NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Upstream versus Downstream Implementation of Climate Policy

Erin T. Mansur

NBER Working Paper No. 16116
Issued in June 2010
NBER Program(s):   EEE

This chapter examines the tradeoffs of regulating upstream (e.g., coal, natural gas, and refined petroleum product producers) versus regulating downstream (e.g., direct sources of greenhouse gases (GHG)). In general, regulating at the source provides polluters with incentives to choose among more opportunities to abate pollution. This chapter develops a simple theoretical model that shows why this added flexibility achieves the lowest overall costs. I broaden the theory to incorporate several reasons why these potential gains from trade may not be realized--transactions costs, leakage, and offsets--in the context of selecting the vertical segment of regulation.

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Document Object Identifier (DOI): 10.3386/w16116

Published: Upstream versus Downstream Implementation of Climate Policy, Erin T. Mansur. in The Design and Implementation of U.S. Climate Policy, Fullerton and Wolfram. 2012

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