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Technology Diffusion with Market Power in the Upstream Industry

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  • Grischa Perino

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Abstract

This paper compares taxes and tradable permits when used to regulate a competitive and polluting downstream industry that can purchase an abatement technology from a monopolistic upstream industry. Second-best policies are derived for the full range of the abatement technology's emission intensities and marginal abatement costs. The second-best permit quantity can be both above or below the socially optimal emission level. Explicit consideration of the output market provides further insights on how market power distorts the allocation in the downstream industry. The ranking between permits and taxes is ambiguous in general, but taxes weakly dominate permits if full diffusion is socially optimal. In addition, it is analysed how a cap on the permit price affects the diffusion of an abatement technology.

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (August)
Pages: 403-428

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Handle: RePEc:kap:enreec:v:46:y:2010:i:4:p:403-428

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Diffusion; Market power; Price bounds; Taxes; Tradable permits; Q55; Q58; H23; L51;

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References

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  1. Laffont, J.J. & Tirole, J., 1995. "Pollution Permits and Environmental Innovation," Papers 95.396, Toulouse - GREMAQ.
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Citations

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Cited by:
  1. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2014. "The optimal time path of clean energy R&D policy when patents have finite lifetime," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 2-19.
  2. Alfred Endres & Tim Friehe, 2011. "The Monopolistic Polluter under Environmental Liability Law: Incentives for Abatement and R&D," CESifo Working Paper Series 3649, CESifo Group Munich.
  3. Idrissa Sibailly, 2013. "On the Pigouvian Tax Rule in an Open Economy: Opening the Gate to the Eco-industry," Working Papers hal-00911464, HAL.
  4. Perino, Grischa & Requate, Till, 2012. "Does more stringent environmental regulation induce or reduce technology adoption? When the rate of technology adoption is inverted U-shaped," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 456-467.
  5. Hattori, Keisuke, 2011. "Optimal Environmental Policy under Monopolistic Provision of Clean Technologies," MPRA Paper 28837, University Library of Munich, Germany.
  6. Idrissa Sibailly, 2013. "On licensing and diffusion of clean technologies in oligopoly," Working Papers hal-00911453, HAL.

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