Mechanism design for refunding emissions payment
We analyze two mechanism designs for refunding emission payments to polluting firms; Output Based (OB) and Expenditure Based (EB) refunding. In both instruments, emissions fees are returned to the polluting industry, possibly making the policy more easily accepted by policymakers than a standard tax. The crucial difference between OB and EB is that the fees are refunded in proportion to output in the former, but in proportion to the firms' expenditure on abatement equipment in the latter. We show that to achieve a given abatement target, the fee level in the OB design exceeds the standard tax rate, whereas the fee level in the EB design is lower. Furthermore, the use of OB and EB refunding may lead to large differences in the distribution of costs across firms. Both designs do, strictly speaking, imply a cost-ineffective provision of abatement as firms put relatively too much effort into reducing emissions through abatement technology compared with emission reductions through reduced output. However, this may be seen as an advantage by policymakers if they seek to avoid activity reduction in the regulated sector. We provide some numerical illustrations based on abatement cost information from the Norwegian NOx fund.
|Date of creation:||Sep 2012|
|Date of revision:|
|Contact details of provider:|| Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway|
Phone: (+47) 21 09 00 00
Fax: +47 - 62 88 55 95
Web page: http://www.ssb.no/en/
More information through EDIRC
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.:
- Edwards, T. Huw. & Hutton, John P., 2001. "Allocation of carbon permits within a country: a general equilibrium analysis of the United Kingdom," Energy Economics, Elsevier, vol. 23(4), pages 371-386, July.
- Löschel, Andreas & Moslener, Ulf & Rübbelke, Dirk T.G., 2010. "Indicators of energy security in industrialised countries," Energy Policy, Elsevier, vol. 38(4), pages 1665-1671, April.
- Katrin Millock & Céline Nauges & Thomas Sterner, 2004. "Environmental Taxes: A Comparison of French and Swedish Experience from Taxes on Industrial Air Pollution," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(1), pages 30-34, 04.
- Fredriksson, Per G. & Sterner, Thomas, 2005.
"The political economy of refunded emissions payment programs,"
Elsevier, vol. 87(1), pages 113-119, April.
- Fredriksson, Per G. & Sterner, Thomas, 2004. "The Political Economy of Refunded Emissions Payment Programs," Working Papers in Economics 147, University of Gothenburg, Department of Economics.
- 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.
- Fischer, Carolyn, 2003. "Market Power and Output-Based Refunding of Environmental Policy Revenues," Discussion Papers dp-03-27, Resources For the Future.
- Baumol,William J. & Oates,Wallace E., 1988.
"The Theory of Environmental Policy,"
Cambridge University Press, number 9780521311120, December.
- Hoel, Michael, 1991.
"Global environmental problems: The effects of unilateral actions taken by one country,"
Journal of Environmental Economics and Management,
Elsevier, vol. 20(1), pages 55-70, January.
- Hoel, M., 1989. "Global Environmental Problems: The Effects Of Unilateral Actions Taken By One Country," Memorandum 11/1989, Oslo University, Department of Economics.
- Walls, Margaret & Palmer, Karen, 2001.
"Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies,"
Journal of Environmental Economics and Management,
Elsevier, vol. 41(1), pages 94-108, January.
- Palmer, Karen & Walls, Margaret, 2000. "Upstream Pollution, Downstream Waste Disposal, and the Design of Comprehensive Environmental Policies," Discussion Papers dp-97-51-rev, Resources For the Future.
- Sterner, Thomas & Hoglund Isaksson, Lena, 2006. "Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement," Ecological Economics, Elsevier, vol. 57(1), pages 93-106, April.
- Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
- Kallbekken, Steffen & Kroll, Stephan & Cherry, Todd L., 2011. "Do you not like Pigou, or do you not understand him? Tax aversion and revenue recycling in the lab," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 53-64, July.
- Susumu Cato, 2010. "Emission Taxes and Optimal Refunding Schemes with Endogenous Market Structure," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(3), pages 275-280, July.
- Isaksson, Lena Hoglund, 2005. "Abatement costs in response to the Swedish charge on nitrogen oxide emissions," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 102-120, July.
- Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
- Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
- Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
- Sterner, Thomas & Turnheim, Bruno, 2009. "Innovation and diffusion of environmental technology: Industrial NOx abatement in Sweden under refunded emission payments," Ecological Economics, Elsevier, vol. 68(12), pages 2996-3006, October.
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:705. 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: (L MaasÃ¸)
If references are entirely missing, you can add them using this form.