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assessing the economic impact of large

assessing the economic impact of large - Assessing the...

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Assessing the Economic Impacts of Large Scale Environmental Regulations in California By Peter Berck and H. Peter Hess Abstract California is a leader in the use of environmental regulation and is now considering unilateral measures to reduce greenhouse gasses and conventional pollution from automobiles and trucks. These measures range from the aggressive use of conventional technologies to increase mileage to the use of fuel cell cars. This chapter takes the availability and cost estimates of fuel reducing and pollution reducing technologies as given and investigates the economic (apart from environmental) costs and benefits. The method of analysis is to use a computable general equilibrium model of the California economy. Introduction This chapter presents the methodology and results of assessing the impacts of large scale environmental policies on the California economy. California has an economy approximately the size of France, yet being a state rather than a nation, it has no monetary policy and only limited scope for fiscal policy. As a state, it also does not have well measured trade, workforce, or capital flows. The effect of these factors on estimates of
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2 policy cost will be explained below. The chapter proceeds from methodological issues, to runs of the policy model, and finally to a discussion of the impact on openness on costs. The methodology employed is computable general equilibrium (CGE) modeling. CGE models are designed to capture the fundamental economic relationships between producers, consumers, and government. 1 The models are “computable” because numeric solutions are found using computers rather than solved for algebraically. They are “general” in the sense that all markets and all income flows in the economy are accounted for. They reflect “equilibrium” insofar as prices adjust to equilibrate the demand for and supply of goods, services, and factors of production (labor and capital). The specific models employed here are modified versions of E-DRAM (Environmental-Dynamic Revenue Analysis Model). E-DRAM was built for the California Environmental Protection Agency’s Air Resources Board (ARB) by researchers at the University of California, Berkeley (UCB). E-DRAM evolved from DRAM (Dynamic Revenue Analysis Model), which was developed jointly by the California Department of Finance (DOF) and Berkeley researchers to perform dynamic revenue analyses of proposed legislation as mandated by California State Senate Bill 1837 in 1994. The types of regulations considered for pollution control vary considerably. The ubiquitous target is the control of motor vehicle emissions. California was the pioneer in requiring lower emissions from passenger cars. Since there was no reasonable way for California to clean up its air and meet the requirements of the Clean Air Act while using the Federal standards for automobiles, California was (and is) permitted to set more stringent standards than the Federal standards. Success in reducing auto emissions matched with California’s continuing non-attainment requires further actions to clean up the air.
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