon Footprint and the Management of Supply Chains: Insights From Simple Models

Environmental policies typically combine the identification of a goal with some means to achieve that goal. This chapter focuses exclusively on the second component, the means – the “instruments” – of environmental policy, and considers, in particular, experience around the world with the relatively new breed of economic-incentive or market-based policy instruments. I define these instruments broadly, and consider them within four categories: charge systems; tradable permits; market friction reductions; and government subsidy reductions. Within charge systems, I consider effluent charges, deposit-refund systems, user charges, insurance premium taxes, sales taxes, administrative charges, and tax differentiation. Within tradeable permit systems, I consider both credit programs and cap-and-trade systems. Under the heading of reducing market frictions, I examine market creation, liability rules, and information programs. Finally, under reducing government subsidies, I review a number of specific examples from around the world. By defining market-based instruments broadly, I cast a large net for this review of applications. As a consequence, the review is extensive. But this should not leave the impression that market-based instruments have replaced, or have come anywhere close to replacing, the conventional, command-and-control approach to environmental protection. Further, even where these approaches have been used in their purest form and with some success, such as in the case of tradeable-permit systems in the United States, they have not always performed as anticipated. In the final part of the chapter, I ask what lessons can be learned from our experiences. In particular, I consider normative lessons for design and implementation, analysis of prospective and adopted systems, and identification of new applications.

/pdf/experience-with-market-based-environmental-policy-gdndc2wgh9.pdf

Experience with Market-Based Environmental Policy Instruments

http://econdse.org/wp-content/uploads/2013/09/roberts_spence_JPubE_1976.pdf

Effluent charges and licenses under uncertainty

The appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal. When competition is not a foregone conclusion, the question naturally arises as to how a firm might manipulate the market to its own advantage. This paper analyzes the issue of market power in the context of markets for transferable property rights. First, a model is developed that explains how a single firm with market power might exercise its influence. This is followed by an examination of the model in the context of a particular policy problem--the control of particulate sulfates in the Los Angeles region.

http://lib.cufe.edu.cn/upload_files/other/4_20140527033419_49_market%20power%20and%20transferable%20property%20rights.pdf

W.David Montgomery

Papers

Markets in licenses and efficient pollution control programs