1. Notes for Chapter 11 ECON 2390

2. 2 Ideally, standards should reflect a social efficient balance of MD and MAC What are the losses incurred when standards deviate from the socially efficient position (Hint – go back to the total costs associated with the polluter and pollutee)

3. 3 Standards Possible benefits 1. Conceptually simple 2. Can be targeted 3. Seems to offer immediate relief 4. Associates limits in the entity that causes the pollution (assigns blame) 5. Defines legal/illegal behaviour Possible Costs 1. Requires careful and costly drafting to target harms (lobbying) 2. Enforcement costs 3. Hard to define right level (different from 1) 4. May have unintended consequences (industry relocation)

4. 4 Types of standards Ambient Specifies level (average concentrations) Emission Point source control A form of performance standard Emissions and ambient standards are quite different The nature of the pollutant and the context determines which will work best.

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9. 9 Australian Labelling The Canadian EnerGuide Label 1.Average annual energy consumption of the appliance in kilowatt hours (kWh) 2.Energy efficiency of the appliance relative to similar models 3.Annual energy consumption range for models of this type and size 4.Type and size of the model 5.Model number

10. 10 The international ENERGY STAR symbol, displayed alone or as part of the EnerGuide label, identifies major electrical appliances that meet or exceed technical specifications designed to ensure that theyare among the most energy efficient in their class, without compromising performance. Consumer Reports on Energy Star http://www.consumerreports.org/cro/home-garden/resource- center/energy-star-has-lost-some-luster/overview/energy-star-ov.htm

11. 11 Figure : Typical steps in developing and administering labelling and standards programs Source: Wiel, S., & McMahon, J. (2005). Energy-efficiency labels and standards: A guidebook for appliances, equipment, and lighting (2nd edition). Washington, D.C.: Collaborative Labeling and Appliance Standards Program (CLASP). Retrieved from http://clasponline.org/clasp.online.resource.php?sbo=289

12. 12 The leap-frog model of voluntary labelling Figure : Effect of voluntary and regulatory measures on markets for appliances and equipment Source: Wiel, S., & McMahon, J. (2003). Governments should implement energy-efficiency standards and labels—cautiously. Energy Policy, 31(13), 1403–1415. Shift

13. 13 Incentive effects of new standards The key to interpreting this chart is to always understand that the area under a marginal curve is total (damages experienced or abatement costs). One can examine incentives by looking are differences in areas (labelled a – e). The socially efficient point under MAC1 is at 20. The total abatement costs are a+b, and the total damages are d+c+f. If the MAC falls to MAC2, the socially efficient point falls. Total damages decline to f, and the tot abatement costs become c+b. The affected party benefits since total damages decline, while it is not clear whether the polluter benefits – it depends on the net change in total abatement costs. (a+b) – (c+b) = a-c

14. 14 Compliance - enforcement The key point is that enforcing compliance always raises abatement costs. Compliance costs tend to increase the socially optimal level of emissions. Make sure you understand how the total costs are affected by compliance.

15. 15 Looking forward to Chapter 12

16. 16 An interesting relation between sales of SUVs and price of gas Notice how the sales and price move closely and inversely Small price reduction triggers sharp increase in sales Figure 2: U.S. passenger new vehicle shares and the real price of gasoline, 2004–2006 Prices are expressed in 2007 U.S. dollars per gallon (right axis), while vehicle shares are expressed in percentages (left axis). Source: Congress of the U.S. Congressional Budget Office (2008, fig. 2-2)