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Environmental Policy Design

Paper Session

Sunday, Jan. 9, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: Association of Environmental and Resource Economists
  • Chair: Jeffrey Shrader, Columbia University

The Efficiency of Tax Deductions for Charitable Donations Revisited: Evidence from Environmental Groups

Christian Langpap
,
Oregon State University
Laura Grant
,
Claremont McKenna College

Abstract

Donations to nonprofit organizations can be itemized as deductions on tax returns. Deductibility
makes giving less costly, but comes at the opportunity cost of forgone tax revenue. The
deduction is considered efficient if it generates at least as much in additional donations as the
government forgoes in revenue, or if the tax price elasticity of donations is at least one. Recent
estimates range from 2.3 to 4.6, suggesting the deduction is efficient.
This assumes that one additional dollar donated translates into an additional dollar of
public good provision. However, nonprofits may not be effective at converting donations into
public goods due to, for instance, dependence on non-contractible donations and competition
for donors. Hence, efficiency depends not only on additional donations, but also on the value
of the public goods produced by those donations. If an additional dollar donated generates
more than a dollar of public goods, the deduction can be efficient even if the elasticity is less
than one.
We reevaluate the efficiency of the tax deduction in the context of environmental
nonprofits producing water quality as a public good. First, we use a model of contributions to
environmental groups to estimate the price elasticity for donations. Second, we estimate a
model of water quality provision by nonprofits as a function of contributions. We use
monitor-level data on water quality and link groups with nearby monitors. Third, we use
estimates of the value of water quality improvements to calculate the value of the public good
generated by each additional dollar donated. Finally, we calculate the efficiency of the tax
deduction in terms of the change in value of public good produced relative to a change in the
price of giving, and compare this to the traditional measure. This provides a more accurate
measure of the efficiency of donation tax deductions.

Substitution between Clean and Dirty Energy with Directed Technical Change

Ara Jo
,
ETH Zurich

Abstract

Substitution between clean and dirty inputs and directed technical change lie at the center of leading economic analyses of optimal environmental policy designs. As primary driving forces of the directed technical change framework, the importance of the substitution elasticity between clean and dirty inputs and its influence on technical change are strongly emphasized in the literature. For instance, Acemoglu, Aghion, Bursztyn, Hemous (2012) demonstrate that it is possible to shift the direction of technical
change towards clean technologies and avert an environmental disaster with a temporary carbon tax, if clean and dirty inputs are highly substitutable. On the other hand, the shift would occur much more slowly and require more stringent climate policies, if the two inputs are less substitutable or complements. This illustrates that an optimal policy may depend sensitively on the degree of the substitution elasticity and
the direction and speed of technical change. Yet, empirical assessments of these two factors are scarce to date. In this paper, I extend the empirical literature and separately identify the elasticity of substitution and the bias in technical change within the energy aggregate. Using micro panel data, I nd estimates of the elasticity of substitution sufficiently above one. Moreover, largely dirty-energy-biased technical change observed in the data validates the framework of directed technical change widely applied in the large sustainable growth literature, given the historical movement of relative energy prices and the estimated elasticity of substitution above unity. However, I also find clear evidence of a shift in the path of innovation towards clean-energy-augmenting technologies in recent years. Using my estimates, I examine the increase in the relative share of clean energy, which suggests the importance of strong price signals in raising the share of clean energy in manufacturing firms.

Group Size and Marginal Abatement Cost Curves: Evidence from Food Waste Emission Tax Reforms

Seunghoon Lee
,
Massachusetts Institute of Technology
Hee Kwon Seo
,
World Bank

Abstract

This paper evaluates two reforms in the pricing of public environmental service across a metropolitan city, where the reforms were intended to reduce the city’s greenhouse-gas (GHG) footprint and the public-finance burden of waste treatment. The first reform encouraged residential blocks to switch their assessment of each household’s food-waste-emission-tax bill from a group-metered, equal-division regime to a household-metered regime. The second reform raised the posted unit-emission tax by 58 percent. We first find that the sub-metered billing induced a reduction of 32 percent, or 93 kg of food-waste emission per household-year, with the effect persisting for 6.8 years or until our data’s end. Second, we find that the subsequent posted-tax hike did not induce any emission reduction. Our estimate of the internal rate of return for the sub-metered-billing reform is 72 percent, with public waste-treatment savings and life-cycle GHG-emission savings contributing similarly to returns, while our estimates for the price elasticities of abatement are low: an arc elasticity of -0.18 and point elasticity of -0.06, converging to 0 over the domain of the second reform. It appears that the social return from the sub-metering of feedback combined with a small price incentive toward mitigation is high up to an extent, while the household abatement capacity is steeply constrained beyond a front-load return.

Ambient Pollution Mechanisms with Remote Sensing Technology: An Application to the Oil and Gas Industry

Mark Agerton
,
University of California-Davis
Bulat Gafarov
,
University of California-Davis
Ben Gilbert
,
Colorado School of Mines

Abstract

The oil and gas industry is the second-largest domestic source of anthropogenic methane emissions (28%) after agriculture.1 Because the global warming potential of methane is 84–87 times that of CO2 over 20 years, cutting methane emissions is a potent way to slow the rate of warming. Any market-based approach will require transparent measurement and attribution of emissions. Yet monitoring the entire natural gas value chain may be cost-prohibitive: there are nearly 1 million active wells in the U.S., and 2.6 million miles of pipelines. In this respect, methane resembles non-point-source (NPS) pollutants, such as nitrogen and phosphorus runoff in agriculture. Economists have developed a rich theoretical toolkit for reducing NPS emissions, and remote sensing, in particular, satellite-based measurements of methane emissions, may represent a key technology to enable NPS mechanisms.
In the first part of the paper, we adapt NPS mechanisms with endogenous monitoring (Millock, Sunding, and Zilberman 2002; Millock, Xabadia, and Zilberman 2012) and ambient pollution taxes (Holmstrom 1982; Segerson 1988; Horan, Shortle, and Abler 1998) to incorporate remote sensing technologies that allow for local ambient pollution measurements, with an application to the oil and gas industry. In our endogenous monitoring mechanism, firms can pay the local ambient charge based on satellite monitoring, or join a pool to share the costs of perfect monitoring for pool members, e.g., with aircraft-based remote sensing. Non-pool members are attributed a share of the net local ambient level that is endogenously determined as lower-emitting firms join the pool.

Discussant(s)
Garth Heutel
,
Georgia State University
Harrison Fell
,
North Carolina State University
Bhagyashree Katare
,
Purdue University
Jeffrey Shrader
,
Columbia University
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights
  • H2 - Taxation, Subsidies, and Revenue