Moreover, these policies do not optimally utilize the output-reduction channel. Although
the price of the firm’s output will reflect the variable costs of maintaining the new technology,
it will not reflect the cost of the remaining pollution associated with each unit of output. This
implies that the output price will be lower than in the case of emissions pricing, where the
output price will reflect both the variable costs from the new technology and (since firms
must pay for their remaining pollution) the price attached to the pollution associated with
each unit of output. Therefore technology mandates do not cause firms to reduce pollution
sufficiently through reductions in the scale of output. Thus, in order to achieve the overall
emissions-reduction target, the regulator would have to require firms to press further on
the input-substitution and end-of-pipe channels than would be necessary under emissionspricing
instruments. The lower per-unit private cost and lower output prices might seem to
give the technology mandate an advantage. However, because the scale of output is excessive
and the other channels are “overexploited,” the aggregate cost of achieving the emissionsreduction
target—private cost per unit of output times aggregate output—is higher under
this policy instrument than under emissions pricing