AffiliationUniv Arizona, Dept Econ, Eller Coll Management
MetadataShow full item record
CitationLemoine, D. Environ Resource Econ (2017) 67: 789. https://doi.org/10.1007/s10640-016-0006-6
Rights© Springer Science+Business Media Dordrecht 2016.
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AbstractAn increasingly common type of environmental policy instrument regulates the carbon intensity of transportation and electricity markets. In order to extend the policy's scope beyond point-of-use emissions, regulators assign each potential 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 properly selecting the emission ratings than possible by selecting only 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 increased the estimated 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.
Note12 month embargo; published online: 24 February 2016
VersionFinal accepted manuscript