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Is There a Rationale for Rebating Environmental Levies?

Author

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  • Fischer, Carolyn

    () (Resources for the Future)

  • Bernard, Alain
  • Vielle, Marc

Abstract

Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an “unlevel playing field” with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector. It combines a theoretical approach based on second-best modeling with numerical simulations aimed at determining the most sensitive parameters. We find that if an adequate tax on production can be levied in the unregulated sector, no rebate is justified for the regulated sector. Moreover, even in the case of constrained taxation in the unregulated sector, a tax rebate or a subsidy in the regulated sector is not necessarily a welfare-increasing policy. The exception occurs when the goods of the competing sectors are close substitutes. We find that these kinds of policy contraints can be quite costly in terms of welfare.

Suggested Citation

  • Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-01-31-
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-01-31.pdf
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    References listed on IDEAS

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    1. Sterner, Thomas & Hoglund, Lena, 2000. "Output-Based Refunding of Emission Payments: Theory, Distribution of Costs, and International Experience," Discussion Papers dp-00-29, Resources For the Future.
    2. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
    3. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Cremer, Helmuth & Gahvari, Firouz, 2001. "Second-best taxation of emissions and polluting goods," Journal of Public Economics, Elsevier, vol. 80(2), pages 169-197, May.
    5. Bradford, David F & Rosen, Harvey S, 1976. "The Optimal Taxation of Commodities and Income," American Economic Review, American Economic Association, vol. 66(2), pages 94-101, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
    2. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    3. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
    4. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    5. Fischer, Carolyn & Hoffmann, Sandra & Yoshino , Yutaka, 2002. "Multilateral Trade Agreements and Market-Based Environmental Policies," Discussion Papers dp-02-28, Resources For the Future.
    6. Dissou, Yazid, 2005. "Cost-effectiveness of the performance standard system to reduce CO2 emissions in Canada: a general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 27(3), pages 187-207, October.
    7. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," Discussion Papers dp-04-37, Resources For the Future.
    8. Fischer, Carolyn, 2004. "Are Absolute Emissions Better for Modeling? It's All Relative," Discussion Papers dp-04-14, Resources For the Future.
    9. Carolyn Fischer, 2003. "Combining rate-based and cap-and-trade emissions policies," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 89-103, December.
    10. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," Discussion Papers dp-02-60, Resources For the Future.

    More about this item

    Keywords

    environmental levy; tax rebate; fiscal distortions;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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