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Emissions intensity and choice of policy instrument with asymmetric information and growth

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Abstract

The advantages and disadvantages of environmental policies based on emission intensity targets have been widely discussed. Emission tax policies tend to be ranked ahead of emission intensity instruments due, in part, to the former's incentive effects. A comparison of the effect that emission intensity targets and emission taxes have on abatement costs in a world of asymmetric information is worth exploring. This analysis suggests that in terms abatement costs and the nature of the errors due to asymmetric information, a tax on emission has no absolute advantage over an emissions intensity policy in the short run and given the qualitative nature of the welfare losses in both cases, an emissions target policy may be preferred. Furthermore, an emission intensity target may be an appropriate instrument when growth in output of polluting firms is expected.

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  • Douglas Auld, 2016. "Emissions intensity and choice of policy instrument with asymmetric information and growth," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 5(2), pages 227-235, July.
    • Handle: RePEc:taf:teepxx:v:5:y:2016:i:2:p:227-235
    DOI: 10.1080/21606544.2015.1080197
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    1. Frank Jotzo & John Pezzey, 2007. "Optimal intensity targets for greenhouse gas emissions trading under uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(2), pages 259-284, October.
    2. Michael Hoel, 1998. "Emission Taxes versus Other Environmental Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 79-104, March.
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