Environmental protection, public finance requirements and the timing of emission reductions
AbstractThe effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firm'Âs profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework, we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare and also equivalent to emission standards when the regulator redistributes revenues.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Environment and Development Economics.
Volume (Year): 17 (2012)
Issue (Month): 06 (December)
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Other versions of this item:
- Elettra Agliardi & Luigi Sereno, 2011. "Environmental Protection, Public Finance Requirements and the Timing of Emission Reductions," Working Paper Series 53_11, The Rimini Centre for Economic Analysis.
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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