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Can Polluting Firms Favor Regulation?

  • Félix Muñoz-García EMAIL logo und Sherzod B. Akhundjanov
Veröffentlicht/Copyright: 13. Juli 2016
The B.E. Journal of Economic Analysis & Policy
Aus der Zeitschrift The B.E. Journal of Economic Analysis & Policy Band 16 Heft 4

Abstract

This paper investigates the production decisions of firms with asymmetric environmental damages, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms’ profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation mitigates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while the relatively efficient firm opposes regulation. Furthermore, we show that such support can originate from polluting companies.

Keywords: cost asymmetries; cost disadvantage; emission fees; green firms
JEL Classification: L13; D62; H23; Q20

Appendix – Emissions and Costs in Different Industries

Table 1:

Air emission factor ranges for freight truck and rail, in grams/tone-km.

PollutantTruckTrain
CO0.25–2.400.02–0.15
CO2127–45141–102
HC0.30–1.570.01–0.07
NOx1.85–5.650.20–1.01
SO20.10–0.430.07–0.18
Particulates0.04–0.900.01–0.08
VOC1.100.08

Source: OECD (1997).

Note: CO, carbon monoxide; CO2, carbon dioxide; HC, hydrocarbons (e. g., methane, pentane, etc.); NOx, nitrogen oxides; SO2, sulfur dioxide; VOC, volatile organic carbon compounds.

Table 2:

Estimated annualized cost of power with carbon controls (2008 US$).

TechnologyNon-fuel costFuel costSO2 and NOx costCO2 costProduction tax creditCapital returnTotal cost per Mwh
Coal: Pulverized$5.57$11.13$0.61$0.00$0.00$45.79$63.10
Coal: IGCC$5.46$10.41$0.10$0.00$0.00$67.02$82.99
Nuclear$6.13$5.29$0.00$0.00($3.18)$74.99$83.22
Table 3:

Estimated annualized cost of power with carbon controls (2008 U.S. $).

TechnologyNon-fuel costFuel costSO2 and NOx costCO2 costProduction tax creditCapital returnTotal cost per Mwh
Coal: Pulverized$5.57$11.13$0.61$33.80$0.00$49.58$100.69
Coal: Pulverized/CCS$13.48$14.13$0.77$4.29$0.00$78.87$111.54
Coal: IGCC$5.46$10.41$0.10$31.61$0.00$67.02$114.60
Coal: IGCC/CCS$7.10$12.61$0.13$3.83$0.00$95.25$118.92
Nuclear$6.13$5.29$0.00$0.00($3.18)$74.99$83.22

Source: U.S., Congressional Research Service (2008).

Note: Mwh, megawatt-hour; IGCC, integrated gasification combined cycles; CCS, carbon capture and sequestration (which assuming current technology, is capable of removing 90 % of CO2); SO2, sulfur dioxide allowance costs; NOx, nitrogen oxides allowance costs; CO2, carbon dioxide allowance costs.

Acknowledgment

We thank the editor, Till Requate, and two reviewers for their useful insights and recommendations. We are also grateful to Ana Espinola-Arredondo and Hayley Chouinard, as well as participants of the 88th annual meeting of the Western Economic Association International for their helpful comments and suggestions.

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Published Online: 2016-7-13
Published in Print: 2016-10-1

©2016 by De Gruyter

Artikel in diesem Heft

  1. Research Article
  2. Voting in Central Banks: Theory versus Stylized Facts
  3. Delinquency Reinforcement and Balance: Is Exposure to Delinquent Peers Always Risky?
  4. Can Polluting Firms Favor Regulation?
  5. Cannabis Control and Crime: Medicinal Use, Depenalization and the War on Drugs
  6. Coasean Quality of Regulated Goods
  7. Can Low-Wage Employment Help People Escape from the No-Pay – Low-Income Trap?
  8. Auctioning Emission Permits with Market Power
  9. Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly
  10. Does Eco-labeling of Services Matter? Evidence from Higher Education
  11. What Do Regulators Value?
  12. Strategic CSR, Heterogeneous Firms and Credit Constraints
  13. Regulations to Supplement Weak Environmental Liability
  14. Intergenerational Educational Persistence among Daughters: Evidence from India
  15. A Signal of Altruistic Motivation for Foreign Aid
  16. Has Creative Destruction become more Destructive?
  17. Is There a Role for Higher Education Institutions in Improving the Quality of First Employment?
  18. Contribution
  19. The Effects of School Closure Threats on Student Performance: Evidence from a Natural Experiment
  20. School Entry, Compulsory Schooling, and Human Capital Accumulation: Evidence from Michigan
  21. Topics
  22. Overeducation, Overskilling and Mental Well-being
  23. Process and Product Innovation and the Role of the Preference Function
  24. Letter
  25. Does Evasion Invalidate the Welfare Sufficiency of the ETI?
  26. How Lobbying Affects Representation: Results for Majority-Elected Politicians
  27. Consumers’ Misevaluation and Public Promotion
  28. Meet-the-competition clauses and the strategic disclosure of product quality
  29. Import Competition and Post-displacement Wages in Korea: Whom You Trade with Matters
https://doi.org/10.1515/bejeap-2015-0163
Schlagwörter für diesen Artikel
cost asymmetries; cost disadvantage; emission fees; green firms

Artikel in diesem Heft

  1. Research Article
  2. Voting in Central Banks: Theory versus Stylized Facts
  3. Delinquency Reinforcement and Balance: Is Exposure to Delinquent Peers Always Risky?
  4. Can Polluting Firms Favor Regulation?
  5. Cannabis Control and Crime: Medicinal Use, Depenalization and the War on Drugs
  6. Coasean Quality of Regulated Goods
  7. Can Low-Wage Employment Help People Escape from the No-Pay – Low-Income Trap?
  8. Auctioning Emission Permits with Market Power
  9. Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly
  10. Does Eco-labeling of Services Matter? Evidence from Higher Education
  11. What Do Regulators Value?
  12. Strategic CSR, Heterogeneous Firms and Credit Constraints
  13. Regulations to Supplement Weak Environmental Liability
  14. Intergenerational Educational Persistence among Daughters: Evidence from India
  15. A Signal of Altruistic Motivation for Foreign Aid
  16. Has Creative Destruction become more Destructive?
  17. Is There a Role for Higher Education Institutions in Improving the Quality of First Employment?
  18. Contribution
  19. The Effects of School Closure Threats on Student Performance: Evidence from a Natural Experiment
  20. School Entry, Compulsory Schooling, and Human Capital Accumulation: Evidence from Michigan
  21. Topics
  22. Overeducation, Overskilling and Mental Well-being
  23. Process and Product Innovation and the Role of the Preference Function
  24. Letter
  25. Does Evasion Invalidate the Welfare Sufficiency of the ETI?
  26. How Lobbying Affects Representation: Results for Majority-Elected Politicians
  27. Consumers’ Misevaluation and Public Promotion
  28. Meet-the-competition clauses and the strategic disclosure of product quality
  29. Import Competition and Post-displacement Wages in Korea: Whom You Trade with Matters
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