Policy spillovers in the regulation of multiple pollutants

Résumé

We analyze the interplay between policies aimed to control transboundary and local pollu- tants such as greenhouse gases and particulate matter. The two types of pollution interact in the abatement cost function of the polluting firms through economies or diseconomies of scope. They are regulated by distinct entities, potentially with different instruments that are designed according to some specific agenda. We show that the choice of regulatory instrument and the timing of the regulations matter for efficiency. Emissions of the local pollutant are distorted if the regulators anticipate that transboundary pollution will later be regulated through emission caps. The regulation is too stringent with diseconomies of scope, and not enough with economies of scope. In contrast, we obtain efficiency if the transboundary pollutant is regulated by tax provided that the revenues from taxing emissions are redistributed to the local communities in a lump-sum way.

Mots-clés

environmental regulation; transboundary pollution; multiple-pollutants; policy spillovers; emission tax; emission standard; emissions trading;

Codes JEL

D62: Externalities
H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
Q50: General
Q53: Air Pollution • Water Pollution • Noise • Hazardous Waste • Solid Waste • Recycling
Q54: Climate • Natural Disasters • Global Warming
Q58: Government Policy