While technology mandates impose requirements directly on the production process, performance
standards require that a firm’s output meet certain conditions. Examples include
maximum emission rates per kilowatt-hour of electricity, energy efficiency standards for
buildings or household appliances, and fuel-economy requirements for new cars.7
Rather than dictate the specific technique for reducing pollution (or improving energy efficiency),
performance standards grant firms flexibility in choosing how to meet the standard.
For example, power plants can satisfy maximum allowable emission rates through various
combinations of fuel-switching and postcombustion scrubbing, and they canmeet renewable
portfolio standards by relying more on wind, solar, hydro, and possibly nuclear generation.
Auto manufacturers can improve fuel-economy through their chosen combinations of reducing
vehicle size, using lighter materials, changing car-body design, and advanced engine
technologies. Because they offer greater flexibility, performance standards generally aremore
cost-effective than specific technology mandates.
As with technology mandates, performance standards fail to exploit optimally the outputreduction
channel. Again, firms are not charged for their remaining emissions, which implies
lower output prices than under a comparable emission pricing policy, and over-reliance on
reducing the emissions intensity of production either through input-substitution or postcombustion
While technology mandates impose requirements directly on the production process, performancestandards require that a firm’s output meet certain conditions. Examples includemaximum emission rates per kilowatt-hour of electricity, energy efficiency standards forbuildings or household appliances, and fuel-economy requirements for new cars.7Rather than dictate the specific technique for reducing pollution (or improving energy efficiency),performance standards grant firms flexibility in choosing how to meet the standard.For example, power plants can satisfy maximum allowable emission rates through variouscombinations of fuel-switching and postcombustion scrubbing, and they canmeet renewableportfolio standards by relying more on wind, solar, hydro, and possibly nuclear generation.Auto manufacturers can improve fuel-economy through their chosen combinations of reducingvehicle size, using lighter materials, changing car-body design, and advanced enginetechnologies. Because they offer greater flexibility, performance standards generally aremorecost-effective than specific technology mandates.As with technology mandates, performance standards fail to exploit optimally the outputreductionchannel. Again, firms are not charged for their remaining emissions, which implieslower output prices than under a comparable emission pricing policy, and over-reliance onreducing the emissions intensity of production either through input-substitution or postcombustion
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