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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)
7
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)
9
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
10
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
13
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)