Government Policy to Green Business
Paper Session
Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Kevin W. Capehart, California State University-Fresno
Carbon Tariff and Trade: Uneasy Partners in Climate Change
Abstract
In the realm of climate change policy, the pursuit of environmental sustainability and the principles of free trade often intersect, yet sometimes conflict. This paper delves into this nuanced dynamic, particularly spotlighting the recent implementation of the Carbon Border Adjustment Mechanism (CBAM) by the European Union (EU). CBAM introduces a carbon tariff, taxing imports based on their carbon intensity, aiming to rectify competitive disparities between EU nations and those lacking stringent carbon regulations. As CBAM garners attention, discussions have emerged in the United States regarding a similar carbon tariff. However, this approach has met resistance from major emerging economies, citing concerns over unfair penalties on imports from developing nations and alleging carbon tax as a veiled form of trade protectionism. This paper aims to analyze the implications of carbon tariffs on trade partners, focusing on socio-economic factors and technological discrepancies, notably access to clean technology, in developing and emerging economies. Key aspects to be explored include the efficacy of carbon tariffs in curbing carbon leakage, sustaining competitiveness, as well as their strategic rationale, legal viability, and political feasibility. Following the tenets of institutional economics, this study adopts a holistic perspective, recognizing that responses from trade partners are multifaceted, influenced not only by economic considerations but also by a myriad of social, political, technological, cultural, and historical factors. By integrating these dimensions, the paper provides insights conducive to informed policy design and decision-making in navigating the intricate terrain of trade and environmental governance.Fairness Criteria and Economic Growth – Implications for Climate Change Mitigation
Abstract
Limiting global warming to 1.5°C is only possible by radical reductions in yearly emissions of greenhouse gases. While climate science sets clear goals for climate change mitigation, burden sharing of emissions reductions among national governments remains a controversial issue. Employing fairness criteria is one way to assess carbon budgets for countries, which are compatible with specific climate goals. Specific criteria account for factors like historical responsibility for emissions or ability to pay (represented by GDP per capita). The aim of the paper is to research the relationship between fairness criteria and economic growth, specifically how climate ambitions based on different fairness criteria are connected with the “right to development” approach. The paper is divided into three sections. First section presents the issue of climate change. Second section analyzes fairness criteria and their relationship with the “right to development” rhetoric. Third section presents a comparative analysis of fairness criteria and economic growth in the European Union and selected developing countries in order to ground the findings in empirical data.Quad O’s Evolution: Subsequent Regulatory Effects on Existing Regulations for Shareholder Wealth
Abstract
Methane is the main constituent of natural gas and is released into the atmosphere during crude-oil drilling, and reducing methane is a primary objective in reducing greenhouse gases. Two important legislations and regulations associated with the oil and gas industry are the Environmental Protection Agency (EPA) and Quad O. Quad O is the EPA’s primary regulation over methane production, transportation, and storage, and a lingering concern is Quad O’s effect on shareholder wealth. As new technology and methane research are introduced, Quad O is sufficiently flexible to account for changing research and policy. If Quad-O adversely affects firm values, equity returns will be lower after Quad-O implementation. Alternatively, if Quad O has no effect on firm value, Quad O improves the environment and health without affecting oil shareholder wealth. The regulation was phased in over various periods, and Quad O January 1st, 2015 required new equipment and flaring devices. Results indicate that Quad O’s January 1st, 2015 equipment and flaring implementation did not systematically reduce firm ownership, indicating it is difficult to identify and measure changes in firm value that result from pollution abatement.Carbon Prices and Inflation in a World of Shocks. Systemically significant prices and industrial policy targeting in Germany
Abstract
Climate change and geopolitical tensions render supply shocks more likely, which can trigger inflation (“shockflation”). Additionally, the EU’s reliance upon an emissions trading system as its chief climate mitigation policy can give rise to inflation (“carbonflation”). Through simulations using an input-output price model for Germany, we show that the same systemically significant sectors – those essential for human livelihoods, production and commerce – present points of vulnerability for shockflation and also carbonflation, if carbon markets are the only policy tool deployed to cut emissions. A total of up to 91.3 percent of potential carbonflation can be attributed to just six systemically significant sectors. Our findings remain robust under varying assumptions regarding substitution and passthrough effects. The challenge for policymakers is to design policies that combine transformation with stabilization. Enhancing resilience, dampening price volatility and designing green industrial policies for these key sectors can reduce the macroeconomic risks of both carbonflation and shockflation.The Institutional Blind-spot in the Green Transition: Market Incentives versus Command-and-Control
Abstract
Environmental regulation and unpredictable permitting processes are often claimed to stand in the way of the ongoing transition towards zero-carbon technologies in industry and the energy sector. This standpoint is in part reflected in recent policy initiatives, such as the Inflation Reduction Act in the USA and the Net Zero Industry Act in the European Union. This green versus green dilemma begs the question how environmental regulations can be designed and implemented to regulate local pollution into air and water while at the same time providing favorable conditions for novel investments in technologies and production processes that contribute to climate mitigation. However, the academic and political debates about how to deal with this dilemma – including calls for regulatory reforms – often reflect the fact that the command-and-control approach to industrial pollution, i.e., performance and technology-based standards, has a bad reputation. Market-based instruments, such as emission taxes or allowance schemes, are claimed to be superior, e.g., in terms of cost-effectiveness and incentives for green technological change. These claims, though, ignore the institutional context in which various policy instruments are implemented. This paper puts forward and discusses two related arguments. First, the ongoing transition towards zero-carbon production processes involves specific challenges, which tend to strengthen the case for the use of command-and-control regulations. This includes that there is a need for technological innovation, and empirical research suggests that standards could provide a significant spur to green technological development. In addition, long-term credibility in policy is key in the transition, and this also speaks in favor of standards. Second, realizing this potential for the command-and-control approach requires attention to the institutional context in which such instruments are implemented, i.e., the entire set-up of the regulatory systems, including knowledge generation and transfer, social trust, and the forms of relationship between regulators and industry.JEL Classifications
- Q5 - Environmental Economics
- O0 - General