IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/124825.html
   My bibliography  Save this paper

Profit-enhancing emissions taxes in near-zero-emissions industries

Author

Listed:
  • Hirose, Kosuke
  • Ishihara, Akifumi
  • Matsumura, Toshihiro

Abstract

Motivated by the recent global trend of net-zero-emissions environmental regulations, we investigate the relationship between emissions tax rates and firm profits in oligopolies. Our result indicates that when the resulting emission levels are approximately zero, a marginal increase in the tax rate enhances firms' profits except in monopoly markets. This finding suggests that firms might not resist a further increase in environmental tax if the target emissions level is sufficiently low. Moreover, we present parametric numerical examples suggesting that the profit-enhancing range is large and not limited to near-zero emissions.

Suggested Citation

  • Hirose, Kosuke & Ishihara, Akifumi & Matsumura, Toshihiro, 2025. "Profit-enhancing emissions taxes in near-zero-emissions industries," MPRA Paper 124825, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124825
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/124825/1/MPRA_paper_124825.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tomoda, Yasunobu & Ouchida, Yasunori, 2023. "Endogenous bifurcation into environmental CSR and non-environmental CSR firms by activist shareholders," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    2. Stefan Ambec & Mark A. Cohen & Stewart Elgie & Paul Lanoie, 2013. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 2-22, January.
    3. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
    4. Takanori Adachi & Muhammad Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    5. Hirose, Kosuke & Matsumura, Toshihiro, 2022. "Common ownership and environmental Corporate Social Responsibility," Energy Economics, Elsevier, vol. 114(C).
    6. Kyle C. Meng & Ashwin Rode, 2019. "The social cost of lobbying over climate policy," Nature Climate Change, Nature, vol. 9(6), pages 472-476, June.
    7. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
    8. Hirose, Kosuke & Matsumura, Toshihiro, 2023. "Green transformation in oligopoly markets under common ownership," Energy Economics, Elsevier, vol. 126(C).
    9. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    10. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    11. Xu, Lili & Chen, Yuyan & Lee, Sang-Ho, 2022. "Emission tax and strategic environmental corporate social responsibility in a Cournot–Bertrand comparison," Energy Economics, Elsevier, vol. 107(C).
    12. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).
    13. Pang, Yu, 2019. "Taxing pollution and profits: A bargaining approach," Energy Economics, Elsevier, vol. 78(C), pages 278-288.
    14. Bárcena-Ruiz, Juan Carlos & Campo, María Luz, 2017. "Taxes versus standards under cross-ownership," Resource and Energy Economics, Elsevier, vol. 50(C), pages 36-50.
    15. Xing, Mingqing & Lee, Sang-Ho, 2024. "Cross-ownership and strategic environmental corporate social responsibility under price competition," Environment and Development Economics, Cambridge University Press, vol. 29(3), pages 234-256, June.
    16. Toshihiro Matsumura & X. Henry Wang & Chenhang Zeng, 2025. "Welfare improving common ownership in successive oligopolies: The role of the input market," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 58(1), pages 169-192, February.
    17. Kosuke Hirose & Sang-Ho Lee & Toshihiro Matsumura, 2020. "Noncooperative and Cooperative Environmental Corporate Social Responsibility," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(3), pages 549-571.
    18. Hirose, Kosuke & Ishihara, Akifumi & Matsumura, Toshihiro, 2024. "Tax versus regulations: Polluters’ incentives for loosening industry emission targets," Energy Economics, Elsevier, vol. 136(C).
    19. Li, Shoude & Fu, Tong, 2022. "Abatement technology innovation, worker productivity and firm profitability: A dynamic analysis," Energy Economics, Elsevier, vol. 115(C).
    20. Emmanuel Petrakis & Joanna Poyago‐Theotoky, 2002. "R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 37-52, March.
    21. Bárcena-Ruiz, Juan Carlos & Garzón, María Begoña & Sagasta, Amagoia, 2023. "Environmental corporate social responsibility, R&D and disclosure of “green” innovation knowledge," Energy Economics, Elsevier, vol. 120(C).
