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Alternate solutions in mixing energy tax/subsidy and emission control policies

Author

Listed:
  • Shahriar Shah Heydari

    (Department of Environmental and Business Economics, University of Southern Denmark)

  • Niels Vestergaard

    (Department of Environmental and Business Economics, University of Southern Denmark)

Abstract

In this article, we look at the combination of several market-based climate and energy policies and compare them with first best solution, i.e., a perfectly designed emission tax or emission cap level. It is shown that in the case an emission control policy is imperfect designed or implemented, its per-formance can be improved by an energy (output) tax/subsidy scheme, where the subsidy is given only to renewable generators or for energy efficiency improvements. This combination can bring the production levels and energy price to the optimum level. The emission level is also decreased by this combination, but not to the optimum level. Thus it may be considered as a second-best policy set. However, other targets on renewables share or energy efficiency level are improved instead, although they are bounded by an optimum level. The policy combination needs to be applied glob-ally to have its best effect and heterogeneous implementation (i.e. different levels of tax/subsidy for various regions) makes welfare loss, but still adding a global emission control policy to a set of ex-isting different local output tax/subsidy policies may be beneficial.

Suggested Citation

  • Shahriar Shah Heydari & Niels Vestergaard, 2015. "Alternate solutions in mixing energy tax/subsidy and emission control policies," Working Papers 119/15, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    • Handle: RePEc:sdk:wpaper:119
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    References listed on IDEAS

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    More about this item

    Keywords

    Climate change mitigation; environmental policy; instrument mixes; economic ef-ficiency; environmental taxes and subsidies;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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