Working Paper: NBER ID: w16116
Authors: Erin T. Mansur
Abstract: This chapter examines the tradeoffs of regulating upstream (e.g., coal, natural gas, and refined petroleum product producers) versus regulating downstream (e.g., direct sources of greenhouse gases (GHG)). In general, regulating at the source provides polluters with incentives to choose among more opportunities to abate pollution. This chapter develops a simple theoretical model that shows why this added flexibility achieves the lowest overall costs. I broaden the theory to incorporate several reasons why these potential gains from trade may not be realized--transactions costs, leakage, and offsets--in the context of selecting the vertical segment of regulation.
Keywords: climate policy; greenhouse gases; regulation; cost-effectiveness
JEL Codes: Q4; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upstream regulation (L51) | cost-effectiveness (D61) |
| upstream regulation (L51) | flexibility for firms to choose abatement methods (Q52) |
| failure of upstream regulation to capture abatement opportunities (Q52) | higher costs (J32) |
| transaction costs of upstream regulation (L51) | transaction costs of downstream regulation (L51) |
| partial regulation (L51) | leakage (F32) |
| vertical targeting of regulations (L51) | degree of leakage (L15) |
| offsets (Y60) | unintended consequences (D62) |