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Emissions leakage and subsidies for pollution abatement. Pay the polluter or the supplier of the remedy?

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Abstract

Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage. For most types of pollution, abatement technologies are available for firms to produce with lower emissions. However, the suppliers of those technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced technologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage.

Suggested Citation

  • Carolyn Fischer & Mads Greaker & Knut Einar Rosendahl, 2012. "Emissions leakage and subsidies for pollution abatement. Pay the polluter or the supplier of the remedy?," Discussion Papers 708, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:708
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    Cited by:

    1. Paolo GARELLA & Maria Teresa TRENTINAGLIA DE DAVERIO, 2015. "Carbon Tax, Emission Permits, and Carbon Leak under Price Competition," Departmental Working Papers 2015-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

    More about this item

    Keywords

    Emissions leakage; Abatement subsidies; Upstream technology market;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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