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The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty

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  • Agliardi, Elettra
  • Sereno, Luigi

Abstract

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity – in the form of Choquet–Brownian motions – on future costs and benefits over adopting environmental policies.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 6 ()
Pages: 2793-2802

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2793-2802

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Environmental taxation; Non-tradable quotas; Optimal implementation time; Choquet–Brownian uncertainty; Real options;

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References

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  1. van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, Elsevier, vol. 27(3), pages 235-247, October.
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Cited by:
  1. Fang, Guochang & Tian, Lixin & Fu, Min & Sun, Mei, 2013. "The impacts of carbon tax on energy intensity and economic growth – A dynamic evolution analysis on the case of China," Applied Energy, Elsevier, vol. 110(C), pages 17-28.
  2. E. Agliardi & L. Sereno, 2012. "On the optimal timing of switching from non-renewable to renewable resources: dirty vs clean energy sources and the relative efficiency of generators," Working Papers wp855, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Rong Zhou & Kathleen Segerson, 2012. "Are Green Taxes a Good Way to Help Solve State Budget Deficits?," Sustainability, MDPI, Open Access Journal, vol. 4(6), pages 1329-1353, June.
  4. Agliardi, Elettra & Sereno, Luigi, 2012. "Environmental protection, public finance requirements and the timing of emission reductions," Environment and Development Economics, Cambridge University Press, vol. 17(06), pages 715-739, December.
  5. Kast, Robert & Lapied, André & Roubaud, David, 2014. "Modelling under ambiguity with dynamically consistent Choquet random walks and Choquet–Brownian motions," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 495-503.

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