Caparrós A., Just R.E. & Zilberman D. (2015) Dynamic relative standards versus emission taxes in a putty-clay model. Journal of the Association of Environmental and Resource Economists 2(2): 277-308

Abstract. The paper derives the dynamics of pollution taxes and relative standards—which set bounds on emissions per unit of output—and the resulting optimal replacement of capital goods in a vintage model under the putty-clay assumption. Comparing policies that are constrained by the same aggregate pollution target level, the productive life of capital is longer under dynamic relative standards, as the variable cost of pollution imposed on aging capital is lower.