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Emission Cap Commitment versus Emission Intensity Commitment as Self-Regulation

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  • Hirose, Kosuke
  • Matsumura, Toshihiro

Abstract

We compare emission cap commitment that restricts total emissions and emission intensity commitment that restricts emissions per unit of output as measures of self-regulation. The monopolist chooses either emission cap commitment or emission intensity commitment and sets the target level under the constraint that the resulting emissions do not exceed the upper limit. We find that profit-maximizing firms choose emission cap commitment, although emission intensity commitment always yields greater consumer surplus. It is ambiguous whether emission intensity commitment or emission cap commitment yields greater welfare. We present two cases in which emission intensity commitment yields greater welfare. One is the most stringent target case (the target emission level is close to zero), and the other is the weakest target case (the target emission level is close to business-as-usual). Our result suggests that the incentive for adopting emission cap commitment is too large for profit-maximizing firms, and thus, governments should encourage the adoption of emission intensity commitment, especially to achieve a zero-emission society efficiently.

Suggested Citation

  • Hirose, Kosuke & Matsumura, Toshihiro, 2017. "Emission Cap Commitment versus Emission Intensity Commitment as Self-Regulation," MPRA Paper 82564, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:82564
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    Cited by:

    1. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).

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    More about this item

    Keywords

    self-regulation; emission intensity; emission cap; monopoly; zero-emission;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • 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

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