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The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty

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  • Elettra Agliardi
  • Luigi Sereno

Abstract

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity - in the form of Choquet-Brownian motions - on future costs and benefits over adopting environmental policies.

Suggested Citation

  • Elettra Agliardi & Luigi Sereno, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty," Discussion Papers 2011/109, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2011/109
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fang, Guochang & Tian, Lixin & Fu, Min & Sun, Mei, 2013. "The impacts of carbon tax on energy intensity and economic growth – A dynamic evolution analysis on the case of China," Applied Energy, Elsevier, vol. 110(C), pages 17-28.
    2. Kast, Robert & Lapied, André & Roubaud, David, 2014. "Modelling under ambiguity with dynamically consistent Choquet random walks and Choquet–Brownian motions," Economic Modelling, Elsevier, vol. 38(C), pages 495-503.
    3. E. Agliardi & L. Sereno, 2012. "On the optimal timing of switching from non-renewable to renewable resources: dirty vs clean energy sources and the relative efficiency of generators," Working Papers wp855, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Agliardi, Elettra & Sereno, Luigi, 2012. "Environmental protection, public finance requirements and the timing of emission reductions," Environment and Development Economics, Cambridge University Press, vol. 17(06), pages 715-739, December.
    5. repec:ebl:ecbull:eb-17-00281 is not listed on IDEAS
    6. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-015-2079-y is not listed on IDEAS
    7. David Roubaud & Alain Lapied & Robert Kast, 2017. "Modelling under ambiguity with two correlated Choquet-Brownian motions," Economics Bulletin, AccessEcon, vol. 37(2), pages 1012-1020.
    8. repec:kap:theord:v:83:y:2017:i:4:d:10.1007_s11238-017-9632-x is not listed on IDEAS
    9. Rong Zhou & Kathleen Segerson, 2012. "Are Green Taxes a Good Way to Help Solve State Budget Deficits?," Sustainability, MDPI, Open Access Journal, vol. 4(6), pages 1-25, June.

    More about this item

    Keywords

    Environmental taxation; Non-tradable quotas; Optimal implementation time; Choquet-Brownian uncertainty; Real options;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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