IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v63y2012i1p51-65.html
   My bibliography  Save this article

Cap-and-trade, taxes, and distributional conflict

Author

Listed:
  • MacKenzie, Ian A.
  • Ohndorf, Markus

Abstract

Enacting market-based environmental regulation, such as emissions taxes and cap-and-trade programs, often create rents that are contested by agents. In this paper, we create a framework that compares social welfare from alternative market-based environmental policy instruments under the presence of rent seeking. We show that, contrary to the commonly held view, non-revenue-raising instruments (NRRIs) are in many cases preferable over revenue-raising instruments (RRIs). We find that the choice of instrument depends on the size of a potential revenue-recycling effect and the level of preassigned rents.

Suggested Citation

  • MacKenzie, Ian A. & Ohndorf, Markus, 2012. "Cap-and-trade, taxes, and distributional conflict," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 51-65.
  • Handle: RePEc:eee:jeeman:v:63:y:2012:i:1:p:51-65
    DOI: 10.1016/j.jeem.2011.05.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069611000659
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
    2. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues From a Cap-and-Trade Auction," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 497-518, September.
    3. Bovenberg, A. Lans & Goulder, Lawrence H. & Jacobsen, Mark R., 2008. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1236-1253, June.
    4. Stavins, Robert, 2004. "Introduction to the Political Economy of Environmental Regulation," Working Paper Series rwp04-004, Harvard University, John F. Kennedy School of Government.
    5. Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2010," World Bank Other Operational Studies 13401, The World Bank.
    6. Ellerman,A. Denny & Buchner,Barbara K. & Carraro,Carlo (ed.), 2007. "Allocation in the European Emissions Trading Scheme," Cambridge Books, Cambridge University Press, number 9780521875684, July - De.
    7. Nitzan, Shmuel, 1991. "Rent-Seeking with Non-identical Sharing Rules," Public Choice, Springer, vol. 71(1-2), pages 43-50, August.
    8. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
    9. Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2006. "The marginal cost of public funds: Hours of work versus labor force participation," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1955-1973, November.
    10. Parry, Ian W.H. & Sigman, Hilary & Walls, Margaret & Williams, Roberton C., III, 2005. "The Incidence of Pollution Control Policies," Discussion Papers 10651, Resources for the Future.
    11. Bilodeau, Marc, 1994. "Tax-earmarking and separate school financing," Journal of Public Economics, Elsevier, vol. 54(1), pages 51-63, May.
    12. Smith, Stephen, 1998. "Environmental and Public Finance Aspects of the Taxation of Energy," Oxford Review of Economic Policy, Oxford University Press, vol. 14(4), pages 64-83, Winter.
    13. West, Sarah E. & Williams, R.C.Roberton III, 2004. "Estimates from a consumer demand system: implications for the incidence of environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 535-558, May.
    14. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2004. "Political Sustainability and the Design of Environmental Taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(6), pages 703-719, November.
    15. Yu-Bong Lai, 2009. "Is a Double Dividend Better than a Single Dividend?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(2), pages 342-363, June.
    16. Malueg, David A. & Yates, Andrew J., 2006. "Citizen participation in pollution permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 205-217, March.
    17. Cameron Hepburn & Michael Grubb & Karsten Neuhoff & Felix Matthes & Maximilien Tse, 2006. "Auctioning of EU ETS phase II allowances: how and why?," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 137-160, January.
    18. Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003. "Instrument choice for environmental protection when technological innovation is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 523-545, May.
    19. Fullerton, Don & Metcalf, Gilbert E., 2001. "Environmental controls, scarcity rents, and pre-existing distortions," Journal of Public Economics, Elsevier, vol. 80(2), pages 249-267, May.
    20. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-1534, November.
    21. Don Fullerton & Holly Monti, 2010. "Can Pollution Tax Rebates Protect Low-Income Families? The Effects of Relative Wage Rates," NBER Working Papers 15935, National Bureau of Economic Research, Inc.
    22. Aidt, Toke S., 2010. "Green taxes: Refunding rules and lobbying," Journal of Environmental Economics and Management, Elsevier, vol. 60(1), pages 31-43, July.
    23. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 64-77, November.
    24. Anesi, Vincent, 2006. "Earmarked taxation and political competition," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 679-701, May.
    25. Oates, Wallace E. & Portney, Paul R., 2003. "The political economy of environmental policy," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 8, pages 325-354 Elsevier.
    26. James M. Buchanan, 1963. "The Economics of Earmarked Taxes," Journal of Political Economy, University of Chicago Press, vol. 71, pages 457-457.
    27. Nava Kahana & Shmuel Nitzan, 2002. "Pre-assigned rents and bureaucratic friction," Economics of Governance, Springer, vol. 3(3), pages 241-248, November.
    28. Sterner, Thomas & Hoglund Isaksson, Lena, 2006. "Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement," Ecological Economics, Elsevier, vol. 57(1), pages 93-106, April.
    29. Fredriksson, Per G. & Sterner, Thomas, 2005. "The political economy of refunded emissions payment programs," Economics Letters, Elsevier, vol. 87(1), pages 113-119, April.
