Efficient and Effective Climate Policies when Greenhouse Gases are Substitutes or Complements to Other Pollutants

The pre-project deals with environmental effectiveness and economic efficiency of climate policies when greenhouse gases (GHGs) are substitutes or complements to other environmental externalities. The project suggests a comprehensive treatment on interact ions among pollutants and takes up issues on GHGs and related emissions that have not been addressed. In particular, we focus on problems with overlapping regulations and cases where efficient multi-pollutant policies involve controlling only one or few p ollutants, in addition to considering impacts on environmental effectiveness of an integrated approach to regulating GHGs and related emissions. A successful multi-pollutant policy is only attainable when economic trade-offs between pollutants involved are fully understood. The project therefore sets the stage for methodological developments in microeconomic production analysis that are intended to produce new knowledge about the substitutability among GHGs and other externalities. Engineering estimates of substitutability will also be considered and synergies among the two disciplines will be emphasized. We draw a parallel between the issue of substitutability among pollutants and the economic concepts of economies of scale and scope. We expect that th ese concepts can provide valuable economic understanding about the way environmental regulations affect firm size, product composition, industry structure, technical change and competitiveness.