Environmental Protection, Public Finance Requirements and the Timing of Emission Reductions
The effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firm's profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework, we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare and also equivalent to emission standards when the regulator redistributes revenues.
|Date of creation:||Dec 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.rcfea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Juan-Pablo Montero, 2002.
"Market Structure and Environmental Innovation,"
Documentos de Trabajo
215, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Margaret Insley, 2003.
"On the option to invest in pollution control under a regime of tradable emissions allowances,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 36(4), pages 860-883, November.
- Margaret Insley, 2002. "On the option to invest in pollution control under a regime of tradable emissions allowances," Working Papers 02008, University of Waterloo, Department of Economics, revised Jan 2002.
- Elettra Agliardi & Luigi Sereno, 2011.
"The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty,"
2011/109, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
- Agliardi, Elettra & Sereno, Luigi, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty," Economic Modelling, Elsevier, vol. 28(6), pages 2793-2802.
- E. Agliardi & L. Sereno, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty," Working Papers wp725, Dipartimento Scienze Economiche, Universita' di Bologna.
- van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, vol. 27(3), pages 235-247, October.
- Wirl, Franz, 2006. "Consequences of irreversibilities on optimal intertemporal CO2 emission policies under uncertainty," Resource and Energy Economics, Elsevier, vol. 28(2), pages 105-123, May.
- Pindyck, Robert S., 2000.
"Irreversibilities and the timing of environmental policy,"
Resource and Energy Economics,
Elsevier, vol. 22(3), pages 233-259, July.
- Pindyck, Robert S., 1998. "Irreversibilities and the timing of environmental policy," Working papers WP 4047-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
- Coria, Jessica, 2008.
"Taxes, Permits, and the Diffusions of a New Technology,"
dp-08-26-efd, Resources For the Future.
- Coria, Jessica, 2009. "Taxes, permits, and the diffusion of a new technology," Resource and Energy Economics, Elsevier, vol. 31(4), pages 249-271, November.
- Jon M. Conrad, 1997. "Global Warming: When to Bite the Bullet," Land Economics, University of Wisconsin Press, vol. 73(2), pages 164-173.
- Conrad, Jon M., 2000. "Wilderness: options to preserve, extract, or develop," Resource and Energy Economics, Elsevier, vol. 22(3), pages 205-219, July.
- Anastasios Xepapadeas, 1999.
"Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions Under Uncertainty and Irreversibility,"
NBER Technical Working Papers
0243, National Bureau of Economic Research, Inc.
- Anastasios Xepapadeas, 2001. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 281-308 National Bureau of Economic Research, Inc.
- Balikcioglu, Metin & Fackler, Paul L. & Pindyck, Robert S., 2011. "Solving optimal timing problems in environmental economics," Resource and Energy Economics, Elsevier, vol. 33(3), pages 761-768, September.
- Atsuyuki Ohyama & Motoh Tsujimura, 2006. "Political Measures for Strategic Environmental Policy with External Effects," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 35(2), pages 109-135, October.
- Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
- Saltari, Enrico & Travaglini, Giuseppe, 2011. "The effects of environmental policies on the abatement investment decisions of a green firm," Resource and Energy Economics, Elsevier, vol. 33(3), pages 666-685, September.
When requesting a correction, please mention this item's handle: RePEc:rim:rimwps:53_11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dimitrios Vortelinos)
If references are entirely missing, you can add them using this form.