    30. Dijkstra, Bouwe R., 1998. "A two-stage rent-seeking contest for instrument choice and revenue division, applied to environmental policy," European Journal of Political Economy, Elsevier, vol. 14(2), pages 281-301, May.
    31. Anger, Niels & Böhringer, Christoph & Lange, Andreas, 2006. "Differentiation of Green Taxes: A Political-Economy Analysis for Germany," ZEW Discussion Papers 06-003, ZEW - Leibniz Centre for European Economic Research.
    32. Aidt, T.S.Toke Skovsgaard & Dutta, Jayasri, 2004. "Transitional politics: emerging incentive-based instruments in environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 458-479, May.
    33. Robert N. Stavins (ed.), 2004. "The Political Economy of Environmental Regulation," Books, Edward Elgar Publishing, number 3142.
    34. Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
    35. Dinan, Terry & Rogers, Diane Lim, 2002. "Distributional Effects of Carbon AllowanceTrading: How Government Decisions Determine Winners and Losers," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 199-221, June.
    36. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March.
    37. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    38. Katz, Eliakim & Tokatlidu, Julia, 1996. "Group competition for rents," European Journal of Political Economy, Elsevier, vol. 12(4), pages 599-607, December.
    39. Malik, Arun S., 2002. "Further Results on Permit Markets with Market Power and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 371-390, November.
    40. Marsiliani, Laura & Renstrom, Thomas I, 2000. "Time Inconsistency in Environmental Policy: Tax Earmarking as a Commitment Solution," Economic Journal, Royal Economic Society, vol. 110(462), pages 123-138, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hongbo Duan, Lei Zhu, Gürkan Kumbaroglu, and Ying Fan, 2016. "Regional Opportunities for China To Go Low-Carbon: Results from the REEC Model," The Energy Journal, International Association for Energy Economics, vol. 0(China Spe).
    2. Julien Daubanes & Pierre Lasserre, 2018. "Marchés internationaux de droits à polluer et taxes locales sur les biens polluants," Working Papers 2018.18, FAERE - French Association of Environmental and Resource Economists.
    3. Alesina, Alberto & Passarelli, Francesco, 2014. "Regulation versus taxation," Journal of Public Economics, Elsevier, vol. 110(C), pages 147-156.
    4. Zhang, Kun & Wang, Qian & Liang, Qiao-Mei & Chen, Hao, 2016. "A bibliometric analysis of research on carbon tax from 1989 to 2014," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 297-310.
    5. Joschka Gerigk & Ian MacKenzie & Markus Ohndorf, 2015. "A Model of Benchmarking Regulation: Revisiting the Efficiency of Environmental Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 59-82, September.
    6. repec:wsi:serxxx:v:63:y:2018:i:02:n:s021759081740015x is not listed on IDEAS
    7. Liu, Yang & Han, Liyan & Yin, Ziqiao & Luo, Kongyi, 2017. "A competitive carbon emissions scheme with hybrid fiscal incentives: The evidence from a taxi industry," Energy Policy, Elsevier, vol. 102(C), pages 414-422.
    8. Nils Ohlendorf & Michael Jakob & Jan Christoph Minx & Carsten Schröder & Jan Christoph Steckel, 2018. "Distributional Impacts of Climate Mitigation Policies - a Meta-Analysis," Discussion Papers of DIW Berlin 1776, DIW Berlin, German Institute for Economic Research.
    9. Lele Zou & Jinjun Xue & Alan Fox & Bo Meng, 2018. "The Emissions Reduction Effect And Economic Impact Of An Energy Tax Vs. A Carbon Tax In China: A Dynamic Cge Model Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(02), pages 339-387, March.
    10. McKitrick, Ross & Lee, Jamie, 2017. "Forming a Majority Coalition for Carbon Taxes under a State-Contingent Updating Rule," Strategic Behavior and the Environment, now publishers, vol. 6(4), pages 289-309, November.
    11. Markus Ohndorf & Julia Blasch & Renate Schubert, 2015. "Emission budget approaches for burden sharing: some thoughts from an environmental economics point of view," Climatic Change, Springer, vol. 133(3), pages 385-395, December.
    12. Martin Beznoska & Johanna Cludius & Viktor Steiner, 2012. "The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data," Discussion Papers of DIW Berlin 1227, DIW Berlin, German Institute for Economic Research.
    13. Krutilla, Kerry & Alexeev, Alexander, 2014. "The Political Transaction Costs and Uncertainties of Establishing Environmental Rights," Ecological Economics, Elsevier, vol. 107(C), pages 299-309.
    14. repec:eee:jeeman:v:90:y:2018:i:c:p:23-40 is not listed on IDEAS
    15. Grey, Felix, 2018. "Corporate lobbying for environmental protection," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 23-40.
    16. repec:spr:annopr:v:255:y:2017:i:1:d:10.1007_s10479-016-2106-7 is not listed on IDEAS
    17. Alexeev, Alexander & Good, David H. & Krutilla, Kerry, 2016. "Environmental taxation and the double dividend in decentralized jurisdictions," Ecological Economics, Elsevier, vol. 122(C), pages 90-100.
    18. Ian A. MacKenzie, 2015. "Prices versus quantities with distributional rent seeking," Discussion Papers Series 548, School of Economics, University of Queensland, Australia.
    19. repec:bla:scandj:v:120:y:2018:i:1:p:211-241 is not listed on IDEAS
    20. MacKenzie, Ian A. & Ohndorf, Markus, 2016. "Coasean bargaining in the presence of Pigouvian taxation," Journal of Environmental Economics and Management, Elsevier, vol. 75(C), pages 1-11.
    21. Cludius, Johanna & Beznoska, Martin & Steiner, Viktor, 2012. "Distributional effects of the European Emissions Trading System and the role of revenue recycling: Empirical evidence from combined industry- and household-level data," Discussion Papers 2012/6, Free University Berlin, School of Business & Economics.
    22. repec:kap:pubcho:v:171:y:2017:i:1:d:10.1007_s11127-017-0401-8 is not listed on IDEAS

    More about this item

    Keywords

    Cap-and-trade; Environmental tax; Rent seeking;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:63:y:2012:i:1:p:51-65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.