@article{Goulder:10522,
      recid = {10522},
      author = {Goulder, Lawrence H. and Parry, Ian W.H. and Williams,  Roberton C., III and Burtraw, Dallas},
      title = {The Cost-Effectiveness of Alternative Instruments for  Environmental Protection in a Second-Best Setting},
      address = {1998},
      number = {1318-2016-103216},
      series = {Discussion Paper 98-22},
      pages = {48},
      year = {1998},
      abstract = {This paper employs analytical and numerical general  equilibrium models to examine the costs of achieving  pollution reductions under a range of environmental policy  instruments in a second-best setting with pre-existing  factor taxes. We compare the costs and overall efficiency  impacts of emissions taxes, emissions quotas, fuels taxes,  performance standards, and mandated technologies, and  explore how costs change with the magnitude of pre-existing  taxes and the extent of pollution abatement. We find that  the presence of distortionary taxes raises the costs of  pollution abatement under each instrument relative to its  costs in a first-best world. This extra cost is an  increasing function of the magnitude of pre-existing tax  rates. For plausible values of pre-existing tax rates and  other parameters, the cost increase for all policies is  substantial (35 percent or more). The impact of  pre-existing taxes is particularly large for non-auctioned  emissions quotas: here the cost increase can be several  hundred percent. Earlier work on instrument choice has  emphasized the potential reduction in compliance cost  achievable by converting fixed emissions quotas into  tradable emissions permits. Our results indicate that the  regulator's decision whether to auction or grandfather  emissions rights can have equally important cost impacts.  Similarly, the choice as to how to recycle revenues from  environmentally motivated taxes (whether to return the  revenues in lump-sum fashion or via cuts in marginal tax  rates) can be as important to cost as the decision whether  the tax takes the form of an emissions tax or fuel tax,  particularly when modest emissions reductions are involved.  In both first- and second-best settings, the cost  differences across instruments depend importantly on the  extent of pollution abatement under consideration. Total  abatement costs differ markedly at low levels of abatement.  Strikingly, for all instruments except the fuel tax these  costs converge to the same value as abatement levels  approach 100 percent.},
      url = {http://ageconsearch.umn.edu/record/10522},
      doi = {https://doi.org/10.22004/ag.econ.10522},
}