Carolyn Fischer

• PhD
• Professor at Vrije Universiteit Amsterdam

A well-known principle in public economics states that at least as many policy instruments as market failures are required to achieve an efficient outcome. In practice, however, regulatory power is often constrained, making implementing the first-best policy portfolio difficult or impossible. We analyze analytically and numerically how available po...

EU–Biodiesel (Indonesia) is the latest in two lines of cases. On the one hand, the case offers yet another example of the Dispute Settlement Body striking down creative interpretations of antidumping rules by developed countries. Applying the Appellate Body's decision in EU–Biodiesel (Argentina) , the panel found that the EU could not use antidumpi...

Tinbergen's seminal work showed that we need as many policy instruments as there are market failures to address. In practice, however, regulatory power is often constrained, making it difficult or impossible to implement the first-best policy portfolio. We analyze analytically and numerically how available policy instruments should be adjusted vis-...

Several years of very low allowance prices in the EU emissions trading scheme (ETS) have motivated calls to introduce a price floor to correct potential underlying distortions and design flaws, including (i) the political nature of allowance supply and related credibility issues, (ii) potential myopia of market participants and firms, and (iii) wat...

Ecolabels are widely used to inform markets about credence attributes of products. We present the first analysis of ecolabel competition that allows labels to have multiple tiers (e.g., silver/gold/platinum). For either an industry association or an NGO sponsor in autarky, binary labels are preferred when a large enough share of producers have a lo...

Policymakers are often reluctant to implement strong carbon pricing for fear of disadvantaging domestic industries and offshoring emissions-intensive activities. Border carbon adjustment (BCA) would address such carbon leakage concerns by using trade measures to ensure that products from foreign producers facing lower (or no) carbon prices are on e...

Today, more than ever, ‘Spaceship Earth’ is an apt metaphor as we chart the boundaries for a safe planet¹. Social scientists both analyse why society courts disaster by approaching or even overstepping these boundaries and try to design suitable policies to avoid these perils. Because the threats of transgressing planetary boundaries are global, lo...

For most governments looking to implement climate policy—and for interest groups looking to influence it—the effect of unilateral greenhouse gas regulation on employment, production, and emissions represents an overarching concern. Critical to improving analysis of climate policy, implications for energy-intensive, trade-exposed sectors are better...

If one jurisdiction regulates power plant emissions with a cap-and-trade (mass) program and another with an intensity (rate) standard, is it a good idea for them to link? Specifically, what effects does introducing electricity and rate-mass allowance trade between differently-regulated regions have on emissions and ultimately welfare? We explore th...

In many regions, renewable energy targets are a primary decarbonization policy. Most of the same jurisdictions also subsidize the manufacturing and/or deployment of renewable energy technologies, some being sufficiently aggressive as to engender WTO disputes. We consider a downstream energy-using product produced competitively but not traded across...

Keeping temperature change below 2° C will require leaving large reserves of fossil fuels unextracted. We assess alternative policies to achieve this goal in a world divided into two regions, one regulated with emissions pricing and one unregulated, supplied by multiple resource pools with different extraction costs and a carbon-free backstop whose...

Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide j...

Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage, which hampers countries’ welfare. In order to limit leakage, governments consider supporting domestic trade-exposed firms by subsidizing their investments in abatement technology. The suppliers of such technologie...

In the first dispute on renewable energy to come to WTO dispute settlement, the domestic content requirement of Ontario's feed-in tariff was challenged as a discriminatory investment-related measure and as a prohibited import substitution subsidy. The Panel and Appellate Body agreed that Canada was violating the GATT and the TRIMS Agreement. But th...

Carbon leakage occurs when attempts to reduce greenhouse gas emissions drive markets to respond in ways that allow emissions to expand elsewhere. Much attention has been paid to carbon leakage across space, particularly the emissions response of trading partners with weaker climate policies. However, carbon leakage can also occur over time, as the...

A detailed and rigorous analysis of the effect of climate policies on climate change that questions the empirical and theoretical support for the “green paradox.” Recent developments suggest that well-intended climate policies—including carbon taxes and subsidies for renewable energy—might not accomplish what policy makers intend. Hans-Werner Sinn...

Myriad policy measures aim to reduce greenhouse gas emissions from the electricity sector, promote generation from renewable sources, and encourage energy conservation. To what extent do innovation and energy efficiency (EE) market failures justify additional interventions when a carbon price is in place? We extend the model of Fischer and Newell (...

In the first dispute on renewable energy to come to WTO dispute settlement, the domestic content requirement of Ontario’s feed-in tariff was challenged as a discriminatory investment-related measure and as a prohibited import substitution subsidy. The panel and Appellate Body agreed that Canada was violating the GATT and the TRIMS Agreement. But th...

