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Carbon tax based on the emission factor: a bilevel programming approach

  • Hossa Almutairi

    ()

  • Samir Elhedhli

    ()

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    We present a bilevel programming approach to design an effective carbon tax scheme based on the production emission factor, used as an intensity measure, for a competitive market with multiple players. At the upper level, the government sets a target emission factor for the industry and taxes firms if they exceed that target. At the lower level, the industry sets output levels that maximize social welfare. The bilevel model is transformed to a linear MIP by replacing the lower level optimization problem by its KKT conditions, and linearizing the complementarity slackness conditions. We test the model in the context of the cement industry. The results show that the proposed model finds the optimal tax rate that induces firms to switch to less carbon-intensive fuels and reduces the overall emissions. Copyright Springer Science+Business Media New York 2014

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    File URL: http://hdl.handle.net/10.1007/s10898-013-0068-8
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    Article provided by Springer in its journal Journal of Global Optimization.

    Volume (Year): 58 (2014)
    Issue (Month): 4 (April)
    Pages: 795-815

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    Handle: RePEc:spr:jglopt:v:58:y:2014:i:4:p:795-815
    Contact details of provider: Web page: http://www.springer.com/business/operations+research/journal/10898

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    1. Fischer, Carolyn & Springborn, Michael R., 2011. "Emissions Targets and the Real Business Cycle: Intensity Targets versus Caps or Taxes," Discussion Papers dp-09-47-rev, Resources For the Future.
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    5. Quirion, Philippe, 2005. "Does uncertainty justify intensity emission caps?," Resource and Energy Economics, Elsevier, vol. 27(4), pages 343-353, November.
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    8. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
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    12. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
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    14. Kuik, Onno & Mulder, Machiel, 2004. "Emissions trading and competitiveness: pros and cons of relative and absolute schemes," Energy Policy, Elsevier, vol. 32(6), pages 737-745, April.
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