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Cap-and-trade, taxes, and distributional conflict

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  • 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
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