Environmental economics has traditionally fallen in the domain of microeconomics, but recently approaches from macroeconomics have been applied to studying environmental policy. We focus on two macroeconomic tools and their application to environmental economics. First, real business cycle models can incorporate pollution and pollution policy and b...

When governments take strong unilateral action on climate change they will always consider border carbon adjustment (BCA) as a means to deal with competitiveness and leakage issues. But while this tool appears straightforward, it is plagued by deeply complex problems in practice, including trade law considerations, methodological challenges and con...

Climate policymaking faces twin challenges of carbon leakage and public sector revenue requirements. A large literature advocates the use of carbon dioxide (CO2) pricing and recycling the revenues to lower distorting taxes as a way to minimize costs. In this paper, we explore the implications of labor tax interactions for the cost-effectiveness of...

Efforts to limit cumulative emissions over the next century may be partially thwarted by the responses of fossil fuel suppliers. Current price-cost margins for major reserves are ample, leaving scope for significant price reductions if climate policies reduce demand for fossil fuels through conservation or substitution to clean alternatives. Most m...

We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects mar...

Stabilizing global greenhouse gas concentrations at levels to avoid significant climate risks will require massive "decarbonization" of all the major economies over the next few decades, in addition to the reduced emissions from other GHGs and carbon sequestration. Achieving the necessary scale of emissions reductions will require a multifaceted po...

We use economic analysis to evaluate grandfathering, auctioning, and benchmarking approaches for allocation of emissions allowances and then discuss practical experience from European and American schemes. In principle, auctions are superior from the viewpoints of efficiency, fairness, transparency, and simplicity. In practice, auctions have been o...

Output-based refunding of environmental policy revenues combines a tax on emissions with a production subsidy, typically in a revenue-neutral fashion. With imperfect competition, subsidies can alleviate output underprovision. However, when market shares are significant, endogenous refunding reduces abatement incentives and the marginal net tax or s...

The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. In particular, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of carbon dioxide (CO2) emissions in industrialized countries entails the reduction of their ener...

Given the bleak prospects for a global agreement on coordinated policies to mitigate climate change, political pressure is increasing among industrialized countries for unilateral abatement. A major challenge thereby is the appropriate response to the threat of emissions leakage. Border carbon adjustments and output-based allocation of emissions al...

The production of traded goods accounts for a significant proportion of global greenhouse-gas emissions. Now analysis reveals that emissions embodied in imports from developing countries have out-stripped emission reductions made by developed countries at home over the past 20 years.

We review the proposed measures for addressing competitiveness and carbon leakage concerns in recent US climate policy legislation. For eligible energy-intensive, trade-exposed sectors, output-based rebates would initially dampen cost increases; later, border adjustments would ensure that imports face comparable cost burdens. Both measures can in t...

For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects...

This paper formulates a bio-economic model to analyze community incentives for wildlife management under benefit-sharing programs like the Communal Areas Management Programme for Indigenous Resources (CAMPFIRE) in Zimbabwe. Three agents influence the wildlife stock: a parks agency determines hunting quotas, outside poachers hunt illegally, and a lo...

This study explores the role of market power on the cost-effectiveness of policies to address fuel consumption. Market power gives manufacturers an incentive to under- (over-) provide fuel economy in classes whose consumers, on average, value it less (more) than in others. Adding a second market failure in consumer valuation of fuel economy, a poli...

Trade exerts important influences on the exploitation and protection of natural resources. Indeed, recognition of this influence is codified in the General Agreement on Tariffs and Trade, which allows exceptions to treaty obligations for measures "relating to the conservation of exhaustible natural resources," motivates the Convention on Internatio...

The spread of invasive species (IS) is an inherently spatial process, and management of invasive species occurs over spatially heterogeneous regions, but policy constraints can restrict management responses to be homogeneous across regions. Using a spatial bioeconomic model that includes a representation of invasive species ecology based on heterog...

Individual OECD countries are in the process of legislating responses to the challenges posed by climate change. The prospect of rising carbon prices raises concerns in these nations of the impacts on the competitiveness of their own energy intensive industries and the potential for carbon leakage, particularly to emerging economies that lack compa...

This article discusses automobile fuel economy standards in the United States and other countries. We first describe how these programs affect the automobile market, including impacts on fuel consumption and other dimensions of the vehicle fleet. We then review two different methodologies for assessing the costs of fuel economy programs--engineerin...

Since the energy crisis in the 1970s and later the growing concern for climate change in the 1990s, policymakers at all levels of government and around the world have been enthusiastically supporting a wide range of incentive mechanisms for electricity from renewable energy sources (RES-E). Motivations range from energy security to environmental pr...

