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Challenging pollution and the balance problem from rare earth extraction: How recycling and environmental taxation matter

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  • Pascale Combes Motel

    (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)

  • Bocar Samba Ba

    (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)

  • Sonia Schwartz

    (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Rare earth elements extraction induces pollution and the balance problem. In this article, we investigate how far recycling and environmental taxation challenge both questions. In a two-period framework, we assume a monopoly extractor in the first period that is in competition with one recycler in the second period. Our results depend on whether the recycling activity is bounded or not by extracted quantities. When recycling is not constrained, it does not change extraction in period 1 but has pro-competitive effects in period 2. The balance problem favors recycling in period 2 and reduces environmental damages in both periods. If recycling is limited, the extractor adopts a foreclosure strategy in the first period. The balance problem reduces extraction in both periods but also recycling. A second-best environmental taxation enables to reach the first-best outcome except in the second period of the bounded case. Environmental taxes have to be amended in order to take into account the recycling effect. They are never equal to the marginal damage.

Suggested Citation

  • Pascale Combes Motel & Bocar Samba Ba & Sonia Schwartz, 2019. "Challenging pollution and the balance problem from rare earth extraction: How recycling and environmental taxation matter," Working Papers halshs-02065976, HAL.
  • Handle: RePEc:hal:wpaper:halshs-02065976
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02065976
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    References listed on IDEAS

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    Keywords

    Rare earth elements; Pollution; Balance problem; Recycling; Taxation; Cournot competition;

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