 Within-country leakage due to the exemption of small emitters from emissions pricingJournal of Environmental Economics and Management, 2024, vol. 124, issue C Abstract: I show how the exemption of small-scale emitting firms from emissions pricing results in within-country emissions leakage — an emissions price increase for the regulated firms prompts an increase in the emissions of the unregulated. I use a heterogeneous firm model in which a fixed share of firms is subject to emissions pricing. The firms at the lower part of the productivity distribution benefit from being exempted, such that the higher the emissions price, the more and dirtier firms can survive in the domestic market. Leakage is stronger if firms are exempted only if they emit less than a fixed threshold (as for the EU Emission Trading System) because some firms strategically bunch below the threshold, making the emissions price an even weaker tool to reduce total emissions. In environments with low social costs of emission or high fixed regulatory costs, an exemption may be justified; over time, however, the criteria for exemptions should be adjusted accordingly. Keywords: Asymmetric emissions pricing; Emissions leakage; Heterogeneous firms; Monopolistic competition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:124:y:2024:i:c:s009506962400007x DOI: 10.1016/j.jeem.2024.102933 Access Statistics for this article Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates More articles in Journal of Environmental Economics and Management from Elsevier |
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