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In this paper, we study regulation of externalities involving many small-scale polluters, where the damages from emissions depend on the polluters’ locations. Examples include nutrient and pesticide emissions from farms, particulate emissions from vehicles and home heating units, emissions of hazardous chemical compounds from small business etc. With such emission problems, regulatory authorities often apply a combination of firm-level, possibly differentiated standards for ‘cleaner’ technologies, and market-level, undifferentiated dirty input regulations. We establish general principles for how such regulations should be designed and combined. We find that the optimal regulation design crucially depends on the type of cleaner technologies available to polluters. If these are ‘emission capturing’, optimal technology standards encourage the use of cleaner technologies in both high and low damage areas, while if they are ‘input displacing’, optimal technology regulation encourages cleaner technologies in high damage areas, but discourages their use in low damage areas. Regulation should always discourage the use of dirty input and the optimal regulation intensity may be substantial, particularly if the available cleaner technologies are input displacing.

Air pollution is a major global challenge. Emissions from residential wood-burning stoves make a surprisingly large contribution to total air pollution related health costs. In Denmark, emissions from wood-burning stoves are calculated to cause almost 400 premature deaths each year within Denmark and additionally about 300 premature deaths in other parts of Europe. In this article, we present an integrated assessment of the net social benefit of different schemes for regulating wood-burning stoves including bans and taxes. The assessment uses high resolution air pollution emission inventory, and atmospheric dispersion and exposure models to estimate the health effects of imposing regulations on residential wood-burning. This is combined with an economic stove investment and use model to simulate reactions to regulations and evaluate compliance costs. We find that there are large net welfare gains from most types of regulation, but the largest gains result from imposing a differentiated tax or a general ban on older stoves. The results for Denmark suggest that there could be substantial welfare gains from regulating residential wood-burning stoves in other countries as well. Air pollution is a major global challenge. Emissions from residential wood-burning stoves make a surprisingly large contribution to total air pollution related health costs. In Denmark, emissions from wood-burning stoves are calculated to cause almost 400 premature deaths each year within Denmark and additionally about 300 premature deaths in other parts of Europe. In this article, we present an integrated assessment of the net social benefit of different schemes for regulating wood-burning stoves including bans and taxes. The assessment uses high resolution air pollution emission inventory, and atmospheric dispersion and exposure models to estimate the health effects of imposing regulations on residential wood-burning. This is combined with an economic stove investment and use model to simulate reactions to regulations and evaluate compliance costs. We find that there are large net welfare gains from most types of regulation, but the largest gains result from imposing a differentiated tax or a general ban on older stoves. The results for Denmark suggest that there could be substantial welfare gains from regulating residential wood-burning stoves in other countries as well.