REVENUE‐NEUTRAL INCENTIVES FOR EFFICIENCY AND ENVIRONMENTAL QUALITY

Jonathan Koomey and Arthur H. Rosenfeld

Contemporary Economic Policy, 1990, vol. 8, issue 3, 142-156

Abstract: Recently, interest has grown in using monetary incentives as an efficient way to promote energy efficiency and environmental quality. This paper describes issues raised in designing revenue‐neutral incentive policies to achieve these goals. Such policies involve charging fees in proportion to undesirable characteristics and giving rebates in proportion to desirable characteristics. The fees pay for the rebates and for any administrative costs of the program. This paper analyzes the conceptual issues raised in designing such incentive policies to correct for externalities and to promote the efficiency of buildings and automobiles. The paper examines the nature and importance of externalities, presents the rationale for revenue‐neutral incentive policies, and describes six revenue‐neutral incentive programs for achieving these goals. In addition, it analyzes the criteria that one should use in determining the size of fees and rebates, in light of the large uncertainties. Finally, the paper addresses key implementation issues.

Date: 1990
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