Conference Agenda

Conventional economic reasoning suggests that linking cap-and-trade programs creates efficiency gains by lowering costs while holding emissions constant. When cap-and-trade programs have price floors or ceilings, however, linking may increase emissions and decrease welfare. I investigate this phenomenon within California and Québec, where cap-and-trade linkage increased emissions by 17.5 million tons CO2e and reduced welfare by $331 million annually -- an outcome that was ex-ante foreseeable. A reformed linked market could have remained emissions-neutral while instead increasing welfare by up to $32 million annually. I argue that political and institutional frictions prevented such reforms from being implemented and propose that policy makers prioritized cutting emissions cheaply over equating marginal damages and benefits. Given these constraints, linking with trading ratios remains incentive-compatible and recovers over three-fifths of potential emissions-neutral welfare gains.

While subsidies for new electric vehicles (EVs) are widely implemented, the recent introduction of subsidies for second-hand EVs in several countries raises questions about their economic justification. We develop a theoretical model that incorporates both vertical (vintage) and horizontal (fuel-type) differentiation in consumer preferences to analyze the efficiency of various policy instruments. We show that: (i) subsidies cannot replicate the efficient outcome of a Pigouvian tax, contrary to conventional wisdom; (ii) subsidies for new and second-hand EVs act as complements rather than substitutes in accelerating fleet decarbonization; and (iii) subsidies for new EVs should decline over time as the second-hand market develops. Using city-level data from the 2019 and 2021 French car fleet and a random coefficient logit model, we estimate consumer preferences and find a strong inclination toward newer models but limited substitution across fuel types. We run counterfactual analysis to quantify the fleet and welfare outcomes of different policy scenarios. Our findings support the theoretical propositions.

We study the effects of different market structures and climate policy instruments on fossil fuel extraction and green energy capacity paths. The representative green energy firm invest in green capacity and delivers green energy at zero marginal costs. If the initial capacity level is sufficiently low, extraction decreases and green energy capacity over time. In case of a price-taking fossil fuel firm, energy consumption decreases over time until extraction ends. While a carbon tax reduces initial extraction, a green capacity or investment subsidy induces the weak green paradox in case of physical exhaustion. In case of a monopolistic fossil fuel firm, we identify two strategic effects: The well-known market power effect which postpones extraction, and a capacity investment effect which postpones green investment. In an empirically calibrated economy, these two effects cause energy consumption to rise initially, then remain virtually constant for a long time before falling sharply at the end of the extraction period. We find that neither a carbon tax nor a green capacity or investment subsidy induces the strong green paradox. Finally, while subsidies perform much worse than carbon taxes in terms of welfare, they imply much higher profits for the fuel firm with comparable climate damages, whether the firm is price-taking or monopolistic.

In this paper we examine how the form of environmental regulation affects the size and structure of cities. In particular, we examine the differential impacts of point source emissions standards and emissions taxes with a model of a linear city with endogenous business, residential and mixed areas. Given a fixed city size and city structure, optimal location-specific emissions standards and taxes are duals of each other. However, with free in- and out-migration we show that standards and taxes can have differential impacts on the size and structure of cities, with consequences for equilibrium distributions of pollution damage, emissions control, land rents, and wages.