    22. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    23. Misiolek, Walter S., 1980. "Effluent taxation in monopoly markets," Journal of Environmental Economics and Management, Elsevier, vol. 7(2), pages 103-107, June.
    24. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    25. repec:bla:scandj:v:97:y:1995:i:3:p:411-20 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hirose, Kosuke & Ishihara, Akifumi & Matsumura, Toshihiro, 2024. "Tax versus regulations: Polluters’ incentives for loosening industry emission targets," Energy Economics, Elsevier, vol. 136(C).
    2. Hirose, Kosuke & Matsumura, Toshihiro, 2025. "Optimal energy-saving investments and Jevons Paradox in duopoly markets," Energy Economics, Elsevier, vol. 147(C).
    3. Lili Xu & Sang‐Ho Lee, 2022. "Non‐cooperative and cooperative environmental corporate social responsibility with emission taxes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2849-2862, October.
    4. Mingqing Xing & Sang‐Ho Lee, 2023. "Non‐cooperative and cooperative environmental R&D under environmental corporate social responsibility with green managerial coordination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(5), pages 2684-2696, July.
    5. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).
    6. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2024. "Corporate Social Responsibility: A theory of the firm revisited with environmental issues," GLO Discussion Paper Series 1421, Global Labor Organization (GLO).
    7. Joanna Poyago-Thotoky, 2003. "Optimal Environmental Taxation, R&D Subsidization and the Role of Market Conduct," Finnish Economic Papers, Finnish Economic Association, vol. 16(1), pages 15-26, Spring.
    8. Xu, Lili & Chen, Yuyan & Lee, Sang-Ho, 2022. "Emission tax and strategic environmental corporate social responsibility in a Cournot–Bertrand comparison," Energy Economics, Elsevier, vol. 107(C).
    9. Xu, Lili & Lee, Sang-Ho, 2024. "Consumers' environmental awareness and endogenous managerial delegation choice between sales and environmental incentives," Energy Economics, Elsevier, vol. 136(C).
    10. Hirose, Kosuke & Matsumura, Toshihiro, 2023. "Green transformation in oligopoly markets under common ownership," Energy Economics, Elsevier, vol. 126(C).
    11. Sumi Cho & Sang‐Ho Lee, 2024. "Cross ownership and environmental corporate social responsibility with environmental cooperation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 446-468, January.
    12. Lili Xu & Yidan Zhang & Toshihiro Matsumura, 2023. "Competition mode and common ownership in a mixed oligopoly," Manchester School, University of Manchester, vol. 91(4), pages 306-319, July.
    13. Xu, Lili & Zhang, Yidan & Matsumura, Toshihiro, 2022. "Cournot–Bertrand comparison under common ownership in a mixed oligopoly," MPRA Paper 114644, University Library of Munich, Germany.
    14. Bárcena-Ruiz, Juan Carlos & Sagasta, Amagoia, 2024. "Environmental taxes when firms care about environmental corporate social responsibility," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    15. Xing, Mingqing & Lee, Sang-Ho, 2024. "Cross-ownership and green managerial delegation contracts in a mixed oligopoly," Journal of Environmental Economics and Management, Elsevier, vol. 126(C).
    16. Lambert Schoonbeek & Frans Vries, 2009. "Environmental taxes and industry monopolization," Journal of Regulatory Economics, Springer, vol. 36(1), pages 94-106, August.
    17. Haitao CHENG & Jota ISHIKAWA & Nori TARUI, 2025. "Green Consumption and Corporate Environmental Responsibility in North-South Trade," Discussion papers 25043, Research Institute of Economy, Trade and Industry (RIETI).
    18. Chul‐Hi Park & Sang‐Ho Lee, 2023. "Environmental corporate social responsibility under price competition and the second‐mover advantage: An endogenous timing approach," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 817-829, December.
    19. Xu, Lili & Cho, Sumi & Lee, Sang-Ho, 2016. "Emission tax and optimal privatization in Cournot–Bertrand comparison," Economic Modelling, Elsevier, vol. 55(C), pages 73-82.
    20. Juan Carlos Bárcena‐Ruiz & María Begoña Garzón, 2022. "Environmental policy instruments and ownership of firms," Manchester School, University of Manchester, vol. 90(4), pages 385-408, July.

    More about this item

    Keywords

    net-zero-emissions industries; emissions tax; oligopolies;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:124825. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.