NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Nicholas Muller

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Working Papers

February 2013Market-based Emissions Regulation When Damages Vary Across Sources: What Are the Gains from Differentiation?
with Meredith Fowlie: w18801
Much of the air pollution currently regulated under U.S. emissions trading programs is non-uniformly mixed, meaning that health and environmental damages depend on the location and dispersion characteristics of the sources. Existing policy regimes ignore this fact. Emissions are penalized at a single permit price, regardless of the location of the source. In theory, differentiated policies can be designed to accommodate non-uniformly mixed pollution using emissions penalties that vary with emissions damages. Under perfect certainty, damage-based policy differentiation is unambiguously welfare improving. In the presence of uncertainty about damages and abatement costs, differentiated policies need not welfare dominate simpler, undifferentiated designs. Using rich data from a major U.S. emis...

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