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Refunding Emissions Taxes: The Case For A Three-Part Policy

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  • Bontems, Philippe

Abstract

This paper examines theoretically whether by combining both output based refunding and abatement expenditures based refunding it is possible to limit the negative consequences that a pollution tax imply for a polluting industry. We actually show that this is indeed the case by using such a three-part policy where emissions are subject to a fee and where output and abatement expenditures are subsidized. In particular, when the industry is homogenous, it is possible to replicate the standard emission tax outcome by inducing a polluting firm to choose the production and emission levels obtained under any emission tax, without departing from budget balance. By construction, any polluter earns strictly more than under the standard tax alone without rebate, making this proposal highly acceptable to the industry. When firms are heterogenous, the refunding policy needed to replicate the standard emission tax outcome is personalized in the sense that at least the out- put subsidy should be type dependent. Another result is that this three-part policy is strictly prefered only from the industry's point of view to a standard environmental tax. We also explore the implications of uniform three-part re- funding policies for a heterogenous industry.

Suggested Citation

  • Bontems, Philippe, 2017. "Refunding Emissions Taxes: The Case For A Three-Part Policy," TSE Working Papers 17-832, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:31916
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    File URL: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_832.pdf
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    References listed on IDEAS

    as
    1. Macho-Stadler, Ines & Perez-Castrillo, David, 2006. "Optimal enforcement policy and firms' emissions and compliance with environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 110-131, January.
    2. Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
    3. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
    4. 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.
    5. Bontems, Philippe & Bourgeon, Jean-Marc, 2005. "Optimal environmental taxation and enforcement policy," European Economic Review, Elsevier, vol. 49(2), pages 409-435, February.
    6. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
    7. Bonilla, Jorge & Coria, Jessica & Mohlin, Kristina & Sterner, Thomas, 2015. "Refunded emission payments and diffusion of NOx abatement technologies in Sweden," Ecological Economics, Elsevier, vol. 116(C), pages 132-145.
    8. Hagem, Cathrine & Hoel, Michael & Holtsmark, Bjart & Sterner, Thomas, 2015. "Refunding Emissions Payments," Discussion Papers dp-15-05, Resources For the Future.
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    More about this item

    Keywords

    refunded emission taxes; regulation design; pollution;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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