Escape from Third-Best: Rating Emissions for Intensity Standards

Derek Lemoine

No 161656, 2014 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA from Agricultural and Applied Economics Association

Abstract: An increasingly common type of environmental policy instrument limits the carbon intensity of transportation and electricity markets. In order to extend the policy's scope beyond point-of-use emissions, regulators assign each competing fuel an emission intensity rating for use in calculating compliance. I show that welfare-maximizing ratings do not generally coincide with the best estimates of actual emissions. In fact, the regulator can achieve a higher level of welfare by manipulating the emission ratings than by manipulating the level of the standard. Moreover, a fuel's optimal rating can actually decrease when its estimated emission intensity increases. Numerical simulations of the California Low-Carbon Fuel Standard suggest that when recent scientific information suggested greater emissions from conventional ethanol, regulators should have lowered ethanol's rating (making it appear less emission-intensive) so that the fuel market would clear with a lower quantity.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 42
Date: 2013-09-30
New Economics Papers: this item is included in nep-ene, nep-env and nep-tre
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Citations: View citations in EconPapers (11)

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Journal Article: Escape from Third-Best: Rating Emissions for Intensity Standards (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaeass:161656

DOI: 10.22004/ag.econ.161656

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