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Market Power and Output-Based Refunding of Environmental Policy Revenues

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  • Fischer, Carolyn

    ()
    (Resources for the Future)

Abstract

Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-27.

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Date of creation: 01 May 2003
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Handle: RePEc:rff:dpaper:dp-03-27

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Keywords: emissions tax; earmarking; tradable performance standards; imperfect competition; Cournot; duopoly; refunding; subsidy;

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References

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Citations

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Cited by:
  1. Fredriksson, Per G. & Sterner, Thomas, 2005. "The political economy of refunded emissions payment programs," Economics Letters, Elsevier, vol. 87(1), pages 113-119, April.
  2. Johnson, Kenneth C., 2006. "Feebates: An effective regulatory instrument for cost-constrained environmental policy," Energy Policy, Elsevier, vol. 34(18), pages 3965-3976, December.
  3. Coria, Jessica & Mohlin, Kristina, 2013. "On Refunding of Emission Taxes and Technology Diffusion," Working Papers in Economics 573, University of Gothenburg, Department of Economics.
  4. 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.
  5. 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.
  6. Fischer, Carolyn, 2008. "Comparing flexibility mechanisms for fuel economy standards," Energy Policy, Elsevier, vol. 36(8), pages 3106-3114, August.

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