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The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution

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  • Alexander Haupt
  • Magdalena Stadejek

Abstract

We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. Surprisingly, we find that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and in addition implements a moderate subsidy to firms, but avoids energy taxes.

Suggested Citation

  • Alexander Haupt & Magdalena Stadejek, 2010. "The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution," CESifo Working Paper Series 2986, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2986
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    References listed on IDEAS

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    More about this item

    Keywords

    energy tax; energy efficiency standard; subsidy; vertically differentiated markets; product quality;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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