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.
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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)
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