Escape from Third-Best: Rating Emissions for Intensity Standards

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.


Issue Date:
Sep 30 2013
Publication Type:
Conference Paper/ Presentation
Record Identifier:
http://ageconsearch.umn.edu/record/161656
PURL Identifier:
http://purl.umn.edu/161656
Total Pages:
42
JEL Codes:
H23; Q42; Q58




 Record created 2017-04-01, last modified 2018-01-22

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)