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Taxes, Permits, and the Adoptation of Abatement Technology under Imperfect Compliance

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  • Villegas, Clara
  • Coria, Jessica

Abstract

This paper analyzes the effects of the choice between price-based and quantity-based emissions regulations on compliance incentives and social welfare in the presence of incomplete enforcement and technology adoption. We show that if the regulator does not adjust the level of the policies in response to the advent of the new technology, the extent of violations under tradable emissions permits (TEPs)—in contrast to taxes—decreases with the rate of technology adoption. However, in terms of welfare, the ranking of the instruments is not so straightforward: taxes may induce lower emissions damages, while TEPs induce lower abatement, investment, and expected enforcement costs. Therefore, the overall ranking depends on the extent to which these effects offset each other.

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  • Villegas, Clara & Coria, Jessica, 2009. "Taxes, Permits, and the Adoptation of Abatement Technology under Imperfect Compliance," RFF Working Paper Series dp-09-20-efd, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-09-20-efd
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    Cited by:

    1. Coria, Jessica & Villegas-Palacio, Clara, 2010. "Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes," Working Papers in Economics 455, University of Gothenburg, Department of Economics.
    2. Carmen Arguedas & Eva Camacho & José Zofío, 2010. "Environmental Policy Instruments: Technology Adoption Incentives with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(2), pages 261-274, October.
    3. Wugan Cai & Peiyun Ye, 2022. "Local-neighborhood effects of different environmental regulations on green innovation: evidence from prefecture level cities of China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(4), pages 4810-4834, April.

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    More about this item

    Keywords

    technological adoption; environmental policy; imperfect compliance; enforcement; social welfare;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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