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Is There a Rationale for Rebating Environmental Levies?

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  • Bernard, Alain
  • Fischer, Carolyn
  • Vielle, Marc

Abstract

Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an "unlevel playing field" with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector. It combines a theoretical approach based on second-best modeling with numerical simulations aimed at determining the most sensitive parameters. We find that if an adequate tax on production can be levied in the unregulated sector, no rebate is justified for the regulated sector. Moreover, even in the case of constrained taxation in the unregulated sector, a tax rebate or a subsidy in the regulated sector is not necessarily a welfare-increasing policy. The exception occurs when the goods of the competing sectors are close substitutes. We find that these kinds of policy constraints can be quite costly in terms of welfare.

Suggested Citation

  • Bernard, Alain & Fischer, Carolyn & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers 10512, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10512
    DOI: 10.22004/ag.econ.10512
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    1. Alain Bernard, 1977. "Optimal Taxation and Public Production with Budget Constraints," International Economic Association Series, in: Martin S. Feldstein & Robert P. Inman (ed.), The Economics of Public Services, chapter 15, pages 361-389, Palgrave Macmillan.
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    3. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
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    7. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
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    Cited by:

    1. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
    2. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    3. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers 10520, Resources for the Future.
    4. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," RFF Working Paper Series dp-04-37, Resources for the Future.
    5. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," RFF Working Paper Series dp-02-60, Resources for the Future.
    6. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    7. Fischer, Carolyn & Hoffmann, Sandra & Yoshino , Yutaka, 2002. "Multilateral Trade Agreements and Market-Based Environmental Policies," RFF Working Paper Series dp-02-28, Resources for the Future.
    8. Dissou, Yazid, 2005. "Cost-effectiveness of the performance standard system to reduce CO2 emissions in Canada: a general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 27(3), pages 187-207, October.
    9. Fischer, Carolyn, 2004. "Are Absolute Emissions Better for Modeling? It's All Relative," RFF Working Paper Series dp-04-14, Resources for the Future.
    10. Carolyn Fischer, 2003. "Combining rate-based and cap-and-trade emissions policies," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 89-103, December.
    11. Mullaly, Damian & Lanzi, Elisa & Chateau, Jean & Dellink, Rob, 2012. "The Role of Competitiveness Instruments in the Climate Policy Debate - Addressing Fragmented Carbon Markets," Conference papers 332184, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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