Notes for Chapter 11

ECON 2390

2

Ideally, standards should reflect a social efficient balance of MD and MAC

What are the losses incurred when standards deviate from the socially efficient position (Hint – go back to the total costs associated with the polluter and pollutee)

Emissions (MT/yr)

$

The socially efficient

standard

A soc

ially

inef

ficie

nt s

tand

ard

MD

MAC

3

Standards

Possible benefits1. Conceptually simple 2. Can be targeted3. Seems to offer

immediate relief4. Associates limits in the

entity that causes the pollution (assigns blame)

5. Defines legal/illegal behaviour

Possible Costs1. Requires careful and

costly drafting to target harms (lobbying)

2. Enforcement costs3. Hard to define right

level (different from 1)4. May have unintended

consequences (industry relocation)

4

Types of standards

Ambient Specifies level (average concentrations)

Emission Point source control A form of performance standard

Emissions and ambient standards are quite different

The nature of the pollutant and the context determines which will work best.

5

Table 1: Canada’s residential GHG emissions

1990

(Mt CO2e) 2006

(Mt CO2e) Growth,

1990-2006

Residential 69.3 69.6 0.4% Share of all Canadian

GHGs 17.2% 14.6% -2.6%

Space heating 41.6 39.6 -4.9% Water heating 12.9 12.9 -0.1% Appliances 11.1 11.5 4.2%

Major appliances 9.3 7.7 -17.2% Other appliances* 1.8 3.8 116.0%

Lighting 3.1 3.9 25.8% Space cooling 0.7 1.7 164.4%

Source: NRCan (2009e) * Includes small appliances such as televisions, video cassette recorders, digital video disc players, radios, computers, and toasters.

6

Table 1: Canada’s commercial/institutional GHG emissions

1990

(Mt CO2e) 2006

(Mt CO2e) Growth,

1990-2006

Commercial/Institutional 47.7 60.4 26.5% Share of all Canadian

GHGs 11.8% 12.6% 0.8%

Space heating 25.6 29.3 14.3% Water heating 3.7 5.2 41.0% Auxiliary equipment 4.6 10.0 115.7% Auxiliary motors 5.1 5.0 -1.7% Lighting 6.4 6.0 -6.0% Space cooling 1.7 4.3 151.6% Street lighting 0.5 0.5 -5.9%

Source: NRCan (2009e)

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Table 1: Canada’s industrial GHG emissions *

1990

(Mt CO2e) 2006

(Mt CO2e) Growth,

1990-2006

Industrial 141.7 161.5 14.0% Share of all Canadian

GHGs 35.1% 33.8% -1.3%

Mining 21.6 40.8 89.4% Pulp and paper 24.2 17.2 -28.9% Iron and steel 15.8 16.8 6.0% Smelting and refining 10.7 15.4 43.6% Cement 4.1 5.4 29.8% Chemicals 10.8 10.3 -4.5% Petroleum refining 20.8 19.9 -4.3% Other manufacturing 28.6 29.9 4.5% Forestry 0.6 1.7 181.4% Construction 4.5 4.2 -7.6%

Source: NRCan (2009e) * NRCan does not appear to provide data on energy use and emissions by product category in the industrial sector.

8

Table 1: Impact of activity, structure, service level, weather, and energy efficiency effects on changes in Canadian energy use, 1990-2007 (PJ)

Residential Commercial/ Institutional

Industrial Total

Activity effect 456.38 294.72 1,261.71 2,012.81 Structure effect 0.64 0.31 -315.29 -314.34 Weather effect 14.99 15.17 -- 30.17 Service level effect 71.10 103.56 -- 174.65 Energy efficiency effect -378.20 -138.71 -184.79 -701.71 Other -- -0.49 -- -0.49 Total change in energy use, 1990-2007

164.91 274.56 761.63 1,201.09

(a) Energy use in 2007 1,447.20 1,141.57 3,471.59 6,060.36 (b) Energy use minus energy efficiency improvements, 2007

1,825.40 1,280.28 3,656.38 6,762.06

Ratio: (b)/(a) 0.26 0.12 0.05 0.12 Source: NRCan (2009c)

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Australian Labelling

The Canadian EnerGuide Label

1. Average annual energy consumption of the appliance in kilowatt hours (kWh)

2. Energy efficiency of the appliance relative to similar models

3. Annual energy consumption range for models of this type and size

4. Type and size of the model5. Model number

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The international ENERGY STAR symbol, displayed alone or as part of the EnerGuide label, identifies major electrical appliances that meet or exceed technical specifications designed to ensure that theyare among the most energy efficient in their class, without compromising performance.

Consumer Reports on Energy Star

http://www.consumerreports.org/cro/home-garden/resource-center/energy-star-has-lost-some-luster/overview/energy-star-ov.htm

11

Develop a testing capability

Decide whether and how to implement energy standards

and labels

Analyze and set standards

Design and implement a labelling

program

Design and implement a

communication campaign

Ensure program integrity

Evaluate the labelling or

standards-setting program

Feedback

Figure : Typical steps in developing and administering labelling and standards programsSource: Wiel, S., & McMahon, J. (2005). Energy-efficiency labels and standards: A guidebook for appliances, equipment, and lighting (2nd edition). Washington, D.C.: Collaborative Labeling and Appliance Standards Program (CLASP). Retrieved from http://clasponline.org/clasp.online.resource.php?sbo=289

12

The leap-frog model of voluntary labelling

Figure : Effect of voluntary and regulatory measures on markets for appliances and equipmentSource: Wiel, S., & McMahon, J. (2003). Governments should implement energy-efficiency standards and labels—cautiously. Energy Policy, 31(13), 1403–1415.

Shift

Shift

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Incentive effects of new standards

The key to interpreting this chart is to always understand that the area under a marginal curve is total (damages experienced or abatement costs).

One can examine incentives by looking are differences in areas (labelled a – e).

The socially efficient point under MAC1 is at 20. The total abatement costs are a+b, and the total damages are d+c+f.

If the MAC falls to MAC2, the socially efficient point falls. Total damages decline to f, and the tot abatement costs become c+b.

The affected party benefits since total damages decline, while it is not clear whether the polluter benefits – it depends on the net change in total abatement costs.

(a+b) – (c+b) = a-c

ad

bc

e

2017.78

MAC1

MAC2

MD

Emissions

$

f

14

Compliance - enforcement

The key point is that enforcing compliance always raises abatement costs.

Compliance costs tend to increase the socially optimal level of emissions.

Make sure you understand how the total costs are affected by compliance.

MAC

MD

Emissions

$ C2C2

ab

e

f

cd

15

Looking forward to Chapter 12

16

An interesting relation between sales of SUVs and price of gas

Notice how the sales and price move closely and inversely

Small price reduction triggers sharp

increase in sales

Figure 2: U.S. passenger new vehicle shares and the real price of gasoline, 2004–2006

Prices are expressed in 2007 U.S. dollars per gallon (right axis), while vehicle shares are expressed in percentages (left axis).

Source: Congress of the U.S. Congressional Budget Office (2008, fig. 2-2)