Emission Cap Commitment versus Emission Intensity Commitment as Self-Regulation

Kosuke Hirose and Toshihiro Matsumura

MPRA Paper from University Library of Munich, Germany

Abstract: We compare emission cap commitment that restricts total emissions and emission intensity commitment that restricts emissions per unit of output as measures of self-regulation. The monopolist chooses either emission cap commitment or emission intensity commitment and sets the target level under the constraint that the resulting emissions do not exceed the upper limit. We find that profit-maximizing firms choose emission cap commitment, although emission intensity commitment always yields greater consumer surplus. It is ambiguous whether emission intensity commitment or emission cap commitment yields greater welfare. We present two cases in which emission intensity commitment yields greater welfare. One is the most stringent target case (the target emission level is close to zero), and the other is the weakest target case (the target emission level is close to business-as-usual). Our result suggests that the incentive for adopting emission cap commitment is too large for profit-maximizing firms, and thus, governments should encourage the adoption of emission intensity commitment, especially to achieve a zero-emission society efficiently.

Keywords: self-regulation; emission intensity; emission cap; monopoly; zero-emission (search for similar items in EconPapers)
JEL-codes: L12 L51 Q52 (search for similar items in EconPapers)
Date: 2017-11-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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