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Dynamic optimal control of pollution abatement under emissions permit banking

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  • Li, Shoude

Abstract

In a recent work, Dragone et al. (2010) modeled an optimal control model of pollution abatement, and investigated the adoption of a tax levied on the firm's instantaneous contribution to the accumulation of pollution. In this paper, we extend the work of Dragone et al. (2010) by providing a dynamic optimal control model of pollution abatement with emissions permits banking, where the firm is allowed to purchase, sell and bank emissions permits given a finite planning horizon of length. Our objective is to find the optimal levels of the production, the pollution abatement investment and the quantity of emissions permits bought or sold in continuous time through the use of optimal control theory. We illustrate the results with a numerical example.

Suggested Citation

  • Li, Shoude, 2014. "Dynamic optimal control of pollution abatement under emissions permit banking," Economic Modelling, Elsevier, vol. 36(C), pages 363-369.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:363-369
    DOI: 10.1016/j.econmod.2013.10.011
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    References listed on IDEAS

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    Cited by:

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    4. Ni, Jian & Huang, Hongzhi & Wang, Peipei & Zhou, Wei, 2020. "Capacity investment and green R&D in a dynamic oligopoly under the potential shift in environmental damage," Economic Modelling, Elsevier, vol. 88(C), pages 312-319.
    5. Nkuiya, Bruno, 2020. "Tradeoffs between costly capacity investment and risk of regime shift," Economic Modelling, Elsevier, vol. 91(C), pages 117-127.

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    More about this item

    Keywords

    Environmental externalities; Pollution abatement; Emissions permit banking;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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