It is common wisdom that open-access leads to the inefficient use of resources and private ownership of resources improves efficiency. However, the impact of enclosure and efficient management of some resource pools on other open-access resource pools is poorly recognized. The problem is common to many congestion-prone facilities including roads, p...

Stabilizing greenhouse gas concentrations requires limiting cumulative emissions over the next century. Yet efforts to do so may be offset by emissions leakage, not only between countries but over time. Current price-cost margins for some of the world's largest reserves are considerable, so there is ample scope for price reductions if clean substit...

The Canadian and American economies are inextricably intertwined through trade. As the two countries debate plans to curb greenhouse gas (GHG) emissions, policymakers in both countries must consider how emissions policies, such as an emissions trading system that sets economy-wide limits on GHG emissions and allows firms to trade GHG emissions perm...

Some studies of renewable portfolio standards find that regulations increase electricity generation costs; others find that the reduced demand for nonrenewable energy sources lowers natural gas prices and that electricity prices follow. This paper presents reasons for why these predictions can vary in the direction as well as the magnitude of their...

Executive summary Despite uncertainties about the nature and stringency of commitments in future climate change agreements, some things are clear: the international negotiations not only will include national targets and timetables, but also will have to take account of diverse policies and measures undertaken by individual nations, including devel...

Emissions regulations like carbon pricing raise the price of covered sector goods and thus can interact with and exacerbate other preexisting distortions in the economy. One such distortion is labor taxes. Another is emissions "leakage" due to the lack of comparable emissions pricing abroad or among other emitting sectors at home. A potential respo...

In addressing the problem of invasive species, decision makers have a variety of options, each targeting different aspects as it evolves over time and space. We develop a 2-region bioeconomic model that includes several transmission pathways that spread the invader. Within each region, inspections, removal efforts, and sustainable land management p...

We explore conditions determining which anti-leakage policies might be more effective complements to domestic greenhouse gas emissions regulation. We consider four policies that could be combined with unilateral emissions pricing to counter effects on international competitiveness: a border tax on imports, a border rebate for exports, full border a...

We study markets in which consumers prefer green products but cannot determine the environmental quality of any given firm's product on their own. A nongovernmental organization (NGO) can establish a voluntary standard and label products that comply with it. Alternatively, industry can create its own standard and label. We compare the stringency of...

This paper investigates the potential for systematic errors in the Energy Information Administration's (EIA) widely used Annual Energy Outlook, focusing on the near- to mid-term projections of energy demand. Based on analysis of the EIA's 22-year projection record, we find a fairly modest but persistent tendency to underestimate total energy demand...

Since 1975, the Corporate Average Fuel Economy (CAFE) program has been the main policy tool in the US for coping with the problems of increasing fuel consumption and dependence on imported oil. The program mandates average fuel economy requirements for the new vehicle sales of each manufacturer's fleet, with separate standards for cars and light tr...

In a second-best world of below-optimal pollution pricing, the public return to R&D may be greater than under Pigouvian pricing, due to excess benefits of increasing abatement, or it may be lower, since private actors lack the incentives to take full advantage of the new, cleaner technologies. This paper uses a simple model to demonstrate the inter...

Much discussion has surrounded possible alternatives for international agreements on climate change, particularly post-2012. Among these alternatives, technology-oriented agreements (TOAs) are perhaps the least well defined. We explore what TOAs may consist of, why they might be sensible, which TOAs already exist in international energy and environ...

This paper investigates the potential for systematic errors in the Energy Information Administration’s (EIA) widely used Annual Energy Outlook, focusing on the near- to midterm projections of energy demand as measured in physical quantities. Overall, based on an analysis of the EIA’s 22-year projection record, we find a fairly modest but persistent...

This paper develops analytical and numerical models to explain and estimate the welfare effects of raising Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles. The analysis encompasses a wide range of scenarios concerning consumersÕ valuation of fuel economy and the full economic costs of adopting fuel-saving technologies. It...

Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an “unlevel playing field” with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector, combining a theoretical appr...

The allocation of tradable emissions permits has important efficiency as well as distributional effects when tax and trade distortions are taken into account. We compare different rules for allocating carbon allowances within sectors (lump-sum grandfathering, output-based allocation (OBA), auctioning) and among sectors (historical emissions or valu...

Some studies of renewable portfolio standards find that regulations increase generation costs; others find that reduced demand for nonrenewable energy sources lowers natural gas prices and that electricity prices follow. This paper presents reasoning for why these predictions can vary in the direction as well as in the magnitude of their effects. T...

Many studies have shown that the activities of multinational corporations are quite sensitive to differences in income tax rates across countries. In this paper, I explore the interaction between multinational taxation and abatement activities under an international emissions permit trading scheme. Four types of plans are considered: (1) a single d...

Project-based mechanisms for emissions reductions credits, like the Clean Development Mechanism, pose important challenges for policy design because of several inherent characteristics. Participation is voluntary, so it will not occur without sufficient credits. Evaluating reductions requires assigning an emissions baseline for a counterfactual tha...

The forestry industry provides a good illustration of the active roles that industry associations, environmental nongovernmental organizations (NGOs), national governments, and international organizations can play in developing and promoting codes of conduct that are formally sanctioned and certified. It also reflects some of the challenges of diss...

This paper explores the problem of sequential exploitation of exhaustible resources by a monopolist, when a setup cost must be incurred to access the next pool. Under certain circumstances, the monopolist will always follow a more conservationist path of extraction and delay the introduction of new resource pools compared to a social planner. Howev...

This paper formulates a bioeconomic model to analyze community incentives for wildlife management under benefit-sharing programs like the Communal Areas Management Programme for Indigenous Resources (CAMPFIRE) in Zimbabwe. Two agents influence the wildlife stock: a parks agency determines hunting quotas, and a local community chooses to either aid...

In a developing country context, a policy to promote adoption of common environmental content for corporate codes of conduct (COCs) aspires to meaningful results on two fronts. First, adherence to COC provisions should offer economic benefits that exceed the costs of compliance; i.e., companies must receive a price premium, market expansion, effici...

This paper analyzes the impact on exhaustible resource markets of setup costs, a sparsely analyzed category of nonconvex production technologies. This paper proves that, even under idealized circumstances for competition, a competitive equilibrium will fail to exist in the presence of setup costs, for any utility and cost functions such that a plan...

We discuss how the structure of market supply affects the evaluation of policies to promote energy efficiency in household appliances. If competitive markets offer the levels that consumers demand, product standards inefficiently restrict choice. If suppliers price discriminate, minimum standards can restrict the inefficient use of energy intensity...

This paper develops analytical and numerical models to explain and estimate the welfare effects of raising Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles. The analysis encompasses a wide range of scenarios concerning consumers’ valuation of fuel economy and the full economic costs of adopting fuel-saving technologies. It...

Abstract The choice of mechanism for allocating tradable emissions permits has important efficiency and distributional effects when tax and trade distortions are considered. We present different rules for allocating carbon allowances within sectors (lump-sum grandfathering, output-based allocation [OBA], and auctioning) and among sectors (historica...

Some environmental policies focus on emissions intensity rather than total emissions, or they try to mitigate the regulatory impact on the final product market. To analyze the effects of these policies, or to evaluate the distributional effects of any regulation on consumers and producers, output must be incorporated explicitly into an economic mod...

We assess different policies for reducing carbon dioxide emissions and promoting the innovation and diffusion of renewable energy. We evaluate the relative performance of policies according to incentives provided for emissions reduction, efficiency, and other outcomes. We also assess how the nature of technological progress through learning and R&D...

Policies to promote energy efficiency in household appliances have different impacts, depending on the structure of market supply. If provision is perfectly competitive, markets will offer the variety of energy efficiency levels that consumers demand. However, if producers can price discriminate, using energy intensity to help segment consumer dema...

Trade has become the main mode of transport for many invasive species, including diseases and agricultural pests. Most species are brought to their new homes unintentionally, which constitutes a market failure rooted in international trade. Unless it is practical to drive invasion risk to zero, the external costs may justify a tariff. In this paper...

Although much has been written about monopoly extraction of natural resources, the case of a resource being sold in two separate markets has escaped notice. We find that a monopolist facing two different iso-elastic demand schedules extracts more rapidly than the social planner, whether or not arbitrage prevents price discrimination between markets...

For the mitigation of long-term pollution threats, one must consider that both the process of environmental degradation and the switchover to new and cleaner technologies are dynamic. We develop a model of a uniform good that can be produced by either a polluting technology or a clean one; the latter is more expensive and requires investment in cap...

The Asian Development Bank has sponsored research on market-based instruments for managing pollution in Metro Manila, Philippines, where air quality is seriously degraded. This report offers three policy options for reducing particulate emissions and their precursors. For stationary sources, we recommend an emissions fee that creates efficient fina...

Estimates of marginal abatement costs for reducing carbon emissions derived from major economic-energy models vary widely. Controlling for policy regimes, we use meta-analysis to examine the importance of structural modeling choices in explaining differences in estimates. The analysis indicates that particular assumptions about perfectly foresighte...

Rate-based emissions policies (like tradable performance standards) fix average emissions intensity, while cap-and-trade policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are...