The social costs of second-best policies: Evidence from agricultural GHG mitigation

Garnache, Cloé; Mérel, Pierre; Lee, Juhwan; Six, Johan

doi:10.1016/j.jeem.2016.10.004

Cited by 14 publications

(13 citation statements)

References 65 publications

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“…The empirical application covers a large and diverse agricultural sector. This contrasts with previous studies of GHG mitigation in agriculture that have focused on narrower areas and/or a limited set of activities and mitigation options (Dakpo et al, 2016;Garnache et al, 2017;Pellerin et al, 2017).…”

Section: Introductionmentioning

confidence: 65%

“…3 The resulting limitation of inter-sectoral flexibility raises concerns about the possibility of meeting the ambitious EU mitigation targets in a cost-effective manner (Tol, 2009;De Cara and Vermont, 2011;European Environment Agency, 2017b). Second, agricultural GHG emissions result from a large number of heterogeneous farms, which makes monitoring costly (Garnache et al, 2017), a fact that has been used as a justification for excluding agricultural GHG emissions from the scope of climate policy in Europe (Ancev, 2011). Third, many provisions in the Common Agricultural Policy (CAP) are already based on a differentiated treatment of small and large farms.…”

Section: Introductionmentioning

confidence: 99%

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Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs

Cara

Henry

Jayet

2018

Journal of Environmental Economics and Management

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Environmental policies often include exemptions for some firms, e.g. the small emitters. This paper explores the implications of such exemptions in the case of an emission tax, and in the presence of monitoring, reporting, and verification (MRV) costs. We develop an analytical framework capturing the trade-off between the cost-effectiveness of a broader tax base, and the savings on MRV costs enabled by a partial coverage. Second-best partial coverage is defined by a threshold value of some characteristic of the firms below which firms are exempted. We characterize the optimal threshold and discuss its welfare implications. Since determining this threshold is demanding in terms of information regarding firm-level MRV and abatement costs, we show how limited knowledge about these costs at the aggregate level can be used in practice to approximate the optimal threshold. We apply this framework to assess the welfare implications of such an instrument in the case of greenhouse gas emissions from European agriculture. The findings indicate that exempting the small emitters may provide significant savings on MRV costs compared to the full coverage, while still incentivizing cost-effective reductions in emissions.

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Section: Introductionmentioning

confidence: 65%

Section: Introductionmentioning

confidence: 99%

Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs

Cara

Henry

Jayet

2018

Journal of Environmental Economics and Management

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“…While direct incentives such as pollution taxes would be more efficient instruments, they might not be feasible due to the impossibility to reliably attribute pollution to a particular source. This second-best feature is well-known to the literatures on GHG emissions from agriculture and forestry (e.g., Lubowski et al (2006); Garnache et al (2016)), water pollution from agricultural nutrient runoffs (e.g., Wu et al (2004); Rabotyagov et al (2014a)), or tailpipe emissions from vehicles (e.g., Fullerton and West (2002); Mérel et al (2014a)).…”

Section: Proposed Solutionmentioning

confidence: 77%

“…In other contexts where two actions may be taken together or in isolation, ki would take on three values: one for each single action and the third one for the combination of both. This reasoning also extends to sets of N continuous actions as in Kim and Langpap (2015) or Garnache et al (2016), as one can always map a subset of R N into R. The assumption that the functions ci be increasing and convex, although admittedly restrictive, ensures that second-best incentives lead to well-defined behavioral responses. Relaxing the convexity assumption, or allowing for a fixed cost of taking action, would lead to discontinuities in the behavioral responses to second-best incentives.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

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The Social Costs of Environmental Goods Provision: A Cautionary Guide to the Revealed-Preference Approach

Garnache¹,

Mérel²

2017

Journal of the Association of Environmental and Resource Econom

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Empirically estimated behavioral models have emerged as the preferred approach to revealing the social opportunity costs of pollution abatement in many areas of environmental economics. This paper identifies conceptual issues in the implementation of the revealed-preference approach to non-point source pollution and provides methods to overcome them. We focus on the common second-best setting where emissions are not measurable at the source and pollution reduction is incentivized indirectly through payments tied to practice adoption. First, we show through simulation that in discrete choice models estimated on micro data, the use of predicted opportunity costs provides an erroneous estimate of underlying abatement costs. We then focus on two metrics commonly used to represent the marginal social costs of abatement actions, namely average and marginal program expenditures incurred by the regulating agency. We show with the use of a theoretical model that these metrics generally fail to reveal underlying social costs, and illustrate the results using an agricultural greenhouse gas model calibrated to California conditions. For each issue, we offer easily implementable alternatives that yield correct abatement supply curves.

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Dairy pricing policy, production, and water quality: Application to the Chesapeake Bay watershed

Zhang

Abler

2023

J of Agr & App Econ Assoc

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This study assesses the economic and water quality impacts of implementing a dairy pricing policy under Federal Milk Marketing Order system designed to alleviate milk prices plummet occurred at the beginning of pandemic. Using a 12‐region, positive mathematical programing model of livestock production in the Chesapeake Bay watershed, we find that pricing policy induces significant expansions in dairy sectors, generates higher level of total net revenue in regions having large base‐period dairy sectors. For water quality, we find that policy leads to an increase in nitrogen emissions but a decrease in phosphorus emissions for the livestock industry as a whole in most studied regions.

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The social costs of second-best policies: Evidence from agricultural GHG mitigation

Cited by 14 publications

References 65 publications

Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs

Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs

The Social Costs of Environmental Goods Provision: A Cautionary Guide to the Revealed-Preference Approach

Dairy pricing policy, production, and water quality: Application to the Chesapeake Bay watershed

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