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Tradable quota taxation and market power

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  • D’Amato, Alessio
  • Valentini, Edilio
  • Zoli, Mariangela

Abstract

We investigate how corrective taxation can improve the efficiency properties of tradable quota systems affected by market power. Indeed, we show that, when there is a dominant firm in the tradable quota market, the regulator can set an ad hoc taxation on firms' traded quotas that restores cost effectiveness without driving the dominant firm's net demand to zero. Achieving cost effectiveness with market power and quota taxation implies some costs in terms of tax revenue that, however, can be justified by the corresponding reduction of compliance costs. Moreover, we see that there may be cases where all firms result to be better off after the implementation of corrective taxation.

Suggested Citation

  • D’Amato, Alessio & Valentini, Edilio & Zoli, Mariangela, 2017. "Tradable quota taxation and market power," Energy Economics, Elsevier, vol. 63(C), pages 248-252.
    • Handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:248-252
    DOI: 10.1016/j.eneco.2017.01.024
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    More about this item

    Keywords

    Tradable quota markets; Market power; Tradable quota taxation;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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