Department of Agricultural &
UC Berkeley email@example.com Environmental policy instruments
• Tax on emissions
• Regulatory limit on emissions
• Cap and trade
– Fixed limit on aggregate emissions
– Individual firms have their individual limits but they can buy and sell emission permits from one another for a market price
It combines features of both other approaches.
It is a limit on aggregate emissions but, for any individual firm, it functions more like a tax
(there is an opportunity cost of emitting).
• Environmental taxes
– What they are
– Why they can be a good idea
– Who uses them
– What the experience in Europe has been
• Greenhouse gas (GHG) reduction
– AB32 and other actions in California
– Past experience with emission
– Why GHGs are different than other pollutants
– A mixed approach is needed for GHGs
• Starts ~1970 in US with regulation of emissions. Generally starts later (1980s) in
Europe; initial efforts there often follow US regulatory pattern.
• 1990 Clean Air Act Amendment in US introduces emission trading for SO2 and, later, NOx.
• Starting ~1990, European countries introduce environmental taxes – not only
Scandinavia and Germany, where green parties are strong, but also many Southern and Eastern European countries.
Types of environmental tax
• Gasoline tax
• Carbon tax
– Sweden, Norway, Denmark, Finland, Italy, the
• Sulfur tax
– Sweden, Norway, Denmark, Poland, Italy,
France, Switzerland, Spain, Finland, Bulgaria,
Czech, Hungary, Estonia, Lithuania, Slovakia
• Nitrogen tax
– Sweden, Bulgaria, Czech, Estonia, France,
Hungary, Italy, Lithuania, Poland
Other (local) taxes
• Water pollution discharge charge
– France, Germany, Netherlands
• Waste/Landfill charge
– Denmark, Netherlands, Finland, Estonia, Latvia,
• Garbage disposal/recycling charge
• Congestion pricing
– Singapore, Stockholm, London, Bergen, Valletta,
Milan, German & Austria (trucks)
• Taxes on chlorinated solvents (Denmark,
Norway), batteries (Sweden), non-refillable containers (Sweden, Finland), ozone-depleting substances (Denmark), VOCs (Switzerland,
Recycling green tax revenues
Environmental tax dividends
• Leads to a reduction in pollution emissions
• Raises revenues that could be used to lower other taxes that cause distortions in the economy (revenue recycling effect)
• But, also interacts with existing taxes that create distortions in the economy and may exacerbate the effects of those distortions
– substituting a narrow-base tax for a broad-base one.
• The magnitude of a harmful tax-interaction effect is questionable.
– Alleged pathway – pollution tax makes commodities more expensive, reduces real wage and encourages a reduction in labor supply, which generates an increased distortion – is questionable empirically.
– Analysis assumes that emissions can only be reduced by reducing production of offending good – not by changing production technology.
– Analysis assumes that pollution itself has no adverse impact on consumption or production of commodities. If this is false, the adverse taxinteraction effect can be reversed.
Climate change policy
California’s 2006 GHG laws
• AB 32, places a cap on all GHG emissions in California; requires that, by 2020, these be reduced to their 1990 level, a reduction of ~29%.
• SB 1368 Prohibits any load-serving entity from entering into long-term financial commitment for baseload generation unless GHG emissions are less than from new, combined-cycle natural gas. Applies to out-of-state generators, also to municipals. 19
Electricity Initiatives in California
• Emission Performance Standard for New