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Market power and output-based refunding of environmental policy revenues

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  • Fischer, Carolyn

Abstract

Output-based refunding of environmental policy revenues combines a tax on emissions with a production subsidy, typically in a revenue-neutral fashion. With imperfect competition, subsidies can alleviate output underprovision. However, when market shares are significant, endogenous refunding reduces abatement incentives and the marginal net tax or subsidy. If market shares differ, marginal abatement costs will not be equalized, and production is shifted among participants. In an asymmetric Cournot duopoly, endogenous refunding leads to higher output, emissions, and overall costs compared with a fixed rebate program targeting the same emissions intensity. These results hold whether emissions rates are determined simultaneously with output or strategically in a two-stage model.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 1 (January)
Pages: 212-230

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Handle: RePEc:eee:resene:v:33:y:2011:i:1:p:212-230

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Web page: http://www.elsevier.com/locate/inca/505569

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Keywords: Emissions tax Earmarking Rebating Tradable performance standards Imperfect competition Cournot;

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References

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Citations

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Cited by:
  1. Schmidt, Robert & Pollrich, Martin & Stiel, Caroline, 2013. "An optimal incentive contract to avert firm relocation under unilateral environmental regulation," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79741, Verein für Socialpolitik / German Economic Association.
  2. Fredriksson, Per G. & Sterner, Thomas, 2005. "The political economy of refunded emissions payment programs," Economics Letters, Elsevier, vol. 87(1), pages 113-119, April.
  3. Guy Meunier & Jean-Pierre Ponssard, 2012. "A Sectoral Approach Balancing Global Efficiency and Equity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(4), pages 533-552, December.
  4. Coria, Jessica & Mohlin, Kristina, 2013. "On Refunding of Emission Taxes and Technology Diffusion," Working Papers in Economics 573, University of Gothenburg, Department of Economics.
  5. Carolyn Fischer & Alan K. Fox, 2011. "The Role of Trade and Competitiveness Measures in US Climate Policy," American Economic Review, American Economic Association, vol. 101(3), pages 258-62, May.
  6. Susumu Cato, 2010. "Emission Taxes and Optimal Refunding Schemes with Endogenous Market Structure," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(3), pages 275-280, July.
  7. Johnson, Kenneth C., 2006. "Feebates: An effective regulatory instrument for cost-constrained environmental policy," Energy Policy, Elsevier, vol. 34(18), pages 3965-3976, December.
  8. Bonilla, Jorge & Coria, Jessica & Mohlin, Kristina & Sterner, Thomas, 2014. "Diffusion of NOx abatement technologies in Sweden," Working Papers in Economics 585, University of Gothenburg, Department of Economics.
  9. Cathrine Hagem & Bjart Holtsmark & Thomas Sterner, 2012. "Mechanism design for refunding emissions payment," Discussion Papers 705, Research Department of Statistics Norway.
  10. Fischer, Carolyn, 2008. "Comparing flexibility mechanisms for fuel economy standards," Energy Policy, Elsevier, vol. 36(8), pages 3106-3114, August.
  11. Yuanguang Yu, 2012. "An Optimal Ad Valorem Tax/Subsidy with an Output-Based Refunded Emission Payment for Permits Auction in an Oligopoly Market," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 52(2), pages 235-248, June.

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