Emissions leakage and subsidies for pollution abatement. Pay the polluter or the supplier of the remedy?
AbstractAsymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage. For most types of pollution, abatement technologies are available for firms to produce with lower emissions. However, the suppliers of those technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced technologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 708.
Date of creation: Oct 2012
Date of revision:
Emissions leakage; Abatement subsidies; Upstream technology market;
Find related papers by JEL classification:
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-ENE-2012-10-13 (Energy Economics)
- NEP-ENV-2012-10-13 (Environmental Economics)
- NEP-REG-2012-10-13 (Regulation)
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