UFZ Discussion Papers - Department of Economics 1/2021 Managing the Spatial Externalities

Further, we find that the impact of cumulative environmental ef fects on the welfare costs of a uniform regulation primarily depends on the heterogeneity of region-specific generation cost and social cost parameters and on the size and direction of cumu lative effects. [...] To sum up, in case A, the impact of cumulative environmental effects on the welfare differen tial between the two regulatory designs depends both on the heterogeneity in generation cost and social cost parameters and on the sign and size of k. [...] In both cases A and B, the impact of cumulative environmental effects on the welfare dif ferential between a spatially-differentiated and a uniform instrument depends on the sign of the cumulative effect k. [...] Only based on this knowledge, it is possible to derive the regional concentration of electricity generation for a spatially-differentiated and spatially-uniform instrument in the absence of cumulative environmental effects, and thus the sign and size of the value of cumulative effects for which the welfare differential is minimal kmin. [...] Third, to determine the impact of cumulative environmental effects on the welfare deficit of a spatially-uniform instrument, information on both, the level of cumulative environmental effects and the value of k0 is essential.