Emissions Trading: Principles and Practice, 2nd Edition, by T. H. Tietenberg
Enjoy this book review by Josh Markle ... (thanks Josh!):
Josh Markle is a graduate student in economics, a freelance writer, and a daily Env-Econ reader residing in Calgary, Alberta, Canada. He has recently re-entered the blogosphere (joshmarkle.typepad.com/blog) and is happy to entertain any of your comments and questions either there or through email ([email protected]).
The first edition of this text was published over twenty years ago in what must seem as the dark ages of its subject matter. As late as last month – the last time I tried to retrieve the first edition from my school library only to be dismayed by the dusty space it leaves on the bookshelf there – a vacuum existed where a newly updated edition should have sat. A second edition was needed badly and, though belated, its publication is welcomed with open arms.
The first chapter provides an interesting albeit brief account of historical attempts and failures to remedy the externality problem posed by pollution and the subsequent evolution of emission trading schemes. In the beginning economists and policymakers held very different beliefs about the means to achieving the same end. Economists followed A.C. Pigou, charging that the correct – read: cost-effective – way of remedying pollution was to tax the polluter an amount equal to the marginal social damage. Policy-makers, invariably perceiving a threat to their rent-seeking, shunned the Pigouvian method, insisting that the way to tackle polluters was a combination of command and control policies. It was not until 1960 that Ronald Coase started the two competing views on their path of reconciliation. Tietenberg saw fit to quote Coase at length, part of which I reproduce here since ideas are rarely expressed so succinctly*:
If factors of production are thought of as rights, it becomes easier to understand that the right to do something which has harmful effect … is also a factor of production. Just as we may use a piece of land in such a way as to prevent someone else from crossing it, or parking his car, or building his house upon it, so we may use it in such a way as to deny him a view or quiet or unpolluted air. The cost of exercising a right … is always the loss which is suffered elsewhere in consequence of the exercise of that right – the inability to cross land, to park a car, to build a house, to enjoy a view, to have peace and quiet or to breath clean air. (1960, 44)
It was revolutionary in that it recognized that regulation creates pollution rights, though they tend to be non-transferable. Transferability, argued Coase, meant that the right would be well-defined and that market forces could be used to allocate abatement.
Setting the stage philosophically in chapter one, Tietenberg follows it with a clear exposition of emissions trading schemes in the following chapter. This chapter is integral to the continuity of the text since the conceptual framework set forth in chapter two provides a context for interpreting the material that follows. The conceptual analysis – in terms of both rigour and presentation – is simple but illustrative. The reader is not relegated to an appendix filled with obscure mathematics; rather the mathematics is set forth within the text with concision and elegance. Another novel pedagogical tool that Tietenberg uses is in the exposition of different pollutants. Rather than put each type of pollutant into its own section, the reader is able to analyze and compare the theoretical arguments for uniformly and non-uniformly assimilative pollutants and uniformly accumulative pollutants without a loss of continuity. It is evident that Tietenberg had both the technically savvy and the lay reader in mind when penning the text, and succeeded in finding an appropriate compromise. This chapter also contains sections dealing with technical change, administrative costs, and transaction costs. The section on transaction costs – perhaps the most important aspect of any marked-based scheme – leads into discussions in the following chapter concerned with ex ante and ex post program evaluations. Supplementing this information is a current and representative list of empirical evaluations.
Tietenberg then goes on to offer six chapters concerning some of the more important aspects of making a pollutant market function effectively: chapter four deals with the spatial dimensions of trading, chapter five the temporal dimensions, chapter six with the importance of initial allocation, chapter seven with the effects of market power, chapter eight with the difficulties of monitoring and enforcement, and a final summary chapter. The chapters on the spatial and temporal dimensions of pollutant trading programs clearly lay out the important concepts and problems. The material discussing initial allocation – tallying to a mere fifteen pages – can at best be described as a pointer to some of the broad ideas within a vast and complex literature. It is without substance in terms of mathematical exposition – though this is a book on emissions trading programs and not game theory. The same can be said for the following chapter on market power: a useful map for the general problems, but without theoretical rigour. This, however, is not necessarily an objection. Tietenberg sacrifices material that is easily accessible in other texts – easier still with the extensive bibliography appended to this edition – for the sake of brevity. His sacrifice is rewarded with a readable and focused text.
The final chapter, like any good text of a narrow subject, summarizes the preceding material. Structured within a series of “lessons,” Tietenberg provides the reader with the important points made in each section of the book and characterizes the state of current research within the discipline. This section caps – forgive the pun – an enlightening and informative book. It is with hope that the third edition is not twenty years coming.
-- Joshua R. Markle
*Coase, R. 1960 The Problem of Social Cost. Journal of Law and Economics 3 (October): 1-44. Note that I quote Coase at greater length in this specific instance than does Tietenberg.
