A nice paper to discuss with chapter 3

Chapter 3 in the book is used to introduce the basic idea of environmental policy design. The main goal is to give baseline descriptions of command and control, cap and trade, emissions taxes, and the like. The models are highly stylized at this point, and so to give some empirical context I try to integrate discussion of empirical papers that illustrate instrument comparisons. A good example is:

Linn, J., E. Mastrangelo, and D. Burtraw, (2014). “Regulating greenhouse gases from coal power plants under the Clean Air Act,” Journal of the Association of Environmental and Resource Economists 1: 97-134.

The authors derive models describing how managers of coal-fired generators behave under a uniform standard for heat rate efficiency, and compare this to behavior under more flexible policies. The empirical work focuses on firm heterogeneity as the basis for flexible instruments to deliver cost savings, and on the actual cost differences between the uniform standard, a cap-and-trade-like policy, and an emission tax. The findings are illustrative of the main conclusions from chapter 3. The paper also provides an opportunity to integrate discussion of empirical work at an early stage in the course.