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Flexible mandates for investment in new technology

Publication ,  Journal Article
Patino-Echeverri, D; Burtraw, D; Palmer, K
Published in: Journal of Regulatory Economics
October 1, 2013

Environmental regulators often seek to promote forefront technology for new investments; however, technology mandates are suspected of raising cost and delaying investment. We examine investment choices under an inflexible (traditional) emissions rate performance standard for new sources. We compare the inflexible standard with a flexible one that imposes an alternative compliance payment (surcharge) for emissions in excess of the standard. A third policy allows the surcharge revenue to fund later retrofits. Analytical results indicate that increasing flexibility leads to earlier introduction of new technology, lower aggregate emissions and higher profits. We test this using multi-stage stochastic optimization for introduction of carbon capture and storage, with uncertain future natural gas and emissions allowance prices. Under perfect foresight, the analytical predictions hold. With uncertainty these predictions hold most often, but we find exceptions. In some cases investments are delayed to enable the decision maker to discover additional information. © 2013 Springer Science+Business Media New York.

Duke Scholars

Published In

Journal of Regulatory Economics

DOI

ISSN

0922-680X

Publication Date

October 1, 2013

Volume

44

Issue

2

Start / End Page

121 / 155

Related Subject Headings

  • Economics
  • 3801 Applied economics
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
 

Citation

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Patino-Echeverri, D., Burtraw, D., & Palmer, K. (2013). Flexible mandates for investment in new technology. Journal of Regulatory Economics, 44(2), 121–155. https://doi.org/10.1007/s11149-013-9220-0
Patino-Echeverri, D., D. Burtraw, and K. Palmer. “Flexible mandates for investment in new technology.” Journal of Regulatory Economics 44, no. 2 (October 1, 2013): 121–55. https://doi.org/10.1007/s11149-013-9220-0.
Patino-Echeverri D, Burtraw D, Palmer K. Flexible mandates for investment in new technology. Journal of Regulatory Economics. 2013 Oct 1;44(2):121–55.
Patino-Echeverri, D., et al. “Flexible mandates for investment in new technology.” Journal of Regulatory Economics, vol. 44, no. 2, Oct. 2013, pp. 121–55. Scopus, doi:10.1007/s11149-013-9220-0.
Patino-Echeverri D, Burtraw D, Palmer K. Flexible mandates for investment in new technology. Journal of Regulatory Economics. 2013 Oct 1;44(2):121–155.
Journal cover image

Published In

Journal of Regulatory Economics

DOI

ISSN

0922-680X

Publication Date

October 1, 2013

Volume

44

Issue

2

Start / End Page

121 / 155

Related Subject Headings

  • Economics
  • 3801 Applied economics
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics