TY  - JOUR
AU  - Fowlie,Meredith
AU  - Reguant,Mar
AU  - Ryan,Stephen P.
TI  - Market-Based Emissions Regulation and Industry Dynamics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18645
PY  - 2012
Y2  - December 2012
UR  - http://www.nber.org/papers/w18645
L1  - http://www.nber.org/papers/w18645.pdf
N1  - Author contact info:
Meredith Fowlie
Department of Agricultural & Resource Economics
University of California, Berkeley
301 Giannini Hall
Berkeley, CA 94720-3310
Tel: 510/642-4820
Fax: 510/643-8911
E-Mail: fowlie@berkeley.edu

Mar Reguant
Knight Management Center
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305
Tel: 650/725-1737
E-Mail: mreguant@stanford.edu

Stephen P. Ryan
Department of Economics
University of Texas at Austin
BRB 3.134D
2225 Speedway Stop C3100
Austin, TX 78712-1690
Tel: 512/425-8543
E-Mail: sryan@utexas.edu
AB  - We assess the long-run dynamic implications of market-based regulation of carbon dioxide emissions in the US Portland cement industry. We consider several alternative policy designs, including mechanisms that use production subsidies to partially offset compliance costs and border tax adjustments to penalize emissions associated with foreign imports. Our results highlight two general countervailing market distortions. First, following Buchanan (1969), reductions in product market surplus and allocative inefficiencies due to market power in the domestic cement market counteract the social benefits of carbon abatement. Second, trade exposure to unregulated foreign competitors leads to emissions “leakage” which offsets domestic emissions reductions. Taken together, these forces result in social welfare losses under policy regimes that fully internalize the emissions externality. In contrast, market-based policies that incorporate design features to mitigate the exercise of market power and emissions leakage can deliver welfare gains.
ER  -