Environmental Protection, Public Finance Requirements and the Timing of Emission Reductions
AbstractThe effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firm's profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework, we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare and also equivalent to emission standards when the regulator redistributes revenues.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 53_11.
Date of creation: Dec 2011
Date of revision:
Environmental policies; Taxes; Emission standards; Permits; Public abatement spending; Optimal implementation time; Real options;
Other versions of this item:
- 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.
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-10 (All new papers)
- NEP-ENE-2012-01-10 (Energy Economics)
- NEP-ENV-2012-01-10 (Environmental Economics)
- NEP-REG-2012-01-10 (Regulation)
- NEP-RES-2012-01-10 (Resource Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elettra Agliardi & Luigi Sereno, 2011.
"The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty,"
2011/109, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
- Agliardi, Elettra & Sereno, Luigi, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty," Economic Modelling, Elsevier, vol. 28(6), pages 2793-2802.
- E. Agliardi & L. Sereno, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty," Working Papers wp725, Dipartimento Scienze Economiche, Universita' di Bologna.
- Jon M. Conrad, 1997. "Global Warming: When to Bite the Bullet," Land Economics, University of Wisconsin Press, vol. 73(2), pages 164-173.
- Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
- Anastasios Xepapadeas, 2001.
"Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility,"
in: Behavioral and Distributional Effects of Environmental Policy, pages 281-308
National Bureau of Economic Research, Inc.
- Anastasios Xepapadeas, 1999. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions Under Uncertainty and Irreversibility," NBER Technical Working Papers 0243, National Bureau of Economic Research, Inc.
- Balikcioglu, Metin & Fackler, Paul L. & Pindyck, Robert S., 2011. "Solving optimal timing problems in environmental economics," Resource and Energy Economics, Elsevier, vol. 33(3), pages 761-768, September.
- Juan-Pablo Montero, 2002.
"Market Structure and Environmental Innovation,"
Journal of Applied Economics,
Universidad del CEMA, vol. 0, pages 293-325, November.
- Margaret Insley, 2003.
"On the option to invest in pollution control under a regime of tradable emissions allowances,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 36(4), pages 860-883, November.
- Margaret Insley, 2002. "On the option to invest in pollution control under a regime of tradable emissions allowances," Working Papers 02008, University of Waterloo, Department of Economics, revised Jan 2002.
- 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, vol. 27(3), pages 235-247, October.
- Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
- Wirl, Franz, 2006. "Consequences of irreversibilities on optimal intertemporal CO2 emission policies under uncertainty," Resource and Energy Economics, Elsevier, vol. 28(2), pages 105-123, May.
- Pindyck, Robert S., 1998.
"Irreversibilities and the timing of environmental policy,"
WP 4047-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
- Coria, Jessica, 2009.
"Taxes, permits, and the diffusion of a new technology,"
Resource and Energy Economics,
Elsevier, vol. 31(4), pages 249-271, November.
- Coria, Jessica, 2008. "Taxes, Permits, and the Diffusions of a New Technology," Discussion Papers dp-08-26-efd, Resources For the Future.
- Conrad, Jon M., 2000. "Wilderness: options to preserve, extract, or develop," Resource and Energy Economics, Elsevier, vol. 22(3), pages 205-219, July.
- Saltari, Enrico & Travaglini, Giuseppe, 2011. "The effects of environmental policies on the abatement investment decisions of a green firm," Resource and Energy Economics, Elsevier, vol. 33(3), pages 666-685, September.
- Elettra Agliardi & Luigi Sereno, 2013.
"On the Optimal Timing of Switching from non-Renewable to Renewable Resources: Dirty vs Clean Energy Sources and the Relative Efficiency of Generators,"
Working Paper Series
11_13, The Rimini Centre for Economic Analysis.
- 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.
- Enrico Saltari & Giuseppe Travaglini, 2013. "Optimal Waste Control with Abatement and Productive Capital Stocks," Working Papers 1301, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roberto Patuelli).
If references are entirely missing, you can add them using this form.